Source: http://www.techlawjournal.com/alert/2010/12/06.asp
Timestamp: 2019-04-18 10:27:27+00:00

Document:
TLJ Daily E-Mail Alert No. 2,170, December 6, 2010.
December 6, 2010, 7:00 AM, Alert No. 2,170.
11/30. The European Commission (EC) announced in a release that it has "decided to open an antitrust investigation into allegations that Google Inc. has abused a dominant position in online search, in violation of European Union rules".
The EC disclosed that it has received complaints from "search service providers about unfavourable treatment of their services in Google's unpaid and sponsored search results coupled with an alleged preferential placement of Google's own services".
The EC has also investigated and imposed huge fines on Intel and Microsoft. Google, Intel and Microsoft are all US based companies. In addition, the main complainants and beneficiaries of these EC antitrust actions are US companies. The EC did not explain why it is acting as the antitrust regulator of these US companies, and asserting and establishing itself as a de facto global antitrust regulator.
The EC's antitrust regulators lack the expertise of US Federal Trade Commission's (FTC) Bureau of Economics, and the Department of Justice's (DOJ) Antitrust Division's economists.
Google stated in a release that "It may seem obvious, but people sometimes forget this -- not every website can come out on top, or even appear on the first page of our results, so there will almost always be website owners who are unhappy about their rankings. The most important thing is that we satisfy our users."
It added that "Before we launched Google, many search engines took money for inclusion in their results without making that clear to users. We have never done that and we always distinguished advertising content from our organic search results. As we experiment with new ad formats and types of content, we promise to continue to be transparent about payments."
It also stated that "We provide more information about how our ranking works than any other major search engine, through our webmaster central site, blog, diagnostic tools, support forum, and YouTube channel. We give our advertisers information about the ad auction, tips on how to improve their ad quality scores, and the ability to simulate their bids to give them more transparency."
Wayne Crews of the Competitive Enterprise Institute (CEI) stated in a release that "Before resorting to tired old competition laws, European policy makers should remember that the Internet economy is hardly understood by anybody -- including by regulators. We are in terra incognita; no one knows how information markets will evolve. But one thing is for sure: Online search technology cannot evolve properly if it is improperly regulated. Why make risky investments in hopes of revolutionizing online markets if marvelous success means regulation and confiscation?"
The CEI's Ryan Radia added that "The real threat to consumers is not from successful high-tech firms like Google, but from overreaching government interventions into competitive market processes."
"European Commission Initiates Proceeding Against Intel Alleging Anticompetitive Behavior" in TLJ Daily E-Mail Alert No. 1,617, July 26, 2007.
"EC Fines Intel One Billion Euros" in TLJ Daily E-Mail Alert No. 1,937, May 12, 2009.
"EC Releases Intel Decision" in TLJ Daily E-Mail Alert No. 1,986, September 22, 2009.
"European Commission Seeks 497 Million Euros and Code Removal from Microsoft" in TLJ Daily E-Mail Alert No. 863, March 25, 2004.
"European Commission Releases Microsoft Decision" in TLJ Daily E-Mail Alert No. 883, April 23, 2004.
"European Court of First Instance Rejects Key Parts of Microsoft's Appeal" in TLJ Daily E-Mail Alert No. 1,639, September 14, 2007.
"EC Demands More Money From Microsoft" in TLJ Daily E-Mail Alert No. 1,723, February 26, 2007.
"Barnett Addresses Benefits and Harms of Increasing Antitrust Enforcement Activity Around World" in TLJ Daily E-Mail Alert No. 1,648, October 1, 2007.
"Kroes Discusses EC's Global Regulation Goals" in TLJ Daily E-Mail Alert No. 1,722, February 25, 2008.
"Kroes Asserts that EC Antitrust Enforcement is Not Socialist" in TLJ Daily E-Mail Alert No. 1,740, April 1, 2008.
"Pate Criticizes EC Decision Regarding Microsoft" in TLJ Daily E-Mail Alert No. 869, April 5, 2004.
DOJ's Barnett Slams Europe on Antitrust, iPods and Single Firm Conduct Analysis" in TLJ Daily E-Mail Alert No. 1,450, September 15, 2008.
"Antitrust Division Releases Report on Single Firm Conduct" and "Select TLJ Articles Related to the US-EC Divergence on Single Firm Conduct" in TLJ Daily E-Mail Alert No. 1,827, September 27, 2008.
