American Antitrust Institute
Promoting competition that protects consumers, businesses, and society.
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On February 8, 2017, the American Antitrust Institute (AAI) held its first International Antitrust Roundtable entitled Critical Issues in Global Antitrust: Comity, Intellectual Property, and Due Process. AAI staff prepared a report summarizing highlights of the interactive, full-day program, where experts from around the world convened to discuss important legal, economic, and political developments affecting international competition policy. To download the report, click here.
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The American Antitrust Institute (AAI) filed an amicus brief in the Eleventh Circuit Court of Appeals urging the court to affirm that price-fixing overcharges on fees may not be offset by purported savings on other elements of service.
The case involves a class action alleging that Delta and AirTran’s adoption of a $15 first-bag fee in December 2008 was the product of a price-fixing conspiracy. The airlines appealed the district court’s class certification order on several grounds, including the theory that the that the district court should have considered evidence that the adoption of bag fees resulted in lower base fares. The airlines argued that if base-fare savings were accounted for, some members of the class who paid first-bag fees benefited from or were uninjured by the alleged conspiracy, particularly if a passenger usually did not check bags.
The district court held that the purported base-fare savings, which plaintiffs’ contested, was irrelevant to determining damages and in any event did not detract from a passenger’s injury when he or she paid a bag fee. The AAI’s brief agrees.
The amicus brief argues that an overcharge on fees should not be offset by base-fare savings for the same policy reasons that Hanover Shoe bars a passing on defense. Allowing offsets would undermine already insufficient levels of deterrence of price fixing and unduly complicate price-fixing litigation.
The brief points out that deterrence is insufficient in part because overcharge damages themselves do not take into account of all harms from price fixing. For example in this case passengers who choose not to check their bags in order to save the first-bag will suffer the inconvenience of having to carry on their bags but will not be able recover damages. Likewise, passengers will not be able to recover for the degraded quality of the flying experience resulting from the increased amount of carry-on baggage.
The brief also argues that common-law damages principles support the district court’s offset ruling and that class certification can be appropriate even when some members of the class are not injured.
While the court of appeals is hearing the class-certification appeal, the district court is considering defendants’ motion for summary judgment on the merits of the price-fixing conspiracy claim.
The brief was written by AAI Vice President and General Counsel Richard Brunell, with assistance from AAI Associate General Counsel Randy Stutz and AAI Research Fellows Mike Altebrando and Mark Angland. Scott Perwin of the Kenny Nachwalter law firm served as local counsel.
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The American Antitrust Institute (AAI) filed an amicus brief with a group of leading intellectual property law professors urging the Supreme Court to reverse a Federal Circuit Court of Appeals decision that sharply restricts the patent exhaustion doctrine.
The patent exhaustion, or “first sale,” doctrine provides that the authorized sale of a patented product exhausts the patent holder’s patent rights, and prohibits suits against downstream users for patent infringement.
In the case at hand, the district court held that the patent exhaustion doctrine prevented Lexmark, a printer manufacturer, from bringing patent infringement actions against a cartridge remanufacturer for reusing Lexmark toner cartridges obtained from consumers in violation of Lexmark’s “single use” notice. At the same time, the district court held that patent exhaustion did not apply to Lexmark toner cartridges first sold abroad.
In an en banc decision, the Federal Circuit reversed and reaffirmed its prior decisions holding that the exhaustion doctrine does not apply to “conditional” sales; nor is it triggered when the first authorized sale is outside the United States. The amicus brief argues that Federal Circuit ruling is inconsistent with recent Supreme Court precedent and threatens to undermine the competitive benefits that the exhaustion doctrine promotes. In particular, the brief maintains that the “conditional sale” doctrine not only clogs commerce in patented products, but permits manufacturers to sue consumers for willful patent infringement for violating conditions printed on a product package.
The AAI had joined with the professors to file a brief in the Federal Circuit urging the court to uphold the district court’s decision and a brief in the Supreme Court urging the Court to grant certiorari. It has long recognized the important role the exhaustion doctrine plays in facilitating competition in product markets driven by intellectual property, including aftermarkets. In 2007, the AAI filed a successful brief in the Supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc. urging the Court to reaffirm a robust application of the doctrine.
The brief was written by Phil Malone and Jef Pearlman of the Stanford Law School intellectual property and innovation clinic.
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The American Antitrust Institute’s statement “A National Competition Policy: Unpacking the Problem of Declining Competition and Setting Priorities Moving Forward” resets the debate over the importance of antitrust enforcement and competition policy in the United States.
