A U.S. ENFORCER’S PERSPECTIVE: PROTECTING COMPETITION AND PROMOTING 

INNOVATION

2016 Taiwan International Conference on Competition Policy 

Taipei, Taiwan

June 29, 2016

Keynote Remarks of Commissioner Terrell McSweeny1

Two years ago, we celebrated the 100th anniversaries of both the FTC and the Clayton Act, which 

created the U.S. Federal Trade Commission (FTC). The Sherman Act – America’s first significant 

antitrust law – dates back to the end of the 19th century. Certainly, a lot has changed in the world over the 

past century. The global economy is increasingly interconnected. Information and goods move faster 

than ever. Because of this, it is sometimes said that competition in the so-called “new-economy” is 

different from competition in old-economy markets and that antitrust law and competition enforcers 

cannot keep pace with changes in high-tech markets.2

 Critics suggest that antitrust enforcers should not

intervene in dynamic markets given the risk that even well-intentioned enforcement may do more harm 

than good.3

Here’s what I believe: antitrust enforcers play a vital role in protecting competition and 

promoting innovation in the high-tech, digital economy – and must continue to do so. It is true that 

competition in certain digital and high-tech markets may operate differently from certain traditional 

markets. For example, pricing may play less of a role in many high-tech markets where products and 

services are frequently offered to consumers for “free.” Economies of scale in consumption – commonly 

referred to as network effects – may play a greater role in certain digital markets. The effects of scale 

may make certain digital markets more susceptible to consolidation of market power. At the same time, 

entry may be easier in many digital markets compared to traditional markets that require substantial 

upfront investment in physical plants and equipment.

 1 The views expressed in this paper are my own and do not necessarily reflect the views of the Commission or of my 

colleagues.

2 See, e.g., Ronald A. Cass, Antitrust for High-Tech and Low: Regulation, Innovation, and Risk, 9 J.L. Econ. & 

Pol’y 169 (2012-2013), 

http://heinonline.org/HOL/Page?handle=hein.journals/jecoplcy9&g_sent=1&collection=journals&id=177; Thomas 

A. Piraino, Jr., A Proposed Antitrust Approach to High Technology Competition, 44 Wm. & Mary L. Rev. 65 

(2002), http://scholarship.law.wm.edu/wmlr/vol44/iss1/3.

3 For a description of these arguments, see Howard A. Shelanski, Information, Innovation, and Competition Policy 

for the Internet, 161 U. Pa. L. Rev. 1663, 1671 (2013); Ilene K. Gotts, Scott Sher & Michelle Lee, Antitrust Merger 

Analysis in High-Technology Markets, 4 Eur. Competition J. 463, 464 (2008), 

https://www.wsgr.com/PDFSearch/sher1208.pdf.
2

These market factors are important. But our antitrust tools are flexible. So long as we are careful 

to apply them with sensitivity to the competitive dynamics of digital and high-tech markets, we do not 

need a different set of rules to address these factors – though we do need to be willing to use all the tools 

at our disposal.4

 And we absolutely should not turn a blind eye toward anticompetitive behavior in hightech markets simply because we cannot predict the future with certainty or because they are fast-moving 

and dynamic. Doing so could not only result in harms to consumers and competition going unchecked, it 

could also harm innovation. 

In this paper, I address a few of the key issues related to the role of competition enforcers in 

digital and high-tech markets. First, I emphasize the importance of the FTC’s advocacy role in promoting 

innovation. Next, I comment on the use of innovation in market analysis and describe how innovation 

considerations often play an important role in merger review, even in cases where the agencies do not 

specifically define an “innovation” or “R&D” market. Third, I discuss the role competition enforcers 

play in achieving the appropriate balance between intellectual property protection and competition in 

order to optimize innovation.5 Lastly, I address some of the potential antitrust frontiers in the digital 

world, including “big data” and some of the novel issues raised by pricing algorithms.

Advocating for Innovation & Disruption – And the Competition It Brings 

Competition enforcers play an important role in promoting innovation by advocating for 

disruptive entrants. In this role enforcers like the FTC encourage the elimination of unnecessary barriers 

to competition and entry that can often be erected when incumbents and legacy industries control state or 

local regulatory processes. The FTC has a long history of advocating for competition at the state and 

local levels. When Internet retailers first began making sales to consumers, incumbent brick and mortar 

retailers sought regulatory protection against these new entrants in a number of markets. The FTC 

advocated against regulatory barriers to online entry in numerous markets from contact lenses to wine 

shipments.6

 The FTC has also promoted competition in health care by, among other things, advocating 

 4 See Terrell McSweeny, Commissioner, Fed. Trade Comm’n, A Carpenter is Only as Good as Her Tools: The 

Importance of Using Our Full Toolbox as Antitrust Enforcers, Keynote Remarks at the Global Antitrust 

Enforcement Symposium (Sept. 28, 2015), https://www.ftc.gov/public-statements/2015/09/carpenter-only-good-hertools-importance-using-our-full-toolbox-antitrust.

5 See United States v. United States Gypsum Co., 333 U.S. 364, 390-91 (1948) (observing that courts must “balance 

the privileges of [the patent holder] and its licensees under the patent grants with the prohibitions of the Sherman 

Act against combinations and attempts to monopolize”); quoted in Federal Trade Commission v. Actavis, Inc., 570 

U.S. __ at *9 (2013). As Judge Posner has explained, “[t]he patent and copyright laws try to strike the outputmaximizing balance by giving the creator of intellectual property some but not complete protection from 

competition.” Richard A. Posner, ANTITRUST LAW 247 (2d ed. 2001).

6 See, e.g., Staff of the Fed. Trade Comm;n, Possible Anticompetitive Barriers to E-Commerce: Contact Lenses 

(Mar. 29, 2004), http://www.ftc.gov/os/2004/03/040329clreportfinal.pdf; Letter from Susan Creighton, Director of 
3

against certain barriers to health care delivery by non-physician providers.7

 Most recently, the FTC has 

submitted comments to multiple cities and taxicab authorities urging that regulations be limited to 

legitimate safety and consumer protection issues, and not impede competition from new ride-hailing 

platforms (such as those offered by Uber and Lyft).8

 FTC officials also recently criticized as “bad policy” 

state laws designed to protect the automobile dealership model from competition from Tesla’s direct-toconsumer sales strategy – a new business model.9

The FTC also lends its expertise on competition to other government agencies considering issues 

that raise competition policy concerns. For example, last year the FTC submitted a comment to the 