12/2. The American Bar Association's (ABA) Section of Antitrust hosted a telecast panel discussion titled "Symposium on Broadband Reclassification and Net Neutrality: What's at Stake? What's the End Game?".
The speakers were Neil Fried (Republican Counsel, House Commerce Committee), Parul Desai (Consumers Union), Glenn Manishin (Duane Morris), Lee Selwyn (Economics and Technology, Inc.), and Marty Stern (K&L Gates).
One of the topics of discussion was whether antitrust laws are sufficient to address anticompetitive behavior by broadband internet access service providers.
Fried stated that there has been no Congressional hearing, and no Federal Communications Commission (FCC) study, regarding whether or not any companies have "market power". He said that discriminatory conduct has no anti-competitive effect in the absence of market power. He also said that "discrimination is how a new entrant distinguishes itself".
Fried also pointed out that Rep. Cliff Stearns (R-FL) introduced in May of this year HR 5257 [LOC | WW], the "Internet Investment, Innovation, and Competition Preservation Act", a bill to amend Title I of the Communications Act to prevent the FCC from regulating any internet access service unless it first finds that there is a market failure.
See also, story titled "Rep. Stearns Introduces Bill to Limit FCC Regulation of Internet" in TLJ Daily E-Mail Alert No. 2,089, May 28, 2010.
This bill provides that "To the extent that the Commission has the authority to regulate the rates, terms, conditions, provisioning, or use of an information service or an Internet access service, the Commission shall not regulate such rates, terms, conditions, provisioning, or use unless -- (A) the Commission first transmits a report to Congress concluding that -- (i) there is a market failure in the provision of such information service or Internet access service; (ii) there is substantial evidence that the market failure is causing specific, identified harm to consumers by preventing a substantial number of consumers nationwide from accessing a substantial amount of lawful Internet content, applications, and services of their choice on a continuing basis; and (iii) regulations are necessary to ameliorate the specific, identified harm to consumers resulting from the market failure".
This bill was referred to the HCC, which has neither held a hearing on it, nor approved it.
Desai said that the CU does not think that antitrust laws work in this area.
Manishin, who long ago worked in the Department of Justice's (DOJ) Antitrust Division, said that antitrust laws are more ambiguous in the vertical than the horizontal context. He said that the antitrust issues in vertical integration and favoring one's own services are difficult.
However, he also stated that the antitrust issues arising from vertical integration in the movie industry in the 1940s are the same as the vertical integration issues today. He said the issues are the same, and that only the acronyms change.
12/2. The U.S. Court of Appeals (11thCir) issued its divided opinion [42 pages in PDF] in Jacobs v. Tempur-Pedic, an antitrust case involving allegations of violation of Section 1 of the Sherman Act in connection with vertical retail price maintenance. The District Court dismissed the complaint. The Court of Appeals affirmed.
Resale price maintenance (RPM) exists when a manufacturer agrees with its distributor(s) to set the minimum price that the distributor(s) can charge for the manufacturer's goods. In this case, Tempur-Pedic makes foam mattresses, which it sells through distributors, and its own web site. It sets minimum retail prices that the distributors can charge for its mattresses, and charges these prices in its own web site sales.
RPM is also employed in the tech sector for consumer electronics and other products.
Prior to 2007, RPM was subject to the antitrust per se rule, rather than the lighter rule of reason standard. Then the Supreme Court of the U.S. (SCUS) issued its opinion [55 pages in PDF] in Leegin Creative Leather Products v. PSKS. The SCUS held that all vertical price restrains are to be judged by the rule of reason, and that the SCUS's 1911 opinion in Dr. Miles Medical Co. v. John D. Park & Sons Co., which is reported at 220 U.S. 373, is overturned.
See, story titled "SCUS Holds That All Vertical Price Restraints Are Subject to Rule of Reason" in TLJ Daily E-Mail Alert No. 1,603, June 28, 2007.
The Leegin opinion changed the law for vertical RPM. Under the lighter rule of reason standard, plaintiffs must show actual or potential harm to competition.
After Leegin, horizontal agreements among competitors to fix prices remain per se violations of the Sherman Act. Group boycotts, and horizontal market division are other examples of per se violations.
