Stop The Antitrust Gerrymandering

from the make-stronger-arguments, dept

The social media app TikTok was reported to have passed more than 3 billion total downloads in July and was the most downloaded app in the first half of the year. This growth is impressive as it not only was banned in India but is the first app not owned by Facebook to pass 3 billion downloads. Yet in the recent antitrust cases from the Federal Trade Commission (FTC) and the states attorneys general against Facebook, there is little mention of the popular app.

This omission is reminiscent of politicians gerrymandering or drawing political lines to benefit their parties’ candidates in re-election. Attorneys general and federal agencies have also relied on excluding competitors or narrowly defining markets to make their cases against Google and Facebook.

The FTC led lawsuit against Facebook provides a case in point. The lawsuit accuses Facebook of having a monopoly over “personal networking services.” The FTC argues that products like LinkedIn or Twitter are different from Facebook and shouldn’t be considered as a personal networking service. TikTok with its 3 billion downloads fails to warrant a mention.

Even with these exclusions, the FTC contends that Facebook only controls approximately 60 percent of the market yet omits whatever company or companies control the other 40 percent. Unsurprisingly the judge was unconvinced of the claim that Facebook controlled 60 percent of the market and gave the FTC 30 days to amend the complaint to show their work.

As other cases against Google move through the process, they will likely face the same struggles at convincing judges due to their gerrymandering. The most recent case filed against Google for allegedly holding a monopoly on app stores in the Android mobile operating system is another example.

The lawsuit immediately fails to pass any logical test since Android is not the only, let alone the dominant, mobile platform in the United States. Apple’s iOS has the majority of users in America and is facing its own antitrust lawsuit from Epic games over its supposed app store monopoly. The states try to get around this by claiming the market is specifically "licensable" operating systems, which excludes iOS, but that only highlights how this is gerrymandering the definition to get to a desired outcome.

Even ignoring Apple, the Android system is extremely open allowing users to download a variety of app stores and even allowing for “sideloading” or downloading apps directly from the developers without need of an app store. The “Freedom Phone” which uses the Android operating system and purports to protect users from “big tech” comes preloaded with its own app store for example.

The problem with these narrow definitions is that it asks judges to ignore the world in which we actually live for ones constructed for the purpose of showing targeted tech companies are monopolies.

Other lawsuits contend that Google holds a monopoly over search when Bing and DuckDuckGo are easily accessible to anyone with an internet connection at no cost. Or that Google faces stiff competition from Facebook, Amazon, and a host of other companies to say nothing of more traditional advertisements.

Like political gerrymandering, elected officials filing these cases seem to believe there is political gain for being tough on big tech. But as with poorly drawn political maps, judges are proving more skeptical. Judges play an important role in protecting a fair in neutral system from political pressure. This is true for both elections and antitrust.

Eric Peterson is the Director if the Pelican Institute for Technology and Innovation. He currently lives in New Orleans

Filed Under: antitrust, ftc, gerrymandering, market definition
Companies: facebook, google

The FTC Is Driving Away Good Economists In Favor Of Political Henchmen

from the let-them-speak dept

Shut up and get in line — that's the message Federal Trade Commission Chair Lina Khan recently broadcasted to FTC staffers. Within her first month as a new commissioner, Khan ordered a stop to all public speaking for "an all-hands-on-deck moment." Evidently, she wants the FTC speaking with only one voice — her own. The gag order is going to run out the top economists and harm the FTC's long-term effectiveness.

Khan rose to academic stardom at a young age as a vocal critic of Big Tech, especially Amazon. In her most famous writing, Amazon's Antitrust Paradox, she argued for stronger antitrust enforcement even when companies are lowering prices for consumers. Khan's preferred antitrust approach would be a complete overhaul of the current antitrust system and would require a lot of work. However, even if one agrees with Khan that antitrust needs to be rewritten and that this is an all-hands-on-deck moment, Khan's current regime will make that impossible by running out her employees, especially Ph.D. economists.

Imagine yourself as a recent Ph.D. in economics from a hotshot university. You're 30 years old, and you just spent 6 years in graduate school, earning $20,000. Before that, you may have spent two years as a research assistant to a professor, earning just as little. You're a top student in your program and have lots of career options in front of you. You could go work at Amazon or Netflix and earn $200,000 a year, base salary. After living on a strict diet of research and Top Ramen in graduate school, that sounds pretty good.

Traditionally, federal agencies, like the FTC, compete for the best economists the same way universities compete. They can't match the pay of an Amazon, but they can offer economists a valuable perk: the ability to do research and engage with the scientific community as part of the job.

For many economists, who have already demonstrated their passion for research by writing a dissertation and completing a Ph.D., doing research is a huge perk that most private companies don't offer. The FTC knows this. In their own job postings for PhD economists, the FTC explicitly emphasizes their economists' ability to do research. To date, that hiring strategy has worked pretty well for them. Many economists at the FTC are top-notch researchers, with thousands of citations, an impressive feat for a full-time researcher at a university. When the FTC hires new PhDs, they are saying "you can work in public service and still be a successful researcher."

Khan's recent policies signal the FTC is now less committed to research and independent thinking. Public academic seminars, where economists present their findings to colleagues throughout the profession, are a key part of the research and publication process. If you cut off economists' ability to present their research and get feedback, you cut off the ability to do research.

