Deep Dive Episode 137 – Antitrust Populism and the Conservative Movement
On October 7, 2020, the Federalist Society’s Pennsylvania Student Chapter and the Regulatory Transparency Project co-sponsored an event on “Antitrust Populism and the Conservative Movement.”
During the 1986 Supreme Court confirmation hearings for then-Judge Antonin Scalia, he was asked about his views on antitrust. “In law school, I never understood [antitrust law],” Scalia explained, “I later found out, in reading the writings of those who now do understand it, that I should not have understood it because it did not make any sense then.” Some contend that the much-needed coherency in antitrust law was brought about by the Chicago School revolution and the adoption of the consumer welfare standard.
Today, Robert Bork’s consumer welfare paradigm faces challenges. Antitrust law is back at a political crossroads, with both sides calling for a politicized approach to address problems such as anti-conservative bias, economic and racial inequality, and a whole host of other issues, while focusing on slogans and labels rather than relevant economic and legal questions. Additionally, some experts argue that the economic consequences of many of the recent proposals would make the American economy and consumers substantially worse off across a wide array of industries. At the same time, today’s antitrust debate underscores some interesting rifts and tension within both political parties, serving as an interesting microcosm of broader political dynamics.
Introduction: On October 7, 2020, The Federalist Society’s Pennsylvania Student Chapter and the Regulatory Transparency Project cosponsored an event on “Antitrust Populism and the Conservative Movement.” The following is a recording from that event. We hope you enjoy the informative discussion.
Andrea: First of all, welcome, everyone, for being here. And on behalf of both The Federalist Society and Journal of Law and Innovation at Penn Law, I would like to thank you for joining us, especially those of you who are outside the Penn community and from The Federalist Society’s Regulatory Transparency Project.
Just a little bit of housekeeping before I introduce our speakers. Today’s event will be roughly an hour, and we’ll hear from both of our speakers before taking Q&A. To ask questions, please use the Q&A function at the bottom of your screen, or you can chat them to me privately. While we reserve time for Q&A at the end, I do encourage you to send your questions throughout the session and not hold them until the end. That’ll help us facilitate a better Q&A. And with that, I will introduce our speakers.
First, we have Ashley Baker, who is the Director of Public Policy at the Community for Justice where she focuses on technology and regulatory policy, the Supreme Court, and judicial nominations, so she’s very busy at the moment. Ashley serves as a data privacy expert in the cyber and privacy working group of The Federalist Society’s Regulatory Transparency Project. Ashley engages in policy analysis and outreach on legislation and regulations related to the intersection of the courts, regulation, and technology by writing op-eds, letters to Congress for committee hearings, and regulatory comments to a broad array of executive agencies, including the FTC, NTIA, FCC, SEC, and the DOJ Antitrust Division. Additionally, her writing has appeared in Fox News, USA Today, The Boston Globe, and The Hill, just to name a few.
Joining Ashley today, we have Professor Hovenkamp. Professor Hovenkamp is the James G. Dinan University Professor at both Penn Law and Wharton. Professor Hovenkamp has been called the most influential antitrust scholar of our generation by the New York Times and was awarded the John Sherman Award from the Antitrust Division of the DOJ in 2008. He is the coauthor of the most cited legal reference on the subject of antitrust law entitled Antitrust Law, and his writings have been cited in over a thousand court decisions, several of which are from the Supreme Court. In addition, he holds an M.A., Ph.D., and J.D. from UT Austin. We are pleased to have him along with Ashley Baker here with us today for this discussion. And with that, I will pass it along to you, Ashley.
Ashley Baker: Thank you, Andrea. And I’d like to thank you as well, the Penn Law chapter of The Federalist Society and the Regulatory Transparency Project, as well as Professor Hovenkamp for coming here today and being generous with his time. And as well, the House Judiciary Committee for giving us about 800 pages of homework overnight; that was very kind of them. I had to kind of throw away my remarks a little bit there to catch up with their report.
So I’m going to keep this a little bit high level and give an overview of this debate and where we are today because I think it’s important that, going into this, we have some context. So I’m not going to get too much into the weeds as to the report itself as much as what’s going on with the proposals that have been floating around for the past year or two, and also just starting with the history of antitrust.
And I think we have an audience of students here. I’m not sure how many people have taken antitrust law classes in this audience. So I don’t want to start too much with the basics, but there are a couple periods of history that I think we should maybe at first go back and visit just a little bit.
First of all, there’s not really enough attention paid to the period of 1890 to 1914. I never really thought I’d be saying that. But during this period following the passage of the Sherman Act, the courts began to realize that it’s impossible to apply its clauses literally. And by definition, every contract imposes some degree of restraint of trade.
I have people on the conservative side saying, “Well, according to a textualist interpretation of the Sherman Act, this is illegal.” Well, everything is illegal according to that interpretation. So with this group of law students, I think you guys have a good grasp of that, but I can’t emphasize enough how much that has actually affected the debate in really kind of an odd way that was unexpected for some of us.
But in those years following the Sherman Act in the early 1900s, it was discovered that — courts discovered that these were not the only tools that could be used for interpretation. So when did basic literacy become the deciding factor in legal interpretation? And it can’t be. And here’s where the statute falls short a little bit in that the consumer welfare standard came in eventually, and it provides a sounder basis for judicial decision making than judicial guesswork based on the beliefs of jurists and of the enforcers.
