Silicon Valley Antitrust v.6 (Fall 2016)

Hanno Kaiser. University of California, Berkeley, School of Law, Room 170

Friday, 8 am (sharp!) - 9:50 am

Note that this is an evolving syllabus, as we will discuss key issues of technology antitrust using current cases and materials. In other words, stuff on this website will change during the course of the semester.

Class 1: Antitrust, technology, and criminal cartels

August 26, 2016

Topics for discussion

• A roadmap for this course
• The goal(s) of antitrust
• A very brief (and very present) history of antitrust
• First draft of the “antitrust superstructure”
• Three market power levels (low, medium, high)
• Two levels of conduct regulation: Baseline prohibitions and special obligations
• Three basic anticompetitive strategies
• Collusion
• Exclusion
• Leveraging
• Two modes of analysis: rule of reason and per se
• 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. Antitrust laws (Super short version)
• U.S. v. Andreas, 216 F.3d 645 (7th Cir. 2000). Excerpt

Optional

• U.S. Antitrust laws (More comprehensive version)
• Hanno Kaiser, Excerpt from Antitrust Law And Policy: An Introduction (2012)
• Hanno Kaiser, Class 01 Slides (These are from 2013, but are still 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

September 2, 2016

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: A closer look at the “modes of analysis”
• Rule of reason
• Exception: Per se categories
• Exceptions to the exception (i.e., “not quite per se illegal 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

Optional reading

• Hanno Kaiser, How to read and brief a case (2014).
• Berkeleyside, In Berkeley, a venerable grocery market comes under fire (2011)
• DOJ/FTC, Antitrust Guidance for Human Resource Professionals (October 2016)

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

September 9, 2016

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., 791 F.3d 290 (2d Cir. 2015). Excerpts

Optional reading

• Dan Wall & Hanno Kaiser, Brief of Economists as Amici Curiae in Support of Apple, Amicus Brief to the U.S. Supreme Court in re U.S. v. Apple Inc. (2015).
• United States v. Apple, DOJ Trial Materials (2014)

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

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

Topics for discussion

• Unilateral conduct: Monopolization and attempted monopolization
• Big ("dominant position")
• Bad ("abuse)
• Market power and monopoly power (“big”)
• Direct evidence: higher prices and exclusion
• Circumstantial evidence: high market shares and entry barriers
• Defining relevant antitrust markets
• Is antitrust “too slow” to deal with rapidly evolving technology markets?
• U.S. v. IBM
• U.S. v. Microsoft
• European Commission: Google Search/Android investigations

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 Landmark case
• Hanno Kaiser, Market definition (2014)

Optional reading/viewing

• Jonathan Baker, Market Definition: An Analytical Overview (2007)
• Hanno Kaiser, U.S. v. Microsoft Overview (2014)
• 2010 FTC/DOJ Horizontal Merger Guidelines, Sections 4 and 4.1 (“Market Definition” and “Product Market Definition”)
• 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

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: Tying, bundling, and the provision of ecosystems

Topics for discussion

• The two big exclusionary conduct categories in monopolization cases
• Exclusion (e.g., Microsoft’s OEM agreements)
• Leveraging (e.g., tying)
• How tying works
• Two products
• Tie (contract, economics, technology)
• Market power in the tying product market
• Effect on the tied product market
• Tying under §1 and under §2
• The EC v. Microsoft tying cases
• Windows Media Player (2004)
• Internet Explorer (2008)

Required reading

• Windows Media Player: Microsoft v. European Commission, Judgment of the Court of First Instance (9/17/2007). This is a long and rather tedious opinion. Read the excerpts from the Commission Decision on bSpace.
• Internet Explorer: European Commission, brief summary
• Hanno Kaiser, Note on Tying (2016)

Class 8: The European Commission’s Google Search Case

Topics for discussion

• Background on the FTC and European Commission Search investigations
• How search engines work
• Multi-sided platforms: law and economics
• The two strategic moves that triggered Google's antitrust issues
• Promoting Google's own content (universal search)
• Demoting poor-quality websites and link farms (Panda)
• Beyond the simple “more is always better” paradigm explored in U.S. v. Microsoft

Required reading

• European Commission, Antitrust: Commission probes allegations of antitrust violations by Google (November 30, 2010)
• European Commission, Antitrust: Commission sends Statement of Objections to Google on comparison shopping service; opens separate formal investigation on Android (April 15, 2015) ("Search SO I")
• European Commission, Antitrust: Commission takes further steps in investigations alleging Google's comparison shopping and advertising-related practices breach EU rules (July 14, 2016) ("Search SO II")

Class 9: The European Commission’s Google Android Case

Topics for discussion

• Background on the European Commission’s Search and Android investigations
• How Android works, and how it relates to the Android Open Source Project (AOSP)
• Google’s agreements with handset makers (OEM), per the Comission's press releases:
• If you want any part of GMS, you must install all GMS apps/services ("All or nothing")
• If you want Google's AOSP fork (aka "Google Android"), you must not distribute other AOSP forks ("Anti Fragmentation")
• If you want a revenue share for queries sent to Google from your device, you must not install other search engines ("Economic incentives")
• What are the (beneficial and detrimental) effects of these agreements on competitors, users, and developers?
• Possible cases against Google and the actual case that the Commission brought

