Antitrust Law in the New Economy: Google, Yelp, LIBOR, and the Control of Information 9780674974319

Table of contents :
Contents
Introduction
Part I: Market Effects of Information: Persuasion and Power
1. Competition and Consumer Protection
2. The Economics of Information
3. Information and Market Power
Part II: Information problems and antitrust: distortion and access
4. Agreements on Information
5. Exclusion by Information
6. “Confusopoly” and Information Asymmetries
7. Privacy as an Information Product
Part III: Informational Limits on Antitrust: Intellectual Property and Freedom of Speech
8. Information and Intellectual Property
9. Restraint of Trade and Freedom of Speech
Conclusion

Citation preview

A n t i t r u s t L aw i n t h e N e w E c o n o m y

A n t i t rust LAw in the new Economy Google, Yelp, LIBOR, and the Control of Information M A r k r . PAt t E r son

Cambridge, Massachusetts & London, England 2017

Copyright © 2017 by the President and Fellows of Harvard College All rights reserved Printed in the United States of America First printing Library of Congress Cataloging-in-Publication Data Names: Patterson, Mark R., 1956– author. Title: Antitrust law in the new economy : Google, Yelp, LIBOR, and the control of information / Mark R. Patterson. Description: Cambridge, Massachusetts : Harvard University Press, 2017. | Includes bibliographical references and index. Identifiers: LCCN 2016038274 | ISBN 9780674971424 Subjects: LCSH: Antitrust law—United States. | Information services—Law and legislation—United States. | Consumer protection—Law and legislation—United States. | Deceptive advertising—Law and legislation—United States. | Disclosure of information—Law and legislation—United States. | Restraint of trade—United States. Classification: LCC KF1649 .P38 2017 | DDC 343.7307/21—dc23 LC record available at https://lccn.loc.gov/2016038274

To my parents

Contents

Introduction

1

Part I: Market Effects of Information: Persuasion and Power

21

1. Competition and Consumer Protection 2. The Economics of Information 3. Information and Market Power

23 39 61

Part II: Information Problems and Antitrust: Distortion and Access

85

4. Agreements on Information 5. Exclusion by Information 6. “Confusopoly” and Information Asymmetries 7. Privacy as an Information Product

87 116 146 163

Part III: Informational Limits on Antitrust: Intellectual Property and Freedom of Speech

183

8. Information and Intellectual Property 9. Restraint of Trade and Freedom of Speech

185 207

Conclusion

231

Contents

Notes 239 Acknowledgments 309 Index 311

viii

On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other. —stewart brand

If we carried over into the world of information the manufacturing world’s asymmetry between engineer and consumer, users would be disabled terminals, valuable for being manipulated remotely by what they believe they control. —philippe aigrain, Cause Commune

Introduction

K

n ow l e d g e is p ow e r . This adage is as true in business competition as it is in other areas of life. Firms decide what to produce based on their knowledge of the market, and we decide what to buy based on information about products and prices. The availability of information is thus critical for effective competition. In fact, one of the elements that economists use to define “perfect competition” is perfect information. Perfect information is an unattainable ideal, of course, but modern market economies have generally had enough information to ensure that we could buy the goods and services we wanted at competitive prices. When markets have failed, the failures have not typically been due to information problems but rather to problems of market structure, such as monopoly, or to collusion among sellers. Those are therefore the problems on which antitrust law, the body of law that seeks to preserve competition, has focused for its first one hundred years. As we have moved to an “information economy,” it might have been reasonable to expect that information problems would become even more uncommon. But the result has been just the opposite. As information has become a greater focus of the economy, and particularly as information has itself become a commodity for sale, the opportunity to profit from possession of information has become greater. Firms have recognized that opportunity and now often seek to exploit control over market information. And those efforts are often successful, in part because of the economic characteristics of information, which tend to benefit larger firms, as will be discussed below. That leads sometimes to the

1

Introduction

emergence of powerful information providers and sometimes to collective production of information, as when firms join together to form standards-­ setting organizations. The result has been to re-create in the world of information the same sorts of monopoly and collusion problems that have previously arisen at times for tangible goods and services. This book will discuss a variety of contexts in which these problems have arisen: • In 2015, the U.S. Department of Justice announced a settlement of almost $1.4 billion with credit-rating agency Standard & Poor’s (S&P) in which S&P admitted that it had inflated its ratings of various financial products because it had concerns about its “market share, revenues and profits”—i.e., concerns about competition from other credit-rating agencies.1 • In 2015, the European Commission issued a statement of objections to Google alleging that “the company is abusing a dominant .  .  . ​ by systematically favouring its own comparison position  ­shopping product in its general search results.”2 The U.S. Federal Trade Commission (FTC) also investigated search-bias allegations against Google, but in 2013 closed its investigation without action, concluding that Google had offered “plausible procompetitive justifications” for its conduct. 3 In 2011, the U.S. Senate Judiciary Committee held a hearing to consider Google’s power,4 and a number of private lawsuits in the United States have unsuccessfully challenged Google under the antitrust laws. 5 • In 2014 and 2013, Italy’s competition authority and New York’s attorney general fined companies in the travel-review market. Italy fined TripAdvisor for representing its reviews as more genuine than they were, and New York fined firms that wrote or solicited false reviews for Yelp and other sites.6 Several firms have also brought suits alleging they have been injured by false statements in online reviews.7 • In 2013, the European Commission released a report on price and product comparison websites, noting that many such sites “perform sub-optimally in one of their major functions, the presentation of prices,” either by providing inaccurate information or by making it difficult to display offers in ascending order of price.8 Perhaps relatedly, the report found that the comparison tools often did not reveal the sources of their financing and often “did not 2

Introduction

indicate clearly if the retailers appearing on the specific price comparison website had paid to have their products listed.”9 • In 2012–2014, government regulators in the United States and EU imposed fines of more than $4 billion on large banks for conspiring to manipulate a piece of information, the London Interbank Offered Rate (LIBOR).10 Variable-rate loans, whether home mortgage loans or commercial loans, require an agreed-upon reference, or benchmark, rate to determine how rates should go up or down when they are adjusted. The LIBOR rate was promulgated by the British Bankers’ Association (BBA) for this purpose, as an indicator of market rates, and it was incorporated in trillions of dollars of variable-rate loans. Member banks of the BBA, however, entered into agreements to provide false rate estimates in order to profit on trading or make their creditworthiness appear greater.11 Similar issues have arisen in the foreign-exchange market12 and in nonfinancial markets as well.13 • In 2008, the Connecticut attorney general found “serious flaws” in a medical society’s process for writing guidelines for treatment of Lyme disease.14 Some physicians and patients believe there is a form of “chronic Lyme disease” whose symptoms are lessened or cured by long-term antibiotic treatments, but the Infectious Diseases Society of America (IDSA) had issued guidelines describing long-term antibiotic therapy was “not recommended.” The result was denial of insurance coverage and persecution of physicians who provided the antibiotic treatments. Among the attorney general’s findings were that some of the IDSA panelists had conflicts of interest, that the panel “refused to accept or meaningfully consider information regarding the existence of chronic Lyme disease,” and that the IDSA blocked appointment of physicians who had divergent views on chronic Lyme disease.15 As these examples illustrate, a variety of information issues can affect competition, and they can do so in different ways. All of the information products described above—credit ratings, Google search results, TripAdvisor and Yelp reviews, online price comparisons, LIBOR rates, and medical practice guidelines—are offered by firms or organizations whose primary products are information. Beyond that commonality, though, the products are all quite different. The examples thus illustrate both the central importance of information in the functioning of 3

Introduction

markets and the variety of ways in which the role of information can be distorted to hinder competition.

The Role of Antitrust Law The purpose of antitrust law, or competition law, as it is more commonly known outside the United States, is to prevent harm to the competitive process that in market economies produces the goods and services that consumers want. Traditionally, antitrust law has focused primarily on markets for tangible goods and services.16 Information issues, on the other hand, have been the domain of consumer-protection law, which governs false advertising and similar practices. As discussed in Chapter 1, however, consumer-protection law is not well suited to solving today’s information problems. In fact, some of the practices discussed here have been said by Nicolas Petit to fall within “gaps” in the antitrust and ­consumer-protection laws.17 The practices are analogous to ones that antitrust confronts in other contexts, though, and antitrust can be successfully adapted to information problems. Antitrust law addresses three forms of harm to competition. First is collusion among competitors: agreements among firms on price or other product characteristics that eliminate competition among the firms. Antitrust often condemns these agreements because, as a general matter, firms’ production and pricing decisions are to be determined by the market, not by agreement. That said, sometimes agreements among firms can make markets work better, typically by combining resources to provide a new product or to produce an old one more efficiently. In such instances, antitrust law typically seeks to balance the anticompetitive and procompetitive effects of agreements by applying what in the United States is called the “rule of reason.” As will be discussed in Chapter 4, firms sometimes enter into agreements that are confined to information, as when they do not expressly agree on what (other) products or services to provide but only on statements promoting or discouraging particular products. This often happens in the context of trade associations, where association members cause the association to issue a “standard” or statement that either approves one product or group of products or disapproves other products. Such cases have arisen in a variety of contexts, from the Lyme disease treatments discussed above to boat trailer lamps18 to swimsuits,19 often with significant competitive effects. Nevertheless, when an agreement is 4

Introduction

only on information, some courts have dismissed antitrust claims out of hand. For example, when an ophthalmological association issued statements discouraging use of a procedure some ophthalmologists offered, the court dismissed an antitrust claim, saying that “[i]f such statements should be false or misleading or incomplete or just plain mistaken, the remedy is not antitrust litigation but more speech—the marketplace of ideas.”20 The problem is that where there are powerful information providers, the marketplace of “ideas” may not function very effectively. One of the central claims of this book is that agreements on information, particularly when they are effected through powerful information providers such as trade associations, can cause market harm in much the same way as can agreements on other products. Although trade-association standards and similar forms of information are often not themselves bought and sold but rather are offered to influence which other products consumers will buy, this does not make them less important to consumers. Information is a product in itself—indeed, it is often the only product that a standard-setting trade association produces—and consumers are entitled to antitrust law’s protection against anticompetitive agreements in the production of information. The second focus of antitrust is the acquisition or use of power by single, dominant firms. The concern here is more often exclusion than collusion: a dominant firm will sometimes seek to deny important resources to its competitors, preventing them from challenging its market position. This single-firm conduct is the subject of Chapter 5. Generally speaking, antitrust has devoted little attention to exclusion through information, perhaps because only recently has the use of information content by dominant information providers become a significant issue. In previous cases in which antitrust has considered powerful information providers, like newspaper publishers and radio stations, the dominant firms in those markets have sought to disadvantage their competitors simply by denying access to newspaper pages or radio airtime, in the same way that such firms deny valuable resources in traditional markets.21 Recent cases, however, raise new issues for antitrust. The allegations against Google, Standard & Poor’s, and TripAdvisor outlined above, for example, appear to contemplate objectively “correct” search results, credit ratings, and reviews against which those firms’ products can be measured, or at least objectively acceptable processes for deriving those 5

Introduction

products. Notably, however, the Department of Justice’s case against S&P and the similar Italian case against TripAdvisor were not based on the false ratings the companies provided, but on the companies’ misleading statements about the accuracy of their ratings. That made those cases somewhat like false-advertising cases and left unclear whether powerful firms have an affirmative obligation to provide objective information or if they need only be truthful about whether they are doing so. That is, could a dominant firm eliminate any obligation to provide useful information simply by saying that it was providing whatever information served its self-interest? This book will answer no, arguing instead that antitrust law should limit the freedom of dominant information providers, as it limits the freedom of dominant providers of other products, to design and use their products to gain competitive advantages. The third purpose of antitrust is to prevent mergers that produce market concentration sufficient to injure competition. Although antitrust agencies have considered several mergers of important information providers, they have not generally focused on the specifically informational issues those mergers raise, instead treating information as just another product. For example, both the FTC and the European Commission permitted the merger of Google and DoubleClick, a provider of online ads, to go forward. However, Commissioner Pamela Jones Harbour dissented from the FTC’s decision on the grounds that the agency had not given sufficient attention either to privacy issues or to the specifically informational problems created by the aggregation of the databases of the two large firms. Summing up her concerns, she said “[t]he unique confluence of competition and consumer protection issues should have been a call to action for this agency—‘the only federal agency with both consumer protection and competition jurisdiction in broad sectors of the economy.’”22 A central point of this book is that this call to action still has not been heeded, particularly in the United States. The U.S. agencies’ decisions to pursue cases like the one against S&P through fraud actions, not antitrust ones, has left important competition issues unaddressed. And the FTC decided not to proceed against Google after its search-bias investigation. In contrast, the European Commission has focused more on antitrust law in this area, 23 and in 2015, it made the decision to pursue a case against Google on allegations similar to those the FTC had investigated. Even in Europe, though, these information cases so far have been confined to agency actions and have not reached the courts. Therefore, 6

Introduction

how antitrust law will be applied in informational cases is as yet unclear.

Information in Product Distribution One can see the information revolution as a continuation of developments to which antitrust has responded in the past. When the Sherman Antitrust Act was enacted in 1890, and even when what is now the European Union enacted its own competition law in the Treaty of Rome in 1957, markets looked very different. During this period, up to about 1960, consumption was increasing, so the emphasis of firms was on production, not on distribution and marketing. Initially, therefore, competition law also focused primarily on manufacturers. Antitrust cases typically involved either agreements—like price-fixing agreements—among producers of the same product or efforts by monopolists to exclude competing producers of their products. That is, the cases generally involved firms competing at one level of the product distribution chain. There were a few cases involving distribution and information during this period, too, but often those were related to, or were treated as related to, “horizontal” competition at a single level. The U.S. Dr. Miles case in 1911, for example, involved “vertical” pricing agreements between a manufacturer and its dealers, but the Supreme Court analyzed it as if the agreement were among the dealers, thus misunderstanding the very different incentives involved in distribution. 24 There were also early cases that challenged manufacturing firms’ exchanges of information regarding their production and pricing. 25 In these information-exchange cases too, though, the courts focused on information’s effects in facilitating horizontal collusion on prices. The focus on production tapered off in the 1960s, when consumption leveled off and competition for consumers increased. This change resulted in increased attention to distribution and retailing. In 1962, Target, Walmart, and Kmart all opened their first stores. Competition law adapted as well, shifting much of its attention from manufacturing to distribution. Fewer cases concerned relationships among producers at the same level of the distribution chain, and more concerned relationships between producers and dealers. Moreover, not only did the types of cases in the courts change, but so did the legal rules that applied to distribution agreements. As the courts (and economists) came to understand better the purposes and effects of various distribution agreements, 7

Introduction

the legal treatment of such agreements became more lenient, with the U.S. Supreme Court overruling previous cases in this area in 1977, 1997, and 2007. 26 Many other jurisdictions have not followed the United States in these legal changes, but the shift in focus to distribution has been important worldwide. Information is an important part of distribution cases. The primary justification for the typical distribution agreement is to encourage dealers to promote the producer’s goods. Although some promotional activities, like providing comfortable sales spaces, are not informational, the primary goal of distribution agreements is to encourage dealers to provide information about the quality and advantages the manufacturer’s product offers. 27 Distribution agreements typically limit competition among dealers with the goal of ensuring that each dealer will be able to reap the benefits of its promotion through its own increased sales. Of course, a dealer, like a producer, can promote a good by providing either accurate or inaccurate information. Although some legal and marketing scholars have expressed concern that distribution agreements could create incentives for misleading promotion, 28 this has not generally been a concern of the courts in antitrust cases. Now distribution has changed again with the rise of Internet retailers like Amazon, search engines like Google, and review sites like Yelp. These firms play key roles in product distribution, but not through brickand-mortar stores where consumers can shop and receive information about goods from multiple producers before buying them. Instead, they provide information that can determine which products consumers will buy. In some instances, as in the case of Amazon, these Internet firms also deliver products, but even there the delivery of information like reviews and recommendations may be as important as is physical distribution, at least for some customers. Thus, one can view these firms as the latest step in the evolution of competition, with the primary forum of competition moving first from production to distribution, encompassing both physical distribution and promotion, and now to pure informational promotion.

Market Information Providers In their pathbreaking book Information Rules, Carl Shapiro and Hal Varian say that “[i]nformation goods—from movies and music to software code and stock quotes—have supplanted industrial goods as the 8

Introduction

key drivers of world markets.”29 This book focuses on a particular subset of these information goods. Shapiro and Varian’s first three examples—movies, music, and software—are generally purchased for consumption. A consumer buys movies to watch, music to listen to, and software to use. Although each of these types of information can present its own competition problems, the focus here is instead on a different sort of information: information that is acquired to help make other purchasing, production, or pricing decisions. An instance of this sort of information is Shapiro and Varian’s fourth example, stock quotes, which are used in determining which stocks to purchase, and other information products help determine other market decisions. Thus, information goods are indeed “key drivers of world markets,” as Shapiro and Varian say, but they play that role in a variety of distinct ways. Many of the large information providers that have become important in recent years provide information whose value comes primarily from its effects not just in the purchases of other products, as is the case for advertising, but in the purchases of other sellers’ products. Yelp and TripAdvisor provide information about restaurants, travel, and other services, but do not themselves operate hotels or restaurants. Google and other search engines provide information about prices and products, but do not generally sell the products about which they provide information. Amazon delivers tangible goods, but it also provides a great deal of purchasing information, from prices for other sellers on the Amazon platform to reviews of books and other products. All of these firms have been involved in legal cases or investigations based on the competitive effects of the information they provide. Why does it matter whether a firm that provides information about products does or does not provide those other products itself? There are several related reasons. First, as will be discussed in Chapter 2, the economics of providing information are different from those of providing other goods, particularly with respect to economies of scale. It may be expensive to produce information, but it is usually quite inexpensive to communicate it. Therefore, it will generally be easier and cheaper for established information producers, which have already produced information, to meet the needs of new customers than it will be for new entrants, which must produce it anew. Indeed, because information is inexpensive to communicate, it is often provided by incumbent firms at a low price, or even for free, so entrants can find it difficult to recover the high costs of the initial production of information. As a result, information 9

Introduction

producers are often large and powerful, posing considerable problems for competition. Second, many firms that provide information about products occupy a position between the sellers and buyers of those products. Although the information providers may deliver information for free, they must get revenue somewhere, and they typically get it through advertising or other fees charged to sellers. That makes the information provider a “platform” in the middle of a “two-sided market,” with advertisers on one side and buyers on the other. In these circumstances, analysis of the market is challenging, in that both sides of the markets are receiving valuable services, but only one side is paying directly for those services. These sorts of “two-sided markets” have distinctive characteristics that have not been fully addressed by antitrust law, or indeed by economists.30 Moreover, the platforms’ receipt of revenue makes the statement above, that these information providers do not themselves sell the products about which they provide information, accurate only in part. True, they do not sell those products, but they may depend on sales of those products to support the advertising that they do sell. But a problem can arise when an information provider delivers information to users about the firms that are also its advertising customers. An instance of this structure that has been the subject of much public concern is that of credit-rating agencies, which typically operate on an “issuer-pays” model under which the agencies’ services are paid for by the issuers of the securities whose creditworthiness they are rating.31 For many years, and particularly in the wake of the financial crisis that began in 2008–2009, this business model was argued to be the source of inaccurate ratings the agencies provided to attract rating business from issuers. This same model is used, however, by many Internet information providers, such as Google.32 Of course, it is not necessarily the case that these firms will distort the information they provide.33 Many argue that reputational considerations will prevent the distortion of information, but instances like that of S&P, cited above, suggest that reputation alone will not always prevent the provision of inaccurate information. 34 This points to a third issue, that consumers of information may view information provided by firms like Google and Yelp differently, and less skeptically, than they view advertising from the seller of a product. The separation of information and product may lead consumers to think that the information they are receiving is more objective than it is. We are all 10

Introduction

familiar enough with advertising to approach it with the skepticism ­appropriate to self-interested statements. But when information is provided by parties with no obvious interest in the subject of the information, we are not so likely to approach it with our guards up. Sometimes, firms might simply pay for positive reviews of their products or services. Both federal and state enforcers have pursued such practices, 35 and New York Attorney General Eric Schneiderman, in announcing his office’s crackdown on providers of false reviews, pointed specifically to this credibility issue: “What we’ve found is even worse than old-fashioned false ­advertising. . . . ​When you look at a billboard, you can tell it’s a paid advertisement—but on Yelp or Citysearch, you assume you’re reading authentic consumer opinions, making this practice even more deceiving.”36 The platforms themselves are much more sophisticated, of course, and provide information about goods from many sellers. Still, even beyond their advertising interests, there may be reasons lurking behind the scenes that cause these firms to distort the information they provide. The problem was illustrated by the 2014 dispute between Amazon and the book publisher Hachette.37 Hachette resisted Amazon’s contract demands, and in response, Amazon directed potential customers searching for Hachette books to the books of other publishers. Many customers no doubt were undeterred by such suggestions, of course, especially if they were looking for a particular Hachette book. However, customers who were only considering such a book might well have been persuaded to buy another. And, of course, the likelihood of such persuasion increases if customers think they are receiving an objective recommendation from Amazon, rather than being used as a bargaining chip in contract negotiations.

Information Quality One might ask, however, whether any of this is really new. There have long been providers of information about products, like product-­ review magazines, and standards-setting organizations like Underwriters Laboratories. But concerns about conflicts of interest have dogged these providers for just as long.38 Some, like the magazines Consumer Reports in the United States and Which? in the UK, address this concern by refusing advertising. In contrast, many of the new information providers, like Google and Yelp, provide information for free and make all their 11

Introduction

money from advertising, exacerbating the conflict-of-interest problem. 39 Moreover, because they provide information for “free,” consumers might rely on the new information providers more exclusively than they did information providers in the past. These developments in information production and distribution change the nature of competition. These concerns make the quality of information the central issue. In principle, quality—including, presumably, quality of information—is just as important as price in competition law.40 In fact, in some markets it is more important. That is obviously true in markets in which goods are provided for free,41 but not just in those markets. In fact, quality is sufficiently important that in 2013, the Organisation for Economic Cooperation and Development convened a workshop on “The Role and Measurement of Quality in Competition Analysis.”42 One of the primary conclusions of the workshop was that despite the importance of quality in competition, the law generally has not devoted significant attention to it, largely because both quality and consumers’ valuations of it are difficult to assess. Another reason, perhaps, that quality has received little attention, at least in the single-firm context, is that providing products of low quality does not obviously have the effect of excluding competitors, which is the usual focus of antitrust assessment of single-firm conduct.43 That is, if a firm, even a dominant firm, provides a low-quality product, that will rarely make its competitors’ products less attractive or less available to consumers. But, again, information is different. Where the low-quality product is information about the competitor or the competitor’s product, and the information provider is a dominant source of market information, then the exclusionary effect could be significant. Hence, a focus on quality is even more important for information than it is in other contexts. Moreover, the obstacles to incorporating quality in competition analysis may not be as great for information as for other products. Most aspects of product quality—think of durability, or excellent fit and finish—are costly to provide. In such instances, there is a legitimate reason for a provider to offer less than the maximum amount of quality because consumers may not be willing to pay for an additional increment of quality. The same is true for information that is costly to gather. But when accurate information is already in the possession of a provider, and thus is no more costly to provide than inaccurate information, it is difficult to see a justification for providing inaccurate information. If a 12

Introduction

powerful information provider in possession of accurate information delivered inaccurate information that made a competitor or competitor’s product less attractive, such conduct would seem to have no purpose but to exclude those competitors from the market. Therefore, because antitrust analysis of single-firm conduct turns in part on whether the firm at issue has a “legitimate business purpose” (in the United States) or an “objective justification” (in Europe), antitrust scrutiny would be appropriate.