Office of the National Coordinator for Health Information Technology (ONC), the U.S. federal entity 

charged with coordination of nationwide efforts to implement advanced health information technology 

and the electronic exchange of health information.10 The FTC provided guidance on how to foster 

innovation and competition when designing rules to speed the adoption of interoperability standards. In 

so doing, the FTC contributed its considerable expertise in promoting competition in the health care 

sector to help ensure that the growing market for health IT systems is open to entry and innovation. The 

 the Bureau of Competition, FTC, et al. to New York Assemblyman William Magee et al. (Mar. 29, 2004), 

http://www.ftc.gov/be/v040012.pdf; 

7 See, e.g., Fed. Trade Comm’n Staff Comment Before the Louisiana House of Representatives on the Likely 

Competitive Impact of Louisiana House Bill 951 Concerning Advanced Practice Registered Nurses (April 20, 

2012), http://ftc.gov/os/2012/04/120425louisianastaffcomment.pdf; Fed. Trade Comm’n Staff Letter to the

Honorable Representative Jeanne Kirkton, Missouri House of Representatives, Concerning Missouri House Bill 

1399 and the Regulation of Certified Registered Nurse Anesthetists (March 27, 2012), 

http://ftc.gov/os/2012/03/120327kirktonmissouriletter.pdf; Fed. Trade Comm’n Staff Letter to the Honorable Paul

Hornback, Senator, Commonwealth of Kentucky State Senate, Concerning Kentucky Senate Bill 187 and the

Regulation of Advanced Practice Registered Nurses (March 26, 2012), 

http://ftc.gov/os/2012/03/120326ky_staffletter.pdf; Fed. Trade Comm’n Staff Comment Before the Maine Board of 

Dental Examiners Concerning Proposed Rules to Allow Independent Practice Dental Hygienists to Take X-Rays in 

Underserved Areas (Nov. 16, 2011), http://ftc.gov/os/2011/11/111125mainedental.pdf.

8 See FTC Staff Comment to the Honorable Brendan Reilly Concerning Chicago Proposed Ordinance O2014-1367 

Regarding Transportation Network Providers (April 15, 2014), 

https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-honorable-brendan-reillyconcerning-chicago-proposed-ordinance-o2014-1367/140421chicagoridesharing.pdf; FTC Staff Comments Before 

the District of Columbia Taxicab Commission Concerning Second Proposed Rulemakings Regarding Chapters 12,

14, and 16 of Title 31 (June 7, 2013), http://ftc.gov/os/2013/06/130612dctaxicab.pdf; FTC Staff Comments to the 

Honorable Debbie Ossiander Concerning AO NO. 2013-36 Regarding the Regulatory Framework for the Licensing 

and Permitting of Taxicabs, Limousines, and Other Vehicles for Hire in Anchorage, Alaska (Apr. 19, 2013), 

http://www.ftc.gov/os/2013/04/130426anchoragecomment.pdf FTC Staff Comments Before the Colorado Public 

Utilities Commission In The Matter of The Proposed Rules Regulating Transportation By Motor Vehicle, 4 Code of 

Colorado Regulations 723-6 (Mar. 6, 2013), http://ftc.gov/os/2013/03/130703coloradopublicutilities.pdf.

9 See Andy Gavil, Debbie Feinstein, and Marty Gaynor, Who Decides How Consumers Should Shop?, Apr. 24, 

2014, http://www.ftc.gov/news-events/blogs/competition-matters/2014/04/who-decides-how-consumers-should-shop.

10 See FTC staff letter to Office of the National Coordinator for Health Information Technology, Apr. 3, 2015, 

https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-office-national-coordinatorhealth-information-technology-regarding-its-draft/1504-roadmaphealth.pdf. 
4

FTC has also encouraged the U.S. International Trade Commission (ITC) to consider the potential for 

anticompetitive hold-up under its statutory public interest factors.11

At its inception, the FTC was also endowed with the authority to study trends in the marketplace 

to inform itself and develop expertise as markets evolve.12 This mandate has proven crucial to the FTC’s 

ability to keep pace with new technology and the competitive implications of innovations. The FTC uses 

its authority in a variety of ways – such as by conducting workshops and soliciting comments from 

industry participants and studying industries using its 6(b) authority – to improve the FTC’s base of 

knowledge and to add to the information that is available to policymakers, academics, industry 

participants, and the public at large. As part of this ongoing process, last year the FTC hosted a workshop 

entitled “The ‘Sharing’ Economy: Issues Facing Platforms, Participants, and Regulators.”13 A variety of 

panelists discussed the economics of platform design, as well as the benefits and potential challenges of 

current innovations in the sharing space. In particular, the panel explained the role of regulation in 

competition between incumbents and disruptive entrants. Entrants spoke of challenges in overcoming 

protectionist regulatory barriers erected at the behest of incumbents. On the other hand, certain 

incumbents expressed concern that new platform-based entrants were obtaining an artificial competitive 

advantage by evading regulations that applied to incumbent firms. While the circumstances in individual 

markets differ, consumers are best served when marketplace success is determined by competitive merit, 

rather than by unjustified disparate regulatory treatment of incumbents and entrants.

The FTC is currently using its authority to issue compulsory process to study trends in markets –

its “6(b) authority” – to examine the activities and impact on innovation of patent assertion entities 

(PAEs). The activity of PAEs differs from the classic activity of other non-practicing entities (NPEs). 

NPEs do not themselves commercialize novel technologies, but they frequently develop and transfer these 

technologies. PAEs, by contrast, typically purchase patents from existing owners and seek to earn 

revenues by licensing (or litigating against) manufacturers that are already using the patented technology. 

There is much we do not understand about PAEs including their impact on competition and innovation. 

The FTC’s report will help to fill this gap and allow industry participants, policymakers, and academics to 

gain a better understanding of the PAE business model. 

 11 See Fed. Trade Comm’n Statement on the Public Interest, In the Matter of Certain Gaming and Entertaining 

Consoles, Related Software, and Components Thereof, No. 337-TA-752, (U.S. Int’l Trade Comm’n filed June 6, 

2012), https://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-comment-united-statesinternational-trade-commission-concerning-certain-gaming-and-entertaining/1206ftcgamingconsole.pdf. 

12 See Section 6(b) of the FTC Act, 15 U.S.C. § 46.

13 See https://www.ftc.gov/news-events/events-calendar/2015/06/sharing-economy-issues-facing-platformsparticipants-regulators.
5

Thus, at the outset, I think it is important to emphasize that the role of the FTC is not merely one 

of a reactive enforcer when it comes to promoting innovation. The U.S. antitrust agencies are frequently 

out in front, using the principles of competition law to help ensure that new and exciting ideas have the 

opportunity to succeed on their merits.

