Silicon Valley Antitrust v.6

Hanno Kaiser · UC Berkeley School of Law, Room 170 · Fall 2016

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 26, 2016

Topics for discussion

• A roadmap for this course
• The goal(s) of antitrust
• A very brief (and very present) history of antitrust
• First draft of the "antitrust superstructure"
  • Three market power levels (low, medium, high)
  • Two levels of conduct regulation: Baseline prohibitions and special obligations
• Three basic anticompetitive strategies
  • Collusion
  • Exclusion
  • Leveraging
• Two modes of analysis: rule of reason and per se
• We will spend a lot of time with unsettled and difficult cases. But before we go there, let's establish an uncontroversial baseline: Criminal cartel conduct
• Price fixing, market allocation, bid rigging
• DOJ criminal enforcement policy
• How cartels work: Creating artificial scarcity to get a bigger slice of a smaller (and more expensive) pie

Reading

• U.S. Antitrust laws (Super short version)
• U.S. v. Andreas, 216 F.3d 645 (7th Cir. 2000). Excerpt

Optional

• U.S. Antitrust laws (More comprehensive version)
• Hanno Kaiser, Excerpt from Antitrust Law And Policy: An Introduction (2012)
• Hanno Kaiser, Class 01 Slides (These are from 2013, but are still useful.)
• Materials about the Lysine Cartel
  • Scott Hammond, "Caught in the Act: Inside an International Cartel" (2005)
  • Video footage from the Lysine cartel (YouTube)
  • James Lieber, Rats in the Grain (2000)
  • Kurt Eichenwald, The Informant (2001)
  • Steven Soderbergh, The Informant (Movie) (2009)

Class 2: The antitrust toolkit: Rule of reason, per se categories, ancillary restraints September 2, 2016

Topics for discussion

• Recap: The root of all antitrust evil: "Reducing output to increase profits."
• Processing antitrust fact patterns: Towards a flexible checklist approach
• The first fork in the road: Agreement v. unilateral conduct
• Agreements: A closer look at the "modes of analysis"
  • Rule of reason
  • Exception: Per se categories
  • Exceptions to the exception (i.e., "not quite per se illegal after all")
    • Lack of judicial experience with the challenged conduct
    • Ancillary restraints
    • Quick look
• First curveball: Partial upstream cartel? The "high tech worker" no cold-call case.
• Second curveball: Efficient price fixing? The BMI v. CBS case.

Reading

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

Optional

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

Class 3: Horizontal agreements: U.S. v. Apple, Inc., 2d Cir., June 30, 2015 (eBooks) Part 1 September 9, 2016

Topics for discussion

• Adding to the toolkit: Horizontal and vertical agreements
  • What's the difference and why does it matter?
  • "Upstream" and "downstream" in ecosystem industries
• Anatomy of a complex civil antitrust litigation, involving multiple defendants (Apple and the publishers), DOJ, State Attorneys General as parens patriae, and private class action plaintiffs, etc.
• Industry background: Book distribution before and after Amazon's Kindle
• Why ebooks matter, even though the focus is on hardcover pricing
• Wholesale v. agency models, and the role of "most favored nation" clauses

Reading

• United States v. Apple Inc., et al., 791 F.3d 290 (2d Cir. 2015). Excerpts

Optional

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

Class 4: Horizontal agreements: U.S. v. Apple, Inc., 2d Cir., June 30, 2015 (eBooks) Part 2 September 16, 2016

Topics for discussion

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

Reading

• See Class 3.

Class 5: United States v. Microsoft Part 1: Technology markets, market definition September 23, 2016

Topics for discussion

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

Reading

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

Optional reading/viewing

• Jonathan Baker, Market Definition: An Analytical Overview (2007)
• Hanno Kaiser, U.S. v. Microsoft Overview (2014)
• 2010 FTC/DOJ Horizontal Merger Guidelines, Sections 4 and 4.1 ("Market Definition" and "Product Market Definition")
• Martyn Burke, Pirates of Silicon Valley (2005).

Class 6: United States v. Microsoft Part 2: Network effects and entry barriers, exclusionary conduct, interoperability layers, and defensive leveraging October 7, 2016

Topics for discussion

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

Reading

• United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001). Read: II. MONOPOLIZATION […] B. Anticompetitive Conduct; C. Causation. Excerpts. High-level summary. Landmark case
• Hanno Kaiser, Microsoft Monopolization Offenses Chart (2008)

Optional

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

Class 7: Tying, bundling, and the provision of ecosystems October 14, 2016

Topics for discussion

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

Reading

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

Class 8: The European Commission's Google Search Case October 14, 2016

Topics for discussion

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

Reading

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

Class 9: The European Commission's Google Android Case October 21, 2016

Topics for discussion

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

Reading

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

Optional

• Ron Amadeo, New Android OEM licensing terms leak; "Open" comes with a lot of restrictions (February 13, 2014)

Class 10: Open and Closed Systems: Aftermarkets October 28, 2016

Topics for discussion

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

Reading

• Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992). Excerpts. Additional case notes. Landmark case
• Apple, Inc. v. Psystar Corp., 586 F. Supp. 2d 1190 (N.D. Cal. 2008). Excerpts.
• Datel Holdings Ltd. v. Microsoft Corp., 712 F. Supp. 2d 974 (N.D. Cal. 2010) (Focus on the monopolization claim; skip tying and attempted monopolization). Excerpts.

Optional

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

Class 11: Antitrust Issues in Zero-Price Markets November 4, 2016

Topics for discussion

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

Reading

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

Optional

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

Class 12: "Big Data" and Antitrust November 18, 2016

Topics for discussion

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

Optional

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

Class 13: Predatory Innovation and Product Hopping November 18, 2016

Topics for discussion

• The other Silicon Valley: Genetics, bioinformatics, personalized medicine
• Innovation in the pharmaceutical industry. The interplay of patent and antitrust laws and the special regime created by the Hatch-Waxman Act
• How the FDA process works: NDAs, ANDAs, the Orange Book, clinical trials
• Incentives of leaders (brand) and followers (generics) in the pharmaceutical space
• Costs and probabilities of bringing a drug to market
• Insurers, doctors, patients, and pharmacies: the inherent agency problems in selection and distribution of pharmaceutical products
• "Pay for delay" as the classic Hatch-Waxman Act problem
• "Product hopping" as a form of predatory innovation
• The impact of pharmaceutical antitrust cases beyond the pharmaceutical context
• Hard- and soft switches after NY v. Actavis. Does everyone have to keep the "old" product on the market for a while now?

Reading

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

Optional

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

Class 14: Standard Setting and Patent Trolls November 28, 2016 · 8–9:50 am, Room 170

Topics for discussion

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

Reading

• FTC, In the Matter of Dell Computer Corporation, 121 FTC 616 (1996). Read the complaint.
• Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3rd Cir. 2007). Excerpt.
• FTC, Patent Assertion Entity Activity Study (2016). Read the executive summary.

Optional

• Hanno Kaiser, SSOs and Antitrust Overview (2014)
• Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988)
• Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008)
• FTC, In the Matter of N-Data (2008). Read the analysis of proposed consent order to aid public comment.

Class 15: Review Session December 2, 2016

Topics for discussion

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

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