Information Asymmetries Although much of this book will focus on these issues of information quality, quantity is also important. Particularly important are the relative amounts of information sellers and buyers possess; when these amounts differ, there is an information asymmetry. Traditionally, buyers had access to information about sellers’ products and could easily compare them. Sellers, on the other hand, had little information about individual buyers and so could not easily tailor their offerings to each buyer; instead, they generally sold them at a single price into a uniform market. Both of these conditions have changed. Products and particularly pricing structures have become more complicated, so comparisons by buyers are more difficult, and sellers now often have very detailed information about individual buyers. Whereas buyers once arguably had an information advantage, now the information asymmetry has shifted toward sellers. Markets work, of course, by using buyers’ purchasing decisions to inform sellers what products to produce and at what prices to sell them. When such information is available, competition ideally drives prices close to sellers’ costs of producing the goods. Sellers prefer higher prices, though, so they sometimes act to make it more difficult for consumers to evaluate the sellers’ products or pricing. The term “confusopoly” was coined by Dilbert author Scott Adams (and has since been taken up by competition scholars, particularly in Europe) to describe “a group of companies with similar products [cell phones, for example] who intentionally confuse customers instead of competing on price.”44 The U.S. FTC successfully challenged a somewhat similar approach when it brought an action against toy retailer Toys “R” Us for pressuring toy manufacturers to package toys differently for Toys “R” Us than for ­lower-priced warehouse clubs with which Toys “R” Us competed, thus 13

Introduction

making it hard for consumers to compare prices.45 This sort of conduct does not just exploit, but also seeks to increase, an information asymmetry between sellers and buyers. A more significant change in the information balance between sellers and buyers has been created by sellers’ access to “private” consumer information and “big data.” Neither has played a central role in a competition case as yet, but concerns about consumers’ personal information have been raised, notably in connection with the merger of Google and DoubleClick.46 Privacy has a value in itself, but it also has competition implications. When sellers have detailed personal information about individual consumers, they can tailor offerings and prices to particular consumers. Price discrimination—charging different customers different prices for the same product—is generally illegal only when it injures competition, but in the online context, where prices can be tailored to individual customers, the dangers of using discrimination to exclude competitors are significant.47 The privacy problem is related to the “big data” problem, which is increasingly becoming a focus in competition circles, with frequent conferences and a 2014 opinion by the European Data Protection Supervisor on “Privacy and competitiveness in the age of big data.”48 Importantly, these two issues—buyers’ abilities to compare products and prices, and sellers’ ability to tailor offerings to individual buyers— are related. In their book All You Can Pay: How Companies Use Our Data to Empty Our Wallets, Anna Bernasek and D. T. Mongan refer to the problem as one of the “disappearing mass-market.”49 With price discrimination, buyers see prices set only for them, prices that are not constrained by the prices that sellers charge other buyers, so that an individual buyer’s price comparisons are not comparisons of prices in a market, but only of prices designed for that particular buyer. As Bernasek and Mongan put it, “[i]n a classic divide-and-conquer strategy, price discrimination separates consumers from each other and keeps them in the dark about the market.”50 In this way, these information asymmetries pose a fundamental challenge to our understanding of competition, and therefore of competition law.

Information as a Product The fundamental argument set forth in this book is that antitrust law should take seriously information as a product in itself. That is, although the significance of much commercial information derives from its 14

Introduction

influence in markets for other goods, conduct involving information can and should be evaluated in terms of its effects in the markets for that information itself. By focusing specifically on information and by developing analytical approaches specific to it, competition law can respond to the particular problems it poses. With an information-specific approach, competition law can address the provision of misleading information by powerful firms, even if that task is not as easy as asking whether prices have increased. And it can recognize that what constitutes a “restraint of trade” in an informational context like that of ­standard-setting need not be the same as in other contexts. Information is different from tangible goods and services, so it is hardly surprising that anticompetitive practices involving information are also different from those with which competition law is familiar. It is worth emphasizing, though, that sources in current antitrust law support this approach. One prominent example is the U.S. Supreme Court’s opinion in F.T.C. v. Indiana Federation of Dentists.51 The case arose from the refusal of dentists to comply with dental insurers’ requests that the dentists provide x-rays when submitting insurance claims. Insurers used the x-rays and other information to decide whether to approve or deny claims. Dentists, however, viewed these reviews of their treatment decisions “as a threat to their professional independence and economic well-being,” and an organization of dentists adopted a rule forbidding its members to submit x-rays with payment claims. The FTC challenged the rule as an antitrust violation. Most importantly, the Court explicitly responded to the concern that what the dentists were denying to their customers was information about dental services, not those dental services themselves. One might have expected the Supreme Court to analyze the conduct at issue based on its effects on the provision of dental services or on the price of those services. Instead, it focused specifically on the effect of the rule on the provision of x-ray information: A concerted and effective effort to withhold (or make more costly) information desired by consumers for the purpose of determining whether a particular purchase is cost justified is likely enough to disrupt the proper functioning of the price-setting mechanism of the market that it may be condemned even absent proof that it resulted in higher prices or, as here, the purchase of higher priced services, than would occur in its absence.52 15

Introduction

That is, information is a sufficiently important component of the competitive process—in fact, it is the basis of competition—to be treated as a good in itself. Even when information is about other goods, we can still, at least in certain circumstances, focus our attention on the nature of a restraint regarding information itself in determining whether there is a violation of competition law. A concerted refusal to deal is a typical antitrust violation, and it should remain so even if the information is not desired in itself but only for what it tells about another product. Approaching information in this way, as a product, obviates concerns that some courts have expressed. These courts have expressed the view that the proper role of antitrust is as a regulator of restrictions on supply, not a regulator of the changes in demand that are caused by information. But viewing information as a product in itself, not just as information that affects demand for other products, shows how this concern is off the mark. From an informational point of view, the issue in Indiana Federation of Dentists was not the demand of insurers for dental services, but rather the supply by dentists of dental information. As a supply issue, it was a typical antitrust problem. The Court recognized as much, approving the FTC’s finding that “in the absence of . . . ​concerted behavior, individual dentists would have been subject to market forces of competition, creating incentives for them to . . . ​comply with the requests of patients’ third-party insurers.”53 Those requests were for information, which like other goods can be subject to market forces, and when markets are at issue, antitrust law should apply.

Information as Speech Information is not only a product, however; it is also, in a sense, “speech.” For that reason, some lower courts have been reluctant to confront allegations of the misuse of information to anticompetitive effect. For example, in one case, a bond issuer alleged that Moody’s Investors Service, Inc., a leading credit-rating agency, had issued “materially false” and “misleading” ratings in retaliation for the issuer’s hiring of competing credit-rating agencies.54 Moody’s goal, the issuer said, was “to force [it] and other issuers to purchase Moody’s ratings in future sales.”55 Thus, the case alleged anticompetitive and exclusionary conduct by a powerful firm. The courts refused to consider the antitrust issues, though, holding that the Moody’s statements were protected under the First Amendment because they were “opinions.”56 A similar approach has been taken by 16

Introduction

several courts considering claims alleging that Google has manipulated its search results. In this way, the courts have avoided having to consider the competitive effects of information products. Are Moody’s and Google really providing “opinions”? And if they are, does that mean they are not responsible for the competitive effects of those opinions? Moody’s, in fact, argued that its ratings were not just “opinions,” but “objective” opinions. Google’s statements are somewhat more complicated and have evolved over time. In 2007, it said that its “search results are generated completely objectively and are independent of the beliefs and preferences of those who work at Google.”57 More recently, it has said that “Google’s search results are ultimately a scientific opinion as to what information users will find most useful.”58 At times, it makes no reference to the preferences of searchers at all, saying in its documentation, for example, that it has “tried to clarify where possible that although we employ algorithms in our rankings, ultimately we consider our search results to be our opinion.”59 In any event, labeling speech an “opinion” does not make it immune from legal scrutiny, either on grounds of freedom of speech or under the law of false advertising or antitrust. As will be discussed in Chapter 9, even if the First Amendment is applicable in these cases, its protection does not necessarily apply to prevent application of antitrust law. Courts both in the United States and in Europe have treated “commercial” speech differently from other speech, and although there might be some question regarding whether credit ratings or search results are commercial speech, the cases have not even considered the question, let alone resolved it. Moreover, numerous cases in both the United States and Europe have considered freedom-of-speech defenses in false advertising and antitrust cases, and such defenses have not fared well, except in those cases in which the speech could reasonably be characterized as political. Personal consumer information may also present freedom-of-speech issues. In 2011, the U.S. Supreme Court held that the pharmaceutical prescribing history of physicians was information protected by the First Amendment.60 Therefore, it concluded, an effort by the state of Vermont to restrict the sale of that information was prohibited. To the extent that this approach extends to the sale and use of information about consumers, restriction of that sale and use, whether by antitrust or other bodies of law, could also be subject to First Amendment limitations. On the other hand, as discussed in Chapter 9, the Court also said that the 17

Introduction

government has a “legitimate interest in protecting consumers from ‘commercial harms,’” so that commercial speech can be regulated if the regulation is done in a neutral manner (a test that the Court said Vermont did not meet).61 The information-as-product approach advocated in this book emphasizes that marketplaces for ideas—information—can have problems similar to those in marketplaces for other products. Moreover, when information markets fail, they can cause the “commercial harms” to which the Supreme Court refers. Indeed, information providers like Google, Moody’s, Yelp, and others can through their statements determine the commercial success or failure of other businesses. It would be odd if in these circumstances antitrust law’s prohibitions against restraints of trade and abuses of dominance were hobbled by legal protections for freedom of speech. On the contrary, when information is both a product and also “speech,” one would expect that the rules of competition law and speech protections would converge to ensure that markets for information function properly.

Structure of the Book As outlined above, this book discusses a range of ways in which information can be exploited for competitive advantage. Before turning to these particular forms of conduct, though, the book addresses three more general matters that provide background for the later discussion. First, Chapter 1 discusses the legal implications of the fact that information generally affects the demand side of the market, the traditional realm of consumer-protection law, rather than the supply side. This consideration makes the application of current antitrust rules problematic, though we will see that in many instances a focus on the information market itself, rather than on the market affected by information, can make traditional rules appropriate. Chapter 2 then provides a short discussion, though far from an exhaustive treatment, of the economics of information. The focus here will be on the particular characteristics of information that present challenges for antitrust law. And Chapter 3 considers the application of the central antitrust concept of market power to information markets. The following four chapters turn to four forms of conduct involving information, all touched on above, that can sometimes be anti­ competitive: agreements regarding information production, which are 18

Introduction

sometimes used to take advantage of consumers; unilateral control over information by individual firms, which is sometimes exercised to disadvantage a competitor; the exacerbation or exploitation of pre-existing market uncertainty; and the use of personal information about consumers or their purchasing preferences. Referring to the examples discussed previously, trade association standard-setting would be in the first category and Google’s alleged manipulation of search results in the second. Dilbert’s “confusopoly” is an example of the third category. The fourth category, the exploitation of consumer information, has received little attention from competition law but much press coverage, though most of that coverage has focused on the human-rights aspects of privacy rather than on its implications for competition. Finally, the book addresses two areas of law that sometimes limit the application of antitrust. Chapter 8 considers intellectual property law. Some information about inventions can be patented, and much information is copyrightable, giving the owners in each instance rights over their intellectual property. The relationship between antitrust law and intellectual property law is often fraught, but a specific focus on information can clarify the issues in many cases. The main point is that it is impor­ tant to distinguish between the information that is rightly protected by intellectual property laws and that which intellectual property owners sometimes use to expand the boundaries of their protection. For example, in a variety of recent cases, intellectual property owners have sought to create or exploit uncertainty regarding their rights. Uncertainty regarding the existence or scope of rights is not information that is protected by intellectual property law,62 yet courts do not always recognize when and how uncertainty increases the power of intellectual property. Chapter 9 then more fully addresses the freedom-of-speech issues introduced above. As the U.S. Supreme Court has said, antitrust law is “the Magna Carta of free enterprise” and “as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms.”63 Where information is at issue, our economic freedom and our fundamental personal freedoms merge. If we are misled or steered into purchasing products that we would not have bought with better information, we not only overpay for, or are underserved by, those products, but we also have been denied our fundamental freedom to make informed choices regarding our lives. 19

Introduction

It is one thing to be misled by a false advertiser about a particular product; it is quite another to have a large portion of the information we use to decide on our purchases controlled by powerful information ­providers. Such concentrations of power are, or should be, issues of ­antitrust law.

20

Part I Market Effects of Information: Persuasion and Power

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that regulate competition, broadly understood. One is antitrust law, or competition law, as it is usually known outside the United States. Antitrust law seeks to control the acquisition and use of “market power,” which economists define as the power to raise price above the competitive level. Market power is possessed by firms that do not face effective competition. Antitrust seeks to prevent harm from such power by regulating collusion, or agreements among firms, and exclusion, or efforts by firms to disadvantage their competitors. The second body of law, consumer protection, seeks to prevent harms to consumers’ decision-making processes. Consumer protection focuses primarily on deception by prohibiting false advertising and other misleading sales practices. The increasing importance of information in the consumer economy requires that we think differently about the roles of these two bodies of law. Traditionally, information problems have been thought to be the domain of consumer protection, because such problems often involve false or misleading information. But the increasing commercial power of information providers like Google and Yelp and Amazon raises new information problems. Such firms often do not mislead consumers in the usual, consumer-protection sense of providing false information. Instead, as is discussed in Chapter 1, the danger they present arises primarily from power that they possess as the result of the peculiar nature of competition in information markets. This increasing importance of power in h e r e a r e t w o b o die s o f l aw

21

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information markets points to antitrust law as the means of preserving competition. However, information is a distinctive type of product, and it therefore requires adaptation of antitrust’s techniques for assessing both power and conduct. Chapter 2 describes some important economic characteristics of markets for information; in many respects, information markets function differently than do markets for tangible goods and services. Chapter 3 then discusses power in information markets. The nature of informational power is captured by Nobel laureate George Stigler’s statement that “[a]uthority, the equivalent of monopoly power, is the great enemy of freedom of inquiry.”1 That is, consumers rely on apparently authoritative sources like Google and standard-setting organizations for much of their information, but competition in information markets may be insufficient to ensure that those sources provide the information consumers need.

22

1 Competition and Consumer Protection

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h e u s e o f a n t i t r u s t l aw rather than consumer-protection law to address information problems requires some explanation. Although the phrase “competition law” is sometimes used to include both antitrust and consumer protection, consumer protection’s role is to prohibit practices such as false advertising and, sometimes, to mandate certain information disclosures, such as those for warranties and consumer loans. That suggests that information issues more generally might be allocated to consumer protection, and in fact the division between the two bodies of law has in the past largely been determined by whether information is at issue.1 Neil Averitt and Robert Lande put it this way:

The boundary between antitrust and consumer protection is best defined by reference to these two elements of consumer sovereignty. The antitrust laws are intended to ensure that the marketplace remains competitive, so that a meaningful range of options is made available to consumers, unimpaired by practices such as price fixing or anticompetitive mergers. The consumer protection laws are then intended to ensure that consumers can choose effectively from among those options, with their critical faculties unimpaired by such violations as deception or the withholding of material information. Protection at both levels is needed in order to ensure that a market economy can continue to operate effectively. 2

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Averitt and Lande are certainly correct that both consumer protection and antitrust are necessary for effective competition. It does not follow, however, that all information problems should be allocated to consumer protection. The law of consumer protection has long served well in dealing with deception and the withholding of material information. Those problems, as will be discussed below, are often addressed in the context of particular transactions. But antitrust’s role is different because it addresses collusion and exclusion, not deception, and focuses on broader market conditions and market power, not individual transactions. Therefore, where information presents these sorts of market problems, antitrust is best suited to addressing them. Indeed, Averitt and Lande have discussed the use of antitrust to address informational issues. As they note, in cases like Indiana Federation of Dentists, discussed in the Introduction, courts have considered information issues under antitrust. In those cases, the conduct at issue—in Indiana Federation of Dentists, an agreement among sellers not to provide information—has involved the collusion or exclusion that is typical of antitrust cases.3 That suggests that we should ask not whether information is involved, but which body of law better addresses the conduct at issue and the resulting harm. Where collusion or exclusion are used to create or exercise market power, the conduct would typically be an antitrust matter; where instead the conduct at issue is deception, like false advertising, it would normally implicate consumer protection. It is easier to adapt antitrust law’s doctrinal focus on collusion and exclusion to information than it would be to add regulation of collusion and exclusion to consumer protection’s focus on deception. The relationship between antitrust and consumer protection has also been explored from other perspectives that do not emphasize legal doctrine, notably by Kati Cseres and other scholars in Europe.4 Much of the European work in this area has addressed systemic issues regarding the two bodies of law rather than whether particular forms of informational conduct could or should be addressed though one body of law or the other.5 For example, Cseres and others have written on the institutional choices and remedies in the two bodies of law. As she points out, antitrust law and consumer-protection law differ in a wide variety of respects, including the allocation of enforcement to public agencies or private parties, the “economic incentives behind [the challenged] practices,” the types of “consumers” whose interests are being protected, and the sanctions awarded. 24

Com pe tition an d Consu m er Protec tion

For the most part, these institutional issues are beyond the scope of this book. To be sure, there are very interesting questions about the interaction between antitrust and consumer-protection enforcement in the informational area, particularly for agencies that enforce both bodies of law, such as the U.S. Federal Trade Commission (FTC) and similar agencies in other jurisdictions. Some of these questions have been noted by agency officials, as the quotation from former FTC Commissioner Pamela Jones Harbour in the Introduction shows. But it seems likely that institutional differences would correspond to doctrinal ones, so that the regulation of collusion and exclusion in information markets would present problems similar to those involved in regulating similar conduct in other markets. In that case, institutional considerations, like doctrinal ones, would point to antitrust. The remainder of this chapter seeks to defend the doctrinal claim through discussion of the history and the application of consumer-­ protection law, particularly the laws of fraud and false advertising, and it describes why consumer protection is not well suited to solving today’s new informational issues. The focus in the chapter is primarily on powerful information providers like standard-setting organizations, search engines, and review sites, because that is the context in which comparison of antitrust with consumer protection, with its focus on the provision of false or misleading information, is most enlightening. The particular issues of information asymmetries, both with respect to designing products and adopting pricing structures that are difficult to understand and with respect to using personal consumer information, present different considerations that will be taken up in Chapters 6 and 7.

From Fraud to False Advertising To some extent, the evolution of advertising parallels the evolution of product distribution discussed in the Introduction,6 and the law in both cases has evolved along with the market. That is, just as antitrust law has evolved to adapt to changes in product distribution, consumer-protection law has evolved to adapt to changes in the way in which information is provided. As suggested above, though, recent changes in information markets, in particular the evolution of independent information providers, have made current information problems better suited to antitrust than to consumer protection. Although consumer-protection law could no doubt be adapted to address today’s new information problems, 25

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doing so would require dramatic changes to that law, whereas antitrust is already well suited to that task. This point can be illustrated by showing how the law has responded only imperfectly to prior changes in information delivery. Fraud and related wrongs, such as deceit and negligent misrepresentation, are defined based on the conduct of parties to a particular transaction, not on the market conditions in which that transaction takes place. Although the elements of fraud and related causes of action differ from jurisdiction to jurisdiction, an injured party generally must show that the accused party made a false representation that was intended to cause the injured party to act in reliance on the misrepresentation and that the injured party did in fact rely on the misrepresentation in making a purchase or sale decision.7 That is, the misrepresentation must have been directed specifically at the injured party by the accused, and the injured party must show that it was the cause of his or her injury from the transaction. As the economy moved away from individualized transactions between sellers and buyers and toward less direct, market-wide sales arrangements, often with independent dealers mediating between manufacturers and consumers, the nature of informational problems changed. Although false information continued to be a problem, it was no longer provided directly to consumers dealing with the seller, but was often placed in widely distributed advertisements. False advertising thus became a new problem, and although the law of fraud could perhaps have adapted to the new circumstances, cases challenging advertising as fraud often failed, usually because the buyer could not show the requisite intent of the seller to deceive or show reliance on the particular challenged advertising.8 Where a buyer is provided with a wide variety of information, and particularly where he or she obtains the information from a manufacturer’s advertising but buys the good from an intermediary dealer, it is difficult to show that the buyer made the purchasing decision in reliance on a particular piece of information. As a result, new laws were enacted to address these new issues. In the United States, Congress enacted the Federal Trade Commission Act in 1914, the Wheeler-Lea Act amending the FTC Act in 1938, and the Lanham Act in 1946; all were intended to address the problems of false advertising. But the laws governing false advertising did not result in much change in lawsuits by individuals. Deceived individuals do not have standing to sue under the federal laws just listed,9 and although an 26

Com pe tition an d Consu m er Protec tion

individual may sue under many analogous state consumer-protection laws, the individual must generally demonstrate an actual injury as a result of the false advertising. To make this showing, most courts require the individual to show that she purchased the product as a result of the false advertising, thus in effect recreating the reliance requirement of fraud law.10 Consequently, the effects of false-advertising law are felt elsewhere, in suits by the government or by competitors of the advertiser. In suits brought by the government and by competitors, the advertiser’s statement must be shown to be false or misleading, as with fraud, but the violation turns not on deception of a particular individual but on the likelihood that the statement will deceive a substantial portion of its intended audience.11 And courts usually accept a government agency’s determination that advertising is deceptive without survey evidence, given the agency’s expertise. Competitors must show actual injury, but they can do so through consumer surveys, rather than through proof of individual deceptions leading to specific purchases by individual consumers. The upshot is that in government and competitor suits, the focus is not on individual deception but on the aggregate effect of statements on consumers overall. This aggregate approach is still, in an important sense, an individualized one, however. That is, the issue is still one of the deception of individuals by particular statements, even if the deception requirement can be met statistically rather than individually. Moreover, the burden of proof for damages, as opposed to an injunction prohibiting the false advertising, can be more demanding, requiring a showing of actual lost sales, though the courts do not have consistent approaches on this issue. Thus, although the elements of advertising law are looser in some respects than those of fraud, the fundamental nature of the claim remains much the same. The relaxation of the legal requirements does not address fundamental changes in the identity of providers of information, the nature of information provided, or the way in which consumers use information.