Considering Harms to Innovation in Merger Review 

While we all agree that innovation is important, the circumstances that best promote innovation 

can be difficult to pin down. Economists have drawn no firm conclusions about the existence of a general 

relationship between market structure and innovation.14 Yet in individual merger cases, innovation 

effects can be predicted with some degree of confidence. In these cases, antitrust enforcers should and do 

incorporate innovation effects into our analysis. For this reason, the revised 2010 Horizontal Merger 

Guidelines include a section that specifically addresses innovation effects.15 

In a traditional commodity market – cement, for example – we generally can analyze the 

competitive effects of a merger by looking at price and quantity. If a particular merger is likely to raise 

prices or reduce quantity, we can be reasonably confident that that merger is anticompetitive. But for 

many digital markets, a traditional price-based approach to competition analysis may be ineffective. This 

is particularly true in what are known as two-sided markets, where one side may subsidize the prices users 

pay on the other side. 

Indeed, in the digital context, there are a myriad of examples of products and services offered to 

customers for “free” – such as Internet search engines; social networks like Facebook and Twitter; 

booking engines such as OpenTable and Expedia; and even software such as Adobe PDF. Competition 

can be vigorous even where products or services are offered for free. Often that competition takes the 

form of innovation to provide customers with quality improvements or new products. The issue is 

whether to look just at price effects on the paying side of these platforms, or whether to consider harms –

 14 Economists have disagreed about the conditions that best foster innovation for over half a century. Joseph 

Schumpeter claimed that an innovator required some market power, whereas Kenneth Arrow argued that 

competition best promotes competition. See JOSEPH A. SCHUMPETER, CAPITALISM, SOCIALISM AND DEMOCRACY, 

VIII (3d ed. 1950); Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in THE 

RATE AND DIRECTION OF INVENTIVE ACTIVITY: ECONOMIC AND SOCIAL FACTORS 609 (1962), as cited in David 

McGowan, Innovation, Uncertainty, and Stability in Antitrust Law, 16 Berkeley Tech. L.J. 729, 732 (2001).

15 See U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, 2010 HORIZONTAL MERGER GUIDELINES § 6.4.
6

such as to quality and innovation – on the free side.16 The Guidelines’ section on innovation makes clear 

that we look at both sides in the merger enforcement context.

This is precisely what the FTC did in its review of Zillow-Trulia, which the Commission voted 

unanimously to close last year. On the paying side of the platform, staff investigated whether a merged 

Zillow-Trulia would be able to profitably raise advertising prices to real estate agents. But staff also 

examined whether the merger would reduce the combined entity’s incentives to innovate by developing

new features attractive to consumers, ultimately concluding that it would not.17

The FTC routinely challenges mergers that would harm competition in the research and 

development of new drugs and treatments. In some situations, we may look specifically at an “innovation 

market” or “R&D market.” But innovation is often a key factor in conventional antitrust analysis. When 

a firm is planning to enter or expand its presence in a particular market, there is often some meaningful 

innovation at the heart of that firm’s business plan. Three recent examples from FTC enforcement 

proceedings illustrate this point.

The first is the Commission’s challenge in late 2014 to Verisk Analytics’ proposed acquisition of 

EagleView Technology. That case focused on the market for rooftop aerial measurement products, 

commonly known as “roof reports.”18 EagleView was the leading U.S. provider of these roof reports. 

Verisk was the leading provider of downstream software platforms, but had recently made a foray into the 

market for roof reports themselves. There was strong qualitative evidence that Verisk was uniquely well 

positioned to compete against EagleView in providing roof reports. One of the things the FTC examined 

was the likely future competition between the merging parties to offer customers ever more innovative 

products.19 In particular, Verisk had invested in capturing higher-resolution aerial images than those used 

by EagleView, which promised even more accurate measurement tools for customers.20 So while the 

 16 While two-sided markets may be more common in high-tech markets, they are hardly new. Newspapers and 

television programs are longstanding examples of two-sided markets. Antitrust has dealt with these issues in the 

past. Though they may be more common in the digital economy, this is not a radical enough event to abandon our 

current antitrust tools. 

17 See Statement of Commissioners Ohlhausen, Wright, and McSweeny Concerning Zillow, Inc. / Trulia, Inc., File 

No. 141-0214 (Feb. 19, 2015), 

https://www.ftc.gov/system/files/documents/public_statements/625671/150219zillowmko-jdw-tmstmt.pdf. 

18 Roof reports calculate roof dimensions from aerial images. These reports are used primarily for insurance 

purposes. 

19 Complaint, In the Matter of Verisk Analytics, Inc., and EagleView Technology Corp., Dkt. No. 9363 ¶ 40 (Dec. 

16, 2014), http://www.ftc.gov/system/files/documents/cases/141216veriskcmpt.pdf.

20 After the FTC filed for an injunction, the parties promptly abandoned the deal. Developments since that time 

have demonstrated the wisdom of the Commission’s action. Verisk announced last year that it was accelerating its 

collection of high-resolution aerial images. In its press release, Verisk characterized its initiative as merely “the 
7

FTC did not define an “innovation” market, innovation nonetheless played a crucial role in staff’s 

analysis and in the decision to challenge the merger. 

The second example is the FTC’s challenge last year to the merger between Steris and Synergy, 

the second and third-largest sterilization companies in the world. Synergy did not operate in the United 

States, but company documents showed that it was working to introduce an innovative x-ray sterilization 

technology into the United States to compete against Steris. While other forms of sterilization exist in the 

United States, none of the existing market participants offered x-ray sterilization on a commercially 

significant scale. The Commission alleged that the merger would harm future competition by terminating 

Synergy’s entry plans and would deprive customers of a promising new sterilization technology.21

Unfortunately, last September the district court judge denied the FTC’s request for injunctive 

relief. The judge disagreed with the FTC that Synergy would have entered the United States with x-ray 

sterilization services within a reasonable amount of time to compete against Steris. The Commission 

subsequently dismissed the administrative action. While I disagreed with the district court judge’s ruling, 

this matter nevertheless provides a concrete example of the Commission’s willingness to take innovation 

and quality competition seriously by considering the potentially disruptive effects of new technologies.

The third example is the Commission’s 2013 consent in the Nielsen/Arbitron matter. In that case, 

which was before my time at the Commission, the FTC required a divestiture of competitive assets 

because the merging parties were the best-positioned firms to develop a cross-platform audience 

measurement product increasingly sought by media companies and advertisers – even though that product 

had “yet to be developed and marketed.”22

The Department of Justice (DOJ) also looks closely at innovation in its merger analysis. Two 

years ago, the DOJ prevailed in its challenge of Bazaarvoice’s consummated acquisition of 

PowerReviews – a case that involved online product review and ratings platforms.23 In that case, DOJ 

alleged that the two companies had previously engaged in “feature driven one-upmanship,” and that the

 

most recent step [in the company’s] ongoing efforts” in the area, and cited Verisk’s “long-term commitment to the 

highest-quality imagery and data.” Verisk Press Release, Verisk Insurance Solutions Announces Expansion of 

Imagery Database, Aug. 4, 2015, http://www.verisk.com/press-releases-verisk/2015/august-2015/verisk-insurancesolutions-announces-expansion-of-imagery-database.html. 