The real damage will take some time to show itself. Even if the gag order does not run out the current economists, who may be loyal to the FTC after years, the order will still hurt the agency over time. Any successful agency needs to hire quality employees year in and year out. If this policy persists, the FTC will have trouble down the line hiring and retaining high-quality employees, especially economists.

Khan might not think she needs these economists right now; after all, she has made clear she opposes the economic approach to antitrust. But when the FTC takes companies to court, as we can expect it will do even more often under Khan, it needs expert witnesses to persuasively argue its case. The private companies pay $1,000 per hour for economists at the top of the profession. The FTC must hire top talent too.

If you were against antitrust enforcement and wanted to ruin the FTC from within, Khan's strategy would be nearly perfect. Step 1: Run out all the competent lawyers and rigorous, scientific economists. Step 2: Bring forth a bunch of cases that are poorly argued and lack an economic defense. Step 3: Lose those cases at the current Supreme Court and set a bunch of precedents against the FTC.

Brian Albrecht is an assistant professor of economics at Kennesaw State University. He holds a Ph.D. in economics from the University of Minnesota. He is a Young Voices contributor and writes a weekly economics newsletter (pricetheory.substack.com). Follow him on Twitter: @briancalbrecht.

Filed Under: antitrust, economists, ftc, lina khan, panels, presentations, research

FTC Formally Embraces Right To Repair As Movement Goes Mainstream

from the you-should-own-the-things-you-buy dept

One of the bigger bright spots in the last few years of often thorny or downright ridiculous policy debates has been the continued ascension of the right to repair movement. Whether it's Apple's wasteful restrictions or bullying of independent repair shops, Sony and Microsoft's efforts to monopolize game console repair, or John Deere's efforts to drive up repair costs for tractor owners, "right to repair" as a movement was born out of a genuine and bipartisan public annoyance at repair monopolies, obnoxious DRM, and self-service restrictions related to tools, documentation, and parts.

And despite Apple and friends' best attempt to smear the movement as some dangerous and diabolical cabal only of use to sexual predators, its popularity shows no signs of slowing down. There's legislation pending on both the federal level and in two-dozen states. Prompted by an FTC report showing industry opposition to the movement is largely fluff and nonsense, the Biden administration recently issued an executive order urging the FTC to do more. And now the FTC, with a bipartisan vote of 5-0, has adopted a new policy paper (pdf) and says it will take tougher action against illegal repair restrictions:

"The Federal Trade Commission today unanimously voted to ramp up law enforcement against repair restrictions that prevent small businesses, workers, consumers, and even government entities from fixing their own products. The policy statement adopted today is aimed at manufacturers’ practices that make it extremely difficult for purchasers to repair their products or shop around for other service providers to do it for them. By enforcing against restrictions that violate antitrust or consumer protection laws, the Commission is taking important steps to restore the right to repair."

The problem, of course, is the same problem facing the FTC on numerous fronts, from privacy to safety in bleach labeling. Namely that the agency's authority is generally restricted under the FTC act to tackling corporate practices that are clearly "unfair and deceptive." The agency also continually suffers from budget and staffing shortcomings (by well-lobbied Congressional design), so tackling the full scope of a problem like this often isn't logistically or financially possible.

Still, the FTC argued that there's a lot more it can do to lend markets and consumers a hand on the right to repair front, whether that's doing a better job enforcing existing warranty laws, engaging in better coordination with state and local policymakers, or doing a better job holding companies that attempt to monopolize repair accountable under antitrust law:

"These types of restrictions can significantly raise costs for consumers, stifle innovation, close off business opportunities for independent repair shops, create unnecessary electronic waste, delay timely repairs and undermine resiliency,” FTC Chairperson Lina Khan said during the meeting. “The FTC has a range of tools it can use to root out unlawful repair restrictions. And today's policy statement would commit us to move forward on this issue with new vigor."

Ideally you'd still want a comprehensive right to repair law to shore up shortcomings in FTC authority. Much like privacy laws, that's generally opposed by a broad coalition of cross-industry lobbyists who'd very much like to keep nickel and diming customers on a whole range of fronts, be it the phone industry or medical device manufacturing. But the more companies like Apple, John Deere, or the auto industry try to fight against reform using stupid, fear-mongering arguments, the more attention these shitty practices receive, the more annoyed the public gets, and the more bipartisan support develops.

That's a major reason why right to repair went from a niche concern just a few years ago, to seeing consistent coverage via the likes of CBS News. That's a positive development any way you slice it, and a nice contrast to many of the thornier and seemingly insurmountable tech policy debates that tend to consume DC, get mired in debate, and seemingly go nowhere.

Filed Under: ftc, right to repair
Companies: apple, john deere

Broadcom Gets a Wrist Slap For Monopolizing Cable Box, Modem Markets

from the do-not-pass-go,-do-not-collect-$200 dept

While most folks didn't notice ahead of the holiday weekend, the FTC on Friday announced it would be giving chipmaker Broadcom a bit of a wrist slap after the agency found it had become an "illegal monopoly." In the FTC's complaint (pdf), the agency notes that Broadcom "illegally monopolized" both the cable modem/gateway and cable set top box markets by preventing its customers from buying products from other vendors. It did this by forcing both OEMs and service providers into long-term agreements that prevented them from purchasing chips from Broadcom's competitors, then bullying them if they went off script:

"These agreements required customers to purchase, use or bid Broadcom’s chips on an exclusive or near-exclusive basis. Broadcom entered these exclusivity and loyalty agreements with at least ten OEMs, including those with the most extensive engineering and design capabilities and the strongest ties to service providers. And Broadcom entered similar agreements with major U.S. and other service providers. By entering exclusivity and loyalty agreements with key customers at two levels of the supply chain, Broadcom created insurmountable barriers for companies trying to compete with Broadcom."

