Download ppt - Columbia University Institute for Tele-Information - Competition Policy for the Cyber-World by Cliff Potter

Columbia Institute For Tele-Information Columbia Institute For Tele-Information

ProgramProgram Competition Policy Competition Policy For The Cyber-WorldFor The Cyber-World

Antitrust In The Cyber-Age:Should We Reconsider Basic

Principles?

R. Clifford PotterR. Clifford Potter

Chicago, Illinois 60606Chicago, Illinois 60606

R. Clifford Potter (Chicago) 2

An Important CaveatAn Important Caveat

The following views have not been approved or endorsed by our clients or my firm. I remain fully responsible for all errors, omissions and other mistakes, and for the expressed philosophies.


Another Important CaveatAnother Important Caveat

“The copies, the copies,” said I hurriedly. “We are going to examine them. There”—and I held towards him the fourth quadruplicate. (30) “I would prefer not to,” he said, and gently disappeared behind the screen. (31) “These are your own copies we are about to examine. It is labor saving to you, because one examination will answer for your four papers. It is common usage. Every copyist is bound to help examine his copy. Is it not so? Will you not speak? Answer!” (36) (Herman Melville, Bartlesby (G.P. Putnam 1853; numbers are paragraphs in original work))


Yet Another Important Yet Another Important CaveatCaveat

“For mankind is ever the same and nothing is lost out of nature, though everything is altered.” - John Dryden, Preface, Fables, Ancient And Modern


OverviewOverview

Cyber-world marketplaceCyber-world marketplace• Some personal observationsSome personal observations

Antitrust and IP yesterday and todayAntitrust and IP yesterday and today• Some considerations on where we have Some considerations on where we have

beenbeen Antitrust and IP tomorrowAntitrust and IP tomorrow

• Some personal views, including some Some personal views, including some new antitrust and IP graphsnew antitrust and IP graphs


The Cyber-Age The Cyber-Age Marketplace: Marketplace:

Growing Technological Growing Technological DiversityDiversity

• Consolidation Consolidation – Similar technologies mateSimilar technologies mate

• ConvergenceConvergence – Diverse technologies mateDiverse technologies mate

• ContractionContraction – Integration of technologies Integration of technologies

• ExpansionExpansion – New competing technologies emergeNew competing technologies emerge

• GrowthGrowth – Increasing numbers of products and usersIncreasing numbers of products and users

April 10, 2023 R. Clifford Potter, Freeborn & Peters (Chicago)

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The Cyber-Age The Cyber-Age Marketplace: Marketplace:

Some ExamplesSome Examples

• Hardware and software and chipsHardware and software and chips• Software consolidation, including Software consolidation, including

object-oriented programmingobject-oriented programming• Media, news, entertainment, Media, news, entertainment,

data/content and deliverydata/content and delivery• Multi-location interoperability, including Multi-location interoperability, including

home and office telecommunications home and office telecommunications and computerized systemsand computerized systems

• Internal and external development Internal and external development teams and expertiseteams and expertise


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The Cyber-World The Cyber-World Marketplace:Marketplace:

Some StatisticsSome Statistics Music (Wired Magazine (August 1999))Music (Wired Magazine (August 1999))

• 846 MM new CDs per year846 MM new CDs per year• 17 MM MP3 files per day17 MM MP3 files per day

ParticipantsParticipants• Varying numbers, but all astronomical Varying numbers, but all astronomical

in growthin growth E-CommerceE-Commerce

• Numbers increasing, with no Numbers increasing, with no foreseeable plateauforeseeable plateau


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The Cyber-World The Cyber-World Marketplace:Marketplace:

More StatisticsMore Statistics

Emerging Digital Economy (Commerce Dept 1998)

Rest of Economy

65%

Information Technology

35%


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Anticipating the 21st Century: Competition Policy Anticipating the 21st Century: Competition Policy in the New High-Tech, Global Marketplace, in the New High-Tech, Global Marketplace, Volume Volume I, I, FTC Staff Report, May 1996FTC Staff Report, May 1996

1. Competition in America has truly undergone 1. Competition in America has truly undergone a seismic shift. a seismic shift.

2. Geographic boundaries have declined. 2. Geographic boundaries have declined.

3. Firms continually look to what tomorrow’s 3. Firms continually look to what tomorrow’s technology may bring. technology may bring.

4. Competition is fueled by innovation, as well 4. Competition is fueled by innovation, as well as price.as price.

5. U.S. firms invest energy and resources to 5. U.S. firms invest energy and resources to remain on the cutting edge of technological remain on the cutting edge of technological developmentsdevelopments..