False Statements and Mass Information A thoughtful commentator on advertising law, Ivan Preston, has addressed the changes in how information is provided in terms of what he calls “mass opinion.”12 He argues that “the interaction of mass speaker 27

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and mass audiences differs from that of one seller and one buyer.”13 Preston claims that consumers take mass-advertising claims as the opinions of experts, rather than as the self-interested statements of individual sellers. Although this claim is contestable as a factual matter, it may accurately describe the reliance of consumers on advertising. That is, even if consumers do not accept the statements of mass advertisers as statements of objective “experts,” consumers may accept the claims for another reason, as Preston also argues: “When consumers are addressed as part of a mass, they cannot individually check the truth or falsity of the resulting mass opinion; they are unequal and should have a right to rely.”14 Preston acknowledges that consumers could just ignore the “mass opinions”—i.e., the advertising—they receive, but he thinks it is undesirable for them to remedy the situation by “acquiring a skepticism that in its own way impairs their ability to function.”15 If consumers ignore advertising, where will they get information? Hence, he believes it is more preferable for the law to enforce a right of reliance on advertiser statements than “to tell [consumers] they must rely only on their own inspection or on third-party sources for necessary facts.”16 Although Preston perhaps dismisses too easily third-party sources of information, as discussed below, he trenchantly identifies the shift in the consumer’s role from an active participant in a face-to-face transaction to a passive recipient of information from various sources, including advertisers, their competitors, and third parties. Preston shows that this passive reliance on the part of consumers can be extreme. In fact, his specific concern in the discussion above is the law’s failure to condemn “puffery.” Advertising is typically said to be puffery if it is too exaggerated or too vague to be reasonably relied upon by consumers.17 Preston’s point, one for which he provides empirical evidence, is that consumers do in fact rely on many statements that we might call puffery, whether or not their reliance is reasonable.18 He argues, therefore, that the law of false advertising should recognize and enforce that reliance. Many would not go so far: if reliance is truly unreasonable, the problem may be the consumer’s, not the advertiser’s (though, of course, the elimination of puffery would not be a great loss). But Preston’s argument captures an important point: in some contexts, consumers may rely on information even if there is insufficient reason for them to rely on the truth of the information. The broader lesson here, then, is that the traditional focus of consumer-­ protection law on the truth of individual statements in the context of 28

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particular transactions is to some extent inadequate for current information problems. Advertising cannot always be shown to be central to particular transactions, yet in making purchases, consumers rely—must rely—on the information available to them. Therefore, even if it is impossible to prove that a particular statement caused a bad purchasing decision, there is reason for the law to be concerned about the overall mix of information to which consumers have access. That is especially so given the increasing importance of third-party information providers like standard-setting organizations, search engines, and review sites, which are not advertisers at all. The question, then, is whether the law should move toward a broader, market-based approach to information.

Reliance on Truth and Reliance on Markets The problem addressed in this book is a different sort of reliance than is at issue in consumer-protection cases.19 In a consumer-protection case, the underlying assumption is that consumers rely on the truth of a particular statement, even if the legal claim does not explicitly require proof of reliance. A statement is only actionable if the statement (or omission) on which the claim is based is false or misleading and if that particular statement is material to the consumer’s decision-making. Although reference sometimes is made to the overall information available to consumers, the focus remains on a particular statement, or at most a few statements. The reliance that is relevant to antitrust law is different. It is a reliance on markets to provide useful information overall, without necessarily focusing on individual statements. As described above, if consumers are unable to assess particular statements they receive, then they must depend on competition to provide them with accurate information. In that respect, domination of the information market or exclusion of alternative viewpoints can be as harmful as individual misrepresentations. There have been moves in the law of false advertising toward a more market-oriented approach. A first step in that direction is taken by those courts that have held that parties may sue for fraud even if the fraudulent statements are made to a third party.20 A typical basis for such a claim is a false statement made by the defendant to a third party and the subsequent communication of that statement to the injured plaintiff. Thirdparty reliance effectively eliminates, or at least significantly loosens, the reliance requirement. These courts are not entirely clear on the required connection between the plaintiff and the third party to whom the 29

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statements were made, requiring only that the false statement result in injury to the plaintiff. Sometimes this approach is applied in a context in which the statement was intended to be passed on to the injured plaintiff, but it has also been applied where the statements at issue were made to a third party that had no particular relationship with the plaintiff. Generally speaking, though, the cases involve direct communications first from the defendant to the third party and then from the third party to the plaintiff. The third-party reliance approach, therefore, is not one based on an understanding of information injected into the market as a whole, but simply adds an intermediate party. A more market-based approach is found in the few false-advertising cases that allow proof that a statement is material based on price disparities. In American Home Products, an FTC administrative law judge accepted an argument that a market-price disparity could show that statements made were material: If the record contained evidence of a significant disparity between the prices of Anacin and plain aspirin, it would form a further basis for a finding of materiality. That is, there is a reason to believe consumers are willing to pay a premium for a product believed to contain a special analgesic ingredient but not for a product whose analgesic is ordinary aspirin.21 This is a true market-based approach, in contrast to the use of consumer surveys to assess the potential for deception. 22 Price is a product of the market, incorporating effects not just attributable to the challenged statement, so this approach, if it were widely adopted, would move the law of false advertising closer to antitrust, at least in this respect. In another context, that of U.S. securities regulation, that is exactly how the law has developed. Under the “fraud on the market” presumption, established by the Supreme Court in Basic Inc. v. Levinson 23 and reaffirmed in 2014 in Halliburton Co. v. Erica P. John Fund, Inc., 24 plaintiffs in a securities fraud action can establish reliance based on a presumption that the price of stock traded in an efficient market incorporates all material public information or misinformation. The Court in Halliburton held that plaintiffs relying on the presumption must show “(1) that the alleged misrepresentations were publicly known, (2) that they were material, (3) that the stock traded in an efficient market, and (4) that the plaintiff traded the stock between the time the misrepresentations were made and when the truth was revealed.” The defendant can, 30

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however, rebut the presumption by showing that there is no link between the misrepresentation and the price or by showing that the plaintiffs would have made the sale or purchase even if they had known that the price was distorted. The effect of the fraud-on-the-market presumption is to decouple the information market and the stock market, or at least the classes of buyers and sellers in them. Some buyers and sellers use public information in the information market to make their sales and purchase decisions, relying on the truth of that information, and those sales and purchase decisions affect the price. Other buyers and sellers then base their sales and purchase decisions on the stock price, and for them other information plays no direct role. The participants in the second market—the market where decisions are based on price—are thus dependent on the effective operation of the first market, where decisions are based on all public information, even if they do not participate in it. It is that first, informational, market whose efficient operation is the subject of the fraud-onthe-market presumption, and it thus makes the law of securities fraud, to that extent, market-based. To some extent, then, we can see a movement in the law from a pure face-to-face view in fraud, first to the prohibition of less direct forms of deception in false advertising and then to an acceptance of market effects sometimes in false advertising and presumptively in securities regulation. But the acceptance of market effects goes only so far as allowing it to be used as proof for materiality or reliance. Claims are still based on allegations of false or misleading statements. False advertising and securities regulation thus occupy an intermediate position between fraud and antitrust law. Like fraud, they focus on individual statements, but like antitrust law, they begin to take a market-oriented perspective. In that respect, turning to antitrust law in the information context is simply the next step in a progression of different forms of regulation of information, with legal remedies evolving along with changes in the way in which information is provided.

“Pure” Information Providers The difficulty of applying consumer protection to today’s information problems can also be emphasized by considering again that consumer-­ protection law typically regulates the provision of information only in connection with a particular product or transaction. 25 There is no cause 31

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of action for fraud in the abstract, but only for fraud in connection with a particular transaction. It is the transaction at issue that provides the reference point for determining whether the challenged statement is false. For example, if a seller makes a statement about a product that it sells, the truth of that statement is assessed by reference to the product. And the remedy for fraud is generally to undo the transaction or to award damages based on the difference in value between the product as it was (falsely) represented and the product as it actually was. The law of false advertising, though it steps back somewhat from individual transactions to a broader perspective, is fundamentally similar. The information issues discussed in this book generally do not match this scenario. The providers discussed here, such as standard-setting organizations, Google, Yelp, and Standard & Poor’s, typically provide only information; they do not sell the products about which they provide the information. Other information providers, like Amazon, may both sell products and provide information about those products, but they often provide the information more broadly, rather than in connection with particular sales. In this respect, as discussed in the Introduction, the provision of information about products is becoming more and more decoupled from the provision of the products themselves, and there is often no specific transaction to which a statement can be connected. This implication of the absence of a direct information-transaction connection is that information is not being used for the immediate ­ ­persuasion of a buyer but is being placed into a broader market of information. More to the point, anticompetitive conduct by a provider whose only product is information is best viewed as taking place in the information market, not in a market for goods whose sales are affected by the information. The collusion and exclusion that are at issue here can be illustrated by drawing an analogy to price-fixing or monopoly pricing. When the member of a price-fixing cartel or a monopolist sells a product at a high price, that transaction causes harm to the buyer who pays the high price, but the high price is not itself the conduct that violates the antitrust laws. 26 Instead, the antitrust violation for a cartel is the agreement on price that made the high price possible, and the violation for a monopolist is the exclusionary conduct that enabled the monopolist to acquire or maintain its power to charge high prices. The high price itself, therefore, is merely the result, or the symptom, of the underlying antitrust violation. 32

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In the same way, although the provision of false or misleading material information by a seller can create a consumer-protection violation, the provision of inaccurate information by a standard-setting organization or a search engine does not itself establish an antitrust violation, even if it harms the recipient. The violation in the case of a standard-­ setting organization would be found in collusion, the agreement to produce the inaccurate information, or perhaps in the agreement on a standard-­setting process without the inclusion of sufficient protections against exploitation of that process to produce low-quality standards. And in the case of a monopolist search engine or travel-review site, the violation would be the conduct that excludes competition in the market for the information provided, because that exclusion would prevent competition from forcing the provider to deliver accurate, or high-quality, information. The point is that high prices or low-quality information can be produced in two ways, one that is transaction-based and one that is market-­ based. False advertising, like consumer protection more generally, is transaction-based, directed at preventing deception in particular transactions. Antitrust violations are market-based, directed at creating market power that gives the seller or sellers the power to charge high prices or provide products of low quality. To be sure, both practices are possible only because of market failures—perfect competition would prevent both. But market problems are merely prerequisites to practices that violate consumer-protection law; they are not the intended result of the practices. In contrast, the information problems discussed in this book are the results of collusion and exclusion intended to create market failures that participants can then exploit. In this respect, the role of information markets becomes critical.

Information Markets Not only does the conduct of the information providers addressed here differ from that of advertisers, so too do the markets in which they operate. That is so because consumers are unlikely to view advertising from the sellers of products as part of the same market as information provided by others. The antitrust test for defining markets asks whether products are “reasonably interchangeable”; if so, they compete in the same market. The problem of defining markets for information is a question that will be taken up in Chapter 3; at this point, it is simply worth 33

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noting some ways in which information from information-only providers appears to be distinct from advertising. It is useful, at least in some circumstances, to think of advertising markets. As one commentator notes, “[g]iven the widespread use of advertising, it is not surprising that economists devote considerable attention to studying advertising in the context of different product markets as well as to studying advertising markets themselves.”27 And there have been antitrust cases involving advertising markets. For example, in Bates v. State Bar of Arizona, 28 two lawyers challenged an Arizona state bar rule that prohibited lawyers from advertising, thus imposing a restraint in the market for lawyer advertising. Although the Supreme Court did not address the antitrust claim because it viewed the rule as one imposed by the state rather than the lawyers themselves, it struck down the rule under the First Amendment as a restriction on speech. And in California Dental Association v. F.T.C., 29 the FTC condemned the way in which a dental association had interpreted its rule prohibiting false or misleading advertising, though the Supreme Court vacated the FTC’s decision on the grounds that the competitive effects of the rule had not been examined fully enough. These cases involved advertising restrictions imposed by professional organizations, not the provision of information by the organizations themselves. Standard-setting by trade associations resembles these advertising restrictions in that it is the product of an agreement within an organization, 30 but it differs because the standard-setting process produces, rather than restricts, information.31 More to the point, the standards produced by standard-setting organizations are a fundamentally different sort of information from the advertising of an organization member.32 As will be discussed further in Chapter 4, it is an essential characteristic of standard-setting that the standards produced are the products of a consensus, or at least the collective action, of multiple sellers. That characteristic distinguishes them from the advertising of individual sellers. The Supreme Court recognized this difference in Allied Tube & Conduit Corp. v. Indian Head, Inc., 33 where the defendant, a member of the standard-setting organization, had exploited the organization’s process to give its own product an advantage: “[Defendant] did not confine itself to efforts to persuade an independent decisionmaker; rather, it organized and orchestrated the actual exercise of the Association’s decisionmaking authority in setting a standard.”34 This “authority” is what distinguishes standards from other infor­ 34

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mation. In the passage quoted in the introduction to this part of the book, George Stigler drew an analogy between authority and monopoly power, and it is this authority​/power that standard-setting organizations have and that individual sellers cannot match. It is not only that organizations present collective views, but also that “consumers take information that is provided through advertisements with a ‘grain of salt.’”35 Therefore, standards and advertising are not likely to be viewed by consumers as reasonably interchangeable information. For that reason, the focus of antitrust law in the standard-setting context is rightly on the process by which the organization reaches agreement—or gains authority. In other words, the focus is on the process by which the different views of individual organization members—potential independent information sources that would otherwise compete in the relevant information market, perhaps through advertising—are merged to create a new, more authoritative information provider, and perhaps a new information market. Information from providers like Google, Yelp, and Standard & Poor’s is distinct from advertising in a different way. Search engines like Google and Bing, for example, operate and compete in a market for search results. They do not provide their search results to sell other products; instead, the search results themselves are their products, and they each seek to be the favored provider of those results to consumers. Google has market shares as high as 90 percent in Europe and 60–70 percent in the United States in what is routinely referred to as the “search engine market.” Moreover, it is telling that the firms that have brought antitrust claims and complaints against Google have been competing search engine providers, not advertisers, suggesting that search engines and advertising serve different functions and do not compete in the same market. This point can be emphasized by comparing the lawsuits against Google to those that have been brought against traditional third-party information providers that are, in some respects, similar. Although suits brought against, for example, Consumer Reports have not typically made claims of false advertising (because the magazine does not compete against the sellers of the products it reviews), they have made somewhat similar claims of defamation or product disparagement, as when Bose Corporation challenged a review of its loudspeakers.36 It might therefore be thought that providers like Google and Yelp could be regulated through similar means. That seems unlikely, though. Consumer Reports provides two different types of information in its reviews, textual 35

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descriptions and product rankings. In Bose Corp. v. Consumers Union of United States, which ultimately went to the Supreme Court, Bose challenged specific statements in the textual description that it alleged were false.37 It did not challenge the magazine’s rating of its speakers visà-vis other speakers, and it is not clear that it could have done so because it is not clear that the rating could have been said to be “false.” Yet it is this sort of comparative information that is the product of many new information providers, particularly on the Internet. Many providers, like Google, Yelp, and Amazon, provide rankings or comparative star ratings or similar information on multiple sellers. Moreover, the information on which such ratings are based often comes not from providers like Yelp or Amazon but from their users. That this comparative information is very different from advertising or other information that can be characterized as “false” suggests, again, that consumer protection is not the proper means for regulating it. More importantly, it suggests that we need to be careful to distinguish among the roles information plays. Different types of information may be treated differently by consumers, and althoughtruth is important for some types of information, market power may play the more important role for other information.

Information and Access To make these points more concrete, consider the difference between the way one shopped ten or twenty years ago and the way one shops now. Twenty years ago, someone shopping for a typical consumer good, such as a refrigerator or a television, would have found information about the quality of the choices by consulting with friends, perhaps by looking up reviews in Consumer Reports or specialized magazines, and by going to stores to see the goods and talk with salespeople. For price information, the shopper might have asked friends, looked at newspaper ads, or telephoned stores; there was generally no single source where consumers could find price information from multiple sellers. Thus, for each aspect of the goods—quality and price—the shopper would likely have consulted multiple sources of information, and no single source would have had sufficient power to implicate antitrust law or to be essential for sellers to gain access to the market. Much has changed. Now, although a shopper could perhaps use the same techniques that were available twenty years ago, he or she might 36

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instead simply go to Google or Amazon, where both comparative price information and online reviews of product quality are available. A 2012 report found that 89 percent of consumers used Internet search engines to make their purchasing decisions, and in many countries (though not yet the United States at that time), the Internet was more influential in such decisions than were family and friends.38 The ability to use just one source of information is obviously a great time-saver for shoppers, but it also concentrates considerable power in that source. Although some consumers may continue to use multiple sources of information, many will not. Therefore, the products that Google or Amazon list with the lowest prices, or the products with the best reviews, are quite likely to be purchased more often than are other products. Moreover, shoppers are likely to assume that the information providers are presenting product information evenhandedly since the providers often have no direct financial interest in the products themselves.39 As a result, shoppers may look only to that single source, making information providers like Google and Amazon critically important gatekeepers in their information markets.40 This gatekeeper function reinforces the antitrust element. For example, suppose that Google, as the European Commission alleges, manipulates its search results to give its own shopping services an advantage. Or suppose comparison websites present only, or present more prominently, information from sellers that pay to be presented in that way. These practices have a greater resemblance to payments—called “slotting allowances”—for the placement of consumer goods on store shelves than to the advertising of consumer goods. Advertising can be true or false, but placement on store shelves is simply better or worse. And better or worse access to consumers can be an antitrust problem when “worse” becomes “exclusionary.” For that reason, shelf placement and similar practices have been subjects of antitrust scrutiny.41 They are not, however, subjects of consumer-protection law. The access problem is illustrated in particularly dramatic form by a recent case brought by several business owners against Yelp.42 The plaintiffs in that case alleged that Yelp engaged in extortion by removing and threatening to remove positive reviews from its site unless the business owners purchased advertising from Yelp. The court rejected the claims, stating that the business owners had no right to have positive reviews appear on Yelp: “By withholding the benefit of these positive reviews, Yelp is withholding a benefit that Yelp makes possible and maintains. It 37

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has no obligation to do so, however.”43 This conclusion fails to capture the role played by Yelp and other information sources in the economy. Although the court may be correct that the business owners had no general rights to appear on Yelp, we are all entitled to the benefits of competition. Therefore, to the extent that Yelp’s conduct injured competition, antitrust law should provide a remedy. The business owners in fact alleged harm to competition, but the court said that their “very general allegation” was not sufficient. The remaining chapters in this book seek to explain when and how antitrust law can remedy informational harms to competition.

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2 The Economics of Information

B

e cau s e a n t i t r u s t l aw r e l ie s to a large extent on economics, any effort to develop an antitrust analysis for information must take into account the distinctive economic characteristics of information. This chapter outlines several of these characteristics. The goal is not to be exhaustive but only to point out some characteristics of information goods that are particularly relevant to antitrust law.1 More particularly, the focus will be on information goods that provide information about other products and thus can affect competition in the markets for those other products. Those goods include, among others, product and restaurant reviews, standards and certifications, and some search-engine results. These sorts of goods are the primary source of the competitive problems discussed in this book. There are other sorts of information goods, of course, but many of them do not pose novel problems for competition. Information goods like novels, newspaper editorial content, music, and television programs are similar in many respects to many noninformational goods. The value of these goods comes primarily from consumption. That is, a consumer enjoys a novel or a music CD in much the same way that the consumer enjoys a baseball game or a meal. Although consumption of these goods may sometimes change the views of those who consume them, and may even change the consumer’s demand for other goods, as when a novel leads its reader to purchase other books by the same author or in the same genre, that is neither their primary purpose nor their primary

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effect. These information goods therefore are not typically the source of distinctive antitrust claims. 2 In contrast, the goods that are the focus of this book have several characteristics that distinguish them from tangible goods and services. First, like other information goods their cost structure differs from that of many other goods in a way that leads them to be provided in concentrated markets, making competition problems more likely. There are, for example, only a few general-purpose search engines and review sites, and there is often only one standard or certification in a particular market. Second, the cost structure of information often leads the goods to be provided at very low prices, or even for free. As either a result or the cause of the low prices, providers make money in some other, related, market. Most often, that second market, particularly for online information providers, is advertising, which can lead to problematic incentives for the providers. Finally, some information is difficult for consumers to evaluate, which is why they are seeking that information in the first place. These last two factors can make competition among providers less effective because neither price nor quality will serve as an effective source of competition. None of this is to say that competition cannot work well with these sorts of information goods. The key point is that it works differently. And, in fact, economics has offered some analytical approaches to product quality that are focused on the nature of information available about products. Those approaches will also be discussed in this chapter, and they may offer fruitful approaches to the problems of competition in information goods. But the competition problems that arise with information about other products derive from the abilities and incentives of information providers to reduce the quality of the information they provide. More specifically, the concern is that providers will use information to steer consumers to purchases that they would not otherwise make.3 Indeed, the economic characteristics of information may make that approach the information provider’s most likely path to profitability.

High Fixed Costs, Low Variable Costs The most important economic characteristic of information is its combination of low marginal costs with relatively greater fixed costs. As Carl Shapiro and Hal Varian say, “[i]nformation is costly to produce but cheap to reproduce.”4 That is, the fixed costs of initially producing or 40

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acquiring information can be high, but the marginal costs of each distribution of that information are generally low. For example, the costs of producing a music recording or a search-engine algorithm are considerable, but the costs of producing an additional CD or responding to an additional search query are quite low, once the music file or algorithm exists. In contrast, the costs of producing, say, an additional automobile or restaurant meal are not so dramatically low in comparison to the design of the car or the establishment of a restaurant. Information’s cost structure poses problems for traditional approaches in antitrust law. Generally speaking, antitrust law assumes that markets work by forcing price to marginal cost (which, in economic terms, includes a reasonable profit).5 This approach is a reasonable one when marginal costs are more significant than fixed costs, as is the case for many services and manufactured goods, but it is unsatisfactory when fixed costs are more important, as with information. We expect the price of a meal to approximate the cost of producing it, but we do not expect the cost of a CD to approximate the (very small) costs of producing the CD because the fixed costs of artist contracts and recording must be recovered. When marginal costs are low and fixed costs are significant, the seller must recoup the fixed costs in some way. There are two basic approaches: either to directly charge more than marginal cost for the information product or to use the information product to gain profits elsewhere.6 Either approach creates challenges for antitrust law. With regard to the first approach, Shapiro and Varian advise information producers that “[y]ou must price your information goods according to consumer value, not according to your production cost.”7 They go on to say that “value-based pricing leads naturally to differential pricing,” or price discrimination.8 With price discrimination, a seller seeks to charge each consumer the particular value that he or she places on the good, rather than charging the same price to all. Generally speaking, the seller cannot fully achieve this goal, but a seller can often charge different prices to different classes of consumers.9 There are many examples of this sort of price discrimination: higher prices for hardcover books than for paperback ones, movie discounts for seniors, etc. Even beyond information goods, this kind of pricing is more common when the product or service at issue has relatively low marginal costs, as in air transportation, where the cost of carrying an additional airplane passenger is very low and those who purchase tickets later often pay more than those who purchase earlier. In each case, the goal is to recoup fixed costs, such as 41

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book or movie production or the cost of buying, servicing, and fueling an airplane. Selling on the Internet often provides information that makes price discrimination quite easy. This issue will be taken up in more detail in Chapter 7, which addresses the use of consumers’ personal information, but the problem is outlined briefly here. Internet sellers can discriminate based on many factors, including geographic location, the user’s computer type, or the user’s web browser, all of which online sellers can determine for most users and use in setting prices. For example, the Financial Times discriminates on both bases, and Amazon, Dell, Staples, and other sellers have also reportedly discriminated in online transactions.10 The amount of information, including information about browsing history, that is available to sellers is considerable. Yet price discrimination, at least when it is not transparent, is controversial. For the most part, consumers appear to believe that they are entitled to pay no more than their fellow consumers. Amazon’s experiment with price discrimination, for example, created sufficient uproar to result in a pledge from the company not to price-discriminate again.11 Moreover, although pricing a good at its value to individual consumers is an attractive business strategy, it is not necessarily the result sought by antitrust law. Ideally, producers would provide goods at the lowest prices at which they would find it worthwhile to produce them. To the extent producers are able to use price discrimination to produce greater profits, i.e., recover more than their total costs, the practice is arguably anticompetitive. The problem is that without any baseline for the “correct” price, such as the baseline that marginal cost provides for typical products, it is difficult to determine whether prices are too high. That is especially so for sellers with market power, which would likely not price at marginal cost even in the absence of price discrimination. It is often argued that price discrimination allows sellers to raise price to some consumers while lowering prices to others, making the overall effect on consumer welfare unclear, and possibly beneficial. But there is no particular reason to think that sellers will price-discriminate in the most socially beneficial way, rather than in the way that produces the greatest profits for themselves. Fundamentally, the cost structure of information goods greatly reduces the value of antitrust law’s usual focus on price, suggesting the need for a different approach, one that focuses more directly on the competitive effects of challenged conduct. Focusing on these effects is 42

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especially important in that providers have both the incentive and the capacity to exclude competitors in markets with this sort of cost structure. The incentive is considerable, particularly in the early stages of a market, because the need to recoup fixed costs means companies have much to gain by excluding competition that could drive prices down. And later, after the fixed costs of establishing the means of production have been incurred, the information can often be provided at a very low unit cost, as described above. As a result, it may be easy for an established firm, after recouping its fixed costs, to undercut the prices of a newcomer, which then will find it difficult to recoup those costs itself. In this way, a market for the production of information may become less contestable as it develops, making the effectiveness of antitrust law all the more important.