The charges follow similar accusations in Europe. As we've long noted, the cable set box market has long been a monopolized mess on several layers. One, on the way Broadcom controls chipsets. But also in the way that cable giants generate $21 billion annually forcing consumers to rent cable boxes that would be far cheaper to buy outright. Fortunately streaming has put a dent in at least some aspects of this problem, even though cable TV with a traditional set top box remains the dominant delivery avenue for television for now (Broadcom also provides chipsets for streaming hardware).

According to the FTC Broadcom won't be seeing any financial penalty for its efforts to monopolize the modem and cable box chipset market, but a new FTC order (pdf) bans the company from doing so moving forward (for however long the FTC can bother to pay attention):

"Under the proposed consent order, Broadcom will be prohibited from entering into certain types of exclusivity or loyalty agreements with its customers for the supply of key chips for traditional broadcast set top boxes and DSL and fiber broadband internet devices. Broadcom also must stop conditioning access to or requiring favorable supply terms for these chips on customers committing to exclusivity or loyalty for the supply of related chips. And the proposed order prohibits Broadcom from retaliating against customers for doing business with Broadcom’s competitors."

The 4-0-1 vote (new FTC boss Lina Khan did not participate) is just a small dent in a larger problem in both telecom, cable, and the shifting cable TV market. Namely the lack of overall competition in broadband (which opens the door to unnecessary usage caps and other dodgy efforts to hamstring streaming competitors), as well as persistent gatekeeper issues, like the ongoing practice of forcing consumers to shell out thousands in rental fees for crappy cable set top boxes and streaming hardware alike.

Filed Under: antitrust, cable modem, cable set top box, competition, ftc, monopoly

Biden's Executive Order On Competition Has... Lots Of Really Good Ideas? Though, Potential Overreaches On Executive Power

from the nice-to-see dept

Given how many discussions on antitrust these days are mind bogglingly bad, I was nervous when it was announced that the Biden Administration would be releasing an executive order on competition. Now that it's out however, I have to admit that I'm very surprised. The executive order is actually full of mostly good ideas. I was... not expecting that. I do think, however, that in some areas it probably (unfortunately) over-stretches executive authority, which should be concerning. But on the whole, there are a bunch of ideas in here to actually deal with anti-competitive problems.

On labor markets, the executive order encourages the FTC to take some positive steps:

Encourages the FTC to ban or limit non-compete agreements.

Encourages the FTC to ban unnecessary occupational licensing restrictions that impede economic mobility.

Encourages the FTC and DOJ to strengthen antitrust guidance to prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another.

We've talked about all three of these issues extensively in the past, and just how damaging they are. Occupational licensing is massively damaging, in that it's used to exclude people from jobs, limit competition, and drive up costs to consumers, all based on often completely bogus claims about "safety and security." I've talked in great detail about how noncompete agreements suppress innovation, and that there is extremely compelling evidence that a key reason why Silicon Valley became Silicon Valley is because noncompetes are not enforceable in California (and, relatedly, that the downfall of Detroit was in Michigan making noncompetes enforceable in the early 1980s). Indeed, I've long advocated that every state should follow California's lead and ban noncompetes. And, for all the talk about how "evil" big tech companies are, one area where I have strong agreement is how they colluded to keep wages down a decade ago.

So these three things all sound... really great? However, I'm not entirely sure that the President can actually do things this way. Yes, the executive order just says that he's "encouraging" the FTC to take these steps, but the FTC is supposed to be an independent agency, and we should all be at least somewhat hesitant to embrace the President pushing independent agencies. Also, it's not entirely clear to me that the FTC has the authority to follow these suggestions. They are all good suggestions and ideas, and I support the goals. I just worry that taking a shortcut by executive order via the FTC (under potentially dubious authority) could undermine the value of these moves.

The moves regarding healthcare are also interesting and mostly good ideas:

Directs the Food and Drug Administration to work with states and tribes to safely import prescription drugs from Canada, pursuant to the Medicare Modernization Act of 2003.

Directs the Health and Human Services Administration (HHS) to increase support for generic and biosimilar drugs, which provide low-cost options for patients.

Directs HHS to issue a comprehensive plan within 45 days to combat high prescription drug prices and price gouging. 

Encourages the FTC to ban “pay for delay” and similar agreements by rule.

We've talked about much of this before as well, especially the ability to import drugs from Canada and the pure, unadulterated evil of the pay for delay scam. What's missing, though, is a recognition that the problem with every single one of the items listed above is really in the patent system beneath it. Every one of these issues wouldn't be an issue at all if we fixed our broken patent system and how it handled pharmaceutical patents. But, because doing that requires (1) Congress, and (2) an impossible fight that the Pharma lobbyists would kill immediately... we instead have to dance around the real problem with again, executive order-driven nudging.

