antitrust

Archive for Tag “antitrust”

The financial threat of antitrust

Friday, June 14, 2013 by

As part of my mission to raise awareness of antitrust’s impact on American business, I thought I’d take a minute to list some of the more significant legal penalties imposed in recent years. They are not chump change:

  • Earlier this year, a jury awarded damages of $400 million against Dow Chemical in a price-fixing case. Pursuant to statute, the judge trebled the damages. Dow is appealing the resulting $1.2 billion judgment.
  • In March, the European Union fined Microsoft $732 million for omitting from Windows a screen that offers users a choice of browsers.
  • Over the past several months, the Department of Justice and state attorneys general have imposed penalties on five publishers totaling $170 million (see also here and here) to settle charges of price-fixing in the e-book market.
  • A Taiwanese company, AU Optronics, was recently fined $500 million after losing at trial to the Department of Justice, which can’t help bragging: “The $500 million fine matches the largest fine imposed against a company for violating the U.S. antitrust laws.”
  • Back in 2009, Intel was hit with a $1.45 billion fine by the European union for “anticompetitive practices.”
  • Oh yes, let’s not forget the $1.1 billion fine levied against Microsoft by the EU in 2008, and upheld on appeal in 2012, for failing to provide competitors with computer programming codes to interface with Microsoft’s server software.

I could go on, but you get the point. Of course, the real issue is whether such penalties are justified as punishments for actual wrongdoing by the businesses affected. I say no (see here, here and here, for example), but even those who disagree cannot deny the magnitude of the threat.

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Apple’s antitrust trial: a good backgrounder

Wednesday, June 12, 2013 by

small-Apple-logoRoger Parloff, senior editor for legal affairs at Fortune magazine, has written the best summary I’ve seen of the factual and legal issues in Apple’s antitrust trial, currently underway in Manhattan federal court. Parloff’s explanation goes into some detail but remains accessible to those not familiar with antitrust or the economics of book publishing. He also addresses a number of questions that I’ve been waiting for a journalist to answer, such as how Amazon’s pricing strategy for e-books figures into the case.

From Parloff’s article:

The following basic facts appear to be fairly undisputed. In November 2009, just two months before Steve Jobs made his historic unveiling of the first iPad tablet on January 27, 2010, Apple’s head of content, Eddy Cue, convinced Jobs to give the iPad e-reader functionality and use the opportunity to launch a digital bookstore, comparable to Apple’s already successful iTunes and Apps Store. Jobs greenlighted the project. But while the new iBookstore would launch on April 3, 2010, Jobs wanted the key contracts with publishers signed by the time of his January iPad unveiling, so he could include it in his presentation. (In his opening, Apple lead lawyer Orin Snyder, of Gibson, Dunn & Crutcher, included a video excerpt from Jobs’s masterful iPad launch. While it was a moving and bitter-sweet moment for many of the journalists and business people present, U.S. District Judge Denise Cote, who is hearing the case without a jury, seemed ominously cold during the clip.)

Cue began meeting the CEOs of the six major publishers in mid-December 2009, sent out proposed term sheets in early January, and finally reached signed contracts with five of the publishers over the final three days preceding his January 27 presentation.

Cue knew next to nothing about the book industry when he undertook his task in December, according to Snyder, the attorney for Apple. But one thing everyone knew by then—because it had been the subject of major articles in the Wall Street Journal and New York Times during the summer of 2009—was that the publishing companies were, by this time, furious with Amazon about the rock-bottom $9.99 price at which it was selling the ebook versions of most of their new-releases and New York Times bestsellers.

I’ll be writing about the case from my own perspective soon, but for now, Parloff’s article neatly summarizes the facts as they stood at the trial’s start on June 5. Spoiler alert: In my view, the whole story is an example of creative profit-seeking that unjustly ends in a legal nightmare.

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Profits at the point of a gun?

Thursday, May 23, 2013 by

Robbery not allowedIn his “first big public appearance” since being named Barack Obama’s chief antitrust enforcer, Assistant Attorney General William Baer addressed a gathering of antitrust lawyers at the American Bar Association. Baer stated that during the last five years, U.S. antitrust prosecutors collected 10 times as much money in criminal fines as they spent on criminal prosecutions.