In the just released 11th Circuit opinion, the Court of Appeals applied Leegin and the rule of reason standard, and concluded the complaint failed to plead a relevant market, and failed to adequately allege actual or potential harm to competition, and thereby failed to satisfy the rule of reason standard.
Judge Kenneth Ryskamp dissented. He argued that the opinion of the Court "essentially requires Jacobs to prove his case in his complaint".
This case is Benny Jacobs, et al. v. Tempur-Pedic International, Inc., et al., U.S. Court of Appeals for the 11th Circuit, App. Ct. No. 08-12720 , an appeal from the U.S. District Court for the Northern District of Georgia, D.C. No. 07-00002-CV-RLV-4. Judge Tjoflat wrote the opinion of the Court of Appeals, in which Judges Edmondson and Ryskamp (USDC/SDFl) joined.
Leegin was a 5-4 opinion. It remains unpopular with many antitrust lawyers. For example, the Assistant Attorney General in charge of the Antitrust Division, Christine Varney, has expressed her criticism. See, Varney's October 7, 2009, speech titled "Antitrust Federalism: Enhancing the Federal/State Relationship". See also, story titled "Varney Discusses Antitrust, States AGs, RPM and the Rule of Reason" in TLJ Daily E-Mail Alert No. 1,999, October 8, 2009.
There are also bills pending in the House and Senate that would undo the Leegin opinion.
See, HR 3190 [LOC | WW], the "Discount Pricing Consumer Protection Act". It has been approved by the House Judiciary Committee (HJC), but not by the full House. See also, story titled "House Judiciary Committee to Mark Up Bill to Undo Leegin" in TLJ Daily E-Mail Alert No. 2,020, December 3, 2009.
See also, S 148 [LOC | WW], also titled the "Discount Pricing Consumer Protection Act". It has been approved by the Senate Judiciary Committee (SJC), but not by the full Senate. See, story titled "Senate Judiciary Committee Approves Antitrust Bill to Undo Leegin" in TLJ Daily E-Mail Alert No. 2,060, March 20, 2010.
12/3. Level 3 Communications has made several public statements in the last week in which it has complained about Comcast. Level 3 wants to connect its network to Comcast's, but not pursuant to an agreement under which it would pay Comcast.
Level 3 has long been an internet backbone service provider. Recently, it became a content delivery service provider to Netflix, which provides video on demand service to consumers. Comcast is handling this matter as a negotiation between two internet companies. Level 3 is now asserting arguments drawn from telecommunications regulation.
The flow of traffic between Level 3 and Comcast is lopsided. Level 3 wants Comcast to complete its sending of high bandwidth movies to Comcast's subscribers. On the other hand, Comcast is not sending like traffic to Level 3. Comcast has demanded, and received, payment from Level 3 for peering the two networks.
In telecommunications, interconnection is a government mandate, enforced by government agencies. Moreover, once the government has removed interconnection from the market, and mandated interconnection, it follows that it must also mandate the terms and prices of each interconnection transaction. Governments are good at mandating interconnection, but incapable of efficiently handling the regulation of prices.
The originators of the internet developed interconnection of networks without any statutory mandate or heavy handed regulatory regime. It was accomplished by cooperation and free markets. The internet is made up of networks, with different owners, which exchange traffic pursuant to peering and transit agreements. In a peering agreement the parties agree to exchange traffic at no charge. A telecommunications lawyer might call this "bill and keep". Level 3 wants a peering, or bill and keep, agreement. In a transit agreement one party sells access to its network. Comcast will only peer with Level 3 pursuant to a transit agreement.
This fracas has three additional twists. First, Comcast also delivers content to its subscribers, thereby enabling Level 3 to level the allegation that this is not merely an arms length business negotiation over connecting networks, but also a case of Comcast favoring its own services, in a manner that is anti-competitive.
Second, the Federal Communications Commission (FCC) is still withholding its approval of the merger of Comcast and NBC Universal. In these antitrust merger review proceedings interested parties lobby the FCC for conditions to be imposed upon the merged entity for their benefit.
Third, the FCC is on the verge of adopting rules regulating broadband internet access service providers (at its next meeting scheduled for December 21, 2010.) Interested parties are attempting to influence the outcome in that proceeding.