Information Quality Discrimination Price discrimination is fundamentally informational. Sellers must be able to identify the relevant characteristics of their buyers in order to choose what prices to charge them. So, for example, sellers use buyers’ identification cards to determine which buyers receive senior citizen discounts. Price discrimination by sellers like Amazon, Staples, and the Financial Times is similarly straightforward, at least conceptually. When such sellers have access to information about their customers, they can simply set the price that they expect those customers will be willing to pay. One key difference, though, is that the information sellers gather may or may not be accurate, and may or may not be under the control of the buyers. Many instances of online price discrimination can be avoided if the consumer is aware of them and makes some effort to deny sellers information on which they rely in determining prices.12 This is simply a translation to the online world of the time-honored strategy of dressing down when one goes shopping for an expensive item like a car. Although price discrimination always has this informational element, when the product itself is informational, and particularly when it is free, the situation is more complicated. In Internet commerce, sellers not only discriminate using information about buyers, but they also discriminate by providing different information—in the form, for example, of different displayed prices—to different buyers. This was the case for several of the firms discussed above, like Staples, which based the prices shown to buyers on the buyers’ geographic locations or other characteristics. 43

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Because buyers prefer lower prices, one could view the display of higher prices to some buyers than to others as discrimination in the quality of information provided to those buyers. In that sense, this sort of discrimination provides low quality to some consumers just as the more common version of price discrimination charges them high prices. But, despite the informational aspect of price discrimination, it still seems natural to think of it as price discrimination when the seller that provides the price also provides the product at issue. The issue becomes more problematic, however, when price information about a product is not provided by the seller of that product. For example, a well-publicized report showed that Orbitz displayed higher-­ priced hotels to users of Apple computers than to users of Windowsbased computers.13 Why would Orbitz show higher-priced hotels to certain users? It might do so because Apple users prefer better hotels, or it might do so because Apple users are willing to pay more for accommodations, independent of quality. More generally, price-comparison platforms like Orbitz might engage in such practices to benefit a particular advertiser. Or they might do so to benefit all their advertisers if, for example, they believed that buyers in a particular area were willing to pay more and therefore displayed higher prices in those areas.14 The EU study of comparison websites described in the Introduction and an increasing number of reports suggest that such practices may be quite common.15 Is this sort of delivery of different prices to different shoppers price discrimination? It seems more natural to think of it as quality discrimination, with those who receive information that shows higher prices ­receiving lower-quality information. That is especially so if the price information itself is provided for free, as it is by Orbitz and other websites that have been found to engage in this practice. The usual price-­ discrimination scenario involves a seller that delivers the same good for different prices to different customers. That does not, however, describe the conduct of Orbitz, which is instead delivering different information for the same price (free) to different buyers, even where those buyers have all made the same request. Under these circumstances, it is more accurate to say that Orbitz is engaging in information-quality discrimination rather than price discrimination. The practice of discrimination through the provision of different information, rather than through the charging of different prices, illustrates the importance of treating information itself as a product worthy of antitrust attention. And the centrality of information is even more 44

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evident when the practice is used by firms like Orbitz or Google that provide only information.16 To the extent that such information providers are constrained in their ability to provide low-quality information, the constraint presumably derives from competition from other information providers. As a Google white paper says, “[i]f users do find Google’s results to be unreliably skewed, Google will be punished by the marketplace, as frustrated users shift to other easily available search engines.”17 That is only so, of course, if the marketplace functions well enough to provide effective competition, and it is antitrust law’s role to ensure that it does so.

Two-Sided Markets Marketplaces for information can be atypical marketplaces, though. The second way suggested above for recouping the fixed costs of producing an information product is to use the product in a way that allows profits in some other market. This is a common practice in information markets. As just described, providers like television networks and Internet search engines operate in markets with two sets of customers, the viewers or users whom they attract by providing information for free and the advertisers that pay to reach those viewers and users. Markets like this, with two different customer groups, are called “two-sided markets.” As Rochet and Tirole define them, two-sided markets are intermediary platforms that “enable interactions between end-users, and try to get the two (or multiple) sides ‘on board’ by appropriately charging each side.”18 Thus, in two-sided markets, the price, quality, and output relationships for the two sides are interrelated. The goal, of course, is to maximize total profits from both sides, but that may require taking a loss on one side in order to attract enough customers to make the platform attractive to the other side. So, for example, offering attractive television programming or useful search results for free will deliver viewers or searchers that advertisers will pay to reach. But the ideal balance may be difficult to determine. The two-sided platform must determine how much to spend to attract customers for the free service based on the expected profits that will result in the market for the paid service. Economists have explored this issue, but it is more complicated than the standard supply-and-demand model for a single market.19 Many online information providers operate in such two-sided markets, 45

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with information seekers on one side and advertisers on the other. More­ over, as the EU study on comparison sites described, price-comparison sites often do not provide information on payments they receive from advertisers or other websites. Many such sites are presumably compensated by advertisers on a percentage-of-resulting-sales basis or on some other basis that is dependent, at least in part, on the prices of goods sold. In such circumstances, differential “informing” can function much like differential pricing. An information provider can provide different information to individual consumers to extract as much value as possible from each consumer, limited only by the consumers’ access to and use of alternative providers of information. In this respect, the lack of effective informational competition can allow exploitation of consumers in the same way as does a lack of effective product-market competition. These issues of information quality have not been well explored in the economic models of two-sided markets.20 A two-sided television market is very different from a two-sided Internet search market. Generally speaking, television viewers are not watching programming that provides the same sorts of information that appears in television advertisements. In contrast, those who use Internet search engines to get information about products or services will usually be presented with advertisements that present similar information. In other words, the products of Internet search engines or price-comparison sites compete with the advertising from which they make their profits, while television programs do not compete with television advertisements (except in the sense that viewers often prefer more programming and less advertising). The implication here is that television providers have no incentive to provide less, or lower-quality, information in their programs in order to drive viewers to watch more advertisements. With Internet search, though, very accurate and complete information in search results could substitute for the advertising that the search engines also display, and thus reduce the frequency with which searchers click on the advertising.21 And it is essential to remember that search engines and price-­ comparison sites choose what to display, at least in the sense that they make choices regarding the programming algorithms that determine what appears before the user. Google, for example, says that it makes hundreds of changes annually to its algorithms. 22 It says that these changes are made to improve the results delivered to users, but what exactly Google considers an “improvement” is not clear. As Frank Pasquale has discussed at length in his book The Black Box Society, 23 and as will 46

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be discussed in more detail in Chapter 3, the content and goals of Google’s algorithms are almost entirely unknown outside Google. Indeed, several of Google’s well-publicized algorithm updates could have had the effect of making its searches less useful vis-à-vis its advertising. For example, the 2009 “Vince” update is said to have moved big brands up in Google’s organic search results. 24 That could force smaller brands to purchase more advertising on Google since they are more likely to rely on Google than are better-known brands. 25 Another possibility is the 2010 “Mayday” update, which caused some sites that appeared in response to “long-tail” searches, i.e., searches with many keywords, to appear lower in Google’s results. 26 That made it harder for websites that sought to design their websites for such searches to reach consumers. Whether that is good or bad for consumers is not clear, and the view of Google was that such sites are often of low quality, but an effect could have been to drive such sites to Google advertising. 27 This issue is related to, but distinct from, the long-noted problem of product reviews in publications that rely on advertising from the sellers of the products they are reviewing.28 Typical examples are automotive magazines and online reviewers of technological products. Such publications have an incentive (though, like Google, they do not necessarily succumb to it) to avoid being too critical in their reviews so they can avoid offending their advertisers. In that sense, their editorial content could cause harm in their advertising sales, but only indirectly, if advertisers decided not to purchase advertising. The reviews would not directly take away advertising revenue by providing information that competes directly with the advertising, thereby drawing readers from the advertising to the editorial content. Yet that is exactly what can happen with search engines and other online information providers, since the advertising and editorial content are often direct competitors, providing the same sort of information. The upshot of this point is that some information providers, such as search engines, can have incentives to provide less valuable information to their customers so they can drive those customers to the advertising on their sites. Unlike advertising in most other media, which is paid for up-front at rates that are independent of the number of actual viewers, much Internet advertising, such as AdWords on Google, is provided for payments based on the number of persons who click on it. Thus, if the “editorial” information provided on the site—like the “organic” search results on Google—lessens the need for users to click on advertising, 47

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then the search site has competed away its own profits. Moreover, in this context, the interests of the two sides of the platform may differ, with consumers seeking valuable information in Google’s organic results and advertisers paying for users to view their advertising.

Information Quality in Two-Sided Markets Some economists argue that the interrelationships between the two sides of two-sided markets make it inappropriate to consider either side in isolation. 29 For example, in such a market, the platform, like a television network or a search engine, might be charging high prices to advertisers, but those prices would not necessarily show that competition is not working. Instead, those high prices might be necessary to pay for fixed costs of the programming or search engine that attracts viewers or users. Conversely, if the platform is providing a service to one user group for free, as broadcasters and Google do, it might be doing so to attract enough users to charge a higher price to advertisers; the zero price does not show that the platform lacks power or that it is engaging in illegal below-cost pricing. This interaction between the two sides of the market makes analysis difficult in many information markets. On the other hand, it is not clear that we should never consider price-quality relationships on one side of the market in isolation. The view that both sides of the two-sided market must be considered together reflects the view that we cannot fully understand the economic perspective of the platform without doing so. Certainly it is important to consider the effects on the platform, but it is also important to consider effects on the platform’s customers on each side. If conduct of the platform causes competitive injury to, say, users of a search engine, it is not clear that any effects, even benefits, on the other side of the market, to advertisers, should be allowed to balance that injury.30 The law, not economics, should determine this issue.31 Arguments to the contrary often simply point out the interaction between the two sides of the markets and state conclusorily that the markets therefore cannot be considered alone. The relevant interaction, though, is the potential loss of users, and possible consequent loss of advertising revenue, that could result from making search results less useful. This possible loss of users takes place on the user side of the market, so as long as that effect is considered, at least qualitatively, it is not

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clear why the user side of the market cannot be considered as significant in itself. That is particularly so in that the work that argues otherwise, some of which is Google-supported, often does not explain precisely how both sides should be considered in the analysis. 32 As a result, the argument for not considering one side alone really becomes an argument for not considering these cases under antitrust law at all. The information-quality discussion above suggests how one-sided harm can occur in a two-sided market. Suppose a shopping platform purports to deliver useful pricing information to shoppers for free and is supported by advertising of the firms that sell the products about which the platform delivers pricing information. If the platform were to display prices that were higher than those actually available for certain products, perhaps in exchange for direct payments or more business from its advertisers, that would cause harm to shoppers. It would be a failure of competition in two ways: first, because such presentation of high prices presumably could not occur in a market in which the shopping platform faced effective competition for its services, and, second, because the platform itself would be creating a forum for distorted price competition among the products for which the platform provides information. This sort of presentation of high prices to shoppers would be especially dangerous if the platform presented high prices only to certain customers and lower prices to others, as is in fact the case in some instances. For example, some such platforms deliver higher prices to their regular customers or members than to others, presumably because they believe that their regular customers are less likely to also be visiting other sites where they might see lower prices. Even if it were true that the platform engaged in this conduct to make greater profits from its advertisers and thus be better able to subsidize the shopper side of the platform, it seems appropriate to view the harm to shoppers as worthy of legal recourse. Moreover, this example illustrates how information discrimination can pose a greater threat to competition than does price discrimination. Often, price discrimination is merely one seller’s short-term exploitation of power. Sellers sometimes use price discrimination to injure competition, as when they charge low prices, and in particular below-cost prices, where they face competition and high prices where they do not. But there the harm is really a product of the below-cost pricing, not of the difference in prices. Injury to competition can also result when suppliers give

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favored dealers lower prices than other dealers, thereby injuring competition at the “secondary-line” dealer level. This latter scenario is akin to the platform example just presented. Just as lower prices charged to a dealer can give the dealer an advantage over its competitors, giving customers better information about one product rather than another can injure competition between the sellers of those products. Furthermore, it may be difficult for sellers​/advertisers to respond to this form of consumer harm. In the usual price-discrimination situation, even a seller disadvantaged by a competitor’s effort to charge their shared customers lower prices can respond with its own lower prices. 33 But suppose a higher-cost, and therefore higher-priced, seller that advertised on a platform paid the platform to present information about its lower-­ priced competitors with higher prices (or not at all). The competitors might find it difficult to detect this sort of informational discrimination, particularly if the higher prices were shown only to some customers, and to respond to it, they would need to persuade the platform to change its information-delivery practices. Perhaps the platform would be willing to do so, but it would probably require a payment similar to that which was provided by the original seller.

Organic and Sponsored Information To make these concerns more concrete, consider the information on the facing page. A Google search on February 13, 2016, for “best price ge refrigerator PSE25KSHSS” returned the results shown in the screenshot at the top of the page after clicking on the “View all sellers and prices” link in the “Sponsored” box.34 (Note that I do not intend to single out Google here. It is not clear to what extent Google or other search engines engage in the practices discussed. The point is simply that they could, and if they did, the conduct would have competitive implications.) At the bottom of the facing page is a table of the prices that could be seen on that day by clicking on the organic—i.e., nonadvertising—­ results in the first page of the search that produced the screenshot. Although these prices are visible in the screenshot for some of the o ­ rganic results, they are not visible for all of them. (Note that this table includes results for websites that cannot be seen in the figure, because to see some of these results, it was necessary to scroll down on the page of results.)

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Figure 1.  Google Search Results for “best price ge refrigerator PSE25KSHSS.” (Source: Author search, February 13, 2016. Google and the Google logo are registered trademarks of Google, Inc., used with permission.)

Web Site Price www.homedepot.com $1799.10 www.bestbuy.com no price listed (“Reg. $1999.99”) www.amazon.com $2002.45 (third-party seller) products.geappliances.com $2000.00 (msrp) www.brandsmartusa.com $1999.00 www.designerappliances.com $1793.70 www.us-appliance.com $1793.10 (with claim of lower price in cart) www.ajmadison.com $1793.10 www.sears.com $1799.99 www.searsoutlet.com no price listed (“List Price $1999.99”) Table 1.  Prices shown on websites in first page of Google Search Results above. (Source: Author search, February 13, 2016.)

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The starting point for considering this information is what users want: users who enter the search query “best price ge refrigerator PSE25KSHSS” likely are looking for exactly that information. Moreover, Google presumably has access to all the information shown in the screenshot, including the information in the “sponsored” results.35 Yet Google does not display the lowest-priced sites at the top of its organic results. It is not even clear that all low-price information is displayed at all because the “sponsored” results are those for which sellers have paid, and perhaps there are sites with lower prices that have not chosen to pay to appear in the “sponsored” results. So it appears that the top organic results for a search for best prices on a particular good do not necessarily include sites with the best prices for that good and that to see those best prices, or some of them, one must look in the box of “sponsored,” i.e., paid-for, advertisements.36 Of course, one could argue that the price information requested, or some of it, is easily available in the sponsored results. But that is exactly the point. It is because the information is available in the sponsored results—or, more precisely, because sellers will pay to have their information appear there—that Google and other search engines have an incentive to keep their organic results from being too useful. Drawing again on the television analogy, if a television program displayed particular products in its program material, there would be little reason for the sellers of those products to purchase advertising slots for that program. Of course, displaying a particular product in the program material might increase the incentive for other sellers to purchase advertising for the program. In the end, it is not clear how the incentives for either platforms or sellers balance out, but the point is that the incentives may not lead consumers to be delivered the most useful information available. Thus, it is in some sense not surprising that Google might not display the best information it has available to it, but it is important not to exaggerate the significance of this point. There may be other reasons why some of the lower-priced sites are not at the top of the organic results. For example, perhaps Home Depot and Best Buy are viewed by Google as more likely to be preferred by users, so it displays them at the top of the results. But some of the other sites, such as www.brandsmartusa.com and www.abt.com, in fact get higher star ratings in the Google organic results. Moreover, it also appears from the sponsored results that the prices of Home Depot and Best Buy do not include tax, unlike those of many of the other sites. Given that the search was for the “best price,” it 52

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seems likely that users would want that consideration to be taken into account. Also, Lowe’s does not appear until the second page of the organic listings, even though its price is nearly identical (even very slightly less) than Home Depot’s. Although Lowe’s might not be as wellthought-of by consumers as Home Depot, the difference is unlikely to be dramatic, and it seems particularly unlikely that the difference would be significant enough to push it to the second page of listings. Another obvious difference between the two sellers, though, is that Lowe’s apparently has not paid, or bid highly enough, to appear in the sponsored listings. What of Amazon? Why does Amazon appear higher in the organic listings when the relevant price is higher than the price at other sites that are displayed further down in the results? That question is especially significant because even if Amazon itself is a favorite site of consumers, the actual seller on the page listed is not Amazon but another seller using its platform. It is impossible to answer this question without further information, but of course one can imagine possibilities, even Machiavellian ones. Suppose, for example, that Google perceives Amazon as a threat. Would it be an effective strategy to display prominently Amazon links that point to a high-priced alternative when users are searching for low prices? That is, would that lead consumers to use Amazon less? Or perhaps the explanation is more simple: maybe Amazon usually provides low prices, so that Google’s algorithm has learned to display an Amazon link, even though in this instance the price is relatively high. The point here is not to suggest that Google or any other search engine in fact is doing something nefarious, only that it is possible they could. As Pasquale points out, because search engines are “black boxes,” there is no way for outsiders to know what criteria these engines are applying in choosing what to display. More generally, if a good is provided for free to users, so that users may not be as critical as they would otherwise be, it is possible that a platform could make its free content less desirable—of lower quality—as a way to push users to its paid content.37 Even if users of a search engine receive search results for free, it is not necessarily the case that we must view the search results as worth the (zero) price. After all, if there are lower prices available than are displayed, then the limited results are causing users who make purchases at higher prices to lose money. In that respect, even “free” is too much, at least if higher-quality alternatives are available, perhaps also for free. And the same is true even if users could get better information by 53

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clicking on the links to advertised sites. Receiving poor-quality information on the nominally objective portion of a site and better-quality information from advertising on that site is less desirable than receiving high-quality information from the objective portion, if for no other reason than that a user is likely to be somewhat skeptical of advertising. To be sure, it is not clear that Google has any obligation to provide the best search results that it could provide. Yet Google’s practices here might injure consumers, at least as compared with what Google could provide them if it chose. And the reason for the practices may be greater profits for Google (and, presumably, its advertisers). Moreover, consumers may not be aware whether Google engages in these practices, so there is some degree to which competition is ineffective. It therefore seems reasonable to approach the user side of this two-sided market on its own. As suggested above, this is not an economic question so much as it is a legal one: despite the interdependence between the two sides of a twosided market, the law might take the position that limits should be placed on subsidization of one side of the market by the other. 38 That, however, would likely require a greater focus on information quality than antitrust law has generally shown.

Search, Experience, and Credence Goods One might ask why competition cannot be counted on to ensure that information providers provide their customers with high-quality information. One key reason is that the quality of information may be more difficult for consumers to evaluate than is the quality of other goods. Economics has developed some distinctive categories for describing the informational elements of consumers’ evaluations of product quality. Specifically, economists have divided goods into three types with respect to the means by which consumers can evaluate the quality of the goods. Search goods are those whose quality can be evaluated before the good is purchased, often by searching for evaluations and reviews.39 Experience goods are those that are difficult to evaluate before purchase, but that can be evaluated as they are used, or experienced.40 And credence goods are those that are difficult for consumers to evaluate even after they are used.41 Thus, a painting would likely be a search good, a restaurant meal would typically be an experience good, and a vitamin supplement might be a credence good. This taxonomy is important for information goods in two ways. 54

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First, the distinctions among the three types are based on differences regarding when (or if) information about the good is available. Second, and perhaps more important, information itself will often be a credence good, the type that presents the most problems for a well-functioning market. Rarely will information about other goods be a classic search good, because one will not often be able to find, before gathering the information, any assessment of its quality. That is, if one were seeking, for example, price information about a particular appliance, there is generally no place to turn for assessments of the quality of that price information available from different sources. There is surprisingly little information, for example, on the relative quality of various search engines, either generally or with respect to particular types of searches,42 and the recent EU study on price-comparison web-sites revealed how little is known about the quality of such sites.43 Some information will be an experience good. Consider, for example, the search discussed above, for the best price on an appliance. In theory, at least, a searcher upon receiving the organic search results in response to that query could compare the prices there with those in Google’s sponsored results, those from other search engines, and those from other information sources. That is, upon acquisition of the information, but only upon its acquisition, a consumer could assess its quality, which is the defining characteristic of an experience good.44 In fact, however, in these circumstances one might also treat the information as a search good. Although the good (i.e., the price information) cannot be assessed without acquiring it by performing the search, one can assess it before using it, to make a purchase, for example. Because the information itself may be free and the investment of making the search is relatively small, one could view price information that can be evaluated in this way as a search good.45 For some searches, though, and these are the ones of most interest here, one may not know—even after performing the search—whether the quality of the results was high. As described in the Introduction, for example, the reviews provided by TripAdvisor may not be well-­controlled for fraud. And there have been allegations that Yelp will remove positive reviews of businesses that do not purchase advertising on Yelp.46 These latter allegations have not been proved, but the point is that if Yelp or another site did engage in such conduct, users surely would not know. Generally speaking, there is no way for users to assess whether an individual review is valid or whether the mix of reviews is the “correct” mix. 55

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Although a site that believed it was disadvantaged by poor-quality reviews could seek to publicize the issue, that would only lead users to trust the site less—it would not give them the ability to assess the accuracy of particular results. In that sense, many review sites and search engines, and in fact information providers more generally, as will be discussed later, can be providers of credence goods. This problem is greater for information about the sorts of qualitative characteristics that are often addressed by consumer reviews. Such reviews themselves can be unreliable, and drawing inferences from numerous reviews raises additional problems. But even for more straightforward searches, like those for prices, it can be difficult to tell whether the best information was provided. Even if one’s search includes the lowest price one can reasonably find, the possibility that a lower price is available is always present. Of course, the same problem exists for the information providers themselves. They cannot be expected to find and deliver every piece of relevant information. But the point is not to suggest that these problems derive from misconduct or even negligence. The point is simply that it is difficult for anyone—consumer or producer—to know if much information of this kind is accurate. If it is difficult, or even impossible, for consumers to evaluate the quality of the good they are receiving, it is difficult for them to decide how much to pay for it or whether to rely on it.47 As a result, there may be considerable opportunity for sellers to provide low-quality goods. Doing so injures consumers, but in an entirely different way than traditional anticompetitive conduct does. In a typical antitrust analysis, the key question is whether a seller has the freedom to charge higher-than-competitive prices, or if competitors would respond by offering more competitively priced goods to consumers. There is typically no question about whether consumers would switch to lower-priced goods, because prices are generally transparent. When sellers compete on quality, however, and consumers cannot evaluate quality, competition may not be a viable response. Instead, the problem is that even if competitors offer alternatives, consumers may not know which alternative is preferable. As will be discussed in more detail in the next chapter, this is the flaw in Google’s “Competition is a one click away” mantra. Google is correct that it is easy for consumers to switch to another search engine, but it fails to acknowledge that consumers may lack the information to know whether switching is a good idea, i.e., whether it will give them access to better information. This is exactly the problem not only with Google 56

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and other search sites, but also with many other information goods. Of course, consumers could do some comparisons between the results given them by Google and, say, Bing, or by other competing websites. But they would need to be careful in doing so. As discussed in Chapter 8, websites can use the detailed information they have on users to deliver different information to different users, or to the same users at different times. A website might, then, deliver good information when it sees that users have also recently visited a competing site, but less-good information when there is no evidence of such comparison shopping.