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These and Other Cyber-World These and Other Cyber-World Changes Affect Legal AnalysisChanges Affect Legal Analysis

Changes in power and function of intellectual Changes in power and function of intellectual property affect its competitive impactproperty affect its competitive impact

Changes in relationships of market participants Changes in relationships of market participants affect market power, and often increase affect market power, and often increase competitioncompetition

Expansion of geographic markets to regional and Expansion of geographic markets to regional and world markets increase competitionworld markets increase competition

Changes in product markets affect competitionChanges in product markets affect competition Competition regulation and IP rights grow Competition regulation and IP rights grow

without meaningful regulatory mechanisms or without meaningful regulatory mechanisms or regular examinationregular examination


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Basic Themes Being Basic Themes Being Addressed Today By Addressed Today By Courts and CongressCourts and Congress

Is antitrust appropriate for today’s world?Is antitrust appropriate for today’s world? How should antitrust be administered How should antitrust be administered

when IP is involved?when IP is involved? What can be done to enhance What can be done to enhance

competition?competition? What can be done to preserve What can be done to preserve

innovation?innovation? Do we provide IP protection to Do we provide IP protection to

monopolists?monopolists?


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Basic Considerations Basic Considerations When Considering When Considering

Competition Competition

Our world has become far more dependent Our world has become far more dependent on common technologies than in the past. on common technologies than in the past.

Efficiency requires control of technologies so Efficiency requires control of technologies so all can safely understand required all can safely understand required connections. connections.

This means that a universal Java standard, a This means that a universal Java standard, a universal Internet standard, and a universal universal Internet standard, and a universal interface are necessary in order to achieve interface are necessary in order to achieve efficiency.efficiency.

Tremendous incentives for innovation exist Tremendous incentives for innovation exist today. today.


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CompetitionCompetition

Small competitors can achieve great wealth Small competitors can achieve great wealth in the short run and create incredible in the short run and create incredible companies within years rather than companies within years rather than decades. decades.

Governments search for answers and fear Governments search for answers and fear that their steps may adversely affect that their steps may adversely affect everyone.everyone.

Intellectual property rights can have far Intellectual property rights can have far broader effects than in the past.broader effects than in the past.

Economic decisions are less certain than in Economic decisions are less certain than in the past.the past.


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Intellectual property rights often Intellectual property rights often concentrate power in the very few.concentrate power in the very few.

The technologies marketplace The technologies marketplace expands as the cost of production expands as the cost of production diminishes diminishes

The availability of capital has The availability of capital has seemingly never been greater. seemingly never been greater.


CompetitionCompetition


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Important QuestionsImportant Questions

Does greater IP interdependence mean Does greater IP interdependence mean intervention is required more often?intervention is required more often?

Are there greater incentives to Are there greater incentives to innovate in computer and innovate in computer and communications industries than in communications industries than in most other industries?most other industries?

When should intellectual property limit When should intellectual property limit competition and when should antitrust competition and when should antitrust limit intellectual property?limit intellectual property?


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Important Questions - 2Important Questions - 2

Should IP protection diminish as Should IP protection diminish as market shares increase?market shares increase?

What unlawful conduct is required What unlawful conduct is required before IP rights can be limited or before IP rights can be limited or eliminated?eliminated?

When should IP take precedence When should IP take precedence over antitrust?over antitrust?

What is a technology market, and What is a technology market, and how should it be assessed?how should it be assessed?


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Important Questions - 3Important Questions - 3

What is or should be the impact of What is or should be the impact of different IP rights in various different IP rights in various jurisdictions?jurisdictions?

Is most software licensing really Is most software licensing really the sale of product?the sale of product?

Do trade secrets still exist when Do trade secrets still exist when the secrets are in the hands of the secrets are in the hands of millions?millions?


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The Source of Tension: The Source of Tension: Intellectual Property Intellectual Property

ConceptsConcepts

““Congress shall have Power . . . To Congress shall have Power . . . To promote the Progress of Science and promote the Progress of Science and useful Arts, by securing for limited useful Arts, by securing for limited Times to Authors and Inventors the Times to Authors and Inventors the exclusive Right to their respective exclusive Right to their respective Writings and Discoveries.Writings and Discoveries. “ “

United States Constitution, Article I, Sec. United States Constitution, Article I, Sec. 8,8,


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The Source of Tension: The Source of Tension: Intellectual Property Intellectual Property

ConceptsConcepts

Owner’s Right To Exclude Owner’s Right To Exclude • Patents (generally)Patents (generally)• Trademarks (generally)Trademarks (generally)• Trade Dress (generally)Trade Dress (generally)