President Obama’s April 2016 Executive Order highlighting concerns over declining competition was a “call to arms” and a reminder that competition is a political issue that the next administration must address.
The AAI’s National Competition Policy statement leverages the consciousness-raising intent of the Executive Order and unpacks the increasingly high-profile problems that are symptomatic of declining competition, including rising concentration, declining rates of market entry, and growing inequality.
The statement suggests three core principles for a National Competition Policy and sets out seven priorities that should guide the new approach. The AAI’s priorities range from facilitating more aggressive and consistent enforcement to revitalizing the tools available to antitrust enforcers. The AAI also notes the importance of preserving the vital role of private antitrust enforcement, recognizing new sources and abuses of market power, and ramping up antitrust penalties and remedies.
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As a new year and new administration begins, the American Antitrust Institute (AAI) reiterates key priorities for competition enforcement and policy. In September 2016, the AAI issued “A National Competition Policy: Unpacking the Problem of Declining Competition and Setting Priorities Moving Forward.” The statement resets the debate over the importance of antitrust enforcement and competition policy in the United States.
The National Competition Policy statement unpacks the increasingly high-profile problems that are symptomatic of declining competition, including rising concentration, declining rates of market entry, and growing inequality. It then suggests three core principles for a National Competition Policy, and sets out seven priorities that should guide the new approach.
President Obama’s April 2016 Executive Order highlighting concerns over declining competition was a “call to arms” and a reminder that competition is a political issue that the next administration must address. But little public commentary has effectively leveraged the apparent consciousness-raising intent of the Executive Order.
“The AAI is taking the next steps,” said Moss. “The value of a National Competition Policy is to chart a course forward by setting the major enforcement priorities for addressing declining competition. Probably the biggest priority – which is written into the subtext of the Executive Order – is simply to acknowledge that we need a National Competition Policy.”
AAI’s principles and priorities for a National Competition Policy come from the organization’s nearly two decades of research, education, and advocacy in competition enforcement and policy. Suggested priorities range from facilitating more aggressive and consistent enforcement to revitalizing the tools available to antitrust enforcers. The AAI also notes the importance of preserving the vital role of private antitrust enforcement, recognizing new sources and abuses of market power, and ramping up antitrust penalties and remedies.
The full National Competition Policy statement and appendix can be downloaded here. The AAI’s 2016 Presidential Transition Report on Competition Policy, which contains more detailed recommendations for specific areas of competition enforcement, can be found here.
Contact:
Diana Moss, President, American Antitrust Institute
(202) 536-3408
dmoss@antitrustinstitute.org
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The American Antitrust Institute (AAI) filed comments in response to a request by the Antitrust Division (DOJ) and the Federal Trade Commission (FTC) for public comment on proposed revisions to the agencies’ guidelines for international enforcement and cooperation.
The AAI’s comments are broadly supportive of the agencies’ proposed update. However, the comments make suggestions to improve the guidelines in several areas, particularly relating to the interpretation of the Foreign Trade Antitrust Improvements Act (FTAIA). The FTAIA, enacted in 1982, governs the application of the antitrust laws to foreign trade.
Among its key recommendations, the AAI emphasizes that the FTAIA’s exclusion of import commerce, which leaves the Sherman Act fully applicable to foreign conduct involving import trade or commerce, should be interpreted broadly to include instances where the foreign price fixer intends that the price-fixed products will be imported into the United States, even if the product is first sold abroad.
The AAI’s comments also argue that the FTAIA should be interpreted to allow victims of international cartels to recover under the Sherman Act when they purchase price-fixed component parts abroad that are assembled into finished end-products sold in the United States, notwithstanding a recent Seventh Circuit decision to the contrary.
The AAI also stresses that, if direct purchasers are barred by the FTAIA, it is critical to the Clayton Act’s deterrence and compensation goals that indirect purchasers be permitted to redress harm to U.S. commerce caused by international cartels. Moreover, in criminal cases, the DOJ should honor its existing policy of requiring leniency applicants to make restitution to victims in connection with the harm to U.S. commerce.
The comments were written by AAI Vice President and General Counsel Richard Brunell and AAI Associate General Counsel Randy Stutz.
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In comments to the Federal Energy Regulatory Commission in Docket RM16-21, the AAI offered suggestions on how the Commission can update and improve its analysis of competitive issues in electric utility merger applications and requests for market-based rate authority.