21 Complaint, In the Matter of Steris Corp. and Synergy Health PLC, Dkt. No. 9365 ¶¶ 68-70 (May 29, 2015), 

https://www.ftc.gov/system/files/documents/cases/150529sterissynergypart3cmpt.pdf. 

22 Statement of the Fed. Trade Comm’n, In the Matter of Nielsen Holdings N.V. and Arbitron Inc., File No. 131-

0058, at 1 (Sept. 20, 2013), http://www.ftc.gov/system/files/documents/cases/140228nielsenholdingstatement.pdf. 

23 See U.S. v. Bazaarvoice, 2014 U.S. Dist. LEXIS 3284 (N.D. Cal. 2014).
8

transaction “significantly reduced incentives to . . . invest in innovation.”24 The court in Bazaarvoice

acknowledged that the social commerce industry was “at an early stage of development, rapidly evolving, 

fragmented, and subject to potential disruption by technological innovations” and that “the future 

composition of the industry as a whole is unpredictable.”25 Judge Orrick held, however, that “while 

Bazaarvoice indisputably operates in a dynamic and evolving field, it did not present evidence that the

evolving nature of the market itself precludes the merger’s likely anticompetitive effects.”26

Even in dynamic markets, changes in market structure may be episodic and infrequent. 

Facebook’s displacement of Myspace is often cited as an example of the tenuous position of seemingly 

dominant firms in digital markets. Over time, Facebook’s market position has remained stable and 

arguably strengthened. Google has been the leading U.S. search engine for twelve years running and has 

accounted for over 60 percent of searches since 2008.27 I am not suggesting that the continued success of 

either company is problematic in and of itself. My point is merely that industry structure may prove as 

durable in digital and high-tech fields as in “old economy” markets. It would be a mistake to view the 

mere possibility of disruptive entry as a reason to refrain from appropriate antitrust enforcement in digital 

and high-tech markets.

Stopping Conduct That Harms Innovation: The Intersection of IP & Competition

It is generally acknowledged that a careful balance is required between competition and 

intellectual property protections to optimize innovation and output. The fundamental question for policy 

makers is the degree of strength necessary for intellectual property protections. Ultimately, this is a 

decision for legislators. But it is the job of courts and agencies to seek an accommodation between 

antitrust and intellectual property protections in individual instances. From a competition perspective, 

intellectual property protections represent a valuable market correction that increases the incentives to 

create intellectual property. The optimal level of protection varies by the type of intellectual property and 

 24 Complaint, U.S. v. Bazaarvoice, Inc., C-13-0133 ¶¶ 8, 62 (N.D. Cal. Jan. 10, 2013), 

https://www.justice.gov/atr/case-document/file/488911/download. 

25 Id. at *34.

26 Id. at *261.

27 Data from comScore. For a graph of historical U.S. search engine market shares, see Dan Frommer, Google’s 

growth since its IPO is simply amazing, QUARTZ (Aug. 19, 2014), http://qz.com/252004/googles-growth-since-itsipo-is-simply-amazing/.
9

underlying industry.28 But a lawful patent or other IP right – a lawful monopoly – may nonetheless be 

used or extended in unlawful ways.

The FTC is confronting the question of how and where to draw the lines between competition and 

IP on a number of fronts – challenging anticompetitive reverse payments, studying the role played by 

PAEs, and ensuring that standard essential patents (SEPs) are used to encourage standard-setting and not 

to engage in “hold-up.” Getting the balance right on these issues is important to promoting the dual goals 

of innovation and competition.

The Commission is probably most well-known for its work related to reverse payment 

settlements (or “pay-for-delay” agreements). 29 The settlement of a Hatch-Waxman patent infringement 

suit has the potential to cause competitive harm if the generic manufacturer agrees to delay its entry into 

the market in exchange for some sort of compensation from the brand name manufacturer that the generic 

could not have obtained even if it prevailed in the infringement litigation. In this situation, the brand and 

generic each make more money by sharing in the brand’s monopoly profits instead of competing –

reducing output and harming consumers who pay higher prices for prescription drugs. 

For nearly two decades, the FTC has worked to stop anticompetitive reverse payment settlements. 

The Supreme Court’s 2013 decision in Actavis was a major victory for the FTC because it confirmed the 

potential harm to competition from reverse payments. Developments since have been positive – the 

number of reverse payment settlements has decreased and more patent disputes are now being settled 

without reverse payments.30 

Last year, the FTC secured a $1.2 billion settlement in FTC v. Cephalon, a case involving 

anticompetitive reverse payments that delayed generic competition for the blockbuster sleep disorder drug 

 28 Patents generally offer protection for 20 years, although extensions of that term are granted in certain 

circumstances. Hatch Waxman, for example, provides for patent extensions to account for the time necessary to 

obtain FDA approval for pharmaceuticals. The Orphan Drug Act provides for seven years of exclusivity for specific 

indications following FDA approval, regardless of the drug’s patent status. Copyright law generally protects the 

work of authors for life plus 70 years. 

29 Reverse payments are so-named because they involve the unusual circumstance of a plaintiff (the incumbent 

patent-holder) paying a defendant (the potential entrant) to settle litigation. The payment thus flows in the “reverse” 

direction of what one would commonly expect in a patent settlement.

30 Press Release, Fed. Trade Comm’n, FTC Report on Drug Patent Settlements Shows Potential Pay-for-Delay Deals 

Decreased Substantially in the First Year Since Supreme Court’s Actavis Decision (Jan. 13, 2016), 

https://www.ftc.gov/newsevents/press-releases/2016/01/ftc-report-drug-patent-settlements-shows-potential-paydelay.
10

Provigil. Money will go to reimburse those who overpaid for Provigil.31 As part of the settlement, Teva 

Pharmaceuticals, which bought Cephalon, also agreed not to use certain types of anticompetitive patent 

settlements going forward. 

The FTC will continue to act when there is evidence that these types of reverse payments are 

anticompetitive. Just this spring, the FTC filed suit against Endo and several generic firms for entering 

into illegal reverse payment agreements to delay entry of generic versions of two drugs, Opana ER and 

Lidoderm.32 Endo is the first FTC case that challenges a no-authorized generic (no-AG) commitment as a 

form of reverse payment. When a generic enters a market, the branded firm commonly introduces an 

“authorized generic” version of the drug, which it sells at a discount to the branded price as a way of 

recapturing some of the sales that it would otherwise lose to the generic entrant. By making a no-AG 

commitment, a branded firm gives up its right to market an authorized generic in competition against the 

entrant following the agreed-upon generic entry date.

