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Hot Topics In Antitrust

December 07, 2018

By Jenna Wang 

On December 5th, the Center for Technology, Innovation and Competition and the Leo Model Foundation Government and Public Affairs Initiative hosted a panel on recent antitrust legislation, including the case of Ohio v. American Express. The event, titled “Hot Topics In Antitrust,” was moderated by Christopher S. Yoo, the John H. Chestnut Professor of Law, Communication, and Computer & Information Science at Penn Law and Director of the Center for Technology, Innovation & Competition and the featured speakers included antitrust experts Herbert Hovenkamp, the James G. Dinan University Professor at Penn Law and Joshua Wright, a Distinguished Policy Fellow at Penn Law, Former Commissioner at the Federal Trade Commission, and University Professor of Law at the George Mason University Antonin Scalia School of Law.

Hovenkamp, a renowned scholar of antitrust law and legal history, began the panel with an overview on the rise of academic and political interest in antitrust law which he attributed partially to major advancements in economics in the past 20-30 years. He noted the growth of intellectual property and technology has also contributed to “increased interest in antitrust, along with an increasingly humanitarian interest in the field.”

The panel then discussed the Ohio v. American Express case, which Yoo noted many people have defined as one of the most important decisions in recent history for the platform economy. The case, decided last June by the Supreme Court, held that American Express’ anti-steering rules that prohibited merchants from avoiding Amex card fees by discouraging customers from using their cards at the point of sale did not violate federal antitrust law. The decision came out to 5-4 in the Supreme Court, with Justices Breyer, Ginsburg, Sotomayor, and Kagan dissenting, and Justice Clarence Thomas penning the affirming opinion. The panelist held a lively discussion on whether this ruling was correct, with Hovenkamp against the decision and Wright in favor.

Hovenkamp believed the Supreme Court was wrong because “competition exists at the margin,” and it could be shown that both the merchant and the cardholder were worse off because of Amex’s anti-steering law. He argued that in cases when the customer would have liked to use a cheaper card and the merchant would have given the customer an inducement in the form of a lower product price, by denying the merchant and the cardholder the opportunity to make that deal, American Express was creating an outstanding burden while enjoying a benefit in the form of a higher profit margin to itself.

“That’s the one thing Thomas didn’t see,” Hovenkamp said. “The cardholder was also losing because it lost the opportunity to get that better deal by taking the product discount, so that particular cardholder was worse off as a result of the anti-steering rule.”

On the other hand, Wright believed that the Supreme Court’s opinion was correct in ruling that American Express had not violated antitrust law. Wright argued that while some customers could be made worse off by the ways firm structure pricing, that does not necessarily indicate monopolistic activity. In a multi-sided market such as the platform economy, the delineation of which market and which price is particularly important to answer antitrust questions. Additionally, the case contained ambiguity in the expert testimonies as to whether after output went up after the steering arrangement.

The panel also covered the ongoing Supreme Court case on Apple Inc. v. Robert Pepper, which brought up a discussion on the 1977 precedent of Illinois Brick Co. v. Illinois. Both Hovenkamp and Wright agreed that Illinois Brick was wrongly decided by the Supreme Court because it assumed wrongly that damages are only computed by pass on.

“The computational rationale for Illinois Brick never worked well,” Hovenkamp said. “Experts don’t measure overcharge that way when they compute damages. They use other kinds of tools, like the yardstick method, in which they compare the price in one market and the price in another market. We have created what amounts to a litigation nightmare.”

Lastly, the panel touched on the Justice Department’s ongoing appeal of the AT&T and Time Warner merger, the first merger challenged by the government in over 40 years after a lower court found no evidence of antitrust law violation. The Justice Department is arguing that AT&T could force its competitors to pay higher fees due to its ownership of Time Warner content.

Wright predicted the government would be unsuccessful in its appeal due to its insufficient proof of burden in showing the merger was anticompetitive. Wright cited that an expert testimony from the plaintiff’s side conceded that the merger would generate benefits of $363 million, which would make the appeal an unlikely success.

Opposingly, Hovenkamp saw the merger as “a destabilizing threat not only to merger law but to economic analysis in general” because AT&T would no longer be a profit-maximizing entity after the merger.  He argued that Time Warner, which owns valuable assets such as the Harry Potter franchise, would no longer have the incentive to license to all television and cable companies after the merger, leading to a potential blackout for some customers.