Reputation and Information Providers It is sometimes said that information providers would not distort the information they provide because they would suffer reputational harms that would make such distortion unprofitable. Fraud is an age-old practice, though, and for a number of the informational practices discussed in this book, there is no dispute about whether the parties engaged in the information distortion at issue. Members of the British Bankers’ Association pled guilty to manipulating the LIBOR benchmark interest rate, Standard & Poor’s (S&P) acknowledged that it had downgraded securities “because of concern that S&P’s rating business would be negatively affected,”48 and false reviews are posted on TripAdvisor and Yelp. Whether search engines like Google manipulate information is not publicly known because they are quintessential examples of Pasquale’s “black boxes,” which makes it impossible to tell whether they are constrained to provide high-quality information because of concerns about their reputations. It is quite clear, though, that without such knowledge, reputational constraints cannot work well. Tellingly, the S&P statement just quoted suggests that economic incentives, far from constraining the distortion of information, may, at least in some cases, drive it. This possibility is supported by two recent studies, one studying false restaurant reviews on Yelp and another comparing hotel reviews at Expedia and TripAdvisor.49 Yelp filters about 16 percent of its reviews as fraudulent, and those fraudulent reviews are more often very positive or very negative. The Yelp study sought to assess whether these reviews were posted because of economic incentives— competition—or were motivated by some other reason, or even for no reason. The study found that restaurants with worse or less-established reputations were more likely to post fake reviews (as filtered by Yelp), as 57

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were restaurants that had fewer reviews. Most interesting from a competition perspective, perhaps, was that restaurants with more nearby competitors serving similar food were more likely to post fake negative reviews of those competitors; the study found, however, that nearby competitors that served different kinds of food were no more likely to post negative reviews. The implication, therefore, is that the economic incentive of gaining a competitive advantage tended to drive false reviews. In the Expedia-TripAdvisor study, the authors used a difference between the two sites to infer the posting of false reviews. Expedia required reviewers to have booked a hotel through the site to post a review, whereas anyone could post a review on TripAdvisor. Consequently, it was much easier (less expensive) to post a fake review on TripAdvisor. The authors classified hotels based on various characteristics that they viewed as likely to affect the costs and benefits of posting fake reviews; such characteristics included the presence of nearby competing hotels and the ownership characteristics of hotels and their neighbors. They then assessed whether those hotels for which fake reviews on balance would likely be more beneficial posted more of them on TripAdvisor. Specifically, they assessed whether those hotels had more positive (five-star) reviews and whether their competitors had more negative (one- or two-star) reviews on TripAdvisor, as compared to Expedia, controlling for other factors. The results were consistent with that hypothesis. Indeed, they estimated that hotels with greater incentives to post fake reviews had seven more positive reviews, where the mean number of positive reviews was thirty-seven, and that competitors of those hotels had six more negative reviews, where the mean number of negative reviews was thirty. The study required a number of inferences, but the results were fairly dramatic, suggesting that approximately 20 percent of reviews could be fake when firms have an incentive to post fake reviews. Although it is obviously difficult to draw strong conclusions from either study, neither provides support for the view that reputation is a particularly effective restraint on distortion of information. Instead, the studies suggest, not particularly surprisingly, that economic incentives from competition can drive firms to distort information. Of course, sites like Yelp and TripAdvisor can try to control such distortion, and Yelp, particularly, does so.50 But neither Yelp nor TripAdvisor is likely to benefit significantly from false reviews, so their efforts to prevent them says little about the likelihood of the distortion of information from firms 58

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that do benefit from such distortion. Indeed, TripAdvisor has been subject to enforcement for another sort of false information: the Italian competition authority and a private British regulatory body have both condemned it for misrepresenting the genuineness of ratings on the site.51 The Italian authority focused particularly on the inadequacy of TripAdvisor’s system for monitoring reviews. It also noted TripAdvisor’s acknowledgment that even a few reviews, true or false, could have a significant effect on a facility’s ranking on the TripAdvisor site, given that the scores of many facilities may be quite close, particularly where there are many in a particular area. Expedia, TripAdvisor, and Yelp cater to individuals, of course, and one might argue that individuals are less likely to detect inaccurate information than are recipients with more expertise. As discussed above, however, any party seeking information is generally not an “expert” with regard to that particular information, which is why the party is seeking it. Moreover, the LIBOR and Standard & Poor’s examples indicate that even in financial markets, with very sophisticated consumers of information, the provision of misleading information is possible. Moreover, the manipulations of information at issue in the LIBOR and S&P instances were not short-lived. The LIBOR manipulation started no later than 2006 (and maybe as early as 1991), and there were even early press reports suggesting the possibility of manipulation, but the formal investigation apparently began only in 2011. 52 The manipulation of foreign-exchange rates, which was somewhat similar to LIBOR, took place over at least five years. 53 In fact, in their recent book Phishing for Phools, George Akerlof and Robert Shiller argue that these sorts of exploitation can be explained by what they call “reputation mining.”54 Drawing in part from an earlier article by Carl Shapiro, 55 the theory begins from the position that once firms have developed a reputation for trustworthiness, they can exploit that reputation by providing poor-quality products, including information, at least for a time. They argue that this exploitation can occur when the circumstances under which firm operate change, as they did when credit-rating agencies began being paid by the issuers of the credit they were rating, rather than the consumers of it. The key question then, of course, is to what extent circumstances require, or at least create the incentives for, firms to preserve their reputations and to what extent circumstances can make it more profitable for them to “mine” those reputations by providing low-quality products at high prices. 59

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Although these are difficult questions, the fundamental point is that available data do not suggest that reputation is a very strong constraint on the manipulation of information. To the contrary, the available evidence suggests that information providers may have considerable freedom to provide information of a quality that is lower than is available to them. Providing goods of a quality lower than effective competition would produce is analogous to charging higher-than-competitive prices. The ability to do either is a measure of a seller’s market power, a key concept in antitrust law. The next chapter explores whether and how that concept can be extended to information providers.

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3 Information and Market Power

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a r k e t p ow e r —the power of a seller to act unconstrained by competitors—is a central element in antitrust law, both conceptually and doctrinally. Antitrust law is not concerned with minor or short-lived deviations from effective competition, because many such deviations are self-correcting through the competitive process.1 By focusing on market power, antitrust law is in part identifying those cases in which such self-correction is unlikely. It is in those circumstances in which consumers can be subject to significant injury. 2 Conversely, firms that lack significant power, which even large firms sometimes do when they operate in markets in which entry by competitors is easy, are constrained by competition to serve consumers well. Market power is therefore an important part of antitrust doctrine. Although some obviously anticompetitive conduct—like price-fixing— can be condemned without a showing of market power (or monopoly power, which is a large amount of market power), proof of power is a requirement for most violations. The proof of single-firm antitrust violations requires, in the United States, proof of either monopoly power or a dangerous threat of acquiring it and, in Europe, proof of a dominant position in the market. Establishing a violation as the result of an anticompetitive agreement is said by many courts also to require proof of market power, though the U.S. Supreme Court has said that a showing of actual anticompetitive effects can obviate the need for an independent showing of power.3 Generally speaking, though, where there is

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ambiguity regarding the effects of challenged conduct, the role of market power is an important one. Unfortunately, the usual definition of market power is not particularly useful for information. Market power is typically defined as the ability to profit from raising the price of a good or service above marginal cost (understood to include a reasonable profit).4 As described in the previous chapter, however, the marginal cost of information is often near zero. Although one could still apply a marginal cost-based definition of power, almost all information providers would be found to have power, 5 so the result would not be meaningful as a means of identifying providers that can significantly harm competition. Market share, which is often used as a proxy for market power, as will be discussed below, is also problematic as a measure in the informational context, for related reasons. There is a problem, then. Information has acquired a greater significance and independence in the economy, resulting in the creation of what are quite clearly markets for information. And the control of injurious effects on markets is a task allocated to antitrust law. But antitrust’s rules have evolved in the context of tangible goods and services, and those rules, particularly the ones that apply to the assessment of market power, do not apply in a straightforward way to information products. Nevertheless, market-power measures adapted to the information context can be developed. As described below, there is an increasing emphasis in antitrust on determining power by specific reference to the nature of the anticompetitive conduct alleged, and this approach is well suited to informational issues.

Market Power, Market Share, and Information As noted above, market power is typically defined as the ability to profit from raising the price of a good or service above marginal cost. In fact, though, the usual method of assessing market power is to rely on market share.6 Antitrust law rarely uses actual price-cost comparisons because the necessary data are rarely available and because market share often accurately reflects the ability of a firm to act without regard to competition.7 Generally speaking, if a firm with a large market share seeks to act anticompetitively—by raising price, for example—smaller competitors will be unable to compensate for the anticompetitive acts by selling at a lower price themselves because they will be too small to produce the 62

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unmet demand at the lower price.8 So market share usually serves as an accurate proxy for market power. Although antitrust law typically uses sales to measure market share, capacity is actually the relevant measure. Unused capacity, not current sales, allows competitors to meet the needs of consumers who are priced out of the market by the high prices of a dominant firm.9 For example, suppose that a firm with only a small amount of sales in a particular market has the capacity to easily, and at low cost, switch some of its large production facilities into that market. In such circumstances, if prices increased in the market, the firm would likely make that switch, and if it could bring significant production to bear, it could prevent the price increase. In that case, its initial small sales would not have been a good indicator of its market significance because its capacity was much larger. In traditional product markets, capacity and size are usually closely related, so the distinction between sales and capacity is often unimpor­ tant. For most products and services, the expansion of capacity requires an increase in plant size or the number of employees. Therefore, additional capacity can be expensive, and producers of tangible products and services typically have capacities that are not significantly greater than their sales. As described above, in some cases, capacity may be larger than current sales, perhaps because the extra capacity is not unused but is being used in another market. In such cases, it may be possible for firms to make capacity changes at relatively low cost when a market becomes newly profitable. However, it will often be expensive for firms producing tangible goods or services to expand capacity significantly without considerable expense. For information, that may not be true, at least if, as is often the case, an expansion of capacity would involve only the delivery of more “copies” of information that has already been produced. In that case, it may be necessary only, say, to purchase more advertising time or to expand Internet server capacity, neither of which is likely to require expenditures or time on a scale comparable to that required for tangible goods or services.10 Consider a search engine that competes with Google, for example. If Google were to act anticompetitively, its competitor would easily be able to “produce” products to meet the demand of those consumers who sought search results elsewhere. After all, the products at issue are search results, and the algorithm for producing them is already available to a competing search engine, so the only obstacle to producing more of 63

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them would be the installation of more server capacity to deliver the results to customers. Although expanding server capacity imposes some costs and takes some time, those limitations are small compared with, say, expansion of capacity in the production of the archetypal widget. Hence, market share of current sales will at least sometimes be a relatively poor proxy for power when the product at issue is information. But neither doctrine nor theory requires that market power be measured through market share. The U.S. Supreme Court has said that where there is a showing of actual anticompetitive effects, there is no need to make an independent showing of market power, let alone the definition of market boundaries that is needed to calculate market share: Since the purpose of the inquiries into market definition and market power is to determine whether an arrangement has the potential for genuine adverse effects on competition, “proof of actual detrimental effect, such as a reduction of output,” can obviate the need for an inquiry into market power, which is but a “surrogate for detrimental effect.”11 In theory, too, there has been a move away from market definition and market share to what are sometimes called “first principles.”12 The “first principles” approach contemplates, as the Supreme Court described in the quotation above, a focus on the anticompetitive effects of the conduct at issue. This approach, as advocated by Steven Salop and Louis Kaplow and discussed further below, contends that by focusing on those competitive effects and assessing market power by considering the defendant’s ability to cause competitive harm, antitrust can avoid being misled by the flaws and gaps in the evaluation of market share.13 Moreover, a careful focus on competitive harm is especially important in novel contexts, such as that of information. That does not mean, however, that market definition, as opposed to market share, has no role to play. Indeed, Gregory Werden, a vigorous advocate of market definition, describes its value, at least in part, in a way that can be seen as echoing the “first principles” approach: “Delineating the relevant market specifies the product and geographic scope of the particular competitive process allegedly harmed and thereby clarifies the claim and facilitates its assessment.”14 Again, that is particularly true for information, where markets often have distinctive characteristics. Hence, before examining the “first principles” of power in

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information markets, the following paragraphs discuss the problems of defining those markets.

Defining Markets for Information Information is available from a wide variety of sources. That is true not only of information in general, but also for many of the particular items of information that are important for competition. Product prices, for example, can be obtained from Google, from other search engines and websites like NexTag, from the stores that carry the products, and often from the product manufacturers themselves. A particular piece of information may be available not only from different sources but also in different forms. For example, the price of a product may be available from the manufacturer, in which case it would presumably come alone, but the same information obtained from Google might come with the prices of other, competing products from other manufacturers. In other instances, it may not be clear whether one is receiving comparable information. For example, as discussed in the previous chapter, the requirements for posting reviews are different on Expedia and TripAdvisor. That makes it difficult to know whether the reviews the two sites deliver are comparable, or “reasonably interchangeable,” the test for determining whether two products are in the same market for antitrust purposes. Other forms of product information, like product certifications, are also sometimes available from multiple sources, but certifications and other types of information may also be protected by intellectual property laws or by contract.15 The new provider of LIBOR, for example, purports to limit its availability to those who directly or indirectly obtain a license for its use.16 And some providers of financial information have sought to deny use of the identifiers of their information to competitors, making it harder for competition to arise, though providers in two European Commission (EC) commitment decisions agreed to provide greater access.17 The disparate ways in which information is provided make market definition a valuable exercise. Market definition seeks to identify which products compete with each other. So, for example, if the problem at issue is the provision of deceptive information, then an important question would be whether the recipients of that information also had available to them more accurate information, i.e., whether there was accurate

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information in the same market. If so, the competition from that accurate information could make a provider’s efforts at deception less successful. But that constraint would only be present to the extent that consumers, or at least some consumers, were provided with multiple competing sources of information. If, instead, a significant number of consumers could (or did) obtain information from only one or a few sources, then deception from those sources could cause competitive harm even if accurate information were available somewhere else. That makes identifying the sources of competing information—defining the market—an important task in the informational context. Research has shown that the simple availability of information somewhere is not always sufficient, practically speaking, to inform consumers in a way that allows competition to work effectively. The most accessible of this research focuses on advertising and its effect on prices. Generally speaking, advertising does not affect the ultimate availability of information on prices because the information is typically available directly from—e.g., though a telephone call to—the providers of the goods at issue. The role, or one role, of advertising is to make the information more easily available to consumers. Although there is some controversy regarding the effect of advertising on prices, and some inconsistency in the evidence, the weight of the evidence appears to show that the availability of advertising lowers consumer prices.18 The implication, then, is that information obtained directly from providers of goods is not an effective substitute for advertising and, more generally, that there may not be effective competition between information provided through different means. Thus, the definition of information markets, like the definition of many other markets in recent years, can turn largely on the viability of different distribution channels.19 Does price information online compete with price information obtained at brick-and-mortar stores? Does price information from a price-comparison site compete with information from individual sellers? As the advertising example suggests, this is partly an issue of the cost of obtaining information. 20 To what extent are consumers willing to seek out multiple sources of, say, price information, or will they simply rely on Google, or Expedia, or whatever is their favorite source of price information? As discussed below, the answer will depend not only on the cost of seeking out information from additional sources, but on whether consumers have any knowledge of inaccuracies in the sources they use. 66

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Markets for Individuals? Attention to distribution channels is particular important because information channels can be very narrow. Providers are not only delivering information to consumers but also know a great deal about consumers. Some have argued that this will allow sellers to better serve the needs of buyers, and of course it could do so. But others have offered a different perspective, responding to what they call the “myth” that better information about consumers will allow customization of products in a way that consumers will find valuable: However, we propose there is an alternative perspective (counter-​ myth). Suppliers using powerful computers and comprehensive databases could exploit smaller and smaller market niches, by making inferences about an individual buyer’s flexibility on product and price, propensity to shop around, etc. In doing so, they could inhibit competition and charge higher prices in these market niches. 21 The authors here refer to price discrimination, which was discussed in the previous chapter and will be discussed further in Chapter 7, but also to product discrimination, or tailoring the product provided to individual consumers. This tailoring may be difficult to do for tangible products without the cooperation of consumers, but it can be much easier for information products. For example, if an online price-comparison site knows that a user came to its site from another, similar site, it is likely to deliver good prices to that user. If, on the other hand, the user is a frequent visitor to the site, and the site has no reason to think that the user has visited competing sites, it might deliver higher prices. This approach would make sense, of course, only if the site received some form of compensation, presumably from sellers whose products are shown on the site, for delivering higher prices. That could happen, though, if sellers were able to charge higher prices to users who clicked on links with those prices. In this way, an information provider could use information about its users to discriminate in the quality of information it provides them, just as other sellers use price discrimination. What would be the implications of such practices for market definition, though? If users could easily switch to another information provider, perhaps none. But a problem arises when a firm has both information it can use to provide low-quality information to its users and 67

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information that makes its competitors less useful for consumers. For example, suppose an information provider knew that one of its users was planning a trip to Italy and also knew the user’s preferences in hotels. If the user did a search for, say, “hotels Florence,” the provider might deliver information that reflected the user’s hotel preferences, but that showed higher prices than were actually available. If the user were to go to another provider, she might receive better prices, but would likely receive less relevant results. The user might prefer to see lower prices than the most relevant results, if she knew that she were receiving high prices at her usual site. But it would take some effort to determine that fact, and the user might not make the effort absent a reason to expect the delivery of low-quality information. The gathering of user information that makes the information a site delivers particularly valuable to users is a big part of what many online sites do. Amazon has its users’ purchasing histories, Google has their search histories and information from their e-mail accounts, and Facebook has the information its users post. All of this information gives those sites an advantage over their competitors and potentially allows them to tailor the information they provide to their users with relatively little threat of the users leaving for other information providers. As a result, the site-user relationship devolves from a market in which a user can seek information from multiple providers to a situation in which one site is uniquely valuable to the user—in a market by itself—and the user, for that reason and because of the information the site possesses, is highly exploitable. This is only one example of the way in which information providers can seek to make the information their competitors provide less useful. The concept of “confusopoly,” where sellers design complicated pricing plans that make it difficult for their customers to compare prices, is another. And a third example is the case brought in 1998 by the Federal Trade Commission (FTC) against Toys “R” Us for various practices that Toys “R” Us had used to try to reduce competition between it and warehouse clubs.22 One of these practices was to insist in agreements with toy manufacturers that they would not package products sold by the clubs and by Toys “R” Us in the same way. The goal, the FTC said, was to try to make it difficult for consumers to compare prices. 23 The online approaches discussed above accomplish similar goals, but in a much more sophisticated and individually tailored way.

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The “First Principles” of Informational Power What constrains competitors’ ability to respond to anticompetitive information practices by a competing firm or firms? Sometimes, particularly where misleading or incomplete information is at issue, consumers may not be able to determine what would be the benefits of switching to another provider. That is so because consumers may not know whether they are receiving high-quality or low-quality information. 24 As a result, it may not be the unavailability of information, or the cost of obtaining it, that is the problem. Instead, it may be the cost of determining whether the information that one already possesses or has been offered is sufficient or accurate. Indeed, it is almost necessary that this is so. As Kenneth Arrow said of information, “its value for the purchaser is not known until he has the information.”25 Therefore, “the potential buyer will base his decision to purchase information on less than optimal criteria.”26 It is not far wrong to say that whenever a consumer is seeking information, she will be unable to evaluate the quality of the information she receives. (Recall the discussion of credence goods above.) That makes information very different from other products, where comparisons are usually much more straightforward. Consumers have no trouble comparing prices of traditional goods, of course—lower prices are better, all other things being equal. Evaluation can also be easy for many aspects of product quality, at least for traditional goods. But when consumers are seeking information, they often lack the ability to evaluate it. As a result, the constraint on competition may not be the inability of competitors to produce competing information, but the inability of consumers to determine whether a competitor is offering better information. It may be more productive, therefore, when assessing the power of information providers, to focus on competitors’ means of responding, in a manner akin to the way that the market-share measure captures competitors’ ability to respond to an increase in price. If consumers do not know that they are receiving inaccurate or otherwise low-quality information, competitors will have to incur not just the cost of providing accurate information, but also the cost of pointing out the shortcomings of other information. Again, this is not a problem for price; consumers do not generally have to be persuaded that lower prices are better than higher ones. But for other types of information it may not be enough to

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provide better information; it may also be necessary to prove that the information is better. And there may be behavioral factors that come into play here, in that consumers may be more inclined to accept the first information received than to have their opinions changed. The problem may be compounded by a tendency of consumers to be overly optimistic about missing information. That tendency is especially important in light of the “layers” of information that are relevant in some instances. For example, where information is provided by an entity like Yelp or TripAdvisor, at least three independent types of information are important. First, there are the individual reviews themselves, which generally are not provided by the platform itself. Second, there is the Yelp or TripAdvisor collection of reviews, perhaps with star ratings, which is provided by the platform. Third, there is information about the reviews, which often is also provided by the platform. The enforcement actions against TripAdvisor focused on this last type of information, taking the view that the platform had been misleading in its representations of the objectivity of the reviews it provided. In many instances, platforms may simply provide the underlying information without stating all they know about the quality of that underlying information. A recent experimental study suggests that consumers faced with a lack of information may systematically overestimate the quality of the underlying good. 27 The study is far from conclusive, of course, but as the authors say, it calls into question previous work that suggested that markets force firms to disclose quality information because consumers, in the absence of disclosure, will draw adverse inferences about the quality of the goods provided. The focus, then, should be on market characteristics that would prevent correction of inadequate or misleading information. Those characteristics could be of at least four kinds. First, competitors of the information provider might not themselves have access to accurate information that would allow them to correct any information deficiencies. As will be seen below, one reason for this is that correction may require information about how the information was produced, and the information might be the product of a competitor’s “black box.” Second, competitors must be able to provide corrective information when it is useful to consumers. Third, although the competitors might have access to information that would allow them to correct information problems, they might lack the incentive to correct those problems. Fourth, even with access to correct information and the incentive to provide it, consumers might not 70

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readily accept the correct information as a substitute for the information deficiencies.

