Silicon Valley Antitrust v.7

Hanno Kaiser · UC Berkeley School of Law, Room 170 · Fall 2017

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: Technology Antitrust: A Framework and a Baseline Case August 25, 2017

Topics for discussion

• A roadmap for this course
  • What to expect
  • Exam, grades, etc.
• The goal(s) of antitrust
• The legal framework: §1 of the Sherman Act; §2 of the Sherman Act; §7 of the Clayton Act; §5 of the FTC Act; Hart-Scott-Rodino ("HSR") Act
• First draft of the "antitrust superstructure"
  • Agreements in restraint of trade (mostly §1)
  • Abuse of a dominant position (mostly §2)
  • Merger control (mostly to avoid evasion of §1 and §2)
• Two modes of analysis: rule of reason and per se
  • Distributed antitrust enforcement in the U.S. (Private plaintiffs; DOJ & FTC; State Attorneys General)
• A look at an uncontroversial baseline: Criminal cartel conduct and per se illegality
  • Price fixing, market allocation, bid rigging
  • How cartels work: Creating artificial scarcity to get a bigger slice of a smaller (and more expensive) pie
• The impact of the current administration on the rule of law in general and antitrust enforcement in particular

Reading

• U.S. Antitrust laws (Super short version)
• U.S. v. Andreas, 216 F.3d 645 (7th Cir. 2000). Excerpt. Yes, The Informant is based on that case.
• Key Concepts

Optional

• Hanno Kaiser, U.S. Antitrust Cheat Sheet (2011)
• Scott Hammond, "Caught in the Act: Inside an International Cartel" (2005)
• Video footage from the Lysine cartel (YouTube)
• Berkeleyside, In Berkeley, a venerable grocery market comes under fire (2011)

Class 2: Disruptive Business Models or Illegal Cartels (Part 1) September 1, 2017

Topics for discussion

• Wrapping up the U.S. v. Andreas case. Did crime pay? (In the U.S.? Abroad?)
• The rule of reason
• The ancillary restraints doctrine
• Vertical and horizontal agreements
• BMI: Old but certainly not cold. The basis of the modern ancillary restraints doctrine (1979)

Reading

• 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)

Class 3: Disruptive Business Models or Illegal Cartels (Part 2) September 8, 2017

Topics for discussion

• More about vertical and horizontal agreements in the age of ecosystem competition (e.g., Google v. Amazon v. Apple)
• Apple: The U.S. v. Apple "eBooks" case (2015)
  • Disruption via de novo entry as per se illegal antitrust violation?
• Uber: The Meyer v. Kalanick case (2017)
  • A closer look at the "agreement" prong: Algorithmic collusion by way of "joining a platform?"

Reading

• United States v. Apple, Inc., 791 F.3d 290 (2d Cir. 2015). Excerpts
• Meyer v. Kalanick, 174 F. Supp.3d 817 (S.D.N.Y. 2016). 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)
• Meyer v. Kalanick (2d Cir., August 17, 2017). Decision (The case was resolved on different grounds.)
• United States v. Adobe Systems, Inc., Apple Inc., Google Inc., Intel Corporation, Intuit, Inc., and Pixar (2010). Complaint. (The U.S. v. Adobe et al. "hiring" case is about collusion in upstream labor markets.) See also: DOJ/FTC, Antitrust Guidance for Human Resource Professionals (October 2016)

Class 4: An In-Depth Look at Algorithms and Collusion — New Normal or Smoke Without Fire? September 15, 2017

Topics for discussion

• Demand/supply coordination as a key function of many multi-sided platforms
• Pricing algorithms and collusion
• What is not an algorithmic collusion case (e.g., organizing a cartel via encrypted messaging)
• Simple test
  • Replace computers and algorithms with humans — does that change the analysis?
  • Are there "plus factors" akin to (e.g.) regular meetings?
• Duty to encode "collusion avoidance" into commercial pricing algorithms?
• The critical role of the (evolving) "no intracompany conspiracies" rule
  • Employees = intra-company?
  • Independent contractors = inter-company?

Reading

• U.K. Competition and Markets Authority (CMA), Online sellers price-fixing case study (November 2016)
• U.S. v. Topkins, Complaint (2015)
• Algorithms and Collusion – Note by the United States, OECD Materials (June 2017)

Optional

• OECD, Algorithms and Collusion: Competition Policy in the Digital Age (September 2017)
• Decision of the U.K. Competition and Markets Authority (CMA), Online Sales of Posters and Frames, Case 50223 (August 2016)

Class 5: Platform Wars and the Modern Law of Monopolization (Part 1) September 22, 2017

Topics for discussion

• Laying the groundwork for unilateral conduct cases. A first look at market definition in the ideal world (SSNIP) and the real world (documents, customers, win/loss data)
• Monopolization and abuse of dominance cases in the high tech sector
  • U.S. v. Microsoft (2001)
  • EC v. Google/Search (2017)
  • German Federal Cartel Office investigation of Facebook (ongoing)
• What makes a firm dominant?
• Network effects and market power (operating systems and applications; mobile operating systems and services; internet search; social networks; messaging applications, etc.)

