Silicon Valley Antitrust v.4

Hanno Kaiser. University of California, Berkeley, School of Law, Fall 2014 Friday 8 - 9:50 am, Room 170

Note that this is an evolving syllabus, as we will discuss key issues of technology antitrust using current cases and materials.

Key Concepts

See the Key Concepts Page

Class 1: Antitrust, technology, and criminal cartels (8/28/14)

Topics for discussion

• A roadmap for this course
• The goals of antitrust and “competition on the merits”

• How firms subvert the competition mandate (“Decrease output to increase profit”)

  • Collusion (“too little competition”)
  • Exclusion (“unfair competition”)

• We will spend a lot of time with unsettled and difficult cases. But before we go there, let’s establish an uncontroversial baseline: Criminal cartel conduct

  • Price fixing, market allocation, bid rigging
  • DOJ criminal enforcement policy
• How cartels work: Creating artificial scarcity to get a bigger slice of a smaller (and more expensive) pie

• Requirements for organizing a cartel

  • Agreement
  • Monitoring
  • Punishing defectors

Required reading

• U.S. Antitrust laws
• U.S. v. Andreas, 216 F.3d 645 (7th Cir. 2000) (excerpt on bcourses) (This is a straightforward criminal case, which will help us establish a baseline.)
• Hanno Kaiser, Collusion, Exclusion, and competition on the merits (2014)

Optional

• Hanno Kaiser, Excerpt from Antitrust Law And Policy: An Introduction (2012)
• Hanno Kaiser, Class 01 Slides (These are from 2013 and follow a slightly different approach but you may still find them useful.)

• Materials about the Lysine cartel

  • Scott Hammond, “Caught in the Act: Inside an International Cartel" (2005)
  • Video footage from the Lysine cartel (YouTube)
  • James Lieber, Rats in the Grain (2000)
  • Kurt Eichenwald, The Informant (2001)

Class 2: Modes of analysis: Per se, quick look, ancillary restraints, rule of reason (9/5/14)

Topics for discussion

• Recap: The root of all antitrust evil: “Reducing output to increase profits.”
• Processing antitrust fact patterns: Towards a flexible checklist approach

• The first fork in the road

  • Agreement
  • Unilateral conduct

• Agreements: Modes of analysis

  • Per se (= rule)

  • “Not really per se” (= exception)

    • Lack of judicial experience with the challenged conduct
    • Ancillary restraints
    • Quick look
  • Rule of reason (= principle)

• Collective disruption: Efficient conduct or illegal cartel?

  • BMI, SESAC, Google Books
• Tip of the day: How to read and brief a case (2014).

Required reading

• United States v. Adobe Systems, Inc., Apple Inc., Google Inc., Intel Corporation, Intuit, Inc., and Pixar (2010) Complaint.
• Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1 (1979)

Optional reading

• Neelie Kroes, Vice President of the European Commission, Crazy court decision to ban Uber in Brussels, April 15, 2014
• Hanno Kaiser, Antitrust 101 Cheat Sheet (2011)
• Radio Music License Committee v. SESAC, Civil Action No. 2:12-CV-5807-CDJ (E.D. Penn. June 26, 2014)
• In re: High-Tech Employee Antitrust Litigation, Case No.: 11-CV-02509-LHK (N.D. Cal. 2014) (August 8, 2014) (Order denying preliminary approval of settlement.)

Class 3: Horizontal agreements: United States v. Apple (eBooks) (9/12/14)

Topics for discussion

• Anatomy of a complex civil antitrust litigation, involving multiple defendants (Apple and the publishers), DOJ, State Attorneys General as parens patriae, and private class action plaintiffs, etc.
• Disruption via de novo entry as per se illegal conduct
• Platform competition and price effects
• The role of intent

Required reading

• United States v. Apple Inc., et al., Nos. 12 Civ. 2826 (DLC), 12 Civ. 3394 (DLC) (July 10, 2013) (This is a long opinion. Use the tools we discussed to digest this case efficiently.)
• Apple’s Reply Brief to the Second Circuit Court of Appeals, 13-3741(L) (July 14, 2014)

Optional reading

• Apple’s Opening Brief to the Second Circuit Count of Appeals, 13-3741(L) (February 25, 2014)
• DOJ Brief to the Second Circuit Court of Appeals, 13-3741(L) (May 27, 2014)
• United States v. Apple, DOJ Trial Materials (2014)

Class 4: United States v. Microsoft Part 1: Technology markets, network effects and entry barriers (9/19/14)

Topics for discussion

• Unilateral conduct: Monopolization and attempted monopolization

  • Big
  • Bad

• Market power and monopoly power (“big”)

  • Direct evidence: higher prices and exclusion
  • Circumstantial evidence: high market shares and entry barriers
  • Defining relevant antitrust markets
• A first look at multi-sided platforms and indirect network effects as barriers to entry (“applications barrier to entry”)

Required reading

• United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001) Read pages 45–80: I. INTRODUCTION; A. Background; B. Overview; II. MONOPOLIZATION; A. Monopoly Power
• Hanno Kaiser, U.S. v. Microsoft Overview (2014)
• Hanno Kaiser, Market definition (2014)

Optional reading/viewing

• Peter Thiel, Competition is for losers, WSJ OpEd (September 12, 2014)
• 2010 FTC/DOJ Horizontal Merger Guidelines, Sections 4 and 4.1 (“Market Definition” and “Product Market Definition”)
• Jonathan Baker, Market Definition: An Analytical Overview (2007)
• Martyn Burke, Pirates of Silicon Valley (2005).