Can Competitors Identify Low-Quality Information? As described above, consumers will often lack the ability to identify false or misleading information because they do not have access to correct information with which to compare it. One might expect competitors to fill the void, but competitors might not be able to provide the comparison, either. The U.S. Supreme Court made this point in a well-known case, Eastman Kodak Co. v. Image Technical Services, Inc. 28 At issue was information regarding the repair costs of Kodak copiers and similar products. Consumers’ lack of access to that information could, the Court said, be a source of market power for Kodak. The Court pointed out the difficulty and expense for consumers of obtaining such information, and it rejected Kodak’s argument that the gap would necessarily be filled by competitors: Kodak acknowledges the cost of information, but suggests, again without evidentiary support, that customer information needs will be satisfied by competitors in the equipment markets. It is a question of fact, however, whether competitors would provide the necessary information. A competitor in the equipment market may not have reliable information about the lifecycle costs of complex equipment it does not service or the needs of customers it does not serve.29 The point is a general one, in that firms often will not have good information about their competitors’ products. Sometimes that will not be the case, of course. In a market for price information, for example, competitors presumably would easily be able to tell whether other firms were providing good information (though, as noted below, an information provider might deliver good information to its competitors but lower-­ quality information to consumers). For prices, there exists an external reference point, the actual price, assuming there is a single actual price, and a firm that is in the business of providing that price would normally know that actual price. It could therefore judge whether its competitors are delivering the information accurately. For other information, however, there may be no objective reference point, or, even if such a reference exists, it may not be public. The LIBOR 71

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case is an example of the latter possibility. The LIBOR rate was designed to be a benchmark interest rate, primarily for use in variable-rate loans, and it was to be calculated by averaging the interest rates that leading banks would have had to pay to borrow for their own accounts. As will be discussed in more detail in the next chapter, though, the banks provided false estimates of their borrowing costs, sometimes to make their financial status look better than it was and sometimes at the behest of other, conspiring banks that stood to benefit from a distorted LIBOR rate. The estimates were “false” in the sense that the banks deliberately reported rates that were (mostly) lower than what they knew their borrowing costs to be. The banks’ actual borrowing costs were thus an objective reference point, but those actual costs would not have been known by competitors.30 (When the false rates were requested by another bank, then the co-conspirator would also presumably have known that the reported rate was incorrect, 31 but it would not necessarily have known what the correct rate was.) The banks were thus relatively free to provide (slightly) inaccurate information without fear of detection. To be sure, individual rates of the banks submitting estimates were also published, so they could have been scrutinized. And they were. The Wall Street Journal raised concerns about LIBOR in 2008.32 Why were those concerns—warnings—not heeded? The problem might have been that it was just too difficult to tell if any misreporting was really misreporting and, if so, whether it was due simply to mistakes or to deliberate acts. Some support for this view is provided in a 2008 memo from Timothy Geithner, then at the U.S. Federal Reserve, to Sir Mervyn King at the Bank of England: To improve the integrity and transparency of the rate-setting process, we recommend the BBA work with LIBOR panel banks to establish and publish best practices for calculating and reporting rates, including procedures designed to prevent accidental or deliberate misreporting. The BBA could require that a reporting bank’s internal and external auditors confirm adherence to these best practices and attest to the accuracy of banks’ LIBOR rates.33 The sort of auditing that Geithner recommended requires access to the banks’ internal information, of course, so although it might be a viable approach for a government mandate or for internal compliance procedures, it would not enable competitors to detect the misreporting to which Geithner refers. 72

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Somewhat similar procedural protections were suggested in Allied Tube & Conduit Corp. v. Indian Head, Inc., 34 a U.S. Supreme Court decision on standard-setting. That case involved a trade organization’s promulgation of a safety standard that was improperly influenced by a member of the organization. The possibility of exploitation of standard-­ setting processes raises antitrust concerns, the Court said, but such concerns can be lessened when “private associations promulgate safety standards based on the merits of objective expert judgments and through procedures that prevent the standard-setting process from being biased by members with economic interests in stifling product competition.35 As will be discussed in the next chapter, one way—perhaps the only way—in which these protections can be implemented is to have a decision-­making body that is composed of a variety of perspectives, including those of both competitors and consumers. In that way, the decision that is reached will ideally be a “correct” one, and, even if it is not, competitors and consumers who are disadvantaged by the decision will at least have access to any problems in the process. This sort of access to an information provider’s decision-making process is especially important when the information at issue has an element of subjectivity, i.e., when there is no objective benchmark against which the information can be measured. In that case, it may not even be clear what “accurate” information would be. With knowledge of the provider’s decision-making process, however, it could sometimes be clear that the information provided was less accurate—of lower quality—than it could have been. It was that sort of access that allowed the Department of Justice to determine that Standard & Poor’s had avoided issuing lower credit ratings because it was concerned about losing business if it did so. Thus, the Justice Department’s complaint alleged that “S&P’s desire for increased revenue and market share in the [residential mortgage-backed security (RMBS)] and [collateralized debt obligation (CDO)] ratings markets led S&P to downplay and disregard the true extent of the credit risks posed by RMBS and CDO tranches in order to favor the interests of large investment banks and others involved in the issuance of RMBS and CDOs who selected S&P to provide credit ratings for those tranches.”36 As noted above, though, often only the government will have access to the internal processes that reveal this sort of information distortion. That means that when firms are providing information that has this sort of subjectivity, competitors may be unable to determine whether the 73

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information that is being provided is as accurate as it could be, or is at least what it purports to be. And much competitively significant information is of this subjective kind. Not only credit ratings, but search results, product reviews, and many product standards lack objective benchmarks against which they can be compared. As described above, consumers will also often lack the ability to determine whether they receive high-quality information. In these circumstances, the competitive information-quality constraints on information providers are likely to be quite limited.

Black Boxes The difficulty described here is insightfully analyzed from a broader perspective by Frank Pasquale in his recent book The Black Box Society.37 Pasquale addresses the problem of opacity more generally, focusing on three important areas: production of reputation information such as credit scores, search, and evaluation of financial innovation. He compellingly describes the extent to which we are dependent on firms’ internal algorithmic results and decisions whose correctness we cannot review because the algorithms are proprietary. As a result, we are unable to assess the fairness and accuracy of broad swaths of the economy. Moreover, he suggests that this “knowledge problem” is not an accident but is the intended result of the business strategies of the firms in these markets.38 As Pasquale describes, “[b]lack boxes embody a paradox of the information age: Data is becoming staggering in its breadth and depth, yet often the information most important to us is out of our reach, available only to insiders.”39 Pasquale’s concerns are broader than competition, extending to accountability more generally, and he suggests public alternatives to private credit reporting companies and Internet firms. That suggestion is related to the point above that often only the government will have access to the algorithms that produce these sorts of information. If we do not want to make the provision of information a public function but leave it in the market, we must, as Pasquale emphasizes, solve the problems that hidden information poses “to assure the competitive process is itself fair.”40 He states that “[a]ntitrust law flirts with irrelevance if it disdains the technical tools necessary to understand a modern information economy.”41 His point is that it is important to look into the algorithms that firms, particularly Internet firms, use, because

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only in that way can we determine if the firms are operating in an evenhanded manner: We should expect any company aspiring to order vast amounts of information to try to keep its methods secret, if only to reduce controversy and foil copycat competitors. However wise this secrecy may be as a business strategy, it devastates our ability to truly understand the social world Silicon Valley is creating. Opacity creates ample opportunity to hide anticompetitive, discriminatory, or simply careless conduct behind a veil of technical inscrutability.42 Furthermore, each firm can act not just as a single black box, but potentially as a different black box to different users, which presents its own competition problems. Pasquale suggests a variation on the “markets for individuals” issue described above, noting that a site demoted in Google’s search results might not know it was demoted, because “[i]f it looked for itself from its own IP address it might well appear near the top of the results, its own personalized signals for salience having locally overwhelmed the signals for demotion.”43 The ultimate implication here, then, is that not only consumers, but also competitors and antitrust enforcement agencies, may have difficulty obtaining information about the accuracy of and alternatives to information they receive. When a firm operates as a “black box” in this way, delivering information that is to some extent subjective in a way that both competitors and consumers will find it difficult to evaluate, the firm will have some degree of market power. Power alone does not constitute an antitrust violation, of course, but in these circumstances, the law should move to the next step of evaluating conduct. The result has been exactly the opposite, though. In fact, the courts have dismissed cases challenging credit ratings and search results specifically on the ground that such ratings and results are subjective “opinions” protected by the First Amendment. As will be discussed in Chapter 9, these dismissals are incorrect as a matter of First Amendment law, but more importantly, they dispose of these cases before there is any opportunity to assess the information providers’ conduct. The effect of the dismissals is that firms that provide the least easily evaluated (though still competitively important) information get the most freedom from scrutiny regarding how that information is produced. That is bad law, and it is bad policy.

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Can Competitors Provide Better Information When It Matters? Another problem, one related to the question of individual markets above, is that of access to consumers when it matters. If a consumer is using, for example, Bing, and the consumer is delivered a search result that is problematic, how is Google to obtain access to the consumer to show it an alternative result? One might ask how this is different from the brick-and-mortar world, in which a consumer at one store will not be easily accessible to other stores. There are two important differences, however. First, a consumer at a store knows that he or she is seeing only that store’s offerings. The consumer is therefore on notice that he or she has incomplete information, in a way that a user of a search engine or price-comparison site that purports to display the best options may not be. Second, a consumer in a store will generally be presented with the same products, at the same prices, as are presented to other consumers. That is, there will generally be no customization of the kind that is possible online. To some extent, this situation echoes those cases in which one information provider, like a newspaper or magazine, has refused to allow competitors to advertise in its pages. Several antitrust cases have presented these facts. In Home Placement Service, Inc. v. Providence Journal Co., 44 for example, the defendant Providence Journal refused to allow the plaintiff, a competing provider of apartment rental advertising, to advertise in the Journal’s classified pages. In defining the relevant market, the court focused on the importance of advertising in the newspaper: Thus, the relevant product is not all advertising, or even all classified advertising, but merely daily newspaper rental advertising. Defendant offered no rebuttal of plaintiff’s substantial evidence, through numerous witnesses, that there was no effective substitute therefor. The court’s reference to the alternatives of “radio, television, [and] billboard,” overlooked the uncontradicted testimony of experts, and those in the business, that these are effective only for institutional advertising, in conjunction with, but not in substitution for, more specific daily newspaper ads. Nor are weekly newspapers an adequate substitute, precisely because they offer competition only once a week. In short, on the evidence, none of the alternative media identified by the court could be said to be 76

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“reasonably interchangeable” with, or competing “on substantial parity” with, the rental columns of daily newspapers.45 In contrast, a similar claim in Twin Laboratories, Inc. v. Weider Health & Fitness 46 was decided in favor of the defendant. The plaintiff and defendant were competing providers of nutritional supplements for bodybuilders, and Weider refused to allow Twin Labs to advertise in Weider’s magazines, which were the two leading ones in the field. Despite the Weider magazines’ 66 percent share, though, the court rejected the view that advertising in them was essential. Twin Labs’s supplements continued to be successful after the advertising ban, and, presumably more importantly, the court noted that only five of the top ten supplement sellers advertised in the magazines.47 One interpretation of these cases is that it is critical to provide information when consumers are seeking it. In Home Placement, potential renters seeking rental information would turn, the court said, to the Journal’s classified pages, so that is where Home Placement needed to provide its information, even though those pages were controlled by its competitor. But bodybuilders apparently did not get all their information about supplements from advertising in the Weider magazines. They could get such information from friends, stores, and other magazines. As the court said, even Weider itself did only 50 percent of its advertising in its own magazines, so there was information available more broadly, and consumers could, and apparently did, turn to multiple sources.48 This issue, then, is simply a variation on that of distribution channels noted above: it is important in defining markets not just to include only distribution channels that actually compete, but also to include such channels only if they actually compete at the time of purchase. The difference can be illustrated by considering search engines. In the Bing-Google context suggested above, the analogous issue would be whether Google would have means of gaining access to Bing users to correct any misinformation that Bing was providing at the time it mattered. Google and Bing are obviously competitors, and Google could even run independent advertising to consumers in general, seeking to inform them of any misinformation Bing provided. Perhaps that could be effective, but the key question is whether access to consumers is valuable only at the time they are doing the searching and thus presumably ready to make a purchase. A consumer who expects that he is receiving accurate information—a complete list of sellers, or the sellers with the 77

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best prices—may have no reason to look further. That is, he may conduct his search on one site without going anywhere else. This is why vertical search engines argue so vigorously that placement on Google’s pages is critical to their success.49 Being pushed down, either in Google’s “organic” search results or in its paid ads, can eliminate them from competition at the time that competition actually occurs. This is exactly the theory of the European Commission’s case against Google. The EC’s statement of objections “alleges that Google treats and has treated more favourably, in its general search results pages, Google’s own comparison shopping service ‘Google Shopping’ and its predecessor service ‘Google Product Search’ compared to rival comparison shopping services.”50 Competitors of Google’s shopping services of course have other ways of reaching consumers, as by advertising, and consumers can go directly to those competing services. But that is not enough, because being excluded from Google’s results, the EC says, “hinder[s] their ability to compete.”51 In other words, it is being there, in those results when the consumers seek information, that is necessary for competition; in effect, Google has created a distinctive forum for competition, and the Commission argues that in that forum, it must treat competitors fairly.

Do Competitors Have Incentives to Provide Better Information? In the U.S. Supreme Court’s Kodak case, cited above, the Court noted that “[e]ven if competitors had the relevant information, it is not clear that their interests would be advanced by providing such information to consumers.”52 The Court explained that it might in fact be more profitable to adopt the same practices themselves: To inform consumers about Kodak, the competitor must be willing to forgo the opportunity to reap supracompetitive prices in its own service and parts markets. The competitor may anticipate that charging lower service and parts prices and informing consumers about Kodak in the hopes of gaining future equipment sales will cause Kodak to lower the price on its service and parts, cancelling any gains in equipment sales to the competitor and leaving both worse off. Thus, in an equipment market with relatively few sellers, competitors may find it more profitable to adopt Kodak’s service and parts policy than to inform the consumers. 78

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Even in a market with many sellers, any one competitor may not have sufficient incentive to inform consumers because the increased patronage attributable to the corrected consumer beliefs will be shared among other competitors. 53 This passage illustrates what antitrust refers to as the tacit collusion problem. Firms in many industries, such as the airline industry, are able to observe their competitors’ prices. If firms can guess their competitors’ cost structures, and they can often assume that their competitors’ costs are similar to their own, they will then be able to know whether their competitors are pricing above cost. If there is, in fact, above-cost pricing, a firm could decide either to compete by undercutting that pricing or to go along by charging a comparable supracompetitive price. Undercutting might, of course, lead to a price war that would cut the profits of both firms, while going along with the higher prices could, if maintained, lead to higher profits for both. Tacit collusion is not an antitrust violation in the United States because it involves neither an agreement among competitors nor a single dominant firm. It therefore falls in a “gap” between Sherman Act section 1, which condemns agreements in restraint of trade, and Sherman Act section 2, which condemns anticompetitive conduct by single powerful firms. That is not to say, though, that tacit collusion is not a competitive problem. The harm it causes is the same as the harm caused by price-fixing agreements, and some have argued that it should be illegal. If the concept of an “agreement” were construed expansively, for example, perhaps tacit collusion could be pursued under section 1. Or if the parallel conduct were viewed as creating a shared monopoly, the conduct could be pursued under section 2, in a way analogous to the European application of collective-dominance theory under Article 102 TFEU, discussed below. In any event, the information analogy would be that of a firm that knew or suspected that its competitor was providing low-quality information. The firm would have the choice of doing the same or of competing with higher-quality information, perhaps with the addition of marketing to point out the low quality of its competitor’s product. The incentive for providing the low-quality information might be simply the lower cost of creating it, or it might be, as with the allegations against Google, that it benefits the firm in some other way. In Google’s case, the benefits are alleged to come from pushing competitors’ websites down in 79

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its search results, thus benefiting Google’s own, lower-quality sites. Bing then might have the incentive to engage in similar conduct, though it does not have quite the same constellation of related sites that Google does. Alternatively, as discussed above, Google might benefit by making it more difficult for sellers to reach consumers through Google’s organic search results, thus making those sellers more likely to buy more advertising. Because Bing’s business model also relies on advertising, Bing might find it desirable to adopt rather than challenge that approach. Information providers also have less incentive to point out and challenge their competitors’ self-interest rather than adopt it themselves because of the difficulties of establishing that competitors are providing low-quality information, as discussed above. Despite the basic conceptual similarity between parallel supracompetitive pricing and parallel low-quality information delivery, in practice the competitive contexts seem quite different. For example, it is generally easy for a firm—­ consider again an airline—to attract customers by lowering prices, but it is not obviously so easy for a firm to attract customers by providing, say, better search results. As is discussed below, the quality of search results may be difficult to evaluate and may only be appreciated by consumers over the long run. In that respect, it is interesting that there in fact is little information available about informational competition. To what extent do consumers compare Google and Bing? Yelp and TripAdvisor? There are some web postings that compare competing sites, but the services provided by the various sites are so varied and extensive that it would be difficult to provide useful comparisons.54

Will Consumers Respond to Better Information? Suppose that all of the conditions above are met. That is, suppose that competitors are able to obtain accurate information to correct misinformation or the absence of information provided by other firms, that the competitors have access to consumers at the time that providing accurate information could be useful, and that the competitors have the incentive to distribute the accurate information. Will consumers be persuaded by it? When will they be? As described above, consumers often will not be able to assess the correctness of the information that they are provided, so it is not clear that in the presence of both correct and incorrect information consumers will choose the correct information. Whether consumers will be persuaded depends on the kind of information at issue, of 80

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course. If it were price information that were at issue, and competitors had access to lower prices than a site was showing, the competitors could presumably provide that information to consumers in a way that would be effective. But if there is an element of subjectivity, as, for example, if a restaurant received four stars on TripAdvisor and three on Yelp, would a consumer be able to determine which site to believe? It seems likely that without an opinion about which site is more reliable, the consumer would not. That is, the consumer would have to turn to some other sort of information to help assess which version of the information it seeks is correct. This is an implication of the fact that much information is an experience or credence good, as described in the previous chapter; consumers will not know the value of the information they receive, at least until they have used it, which in this case they would do by relying on it to go to the restaurant. This is also, of course, why Yelp and TripAdvisor market the reliability of their information, and why government enforcement agencies have challenged these sorts of marketing statements when companies do little to ensure that they are correct. The issue is even more complicated if a competing website seeks to correct misinformation on another site. Suppose that Bing contended that Google has ranked certain sites too high or too low in its search results. Aside from the difficulty of assessing the contentions as a factual matter, a consumer would have to consider what weight to place on the different context in which Bing provided the information. Specifically, it would be clear that Bing was providing the information for competitive purposes, to seek an advantage over Google. But the Google search results likely would not be seen so clearly, if at all, as an effort to gain a competitive advantage. Consumers to some extent discount self-­ interested information, so that this sort of information might be much more valuable if provided by disinterested third parties. But such evaluators—information provider raters—have not developed, at least in most of the contexts at issue here, so consumers are left to rely to some extent on reputational information. Reputation is particularly problematic for search engines. Many searches that a consumer performs on a search engine are for information that a search engine would have no incentive to distort. For example, if one performed a search for “national parks New England,” there would presumably be no reason for Google or another search engine to deliver information on parks in, say, the upper Midwest. In contrast, a 81

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search for “Bosch refrigerators” might, if other refrigerator manufacturers were willing to pay to have their sites provided for that search, be more problematic. The point is that most, and maybe a great majority of, searches are of the former kind. Therefore, the experience of consumers is that Google and other search engines deliver exactly the information they want the great majority of the time. Even if the information received is not exactly what consumers want when they search for commercial information that it might be profitable to distort, consumers may not separate the two sorts of searches in their evaluations. In that respect, a search engine—unlike, presumably, a review site like Yelp, for which a greater number of searches are related to purchases—could establish a reputation based on non-commercial searches and exploit that reputation in commercial ones. This would be similar to, but probably even more effective than, the “reputation mining” that is discussed by George Akerlof and Robert Shiller in their book Phishing for Phools.55 Their discussion is of credit-rating agencies mining their previously established reputations for trustworthiness to successfully market low-quality information in the form of inaccurate credit ratings. In the search engine example, the idea would be one of mining a reputation for trustworthiness established in non-commercial searches to market low-quality information in commercial searches. The reason this might be an even more effective strategy is that the search engines would continue, even while producing low-quality commercial search results, to produce high-quality noncommercial results. To detect the difference in quality, consumers would have to be quite sophisticated in how they evaluated the different search results they received. All of this suggests that it would be desirable to have more information on how reputation works in these contexts. Authority and reputation are characteristics that allow firms to persuade, and thus, in some sense, they provide firms with informational power. 56 In fact, we hear frequent references to “mindshare,” which reflects consumer awareness and perhaps reputation as well. Although a direct analogy between “mindshare” and market share is not likely to be fruitful, some factors may be useful in assessing the power of an information provider. The frequency with which the statements of a particular provider are cited is an example; that is a factor often used in academic contexts to measure “impact.” Perhaps one could even find proxies for mindshare. If Google charges twice as much for comparable advertising as does Bing, would that show that Google has twice the mindshare? Or would it show power 82

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even more directly, in that Google’s costs are presumably similar to Bing’s, so that a higher price could be direct evidence of power? How, in general, could informational power be proved?