Level 3 stated in a release on November 29, 2010 that "On November 19, 2010, Comcast informed Level 3 that, for the first time, it will demand a recurring fee from Level 3 to transmit Internet online movies and other content to Comcast's customers who request such content. By taking this action, Comcast is effectively putting up a toll booth at the borders of its broadband Internet access network, enabling it to unilaterally decide how much to charge for content which competes with its own cable TV and Xfinity delivered content. This action by Comcast threatens the open Internet and is a clear abuse of the dominant control that Comcast exerts in broadband access markets as the nation’s largest cable provider."
It added that "Comcast's current position violates the spirit and letter of the FCC’s proposed Internet Policy principles and other regulations and statutes, as well as Comcast's previous public statements about favoring an open Internet. While the network neutrality debate in Washington has focused on what actions a broadband access provider might take to filter, prioritize or manage content requested by its subscribers, Comcast's decision goes well beyond this. With this action, Comcast is preventing competing content from ever being delivered to Comcast’s subscribers at all, unless Comcast’s unilaterally-determined toll is paid -- even though Comcast's subscribers requested the content. With this action, Comcast demonstrates the risk of a `closed´ Internet, where a retail broadband Internet access provider decides whether and how their subscribers interact with content."
Comcast sent a letter to the FCC on November 30 in which it stated that "despite Level 3's effort to portray its dispute with Comcast as being about an ``open Internet,´´ it is nothing but a good old-fashioned commercial peering dispute, the kind that Level 3 has found itself in before. Notwithstanding Level 3's claims, this is not about online video, it is not about ``paid prioritization,´´ it does not involve putting ``toll booths´´ on the Internet, and it is not about net neutrality. Indeed, if anything, it is Level 3 that is seeking ``non-neutral´´ treatment that would favor its network traffic over those of all its competitors."
Comcast added that "In a circumstance where Network B sends traffic to Network A that is significantly out of balance with the traffic it receives from Network A, however, Network B is expected either to remedy the situation or to pay something to Network A to compensate for that imbalance".
Comcast further explained that "Level 3 is trying to game the process of peering -- one that has worked well and consensually, without government interference, for over a decade -- in order to gain a unique and unfair advantage for its own expanding" content delivery network (CDN) service.
It continued that "Level 3's problem apparently arises out of the fact that it recently won a bid to become one of Netflix's primary CDN providers -- in competition with the major national CDNs that already send Netflix and other traffic to Comcast's network. In order to undercut its CDN competitors, Level 3 wants to avoid the commercial arrangements other CDN companies use to terminate traffic onto Comcast's and other providers' networks, and instead force Comcast to accept its CDN traffic for free, under a ``peering´´ relationship. This is not how peering works, here or anywhere in the world. What Level 3 is suddenly pushing -- a ``new theory´´ of peering -- would throw the traditional, ``balanced traffic´´ peering rulebook out the window, give Level 3 an unfair cost advantage over its competitors, and shift all of the costs from Level 3 and its content customers onto Comcast and its high-speed Internet customers."
Level 3 stated in a November 30 release that "The fundamental issue is not whether Comcast sends more traffic to Level 3 or whether Level 3 sends more traffic to Comcast. Both Level 3 and Comcast are responding to the requests of Comcast's subscribers, who want to be free to see and use the full suite of content and applications that are available on the Internet today and in the future. Level 3 wants to assure that freedom is preserved."
See also, Level 3's December 3 statement, and Comcast's December 3 statement.
11/30. Sen. Al Franken (D-MN) sent a letter to the Department of Justice's (DOJ) Antitrust Division and the Federal Communications Commission (FCC) regarding Comcast's imposition of a "new, recurring fee on Level 3 Communications, the company slated to become the primary ``backbone´´ delivery provider for Netflix's online movie streaming".
He first argued, to the FCC, that this sounds in the nature of a violation of yet to be promulgated network neutrality regulations.
Second, he argued that "Comcast's actions also raise serious antitrust concerns that in and of themselves merit investigation by the Department of Justice." He wrote that "Comcast's interest in impairing Netflix is evident to industry observers".
This, wrote Sen. Franken, "may violate the letter and spirit of the Sherman Act's prohibition on certain exclusionary unilateral conduct" in violation of 15 U.S.C. § 2.
He elaborated that Comcast "may hold a monopolistic share of various regional video delivery to the home markets" -- as high as 70%. And therefore, Comcast's new fee on Level 3 "may constitute willful, anticompetitive maintenance of that monopoly share in violation of the Sherman Act."