That's not to say patents are ignored in the executive order. There's a really nice bit in which it asks the DOJ and Commerce Department to "re-evaluate" its stance on allowing patents in standards:

To avoid the potential for anticompetitive extension of market power beyond the scope of granted patents, and to protect standard-setting processes from abuse, the Attorney General and the Secretary of Commerce are encouraged to consider whether to revise their position on the intersection of the intellectual property and antitrust laws, including by considering whether to revise the Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments issued jointly by the Department of Justice, the United States Patent and Trademark Office, and the National Institute of Standards and Technology on December 19, 2019.

There are some other items in the healthcare proposal that are beyond typical Techdirt scope, but certainly sound reasonable: such as more hospital transparency and limiting hospital mergers. Back in 2013, we wrote about how healthcare is a giant economic scam, mostly driven by the hospitals (everyone blames the insurance companies, who are complicit, but if you look at the details, it's often the hospitals themselves that are the real scams).

More specific to tech, there are some new items regarding the FCC and the telco broadband space, which Karl will cover in a separate post. I will note that many of the ideas do seem reasonable -- but again, I worry about executive overreach regarding an independent agency, and a failure to address the actual issues.

Regarding "big tech" the executive order pushes for greater scrutiny of mergers -- and, especially, acquisitions by the "big" companies. While many people in tech policy I know disagree with this take, I actually don't have a problem with it in concept. We should scrutinize carefully when very large companies buy smaller companies to see what the impact on competition and consumer welfare should be. What we should not do is automatically rule out all such mergers and acquisitions, because that would create a bunch of consequences that would actually be bad for innovation -- such as discouraging investment in startups or limiting acquisitions that actually are additive. But, conceptually, yes, we should scrutinize such mergers carefully. As expected, it also encourages the FTC to make rules barring restrictions on independent repair and DIY repair. Again, the FTC may be somewhat limited in what it can do, but this is a huge step forward for the important right to repair movement.

There is also a part about rules on the collection of user data and how it's used. That's... potentially good and potentially bad depending on how it plays out. It asks the FTC to explore:

unfair data collection and surveillance practices that may damage competition, consumer autonomy, and consumer privacy;

In theory that's good. And there are many companies engaged in sketchy practices with data. But there are also lots of important, and useful uses of data. And I worry that an overly aggressive FTC could conflate the two. I'd much prefer working on proposals to unlock our data by providing more transparency and control to end users, so we don't have to trust companies that don't have our best interests in mind.

There's also a bit about "unfair competition in major Internet marketplaces," which seems to be aimed specifically at Amazon selling its own branded products. To be honest, I've never really understood why this is a problem. A ton of retailers have done this going back basically forever. And, it's not clear that the supposed "data advantage" that Amazon has really exists or is meaningful.

Overall, there really are a lot of good ideas in here. I just wish most of them were taken up by Congress, rather than being nudged through executive order.

Filed Under: antitrust, competition, doj, executive order, fcc, ftc, non-compete agreements, occupational licensing, patents

Biden Executive Order Will Try To Address Some 'Right To Repair' Harms

from the you-don't-own-what-you-buy dept

Back in 2015, frustration at John Deere's ham-fisted repair restrictions and draconian tractor DRM helped birth a grassroots tech movement dubbed "right to repair." The company's crackdown on "unauthorized repairs" turned countless ordinary citizens into technology policy activists, after onerous restrictions not only significantly drove up repair costs, but forced owners to often haul their equipment hundreds or thousands of miles to an authorized repair location.

John Deere's multi-year promise to do a better job providing access to tools, documentation, and repair options simply never materialized. And of course John Deere is just one of numerous companies engaged in this kind of behavior across numerous sectors, driving major public support for proposed legislation in more than a dozen states that would put a major dent in technology repair monopolies.

In a small win for farmers and right to repair advocates, Biden is apparently planning to include some right to repair mandates in an upcoming executive order on competition. The order itself will urge the FTC to craft tighter rules to address the problem:

"U.S. President Joe Biden wants the Federal Trade Commission to limit the ability of farm equipment manufacturers to restrict tractor owners from using independent repair shops or complete some repairs on their own, a source briefed on the matter told Reuters Tuesday. Biden's planned executive order on competition, expected to be released in the coming days, will encourage the FTC to address the issue, the source said. Some tractor manufacturers like Deere & Co use proprietary repair tools and software to prevent third parties from performing some repairs. Deere and the FTC did not immediately comment.

The problem is that the FTC's rule creation and enforcement authority is arguably narrow under the FTC Act (not to mention limited by funding and staffing constraints). Most of the agency's enforcement authority rests on whether something is clearly "unfair and deceptive." But most repair monopolies, like Apple, obfuscate their greed by insisting onerous repair restrictions are necessary to protect consumer safety and security. Ideally you'd prefer clear and well crafted state and federal laws, but companies like Apple have worked overtime to insist such legislation would also harm the public.

In 2017, Apple insisted that passing a right to repair law in Nebraska would turn the state into a "mecca for hackers." More recently, the auto industry tried to claim that expanding Massachusetts' existing consumer tech law, to make sure that independent garages could access tools and diagnostic gear, would result in a "boom in sexual predators." Sony, Microsoft, and others eager to monopolize repair options for their game consoles can routinely be found making the same or similar arguments about how better consumer protection would create a parade of unforeseen horribles.

But a recent bipartisan FTC report found that the majority of the claims coming from companies like Apple were false (the company bullies independent repair shop owners to protect revenues, not out of some broad altruism). The report went on to note that stricter state and federal laws and tougher antitrust enforcement would go a long way toward addressing this kind of behavior. In other words, even the FTC acknowledges it's going to take more than just an EO punting the problem to the FTC if right to repair reform is to be taken seriously.