So the consumer welfare standard has not functioned to vindicate aspects of corporate decision making. As some people would like to say, it’s kind of an excuse. It’s a convenient excuse for these companies. But instead, it’s at least given us something. It’s given us this underlying standard that helps protect consumers against demonstrable harm — although what harm is, is really a different discussion — while giving a fuller range of options.
But of course, this didn’t really happen immediately, so you have a few decades of history there in which antitrust law was interpreted to protect small dealers and worthy men, what ever that means. And we see in some of the Elizabeth Warren proposals, some of the AOC proposals going back to that small dealers and worthy men theory of antitrust law in which we don’t know exactly what we’re protecting, necessarily. It’s a case-by-case basis. But that’s the problem here is that it’s serving way too many masters. So we had this era of using antitrust just to protect the little guy, even though they didn’t necessarily have better products and prices. And that was eventually problematic.
So it’s also been used throughout the years for industrial planning. And one example that I really like to use is during the height of the Great Depression, Associate Attorney General Thurman Arnold expanded the antitrust division to 500 lawyers, approximately, which is about 27 times the previous size of 18. And then, at the start of the Second World War, you had FDR who realized that these large companies were actually needed to supply America’s arsenal of democracy and then moved away a bit from that approach.
And I don’t want to make the direct comparison there to U.S. and China. I think sometimes that comparison is a little bit overblown. But American competitiveness in general is driven a lot by our tech companies, so I think that’s an important part of history that a lot of people are missing. And this is just one of the examples of the enormous power of competition.
So in the mid-1930s, too, I think it’s also notable that market shares as low as 4.5 percent were considered at risk for antitrust enforcement. That’s a very low threshold. And whatever that threshold may be, a lot of the proposals now have these bright-line rules that I don’t think function the way that they’re really supposed to.
And then you had in the 1960s where progressives argued that it was necessary to use the power of government regulation in order to control big companies such as GM, which was kind of controlled to the point of bankruptcy and then was obtained by the government, but Toyota, which created a better product. So I think antitrust doesn’t exist in a historical vacuum, and that’s something that we really need to realize is that this isn’t just big tech, that this has been applied to a lot of industries across the years, and it hasn’t necessarily yielded the results that we’ve thought.
In a recap of the report — for those of you who have seen the report, and I know it’s hard to get through. I think it’s 449 pages or whatever that was released late last night. A lot of the proposals there — I like to use this quote, that “If an economist finds something in business practice of one sort or another that he does not understand, he looks for a monopoly explanation.”
Here, it’s kind of more like they looked for an antitrust violation and then tried to gerrymander a monopoly explanation for it and come up with this report is the best way to describe it. There are a lot of — it’s really all over the place, especially when it comes to some of the legal proposals that are in the report.
And this gets back to the broader theme of using antitrust for really unrelated cases. And the report as a whole represents a moving away from the consumer welfare standard. So the consumer welfare standard has greatly benefitted antitrust, I think. And I’m here speaking from more of a conservative perspective, too, so I’ll give my biases there.
I think that the consumer welfare standard is actually one of the biggest victories of the conservative legal movement. You look at other areas of law and other areas of torts like environmental law, for example, and they’ve all been kind of captured by the left, by special interest. And they’ve ballooned out of control in a certain way in which we’ve allowed antitrust law — we’ve kind of reined it back in a bit toward it’s original purpose.
And I think there are those on the right now, too, who don’t really seem to understand that and don’t seem to understand the progress that we have made there and are okay with just riding along with the more progressive — although I wouldn’t say their goals are progressive. They have the same goal for different reasons of expanding antitrust law for reasons that aren’t related to antitrust. So whenever you’re fundamentally changing the goal of antitrust law, you’re really undermining the rule of law and also negatively impact consumers. I think that’s one point that’s really lost on conservatives is what they’re actually doing is undermining the law.
One thing that I think is particularly troublesome about the report and in general has been troublesome has been inverting the burden of proof. Approaches to antitrust enforcement based on presumptions of anticompetitive harm have — drastically upend the core tenants of our legal system. And that’s a connection I don’t think that a lot of people are really making because it also diminishes the role of the federal judiciary.
And we’re returning to the highly interventionalist pre-1970s antitrust jurisprudence through which burden-shifting provisions would require a company to prove it’s not a monopoly. That also creates greater incentives for the government and private plaintiffs to file suit. I’m not trying to make a blanket statement here, either, that private plaintiffs shouldn’t be able to file suits, but it does give them greater incentives to do so. The bigger problem is it gives the government greater incentives to do so. And the government, as we know, wins most of these cases.
More importantly, I don’t think that these changes to antitrust law, although I’m open to hearing certain reforms, I don’t think they’re really needed because it adequately has the power — so the lax antitrust enforcements arguments are kind of false in that it doesn’t necessarily take into account, for example, mergers that don’t happen. There’s a deterrent effect that doesn’t really become part of the calculus. And I think that’s another part of the debate that’s really missing here. And outside of the courtroom, there are multitudes of mergers and anticompetitive actions that are prevented outside of your government action.