He urged the DOJ to investigate. And, he wrote, "I urge you to consider seriously blocking this merger", or "to impose strict conditions upon the merger to prevent further anticompetitive and Internet ``closing´´ conduct from Comcast".
11/30. Zoom filed a complaint [117 pages in PDF, redacted] against Comcast with the Federal Communications Commission (FCC) alleging violation of the FCC's rules implementing Section 629 of the Communications Act, which is codified at 47 U.S.C. § 549, in connection with its alleged infringing its subscribers' right to attach cable modems of their choice.
Section 629 provides that the FCC shall "adopt regulations to assure the commercial availability, to consumers of multichannel video programming and other services offered over multichannel video programming systems, of converter boxes, interactive communications equipment, and other equipment used by consumers to access multichannel video programming and other services offered over multichannel video programming systems, from manufacturers, retailers, and other vendors not affiliated with any multichannel video programming distributor."
The complaint goes to Comcast's testing regime. Zoom alleges that this regime "contains a host of unreasonable, irrelevent, time-consuming, and costly requirements that curtail the availability of cable modems at retail outlets and thereby encourage subscribers to lease or rent cable modems directly from Comcast".
Zoom further alleges that "Comcast's anti-competitive behavior will harm consumers".
Zoom is represented in this matter by the law firm of Patton Boggs. The attorneys listed on the complaint are Kevin Martin and Matthew Berry. Martin was Chairman of the FCC at the time that it issued its Comcast order (vacated by the Court of Appeals earlier this year). Berry was FCC General Counsel. See, story titled "Matthew Berry Joins FCC" in TLJ Daily e-Mail Alert No. 1,160, June 23, 2005.
In addition, the Free Press (FP), Media Access Project (MAP), Open Technology Initiative and Public Knowledge (PK) complained to the FCC by ex parte meeting and written complaint [7 pages in PDF] that Comcast is engaging in "anticompetitive behavior", violating the FCC's August 2005 document [3 pages in PDF] titled "Policy Statement", and violating Section 629 of the Communications Act.
11/18. Carl Shapiro, Deputy Assistant Attorney General for Economics at the Department of Justice's (DOJ) Antitrust Division, gave a speech in Washington DC titled "Update from the Antitrust Division".
He discussed criminal prosecutions associated with cartel activities, and the leniency program. The DOJ has brought numerous actions involving LCD panels.
He discussed the DOJ's civil non-merger enforcement activities, including its recent action against American Express, MasterCard, and Visa.
He discussed the Horizontal Merger Guidelines (HMG) issued in August by the DOJ and Federal Trade Commission (FTC). He said the HMG inform the business community and antitrust practitioners of the principal analytical techniques, practices, and the enforcement policy of the DOJ and FTC, assist the courts in developing an appropriate framework for interpreting and applying the antitrust laws, ensure consistency in agency review, and promote international convergence.
11/29. The U.S. Court of Appeals (3dCir) issued its opinion [44 pages in PDF] in West Penn Allegheny Health System v. UPMC, an antitrust case involving allegations that hospital systems violated Sections 1 and 2 of the Sherman Act by forming a conspiracy to protect one another from competition. The District Court dismissed the complaint. The Court of Appeals reversed in part, vacated in part, and remanded. This case is West Penn Allegheny Health System, Inc. v. UPMC and Highmark, Inc., U.S. Court of Appeals for the 3rd Circuit, App. Ct. No. 09-4468, an appeal from the U.S. District Court for the Western District of Pennsylvania, D.C. No. 2-09-cv-00480, Judge Arthur Schwab presiding. Judge Smith wrote the opinion of the Court of Appeals, in which Judges Sloviter and Barry joined.
11/24. See also, the U.S. Court of Appeals' (9thCir) November 24, 2010, opinion [11 pages in PDF] in Shames v. California Travel and Tourism Commission, and story titled "9th Circuit Rules on Scope of State Action Antitrust Immunity " in TLJ Daily E-Mail Alert No. 2,166, December 2, 2010.