The comments note that the Commission’s approach would benefit from a conformed approach across the two areas of jurisdiction and recommends modifications to the current approach. The AAI comments address issues ranging from the types of tests required by the Commission to screen for competitive concerns and analyze competitive effects, capacity measures used in calculating market shares, minimizing the use of safe harbors and blanket authorizations, to the importance of requiring applicants to file analyses with FERC that are provided to the antitrust agencies.
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The Report on Antitrust and Entrepreneurship is a part of an American Antitrust Institute (AAI) project, made possible by a grant from the Ewing Marion Kauffman Foundation. The project kicked off at the beginning of 2015. The first major milestone was in June of 2015, with the Invitational Symposium Antitrust and Entrepreneurship: A Multidisciplinary Perspective. The second milestone was the publication of the Symposium Issue of the Antitrust Bulletin in December 2016.
The AAI’s focus on antitrust and entrepreneurship is motivated by the importance of entrepreneurial activity for competition and economic growth. Recent research documents the slowing pace of entry into the economy by new firms and the increasing rate of failure of many early-stage firms. There are growing indications that these outcomes may be linked to growing consolidation but theoretical and practical limitations inherent to existing antitrust analysis tend to systemically undervalue entrepreneurial activity.
The special issue of the Antitrust Bulletin includes seven articles and six comments that take up key questions concerning the relationship between antitrust and entrepreneurship. The papers examine the important relationship between entrepreneurial activity and competition policy and enforcement that is key to an economy that revolves around job creation, investment, equality, innovation, higher living standards, consumer benefits, and the long-term vibrancy of the economy.
Authors and commenters examine a variety of issues and questions. These include the risk-taking, initiative, and entrepreneurial drive that make up the mindset of successful entrepreneurs; and the requisite competition enforcement environment that fosters the recognition and development of business opportunities that define the entrepreneurial process. Contributors to the report also examine aspects of entrepreneurial activity that challenge competition and economic growth.
View abstracts for the articles and comments below. PDFs of the complete chapters of Antitrust Bulletin 2016, Vol. 61(4) available for download.
Despite the importance of entrepreneurship to innovation and economic growth, measures of business startups and other indications of entrepreneurial activity remain below historic norms. Consequently, growing interest resides at the intersection of antitrust and entrepreneurship. This special issue of the Antitrust Bulletin examines the nature and importance of entrepreneurship to the economy, the challenges that entrepreneurial activity poses for antitrust policy and analysis, and solutions intended to address those challenges.
As an introduction to the discussion of entrepreneurship, innovation, and antitrust, this article defines key terms, particularly focusing on the relationship between the concepts of innovation and entrepreneurship. In the process, the author considers ways in which the antitrust laws may apply to each. Nearly all the key words were shown to have multiple meanings and usages, forcing us to be as explicit as possible in assigning varying roles for antitrust to varying meanings of entrepreneurship.
The relationship between law including competition policy and the goal of advancing innovation and entrepreneurship is complex. Bert Foer’s chapter identifies the many ways that competition law and policy directly and indirectly can affect positively or negatively the advancement of that goal. The comment seeks to highlight that range and complexity by using the categories from the traditional I-O Paradigm to show where and how antitrust law and policies it seeks to advance can be used to shape the conditions, structure, and conduct in markets to facilitate outcomes that will advance the public interest in innovation and entrepreneurship.
Small businesses have declined sharply in both numbers and market share across many sectors of the economy. There is evidence that this decline is owed in part to anticompetitive behavior by dominant firms, which have used their market power to disadvantage smaller competitors and exclude new entrants. These abuses have gone unchecked because of changes in the ideological framework guiding antitrust enforcement. About thirty-five years ago, policy makers came to view maximizing efficiency, rather than maintaining fair and open markets for all competitors, as the paramount goal of antitrust. There are at least three reasons to bring a commitment to small businesses and fair markets back into antitrust policy: small businesses deliver distinct consumer benefits, contribute to a more equitable distribution of income and opportunity, and safeguard democracy.
Stacy Mitchell’s View from the Shop—Antitrust and the Decline of America’s Independent Small Business is the latest contribution in a string of recent articles and reports calling for a renewal in antitrust policy.
This article examines entrepreneurial activity and its implication for policy and antitrust law from a behavioral perspective. In particular, the analysis here focuses on the role of two sets of behavioral phenomena—overconfident beliefs and risk-seeking preferences—in facilitating boundedly rational entrepreneurship. Boundedly rational entrepreneurs may engage in entrepreneurial activity, such as the starting of new business ventures, under circumstances in which rational entrepreneurs would decline to do so. Consequently, overconfident or risk-seeking entrants compete with their more rational counterparts and create a post-entry landscape that differs markedly from the picture assumed by traditional economic accounts of entrepreneurial activity. The behaviorally informed analysis of entry sheds new light on the dynamics of competition among entrepreneurs and on its implications for policy and antitrust law.