Owner’s Right To Prevent Copying Owner’s Right To Prevent Copying • CopyrightCopyright• Trade secrets, know-how and Trade secrets, know-how and

confidential informationconfidential information


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Antitrust Concepts: Antitrust Concepts: Counterpoints To IP RightsCounterpoints To IP Rights

MonopolyMonopoly• Ability to excludeAbility to exclude

Agreement in restraint of tradeAgreement in restraint of trade• Ability to limit useAbility to limit use

Unfair trade practicesUnfair trade practices• Ability to discriminateAbility to discriminate


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Intellectual Property Intellectual Property Conflicts With Competition Conflicts With Competition

LawsLaws

Intellectual property and competition Intellectual property and competition laws are always in conflict. laws are always in conflict.

As our society becomes increasingly As our society becomes increasingly dependent upon technology and dependent upon technology and scientific endeavors, tensions are scientific endeavors, tensions are increasing.increasing.

Absence of regulatory process for Absence of regulatory process for analyzing these laws , and international analyzing these laws , and international regulation of these laws, creates regulation of these laws, creates tensions.tensions.


23

Intellectual Property and Intellectual Property and Competition Law Competition Law

Future Philosophical Future Philosophical ConflictsConflicts

Competition laws Competition laws • Traditional theories either will be Traditional theories either will be

adjusted or will be eliminated or adjusted or will be eliminated or limited.limited.

Intellectual property Intellectual property • Traditional theories will be adjustedTraditional theories will be adjusted• Increasing dependence on technology Increasing dependence on technology

and scientific endeavors makes IP-A/T and scientific endeavors makes IP-A/T interface more critical than ever.interface more critical than ever.


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Antitrust Yesterday and Antitrust Yesterday and TodayToday

MonopoliesMonopolies• The pastThe past

– Size most important, then ignoredSize most important, then ignored– Few actions regarding IPFew actions regarding IP– Often unusual and exaggerated (e.g., Often unusual and exaggerated (e.g.,

SingerSinger))

• The presentThe present– Renewed interest in technology monopoliesRenewed interest in technology monopolies– Oligopolies seemingly of little interestOligopolies seemingly of little interest– Greater internationalizationGreater internationalization


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US Antitrust Law US Antitrust Law ObjectivesObjectives

Protection of the small competitor Protection of the small competitor (Robinson-Patman, FTC Act)(Robinson-Patman, FTC Act)

Protection of competition (Sherman Act, Protection of competition (Sherman Act, Clayton Act, FTC Act)Clayton Act, FTC Act)

Protection against unlawful acquisition Protection against unlawful acquisition or maintenance of monopoly power or maintenance of monopoly power (Sherman Act, Clayton Act, FTC Act)(Sherman Act, Clayton Act, FTC Act)

Protection of consumer (All)Protection of consumer (All) Internationalization, with greater Internationalization, with greater

uniformityuniformity


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US Antitrust TomorrowUS Antitrust Tomorrow

Questions concerning attacks on IPQuestions concerning attacks on IP• New interest in strength of IPNew interest in strength of IP

– Renewed attacks on certain IP rightsRenewed attacks on certain IP rights

Questions regarding rule of reasonQuestions regarding rule of reason• Movement toward Movement toward per seper se legal activities legal activities

– Possible elimination of rule of reasonPossible elimination of rule of reason

• Consideration of safety zone tests, with Consideration of safety zone tests, with similar results as those with DG IVsimilar results as those with DG IV

• Possible international treaties dealing with Possible international treaties dealing with competition issuescompetition issues


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Antitrust TomorrowAntitrust Tomorrow

International expansionInternational expansion• In 1999, thirty grand juries whose In 1999, thirty grand juries whose

subjects are alleged international cartelssubjects are alleged international cartels• In September 1999, US DOJ Civil Division In September 1999, US DOJ Civil Division

filed suit in the Tokyo High Court seeking filed suit in the Tokyo High Court seeking dmages from a company (Kyowa Exeo) dmages from a company (Kyowa Exeo) when the company refused to pay when the company refused to pay damages for a bid-rigging scheme damages for a bid-rigging scheme targeting US military communications targeting US military communications systems (Air Force contract)systems (Air Force contract)


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EU and Members’ Antitrust EU and Members’ Antitrust Law ObjectivesLaw Objectives

Facilitating trade within the Common MarketFacilitating trade within the Common Market Protection of trade among member states, rather Protection of trade among member states, rather

than just competitionthan just competition Protection against unlawful acquisition or Protection against unlawful acquisition or

maintenance of dominant position (somewhat like maintenance of dominant position (somewhat like monopoly position)monopoly position)

