According to the NYT, Nicolas Sarkozy said that “[w]e won’t let ourselves be stripped of our heritage to the benefit of a big company, no matter how friendly, big or American it is,” probably referring to the fact that about half of the 12 million books scanned by Google are not in English. How exactly is cultural heritage threatened by increased access? Because hundreds of thousands of links to French language books would be added to the 850,000 entries in the French Wikipedia within weeks? Because more and more people around the world would read, re-read, and incorporate in their own lifes, storytelling, and cultural production French works? Prime Minister Francois Fillon similarly said that France would not accept another cultural industry being “threatened by looting.” So culture is looted by access, use, and relevance? What a profound misunderstaning of what culture is and how it works.

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Among the stock arguments in the debate whether IP rights can be essential facilities and if so whether and under what conditions mandatory RAND licenses can be pursued under Section 2 is the claim that a duty to license (e.g., API specifications) is fundamentally at odds with the grant of the IP right itself. That is because patents and copyrights explicitly involve the power to exclude others from infringing those rights. A consequence of this argument has been the call for stronger protection against antitrust duties to share for IP rights than is afforded to tangible property. The CSU v. Xerox case is an illustration of this line of reasoning. Irrespective of one’s policy position with respect to essential facilities claims, the argument that duties to license are fundamentally at odds with the IP grand is unconvincing, because both IP rights and essential facilities are expressions of very similar tradeoffs between losses in short term static efficiency in order to promote long term dynamic efficiencies. Copyrights and patents are granted to promote the progress of science and useful arts in the long run. The right to exclude, and the costs that come with it, is a means to that end. Essential facilities recalibrate the exclusion/incentive tradeoff where the expected gains from maintaining the upstream incentives to innovate and invest are outweighed by the expected gains from increased downstream competition. Given the structural similarity of the tradreoffs involved, essential facility tweaks to the IP exclusion default are not “fundamentally at odds” with the IP grant. Rather, both are expressions of the same policy concerns. That doesn’t mean, of course, that such tweaks — or exceptions to the IP rules — are always appropriate, as some facilities are far more likely to induce significant downstream welfare gains from being opened than others. It does mean, however, that one cannot simply avoid the issue by pointing to an existing IP right.

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Here is an interesting complaint, in which Datel alleges that MSFT retroactively disabled Datel’s memory cards for the XBOX 360 to protect MSFT’s own aftermarket sales. The primary claims are monopolization of the aftermarket for XBOX accessories and tying, based on (i) total manufacturer control of the aftermarket and (ii) a > 50% share of the equipment market (which excludes the Wii). Among the most notable allegations is the ex post modification of the XBOX by way of a required, downloadable “dashboard upgrade,” which could make the traditional ex ante lifecycle pricing counter argument somewhat challenging. More generally, this is a case addressing the “tethered appliances” problem that Jonathan Zittrain develops in The Future of the Internet in the context of antitrust/consumer protection.

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Here are the slides for an upcoming talk on standard setting after Rambus, Broadcom (3rd. Cir.), Qualcomm (Fed. Cir.), and N-Data at the Advanced Patent Law Institute Conference in Palo Alto. Drop me a note if you are attending and would like me to address any other topics (offline, probably, the slot is only for 30 minutes).

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Here are the slides from my talk at the PLI seminar Understanding the IP License 2009 in Chicago. This was a fun event with a great crowd. Thanks to everyone for making this such a rewarding trip!

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Here are some slides from a recent, high-level discussion of the Robinson-Patman Act, geared towards a technology firm audience.

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Here is a Sunday afternoon conjecture about a common divide between Americans and Europeans when it comes to the emotional appeal of free markets. The Continental enlightenment was very much driven by philosophical rationalism, which in the administrative realm found its expression in the belief that only that which is planned is rational (Prussia, France). The English enlightenment, in contrast, had a more empirical bent from the get-go with an emphasis not merely on rational outcomes but also on rational processes (e.g., what would later become the scientific method). A culture shaped by the English enlightenment may thus be instinctively more comfortable with the idea of a rational yet unplanned market economy than more strictly rationalist traditions.

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In a recent Antitrust Magazine article (login required), Thomas Leary explores the implications of Commissioner Rosch’s concurring statement in the Ovation matter, in which Rosch explained why he would have challenged not only Ovation’s acquisition of Neoprofen but also its prior acquisition of Indocin from Merck. Leary sees Rosch’s opinion as an extension of the analysis of post merger incentives.

[M]erger law today focuses on changed incentives that flow from changes in industry structure; the Rosch opinion suggests that adverse incentive effects can also flow from changes in the structure of the surviving competitor. … Changes in industry structure are often a useful tool when predicting the likelihood of a price effect, but sound economics does not necessarily require that this structural change be an element of the offense.