“That’s a return on investment a lot of people in the private sector would envy,” he said.

There is so much wrong here that it’s hard to know where to start. First of all, was he joking? Perhaps—actually, I’d say he was half-joking. So let’s take the serious half seriously and ask what his little quip accomplishes.

In my mind, what stands out is how he blurs the line between economic power and political power. Economic power is productive ability—essentially, it’s Apple’s ability to offer an iPhone that millions of people want to buy. Political power is coercion—essentially, it’s the government’s ability to separate citizens from their property by threatening punishment, or by direct seizure.

The term “return on investment” offers a measure by which one can compare the profitability of placing money in various productive enterprises. If ROI is 2% in grocery retailing but 5% in petroleum refining, then that’s one factor in making an investment decision. But the government does not produce economic goods, nor does it generate profits. All it can do is seize the profits of productive enterprises.

Government officials who want to augment their power have every incentive to blur this distinction. Baer would like some of the aura of profitability to rub off on him. We shouldn’t let him get away with it.

If a common criminal “invests” $250 in a pistol and makes off with $10,000 in cash from a bank, has he achieved a 4,000% “return on investment”? Of course not. Clearly the robber produces nothing, he only takes. It would be a corruption to apply the term “return on investment” to his activities.

Taking money at the point of a gun—whether the gun belongs to a robber or a federal prosecutor—is not and can never be productive, and it’s a moral offense to equate the two. I’ve written elsewhere about why I question the propriety of the antitrust regime, as well as the penchant of federal antitrust enforcers to brag about their criminal prosecutions of businessmen. Baer’s little half-joke deserves to be completely condemned.

(This is cross-posted from LaissezFaire.)

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Are web giants “scary monopolies that somebody needs to do something about”?

Wednesday, May 15, 2013 by

Federal Trade CommissionOver at TheAtlantic.com, Justin Fox offers thoughts on how antitrust policy will impact social media companies going forward. The article is worthwhile reading, in part for what it reveals about the smug sense of entitlement policymakers exhibit when it comes to America’s most successful companies.

“The Web’s New Monopolists” floats a number of trial balloons, including:

  • The desirability of regulating companies like Twitter and Facebook as “utilities”
  • Whether Internet giants such as these, not to mention Apple, Amazon, and Google, should be seen as “scary monopolies that somebody needs to do something about”
  • Whether a company like Facebook should be nationalized
  • Whether “it’s possible to spin a credible tale of antitrust lawyers enabling disruption and innovation” through enforcement measures such as those against Microsoft in the 1990s.

What’s on display here is the idea that the more success a company earns, the more it must put up with coercive control over its business practices. Fox’s conclusion says it all:

So all praise to today’s would-be utilities and monopolies, as they try to build enterprises that own their markets and that we can’t do without. But when they actually succeed, don’t think we shouldn’t be sniffing around in their business. At a certain point, it becomes our business, too.

Unfortunately, the businessmen subjected to antitrust enforcement typically accept it as a cost of doing business. “There’s a joke in Silicon Valley,” says UC Berkeley economist Carl Shaprio. “‘You know you’ve really made it when you’ve got antitrust problems.’ That’s the sign of success.”

Notably, Fox’s article contains not a single quote or mention of anyone—businessman, academic, or policy analyst—who opposes antitrust regulation of Internet companies on principle.

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Spotlight on antitrust #6

Tuesday, April 23, 2013 by

Photo Credit: DanBrady via Compfight ccMore stories to remind us how antitrust law casts a cloud over American business:

  • Baseball was exempted from federal antitrust law because the sport was not considered “interstate commerce” in the 1920s when the Supreme Court first decided the issue. Today, however, the Court regards practically every economic activity, no matter how trivial, as “interstate commerce,” so baseball’s special status is a relic that could be struck down at any time.
  • Meanwhile, another planned acquisition found itself stuck in the quicksand of federal review and approval (“Mother may I merge?”). Ecolab, a big sanitation and filtration company, wanted to buy Champion Technologies for $2.2 billion. But the two companies, which safeguard health through a wide range of sanitation products, had to sit and await permission to do business from bureaucrats whose only function is to impede economic activity. Finally permission came, but at the price of several concessions extorted from the merging companies (to divest patented technology, to license proprietary chemistry, to offer for sale a chemical blending facility, to manufacture certain products for another company, and to allow that company to recruit certain Champion employees needed to support the business).
  • As if the health care industry weren’t already buckling under the weight of government intervention, the Federal Trade Commission is sharpening its knives in anticipation of opportunities to prevent hospital mergers.
  • Global competition regulators met in Australia to share their views on future priorities: “Competition agencies cannot remain behind national or regional fences—we need to pull our forces together.”
  • The newest Federal Trade Commission member is a George Mason law school professor who has criticized the agency for settling too many cases through consent decrees, instead of approaching cases as if they will be tried in court.

 

 
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Bowden in IBD: What are the search results when you Google “antitrust”?

Friday, April 19, 2013 by

My colleague Tom Bowden has a new piece at Investor’s Business Daily on the antitrust campaign against Google.

Yielding to the European Union’s threat of massive fines, Google will reportedly change the way it displays search results and, in some cases, even include links to rival search engines. Earlier this year, the Internet giant capitulated to the U.S. Federal Trade Commission after a 19-month investigation, promising to change its advertising practices.

How do the world’s most powerful governments get away with treating Google like a villain? After all, this is a company that has built a reputation for improving people’s lives in a thousand ways.

Just ask the millions of visitors who type keywords into Google’s legendary search engine, or who use the many other services — email, maps, videos, travel arrangements, comparison shopping, books, and the like — that Google offers for free. Yes, for free.

The answer lies buried in the unavoidable vagaries of antitrust law — an irrational regime that grants competitive grumblings the exalted status of legal injuries, then empowers government enforcers to override market outcomes.

Read the whole thing.

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When do you start calling it persecution?

Tuesday, April 9, 2013 by

599px-The_Earth_seen_from_Apollo_17Fortune magazine has come out with its list of the World’s Most Admired Companies, virtually all of them household names. Would you like to guess how many of the top 10 most admired companies have, within the past two or three years, been subjected to antitrust enforcement?

The answer is 10 out of 10: Apple (#1), Google (#2), Amazon (#3), Coca-Cola (#4), Starbucks (#5), IBM (#6), Southwest Airlines (#7), Berkshire Hathaway (#8), Walt Disney (#9) and FedEx (#10).

Granted, not all of these encounters ended badly. In more than one case, permission for a merger or acquisition was eventually granted. But my point here is not to assess the overall damage done by antitrust law to American business. Rather, I just want to focus on the incredible reach of these statutes, how they permeate the business world.

If each day’s headlines carried an article about another Fortune 500 CEO accused of murder, it would strike us as unusual. We expect that an occasional Bernie Madoff will be caught running a criminal scheme, but we don’t expect our most admired companies to be routinely hauled before legal authorities.

One of my goals in writing about antitrust is to pierce the complacency with which our society regards these laws. We act as if the nation’s most productive and successful executives should just accept being on the wrong side of the law as part of their lot in life. But why isn’t that more troubling to us than it appears to be? When other classes or groups of people find themselves routinely in conflict with the law, social scientists fall all over themselves to study the phenomenon in search of persecution. Why are businessmen treated differently?

Meanwhile, if I had more time, I’d look into how many of Fortune’s 50 Most Admired Companies have been subjected to antitrust enforcement since from 2011 on. My guess is pretty close to 50 out of 50.

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Yet another obstacle to the beer merger

Monday, April 8, 2013 by

3761648387_453711ba34_bA group of consumers has sued two brewers, Anheuser Busch InBev and Grupo Modelo, to block their planned merger. What injury have the beer drinkers suffered? Well, they are worried that the merged companies will offer the plaintiffs’ favorite beers at higher prices. On that basis, a court has accepted their antitrust complaint for filing.

Stop and think about what’s happening here. A customer gripe has acquired the status of a legal cause of action. But by what right does a customer demand that a business offer products at the particular price he desires? There is no such right, not in a free society.