And then, another problem with burden shifting is the question of what burden must the defendant meet? And this is something — I haven’t really heard this argument a lot recently, but what stops agencies and judges from just turning a 180 and saying, “Well, this is the burden of proof under this administration.” Regulatory agencies do this all the time. You don’t know what burden you’re meeting. And I think that’s highly problematic when you’re trying to mount a defense against, particularly, a government agency and you don’t really know what theory you need to be making.
Let’s see. I’m sorry, I lost my place here. So the other part, also, is overturning cases. And first of all, I’d point out that that’s easier said than done. The report listed about five or six cases in which they would like to overturn. Like I said, easier said than done. It is also kind of a pretty extraordinary measure, not just because Congress hasn’t really been asked to do so very often, but the Supreme Court hasn’t either. In very, very few of these cases, it hasn’t been asked to do so.
And those are kind of, I think the core issues of this report. There are many, many more. And I’ve only had time to parse through part of it since last night, so I’m going off of what has grabbed my attention other than just the overpoliticization.
So when it comes to political dynamics, though, I think we see some interesting parallels on both the left and the right, and that’s something that’s — those parallels aren’t really commented on enough in that we see on the right, we see the populist right who wants to move away from the rule of law and wants to — I wouldn’t say go along with the left because they have very different reasonings for doing so. They believe that big tech companies are out to get them. And I’m not here to deny that tech companies are not biased against conservatives or that they behave perfectly in any sort of way. I won’t defend them on those grounds. However, antitrust law is not the correct forum to do that.
And then you have on the left a similar parallel in which you have the far more progressive left who would like to also weaponize antitrust laws for issues such as equality, racial equality, a variety of left-leaning causes. So you see them kind of meeting together for completely different reasons.
And you have the House Judiciary Committee saying, “Well, this is a bipartisan call to change antitrust law.” Really, it’s not bipartisan because you have two different parties who are making completely different claims here on why they would like to change the law, and neither of them are consistent with what has maybe not been perfect but what has worked for the past 45 years.
So I’m just going to cut short and end on that point because I think really what we need to be focusing on here is what is at stake instead of what the perfect solution is here. But I think we have some interesting political dynamics. And we have — on both sides, antitrust has become more of a microcosm of the movements, both to the far right and to the far left on each side. And I wanted to just address some of the political dynamics that are underlying it.
Andrea: Thank you, Ashley. And Professor Hovenkamp, if you’d like to give your comments.
Prof. Herbert Hovenkamp: Okay. Can you hear me, Ashley?
Ashley Baker: Yes.
Prof. Herbert Hovenkamp: Good.
Ashley Baker: Sorry. I tried to leave enough time there for discussion, too. I prefer that part of the conversation.
Prof. Herbert Hovenkamp: Yeah, I won’t be real long, either. Okay, starting out with the consumer welfare principle, in 1978 when Bork wrote The Antitrust Paradox, there was a very widely accepted principle in economics called the welfare tradeoff idea. It was invigorated by Oliver Williamson in an article in the 1960s in which he basically said one way to measure the effect of a practice is to balance out producer gains on one side against consumer losses on the other side. And a practice could be proclaimed to be competitive or anticompetitive depending on which one outweighed the other.
Bork took that welfare tradeoff principle pretty much verbatim with no changes and renamed it the consumer welfare principle. He also added that we should assume that efficiencies exist, and furthermore, profit gains outweighed consumer gains by a very large magnitude.
And I say all of that because the version of the consumer welfare principle that Bork developed basically encouraged lower output. In fact, it’s pretty clear on the model and the illustrations that Bork used in Chapter 5 of The Antitrust Paradox. As a result, I don’t think it’s entirely a coincidence that economic growth slowed down in the early 1980s and price-cost margins began to rise because Bork actually used the term consumer welfare when what he was really talking about was producer welfare.
Then, in the 1990s, we began to develop a different idea about consumer welfare, which is that consumer welfare should really be driven by the welfare of consumers. And that meant that we would advocate higher output solutions rather than lower ones. We would emphasize productivity, and as a result, there would be a link between antitrust under the consumer welfare principle and economic growth. So the consumer welfare principle has sort of morphed over time. It comes in a conservative version, and it comes in a more liberal version.
Different members of the Supreme Court have articulated it without really identifying which of those two principles they were following. For example, the dissenters in the Actavis case cited the consumer welfare principle even as they were approving pay-for-delay settlements which resulted in significantly — I think this was the dissent — even though it would have resulted in significantly higher prices for consumers. The Supreme Court in the AmEx case just last year, American Express, cited the consumer welfare principle even as it approved a rule that resulted in higher consumer prices in every single case where it was applied.
So you need to be a little bit careful about how the term consumer welfare is used. And I think we ought to think — I would rather, when we talk about the Bork principle, we talk about the welfare tradeoff or producer welfare, and that when we talk about the later version that came into being in the 1990s and after, that we talk about consumer welfare.
Okay, then, moving on to the platforms. What’s going on with the big platforms? Well, we’re talking about four. There are, in fact, at least five. But the four we’re talking about are Amazon, Apple, Facebook, and Google. Microsoft is left off, not because it isn’t big, and not because it isn’t a platform. In fact, Microsoft still controls more than 90 percent of the relevant market for IBM compatible computers in the country. I think the reason we leave it off is because we’ve already put Microsoft though the wringer 20 years ago in U.S. v. Microsoft. And the other four large platforms have not faced that kind of antitrust litigation yet.