Proving Informational Power These proof issues will be taken up further in the chapters below, in the context of particular types of potentially anticompetitive informational conduct. As suggested above, the “first principles” focus is on the form of power relevant to the particular informational conduct at issue. That is, it is on the ability of competitors to respond to the conduct. As the Supreme Court has said, the power of concern in antitrust is “the power to control prices or exclude competition.”57 In the context of horizontal agreements, that power typically comes from the collective nature of the joint venture, and often from the fact that if many firms are part of the venture, there are not sufficient other firms available to form a competing one. This source of power will be of particular concern in Chapter 4. In the single-firm context addressed in Chapter 5, the focus will generally be on the latter part of the Court’s definition, the power to exclude competition. Admittedly, looking to conduct for evidence of power is problematic, particularly in the single-firm context, in that part of the value of the power inquiry is that of providing an independent check on evaluations of conduct. As the Supreme Court has said, an independent power inquiry “reduces the risk that the antitrust laws will dampen the com­ petitive zeal of a single aggressive entrepreneur.”58 But an inquiry into market power can be independent of conduct without being based traditionally on market share, as outlined above. Although the Supreme Court has insisted on definition of the market where single-firm conduct is being challenged, it has not required an inquiry into market share. Instead, it has appeared to allow a more open inquiry into power: “In order to determine whether there is a dangerous probability of monopolization, courts have found it necessary to consider the relevant market and the defendant’s ability to lessen or destroy competition in that market.”59 Thus, the important point is to find independent evidence that a firm has the power to injure competition and that it has engaged in conduct that could cause that injury. Or, to reverse the order of these requirements and restate them, it is important to find evidence that the firm has 83

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sought to injure competition and that some obstacle prevents competitors from responding to those efforts. In many antitrust contexts, the relevant obstacle is an insufficient market share. In the informational context, it will instead be the inability to counter effectively the information provided by the defendant.

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Part II Information problems and antitrust: distortion and access

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h e r e a r e s e v e r a l way s in which information providers can use their product—information—to harm competition. Often, as Carl Shapiro and Hal Varian note, information providers will use their information to profit in another, related market.1 That is particularly so for the information that is the focus of this book, which is primarily information that affects the decisions of producers and consumers. When such information is at issue, information providers are faced with a choice: they can provide the information that is most useful to producers and consumers, or they can seek to profit from their influence over market decisions. The history of advertising suggests that information providers will sometimes choose the latter option, but advertisers have not often had market power that allowed them to exert much influence. The increasing power of information providers, however, has increased the potential for this sort of harm. Chapter 4, the first in this part, discusses agreements on information. The usual competitive harm of agreements among firms is that of collusion—because of the agreement, customers of the agreeing firms are denied the options in products or price that competition among independent firms would provide. In the informational context, firms can agree among themselves on the information they provide, often through ­standard-setting activities, causing consumers to make identical choices. Standard-setting is not a new practice, so the issues addressed in this chapter are not confined to the new economy, but the problems have become more prevalent in recent years, 2 and the competitive harm is

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particularly clear in this context. Moreover, there is a new variation on this sort of harm with the creation of standards like the LIBOR (London Interbank Offered Rate) benchmark rate that allow the continuing manipulation of information by the members of the standard-setting organization. Courts so far have found analysis of such arrangements challenging. Chapter 5 then addresses single-firm use of information to harm competition. The mechanism here is similar to that for some of the information agreements discussed in Chapter 4, in that powerful information providers can steer consumers to particular products. But unilateral conduct is more difficult to regulate. With information agreements, the law can simply condemn the agreement, after which the firms will continue to provide information but do so independently. In contrast, it would be impractical and undesirable to prevent single firms from providing information, even when they have anticompetitive incentives in related markets. Therefore, the law in this area must focus more carefully on the content of the information provided, or at least on the process by which the firm arrives at that information. Chapters 6 and 7 address two topics that are related to the quantity of information available in the market. Chapter 6 focuses on the problems consumers face when they have inadequate information about the products they are considering, and particularly on circumstances in which firms engage in conduct that exacerbates this information asymmetry. Chapter 7 addresses the use by firms of personal information about consumers. Traditionally, firms possessed relatively little information about their consumers, so they treated them all more-or-less equally. Now, though, firms often possess a great deal of information about individual consumers, particularly in the online environment. Access to this sort of personal information can allow firms to tailor the information they provide to consumers in ways that can either promote or injure competition.

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4 Agreements on Information

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o n g r e s s ’ s r e s p o n s e to t h e c o r p o r at e a b u s e s of the 1990s was the Sarbanes-Oxley Act of 2002.1 One form of abuse that the Act was intended to address was loans by corporations to their officers and directors, which had been a particular problem at Enron. 2 Section 402 of the Act is directed specifically at such loans, 3 and by its terms prohibits loans from publicly traded corporations to their officers or directors.4 As with most legal provisions, though, there is room for interpretation of this section. One would therefore have expected law firms to confront those interpretive issues as they arose for their clients. One would not have expected lawyers to agree among themselves on the advice they would give their clients. Yet that is exactly what twenty-five prominent law firms did, issuing a “position paper” that provides their positions on seventeen different issues, some with multiple subissues.5 The firms concluded in the position paper that none of the practices they considered ran afoul of section 402.6 Yet a number of the interpretations set out in the paper might raise eyebrows.7 Consider, for example, the paper’s treatment of the forgiveness of pre-existing loans. Section 402 grandfathers pre-existing loans unless there is a “material modification” to their terms.8 One might think that forgiveness of a loan would be a material modification to its terms, but the position paper concludes otherwise. Instead, it says that to the extent the loan is forgiven, it is no longer a loan at all, and therefore is no longer subject to section 402.9 And to the extent that the loan is only partially forgiven, the remaining

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portion is not modified.10 It seems somewhat surprising that all twenty-­ five firms signed on to this interpretation, and in fact, several law firms (including at least one among the twenty-five) took contrary positions before the position paper was issued,11 and the U.S. Securities and Exchange Commission (SEC) later took a position that also appears inconsistent with it.12 The important point for present purposes, though, is not whether the law firms interpreted section 402 correctly, but whether they should have entered into an agreement at all on the interpretation of the statute. Much of this book focuses on the possible provision of low-quality information by single firms, but agreements on information can also cause informational harm; indeed, antitrust law often condemns more readily the conduct of competitors acting together. Firms can act collusively either to exclude competitors, in much the same way as powerful single firms can, or simply to exploit consumers. In either case, the collective power of agreeing firms can present considerable competitive dangers. Moreover, condemnation of anticompetitive agreements is relatively easy, because antitrust can condemn only the agreement, not the conduct in itself, thus making enforcement unlikely to inhibit vigorous competitive behavior. That is so because it is often the case that any procompetitive purposes of an agreement can be accomplished by the agreeing firms individually. Only where an agreement is necessary to accomplish those purposes is antitrust likely to defer to an agreement among firms.13 Of course, when the product on which firms are agreeing is information, it is possible that the collective judgment of multiple firms will be better than the judgment of individual firms. Sometimes, after all, information is “correct.” However, that same collective judgment will eliminate competition among the firms’ views on the issue. Whether it is better to rely on a collective judgment or on competition will not always be clear. Antitrust law does not generally permit firms to decide what noninformational products they will produce, even if there is a plausible argument that they have made the correct choice. For example, a leading case involved an agreement among macaroni manufacturers on the proportions of different types of flour in their macaroni products. The firms argued that the agreement was intended to deal with a shortage of the preferred type of flour, and it was not difficult to imagine circumstances in which it could have made consumers better off, but both the FTC and the court summarily condemned the agreement.14 Nevertheless, there are two circumstances in which agreement may 88

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be more important than competition: interoperability and safety. When multiple firms make products that must work together, an agreement on a standard can very valuable, whether or not the standard is “correct” in some objective sense. And where there are significant issues of safety, it may be that an agreement not to manufacture unsafe products would be valuable, though even in that case, antitrust can be reluctant to allow agreement. But of course the law firms’ position paper does not present issues either of interoperability or safety. There is no reason why all firms need to give the same advice, and exposure to legal risk would not generally be thought to be a safety concern. On the contrary, for antitrust purposes, legal services are just like macaroni (as well as like sausages15), so there is no obvious need for an agreement. In any event, even if there were some reason for the firms to provide consistent legal advice, it was not entirely clear that they agreed to do so. In the position paper, they went only so far as to say that “[t]he undersigned firms concur in the above conclusions.”16 Although one commentator said that “[a]bsent contrary guidance from the SEC, the interpretations set forth in the Position Paper will likely be adopted by many attorneys who advise publicly-traded companies,”17 the firms presumably remained free to provide whatever advice they chose. That means that the position paper was purely informational, that its goal was to influence. And the collective opinion of twenty-five firms is more influential, of course, if not necessarily more correct, than the opinion of one. That influence, moreover, is likely to extend beyond the firms involved to other firms, to the firms’ clients, and even perhaps to enforcers. It is thus likely to have a significant effect on the market, which suggests that the courts that have quickly dismissed antitrust concerns in cases challenging information agreements have drawn the boundaries of antitrust too narrowly.

Standard-Setting and Refusals to Deal In the leading U.S. Supreme Court case on standard-setting, Allied Tube & Conduit Corp. v. Indian Head, Inc.,18 the organization at issue was the National Fire Protection Association (NFPA), which sets and publishes standards routinely adopted as law in many jurisdictions. A change was proposed to a standard established by the NFPA, and the then-­ current standard’s supporters (most of whom were manufacturers of products that conformed to it) packed the association’s annual meeting 89

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with new members recruited specifically to vote against the proposed change, which would have approved a new and competing product.19 The change was voted down.20 The Court said that even though the packing of the meeting did not actually violate the association’s rules, and even though most of the damage to plaintiffs was done by government adoption of the NFPA’s standards, the association was responsible for seeing that its power was not used in such a fashion: [T]he hope of procompetitive benefits depends upon the existence of safeguards sufficient to prevent the standard-setting process from being biased by members with economic interests in res­ training competition. An association cannot validate the anti-­ competitive activities of its members simply by adopting rules that fail to provide such safeguards. 21 It was not, however, entirely clear that the Court was assessing the purely informational aspect of the agreement on the standard, because it also stated that members of the organization had engaged in a concerted refusal to deal in the products to which the standard applied: “[A]ny agreement to exclude polyvinyl chloride conduit from the [standard] is in part an implicit agreement not to trade in that type of electrical conduit.”22 By viewing the standard in this way, the Court transformed an agreement on information into a refusal to deal in a market for a tangible product. As a result, the Court did not need to address the difficult issue of determining the competitive effects produced by the informational content of the standard. This is the approach the Court has taken in other cases as well, even where the evidence of an actual agreement beyond the standard has been rather scanty. 23 Some lower courts have gone in the opposite direction. Instead of treating standard-setting activities as refusals to deal—as anticompetitive agreements not to sell the product that is the subject of the standard—they have treated them as having no antitrust implications at all. An example is Schachar v. American Academy of Ophthalmology, Inc. 24 The case involved a challenge to a medical society’s declaration that radial keratotomy was “experimental,” a declaration that made insurance reimbursement for the procedure less likely. Although the Supreme Court in Allied Tube called for both substantive and procedural assessments of standard-setting activities, as will be discussed below, the court in Schachar simply dismissed the issue out of hand, treating it as purely informational: “The Academy’s declaration affected only the demand 90

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side of the market, and then only by appealing to consumers’ (and thirdparty payors’) better judgment. If such statements should be false or misleading or incomplete or just plain mistaken, the remedy is not antitrust litigation but more speech—the marketplace of ideas.”25 The upshot of both of these approaches is that the effect of the agreement on information itself is not assessed. In Allied Tube, it is transformed into an agreement in the market that is affected by the information, and Schachar would apparently dismiss all cases involving only information. As a result, as Clark Havighurst and Peter Brody say, “there is no consensus on whether standard setting and accrediting, without more, harm competition at all, thus qualifying for possible characterization as a restraint of trade.”26 Havighurst and Brody argue, however, for the same third way that is advocated in this book: treating information itself as the good that is restrained. As they say, “[f]ocusing on the competitive conditions under which information and opinion are produced would yield an antitrust agenda strikingly different from the one implicit in current antitrust doctrine applicable to private accrediting [and standard-setting].”27

Information: One or Many? What the court in Schachar failed to acknowledge is that a standard not only provides information to sellers and buyers in the market for the product to which it applies but also suppresses competition in an information market. The members of standard-setting organizations are most often competitors—either firms in the case of trade associations or individuals in the case of professional organizations. In the absence of agreement on a standard, these competitors would, or could, express their own views regarding the subject matter of the standard. 28 A lawyer would provide his own position on section 402 of the Sarbanes-Oxley Act, an individual member of the NFPA would offer its own position on the use of polyvinyl chloride for electrical conduit, and an ophthalmologist would express her own opinion on the merits of radial keratotomy. With a standard, however, all the members of the organization, through the organization, take a single position, that section 402 does not prohibit loan forgiveness, that polyvinyl chloride is unsafe for electrical ­conduit, or that radial keratotomy is “experimental.” Thus, when individual actors join together in standard-setting organizations, they advance one unified position to the world. Even if the 91

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individual actors do not explicitly agree not to take a contrary position, they are unlikely to do so. Moreover, even if they did take a contrary position, they would be unlikely to succeed in countering the organization’s authority. As is discussed further below, the power of standard-­ setting organizations can be considerable, and individual members are unlikely to match it. The loss of this sort of informational competition is a harm of standard-setting, at least potentially. It is possible, of course, that all of the individual members of a standard-setting organization would have provided exactly the same information on which the organization agrees. But it is also possible that all the members of a price-fixing cartel would, even in the absence of the cartel, have charged the cartel price, yet antitrust law does not allow an assumption that that is the case. That standard-setting is an elimination of informational competition is a critical point missed by some courts, as is illustrated in the trial-court opinion regarding the LIBOR conspiracy. LIBOR, or the London Interbank Offered Rate, is an interest-rate benchmark. 29 It is typically used in variable-rate loan agreements as a reference point that reflects how market interest rates are changing. The variable rates in the loan agreements, which can be home mortgage loans or large commercial loans, are then fixed at LIBOR plus an additional percentage specific to the loan. Thus, as LIBOR changes, the interest rate of the loan changes with it, which means that high LIBOR rates benefit the creditor and harm the debtor, and low LIBOR rates do the reverse. Because trillions of dollars of loans are based on LIBOR, the potential for harm from manipulation of LIBOR was great. At the time of the conspiracy, LIBOR was calculated by the British Bankers’ Association (BBA) for several currencies and several maturity periods. The BBA, whose members were large banks, calculated LIBOR by surveying a number of those banks, asking them to estimate what rate they—the banks themselves—would have had to pay to borrow money; the BBA then discarded several of the high and low estimates and averaged the remaining ones to determine the relevant LIBOR rate. (For U.S. dollar LIBOR, eighteen banks were surveyed, and the four highest and lowest estimates were discarded.) The conspiracy arose when the banks began to agree among themselves to submit false estimates. Sometimes they did this to make their own financial health look better than it was (by submitting low estimates, indicating that their borrowing costs were low), and sometimes they did so to profit in particular transactions. 92

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This manipulation of LIBOR, because it indirectly manipulated interest rates on loans, was akin to price-fixing. However, the banks did not directly fix interest rates, and indeed sometimes continued to compete in the loan market, but instead collusively manipulated a piece of information, the LIBOR benchmark rate, which indirectly influenced rates. The LIBOR rate was a sort of standard, an agreed-upon piece of information offered to participants in the loan market and intended to determine the nature of the products they bought and sold: LIBORdenominated loans. In the absence of LIBOR or some similar benchmark, parties to loans would have needed to choose another measure of market interest rates on which to base their variable-rate loans. Those parties would no doubt have chosen different measures, some better and some worse, perhaps, but LIBOR, by virtue of its presentation as a valid measure of market conditions, caused many loans to be standardized with LIBOR. The agreements among the banks to provide false rate estimates, thus distorting LIBOR, were challenged by a number of parties to affect loans as antitrust violations. However, Judge Buchwald in her LIBOR opinion (subsequently vacated, as discussed below) said that those agreements did not harm competition, because “the process of setting LIBOR was never intended to be competitive” but “was a cooperative endeavor wherein otherwise competing banks agreed to submit estimates of their borrowing costs to the BBA each day to facilitate the BBA’s calculation of an interest rate index.”30 As Judge Buchwald pointed out, the BBA banks continued to compete outside the LIBOR process, in the market for LIBOR-based financial instruments. A somewhat similar approach was taken in the D.C. Circuit’s Rambus decision with respect to standard-setting in an entirely different market, computer memory, ­ where the court raised doubts about whether deception in the standard-­ setting process was a harm to competition. 31 These courts misunderstood the way in which standard-setting eliminates competition. The standard-setting process itself is not the relevant competitive forum. 32 The courts are correct that standard-setting itself is not a competitive process. But the competition that is eliminated by ­standard-setting activities is not that within the standard-setting organization, but that which would have existed without it. In the absence of standard-setting, individual sellers would provide their own information, and that information would compete for acceptance by buyers in the marketplace—the real marketplace for information, not the 93

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standard-setting organization. The purpose of standard-setting is to eliminate that form of competition. Thus, even where the standard-­ setting process looks like, and is, more a technical evaluation than a market, it still displaces competition. It is for that reason that legislatures, courts, and agencies make clear that collective standard-setting activities must be conducted fairly. So the district court’s LIBOR opinion missed the mark. It is true, as Judge Buchwald said, that the LIBOR process was a cooperative, not competitive one. But that is exactly the problem: the BBA replaced informational competition with cooperation, just as straightforward price-­ fixing replaces price competition with cooperation. 33 LIBOR still perhaps could have been procompetitive if the BBA had done enough to ensure that the resulting cooperative process was conducted with sufficient protections to ensure that the displacement of competition did not cause harm. The Second Circuit Court of Appeals recognized exactly this point in vacating the district court decision: “The Banks were indeed engaged in a joint process, and that endeavor was governed by rules put in place to prevent collusion. But the crucial allegation is that the Banks circumvented the LIBOR-setting rules, and that joint process thus turned into collusion.”34 The appeals court cited not only Allied Tube but also an earlier Supreme Court case, Maple Flooring Manufacturers’ Association v. United States, which it said “distinguish[ed] between dissemination of pertinent information that stabilizes production and price, which is not unlawful, and improper use of that information through ‘any concerted action which operates to restrain the freedom of action of those who buy and sell.’”35 Protections to prevent improper use of the standard-setting process are mandated not because they transform the cooperative process into a competitive one, but because they ensure that cooperation is an appropriate substitute for informational competition.

Why an Agreement? Even if the procedures used by the BBA in administering LIBOR had been effective, though, it is not clear that the agreement would have been procompetitive. It would have been even more desirable to preserve competition among the means for addressing variability in interest rates. It is not obviously desirable to have only one approach to providing benchmarks for managing variable interest rates. That is, it is not clear that it was procompetitive for the BBA to enlist so many large banks in its 94

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process, leaving few available for any competing system that some other body might have wanted to adopt. The BBA’s enlistment of those banks not only made it more difficult for any competitor to arise for LIBOR, but also made many of the larger potential customers for such benchmarks likely to use LIBOR. In sum, although LIBOR helped provide a standard means for addressing variable rates, and that sort of standardization reduced costs, having two or three such means might have achieved all or almost all the same efficiencies and still retained competition that could have constrained the conduct of the BBA banks. This is a typical problem for joint ventures. 36 They can provide the benefits of integration, but they do so at the expense of elimination of competition. Sometimes, however, the benefits can be achieved without the harms. That can be so where there is the creation of multiple joint ventures. Each venture, if it is large enough, can produce the efficiency benefits that are available, but the existence of multiple ventures, if there are enough of them, can preserve competition at the level of the ventures themselves. This has been an important issue, for example, in credit-card markets. Visa and MasterCard are systems of banks, and they compete with each other and with American Express and Discover. That is, competition takes place at the venture level for card systems, as well as within card systems where banks compete on interest rates and other terms. 37 But Visa and MasterCard are the two largest of these ventures, and there is considerable overlap of bank membership between Visa and MasterCard, so there is some question about the vigor with which they compete against each other. There is reason for this, though, in that it is desirable to have broad bank membership in each network, to maximize intranetwork competition. To use the Visa network, a bank must be a member of that network, because it must have access to the network’s clearing facilities for charges. And the same is true for MasterCard, so to some extent it is necessary for membership to overlap if there is to be greater competition among the banks within each network. In contrast, to use LIBOR, parties to a loan need only incorporate LIBOR into their loan agreements and then check the LIBOR rate when the variable rate of the loan needs to be adjusted. Generally, where a joint venture like the BBA is creating information, there is no reason for its membership to be broader than that needed to produce useful information. Although a LIBOR rate that is the average of several banks’ rate estimates is probably more valuable than a rate based on only one bank’s estimate, it seems unlikely that eighteen banks were needed to produce 95

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an accurate value. If, say, only six banks were needed, then there could have been multiple competitors in the market for variable-rate benchmarks. Then if the rates produced by the competing benchmark producers differed, or differed significantly, it would have been an indication that there was a problem, and any conspiracy within one of the benchmark producers would have been less likely to succeed. In other contexts, even fewer potential information producers would be needed to produce valuable information. With respect to the law firms’ position paper, for example, it is not clear that firms need to cooperate at all, in that the view of each firm presumably has value individually.38 At the very least, the marginal value of additional firms decreases dramatically after the first few. Beyond that, the significance of adding firms comes less in the likely accuracy of the information produced and more in the power of a broad agreement. That power, however, is exactly the sort of “information-fixing” effect that antitrust law should seek to avoid. The key question, then, is whether the size of the venture producing information is determined by the need for multiple participants to produce information that is valuable in itself or if it is instead determined by a desire to make it more difficult to challenge the information produced. An analogy can be drawn here to how the U.S. antitrust agencies’ Competitor Collaboration Guidelines treat “marketing collaborations” and “research and development collaborations.”39 Both can involve the production of information, in that marketing collaborations can involve “promot[ing] goods or services,” and some technical standards could be viewed akin to research and development collaborations. The guidelines say that most such collaborations are procompetitive, but they also note that such agreements “can create or increase market power or facilitate its exercise by limiting independent decision making.” In an important respect, limiting independent decision-making is exactly what standard-­ setting is intended to do. It is intended to replace it with better collective decision-making, but the effect is still one of eliminating independent decisions.

Can Powerful Speech Be Procompetitive? As noted above, there are certain circumstances in which agreements on information can be valuable. In an antitrust context, such agreements would be those that improve competition or markets, rather than 96

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hindering competition. Most often, this will be the case when a standard remedies some sort of market failure. A 1983 Federal Trade Commission report, Standards and Certification, describes a number of these purposes, which the report terms “market perfecting effects”:40 Standards can provide a basis for comparison and can establish consistent terminologies, through standard definitions, measurements, and test procedures. Standards can reduce the range of variety of products, and can promote the compatibility of products used in systems or with complementary products. Standards can also assure desired quality and performance levels. Finally, standards form the basis for approval under most third-party and self-certification programs, and can become important marketing tools.41 Interoperability standards—standards that are intended to allow multiple products to work together—meet an obvious market need. In the absence of such standards, firms would have to incur considerable additional costs with respect to individual products, or even individual product pairs, to enable them to interoperate. By eliminating those costs, an interoperability standard can create enormous efficiencies. Moreover, such standards generally specify only one aspect of a product, and there generally remains significant competition in the other aspects of the product. As a result, there is no real question that these standards have an efficiency-enhancing purpose. The other types of standards that are often accepted are those that seek to ensure a particular level of safety or quality. The standards in Allied Tube and in Schachar were of this kind. Often the purpose of these standards is to address problems that can arise from consumers’ inadequate knowledge of the products they are considering. As the FTC report says, “[i]n markets characterized by asymmetric information about product quality (sellers know more about product quality than buyers), standards can provide significant benefits to purchasers by increasing and improving market information. . . .”42 The report particularly notes the importance of such efforts where goods have experience and credence characteristics, as discussed in Chapter 2. In such an instance, one could think of the market as including both good (accurate) and bad (inaccurate) information. There would then be a market failure if consumers were unable to choose between the good and bad information. In that case, a powerful producer of good 97

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information could help correct the problem. That is, the power of an information provider could be desirable, in that it could ensure that the opinion of that provider is heard, and consumers could readily accept the information provided by an authoritative speaker. However, these benefits of the power of an information provider are limited. The goals would be only to ensure that the provider’s information was adequately considered and given its fair value. If the effects of a powerful information provider went further, to be coercive or to drown out other speakers, those effects would be anticompetitive.

