Silicon Valley Antitrust v.5

Hanno Kaiser, University of California, Berkeley, School of Law, Fall 2015 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 (8/28/15)

Topics for discussion

• A roadmap for this course

• The goals of antitrust and “competition on the merits”

  • Economic goals
  • Non-economic goals

• 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

Required Reading

• U.S. v. Andreas, 216 F.3d 645 (7th Cir. 2000). Excerpt
• Hanno Kaiser, Antitrust 101 Cheat Sheet (2011)
• U.S. Antitrust laws (short version); U.S. Antitrust laws (more complete set)

Optional

• Hanno Kaiser, Excerpt from Antitrust Law And Policy: An Introduction (2012)
• Hanno Kaiser, Collusion, Exclusion, and competition on the merits (2014)
• 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)
  • Steven Soderbergh, The Informant (Movie) (2009)

Class 2: The antitrust toolkit: Rule of reason, per se categories, ancillary restraints (9/4/15)

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 v. unilateral conduct

• Agreements: Modes of analysis

  • Rule of reason
  • Exception: Per se categories

  • Exceptions to the exception (i.e., “not really per se after all”

    • Lack of judicial experience with the challenged conduct
    • Ancillary restraints
    • Quick look
• First curveball: Partial upstream cartel? The “high tech worker” no cold-call case.
• Second curveball: Efficient price fixing? The BMI v. CBS case.

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). Excerpts Landmark case

Optional reading

• Hanno Kaiser, How to read and brief a case (2014).

Class 3: Horizontal agreements: U.S. v. Apple, Inc., 2d. Cir., June 30, 2015 (eBooks) Part 1 (9/11/15)

Topics for discussion

• Adding to the toolkit: Horizontal and vertical agreements

  • What’s the difference and why does it matter?
  • “Upstream” and “downstream” in ecosystem industries
• 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.
• Industry background: Book distribution before and after Amazon’s Kindle
• Why ebooks matter, even though the focus is on hardcover pricing
• Wholesale v. agency models, and the role of “most favored nation” clauses

Required reading

• United States v. Apple Inc., et al., U.S. v. Apple, Inc., --- F.3d ---- (2d. Cir. 2015). Excerpts

Optional reading

• United States v. Apple, DOJ Trial Materials (2014)
• Berkeleyside, In Berkeley, a venerable grocery market comes under fire (2011)

Class 4: Horizontal agreements: U.S. v. Apple, Inc., 2d. Cir., June 30, 2015 (eBooks) Part 2 (9/18/15)

Topics for discussion

• Disruption via de novo entry as per se illegal conduct?
• Platform competition and price effects: How do you launch a multi-stakeholder platform (e.g., operating system, gaming console, app store, etc.) in the real world?
• Is this a case about “trade ebooks” or about ebook reader platforms? How does that affect the scope of the rule of reason analysis?
• Vertical interaction with horizontal agreements: the line between “hub and spoke” conspiracies and parallel vertical agreements
• Analysis of the court’s application of the per se and rule of reason framework.

Required reading

• See Class 3.

Class 5: United States v. Microsoft Part 1: Technology markets, market definition (9/25/15)

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

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 Excerpts. Drawing. Landmark case

Optional reading/viewing

• Hanno Kaiser, U.S. v. Microsoft Overview (2014)
• Hanno Kaiser, Market definition (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 6: United States v. Microsoft Part 2: Network effects and entry barriers, exclusionary conduct, interoperability layers, and defensive leveraging (10/2/15)

Topics for discussion

• Multi-sided platforms and indirect network effects as barriers to entry (“applications barrier to entry”)

• 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. Excerpts High-level summary Landmark case
• 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 7: “Predatory innovation:” Creating Strategic Incompatibilities (Part 1) (10/9/15)

Topics for discussion

• Many peripheral products are designed to work with someone else’s system. Commonly the system provider has its own peripherals and competes with third party peripheral product vendors. What happens if the system vendor makes its system icompatible with third party peripherals?
• Product design changes that exclude vendors of (no longer) compatible products are a common business strategy and a staple of technology antitrust litigation.
• We will address the treatment of “predatory innovation” claims by looking at four of the classic cases/vignettes.

Required reading

• In re Apple iTunes Antitrust Litigation, 796 F.Supp.2d 1137 (N.D. Cal. 2011). Exerpts. Jury verdict. Drawing.
• California Computer Products, Inc. v. Int'l Bus. Machines Corp., 613 F.2d 727 (9th Cir. 1979). Excerpts. Drawing.
• Caldera, Inc. v. Microsoft Corp., 72 F. Supp. 2d, 1295 (D. Utah 1999). Excerpts.
• Transamerica Computer Co., Inc. v. IBM Corp. (In re IBM Peripheral EDP Devices Antitrust Litig.) 481 F.Supp. 965 (N.D. Cal. 1979). Excerpts.