8:30 AM - 12:00 NOON. Georgetown University will host an event titled "The Rise of Wireless as a Change Agent in the Economic Ecosystem: Learnings, Yearnings & Potential Earnings". At 9:00 AM there will be a panel titled "Economic, Policy and Business Issues in the Wireless Industry". The speakers will be Paul de Sa (Chief of the FCC's Office of Strategic Planning & Policy Analysis), Scott Wallsten (Georgetown), Tom Hazlett (George Mason University), Peter Cramton (University of Maryland), and Len Cali (AT&T). At 10:15 AM, there will be a panel titled "Wireless is Everywhere: Discussing Wireless Deployment Possibilities". At 11:30 AM, FCC Commissioner Meredith Baker will speak. See, notice. Location: Holeman Lounge, National Press Club, 13th floor, 529 14 St., NW.
12:15 - 1:45 PM. The Federal Communications Commission (FCC) will hold a meeting in its open rulemaking proceeding titled "In the Matter of Universal Service Reform: Mobility Fund". The FCC adopted and released a Notice of Proposed Rulemaking (NPRM) [58 pages in PDF] on October 14, 2010. It is FCC 10-182 in WT Docket No. 10-208. See, story titled "FCC Adopts NPRM Regarding Universal Service Subsidies for 3G and Next Generation Wireless" in TLJ Daily E-Mail Alert No. 2,142, October 19, 2010. The deadline to submit initial comments is December 16, 2010. The deadline to submit reply comments is January 18, 2010. The meeting is titled "What is the Proposed USF Mobility Fund and How Will It Work?". Margaret Wiener (Chief of the FCC's Wireless Telecommunications Bureau's Auctions & Spectrum Access Division) and Amy Bender (Deputy Division Chief of the FCC's Wireline Competition Bureau's Telecommunications Access Policy Division) will preside. The Federal Communications Bar Association (FCBA) states that this is an FCBA event. The FCBA bars reporters from some of its events. Location: Wiley Rein, 1776 K St., NW.
12:00 NOON. The Constitution Project will host a panel discussion titled "Principles for Government Data Mining: Preserving Civil Liberties in the Information Age". The speakers will include Mary Ellen Callahan (DHS Chief Privacy Officer). For more information, contact Francine Wargo at 202-580-6924 or fwargo at constitutionproject dot org. Location: National Press Club, 13th floor, Murrow Room, 529 14 St., NW.
10/22. The Technology Policy Institute (TPI) hosted a conference in Washington DC titled "Antitrust and the Dynamics of Competition in High-Tech Industries".
Tom Lenard (an economist and head of the TPI) stated that "tech companies that emerge from the Schumpeterian competition and become dominant inevitably come into the antitrust cross hairs".
He discussed the Microsoft and Intel cases, and added that "a similar debate is now developing around Google because it has attained a relatively dominant position in the search market, and each of its proposed acquisitions is now being scrutinized very closely by the authorities. ... The authorities have also been showing an interest in Apple."
Bruce Owen (Stanford economist) presented a paper that cautions against current populist fears of vertical integration in tech companies.
Robert Crandall (Brookings) and Charles Jackson (GWU) presented a paper on the IBM, AT&T and Microsoft antitrust cases. Crandall discusses the IBM and AT&T cases, while Jackson discussed the Microsoft case.
Joshua Wright (George Mason University) spoke on the FTC case against Intel.
Christopher Yoo (University of Pennsylvania) presented a paper on cloud computing.
Vertical Integration. Bruce Owen (Stanford University) wrote a paper [PDF] titled "Antitrust and Vertical Integration in ``New Economy´´ Industries". He released and discussed a draft of this paper at an October 22. He released the final paper on November 8.
Owen is an economist based at Stanford University. Long ago he was the Chief Economist of the Department of Justice's (DOJ) Antitrust Division.
He began his oral presentation with a discussion of Adam Smith's examination of the workings of a pin making factory, which involved numerous stages of production, vertically integrated. Owen wrote in his paper that "there is no natural or default boundary where the firm ends and markets begin", then, or now with high tech companies. Moreover, vertical integration is an efficient response to changes in the environment in which firms operate.
Therefore, said Owen, policy makers should not view such vertical integration -- whether in pin factories, or in internet companies that integrate internet access and content -- as harmful. Equally, changes in the degree of vertical integration are not necessarily harmful.
He wrote in his paper that "The organization of production is always vertically integrated to some degree, and responsive to environmental pressures. There is no reason to single out the most recent change in structure as inherently suspicious from an antitrust perspective. Distinctions between ``firms´´ and ``markets´´ are artificial legal or taxonomic conveniences. Production takes place on account of agent relationships that span a multidimensional spectrum, of which one dimension ranges from fiat-like to market-like. An exclusive focus on fiat-like organizations is likely to miss a great deal of significant economic activity. Vertical integration by fiat-like organizations is much more likely to be an efficiency-enhancing reaction to environmental stress than to portend harm to competition and consumers. Section 2 of the Sherman Act is available for the exceptions."