The problem with this argument is the implication that higher post-transaction prices as such are of concern under Section 7. That, however, is not correct. Section 7 is concerned with acquisitions the effect of which “may be substantially to lessen competition, or tend to create a monopoly.” In other words, if we focus on price, then only those price effects are relevant to Section 7 that are the result of a lessening of competition. Price effects that are not the result of a lessening of competition are not actionable under Section 7. And that is why there is a more meaningful difference between a change in the industry structure and a change in the firm structure as a result of the acquisition than Leary suggests. There is ample evidence that higher industry concentration permits some inference as to diminished market performance — with all the important and customary caveats. But a change in firm structure does not permit an inference of diminished competition. Put simply, Section 7 is focused on competition, not price, whereas Rosch’s concurrence is focused on price, not competition.

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Here is a useful article by John Koenig and a nicely done presentation by FaberNovel, discussing the main strategies for making money with open source, namely (1) licensing of complementary products (e.g., a proprietary downstream products or add-ons); (2) the sale of complementary services; and (3) the use of OSS for hosted services (e.g., Google, Salesforce).

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Here is a chart with the Section13(b) preliminary injunction standard after FTC v. WholeFoods and FTC v. CCC Holdings. It is troubling that the statutory “likelihood of ultimate success” standard has been watered down to a mere raising of “serious, substantial” questions. Not only because that standard is almost pointlessly low (it is), but also because it gives the arbitrary, evolving, and in many cases ex ante unpredictable clearance to FTC or DOJ an outcome-determinative significance. That is not a rational process.

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I just came across this awesome chart. Thanks for saving my Sunday, Mike.

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Cartels Portrayed 1.6.09

“>This presentation pulls together a wealth of empirical data on cartels, their economic effects, and cartel prosecution statistics. Essential reading.

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The LinkLine holding is not particularly surprising. Trinko applies at the wholesale level and Brooke Group at the retail level.

1. Wholesale — If there is no antitrust duty to deal in the first place, then the upstream firm may charge whatever price it wants. In fact, Roberts is pretty clear about the fact that the upstream firm can put the downstream competitor out of business in a number of ways: stop selling, higher prices, crummy service, etc. It all depends on whether there is an antitrust duty to deal. Here, there isn’t. (See FN.2)
2. Retail — Downstream pricing can only be an antitrust violation if it satisfies the (i) below cost and (ii) recoupment prongs of Brooke Group, which LinkLine doesn’t.

What’s interesting about LinkLine is not so much what it says (aside from some very quotable language), but what it doesn’t address. Unlike Scalia in Trinko who went out of his way to address and limit the application of essential facilities and duties to deal in general, LinkLine is silent on what exactly constitutes the all important duty to deal. Roberts cites Aspen as one source of a duty to deal, and then quotes Areeda’s “Epithet” article but only for the limited and rather uncontroversial proposition that “court’s shouldn’t be rate regulators, etc.”, which he then proceeds to discuss for about a page and a half.

So LinkLine (unlike Trinko) is a rather disciplined and limited decision, only applying (a moderate interpretation of) Trinko and Brooke Group to a set of facts that involves both elements. The only “novelty” is the disaggregation of a price squeeze claim in an upstream duty to deal and a downstream predatory pricing claim. The key question, however, has been left open: What constitutes a duty to deal?

A somewhat different question is whether Roberts’ consistent application of the “lesser included” argument, i.e., if you don’t have to sell at all, then whatever else you do to your buyer (price, quality, delay, etc.) can’t be an antitrust violation, may turn out to be a slippery slope. This line of reasoning is, of course, prominent in the IP context. As long as a firm stays within the scope and duration of the patent grant, it is all but immune from antitrust challenge (Fed. Cir, DOJ). I wonder what this will do, over time, to tying. In a tying case, one almost never has a duty to deal in the first place. The offense is conditioning the sale on the purchase of other stuff. In fact, the “lesser included” reasoning may well be extended to vertical restraints in general, all of which have some form of conditioning attached to them (I’ll sell you my stuff, but only if (i) you don’t resell it in California; (ii) you don’t sell anyone else’s stuff, etc.). Extrapolating from LinkLine, one might argue that as long as one can refuse to sell in the first place, there is little that one can do to downstream buyers that could run afoul of the antitrust laws.

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Here are the print and the screen versions of my essential facilities presentations at the ABA IP and Antitrust Conference in Berkeley earlier this February.

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Here are some (draft) slides and materials from my course in International Antitrust and Policy at U.C. Berkeley.

• Segment 1: Introduction
• Segment 2: Horizontal Agreements in the U.S. and the EU
• Segment 3: International cartels at work

As always, everything is licensed under a Creative Commons attribution only license. The (ever evolving) syllabus is here. By the way, weary as I am of the cloud for privacy and policy reasons (I like to control my tools, not vice versa), Google Docs is one great app that just keeps getting better.

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