Optional reading

• Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979)

Class 8: “Predatory innovation:” Product Hopping and related conduct in pharmaceutical cases (Part 2) (10/23/15)

Topics for discussion

• Innovation in the pharmaceutical industry. The interplay of patent and antitrust laws and the special regime created by the Hatch-Waxman Act

  • How the FDA process works: NDAs, ANDAs, the Orange Book, clinical trials

• Incentives of leaders (brand) and followers (generics) in the pharmaceutical space

  • Costs and probabilities of bringing a drug to market
• Insurers, doctors, patients, and pharmacies: the inherent agency problems in selection and distribution of pharmaceutical products
• “Pay for delay” as the classic Hatch-Waxman Act problem
• “Product hopping” as a form of predatory innovation

• The impact of pharmaceutical antitrust cases beyond the pharmaceutical context

  • The future of the “scope of the patent” test after FTC v. Actavis
  • Hard- and soft switches after NY v. Actavis. Does everyone have to keep the “old” product on the market for a while now?

Required reading

• FTC v. Actavis, 133 S. Ct. 2223 (2013).
• Aaron Edlin, Scott Hemphill, Herbert Hovenkamp, and Carl Shapiro Activating Actavis (2013)
• New York v. Actavis, ___ (2d Cir. 2015). Excerpts.

Optional reading

• Hanno Kaiser, Presentation on FTC v. Actavis (2013)
• Michael Carrier, Payments after Actavis (2015)

Class 9: Antitrust and Standard Setting (10/30/15)

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

• FTC, In the Matter of Dell Computer Corporation, 121 FTC 616 (1996). Read the complaint.
• Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3rd. Cir. 2007)
• FTC, In the Matter of N-Data (2008). Read the analysis of proposed consent order to aid public comment.

Optional reading

• Hanno Kaiser, SSOs and Antitrust Overview (2014)
• Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988)
• Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008)

Class 10: The Smartphone Wars: With a special focus on Europe and China (11/06/15)

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

• Art. 102 TFEU
• Case C-170/13 Huawei v ZTE (European Court of Justice) (July 16, 2015) Please read the judgment of the court, which is the first document on the page.
• CGSH Memo on PRC NDRC Decision in re Qualcomm SEP Abuse (March 16, 2015)

Optional reading

• Miranda Cole, Note on the Huawei v. ZTE Case (July 21, 2015)
• PRC NDRC Decision (original) (March 2, 2015).

Classes 11 and 12: Open and Closed Systems: Tying and Aftermarkets (11/13/15)

Topics for discussion

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

• The law of tying

  • Two products
  • Ties (contractual, economic, technological)
  • Market power in the tying product market
  • Effect in the tied product market

• The welfare implications of tying

  • Tying by firms with market power v. without

• 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). Excerpts) Landmark case
• Apple, Inc. v. Psystar Corp., 586 F. Supp. 2d 1190 (N.D.Cal. 2008). Excerpts).
• 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). Excerpts).

Optional reading

• Newcal Industries v. Ikon Office Solution, 513 F. 3d 1038 (9th. Cir. 2008)
• Hanno Kaiser, Are Closed Systems an Antitrust Problem?, Competition Policy International 91, Vol.7, No.1 (2011)

Classes 13 and 14: Putting it all together (11/20/15)

Topics for discussion

• Unilateral conduct
• Network effects as entry barriers
• Single brand aftermarkets
• Standard essential patents
• Exclusive dealing (single product)
• Predatory innovation (single product)
• Tying (multiple products)
• Evading SSO safeguards
• Agreements in restraint of trade
• Agreements v. conscious parallelism
• Vertical and horizontal agreements; upstream and downstream
• Modes of analysis: ROR (AE > PE) and per se categories
• Getting out of the per se box (ancillary restraints; lack of judicial experience)
• Exam technique
• Read the question
• Read the hypo
• Upstream/downstream drawing; clearly identify the markets at issue
• Outline the mandatory elements of the offense
• Locate the "issues" within the structure of the outline
• Write your answer, using the outline topics as headings
• Claim --> "because" --> Evidence
• Exhaust the hypothetical
• Highlight every fact that you have used
• Find a place for what's left over
• Finish

Required reading

• Review all Key Concepts

Recommended reading

• Booth, Colomb, Williams, The Craft of Research (2008)

Recommended resources (not mandatory)

• Daniel Crane, Antitrust (2014)
• Luis Cabral, Introduction to Industrial Organization (2000)
• Joe Mornin’s Bestlaw. Think Westlaw with visible (gasp!) pagination. Plus a host of cool features.
• Herbert Hovenkamp, Innovation and Competition Policy: Cases and Materials - An Open Source Casebook (2011)
• Wayne Dale Collins, Applied Antitrust: Case Development and Litigation Strategy (2015)

This work is licensed under a Creative Commons Attribution 3.0 United States License.