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

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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

40. 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

41. 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

42. 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

43. 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

44. 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

45. 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

46. 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

47. 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