Filed Under: copyright, drm, executive order, ftc, joe biden, right to repair, unauthorized repairs

Court Tosses Both FTC And States' Antitrust Cases Against Facebook; You Gotta Have More Than 'Big Facebook Bad'

from the ouch dept

As you'll almost certainly recall, last December the FTC filed an antitrust case against Facebook. That happened the same day 46 states (and DC and Guam) also sued Facebook for antitrust violations in a separate case. Also it was right after the DOJ went after Google on antitrust grounds.

On Monday a judge ruled on both the cases against Facebook -- and dismissed them both. In both cases, the Court highlights the very problems we noted in our initial writeup about these cases. They seem to assume that "obviously" Facebook is a monopoly and "obviously" it's doing anti-competitive bad stuff. But... the problem with insisting that it's all "obvious" is that you have to actually show that in your complaint. And that didn't happen in either of these cases.

The court, fairly easily, dismissed the FTC's case, though left it open for the FTC to amend the case and try again (which it will almost certainly do). The judge highlighted the exact same problem I raised in my post about the key weakness in the case: it fails to show evidence that Facebook has a monopoly.

Although the Court does not agree with all of Facebook’s contentions here, it ultimately concurs that the agency’s Complaint is legally insufficient and must therefore be dismissed. The FTC has failed to plead enough facts to plausibly establish a necessary element of all of its Section 2 claims — namely, that Facebook has monopoly power in the market for Personal Social Networking (PSN) Services. The Complaint contains nothing on that score save the naked allegation that the company has had and still has a “dominant share of th[at] market (in excess of 60%).” ... Such an unsupported assertion might (barely) suffice in a Section 2 case involving a more traditional goods market, in which the Court could reasonably infer that market share was measured by revenue, units sold, or some other typical metric. But this case involves no ordinary or intuitive market. Rather, PSN services are free to use, and the exact metes and bounds of what even constitutes a PSN service — i.e., which features of a company’s mobile app or website are included in that definition and which are excluded — are hardly crystal clear. In this unusual context, the FTC’s inability to offer any indication of the metric(s) or method(s) it used to calculate Facebook’s market share renders its vague “60%-plus” assertion too speculative and conclusory to go forward. Because this defect could conceivably be overcome by re-pleading, however, the Court will dismiss only the Complaint, not the case, and will do so without prejudice to allow Plaintiff to file an amended Complaint.

In our original post about the case we noted the FTC can't just say "it's obvious this is a monopoly" without anything to back it up, but that's what it tried to do, and that's what the court can't allow. Also, the court seems skeptical that even if the FTC could prove monopoly power that the rest of the case would hold up:

First, even if the FTC had sufficiently pleaded market power, its challenge to Facebook’s policy of refusing interoperability permissions with competing apps fails to state a claim for injunctive relief. As explained herein (and in the Court’s separate Opinion in the States’ case), there is nothing unlawful about having such a policy in general. While it is possible that Facebook’s implementation of that policy as to certain specific competitor apps may have violated Section 2, such finding would not change the outcome here: all such revocations of access occurred in 2013, seven years before this suit was filed, and the FTC lacks statutory authority to seek an injunction “based on [such] long-past conduct.” FTC v. Shire ViroPharma, Inc., 917 F.3d 147, 156 (3d Cir. 2019). Regardless of whether the FTC can amend its Complaint to plausibly allege market power and advance this litigation, then, the conduct it has alleged regarding Facebook’s interoperability policies cannot form the basis for Section 2 liability. Second, the agency is on firmer ground in scrutinizing the acquisitions of Instagram and WhatsApp, as the Court rejects Facebook’s argument that the FTC lacks authority to seek injunctive relief against those purchases. Whether other issues arise in a subsequent phase of litigation is dependent on how the Government wishes to proceed.

The details of the ruling really show (as we had suggested earlier) that it appears that the government really tried to rush all these cases, and did so with weak arguments just to get a case started, without thinking that just because you say something is true you can't get a court to buy it without support:

Although the Court, as just explained, finds the contours of the asserted product market plausible, the Complaint is undoubtedly light on specific factual allegations regarding consumer-switching preferences. Given that thin showing, and the fact that the PSN-services product market is somewhat “idiosyncratically drawn” to begin with, the Court must demand something more robust from Plaintiff’s market-share allegations. As it happens, however, those allegations are even more tentative: the FTC alleges only that Facebook has “maintained a dominant share of the U.S. personal social networking market (in excess of 60%)” since 2011, ... and that “no other social network of comparable scale exists in the United States.”... That is it. These allegations — which do not even provide an estimated actual figure or range for Facebook’s market share at any point over the past ten years — ultimately fall short of plausibly establishing that Facebook holds market power. Given that finding, the court need not address the issue of whether the FTC has sufficiently alleged entry barriers.

The question now is what will the FTC do in response. It could try to come back with another attempt with a better market definition -- even though the court seems somewhat skeptical that it could do so successfully. The other option, which some are speculating about, is that the FTC could try again using a totally different legal theory, basically arguing unfair competition, rather than abuse of market power. Of course, as former FTC Commissioner Joshua Wright has detailed, taking this latter approach could lead the courts to significantly limiting the FTC's authority -- meaning it could backfire spectacularly.