The statutory and regulatory aspects of the pharmaceutical sector are unique. But the role that 

competition enforcers play in striking a balance between intellectual property and competition is not. The 

FTC has also been actively involved in study, advocacy and enforcement in the standard setting context –

specifically examining the licensing of patents that are essential to standards, so-called standard essential 

patents or “SEPs” and the potential for patent-holders to use these SEPs for hold-up. At the outset, it is 

crucial to understand that a FRAND commitment is a voluntary commitment by a patent holder to license 

its intellectual property on fair, reasonable, and non-discriminatory terms in exchange for the inclusion of 

its technology in a standard. FRAND commitments arose organically among standard-setting 

organizations (SSOs) in order to mitigate hold-up, and were not imposed on SSOs by governments or 

other outside parties.33

Hold-up refers to the fact that the bargaining position of a patent-holder may increase 

considerably after a patent is included in the standard. Once firms begin to make investments to practice 

 31 See Press Release, Fed. Trade Comm’n, FTC Settlement of Cephalon Pay for Delay Case Ensures $1.2 Billion in 

Ill-Gotten Gains Relinquished; Refunds Will Go To Purchasers Affected By Anticompetitive Tactics (May 28, 

2015), https://www.ftc.gov/news-events/press-releases/2015/05/ftc-settlement-cephalon-pay-delay-case-ensures-12-

billion-ill. 

32 Press Release, Fed. Trade Comm’n, TC Sues Endo Pharmaceuticals Inc. and Others for Illegally Blocking LowerCost Generic Versions of the Branded Drugs Opana ER and Lidoderm (Mar. 31, 2016), https://www.ftc.gov/newsevents/press-releases/2016/03/ftc-sues-endo-pharmaceuticals-inc-others-illegally-blocking-lower.

33 U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY 

RIGHTS: PROMOTING INNOVATION AND COMPETITION 42 (April 2007) (describing FRAND licensing as an “SSO 

Method[] to Avoid or Mitigate Hold Up”).
11

the standard, they become locked-in.34 By taking advantage of this enhanced bargaining position, a 

standard-essential patent (SEP) holder can demand higher royalty rates, or other more favorable licensing 

terms, than it could have obtained before lock-in occurred. As Dennis Carlton has explained, once a 

patent is included in a standard, “the patent owner definitely has some additional market power conferred 

on him that he can exploit in the absence of a constraint on him.”35 That added market power derives 

from the value of the standard itself, rather than the value of the underlying intellectual property.36

Hold-up is a standard, straightforward concept in economics. Oliver Williamson won the Nobel 

Prize in economics in 2009 due in no small part to his work showing how opportunistic behavior such as 

hold-up can lead to inefficient economic outcomes.37 Patent hold-up can hamper standard-setting efforts, 

distort incentives for innovation, and potentially lead to higher prices and reduced output for consumers.38 

Hold-up becomes an antitrust issue when parties obtain their leverage as a result of standard-setting, 

which substitutes collective decision making by competitors for the normal competitive process.

By making a FRAND commitment, an SEP-holder chooses to monetize its technology through 

licensing rather than through exclusion. This makes it inappropriate, in most circumstances, for an SEPholder to seek injunctive or exclusionary relief. As Carl Shapiro has explained, “[t]he economics here 

clearly teaches us that exclusion orders or injunctions tip the balance of power in negotiations towards 

royalties that are excessive rather than just reasonable.”39

The good news is that the SEP system works well overall. The Supreme Court’s decision in eBay 

Inc. v. MercExchange, LLC “provides a framework for evaluating whether to issue an injunction in the 

 34 See, e.g., FED. TRADE COMM’N, THE EVOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE AND REMEDIES 

WITH COMPETITION 22 (March 2011).

35 Economists’ Roundtable on Hot Patent-Related Antitrust Issues, 27 ANTITRUST 11 (Sum. 2013).

36 As a general principle, a FRAND rate should reflect value that the patented technology brings to consumers, 

relative to the other technologies available when the technology was chosen for the standard. See, e.g., Ericsson, 

Inc. v. D-Link Systems, Inc. 773 F.3d 1201, 1235 (Fed. Cir. 2014) (“We further hold that district courts must make 

clear to the jury that any royalty award must be based on the incremental value of the invention, not the value of the 

standard as a whole or any increased value the patented feature gains from its inclusion in the standard”).

37 See Avanish Dixit, Remarks at the AEA 2011 Nobel Lunch Honoring Elinor Ostrom and Oliver Williamson, 

January 8, 2011, at 3, https://www.princeton.edu/~dixitak/home/NobelLunchTalkJan2011.pdf. 

38 See, e.g., Innovatio IP Ventures, LLC Patent Litigation, MDL No. 2303, 2013 U.S. Dist. LEXIS 144061 *64 

(N.D. Ill. Oct. 3, 2013) (“In light of all of the testimony, and particularly the evidence about Broadcom’s real-world 

concerns about patent hold-up, the court concludes that patent hold-up is a substantial problem that RAND is 

designed to prevent”); Microsoft Corp. v. Motorola, Inc., 2013 U.S. Dist. LEXIS 60233 *38 (W.D. Wash. Apr. 25, 

2013) (“Hold-up can threaten the diffusion of valuable standards and undermine the standards-setting process).

39 Economists’ Roundtable on Hot Patent-Related Antitrust Issues, supra note 35, at 12. In the same roundtable, 

Dennis Carlton stated that “[a]llowing somebody to get an injunction or go to the ITC and get an exclusion order 

undercuts the whole purpose of FRAND. So except in special circumstances we should not allow it.” Id.
12

standard-setting context.”40 The U.S. International Trade Commission is currently looking at evidence of 

hold-up and hold-out to determine when it is appropriate to issue an exclusion order in the presence of a 

FRAND commitment. Moreover, the vast majority of SEP licenses are successfully negotiated by parties 

today without involving the courts or the agencies. There is little reason to think that that will change. In 

the U.S., the courts are there to make a determination when private parties are unable to reach agreement 

on what a negotiated FRAND rate should be. This is not particularly different from the role courts play 

when parties are unable to agree on any other aspect of contract interpretation. 

When courts have been asked to determine FRAND rates, their findings have tended to be 

substantially lower than the rates sought by the FRAND-encumbered SEP holders which suggests that 

hold-up has played a role in licensing negotiations. For example, in Microsoft Corp. v. Motorola, Inc. 

(W.D. Wash. Apr. 25, 2013), Motorola sought to exclude Microsoft’s gaming consoles from the United 

States and demanded that Microsoft pay royalties of between $6–8 per console for the use of patents 

reading on the 802.11 and H.264 standards. The court determined that the FRAND rate was less than 

four cents per unit for the 802.11 standard, and less than one cent per unit for the H.264 standard. The 

cumulative FRAND royalty found appropriate by the court was approximately 1/150th the royalty sought 

by Motorola.41 In Realtek Semiconductor Corp. v. LSI Corp., (N.D. Cal. June 16, 2014), LSI filed an 

action with the U.S. ITC seeking an exclusion order and then offered to license Realtek the underlying 

SEPs in exchange for a royalty that exceeded the selling price of Realtek’s standard-compliant products. 