Now, what drives the hostility, what Ashley refers to as the populist hostility toward the platforms? Well, first of all, I think she’s right. It’s coming from both sides. There’s both a hostility from the left and, depending on how far you get to the left, that hostility is greater. At the far left, organizations like the Open Market Institute, the people who styled themselves neo-Brandeisian, they would run over the platforms with a power mower, cut them up into little pieces, break them up. And I think that’s a very bad idea.
What motivates their hostility? It’s a little bit hard to say because, first of all, I think it’s contrary to the interests of Democrats, but it seems to be motivated in significant part by a fear of bigness, simply bigness per se. The fact is the big platforms offer very low prices. They’re very popular with consumers by and large. For many of them, but particularly for Google and Facebook, their dominant price is zero. Most of the things, not everything, but most of the things you get from either Google or Facebook are free to uses.
They’re two-sided markets, and so they collect revenue from other sides, typically advertisers or fees for placement and so on. But consumers are quite happy with the platforms. Amazon, for example, ranks very high in consumer satisfaction among retailers.
So on the left side, the populism, I believe, comes from simply a fear of bigness and not a very well-articulated view of who’s getting hurt. First rule of antitrust: identify who’s getting hurt and how. And then, and only then, can you pursue a remedy, because I would hate to be the Justice Department official who announces, “Great news. We just broke up Amazon. However, product prices are going to go up by 20 percent as a result.”
That’s what happened after Standard Oil, 1911, U.S. v. Standard Oil. The government sued Standard Oil, broke it into 34 pieces, and the price of gasoline immediately went up. And the Federal Trade Commission was kind of embarrassed and had to write a report about why gasoline became so much more expensive.
Now, going to the other side, remember the law suit that’s going to be filed against Google any time now, this week or perhaps next week, is being brought by a Republican administration. What’s going on on the right? Well, first of all, the big platforms are all Democrats. They are dominated by Democrats. That is characteristic of the American economy today. High growth, highly innovative firms tend to be Democrat. Slower growth, rust belt firms tend to be much more Republican. And the big platforms are among the most innovative, most quickly moving firms that we have.
So I think it’s fair to say there’s not very much love lost as between the Republican party — I’m not speaking about conservatives as such — but between the Republican party and the large platforms. President Trump has a lot of personal animosity towards Amazon because of Jeff Bezos. I don’t think that’s what’s driving the current case against Google.
Now, I think there’s a more benign explanation for the case against Google and also for portions of the House report. Okay, so we’ve got the House report. As Ashley points out, it’s almost 500 pages long. I can’t say I’ve read every word, but I’ve read more of it than I should have. And we’ve got this Google complaint that we haven’t seen yet. So I don’t know — we don’t know exactly what position they’re going to take.
I can tell you that I think the report is very much a mixed bag. It has some very good things in it and some very bad things in it. One of the things it does is it cites the line of business restrictions — these were rules that came out of the breakup of the telephone company — which was, what now, 40 years ago, early 1980s, that segregated AT&T mainly from devices. That is to say, prior to that time, you had to get your telephone from the telephone company. You couldn’t buy it anywhere else. And pretty much everybody agrees that that was a useful part of that breakup.
It doesn’t really apply to platforms. For example, there’s one proposal that would force Amazon to segregate all of its own, in-house sales from the sales of third parties. That is mentioned in the report. Well, you start looking a little bit at the facts there. What do you see? Well, you see that Amazon sells alkaline batteries, ordinary household batteries that you put in your electronic devices. They are made by companies such as Rayovac, which is owned by Berkshire Hathaway, not a small company. Amazon sells its own Amazon Basics brand at a lower price, and that competition is very, very valuable for consumers.
And the proposal in the report that we segregate Amazon’s house brand sales from the name brand sales I think is going to be very harmful to consumers because it’s going to reduce the competitive pressure on the name brands. Think of this really as the grocery store that has a house brand in addition to the name brands. And then, when you’re a shopper, you’ve got the alternative of buying the cheaper house brand instead of the name brand. And that kind of competition is very important, and segregating those two things is not going to make consumers better off.
Another part of the proposal in the report would have a more aggressive rule towards platform acquisitions of small firms. I think that’s essential, and it’s going to be hard to devise. It’s going to be hard to devise a rule that regulates platform acquisitions of small firms.
But the thing to remember is that every one of the large platforms started out in someone’s garage. Microsoft had six or seven employees when it got its first operating system contract with IBM in the early 1970s. The Facebook story you all know because it was the subject of a movie, a couple kids a Harvard who started using the computer for social networking. Google, pretty much the same way. Apple was a little, teeny, fly-by-night company making what we used to call the TRS-80, a little cheap computer. All of them have grown up from very small companies. And innovation in high tech requires that kind of growth and that kind of turnover.