In the absence of a prior contract, a customer’s only right is to buy, or not buy, the product at the price offered. If the nine plaintiffs don’t like the new price, they have options. They can buy some other brewer’s beer. They can buy hard cider, a bottle of wine, or a mixed drink. They can home-brew their beer. They can even go on the wagon. But they have no right to demand that beer be offered on the market at a price of their own choosing.

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Potential success delays airline merger

Thursday, April 4, 2013 by

6302436763_9653ccd056_bA fascinating article in Fortune details behind-the-scenes negotiations leading up to the proposed merger of American Airlines and US Airways. I say “proposed” because, in our “Mother may I? economy,” the largest companies must seek federal permission before merging.

The Department of Justice Antitrust Division (DOJAD) initially has 30 days to decide, thumbs up or thumbs down. But when the agency asks the companies for more information, the deadline gets extended 30 more days from the date of request. The first waiting period for the airline merger consumed the month of February, and then DOJAD filed a second request, so March came and went without a decision.

This horde of federal lawyers contributes nothing to running the business—neither labor, nor capital, nor management, nor marketing, nor equipment. DOJAD’s only function is to impede—to frustrate the judgment of the executives who seek a merger for business reasons.

Why do these particular airlines want to merge? Doug Parker, the US Airways CEO who will head up the new company if the merger goes through, said: “The combined airline will have the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace. Our combined network will provide a significantly more attractive offering to customers, ensuring that we are always able to take them where they want to travel, when they want to go.” If you consider that American is in bankruptcy and that its routes don’t overlap much with those of US Airways, American seems ripe for a takeover by a more successful company.

Is the merger strategy a wise one? Maybe, maybe not. But it’s none of the government’s business one way or the other. Market choices should determine the outcome. If the merged firms fail, the economic consequences fall on them and on those who voluntarily dealt with them. But if they succeed—either modestly or hugely—they deserve every dollar they earn in free trade.

Meanwhile, DOJAD is delaying the merger while it tries to predict how successful the merged companies will be—according to a perverse legal standard by which the more a company succeeds relative to its competitors, the more likely that firm will be deemed a violator of antitrust laws.

DOJAD’s authority to block a merger is like a hammer held over everyone’s head, inducing fear (and willingness to make extorted concessions in “exchange” for permission to do business). Not incidentally, by stringing out its approval period, DOJAD made more room for Congress to play politics with the merger.

By delaying merger, DOJAD is violating the rights of these businesses to get started on their plans right away, without waiting for a bureaucrat’s permission.

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Spotlight on antitrust #5

Wednesday, March 27, 2013 by

Photo Credit: DanBrady via Compfight ccThe antitrust kettle keeps boiling—and the world’s most successful companies are the ones in danger of being scalded.

  • One indication that antitrust law is essentially political, not legal, is that different industries can lobby for exemption—in this case, independent pharmacies want an exemption, whereas railroads must fight to keep their exemption. (Of course, exemption from bad law can be a good thing—but it’s political log-rolling, not objective law, that procures such exemptions.)
  • Beer brewers that want to merge are expected to “resolve” a Department of Justice antitrust lawsuit. Translation: the government is successfully extorting promises from the merging companies to sell off assets and licensing rights they would never have sold on a free market.
  • While the antitrust establishment chases phantom “monopoly power” among companies that have no legal right to exclude competition, a true coercive monopoly sits unchallenged on its throne in Washington, D.C.: the United States Postal Service, which generates deficits year after year ($16 billion in 2012) while shrinking its services (Saturday delivery could be the next to go).
  • App makers are building an antitrust pyre for Facebook, stacking up accusations that they can’t survive if Facebook is allowed to control its own interface.
  • Airline CEOs appear on Capitol Hill to beg Senate permission to merge their companies, American Airlines and US Airways.
  • Antitrust threats are levied against an oil company, ConocoPhillips, for insisting that gas stations carry its premium gas as well as its regular gas.
  • Google’s enemies are pressing European antitrust authorities to crack down on the Internet search giant.
  • European authorities are investigating Apple for using the high quality and marketplace popularity of its iPhone to convince a customer to purchase $800 million worth of phones over three years.
  • A law professor suggests that the already-vague and therefore impossible-to-track antitrust laws be loosened up even more, to allow for more severe penalties in prosperous economic times, more leniency in bad times.

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