Class 5: United States v. Microsoft Part 2: Exclusionary conduct, interoperability layers, and defensive leveraging (9/26/14)

Topics for discussion

• The U.S. v. Microsoft case is about Microsoft’s efforts to protect the application barrier to entry against erosion by interoperability layers

  • If the same applications ran on different OSs (via Java, for example), then the OSs would have to compete only on the basis of “genuine OS features” and OS price.

• Microsoft’s exclusionary conduct serves to “reduce usage share” of and “deny critical mass” to interoperability layers

  • OEM agreements
  • Commingled code
  • “Embrace, extend, extinguish”
• Causation
• The “biodiversity” approach to ecosystem industries
• Rule of reason for platform markets
• Trial strategy: facts and law, specifics and principles

Required reading

• United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001). Read: II. MONOPOLIZATION […] B. Anticompetitive Conduct; C. Causation.
• Hanno Kaiser, U.S. v. Microsoft Overview (2014)
• Hanno Kaiser, Microsoft Monopolization Offenses Chart (2008)

Optional reading

• Doug Melamed, Dan Rubinfeld, U.S. v. Microsoft: Lessons Learned and Issues Raised, in: Antitrust Stories (2007)

Class 6: Tying and antitrust aspects of Google Search, Part 1-2 (10/10/14)

• Introduction to tying and exclusive dealing

  • Two-markets, leveraging offense
• Modern variants of tying and exclusive dealing in ecosystem industries (“nudging”)

• How search engines work

  • algorithmic search
  • sponsored search
  • The roles of users, advertisers, and publishers

• Antitrust markets for “online search”

  • User-facing (queries)
  • Advertiser-facing (revenues)
  • Search and display advertising
• Indirect network effects as entry barriers

• The history (and present) of the various flavors of Google search investigations

  • Alleged exclusion of competing generalist search engines (e.g., Bing)
  • Alleged exclusion of competing vertical search engines (e.g., Foundem)
  • After Google’s vertical upstream integration into publishing, alleged exclusion of competing publishers (e.g., maps).

Optional reading

• Foo Yun Chee and Alexei Oreskovic, European regulators training sights on Google's mobile software (July 30, 2014)
• Michael Schwartz, Sponsored Search Tutorial (2007)

Class 7: Antitrust aspects of Google Android and default search, Part 2-2 (10/10/14)

• Key question: Is Google using Android to defend and extend its search monopoly?
• Android as an example of “open core” software
• Tying in the “Mobile application distribution agreements”?
• Parallels and differences between the recent Google Android complaints and investigations and United States v. Microsoft

Required reading

• Amended Complaint, Feitelson et al. v. Google, 14-cv-02007 (N.D. Cal. August 1, 2014)
• Mobile application distribution agreement (MADA) between Google and HTC (January 1, 2011), Exhibit A to the Amended Complaint
• Google’s motion to dismiss the amended complaint (September 19, 2014)

Class 8: Open and Closed Systems, Part 1/2: Aftermarkets (10/17/14)

Topics for discussion

• Platform competition law ingredients: "applications barrier to entry," predatory innovation, tying, aftermarkets

• Single-brand aftermarkets and limiting principles

  • What is the antitrust significance of two-step purchasing patterns ("First you choose a phone, then you choose among the apps available for the phone.")?
  • Who gets what? Fairly and unfairly appropriating the gains from collaboration.
• "Closing an open system" v. "maintaining a closed system"

Required reading

• Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992) (Here are some case notes).
• Datel Holdings Ltd. v. Microsoft Corp., 712 F. Supp. 2d 974 (N.D. Cal. 2010) (Focus on the monopolization claim; skip tying and attempted monopolization).

Optional reading

• Newcal Industries v. Ikon Office Solution, 513 F. 3d 1038 (9th. Cir. 2008)
• Apple, Inc. v. Psystar Corp., 586 F. Supp. 2d 1190 (N.D.Cal. 2008)
• Hanno Kaiser, Are Closed Systems an Antitrust Problem?, Competition Policy International 91, Vol.7, No.1 (2011)

Class 9: Open and Closed Systems, Part 2/2: “Predatory innovation” and obligations to interconnect (10/24/14)

Topics for discussion

• Strategic creation of incompatibility v. duty to interconnect

• Predatory innovation

  • What is innovation? Narrow and broad conceptions.
  • Should courts police product design decisions?
  • What about code? Does “cheap exclusion” change everything?