The federal district court determined that the cumulative FRAND royalty to which LSI was entitled was 

0.19% of the selling price – less than 1/500th the amount that LSI had been seeking.42 In both cases, the 

FRAND royalty rates offered by SEP-holders were orders of magnitude higher than what a neutral 

arbitrator found to be fair and reasonable.

When a licensing commitment to an SSO and its members is not honored, there may be a role for 

competition law. For example, in 2012, the FTC resolved an investigation involving Google/Motorola 

Mobility in which Motorola Mobility allegedly undermined the procompetitive standard-setting process 

 40 ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS: PROMOTING INNOVATION AND COMPETITION

22, supra note 33.

41 Microsoft Corp. v. Motorola, Inc., 2013 U.S. Dist. LEXIS 60233* 303 (W.D. Wash. Apr. 25, 2013). The 

cumulative royalty of 4.026 cents was 1/149th the FRAND rate sought by Motorola. The court also calculated 

ranges of RAND rates. The sum of the “upper bound” of these ranges was just under 36 cents. This upper bound 

was less than 1/16th of the FRAND rate sought by Motorola.

42 Realtek Semiconductor Corp. v. LSI Corp., 2014 U.S. Dist. LEXIS 81673 * 23 (N.D. Cal. June 16, 2014).
13

by committing to license on FRAND terms, and then seeking injunctions and exclusion orders against 

willing licensees.43

The U.S. antitrust agencies have been actively involved in efforts to contribute to an 

understanding of the standard-setting process and the role of FRAND commitments. The agencies 

published a joint report on antitrust and intellectual property in 2007.44 The FTC published a further 

report on patent remedies in 2011.45 The agencies have also provided Congressional testimony and the 

FTC has filed statements with courts and the U.S. International Trade Commission on issues related to 

standard-essential patents. 46

Examining New Frontiers in a Digital World: Big Data & Algorithms

Big Data

Technological innovation has created several new frontiers in antitrust analysis. I will focus 

briefly on two: the competitive significance of “big data” and the role of algorithms and machine learning 

in high velocity computerized markets.

Big data is generally characterized by the “three Vs” – volume, velocity, and variety. Each of 

these categories is growing briskly – there is more data than ever before, companies can accumulate and 

analyze data faster than ever before, and increasingly sophisticated data analytics permit companies to 

combine and jointly analyze more previously disparate sources of data than ever before.47

 43 Decision and Order, Fed. Trade Comm’n, In the Matter of Motorola Mobility LLC and Google Inc., Dkt. No. C4410 (July 24, 2013), https://www.ftc.gov/sites/default/files/documents/cases/2013/07/130724googlemotorolado.pdf. 

44 See ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS, supra note 33.

45 See THE EVOLVING IP MARKETPLACE, supra note 34.

46 See, e.g., Fed. Trade Comm’n, Statement on the Public Interest, In the Matter of Certain Gaming and 

Entertainment Consoles, No. 337-TA-752 (U.S. Int’l Trade Comm’n, filed June 6, 2012), 

http://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-comment-united-states-internationaltrade-commission-concerning-certain-gaming-and-entertaining/1206ftcgamingconsole.pdf; Press Release, Fed. 

Trade Comm’n, FTC Testifies Before Congress on Standard Essential Patents and How Patent “Hold-Up” Affects 

Competition (July 30, 2013), http://www.ftc.gov/news-events/press-releases/2013/07/ftc-testifies-congress-standardessential-patents-how-patent-hold. Other U.S. government agencies have also weighed in on the use of injunctions 

and exclusion orders in the SEP context. See, e.g., U.S. Dep’t of Justice and U.S. Patent & Trademark Office, 

Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (Jan. 8, 

2013), http://www.justice.gov/atr/public/guidelines/290994.pdf. 

47 See FED. TRADE COMM’N, BIG DATA: A TOOL FOR INCLUSION OR EXCLUSION 1-2 (Jan. 2016), 

https://www.ftc.gov/system/files/documents/reports/big-data-tool-inclusion-or-exclusion-understandingissues/160106big-data-rpt.pdf.
14

As companies continue to innovate in their collection and analysis of big data, we can expect big 

data to play a growing role in the competitive decision-making of more and more firms. This raises a 

question of how competition policy should treat this new business asset. Can “big data” constitute a 

relevant market and can “big data” be a barrier to entry? The short answer to both these questions is: yes. 

The longer answer is, quite appropriately, that it depends on the facts. Antitrust agencies take a case-bycase approach to looking at markets and potential barriers to entry. I am not aware of evidence today that 

warrants treating “big data” as a special case – either by inferring that it always conveys market power or 

operates as a barrier to entry on the one hand, or by categorically exempting it from antitrust scrutiny on 

the other. In the big data world, there’s a lot of data that anyone can obtain for a fairly nominal cost. But 

there is also a lot of valuable data that is proprietary and could operate as a barrier to entry. It may be that 

an incumbent has significant advantages over new entrants when a firm has a database that would be 

difficult, costly, or time consuming for a new firm to match or replicate.

The FTC has treated data as a relevant market in one recent case and found it to be a barrier to 

entry in others based on the specific facts and circumstances related to competition in those markets. In 

Dun & Bradstreet-Quality Education Data (2010), the FTC determined that data, itself, was the relevant 

product. The FTC found that the parties “were the only significant U.S. suppliers of [K-12] educational 

marketing data.”48 Other sources of marketing data were not close substitutes “because of their more 

limited coverage, reduced functionality, and less frequent updating.”49

In Nielsen-Arbitron (2013), the FTC determined that the proprietary data of Nielsen and Arbitron 

was a key input to offering downstream cross-platform audience measurement services. The parties had 

“the most accurate and preferred sources of individual-level demographic data for [television and radio] 

audience measurement purposes.”50 In other words, it would be difficult for other firms to replicate the 

data generated internally by Nielsen or Arbitron. The FTC found access to television audience data with 

individual-level demographic information to be a significant barrier to entry.51 The consent required 

 48 Analysis of Agreement Containing Consent Order to Aid Public Comment, In the Matter of The Dun & Bradstreet 

Corporation, Dkt. No. 9342, at 1 (Sept. 10, 2010), 

https://www.ftc.gov/sites/default/files/documents/cases/2010/09/100910dunbradstreetanal.pdf.