Well, the platforms know this. They know this, and as a result, they have been systematically buying up small firms, very small firms. In fact, many of them have a market share of zero at the time they are acquired because the firm they’re buying up has a good idea, may have some intellectual property, some patents or copyrights, but they haven’t actually produced a product on the markets yet. But they get bought up by the big platforms before they ever have a chance to emerge. And that’s why we’re not seeing the emergence of new rivals in this industry.
Another thing that the report recommends is what it calls interoperability. I think this is a solution that need to be looked at. Rather than breaking up firms, which makes them less efficient, force them to share their data. After all, it is your data. You’re the consumer. Force the firms to share their data.
Why is it that Google search has a 90 percent plus market share when people can switch among search engines instantaneously and for free? If you want 12 search engines on your laptop or desktop, you can have them. It’s a little bit more awkward with a handheld, but you can have multiple search engines on your handheld too. Why is it that Google has a 90 plus percent market share? Well, Google says, “It’s because we have a better algorithm than anybody else.” Well, maybe. But maybe one of the reasons it has a better algorithm is that it has amassed this enormous database of information.
Now, if we required sharing of information, that would mean, first of all, that the database would improve for everyone. It would improve for smaller search engines more, but it would improve for everyone because everyone would have access to all of this information. And it would also level out the playing field so that we could see more competition among search engines.
The same thing would apply to Facebook. Facebook operates in a lot of different markets. You can send email, messages, texts. You can post still photos. You can post videos. You can do all kinds of things on Facebook. And Facebook’s biggest advantage is in the enormous information database that it has built up. Well, rather than break up Facebook, which I think is a very bad idea, rather than break up Facebook, force Facebook to share its information with other social networking sites.
And let me return to that point I made a couple of minutes ago. It is, in fact, your information. You’re the consumer. You’re the person whose information they are taking. And if information had to be shared, then other firms would have access to the same database, and they would be able to function more competitively. And I think we would see more competition emerging in this market.
There are other practices that I think are just plainly illegal and should be challenged, and I expect some of that to emerge in the antitrust case against Google, if it comes out — if the complaint is filed, maybe later this week. For example, Google currently pays Apple billions of dollars per year to be the default search engine on iPhones. So if you buy a new iPhone today, it comes with Google as a search engine. Defaults seem to be a whole lot stickier on handheld devices than they are on desktops. People don’t switch them as much, and so Google buys a big search engine advantage simply by being the default search engine on iPhone.
That’s a problem that can be solved with a simple injunction. Simply issue an injunction and say to Google and Apple, “You may no longer agree with one another.” If Apple still wants to make an individual decision about which search engine to use on its iPhone, that would be a different matter.
The European Union now is entering into a regime of forced choice. This is on behalf of consumers, once again, consistent with the consumer welfare principle. So in Europe today, if you buy an Android phone, you get one extra screen on your startup menu. When you buy the new phone, you pick a language, pick a time zone, pick all that other stuff you pick. Well, one screen is going to ask you to pick your default search engine. And you can choose from Google Search, DuckDuckGo, Bing, and some other ones. And that way, there’ll be a more even consumer choice with respect to search engines.
But the important thing about all of the solutions I’ve just been talking about — I know my time’s up, but just one more sentence. The important thing about all of these solutions I’ve been talking about is that they favor consumer choices by giving consumers better control of their information. And then in the process, they widen and broaden out access to the database so that multiple firms can share it. Thank you.
Ashley Baker: Could I have a minute or two to respond?
Andrea: Yeah, absolutely.
Ashley Baker: Sure. So there are quite a few things that I disagree with you about when it comes to the history of the consumer welfare standard, and the history of the 1980s or so, and when you look at the theoretical points. And that would take us another hour or two to really hash out. But to get to the core of the solutions, there’s actually a lot that I do agree with you on.
And I’m glad you acknowledge — when it comes to the political dynamics, I’m glad you acknowledge the radical proposals coming from some such as Open Market Institute. And I also will acknowledge that these type of companies are left leaning. That’s how it’s going to be. And there’s going to be conservative bias because people are biased. And I think it’s a ridiculous argument that people aren’t biased; therefore, there is no bias.
So to put that aside and go into the more specific solutions, though, as far as interoperability goes, I think interoperability makes sense as a solution, as an option for consumers to have. I think it’s great for — I think it’s a great option to have. I think some of the mandates when it comes to interoperability and data portability are overly broad, and we have kind of a round hole, square peg sort of problem. Or maybe I mixed that metaphor the wrong way around. I think that can be applied incorrectly, and that’s something that could work in a case-by-case basis in court cases. I don’t think it can work as a broad mandate within some of these proposals as we’re seeing right now.
When it comes to product preferencing, I do agree with you. I live across the street from a CVS. I walk into the CVS. The vitamins that are made by the CVS brand are there before the other vitamins. There’s no problem with that sort of thing, or Kirkland and Costco, that sort of thing. But in general, in tech policy, it’s like as soon as something gets on the internet, there’s a problem with it.
And that’s what we’re seeing here, too. And I think we’re seeing a lot of lawmakers who don’t really make that connect between the physical world and the digital. And I think that’s one of the best examples in this report of how they’re really unable to do that with the product preferencing.
I think you had a really good point when it comes to consumer harm. We might disagree on what exactly constitutes harm, and that also gets into a lot of interesting standing issues as well. And I think that’s something that does need to be hashed out in the courts.