Required reading

• European Commission, Antitrust: Commission sends Statement of Objections to Google on Android operating system and applications (4/20/2016)
• Ron Amadeo, Google’s iron grip on Android: Controlling open source by any means necessary (10/20/2013)

Optional reading

• Ron Amadeo, New Android OEM licensing terms leak; “Open” comes with a lot of restrictions (2/13/2014)

Class 10: Open and Closed Systems: Aftermarkets

Topics for discussion

• 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). Excerpts. (Here are some additional case notes). 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

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

Class 11: Antitrust Issues in Zero-Price Markets

Topics for discussion

• Free?
• As in freedom
• As in gift
• As in zero-price
• If services are "free" for users, is there "trade" or "commerce" to begin with?
• Defining relevant product markets in the absence of price signals
• Substitution between free and paid?
• The concept of competition for eyeballs and user attention
• The significance of supply-side substitutability in zero-price markets
• Anticompetitive conduct in zero-price markets
• Zero-price fixing (GNU/Linux)?
• Tying (free to paid, free to free)

Required reading

• Stallman, The Free Software Definition
• Evans, Attention Rivalry among Online Platforms (2013)
• Newman, Antitrust in Zero-Price Markets: Applications (2015) (Read I, II.B, II.C, III.)

Optional reading

• Anderson, Free (2009)
• Newman, Antitrust in Zero-Price Markets: Foundations (2015)
• Wallace v. IBM, 467 F.3d. 1104 (7th. Cir. 2006)

Class 12: "Big Data" and Antitrust

Topics for discussion

• What is Big Data (the "3Vs")
• The connection between big data and data analytics
• What is Big User Data?
• Volunteered, observed, and inferred information
• Ontological approaches ("what data do you have") versus functional approaches ("what do you use the data for")
• Big Data as a Product (e.g., online databases, such as Westlaw)
• Markets for Big Data related products and services (e.g., computation resources, storage, data center, analytics)
• Data as proprietary inputs into a firm's own products ("captive capacity")
• Data as an entry barrier?
• Big Data and innovation markets

Optional Reading

• Graef, Market Definition and Market Power in Data: The Case of Online Platforms (2015)
• Autorité de la concurrence & Bundeskartellamt, Competition Law and Data (2016)
• DOJ/FTC Merger Guidelines (2010) (Read Section 6.4).

Class 13: Predatory Innovation and Product Hopping

Topics for discussion

• The other Silicon Valley: Genetics, bioinformatics, personalized medicine
• 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
• 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

• New York v. Actavis, 787 F.3d 638 (2d Cir. 2015). Excerpt.

Optional reading

• FTC v. Actavis, 133 S. Ct. 2223 (2013).
• Aaron Edlin, Scott Hemphill, Herbert Hovenkamp, and Carl Shapiro Activating Actavis (2013)
• Hanno Kaiser, Presentation on FTC v. Actavis (2013)
• Michael Carrier, Payments after Actavis (2015)

Class 14: Standard Setting and Patent Trolls

Topics for discussion

• The “standard setting exception” to limiting technology competition and why the rule of reason applies to standard setting organizations (SSOs)
• Market power from patents v. market power from SSO-agreements regarding patents
• The risk of SEP hold-up
• Elimination of bias in the standard setting process
• Disclosure of patents
• Licensing of patents
• Benefits of standards
• The “market power by-product of standard setting”: standard-essential patents (“SEP”)
• SSO antitrust safeguards and, in the event of failure, grounds for antitrust claims

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). Excerpt.
• FTC, Patent Assertion Entity Activity Study (2016). Read the executive summary.

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)
• FTC, In the Matter of N-Data (2008). Read the analysis of proposed consent order to aid public comment.

Class 15: Review Session

Topics for discussion

• Unilateral conduct
• Network effects as entry barriers
• Single brand aftermarkets
• Exclusive dealing (single product)
• Tying (multiple products)
• Product hopping
• 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 taking technique
• Read the question
• Read the hypo
• Upstream/downstream drawing; clearly identify the markets at issue
• Outline the mandatory elements of the offense, using "the grid"
• 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
• Q&A

Key Concepts

• Key Concept 01 Goals of antitrust
• Key Concept 02 Rule of reason, per se categories
• Key Concept 03 Upstream, downstream, horizontal, vertical
• Key Concept 04 Monopolization and market definition

Recommended antitrust 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 (2016)

A (very incomplete) list of interesting technology books (not mandatory)

• Sterling, The Hacker Crackdown: Law And Disorder On The Electronic Frontier (1993)
• Barlow, A Declaration of the Independence of Cyberspace (1996)
• Shapiro, Varian, Information Rules (1998)
• Raymond, The Cathedral and the Bazaar (1999)
• Kent, The Ultimate History of Video Games (2001)
• Kushner, Masters of Doom (2004)
• Evans, Haigu, Schmalensee, Invisible Engines (2006)
• Post, In Search of Jefferson’s Moose (2009)
• Kirkpatrick, The Facebook Effect (2010)
• Levy, Hackers (2010)
• Levy, In the Plex (2011)
• Assange et al. Cypherpunks (2012)
• Greenwald, No Place to Hide (2014)

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