As for the States' case against Facebook, it fails for even dumber reasons. When the case was first filed, we noted how it tells a narrative that left out a ton of important context. The case focuses on Facebook's purchases of both WhatsApp and Instagram, and tries to argue that after sucking a bunch of companies in to use Facebook's platform, it then cut back on the API access to functionalities to keep competitors out. That, of course, leaves out the context of reasons why Facebook changed its approach to the API and how it had to deal with situations like Cambridge Analytica's abuse of the API to suck out a ton of data.

But the real problem with the States' case? They brought it way too late. If they had a problem with the purchase of Instagram and WhatsApp, they maybe should have brought the case years ago:

First, the States’ Section 2 and Section 7 attacks on Facebook’s acquisitions are barred by the doctrine of laches, which precludes relief for those who sleep on their rights. Although Defendant purchased Instagram in 2012 and WhatsApp in 2014, Plaintiffs’ suit — which seeks, in the main, to have Facebook divest one or both companies — was not filed until December 2020. The Court is aware of no case, and Plaintiffs provide none, where such a long delay in seeking such a consequential remedy has been countenanced in a case brought by a plaintiff other than the federal government, against which laches does not apply and to which the federal antitrust laws grant unique authority as sovereign law enforcer. If laches is to mean anything, it must apply on these facts, even in a suit brought by states.

As for the API changes? Well, again the court notes there's nothing actually against the law in changing your API policies -- and even if the changes were done for anti-competitive reasons, those changes also happened way, way too long ago:

Second, the States’ Section 2 challenge to Facebook’s policy of preventing interoperability with competing apps fails to state a claim under current antitrust law, as there is nothing unlawful about having such a policy. While it is possible that Facebook’s implementation of that policy as to certain specific competitor apps may have violated Section 2, the Court does not reach that question because all such revocations of access occurred over five years before the filing of the Complaint. Such long-past violations cannot furnish a basis for the injunctive relief that Plaintiffs seek here.

Basically, the problem with the States' case is that they're too damn late.

Many people have taken it for granted that Facebook is clearly violating antitrust law, but the lawyers bringing these cases against the company can't take that for granted, or assume that it's obvious. They have to prove it to a court, and, as these two rulings show, they failed to do so in either case.

Filed Under: antitrust, competition, ftc, market power, states
Companies: facebook

Will Congress' Big New Push On Antitrust Actually Solve Any Competition Issues?

from the probably-not dept

On Friday, as has been widely expected for a while, a bunch of House lawmakers led by David Cicilline introduced five new antitrust bills that would, if they become law, completely reshape how antitrust works in the US. At least for tech companies. Somewhat notably, many of the bills seem written specifically to target just one industry and to avoid having to deal with other industries. The text of the bills has been floating around all week as the Democrats who are pushing them hoped to find some Republican co-sponsors. And, based on Friday's press release, it appears they found at least one Republican to sponsor each bill (though only four Republicans in total, as they got Lance Gooden to agree to sponsor two of the bills).

Now, most of the bills strike me as extremely problematic -- and even me just saying so will lead people to claim I'm somehow in the tank for these companies. Nothing is further from the truth. I'm all for creative ideas on how to end the dominance of the largest companies and to increase competition. But I fear poorly thought out proposals will have massive unintended consequences that go way beyond punishing Facebook, Google and Amazon.

Each bill does something different, and there are some occasionally creative and interesting ideas in them, but it really seems like these bills are more designed to destroy the thriving tech industry out of spite, rather than to actually encourage competition. As noted above, I'm in agreement that it would be good if we got more competition in the tech industry, but these bills take a very backwards-looking view on how to do that, basically by punishing companies for building successful products, rather than looking for ways to enable more actual competition. I've written before on ways to actually break up the dominance of big tech players, mainly by getting rid of many of the existing rules that have allowed the big players to block and limit competition. But these bills don't do that. They take a much more punitive approach to successful companies, rather than an approach that enables more competition through innovation. That's disappointing.

To me, the one that seemed most interesting at a first glance was the ACCESS Act ("Augmenting Compatibility and Competition by Enabling Service Switching Act") by Rep. Mary Gay Scanlon. It basically requires "covered platforms" to maintain open APIs for interoperability and data portability. And, at a first pass, that is a good thing, and obviously quite consistent with my belief that we need to build a future that is based more on open protocols rather than silo platforms. Portability and interoperability are certainly a step in the right direction for that.

However, the way the bill actually is written suggests a real lack of futuristic technical thinking. It would lock in certain ideas that don't necessarily make any sense. Basically, all this bill would actually do is make sure that you could transfer your data out of an existing internet giant. The big internet companies already do this... and because of the way it's been implemented, it's almost entirely useless and doesn't help anyone. This bill wouldn't change that, unfortunately.

On top of that, this bill fails to deal with the very real and very tricky challenges regarding data portability and interoperability as it pertains to privacy. Instead, the bill just handwaves it away, basically saying "don't do bad stuff regarding privacy" with this data. That's... not going to work, and is more or less an admission that the drafters of the bill don't want to deal with the very significant challenges of crafting a data portability/interoperability setup that is also congruent with protecting privacy.