Reading

• United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001). Excerpts. Super high-level summary.
• European Commission: Google Search Fine (2017)
• German Federal Cartel Office: Facebook Investigation (ongoing)

Optional

• Hanno Kaiser, Market Definition in an Ideal World (SSNIP) (2014)
• Hanno Kaiser, Are Closed Systems an Antitrust Problem?, Competition Policy International 91, Vol. 7, No. 1 (2011)

Class 6: Platform Wars and the Modern Law of Monopolization (Part 2) September 29, 2017

Guest speakers (9–9:30 am)

• Frank Li, Antitrust Counsel at General Electric; former Deputy Director, Antimonopoly Bureau, Ministry of Commerce (MOFCOM)
• Hui Xu, Partner, Latham & Watkins LLP (Shanghai)

Topics for discussion

• What constitutes an abuse of a dominant position?
  • Exclusionary strategies (exclusion, leveraging)
  • Exploitative strategies (e.g., in the EC)
• Exclusion in the U.S. v. Microsoft case
• The special importance of intermediation layers (such as Java and the JVM) for the analysis of entry barriers and market power

Reading

• United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001). Finish reading the case. Excerpts. Super high-level summary.
• Hanno Kaiser, Microsoft Monopolization Offenses Chart (2008)
• Xu & Li, Brief Introduction to China's Antitrust Regime (2017)
• Slate, Will Uber Rouse the Trustbusters? (2016)

Class 7: "Commingled Code," "Embrace, Extend, Extinguish," and Tying October 6, 2017

Topics for discussion

• Common abuse patterns in the technology world
  • "Commingled code"
  • "Embrace, extend, extinguish"
• Tying
  • Two products
  • Tie (contract, technology, economic, "nudges")
  • Dominance (or, in the context of §1: market power) in the tying product market
  • (Foreclosure) effect in the tied product market

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 posted on bSpace.
• Hanno Kaiser, Remedies Design in EC v. MSFT (2013)
• Hanno Kaiser, Notes on Tying (2013)

Optional

• Commission Decision of December 16, 2009, Case COMP/C-3/39.530 – Microsoft (tying)

Class 8: The European Commission's Google Search Case October 13, 2017

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, Factsheet: Commission fines Google €2.42 billion for abusing dominance as search engine (June 27, 2017)
• FTC, Statement of the Federal Trade Commission Regarding Google's Search Practices, In the Matter of Google Inc. (January 3, 2013)

Class 9: The European Commission's Google Android Case October 20, 2017

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, then 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, Statement of Objections to Google on Android operating system and applications (April 20, 2016)
• European Commission, Fact Sheet re Google Android (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 27, 2017

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.
• Blizzard Entertainment v. Ceiling Fan Software, et al., 41 F.Supp.2d 1227 (C.D. Cal. 2013). Excerpts.
• Hanno Kaiser, Are Closed Systems an Antitrust Problem?, Competition Policy International 91, Vol. 7, No. 1 (2011)

Optional

• 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). Excerpts.
• OECD, Competition Issues in Aftermarkets – Note from the United States (May 26, 2017)

Class 11: Zero-Price Markets and Attention Markets November 3, 2017

Topics for discussion

• Free?
  • As in "freedom"
  • As in "gift"
  • As in "zero-price"
• Defining relevant product markets in the absence of price signals
  • SSNIP
  • QSSNIP
  • "Data" as "price"?
• The concept of competition for eyeballs and user attention
  • "Attention Brokers"
  • Market power in attention markets
  • 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

• Tim Wu, Blind Spot: The Attention Economy and the Law (2017)

Optional

• Wallace v. IBM, 467 F.3d. 1104 (7th. Cir. 2006)
• Evans, Attention Rivalry among Online Platforms (2013)
• Newman, Antitrust in Zero-Price Markets: Foundations (2015)
• Newman, Antitrust in Zero-Price Markets: Applications (2015)

Class 12: Standard Setting and Standard Essential Patents November 17, 2017 · 8 am, Room 170

Topics for discussion

• Standard setting implies that competitors agree not to compete on certain technologies. Why is that legal?
• Imagine a world without standards, e.g., power plugs, rail gauges, phone networks, the internet (TCP/IP), the world-wide web (HTTP), eurorack, etc.
• Are all standard wars inefficient? (VHS v. Betamax; Blu-ray v. HD DVD; Windows v. everyone else)
• The "market power by-product of standard setting": standard-essential patents (SEPs)
• Market power from patents v. market power from agreements about patents
• Managing the risk of SEP hold-up
  • Elimination of bias in the standard setting process
    • Disclosure of patents
    • Licensing of patents

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.

Optional

• Hanno Kaiser, SSOs and Antitrust Overview (2014)
• Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988)

Class 13: The Smartphone Wars (not part of the exam) November 17, 2017 · Mandatory make-up class, 1 pm, Room 170

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

• Art. 102 TFEU
• Case C-170/13 Huawei v. ZTE (European Court of Justice) (July 16, 2015). Please read the judgment of the court, then focus on the holding after para. 77.

Optional

• European Commission, Intellectual property: Protecting Europe's know-how and innovation leadership (November 2017)

Class 14: Review: Putting It All Together December 1, 2017

Topics for review

• 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)
• Unilateral conduct
  • Network effects as entry barriers
  • Single brand aftermarkets
  • Exclusive dealing (single product)
  • Tying (multiple products)
• Exam format: 3 hours, closed book
• 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

Reading

• Hanno Kaiser, Exam Taking Strategies (2017)

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