Protection of consumer, to a degreeProtection of consumer, to a degree Somewhat more latitude to determine social impactSomewhat more latitude to determine social impact Block and other exemptions, that find conduct Block and other exemptions, that find conduct

lawful, or questionable, with far more clear lawful, or questionable, with far more clear guidance than with USguidance than with US


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European CommunityEuropean Community

WHITE PAPER ON MODERNISATION OF THE RULES IMPLEMENTING ARTICLES 85 AND 86 OF THE EC TREATY (April 1999)• White papers are typically talking pieces, but

Commission usually has way in large part• Especially true here, where politics means that

would favor approach, and degree of interagency cooperation with major powers (US, Japan, EU countries, etc.) is so great

• Use of existing systems to remove antitrust issues from national jurisdictions as a tactic by respondents


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European CommunityEuropean Community

What this means if White Paper What this means if White Paper implemented:implemented:• Major move toward US approachMajor move toward US approach• Major reliance on individual countriesMajor reliance on individual countries• Too large task for DG IV (Competition Too large task for DG IV (Competition

Directorate) resources, so more enforcement Directorate) resources, so more enforcement activity likelyactivity likely

• More economic orientationMore economic orientation• Greater danger of criminal prosecutionsGreater danger of criminal prosecutions• More expenseMore expense


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Draft Graphical Interface Draft Graphical Interface SlidesSlides

The following are rough draft slides done as a first step in reviewing the relative strengths of the antitrust and IP issues

Little empirical research on how this would work has been done to date

All rights reserved to author


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US Antitrust Continuum US Antitrust Continuum 1960s-2010s1960s-2010s

Relative Strength By OffenseRelative Strength By Offense

0

1

2

3

4

5

6

7

8

9

10

1960s 1970s 1980s 1990s 2000s 2010s

Per se Monopoly Rule of reason


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US Agency Cases Brought US Agency Cases Brought For Principles, Not For For Principles, Not For

WrongsWrongs

MuellerMueller and and Boise CascadeBoise Cascade• The right to price differently for The right to price differently for

functional reasonsfunctional reasons ContainerContainer

• The right to exchange pricesThe right to exchange prices SchwinnSchwinn

• The right to limit geographic reachThe right to limit geographic reach


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IP Continuum 1960s – IP Continuum 1960s – 2010s2010s

Relative Strength By Type Relative Strength By Type of Rightof Right

7 78

98

7

10 10 109

8

10

5 5

78

76

4 4

67

8

6

89

89

8

5

1960s 1970s 1980s 1990s 2000s 2010s

Copyright Patent Trademark Trade Dress Trade Secret


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1960s IP –Antitrust 1960s IP –Antitrust Continuum Continuum

Strength By Right And Strength By Right And ViolationViolation

Copyright

Patent

Trademark

Trade Dress

Trade Secret Rule of reason

Monopoly

Per se0

20

40

60

80

100

RelativeStrength

AntitrustIP


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US Agency Cases Brought US Agency Cases Brought For Principles, Not For For Principles, Not For

WrongsWrongs

IntelIntel• The right to exclude from IP for The right to exclude from IP for

interface purposesinterface purposes Microsoft IMicrosoft I

• Operating system integrationOperating system integration Microsoft IIMicrosoft II

• Operating system position abuseOperating system position abuse


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The New Antitrust IP The New Antitrust IP DynamicsDynamics

Antitrust enforcement decisions Antitrust enforcement decisions may now depend more upon the may now depend more upon the dynamics of the technologies dynamics of the technologies involved and the power that involved and the power that ownership of these technologies can ownership of these technologies can sustain than on economic realities. sustain than on economic realities. • Is it right to do this?Is it right to do this?


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Should Technology Choice Be a Concern of Should Technology Choice Be a Concern of Antitrust Policy?Antitrust Policy? (Liebowitz and Margolis, (Liebowitz and Margolis,

1996 Harvard Journal of Law and Technology)1996 Harvard Journal of Law and Technology)

Do inefficient technologies resist replacement by Do inefficient technologies resist replacement by superior alternatives in certain settings because superior alternatives in certain settings because of their wide-spread use? of their wide-spread use?

Can business conduct facilitate commitment to Can business conduct facilitate commitment to inferior technologies or the maintenance of their inferior technologies or the maintenance of their incumbency?incumbency?

Should these potential problems be the focus of Should these potential problems be the focus of antitrust?antitrust?

If so, what is the balance required between If so, what is the balance required between innovation and competition agency intervention?innovation and competition agency intervention?