The real way to do this would be to separate out the data layer so that it's not controlled by the centralized companies at all, but in the hands of the end-users or their agents. But while that could happen as an accident of this bill, it's clearly not the intent. Thus it seems like this bill would not help very much, and that's a real missed opportunity. It's nice that it recognizes portability and interoperability as issues, but it doesn't do the hard work necessary to make that actually meaningful.

Finally, perhaps the most problematic (by far) part of this bill is that if a "covered company" wants to change its APIs, it would need to get FTC approval -- and that seems like a terrible idea. Imagine having to get approval from the government every time you change your API? What? No. Bad.

A covered platform may make a change that may affect its interoperability interface by petitioning the Commission to approve a proposed change. The Commission shall allow the change if, after consulting the relevant technical committee the Commission concludes that the change is not being made with the purpose or effect of unreasonably denying access or undermining interoperability for competing businesses or potential competing businesses.

I mean, yikes. That's going from permissionless innovation -- the very core of our innovation engine -- to having the FTC act as the approver of any slight change to an API. That's really, really bad.

The bill that may get the most attention is Cicilline's own bill that basically says successful internet companies could no longer promote their own ancillary services over those of competitors. Basically, Google couldn't insert its own local results, or its own maps, over a third party's. Think of this as the Yelp Finally Forces Google To Use Yelp's Listings Act, because that's the main driver behind this bill. Basically, some companies that do more specialized search and content don't want Google to be able to compete with them, and more or less want traffic they might not have earned. I can see a slight argument for how the practice of actual monopolies favoring their own services and excluding others could be anticompetitive, but this bill would make it defacto anti-competitive -- and that seems likely to create massive unintended consequences that won't be very good for the internet.

There are, after all, lots of cases where it makes quite a lot of sense for companies to link their ancillary products. Yet, here, doing so will almost definitively lead to a costly antitrust fight, meaning that it will be quite difficult for many companies to build useful complementary services. I don't see how that benefits the public. Again, it seems that a much better solution would be to remove the barriers that currently limit the ability for third party competitors to step in and build tools that interoperate with the bigger players, but that's not the goal here. The goal seems to be to restrict the big internet companies to much more limited offerings, rather than providing a wider suite of services.

Another major change comes from Rep. Hakeem Jeffries, and would effectively make it much, much harder for internet giants to buy companies. A key part of the bill is that the acquiring company would have to affirmatively show that the merger is legit, rather than the government having to show that the merger is problematic. Shifting the burden of proof would basically mean that most such mergers would be presumed unlawful, rather than the opposite. This could have huge and problematic implications for how our economy operates today.

On the good side, the bill would give the FTC and DOJ more resources to review acquisitions. However, as we've discussed before, in trying to block out anti-competitive acquisitions (which are a legitimate concern!) a bill this broad will almost certainly knock out other kinds of important and useful acquisitions (such as ones that keep failing or flailing services alive). More importantly it may take investment capital away from competitive entrepreneurial ventures.

No good investors invest in a company with a plan to just sell it off to a big tech company (indeed, most investors will ask startups how they would deal with such a competitive threat), but having the big guys act as a buyer is an alternative out -- not as successful as succeeding on your own, but still better than losing all of the investment entirely -- makes it easier for the investors to make these kinds of bets. Now that possibility of return will become much more difficult, meaning that investment capital is less likely to go to entrepreneurs trying to create competitive solutions. And that's not good!

A separate bill from Rep. Neguse basically just raises the cost of mergers and acquisitions and... um... sure? Fine. I don't see that as problematic really. I mean, at the margins, making it more costly to do an acquisition might be a nuisance, but the changes and increases don't seem particularly significant here -- and certainly not enough to stop a major acquisition (though, arguably it might drive down the amount that the owners of the acquired company get, effectively transferring it to the government). Consider it kind of a slight tax on selling your business. The bill would also increase funding to the FTC and DOJ to work on antitrust issues, and that seems reasonable as well.

Finally, there's Rep. Jayapal's bill that is pretty clearly designed to just stop Amazon from selling its own goods on Amazon. I know this is an issue lots of people complain about, but it remains unclear to me how much of an actual problem it is. Lots of retailers sell house branded products and compete against others without much of a problem. Costco has its house Kirkland brand, which it sells alongside other companies' competing products. Is that so problematic?

As some are pointing out already, these bills could kill off (or severely limit) a bunch of services that people actually like, mostly as punishment that the innovations have been so successful. And that's a problem.

It's fine to admit that there's a delicate balance here. How do you stop companies from becoming too powerful such that they alone squeeze out or stifle competition, while at the same time not putting in place stringent rules that, by themselves, stifle useful innovations? There really are two major themes of approaches: (1) punish or limit the ability of companies to act or (2) figure out better ways to create incentives for competitors to succeed. Unfortunately, regulators tend to jump to (1) and avoid even trying (2). That seems to be the case here.

Filed Under: acquisitions, antitrust, competition, data portability, doj, ftc, interoperability, mergers
Companies: amazon, apple, facebook, google

FTC Gives MoviePass Execs A Wrist Slap For Changing Passwords So Users Couldn't Watch Movies

from the wrist-slaps dept

Originally, the MoviePass business model seemed like a semi-sensible idea, though we were quick to wonder if it would ever actually make a profit. Under the model, users paid $30 (eventually $10) a month in exchange for unlimited movie tickets at participating theaters, provided they signed up for a full year of service. There were, of course, caveats: you could only buy a ticket per day, and could only buy one ticket per movie. It also prohibited users from viewing 3D, IMAX, or XD films. Still, the proposal was widely heralded by some as a savior for the traditional, brick and mortar, sticky floor movie industry.