49 Id. The FTC found two “significant barriers to entry” related to data provision: (1) the “time and cost to develop a 

database with market coverage and accuracy comparable to MDR or QED’s pre-merger databases”; and (2) “the 

need to obtain a reputation for data quality.” Id. The consent agreement required Dun & Bradstreet to divest an 

updated and augmented K-12 database, together with Quality Education Data’s brand name and associated 

intellectual property, to a competitor in the K-12 data market. Id. at 2.

50 Analysis of Agreement Containing Consent Order to Aid Public Comment, In the Matter of Nielsen Holdings 

N.V. and Arbitron Inc., File No. 131-0058 (Sept. 20, 2013) at 2, 

https://www.ftc.gov/sites/default/files/documents/cases/2013/09/130920nielsenarbitronanalysis.pdf.

51 Id. at 3.
15

divestiture of assets related to Arbitron’s cross-platform audience measurement business, including data 

from Arbitron’s representative panel.

The FTC treated data as an input in the market for electronic public records services for law 

enforcement customers in Reed Elsevier-ChoicePoint (2008). Reed Elsevier’s Lexis-Nexis and 

ChoicePoint were the largest suppliers of public records services, with a combined 80% market share. 

The FTC found that the parties’ combination of data and analytics were unique among electronic public 

records services. Law enforcement customers demanded “the most complete database of public records” 

and “sophisticated search algorithms . . . that identify and display non-obvious relationships between 

records.”52 Other firms also possessed what could be described as the public records version of “big 

data.” But the quality of those (in terms of breadth and depth), and the analytics offered in connection 

with those data were insufficient to enable those other firms to compete effectively for law enforcement 

customers.53

On the flip side, the FTC decided to close its Google-DoubleClick investigation in 2007.54 Staff 

examined whether the combination would enhance Google’s power in the ad intermediation market and 

concluded that it would not. The FTC found that “neither the data available to Google, nor the data 

available to DoubleClick, constitutes an essential input to a successful online advertising product.”55 

These examples highlight the fact that there is no one-size-fits-all approach to data holdings, and that 

appropriate antitrust analysis to this issue is a fact-specific enterprise.

As businesses come to rely increasingly on big data, privacy and data protection concerns have 

become frequent topics in discourse about competition policy. Some have suggested that competition law 

should focus more on privacy and data protection issues in analyzing platforms and other high-tech 

industries. Others, particularly in Europe, have suggested that competition law should be used as a tool to 

improve privacy and data protections for consumers.

 52 Analysis of Agreement Containing Consent Order to Aid Public Comment, In the Matter of Reed Elsevier and 

ChoicePoint, File No. 081-0133 (Sept. 16, 2008) at 2, 

https://www.ftc.gov/sites/default/files/documents/cases/2008/09/080916reedelseviercpanal.pdf.

53 Entry/expansion within a two-year time horizon was unlikely because existing firms “would need to improve their 

software and underlying analytics substantially, increase the breadth and depth of their public records data, and 

overcome [reputational barriers].” Id. at 3. The consent required ChoicePoint to divest assets related to its relevant 

law-enforcement related electronic public records services to Thomson Reuters.

54 Google was the dominant provider of “sponsored search advertising” – and, through its AdSense network, was 

also an ad intermediary. DoubleClick was a leading ad server – a company that manages the selection, delivery, and 

placement of advertisements for publishers and advertisers.

55 Statement of the Fed. Trade Comm’n Concerning Google/DoubleClick (Dec. 20, 2007), File No. 071-0170 at 12, 

https://www.ftc.gov/system/files/documents/public_statements/418081/071220googledc-commstmt.pdf. 
16

In general, I see antitrust review and broader policy concerns regarding privacy and data 

protections as two separate, but important issues. The U.S. antitrust agencies routinely analyze non-price 

considerations where there is evidence that those non-price considerations are important to competition. 

The FTC has yet to challenge a merger specifically based on the likelihood that it would lead to a 

diminution in privacy protections, but we have recognized the possibility that consumer privacy can be a 

non-price dimension of competition. 

Absent a clear nexus to competition, however, privacy and data protection concerns are best 

handled as consumer protection issues.56 For example, in Facebook-WhatsApp (2014), staff from the 

FTC’s Bureau of Consumer Protection (BCP) focused on how the merger would affect the promises that 

WhatsApp had made to consumers about the limited nature of the data it collects, maintains, and shares 

with third parties – promises that exceeded those of Facebook at the time the merger was announced. 

BCP concluded it was appropriate to alert the companies about these privacy concerns and assure the 

public that the protections of applicable law, including Section 5 and a 2011 FTC order against Facebook, 

would apply to WhatsApp’s data.57 This was a consumer protection issue, and it was handled 

appropriately as such. On the competition side, our Bureau of Competition staff allowed the transaction 

to proceed with no conditions.

Similarly, concerns were raised last year regarding RadioShack’s proposed sale of its database of 

customers as part of its ongoing bankruptcy proceedings. Several states objected to the proposed sale on 

the grounds that RadioShack had promised customers that it would not resell customer data to third 

parties.58 Our BCP director, Jessica Rich, wrote a letter acknowledging the “special circumstances” 

 56 Our agency has evolved into the premier privacy enforcer through our existing consumer protection authorities. 

Since we brought our first data privacy case over a decade ago, the FTC has brought more than 50 cases alleging 

violations of consumers’ privacy. Additionally, the FTC has used its convening power to hold workshops and issue 

reports on leading data issues. Our recent report entitled “Big Data: A Tool for Inclusion or Exclusion?” examined 

how the uses of big data affected consumers – particularly vulnerable groups and protected classes. FED. TRADE 

COMM’N, BIG DATA: A TOOL FOR INCLUSION OR EXCLUSION (Jan. 2016), 

https://www.ftc.gov/system/files/documents/reports/big-data-tool-inclusion-or-exclusion-understandingissues/160106big-data-rpt.pdf. The report found, that while there are readily identifiable pitfalls in the use of big 

data which could result in discriminatory effects, there are existing legal protections to ensure we do not diminish 

hard won protections as Big Data usage becomes more prevalent.

57 Letter from Jessica Rich, Director, Bureau of Consumer Protection, Fed. Trade Comm’n, to Erin Egan, Chief 

Privacy Officer, Facebook, and to Anne Hoge, General Counsel, WhatsApp Inc. (April 10, 2014), 

https://www.ftc.gov/system/files/documents/public_statements/297701/140410facebookwhatappltr.pdf. 