You mentioned AmEx, and one thing about that decision, though, although — so I know there was an argument that it carved out a special rule for platforms. And I would disagree with that in the sense that at least the burden is the same. To satisfy the prima fasciae burden, the plaintiff must show harm to the overall competitive process.
But like I said, there are lingering questions regarding harm, and that’s something that lower courts specifically — and this is a huge thing in the privacy debate right now — are really grappling with is what exactly is harm. And I think that’s something that needs to be settled to some extent before we can get really into the weeds on some of these issues. But I don’t think that the courts were gerrymandering out a specific area just for platforms.
And I agree — and there’s one point in which you and I do agree, I think, is actually in Apple v. Pepper. I agree with the Kavanaugh statement, actually, that Apple was trying to gerrymander their way out of liability. I think the case is way more complicated than that, and that’s a very poor summary of that case, and it didn’t help that the plaintiffs switched their theories of monopolization several times between the Ninth Circuit and the Supreme Court.
And that’s one case in which I think it’s not fair to say, well, the monopoly — sorry, the minority showed that they’re moving away from the Chicago school because they didn’t use a certain mode of economic analysis because they were almost completely on a different page as the majority. And it would be kind of a stretch to ask them to indict and make these sorts of arguments.
I think there’s an interesting conversation to be had in terms of economic analysis in our courts and how it should be applied in the Supreme Court versus in our lower courts, too. I don’t think that it’s necessarily the same there. And I think there’s a lot of conflation between arguments that should happen on the merits and arguments that happen within the narrower questions in the courts of appeals. And that’s another thing that is really not recognized when it comes to these discussions over the judiciary.
Let’s see, what else do we have here? But like I said, it all does really go back to the issue of harm. And that’s something that I think needs to be figured out. I would like to hear more about what you think about overturning these cases, though, because I do think that’s a very extraordinary measure for this report to ask Congress to do is to overturn these cases, especially the ones that are a 9-0 majority. Not that many are actually 5-4 decisions. Well, overall speaking, some of these cases are 5-4, but I do think that was pretty radical to include in the report.
Prof. Herbert Hovenkamp: Well, there are wrongly decided antitrust cases. I think the American Express case was wrongly decided. I think Apple v. Pepper was correctly decided, mainly for reasons, though, that have very little reason to do with the platforms.
On interoperability, it works different ways for different firms, but the important thing is one of the biggest objections to breakups is that they deprive firms of economies of scale. Interoperability is just the reverse. It actually makes firms effectively bigger by giving them access to a bigger pool of data.
Let me give you an example that’s not likely to be litigated but an easy one to understand, and that is ride hailing services. We’ve got Uber and Lyft. They’re subject to multi-homing, which means you can have both of them on your phone. Most of the people I know do have both of them on their phone because you look at them both and compare.
Well, under interoperability, what would happen is you’d have this one app called Uber-Lyft, and it would aggregate all of the drivers from both Uber and Lyft. It could aggregate other drivers as well, including very small ones. And then a customer could get on, select the ride that he or she wanted. The transaction would be completed with a particular driver, and we would have much more level competition in that case. And no economies of scale would be destroyed. And indeed, there would be greater economies of scale because more drivers would be aggregated on the back side of the platform, which would induce more riders to come in.
That’s how the House Report is contemplating interoperability, and it would describe things like compelled sharing of data with Facebook, Google Search, and so on. We have examples, by the way, of purely voluntary interoperability, one that everybody in this session uses every day, which is email.
You can have Gmail. You can have Yahoo mail. You can have Microsoft Outlook. Everybody’s got a different email server and a different email system, but the agreement was made a long time ago to use sharing of protocols, and the result is that you can send an email from your Gmail account to someone else’s Outlook account, and other than looking at their little address up at the top, the process is so seamless that you don’t even know until you see their address.
And the result is that relatively small firms can get into the email business because once you’re in, you’re participating with everyone else. Think of the alternative universe, which would be one in which Gmail account holders could send only to other Gmail account holders — that’s largely what we have with Facebook right now — or Outlook only to other Outlook owners. So compelled operability does not need to be a radical thing, and it can be something that will benefit consumers even as it does make markets more competitive.
Ashley Baker: So I think that in the example used with email, there’s a key difference in that that interoperability is optional because it also worked. It worked for everyone. When it comes to merging — you’re forcing a merger, essentially, when you’re having — and I know this is just a hypothetical, so maybe I’m going a little bit too far with it. That’s, in a sense, economic planning. And that’s also a broad use of that term, but like I said, this is all hypothetical. Forcing those two companies together doesn’t necessarily benefit the driver. They don’t have competitive wages. And also, you have with the forced mandates, not all interoperability works like I just described the round hole, square peg kind of problem.
And that you don’t necessarily want your Instagram data — I don’t have Instagram, so maybe I should use a better example than this. You don’t want your Twitter data for your Gmail or for Facebook because it doesn’t really apply there. And I think there’s a lot of weight put on the value of data that is a bit displaced.
There’s this article that I really like to cite, mostly also because it is not done by academics or scholars or think tanks. But it’s this Andreessen Horowitz article from about a year ago on the value of data moats. And it’s aimed more towards mid-sized enterprise companies and talking about how there are diminishing returns at a certain point of having more and more data, and a lot of that data isn’t necessarily valuable.