It wound up....not being that.

In 2019, a four-month investigation by Business Insider (paywalled) found that the company had been bleeding money for years, and misleading investors for much of that time. Not only was the idea never really profitable, the company couldn't even manage to acquire enough plastic to keep up with membership card demand. Showcasing the width and depth of the dodgy effort, at one point executives genuinely thought it would be a good idea to actually change user passwords so they couldn't use the service, thinking this would let them get their head above water.

Needless to say, this behavior was so extreme it finally got the attention of the under-funded and over-extended FTC, which finally announced it had struck a settlement with MoviePass. The settlement isn't much to look at: because the companies involved are bankrupt there's no financial penalty, but the executives behind the effort are barred from “misrepresenting their business and data security practices" and "must implement comprehensive information security programs." (Execs did have to shell out $400,000 in penalties to select California counties in a different agreement).

The full FTC complaint (pdf) indicated that the company's not-so-clever password changing efforts impacted roughly 75,000 subscribers in total. Those users were first blocked from using the service, then when they inquired why they couldn't login they were falsely told they were the victim of fraud:

"Under Respondents’ password disruption program, Respondents invalidated the passwords of the 75,000 subscribers who used the service most frequently while claiming that “we have detected suspicious activity or potential fraud” on the affected subscribers’ accounts."

The full complaint is worth a read, and includes details in several other bizarre efforts execs engaged in to prevent customers from actually using a service they paid for. From the FTC press release:

"MoviePass and its executives went to great lengths to deny consumers access to the service they paid for while also failing to secure their personal information,” said Daniel Kaufman, the FTC’s Acting Director of the Bureau of Consumer Protection. “The FTC will continue working to protect consumers from deception and to ensure that businesses deliver on their promises."

It's not clear that a light wrist slap for executives years after it matters genuinely "protects consumers from deception," but in a country where a regulator like the FTC is routinely under-funded, under-staffed, and demonized, you get what you ask and pay for.

Filed Under: fraud, ftc, movies, passwords, wrist slap
Companies: moviepass

US Telecoms Keep Getting Wrist Slaps For Repeatedly Ripping Off The US Government

from the we're-not-actually-fixing-the-problem dept

You may have to squint to see it, but tell me if you can detect the faint outline of a pattern here.

Last year, AT&T and Verizon paid $116 million to settle allegations they'd been ripping off state government agencies for more than a decade. Last March, an AT&T whistleblower stated that AT&T had been ripping off US schools for just as long, and that he was summarily fired when he brought that to the attention of his superiors (there's been no meaningful government inquiry into his claims). And this week, AT&T was required to strike a $1.5 million penalty to settle a lawsuit (pdf) accusing the company of, you guessed it, ripping off the local DC government for years. From the DC AG announcement:

"Today’s settlement resolves a lawsuit by the Office of the Attorney General (OAG) against AT&T for allegedly submitting false invoices that did not comply with contract requirements to provide cost optimization and the most cost-effective telecommunications plans available. Instead, AT&T knowingly invoiced the District for features, add-ons, and other services that failed to comport with this mandate, causing millions in improper charges that were paid with taxpayer funds."

You know, basically the same way AT&T treats its residential broadband and TV customers.

In many of these deals, the settlement itself barely comes close to actually covering the amount of money AT&T made ripping off governments and taxpayers. And the companies don't have to actually admit to any wrongdoing. Other times, nothing happens at all. In 2016, the Obama FCC attempted to fine AT&T $106,425 for repeatedly overcharging two school districts in Florida, only to have that inquiry gutted when Trump and Ajit Pai came to town. The FCC would have much of its consumer protection authority gutted by the Trump administration, at direct lobbyist behest, one year later.

While we like to insist the US isn't a corrupt mess, we've built a system where accountability, when it actually happens, is usually just viewed as a minor pest and the cost of doing business. To hold AT&T properly accountable you'd need government policies that encourage competition in consumer and government service broadband, better antitrust enforcement and tougher merger review, properly funded and empowered regulators, and lawmakers genuinely interested in consumer protection and fraud prevention, all things we're very much not doing consistently. In part because AT&T is politically powerful and doles out plenty of campaign contributions, but also because it's tethered to our intelligence and law enforcement systems.

That's not to say some regulators and governments haven't tried all the same. In just the last five years or so AT&T has been fined $18.6 million for helping rip off programs for the hearing impaired; fined $10.4 million for ripping off a program for low-income families; fined $105 million for helping "crammers" by intentionally making such bogus charges more difficult to see on customer bills; and fined $60 million for lying to customers about the definition of "unlimited" data. Again it's subtle, but maybe you see a pattern here?

In nearly every instance regulators will pat themselves on the backs for issuing "record" fines. But once these efforts wind their way through litigation, most of these fines are usually reduced, if not eliminated altogether. And they're collectively still a pittance compared to the money AT&T makes from being a natural monopoly across vast swaths of the country. But instead of directly targeting telecom monopolization and the rampant state and federal corruption that protects it from change, competition, and accountability, we dole out a parade of wrist slaps and then pat ourselves on the back for a job well done.

Filed Under: false invoices, fcc, ftc, governments, overcharging, rip offs, scams, subsidies
Companies: at&t, verizon