• §2 limitations on “refusals to deal”

  • Denial of (a) de novo access versus (b) continued access
• The political philosophy of "open v. closed"

Required reading

• Allied Orthopedic v. Tyco Healthcare, 592 F.3d 991 (9th Cir. 2010); read the excerpts in Herbert Hovenkamp, Innovation and Competition Policy: Cases and Materials (2013), Chapter 8. Here’s a slide explaining the relationship of the old and the new sensors and monitors.
• Aspen Skiing Co., v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) (read the excerpts on bCourses)

Optional reading

• “Open systems win”, Jonathan Rosenberg, Google (2009)
• “Open systems [are] good for making others lose.”, John Prentice, Gartner (2009)
• Thomas R. Eisenmann, Geoffrey Parker, Marshall W. Van Alstyne, Opening Platforms: How, When and Why? (2008)
• Cory Doctorow, Lockdown, The coming war on general-purpose computing (2012)

Class 10: Antitrust and Standard Setting (10/31/14)

Topics for discussion

• The “standard setting exception” to limiting technology competition and why the rule of reason applies to standard setting organizations (SSOs)

  • Benefits of standards
  • The “market power by-product of standard setting”: standard-essential patents (“SEP”)
  • Market power from patents v. market power from SSO-agreements regarding patents
  • The risk of SEP hold-up

• SSO antitrust safeguards and, in the event of failure, grounds for antitrust claims

  • Elimination of bias in the standard setting process
  • Disclosure of patents
  • Licensing of patents

Required reading

• Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008)
• Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3rd. Cir. 2007)
• Hanno Kaiser, SSOs and Antitrust Overview (2014)

Optional reading

• Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988)
• FTC, In the Matter of N-Data (2008)
• FTC, In the Matter of Dell Computer Corporation, 121 FTC 616 (1996)

Class 11: The Smartphone Wars (11/7/14)

Topics for discussion

• The origins of the Smartphone wars: telcos v. computer companies

• Who should get how much of a new category of devices that amalgamate telecommunications and computer technologies?

  • Who contributes what? Features v. standards.

• Identifying the key questions

  • Injunctions: Should holders of patents that they (a) declared essential to a standard and (b) promised to license on fair and reasonable terms be permitted to seek injunctions against implementers?
  • Royalties: Who should determine a reasonable royalty for standard essential patents and how should this royalty (rate and base) be determined?

Required reading

• Michael Carrier, What you need to know about Standard Essential Patents (August 2014)
• U.S. Trade Representative, Disapproval of ITC determination, Investigation No. 377-TA-794 (August 3, 2013) (Samsung seeking exclusion order against Apple)

Optional reading

• Wikipedia, The Smartphone Patent Wars

Class 12: Patent Assertion Entities and Antitrust (11/14/14)

Topics for discussion

• Taxonomy of patent assertion entities

  • Pure-play PAEs
  • Former operating companies

• Common forms of PAE activity

  • Privateering (i.e., PAE asserting a patent on behalf of an operating company)
  • Patent aggregation and assertion (against operating companies and their customers)

• Legal implications

  • Patent law (Congress, PTO, courts)
  • Consumer protection law
  • Antitrust law (agencies, courts)
• Key antitrust considerations in privateering and mass-aggregation cases

Required reading

• Mark Popofsky, Michael Laufert, Antitrust Attacks on Patent Assertion Entities, 79 Antitrust Law Journal 445 (2014)

Optional reading

• FTC, In the Matter of MPHJ Technology Investments, LLC; Complaint (November 6, 2014)

Classes 13 and 14: High-technology mergers (11/21/14)

Topics for discussion

• Why companies merge

• Antitrust concerns with mergers

  • After the merger, the remaining firms can accommodate each other (or outright collude) more easily
  • After the merger, the merged firm can restrict output with market-wide effects
  • After the merger, the merged firm can raise prices for one of its products and recapture defecting customers
  • Upstream or downstream foreclosure (vertical mergers)
• The “structural presumption” and the structure-conduct-performance paradigm (before and after Chicago)
• Recap: Market definition
• The transformation of merger practice by the Hart-Scott-Rodino Act (1974)
• The real-world merger process (risk shifting, 4(c)(d) documents, gun jumping, etc.)
• Mergers affecting technology competition
• Mergers affecting R&D (= innovation) competition
• Mergers affecting future competition

Required reading

• U.S. v. Bazaarvoice, Opening Statement Presentation (2013)
• U.S. v. Bazaarvoice, Case No. 13-cv-00133-WHO (N.D. Cal. 2014)

Optional reading

• Dan Crane, Antitrust, Chapters on Merger Law (2014)
• FTC/DOJ, 2010 Horizontal Merger Guidelines
• Tip of the day: Effective outlining (2014)

Recommended resources (not mandatory)

• Daniel Crane, Antitrust (2014)
• Christopher L. Sagers, Examples & Explanations: Antitrust (2011)
• Luis Cabral, Introduction to Industrial Organization (2000)
• Herbert Hovenkamp, Innovation and Competition Policy: Cases and Materials - An Open Source Casebook (2011)
• Wayne Dale Collins, Applied Antitrust: Case Development and Litigation Strategy (2014)

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