58 See Megan Geuss, FTC Proposes a Compromise so RadioShack Can Sell Consumer Data, ARS TECHNICA, May 

18, 2015, http://arstechnica.com/tech-policy/2015/05/ftc-proposes-a-compromise-so-radioshack-can-sell-consumerdata/.
17

involved in a bankruptcy proceeding and providing guidance on how RadioShack might transfer customer 

information in a manner consistent with the promises it had made to consumers.59

The European Data Protection Supervisor has recently suggested that consumers do not 

appreciate the actual costs associated with “free” products – and that “it may therefore be necessary to 

develop a concept of consumer harm, particularly through violation of rights to data protection, for 

competition enforcement in digital sectors of the economy.”60 I’m open to the possibility that consumers 

may systematically underestimate the effects of privacy or data protection practices – or that they may 

simply make the rational decision that it isn’t worth the time to fully evaluate those costs. The FTC has 

advocated for greater transparency and choice for consumers with respect to privacy and data protection 

policies, including recommending that Congress consider enacting general privacy legislation, data 

security and breach notification legislation, and data broker legislation.61 

At the same time, I believe that it is dangerous to engage in competition analysis based on what 

we think consumers should want or value, independent of market realities. To do so is to cross the line 

from antitrust enforcement to market regulation. However well intentioned, I do not believe that this is 

the appropriate role of antitrust law. 

If market participants are competing on the basis of privacy or data policies to attract consumers, 

that would certainly be an element of our competition analysis. But if they aren’t, and if there isn’t 

evidence that those dimensions are particularly relevant to competition, then using competition law to 

address privacy or data issues is like trying to force a square peg into a round hole. To the extent that 

there is a problem, it should be solved through legislation, regulation, or consumer protection law 

enforcement – not using the antitrust laws to solve a policy issue they are ill-suited to address.

 59 Letter from Jessica Rich, Director, Bureau of Consumer Protection, Fed. Trade Comm’n, to Elise Frejka, 

Founding Member, Frejka PLLC (May 16, 2015), 

https://www.ftc.gov/system/files/documents/public_statements/643291/150518radioshackletter.pdf. 

60 Preliminary Opinion of the European Data Protection Supervisor, Privacy and Competitiveness in the Age of Big 

Data: The Interplay between Data Protection, Competition Law and Consumer Protection in the Digital Economy ¶ 

71 (Mar. 2014), 

https://secure.edps.europa.eu/EDPSWEB/webdav/shared/Documents/Consultation/Opinions/2014/14-03-

26_competitition_law_big_data_EN.pdf.

61 See, e.g.,FED. TRADE COMM’N, PROTECTING CONSUMER PRIVACY IN AN ERA OF RAPID CHANGE:

RECOMMENDATIONS FOR BUSINESSES AND POLICYMAKERS (2012), 

https://www.ftc.gov/sites/default/files/documents/reports/federal-trade-commission-report-protecting-consumerprivacy-era-rapid-change-recommendations/120326privacyreport.pdf; FED. TRADE COMM’N, DATA BROKERS: A

CALL FOR TRANSPARENCY AND ACCOUNTABILITY (2014), https://www.ftc.gov/system/files/documents/reports/databrokers-call-transparency-accountability-report-federal-trade-commission-may-2014/140527databrokerreport.pdf. 
18

Algorithms

The rise of high-velocity computerized markets also present a new frontier for antitrust 

enforcers. Last year, DOJ brought a case for price fixing against two e-commerce sellers who agreed to 

align their algorithms to increase online prices for their goods – posters.62 In that case humans reached 

an agreement to use technology to fix prices – but how should antitrust enforcers handle situations in 

which the human role is less clear? Traditionally, there are three challenges to maintaining a collusive 

scheme: (1) detecting cheating among participants, (2) responding to new market developments, and (3) 

avoiding detection by antitrust officials. Algorithms could be used in an attempt to overcome these 

challenges, such as by automating conspirators’ responses to changing market developments or speeding 

them up, mitigating the need for ongoing coordination between the participants.

There is also a possibility that, as algorithms become more sophisticated, they may be more likely 

to engage in consciously parallel behavior. Professors Maurice Stucke and Ariel Ezrachi co-authored a 

recent paper on artificial intelligence and the enforcement challenges that may be raised by collusion 

involving pricing algorithms.63 They suggest that it may be difficult to challenge algorithms engaged in 

conscious parallelism under current laws absent awareness or anticompetitive intent by the humans using 

the technology. They urge policymakers to recognize the “dwindling relevance of traditional antitrust 

concepts of ‘agreement’ and ‘intent’” in the digital age.64

An increase in the sophistication of pricing algorithms could also lead to narrower product market 

definitions in the future. Under the 2010 Horizontal Merger Guidelines, we specifically evaluate the 

possibility of price discrimination against targeted customers. Big data and algorithms enable sellers to 

more effectively target and price discriminate against specific customers. Thus, even though a company 

may not have been able to effectively target certain consumers for higher prices in the past, that in itself is 

no guarantee that it may not be able to do so in the future. Data are becoming more robust and algorithms 

are becoming more powerful.

The use of algorithms also raises significant consumer protection issues, most notably the 

potential for price discrimination based on suspect classifications – even in the absence of a specific intent 

 62 See Press Release, U.S. Dep’t of Justice, Former E-Commerce Executive Charged with Price Fixing in the 

Antitrust Division’s First Online Marketplace Prosecution (Apr. 6, 2015), http://www.justice.gov/opa/pr/former-ecommerce-executive-charged-price-fixing-antitrust-divisions-first-online-marketplace.

63 See Ariel Ezrachi & Maurice E. Stucke, Artificial Intelligence & Collusion: When Computers Inhibit Competition 

(U. Oxford Centre for Competition Law and Policy, Working Paper CCLP (L) 40, 2015), 

https://www.law.ox.ac.uk/sites/files/oxlaw/cclpl40.pdf.

64 Id. at 37-38.
19

to engage in that discrimination. Earlier this year, the FTC put out a report entitled “Big Data: A Tool for 

Inclusion or Exclusion.” The report highlights the broad benefits for consumers through the use of big 

data sets and algorithms, but it also notes the downsides that come if the data are flawed or if the 

algorithm makes poor decisions about consumers.65 While we can expect increased technological 

innovation in the development and use of algorithms, we must carefully analyze their impact from both a 

competition and consumer protection perspective to ensure that specific innovations do not have the 

intended or unintended consequence of harming consumers.

Conclusion

As we advance further into the 21st century – complete with its brave new world of innovation, 

big data, and novel technology – we will face new challenges as competition enforcers. We must be 

mindful of these challenges, yet we must also continue to be aggressive in advancing our mission to 

protect consumers and to promote competition.

 65 For example, if a credit-scoring program only offers prime credit deals to graduates of four-year colleges because 

of how the algorithm was designed, then it is likely that some very good consumers will never have the opportunity 

to use that product. There can also be cases where protected classes receive very different search results than others. 

In these cases, I think it is important that companies approach these issues with an open mind and bring in a level of 

understanding. Algorithms are an efficiency, but they should not negate human judgment or human wisdom.