In the article Boundedly Rational Entrepreneurs and Antitrust, Professor Tor provides an excellent overview of the effects of bounded rationality on the behavior of entrepreneurs in the marketplace. In this short note, I offer some observations on the article. In particular, it suggests several additional parameters that might be worth exploring before we can reach a conclusion about the role that bounded rationality plays in economically irrational entry decisions. It also suggests some factors that should be weighed before determining whether irrational entry is socially harmful. Finally, the note provides several observations with regard to regulation, including the effects of algorithmic applications on bounded rationality decisions by entrepreneurs.
Although the importance of entrepreneurship is evident and interest continues to grow, high-growth ventures tend to be featured because they produce a significant amount of job and wealth creation in the United States. Some have argued that the focus of public policy should be on these ventures, while others argue for a more diverse approach to effective public policy and entrepreneurship. This article offers a “portfolio approach” to public policy that focuses on the types of entrepreneurial ventures that demonstrate the epitome of competition and provide the greatest societal value. The types of ventures may be classified in terms of size (microenterprise, small/lifestyle, medium size, and gazelle) and growth rate (low, managed, or fast growth). Each type has different needs and makes unique contributions to the economic vitality and value of society.
Entrepreneurial activity leads to the development and exploitation of new ways to do business, which in turn promotes competition either as a firm enters a market where there are other existing firms, or when it creates a new way (substitute) to meet the needs of its customers. This essay discusses indirect outcomes associated with these entrepreneurial activities, specifically in the form of knowledge spillovers, economic renewal, consumer surplus, and social value creation. In sum, entrepreneurship and the competition it engenders can create direct and indirect benefits to the entrepreneurs themselves, prospective employees, consumers, competitors, and localities and governments. Further, this essay notes that while most efforts to encourage entrepreneurial activity focuses on formal policy levers such as financial investment, public support programs, and tax and regulatory policy, it is also important to consider informal institutions and how they inhibit or encourage such activity.
This article uses a comparison of the generic features of natural ecosystems and the popular use of the term “entrepreneurship ecosystems” and identifies five mistakes in the way the ecosystem metaphor is applied from the natural sciences: the creation mistake, the centralized control mistake, the geography mistake, the intention mistake, and the entrepreneur-centrality mistake.
The impetus for understanding where novelty comes from in the environment is clear. Entrepreneurs create new jobs for themselves, new offerings for customers and broader economic and social benefits for society at large. The difficult part comes in understanding the source of this novelty well enough that it might be instrumented, managed and encouraged. The companion essay to this one (Applying the Ecosystem Metaphor to Entrepreneurship: Uses and Abuses) adopts a perspective that ecosystems create entrepreneurs, and thus effort need be applied to creating ecosystems. I reverse the causality. Arguing for the agency of creative entrepreneurs, I suggest a view of environments as outcomes, and entrepreneurs as inputs. Building on this alternative perspective, it makes sense to direct effort toward creating entrepreneurs such that they might go on to create that broader slate of artifacts we so desire in the environment, including environments themselves.
Entrepreneurship is key to productivity growth, yet in recent decades new-firm formation has flagged. There is some evidence that business concentration may be a contributing cause. Well-designed antitrust enforcement policy, especially aimed at policing abuse of market power by dominant platforms, will be crucial to preserving opportunities for new entrants, especially in technology sectors. But antitrust procedures should also be updated to speed up decisions so that legal outcomes are not completely outpaced by technology.
Antitrust enforcement can promote entrepreneurship by creating an economic environment that is more suitable to market entry by start-up firms that challenge existing business models. Several reforms for improving antitrust enforcement would be desirable. First, antitrust enforcement can be procedurally mainstreamed. Second, merger review can be more aggressive. Third, rules about FRAND licensing can be clarified and implemented more predictably. This article analyzes these proposals and makes other recommendation for improving antitrust scrutiny of markets.
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On November 7, the Supreme Court declined to review the Third Circuit’s holding in SmithKline Beecham Corp. v. King Drug Co. of Florence, Inc. that a brand drug’s promise to refrain from selling an “authorized generic” could constitute an unlawful payment in exchange for the generic’s agreement to delay entry. Such “no-AG” promises are a common form of pay-for-delay agreements that substantially raise drug prices. In an amicus brief, the American Antitrust Institute (AAI) had urged the Third Circuit to reject the district court’s holding that a reverse payment was not subject to antitrust scrutiny unless it included a cash payment.
