Columbia University Institute for Tele-Information - Competition Policy for the Cyber-World by Cliff Potter

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Technology

Published on March 5, 2014

Author: cliffpotter

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Opening Speech for AT&T sponsored Program on Competition Policy for the Cyber-World.

Columbia Institute For Tele-Information Program Competition Policy For The Cyber-World Antitrust In The Cyber-Age: Should We Reconsider Basic Principles? R. Clifford Potter Chicago, Illinois 60606

An Important Caveat  The following views have not been approved or endorsed by our clients or my firm. I remain fully responsible for all errors, omissions and other mistakes, and for the expressed philosophies. R. Clifford Potter (Chicago) 2

Another Important Caveat “The copies, the copies,” said I hurriedly. “We are going to examine them. There”—and I held towards him the fourth quadruplicate. (30) “I would prefer not to,” he said, and gently disappeared behind the screen.  (31) “These are your own copies we are about to examine. It is labor saving to you, because one examination will answer for your four papers. It is common usage. Every copyist is bound to help examine his copy. Is it not so? Will you not speak? Answer!” (36) (Herman Melville, Bartlesby (G.P. Putnam 1853; numbers are paragraphs in original work)) R. Clifford Potter (Chicago) 3

Yet Another Important Caveat  “For mankind is ever the same and nothing is lost out of nature, though everything is altered.” John Dryden, Preface, Fables, Ancient And Modern R. Clifford Potter (Chicago) 4

Overview  Cyber-world marketplace • Some personal observations  Antitrust and IP yesterday and today • Some considerations on where we have been  Antitrust and IP tomorrow • Some personal views, including some new antitrust and IP graphs R. Clifford Potter (Chicago) 5

The Cyber-Age Marketplace: Growing Technological Diversity • Consolidation – Similar technologies mate • Convergence – Diverse technologies mate • Contraction – Integration of technologies • Expansion – New competing technologies emerge • Growth – Increasing numbers of products and users R. Clifford Potter (Chicago) 6

The Cyber-Age Marketplace: Some Examples • Hardware and software and chips • Software consolidation, including objectoriented programming • Media, news, entertainment, data/content and delivery • Multi-location interoperability, including home and office telecommunications and computerized systems • Internal and external development teams and expertise March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 7

The Cyber-World Marketplace: Some Statistics    Music (Wired Magazine (August 1999)) • 846 MM new CDs per year • 17 MM MP3 files per day Participants • Varying numbers, but all astronomical in growth E-Commerce • Numbers increasing, with no foreseeable plateau March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 8

The Cyber-World Marketplace: More Statistics Emerging Digital Economy (Commerce Dept 1998) Information Technology 35% Rest of Economy 65% March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 9

Anticipating the 21st Century: Competition Policy in the New High-Tech, Global Marketplace, Volume I, FTC Staff Report, May 1996 1. Competition in America has truly undergone a seismic shift. 2. Geographic boundaries have declined. 3. Firms continually look to what tomorrow’s technology may bring. 4. Competition is fueled by innovation, as well as price. 5. U.S. firms invest energy and resources to remain on the cutting edge of technological developments. March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 10

These and Other Cyber-World Changes Affect Legal Analysis      Changes in power and function of intellectual property affect its competitive impact Changes in relationships of market participants affect market power, and often increase competition Expansion of geographic markets to regional and world markets increase competition Changes in product markets affect competition Competition regulation and IP rights grow without meaningful regulatory mechanisms or regular examination March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 11

Basic Themes Being Addressed Today By Courts and Congress      Is antitrust appropriate for today’s world? How should antitrust be administered when IP is involved? What can be done to enhance competition? What can be done to preserve innovation? Do we provide IP protection to monopolists? March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 12

Basic Considerations When Considering Competition     Our world has become far more dependent on common technologies than in the past. Efficiency requires control of technologies so all can safely understand required connections. This means that a universal Java standard, a universal Internet standard, and a universal interface are necessary in order to achieve efficiency. Tremendous incentives for innovation exist today. March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 13

Basic Considerations When Considering Competition     Small competitors can achieve great wealth in the short run and create incredible companies within years rather than decades. Governments search for answers and fear that their steps may adversely affect everyone. Intellectual property rights can have far broader effects than in the past. Economic decisions are less certain than in the past. March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 14

Basic Considerations When Considering Competition    Intellectual property rights often concentrate power in the very few. The technologies marketplace expands as the cost of production diminishes The availability of capital has seemingly never been greater. March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 15

Important Questions    Does greater IP interdependence mean intervention is required more often? Are there greater incentives to innovate in computer and communications industries than in most other industries? When should intellectual property limit competition and when should antitrust limit intellectual property? March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 16