And I’m getting a little off course here, but I do think that there has to be a discussion about how valuable data actually is and at what point does data stop being valuable because there’s this myth that the more data you have, the more powerful you are, which having more data does make you more powerful, but there is a stopping point to that.
Prof. Herbert Hovenkamp: Okay.
Andrea: Awesome. I think we’ll do our questions now. So we’ve had a few come in. I think I’ll just start at the top. So one of our participants asks, “The consumer welfare model fails to address harms to innovation caused by the crowding out and acquisition of small companies by large players,” which you’ve mentioned, Professor Hovenkamp. “Can the competitive harms innovation caused by Apple, Twitter, and Amazon be addressed by any one antitrust standard? Do you think innovation matters as a competitive harm? And if we take as a given that competitive harm to innovation are worth addressing, what new antitrust standard would address the different ways in which Apple, Twitter, and Amazon harm innovation? Is there just one standard that could achieve this, given that Apple, Twitter, and Amazon have different mechanisms through which they harm competition?”
Prof. Herbert Hovenkamp: Is that for me?
Andrea: Either of you can take the question to start off.
Ashley Baker: I’ll just nitpick at the question to start with, so maybe we can go off of that. I am wondering here — there is a presupposition of harm by all of these companies. It would very, very much — by companies, exactly who they’re harming. And one thing that’s going to be interesting when it comes to the DOJ antitrust suit as to who — is it going to center more on the user or more on the advertiser?
So I’m having a little bit of trouble with that question specifically because it’s — we have the lingering questions of what is harm, but then three companies that may or may not be harming consumers in different ways. Maybe, Professor, you’d have a better way of distilling that question than I do.
Prof. Herbert Hovenkamp: Well, first of all, I would not identify those companies as being guilty of holding back innovation. In fact, I think of them as among the more innovative firms in American business.
Sorry, the phone is ringing the back and I don’t exactly know how to stop it. I think it’s done.
The questioner is right. Harms to innovation can be very socially costly. And we’ve had examples of harms to innovation in the history of antitrust. But I don’t predicate very many of them on the platforms. The platforms themselves are, in fact, highly innovative firms. They have a lot of rapid turnover, and they acquire a lot of IP rights.
There have been some very famous restraints on innovation among the platforms. Probably the most famous was Microsoft. This came out in the record of the Microsoft trial 20 years ago. Microsoft pressured Intel to stop a development program for a multiplatform chip. At the time, Intel was in the process of developing a chip so that computers that use different architectures could talk to each other more easily.
Microsoft was afraid, and I think properly afraid, that a multiplatform chip would reduce its dominance, that this was another instance of interoperability. And Microsoft then pressured Intel to stop development of the multiplatform chip by basically threatening it that if it didn’t stop, Microsoft would stop providing protocols to Intel so that Intel could optimize its own chips with Microsoft Windows.
So yes, there are some examples of restraints on innovation in the platforms, but I think, by and large, it’s not something I would identify with the platforms.
Andrea: I’ll move on to the second question, which pairs well with another question that was sent in privately. So this question is, “Is it really your data, what Google and other platforms are tracking? Is there interactions with their computer? Isn’t that kind of jointly created data? Calling that your data, like, if for instance, Professor Hovenkamp was to call this panel discussion his data?”
And we had a second question that relates to just the privacy of your data and whether — how antitrust interacts with privacy concerns and addresses privacy concerns, especially balancing it with the potential benefits consumers would receive from the sharing of what you are calling your data.
Ashley Baker: I can answer the first part of that, if that’s okay. In terms of your data, that’s an easy term to use because it feels like you’re generating your data. But really, you’re facilitating your data. And what I really don’t like, and this is more of a privacy point more so than an antitrust one, is you have proposals like that that Andrew Yang who, I think, put out at one point about being paid for data, data dividends. And no, that’s essentially redistribution of wealth.
There is a platform in a company that allowed you to create your data through these transactions. So no, it’s not your data. That doesn’t mean that you don’t have — I don’t want to use the term privacy rights, because then we get — that’s way too easily confused with Fourth Amendment law, and I don’t like to go into that territory. But no, I would not say that that is your data.
Prof. Herbert Hovenkamp: Well, ownership of the data has not really been adjudicated all that much. And there’s all kinds of nice questions we can ask about it. The real question is this, when — using Google Search as an example. An important advantage that accrues to Google Search is the enormous database it has built up of people’s preferences, people’s tastes, people’s locations, and other kinds of habits. And as a result, Google has become a master at linking a search that you make with its history of you. That gives Google an extremely big advantage over other search engine firms that don’t have that big of a database.
Now, is it your data? Well, Ashley’s right, and the questioner is right. It’s jointly produced in the sense that it’s your habits that are being recorded and taken care of by Google. But it’s not exclusively Google’s data, either. It’s data about your behavior. And to the extent that data can be shared, and other firms can take advantage of it, you can level out the competitive playing field as between these things.
By the way, there are instances out there in which this happens voluntarily simply because it’s mutually — it’s a good example of the Coase theorem, that if two or more firms come up with a mutually profitable solution, they will adopt it. The one I can give you is Insurance Services Office.
