Silicon Valley Antitrust v.4

Hanno Kaiser · UC Berkeley School of Law, Room 170 · Fall 2014

Fridays, 8 am (sharp!) – 9:50 am

This is an evolving syllabus. We will discuss key issues of technology antitrust using current cases and materials — stuff on this website will change during the course of the semester.

Class 1: Antitrust, technology, and criminal cartels August 28, 2014

Topics for discussion

• A roadmap for this course
• The goals of antitrust and "competition on the merits"
• How firms subvert the competition mandate ("Decrease output to increase profit")
  • Collusion ("too little competition")
  • Exclusion ("unfair competition")
• We will spend a lot of time with unsettled and difficult cases. But before we go there, let's establish an uncontroversial baseline: Criminal cartel conduct
  • Price fixing, market allocation, bid rigging
  • DOJ criminal enforcement policy
• How cartels work: Creating artificial scarcity to get a bigger slice of a smaller (and more expensive) pie
• Requirements for organizing a cartel
  • Agreement
  • Monitoring
  • Punishing defectors

Reading

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

Optional

• Hanno Kaiser, Excerpt from Antitrust Law And Policy: An Introduction (2012)
• Hanno Kaiser, Class 01 Slides (These are from 2013 and follow a slightly different approach but you may still find them useful.)
• Materials about the Lysine cartel
  • Scott Hammond, "Caught in the Act: Inside an International Cartel" (2005)
  • Video footage from the Lysine cartel (YouTube)
  • James Lieber, Rats in the Grain (2000)
  • Kurt Eichenwald, The Informant (2001)

Class 2: Modes of analysis: Per se, quick look, ancillary restraints, rule of reason September 5, 2014

Topics for discussion

• Recap: The root of all antitrust evil: "Reducing output to increase profits."
• Processing antitrust fact patterns: Towards a flexible checklist approach
• The first fork in the road
  • Agreement
  • Unilateral conduct
• Agreements: Modes of analysis
  • Per se (= rule)
  • "Not really per se" (= exception)
    • Lack of judicial experience with the challenged conduct
    • Ancillary restraints
    • Quick look
  • Rule of reason (= principle)
• Collective disruption: Efficient conduct or illegal cartel?
  • BMI, SESAC, Google Books
• Tip of the day: How to read and brief a case (2014).

Reading

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

Optional

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

Class 3: Horizontal agreements: United States v. Apple (eBooks) September 12, 2014

Topics for discussion

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

Reading

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

Optional

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

Class 4: United States v. Microsoft Part 1: Technology markets, network effects and entry barriers September 19, 2014

Topics for discussion

• Unilateral conduct: Monopolization and attempted monopolization
  • Big
  • Bad
• Market power and monopoly power ("big")
  • Direct evidence: higher prices and exclusion
  • Circumstantial evidence: high market shares and entry barriers
  • Defining relevant antitrust markets
• A first look at multi-sided platforms and indirect network effects as barriers to entry ("applications barrier to entry")

Reading

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

Optional reading/viewing

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

Class 5: United States v. Microsoft Part 2: Exclusionary conduct, interoperability layers, and defensive leveraging September 26, 2014

Topics for discussion

• The U.S. v. Microsoft case is about Microsoft's efforts to protect the application barrier to entry against erosion by interoperability layers
  • If the same applications ran on different OSs (via Java, for example), then the OSs would have to compete only on the basis of "genuine OS features" and OS price.
• Microsoft's exclusionary conduct serves to "reduce usage share" of and "deny critical mass" to interoperability layers
  • OEM agreements
  • Commingled code
  • "Embrace, extend, extinguish"
• Causation
• The "biodiversity" approach to ecosystem industries
• Rule of reason for platform markets
• Trial strategy: facts and law, specifics and principles

Reading

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

Optional

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

Class 6: Tying and antitrust aspects of Google Search, Part 1/2 October 10, 2014

Topics for discussion

• Introduction to tying and exclusive dealing
  • Two-markets, leveraging offense
• Modern variants of tying and exclusive dealing in ecosystem industries ("nudging")
• How search engines work
  • Algorithmic search
  • Sponsored search
  • The roles of users, advertisers, and publishers
• Antitrust markets for "online search"
  • User-facing (queries)
  • Advertiser-facing (revenues)
  • Search and display advertising
• Indirect network effects as entry barriers
• The history (and present) of the various flavors of Google search investigations
  • Alleged exclusion of competing generalist search engines (e.g., Bing)
  • Alleged exclusion of competing vertical search engines (e.g., Foundem)
  • After Google's vertical upstream integration into publishing, alleged exclusion of competing publishers (e.g., maps).

Optional

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

Class 7: Antitrust aspects of Google Android and default search, Part 2/2 October 10, 2014

Topics for discussion

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

Reading

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

Class 8: Open and Closed Systems, Part 1/2: Aftermarkets October 17, 2014

Topics for discussion

• Platform competition law ingredients: "applications barrier to entry," predatory innovation, tying, aftermarkets
• Single-brand aftermarkets and limiting principles
  • What is the antitrust significance of two-step purchasing patterns ("First you choose a phone, then you choose among the apps available for the phone.")?
  • Who gets what? Fairly and unfairly appropriating the gains from collaboration.
• "Closing an open system" v. "maintaining a closed system"

Reading

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

Optional

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

Class 9: Open and Closed Systems, Part 2/2: "Predatory innovation" and obligations to interconnect October 24, 2014

Topics for discussion

• Strategic creation of incompatibility v. duty to interconnect
• Predatory innovation
  • What is innovation? Narrow and broad conceptions.
  • Should courts police product design decisions?
  • What about code? Does "cheap exclusion" change everything?
• §2 limitations on "refusals to deal"
  • Denial of (a) de novo access versus (b) continued access
• The political philosophy of "open v. closed"

Reading

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

Optional

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

Class 10: Antitrust and Standard Setting October 31, 2014

Topics for discussion

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

Reading

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

Optional

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

Class 11: The Smartphone Wars November 7, 2014

Topics for discussion

• The origins of the Smartphone wars: telcos v. computer companies
• Who should get how much of a new category of devices that amalgamate telecommunications and computer technologies?
  • Who contributes what? Features v. standards.
• Identifying the key questions
  • Injunctions: Should holders of patents that they (a) declared essential to a standard and (b) promised to license on fair and reasonable terms be permitted to seek injunctions against implementers?
  • Royalties: Who should determine a reasonable royalty for standard essential patents and how should this royalty (rate and base) be determined?

Reading

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

Optional

• Wikipedia, The Smartphone Patent Wars

Class 12: Patent Assertion Entities and Antitrust November 14, 2014

Topics for discussion

• Taxonomy of patent assertion entities
  • Pure-play PAEs
  • Former operating companies
• Common forms of PAE activity
  • Privateering (i.e., PAE asserting a patent on behalf of an operating company)
  • Patent aggregation and assertion (against operating companies and their customers)
• Legal implications
  • Patent law (Congress, PTO, courts)
  • Consumer protection law
  • Antitrust law (agencies, courts)
• Key antitrust considerations in privateering and mass-aggregation cases

Reading

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

Optional

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

Classes 13 and 14: High-technology mergers November 21, 2014

Topics for discussion

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

Reading

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

Optional

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

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