Important Questions - 2     Should IP protection diminish as market shares increase? What unlawful conduct is required before IP rights can be limited or eliminated? When should IP take precedence over antitrust? What is a technology market, and how should it be assessed? March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 17

Important Questions - 3    What is or should be the impact of different IP rights in various jurisdictions? Is most software licensing really the sale of product? Do trade secrets still exist when the secrets are in the hands of millions? March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 18

The Source of Tension: Intellectual Property Concepts “Congress shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. “ United States Constitution, Article I, Sec. 8, March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 19

The Source of Tension: Intellectual Property Concepts  Owner’s Right To Exclude • • •  Patents (generally) Trademarks (generally) Trade Dress (generally) Owner’s Right To Prevent Copying • Copyright • Trade secrets, know-how and confidential information March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 20

Antitrust Concepts: Counterpoints To IP Rights  Monopoly • Ability to exclude  Agreement in restraint of trade • Ability to limit use  Unfair trade practices • Ability to discriminate March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 21

Intellectual Property Conflicts With Competition Laws    Intellectual property and competition laws are always in conflict. As our society becomes increasingly dependent upon technology and scientific endeavors, tensions are increasing. Absence of regulatory process for analyzing these laws , and international regulation of these laws, creates tensions. March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 22

Intellectual Property and Competition Law Future Philosophical Conflicts  Competition laws • Traditional theories either will be adjusted or will be eliminated or limited.  Intellectual property • Traditional theories will be adjusted • Increasing dependence on technology and scientific endeavors makes IP-A/T interface more critical than ever. March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 23

Antitrust Yesterday and Today  Monopolies • The past – Size most important, then ignored – Few actions regarding IP – Often unusual and exaggerated (e.g., Singer) • The present – Renewed interest in technology monopolies – Oligopolies seemingly of little interest – Greater internationalization March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 24

US Antitrust Law Objectives      Protection of the small competitor (RobinsonPatman, FTC Act) Protection of competition (Sherman Act, Clayton Act, FTC Act) Protection against unlawful acquisition or maintenance of monopoly power (Sherman Act, Clayton Act, FTC Act) Protection of consumer (All) Internationalization, with greater uniformity March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 25

US Antitrust Tomorrow  Questions concerning attacks on IP • New interest in strength of IP – Renewed attacks on certain IP rights  Questions regarding rule of reason • Movement toward per se legal activities – Possible elimination of rule of reason • Consideration of safety zone tests, with similar results as those with DG IV • Possible international treaties dealing with competition issues March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 26

Antitrust Tomorrow  International expansion • In 1999, thirty grand juries whose subjects are alleged international cartels • In September 1999, US DOJ Civil Division filed suit in the Tokyo High Court seeking dmages from a company (Kyowa Exeo) when the company refused to pay damages for a bidrigging scheme targeting US military communications systems (Air Force contract) March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 27

EU and Members’ Antitrust Law Objectives       Facilitating trade within the Common Market Protection of trade among member states, rather than just competition Protection against unlawful acquisition or maintenance of dominant position (somewhat like monopoly position) Protection of consumer, to a degree Somewhat more latitude to determine social impact Block and other exemptions, that find conduct lawful, or questionable, with far more clear guidance than with US March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 28

European Community  WHITE PAPER ON MODERNISATION OF THE RULES IMPLEMENTING ARTICLES 85 AND 86 OF THE EC TREATY (April 1999) • White papers are typically talking pieces, but Commission usually has way in large part • Especially true here, where politics means that would favor approach, and degree of interagency cooperation with major powers (US, Japan, EU countries, etc.) is so great • Use of existing systems to remove antitrust issues from national jurisdictions as a tactic by respondents March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 29

European Community  What this means if White Paper implemented: • • • Major move toward US approach Major reliance on individual countries Too large task for DG IV (Competition Directorate) resources, so more enforcement activity likely • More economic orientation • Greater danger of criminal prosecutions • More expense March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 30

Draft Graphical Interface Slides    The following are rough draft slides done as a first step in reviewing the relative strengths of the antitrust and IP issues Little empirical research on how this would work has been done to date All rights reserved to author March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 31

US Antitrust Continuum 1960s-2010s Relative Strength By Offense 10 9 8 7 6 5 4 3 2 1 0 1960s 1970s Per se March 5, 2014 1980s Monopoly 1990s 2000s 2010s Rule of reason R. Clifford Potter, Freeborn & Peters (Chicago) 32