The AAI argued in its amicus brief that the form of a payment does not change its anticompetitive effects. Launching an authorized generic can cut the generic competitor’s profits in half, and agreeing not to do so is functionally equivalent to promising the generic company a large cash payment. The fact that the payment is made as a promise not to compete, instead of cash compensation, does not change the analysis of the anticompetitive effects the delayed entry causes. Indeed, the reciprocal exchange of non-compete promises is arguably worse than an ordinary reverse payment agreement for cash. The Third Circuit agreed with the AAI in an opinion that can be found here.
GlaxoSmithKline and Teva then sought Supreme Court review on the theory that a no-AG promise is equivalent to an “exclusive license,” which is expressly protected by the Patent Act. When the Supreme Court asked for the views of the Solicitor General, the AAI wrote a letter in July urging the Solicitor General to oppose certiorari.
Among other things, the AAI argued that a no-AG reverse payment agreement is no ordinary exclusive license. Rather it involves a potential competitor who, in exchange for an exclusive license, agrees to delay competing against the patentee. “Asking the Supreme Court to grant review of the propriety of a patentee granting an exclusive license, divorced from these two key aspects of the agreement,” the AAI wrote, “is like asking the Court to review the propriety of swinging a bat, isolated from the integral facts that the swinger was in a brawl and smashed the bat into the victim’s head.”
The Solicitor General filed an amicus brief arguing that the Third Circuit was correct and that there was no basis for certiorari. In fact, both circuits to consider the question (the First and Third) agreed that no-AG agreements could constitute reverse payments, as has every district court outside of those circuits.
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Today the American Antitrust Institute (AAI) filed an amicus brief asking the Supreme Court to reject a legal theory pursued by Visa and MasterCard and three of their largest member banks. If accepted, the credit card issuers’ reasoning could immunize large swaths of anticompetitive conduct by joint ventures and other collaborations among competitors.
The case before the Court involves a challenge to Visa’s and MasterCard’s ATM network rules. The rules prohibit banks and other ATM operators that participate in the networks from charging discounted ATM access fees at “foreign” ATMs when ATM transactions are routed through other, less expensive ATM networks. Foreign ATMs are those not belonging to the customer’s bank. The rules were adopted by the boards of Visa and MasterCard when they were controlled by member banks.
The plaintiffs are classes of consumers and independent ATM operators. They argue that if the banks and other ATM operators were not bound by the rules at issue in the case, competition would be more vigorous on a number of dimensions. For example, ATM operators would compete to offer lower ATM fees to consumers with access to cheaper networks on their debit cards. Banks would also compete to issue debit cards giving consumers such access. And Visa and MasterCard would be forced by the competition to lower their network fees to ATM operators.
Both the district court and the D.C. Circuit upheld the complaints as sufficient to state a claim under Section 1 of the Sherman Act, which requires both an agreement, or “concerted action,” and an unreasonable restraint of trade.
Defendants contend that the complaints are insufficient to allege an agreement among competing banks. They argue that it is at least as likely that the Visa and MasterCard boards adopted the rules to increase the profits of their respective ATM networks as it is that they did so to protect the banks from competition.
More broadly, defendants claim that there is no concerted action when competitors operating a joint venture restrict competition among themselves if they act in the interests of the venture as a whole, even if their purpose is to shield it from competition. If accepted, this reasoning would preclude claims of concerted action when, as in the case before the Court, a joint venture rule harms competition both in the markets in which the members compete and in which the joint venture competes as an entity.
In its brief, the AAI argues that the defendants’ legal theory, if accepted, would overturn the Supreme Court’s recent decision in American Needle v. NFL. That decision limited the “single entity” defense. According to the AAI, to establish concerted action under American Needle it is sufficient if the conduct at issue is undertaken at the direction of competitors with independent interests. Contrary to the contentions of Visa and MasterCard and the banks, the AAI maintains there is no additional requirement that a plaintiff prove the competitors acted on those independent interests, or acted exclusively on those interests.
The AAI also argues that defendants’ legal theory calls into question numerous cases in which courts have struck down restraints of joint ventures where the conduct was intended at least in part to benefit the venture or protect it from competition, including cases brought against Visa and MasterCard.
The brief was written by AAI Vice President and General Counsel Richard Brunell, with help from AAI Associate General Counsel Randy Stutz and AAI Research Fellows Michael Altebrando and Mark Angland. The brief is available here.
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