He concluded that "Toadying to uninformed populist fears of vertical integration between network providers and content creators by imposing investment-dampening ex ante regulatory constraints is likely to be far less useful to the public than steps to ensure effective competition among network providers."
And consequently, antitrust analysis would not support imposing network neutrality mandates on firms.
Michael Salinger (Boston University School of Management) also spoke at this TPI event. He argued that the Antitrust Division's antitrust case against Microsoft was the "worst case" of intervention against vertical integration. He said that attacking Microsoft's vertical integration of the operating system and applications rested on the assumption that it was obvious what belonged in an operating system.
However, he said that some vertical integration, such as a hypothetical merger of Microsoft and Intel, should not be allowed.
Owen also commented on the nature of the FCC process. He said that the FCC is an "arm of Congress" that seeks "consensus". It is "not concerned with economic efficiency or consumer welfare". He also argued that the public choice theory of rent seeking is descriptive of the FCC process. Groups with the most resources tend to prevail.
IBM and AT&T Cases. Robert Crandall, an economist based at the Brookings Institution, addressed two old antitrust actions -- the DOJ's failed case against IBM, and its breakup of AT&T, in which it obtained vertical divestiture of AT&T's local operating companies.
He said that we did not need the AT&T case. He observed that in terms of phone service prices, the settlement did not seem to have any effect. Moreover, long distance companies eventually reacquired the regional bell operating companies.
He asserted that "equal access requirements would have been enough".
Crandall also discussed the IBM case. He said that even if the DOJ had won, "it probably would not have had much effect". He explained that IBM lost its dominance because of the personal computer, and its decisions to contract out microprocessors to Intel and software to Microsoft.
His paper, co-authored with Charles Jackson (Adjunct Professor of Electrical Engineering, George Washington University), also addressed the DOJ's action against Microsoft.
They wrote in conclusion that in all of these cases, "the ultimate source of major changes in the competitive landscape appears to be innovation and new technology -- technology that was apparently not unleashed by the antitrust litigation. In each case, the government did not and probably could not see how technology would develop over time. Therefore, it was difficult for the government to design remedies that would accelerate competition when this competition developed from new technologies."
Intel Case. Joshua Wright, a professor at the George Mason University Law School, spoke about the Intel case with presentation slides, but no written paper. His presentation was titled "Does Antitrust Enforcement in High Tech Markets Benefit Consumers? Stock Price Evidence from FTC v. Intel".
He said that while there are theoretical arguments as to how Intel harmed competition, there is an absence of evidence of actual competitive harm.
First, he said that continuously dropping prices during the period of alleged misconduct did not support the antitrust action.
Second, he analyzed stock prices, and concluded that it provided no evidence that Intel obtained monopoly rents.
Joseph Farrell, Director of the FTC's Bureau of Economics, responded that this is "a lot of not terribly reliable evidence".
For more on the Intel case, see stories titled "FTC and Intel Settle Antitrust Claims", "Reaction to the FTC Intel Settlement", and "Commentary on Antitrust Processes" in TLJ Daily E-Mail Alert No. 2,118, August 4, 2010, and stories titled "FTC Files Antitrust Charges Against Intel by Administrative Complaint Under FTC Act" and "Commentary: FTC Antitrust Procedure" in TLJ Daily E-Mail Alert No. 2,024, December 17, 2009.
Cloud Computing. Christopher Yoo, a professor at the University of Pennsylvania Law School, presented a paper titled "Cloud Computing: Architectural and Policy Implications".
One of the points that he made was that the FCC has requested comment on "whether broadband access services are telecommunications services".
He wrote that "If this proposal is adopted, both private and public cloud computing providers may well be subject to stringent regulatory requirements. Indeed, there are some reports that concerns about being subject to telephone-style regulation has led some cloud computing providers to forego providing their own data center interconnections and instead to outsource those services." Also, "pricing differentials threaten to run afoul of network neutrality regulation".
Carl Shapiro, the Deputy Assistant Attorney General for Economics at the DOJ's Antitrust Division, commented that cloud computing has "implications for competition in other industries".

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