US Agency Cases Brought For Principles, Not For Wrongs    Mueller and Boise Cascade • The right to price differently for functional reasons Container • The right to exchange prices Schwinn • The right to limit geographic reach March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 33

IP Continuum 1960s – 2010s Relative Strength By Type of Right 10 10 10 10 9 9 9 8 7 8 7 8 7 9 8 8 8 7 8 8 7 7 6 5 6 6 5 5 4 4 1960s 1970s Copyright March 5, 2014 1980s Patent Trademark 1990s Trade Dress R. Clifford Potter, Freeborn & Peters (Chicago) 2000s 2010s Trade Secret 34

1960s IP –Antitrust Continuum Strength By Right And Violation 100 80 60 Relative Strength 40 20 0 Copyright Patent Per se Trademark Antitrust March 5, 2014 Trade Dress Trade Secret Monopoly Rule of reason R. Clifford Potter, Freeborn & Peters (Chicago) IP 35

US Agency Cases Brought For Principles, Not For Wrongs  Intel • The right to exclude from IP for interface purposes  Microsoft I • Operating system integration  Microsoft II • Operating system position abuse March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 36

The New Antitrust IP Dynamics  Antitrust enforcement decisions may now depend more upon the dynamics of the technologies involved and the power that ownership of these technologies can sustain than on economic realities. • Is it right to do this? March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 37

Should Technology Choice Be a Concern of Antitrust Policy? (Liebowitz and Margolis, 1996 Harvard Journal of Law and Technology)  Do inefficient technologies resist replacement by superior alternatives in certain settings because of their wide-spread use?  Can business conduct facilitate commitment to inferior technologies or the maintenance of their incumbency?  Should these potential problems be the focus of antitrust? If so, what is the balance required between innovation and competition agency intervention?  March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 38

The New Antitrust IP Dynamics: Network Effects  No evidence that rivalry in the marketplace is moribund. • “[E]vidence seems to be overwhelmingly to the contrary.” Liebowitz and Margolis  No evidence that software and microprocessor industries deficient in technological progress. • “[M]arkets are not systematically deficient at such choices. “ Liebowitz and Margolis March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 39

New Antitrust-IP Dynamics: Network Effects  Michael Katz and Carl Shapiro, American Economic Review (1985): • ”[M]any products[‘] utility increases with the number of other agents consuming the good." • "[T]he utility that a given user derives from the good depends upon the number of other users who are in the same 'network'...."  Kodak - Emphasis on effects on intrabrand competition? March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 40

More Intellectual PropertyAntitrust Interfaces  Essential facilities doctrine • • •  Requirement to provide equal access Historical precedents - Rogers New doctrine - Kodak Suppression of intellectual property • • • Requirement to license Relevance of motivation Innovation markets March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 41

Technology Choices At The Antitrust Margin  Microsoft - DC Circuit 1998 Reversal • Courts should not oversee product design • Acting in a way that dampens technological innovation is at cross-purposes with the antitrust laws • Integration that is beneficial when compared with customer’s combination means that there is proper technological integration • Courts must be reluctant to embark on product design analysis • Facially plausible benefits enough March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 42

Antitrust IP Dynamics: One View From US DOJ • “[T]he path of innovation today will significantly affect future product quality and price . . ..” • “[P]otential benefits of enforcement are huge.” • “[T]he path of innovation is highly uncertain and technology is rapidly changing . . ..” • “[P]otential costs of enforcement errors are also large . . ..” – All per D. Rubinstein, Dep. Asst. Atty Gen. For Antitrust March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 43

US Antitrust Agencies Licensing Guidelines  For the purpose of antitrust analysis, regard IP as essentially comparable to any other form of property  Do not presume that intellectual property creates market power  Recognize that intellectual property licensing is generally procompetitive. March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 44

The New Principle: IP Rights Depend On Market Shares?  Microsoft • Limits on expansion and enhancement of operating system • Mandatory joint efforts • Other issues  Intel • Limits on refusals to provide information and sharing • No mandatory joint efforts March 5, 2014 R. Clifford Potter, Freeborn & Peters (Chicago) 45

1990s IP –Antitrust Continuum Combined IP A/T Strength 100 80 60 40 Strength 20 Copyright Patent 0 Monopoly Trademark Antitrust Per se Trade Dress Trade Secret IP Rule of reason R. Clifford Potter (Chicago) 46

2000s IP –Antitrust Continuum Combined IP A/P Strength 80 70 60 50 40 30 20 10 0 Copyright Patent Monopoly Trademark Antitrust Strength Per se Trade Dress Trade Secret IP Rule of reason R. Clifford Potter (Chicago) 47

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