Many of you probably don’t know what Insurance Services Office is. Insurance Services Office collects traffic accident statistics from all of its participating insurers, and they number in the hundreds, and aggregates them. So every time — if you’re insured with Allstate and you have an accident, they make an accident report. It gets sent to ISO. ISO aggregates them.
Why? Well, because when you’re doing things like computing risk, larger databases are more valuable than small databases. The bigger the database of accidents, the more accurate a premium you can compute. And so all these small companies send their data to Insurance Services Office. It then gets aggregated into a very, very large database. And then each of the companies individually gets to log into that very large database, and that helps them compute their premiums.
That’s kind of what you would see in a regime in which Google Search data were aggregated and then made available to multiple search engines. And the theory would be, of course, that to the extent quality and quantity of data affects the quality of search, then smaller search engines — we don’t think of anything Microsoft owns as small, but Bing has a market share of something like 3 percent as opposed to Google Search’s 90 percent. It has a much, much smaller database of information. Would it be a better search engine if it and Google had access to the same database of consumer data? I think so. Nobody knows for sure, but I think it would.
Ashley Baker: One funny follow up question about who owns your data. Who owns the data about your data? Who owns the metadata? No one, really. There are lots of divisions of types of data out there, too.
Andrea: One question came in for you, Ashley, asking, “You mentioned that the antitrust is not an appropriate medium for challenging big tech involvement in the political arena. So the question is, what is the appropriate medium, and do you think it would be an effective medium?”
Ashley Baker: That’s a pretty complicated question. So I would say, first of all, I’m not antitrust. That’s why I’m here. So what would be an effective medium for that? It depends on a couple of factors of how much you think it’s interfering. And I’m not making accusations of election interference necessarily.
So let me explain from a conservative viewpoint. I’m going to give some empathetic reasons for why conservatives think this way, and why I think they’re wrong. So conservatives, we’ve had the media — the traditional media’s very much not on our side. And I know some liberals might dispute that, but there’s not a conservative tilt in the traditional media.
So then comes social media, and conservatives are able to campaign on it, and they’re able to build a following, and that’s really great. And I would analogize it to kind of a bad breakup in which these companies decide that they need to make some content moderation changes. And some conservative speech, like it or not, or whether or not I approve of it, is not as politically correct and does not meet their standards of content moderation, so they’re taking down their posts.
And then conservatives view, I think tech companies as almost an existential threat. And that’s why it’s really hard to get through to some people is because it’s — when they view it as an existential threat, it’s really hard to make economic arguments in favor of why this is a bad idea.
And what I like to reiterate is this is a matter of principles, and these other matters should be settled on content moderation or Section 230 grounds and not antitrust. And these principles are really important because what you’re throwing away in the long run is actually really bad for conservatives.
Whenever it comes to weaponizing litigation or the government being in control of the DOJ Antitrust Division, conservatives do not win in these cases. It doesn’t really work out very well for us in the long run. And the fact that they’re trying to just skip legislating to using antitrust as a hammer — and I think there’s a parallel to that completely on the left. That’s really damaging in the long run. I think it’s very antithetical to conservative principles. And I think I just will not work out.
With the content moderation debate, I don’t have a very firm stance. I don’t work on Section 230 related issues. I think there are a lot of very bad proposals out there to fix it that are a massive inflation of government power and do a lot of things that actually would also hurt conservatives and hurt the economy in the long run. I would love to see a Section 230 proposal to have some sensible amendments that would help with this.
But at the end of the day, conservative speech — who do you sue for anticonservative bias? That’s the question that no one can ever answer. So there’s no cause of action for that. It’s not a protected class such as you can’t discriminate against women or minorities or other classes. What next? And no one’s ever able to answer that question. But whatever the answer is, it needs to not happen in the antitrust debate.
Andrea: Great, thank you. And I’ll just —
Prof. Herbert Hovenkamp: I completely agree with Ashley. Political problems should not be addressed in the guise of antitrust litigation or antitrust rulemaking.
Ashley Baker: Do you have anything to add about the left-leaning counterpart, I guess, of that?
Prof. Herbert Hovenkamp: Well, I think they’re wrong to the extent they’re trying to use antitrust to solve political problems. Antitrust laws are, number one, passed under the Commerce Clause, which empowers the federal government to regulate commerce. And then the statutory language of the Sherman Act prohibits contracts, combinations, and conspiracies in restraint of commerce. That is to say, it uses expressly commercial language.
Way back, 25 years ago, in National Organization for Women v. Missouri, in which the State of Missouri and a number of other states sued the National Organization for Women for boycotting states that had failed to ratify the defunct Equal Rights Amendment, the Eighth Circuit held, and nobody disputes this rule, that that was a political dispute, whether a boycott directed at a state for refusing to ratify an amendment was a purely political dispute and did not fall within the rubric or the jurisdiction of the antitrust laws to regulate commerce. I think that was right, and I think antitrust does its job best when it restricts itself to commerce.
Ashley Baker: I agree.
Andrea: Great. I think we’ll end on that note. Thank you both for joining us today, and thank you, everyone, who joined us virtually as well. We hope you enjoyed the event. We hope to see you at our events in the future.