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The New Antitrust IP The New Antitrust IP Dynamics:Dynamics: Network EffectsNetwork Effects

No evidence that rivalry in the marketplace No evidence that rivalry in the marketplace is moribund. is moribund.

• ““[E]vidence seems to be overwhelmingly [E]vidence seems to be overwhelmingly to the contrary.” Liebowitz and Margolisto the contrary.” Liebowitz and Margolis

No evidence that software and No evidence that software and microprocessor industries deficient in microprocessor industries deficient in technological progress. technological progress.

• ““[M]arkets are not systematically deficient [M]arkets are not systematically deficient at such choices. “ Liebowitz and Margolisat such choices. “ Liebowitz and Margolis


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New Antitrust-IP New Antitrust-IP Dynamics:Dynamics: Network Network

EffectsEffects Michael Katz and Carl Shapiro, Michael Katz and Carl Shapiro, American American

Economic ReviewEconomic Review (1985): (1985):

• ””[M]any products[‘] utility increases with the [M]any products[‘] utility increases with the number of other agents consuming the number of other agents consuming the good." good."

• "[T]he utility that a given user derives from "[T]he utility that a given user derives from the good depends upon the number of other the good depends upon the number of other users who are in the same 'network'...." users who are in the same 'network'...."

KodakKodak - Emphasis on effects on intrabrand - Emphasis on effects on intrabrand competition?competition?


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More Intellectual Property-More Intellectual Property-Antitrust InterfacesAntitrust Interfaces

Essential facilities doctrineEssential facilities doctrine• Requirement to provide equal accessRequirement to provide equal access• Historical precedents Historical precedents - Rogers- Rogers • New doctrine - New doctrine - KodakKodak

Suppression of intellectual propertySuppression of intellectual property• Requirement to license Requirement to license • Relevance of motivation Relevance of motivation • Innovation markets Innovation markets


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Technology Choices At The Technology Choices At The Antitrust MarginAntitrust Margin

MicrosoftMicrosoft - DC Circuit 1998 Reversal - DC Circuit 1998 Reversal • Courts should not oversee product designCourts should not oversee product design• Acting in a way that dampens technological Acting in a way that dampens technological

innovation is at cross-purposes with the innovation is at cross-purposes with the antitrust lawsantitrust laws

• Integration that is beneficial when compared Integration that is beneficial when compared with customer’s combination means that with customer’s combination means that there is proper technological integrationthere is proper technological integration

• Courts must be reluctant to embark on Courts must be reluctant to embark on product design analysisproduct design analysis

• Facially plausible benefits enoughFacially plausible benefits enough


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Antitrust IP Dynamics:Antitrust IP Dynamics: One One View From US DOJView From US DOJ

• ““[T]he path of innovation today will [T]he path of innovation today will significantly affect future product quality and significantly affect future product quality and price . . ..”price . . ..”

• ““[P]otential benefits of enforcement are [P]otential benefits of enforcement are huge.” huge.”

• ““[T]he path of innovation is highly uncertain [T]he path of innovation is highly uncertain and technology is rapidly changing . . ..”and technology is rapidly changing . . ..”

• ““[P]otential costs of enforcement errors are [P]otential costs of enforcement errors are also large . . ..”also large . . ..”– All per D. Rubinstein, Dep. Asst. Atty Gen. All per D. Rubinstein, Dep. Asst. Atty Gen.

For AntitrustFor Antitrust


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US Antitrust Agencies -US Antitrust Agencies -Licensing GuidelinesLicensing Guidelines

For the purpose of antitrust analysis, regard IP as essentially comparable to any other form of property

Do not presume that intellectual property creates market power

Recognize that intellectual property licensing is generally procompetitive.


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The New Principle: IP The New Principle: IP Rights Depend On Market Rights Depend On Market

Shares?Shares?

MicrosoftMicrosoft• Limits on expansion and enhancement Limits on expansion and enhancement

of operating systemof operating system• Mandatory joint effortsMandatory joint efforts• Other issuesOther issues

IntelIntel• Limits on refusals to provide Limits on refusals to provide

information and sharinginformation and sharing• No mandatory joint effortsNo mandatory joint efforts


1990s IP –Antitrust 1990s IP –Antitrust Continuum Continuum

Combined IP A/T StrengthCombined IP A/T Strength

Copyright

Patent

Trademark

Trade Dress


Per se

Monopoly0

20

40

60

80

100

Strength

AntitrustIP


2000s IP –Antitrust 2000s IP –Antitrust Continuum Combined IP Continuum Combined IP

A/P StrengthA/P Strength

Copyright

Patent

Trademark

Trade Dress


Per se

Monopoly0102030

40

50

60

70

80

Strength

AntitrustIP