Coercion and Persuasion As discussed above, the Schachar case took the view that when a trade association provides information but does not enforce compliance with that information, there is no antitrust issue. But the effects of information cannot be dismissed so easily. It is too simplistic to create a dichotomy with antitrust restraints, like refusals to deal and other forms of coercion, on a “supply” side and information on a “demand” side. Coercion and persuasion in fact lie on a continuum.43 We have all had the experience of making purchasing decisions on limited information and later, when we have more information, regretting our earlier decisions. And the purpose of standardization is to limit information. So long as it does so in an accurate, balanced way, this can be a benefit to consumers, because consumers may not be able to do that filtering themselves. But if available information is distorted by the commercial interests of those in control, consumers can be presented with a skewed picture that improperly influences decisions. The fact that they are not literally forced to make those bad decisions is small consolation. Information can have an effect approaching coercion on either sellers or buyers. Considering sellers first, even Schachar acknowledged that it is a “restraint” when “one group of suppliers diminishes another’s ability to peddle its wares.”44 Some standards, of course, are adopted by government bodies, and the providers of such de jure standards therefore will have the ability to limit their competitors’ ability to sell.45 Such government adoption is not uncommon even for privately developed standards. “Government authorities, in essence, delegate product evaluation to standards developers and certifiers by adopting standards wholesale into their regulatory and procurement programs.”46 This practice has

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become even more prevalent in recent years in both the United States and Europe, because in both, regulatory changes have encouraged governments to turn to private certification marks.47 When a standard is adopted into law, so that sellers must comply, the legal adoption can eliminate competition from noncomplying products, regardless of whether consumers view the legal requirements as important ones. In this context of government adoption of privately developed standards, the allocation of responsibility for any anticompetitive effects is not entirely clear. The U.S. Supreme Court confronted exactly this situation in Allied Tube, where the standard was “routinely” adopted into law.48 The defendant argued that it should therefore be immune from antitrust liability under the Noerr-Pennington doctrine, which immunizes conduct petitioning the government. The Court rejected that argument: “[T]he activity at issue here did not take place in the open political arena, where partisanship is the hallmark of decision-making, but within the confines of a private standard-setting process. The validity of conduct within that process has long been defined and circumscribed by the antitrust laws without regard to whether the private standards are likely to be adopted into law.”49 In Allied Tube, however, the Court was reviewing a decision that had imposed liability only for the effects of the standard in the marketplace, not as a result of government adoption of the standard. That leaves somewhat unclear what would be the result in a case based solely on the effects of government adoption of a standard. The Court suggests, though, that government adoption will not immunize the effects of ­standard-setting unless the standard-setting process has met the requirements that would justify allowing private agreement: This conclusion does not deprive state and local governments of input and information from interested individuals or organizations or leave petitioner without ample means to petition those governments. Petitioner, and others concerned about the safety or competitive threat of [a particular product], can, with full antitrust immunity, engage in concerted efforts to influence those governments through direct lobbying, publicity campaigns, and other traditional avenues of political expression. To the extent state and local governments are more difficult to persuade through these other avenues, that no doubt reflects their preference for and

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confidence in the nonpartisan consensus process that petitioner has undermined. Petitioner remains free to take advantage of the forum provided by the standard-setting process by presenting and vigorously arguing accurate scientific evidence before a nonpartisan private standard-setting body. And petitioner can avoid the strictures of the private standard-setting process by attempting to influence legislatures through other forums. What petitioner may not do (without exposing itself to possible antitrust liability for direct injuries) is bias the process by, as in this case, stacking the private standard-setting body with decisionmakers sharing their economic interest in restraining competition.50 Another coercive effect can arise when a standard-setting organization, or a group of its members, seeks to penalize in some way those who provide goods or services that do not meet the organization’s standards. This has occurred with some medical standards. In 2008, for example, the Connecticut attorney general completed an antitrust investigation into the process by which the Infectious Diseases Society of America (IDSA) had issued guidelines for the treatment of Lyme disease. There was (and is) considerable controversy in the medical community regarding so-called “chronic Lyme disease.”51 Some physicians and patients believe that longterm and often debilitating symptoms are lessened or cured by long-term but expensive (thousands of dollars per week) antibiotic treatments. Other physicians believe that there is no such thing as chronic Lyme disease and that long-term antibiotics will not cure these patients’ conditions.52 Into this controversy stepped the IDSA, which in 2006 issued guidelines that stated that antibiotic therapy was “not recommended.” The Connecticut attorney general determined that the IDSA’s process was badly flawed, and the IDSA agreed to an antitrust settlement, as will be discussed below. With respect to coercion, the main point is that as a result of the IDSA guidelines, doctors who prescribed the long-term antibiotic treatments were investigated and even prosecuted. Many doctors in several states were subject to professional disciplinary proceedings because their treatment approach did not conform to the IDSA guidelines.53 Although it is unclear whether the IDSA itself engaged in encouraging any of these proceedings, it appears that some members of the original panel that issued the guidelines did so, at least as expert witnesses.54 The decision largely dismissing disciplinary claims against one doctor pointed to the contentious nature of the issue: 100

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This appears to be a highly polarized and politicized conflict, as was demonstrated to this Committee by expert testimony from both sides, each supported by numerous medical journal articles, and each emphatic that the opposite position was clearly incorrect. It fact, it often appeared that the testimony was framed to espouse specific viewpoints, rather than directly answer questions posed.55 Controversies like this one are inevitable, and each side is entitled to its views, but when one group takes advantage of the authority of a respected organization like the IDSA to pursue those who disagree with it, that conduct goes beyond the proper use of information. It also leads one to wonder if consumers are in fact the intended audience for the standard. Although the antitrust laws permit a group of doctors to join together to seek government action (so long as they do not do so improperly, as discussed above), a joint effort to cause action by a private disciplinary board or an insurer might stand on a different footing. 56 The antitrust issue would turn on whether the effort created an agreement among the doctors and, for example, the insurer, or if the insurer acted on its own in response to the information the doctors provided. In this respect, it seems that the information that would be appropriate to provide these “consumers” would not be the same as the information that would be appropriate for individuals. Insurers and professional boards would presumably have sufficient expertise that to provide a simple up-or-down recommendation, as was done in the Lyme case, would not be appropriate. Another example similar to the IDSA’s “not recommended” label applied to treatment of chronic Lyme disease was the statement by the American Academy of Ophthalmology at issue in Schachar, which labeled radial keratotomy “experimental.” That label, too, caused insurers to cease reimbursement. Indeed, many insurance policies specifically exclude “experimental” treatments, so it is possible that the label was chosen specifically to achieve that result. That is especially so in that it the “experimental” label does not seem to convey much useful information. Issuing a label that “routinely” causes insurers to refuse to reimburse for a particular service is not very different from issuing a standard that is “routinely” adopted into law, as in Allied Tube. In either case, to the extent that the effort eliminates informational competition, it should only be permissible if the organization at issue provides the protections that Allied Tube requires for the elimination of competition. 101

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The fundamental point is that the recipients of information from standards providers should make their own decisions regarding what goods should be purchased, and they need information that is useful for making that decision. If standards providers deliver information in such a way as to cause a large proportion of downstream firms or consumers to act uniformly, and particularly if the standard-setters know that the information will cause that result, the standard-setting is causing a market failure, not remedying one. As the Court said in Allied Tube, there is a “distinction between activity involving the exercise of decision-making authority and market power and activity involving mere attempts to persuade an independent decisionmaker.”57 The problem can also be seen by analogy to antitrust law’s state-action doctrine, which immunizes private parties for government-authorized trade restraints only if the government actively supervises the private action. 58 No such rule specifically requires active decision-making on the part of private firms, like insurers, that act in response to standards, but there is also no immunity for standard-setters that prompt such action. In fact, standard-setting that routinely causes private action seems a better candidate for liability than does such action that routinely causes government action.

Informational Power Standards can also acquire de facto power that prevents consumers from accepting other information, even when that information is more accurate. Competition in the informational realm is not simply the task of producing information but also requires the ability to deliver that information in a form that consumers will accept. The difference is made clear in one of the more prominent U.S. standard-setting cases, the FTC’s case against the American Society of Sanitary Engineering (ASSE).59 In that case, J.H. Industries, Inc., had manufactured an innovative “Fillpro” toilet tank fill valve, which it contended had advantages over the traditional ballcock valves that were approved under the ASSE’s standard. The FTC said that J.H. had “reasonably established in its application [to the ASSE] that its product adequately meets the implicit or explicit performance goals required by the existing standard.”60 Yet the ASSE did not change its standard to approve J.H.’s valve, and the FTC alleged an antitrust violation: “ASSE had no reasonable basis or justification for rejecting the innovative design and relying on ballcocks with vacuum breakers or air gaps as the only acceptable design for toilet tank 102

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fill valves. Therefore, ASSE’s refusal constitutes a concerted refusal to deal with J.H.”61 There was no obstacle here to J.H.’s production of its product, nor any to its delivery of information about the product, but that was not enough. According to the FTC, “evidence of compliance with an ASSE standard is essential for manufacturers of plumbing products to do business in many markets.”62 Thus, the FTC distinguished J.H.’s ability to establish the compliance of its product as a technical matter and the ability to obtain acceptance of that compliance among users of the standard. Consumers did not want information about performance; they wanted information about compliance with the ASSE standard. Approval was critical because “many building code and regulatory officials and others are led to believe that ASSE-approved ballcock valves are the only appropriate, acceptable, and adequate means of [meeting the goal].”63 This circumstance is not unusual, as the FTC said in its standardization report: “[B]uyer reliance and commercial custom in many markets essentially compel manufacturer compliance with voluntary standards.”64 Nor was the creation of this reliance accidental, as the FTC said that it was “a result of ASSE’s representations as to its expertise in plumbing generally, and in all types of backflow prevention devices in particular, and its representations as to its leadership in incorporating innovative technology into its standards program.”65 Generally speaking, it is not anticompetitive for a producer to contend that its product is the one that consumers should accept. However, these efforts can create informational power. Like any form of market power, informational power is not illegal in itself, but it can make the standard-setting organization’s competitive impact significant and give rise to greater scrutiny of its conduct. This sort of de facto power can be difficult in some cases to distinguish from simple consumer preference. The issue is addressed in a European case, EMC​/ European Cement Producers, 66 in which the complainant, EMC Development AB, alleged that a standard for cement products was anticompetitive, but the claim was rejected: According to EMC, the sales of Portland cement, complying with the EN 197–1 Standard, represent between 85% and 90% of total sales of cement in Europe. EMC considers that this fact demonstrates that EN 197–1 Standard is de facto mandatory. This assumption cannot be accepted. The fact that Portland cement is 103

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prevalent in Europe simply reflects consumers’ preferences. This fact has to be analysed taking into consideration that the Portland cement, introduced into the market during the 19th century, is by far the most known and well tried category of cement in the world. It is therefore not astonishing that Portland cement is so widespread in Europe. In these circumstances, the size of Portland cement’s sales cannot be considered as an evidence of the de facto mandatory nature of EN 197–1 Standard.67 Here then, apparently, consumers had developed demand for Portland cement before the development of the standard, so the Commission was unwilling to accept compliance with the standard as necessary. Although that seems a reasonable approach if the excluded product was also available during the prestandardization period, that was not the case in EMC​/ European Cement Producers, because the complainant’s product was new, so the prestandardization adoption of Portland cement cannot be taken as proof that, absent the standard, it would have been preferred to the complainant’s product. Indeed, the complainant’s product was excluded from approval under the standard in part because the standard required that a product be “traditional and well tried.”68 The larger point, though, is that the Commission appeared to accept that a standard could be de facto binding. And it did so even though its Guidelines on Horizontal Co-operation Agreements seem to indicate concern only over “standards requiring that a particular technology is used exclusively for a standard or preventing the development of other technologies by obliging the members of the standard-setting organisation to exclusively use a particular standard.”69 U.S. courts have taken a similar approach, apparently accepting that this sort of de facto power can exist and cause competitive harm, but they have also often rejected such claims on the facts. In Consolidated Metal Products, Inc. v. American Petroleum Institute,70 for example, where the American Petroleum Institute (API) took several years to approve the plaintiff’s product, the court said that “[i]f users choose freely to rely on API approval, API has influence principally because it has done a good job evaluating products.”71 The court in Consolidated Metal Products, however, had some evidence that API approval really was not necessary, in that the plaintiff in that case was able without approval to sell “substantial amounts” of its product. It is difficult to know, however, whether that is a sufficient 104

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indication that the API had insufficient power to harm competition. Courts generally do very little analysis in making such assessments, so there has been little development in the law of techniques for measuring informational power.72 Havighurst and Brody say that “[i]t should be possible to estimate an accreditor’s market power by evidence of its influence and of the degree to which its technical and value judgments are trusted by major market actors, including government authorities.”73 This seems to be a reference to the “mindshare” concept mentioned in the previous chapter. As is often said, though, market share does not necessarily indicate power, if other providers could easily enter the market. Such other providers could either be individual sellers affected by the standard or other standard-setting organizations.

Competition among Standard-Setters If there is no official mandate requiring compliance with a particular standard, it would seem that a competitor unsatisfied with current standards could simply create a new standard to which users could also turn. But those who rely on standards generally want only one standard, not only for interoperability standards74 but for quality standards as well. If more than one standard is available, then users must choose between them, and the evaluation required to make that choice is exactly what standardization is intended to avoid. As the FTC wrote in its 1983 staff report, “[u]se of a standard is far more efficient than endless repetition of the product evaluation process.”75 The same is true, presumably, of the standard-evaluation process. Nevertheless, there are areas in which multiple standards coexist. A number of organizations provide fair-trade certifications, for example.76 Similarly, there are several sources of “green building” certifications,77 though in the latter case there has been discussion of the possibility of antitrust liability, in part as a result of efforts by certifiers seeking government adoption of their standards.78 This sort of competition among standard-setters is uncommon, however. As Havighurst and Brody say, “[a]ttention has never been directed explicitly to the problem of fostering competition in markets in which accreditors themselves compete, producing information and opinion for public consumption.”79 They even emphasize the benefits of focusing on the information market, rather than on the ultimate product market: “If antitrust enforcers and courts could identify remediable restraints of trade affecting the quantity, 105

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variety, and quality of the information being generated in such markets, they might no longer feel bound to follow cold trails, searching for harms to competition only in markets in which the effects of information are felt.”80 Multiple standards are not common, however, where the standardization effort is led by trade associations. One important reason for that is the manner in which such standards are produced: A small portion of the costs of standards development is borne by the organizations which sponsor or coordinate development activities. The bulk of the resources that go into standards activities is provided by firms. In the first instance, standards developers usually derive a significant portion of their revenues from dues of participating member companies. Beyond these figures though, the real costs, the costs associated with volunteer participation, are external to the standards organization. These costs include time off from work to participate in meetings, travel and subsistence expenses, and other costs attendant to advance preparation. They can be quite significant. It is not unusual for hundreds of thousands of dollars and thousands of person-hours to be invested in a single standards initiative.81 The FTC also made this point in the ASSE case, where it said that manufacturers of plumbing products, who were members of the ASSE, “[p]articipate[d] in the development of ASSE standards by . . . ​(a) providing technical expertise upon which standards are based; (b) participating in drafting proposed standards; [and] (c) underwriting the costs of standards development. . . .” Therefore, without comparable assistance, both technical and financial, the applicant in that case would have been at a considerable disadvantage; even with such assistance,82 the time it would have taken to establish the same sort of recognition and acceptance was probably also a longer period than the applicant could have survived. The cost structure of information discussed earlier contributes to this issue. If we imagine a new producer or user considering whether to adopt an existing standard or a new one, the existing standard will be at a considerable advantage. For that standard, the fixed costs of developing the standard have already been incurred, and the only cost of applying the standard to a new user is that of evaluating compliance. A new standard, however, will need to recoup the costs of creating the standard, unless those costs are borne by others, like the members of a trade 106

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association. In many instances, it may also be necessary for a new ­standard-setting body not just to develop a new standard but also to establish the validity of its standard, which may require both additional expense and considerable time. One way to assess the level of difficulty is to compare the number of market participants that are part of the organization that created the existing standard with the number that would be available to support a new standard. It is interesting that the FTC in considering the efforts of the ASSE did not discuss the number of plumbing professionals, either in absolute terms or in percentage share, who were part of the ASSE. It is that number which would presumably indicate how many would be unavailable to a new entrant in the product market or to a new standard-­ setting organization if either sought to compete with the ASSE’s standards. This echoes the point made above regarding the BBA’s inclusion of many large banks in its LIBOR process, which would have made it more difficult for another organization to create a competing benchmark rate. These examples illustrate a general problem with standard-setting by large trade associations. Generally speaking, even if members of an association do not all hold the same view, the association will issue only one standard. The criteria for producing a standard are discussed below, but generally there would be no real obstacle to an association providing the ability for a certain subset or subsets of its members to issue a standard. In that case, there could be multiple standards issued by a single trade association. Although in some circumstances this could create ­confusion, so long as the standards merely approved particular types of products, it seems that problems would be minimal, since there is no reason that multiple competing products could not all be approved. This is in fact how some standard-setting organizations, such as those that approve multiple telephone standards (3G, 4G, LTE) that share the market, operate, and they appear to do so without any particular problems.

Evaluating Standard-Setting Conduct A powerful standard is not necessarily an anticompetitive one, of course. So long as the standard-setting process is conducted properly, standards, even powerful ones, can be procompetitive. This is the view both in Europe and in the United States. The EC Guidelines state that standards 107

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usually have the effects of “promoting economic interpenetration on the internal market and encouraging the development of new and improved products or markets and improved supply conditions.” And in Allied Tube, the U.S. Supreme Court said that standards can have “significant procompetitive advantages.”83 But both jurisdictions also recognize that standard-setting has “a serious potential for anticompetitive harm.”84 As noted above, Allied Tube required “safeguards” to prevent the standard-setting process from being exploited by private self-interest. Specifically, it said that procompetitive standard-setting requires “standards based on the merits of objective expert judgments and through procedures that prevent the standard-setting process from being biased by members with economic interests in stifling product competition.”85 Unfortunately, subsequent cases have added little to these general statements. In the United States, despite lower-court decisions in a number of standard-setting cases subsequent to Allied Tube, none—literally none— has performed a serious substance-and-procedure analysis along the lines directed by Allied Tube. 86 It is important to note that this scrutiny does not call for an evaluation of the technical merit of the standard. As Herbert Hovenkamp has argued, antitrust tribunals do not generally have the expertise to answer the technical questions that standard-setting presents, so that “[w]ell formulated antitrust rules should try to evaluate standard setting whenever possible by avoiding these difficult technological issues.”87 And courts and agencies recognize this point. In an investigation into the determination and promulgation of a standard for the treatment of Lyme disease, for example, the Connecticut attorney general stated that “[o]ur investigation was always about the IDSA’s guidelines process—not the science.” The question, then, is whether tests like those advanced in Allied Tube can fruitfully be applied by the courts in standard-setting cases. That is, assuming a standard-setting organization has the power to injure competition, do those tests provide useful tests for antitrust liability? In fact, they do—or at least they could. Sometimes standard-setting processes clearly fail the tests, often because members of the organizations are able to exploit those processes, but the courts generally have had little trouble with those cases (with the district court decision in LIBOR an exception). The Supreme Court, for example, has affirmed liability in several such cases. There is some difficulty in determining whether there should be liability only for the members who exploit the 108

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processes or for the organization as a whole, as will be discussed below, but liability can in some cases be clear. The more difficult cases are ones in which the standard-setting organization and its members appear to be proceeding in good faith, but competition is arguably injured. For example, the organization’s responsible officials might not give sufficient consideration to a new technology, or might take too long to approve it, or they might have conflicts of interest that give rise to concerns about the process. Not surprisingly, the competitive concern here is exclusion. In markets for tangible products and services, too, it can violate the antitrust laws to exclude a competitor from the market. The key issue, then, is that of developing techniques for evaluating exclusion from information markets when standards have sufficient power to harm those markets. These problems, however, are not just legal ones. The quality of ­standard-setting is obviously of great concern to businesses subject to standards, and as a consequence standard-setting organizations and other concerned stakeholders have devoted significant attention to the sorts of problems that can arise in standard-setting processes. There are in fact standards for standard-setting, and they are similar to those demanded by Allied Tube. Some are focused on the evidence that is used in the standard-setting process or, in Allied Tube’s terms, whether the standard is “based on the merits of objective expert judgments.” For example, one set of criteria appeared in a 2011 study by a committee of the Institute of Medicine, part of the U.S. National Academy of Sciences.88 The study established the following “evidence foundations”: For each recommendation, the following should be provided: • An explanation of the reasoning underlying the recommendation, including • A clear description of potential benefits and harms; • A summary of relevant available evidence (and evidentiary gaps), description of the quality (including applicability), quantity (including completeness), and consistency of the aggregate available evidence; • An explanation of the part played by values, opinion, theory, and clinical experience in deriving the recommendation. • A rating of the level of confidence in (certainty regarding) the evidence underpinning the recommendation 109

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• A rating of the strength of the recommendation in light of the preceding bullets • A description and explanation of any differences of opinion regarding the recommendation.89 It seems unlikely that these sorts of evidentiary bases were available for many of the standards considered in antitrust cases, but it is difficult to know because the cases generally do not even discuss the issue. Other “standards for standards” ask relatedly whether the focus of the standard is on performance of the products at issue, or if the standard unjustifiably focuses on particular designs.90 For example, a federal statute provides that “[e]ach Federal agency shall, if appropriate, develop standards based on performance criteria, such as those relating to the intended use of a product and the level of performance that the product must achieve under defined conditions, rather than on design criteria, such as those relating to the physical form of the product or the types of material of which the product is made.”91 This approach would have been very valuable in a case like the ASSE one discussed above, where the standard at issue required a specific type of valve, not one that achieved specific performance goals. Finally, other guidelines emphasize the constitution of standard-­ setting bodies and the processes used by them, i.e., whether there are “procedures that prevent the standard-setting process from being biased by members with economic interests in stifling product competition.” The U.S. government, for example, has a policy of relying on private standard-setting efforts, but by statute it relies only on “standards that are developed or adopted by voluntary consensus standards bodies.”92 The statutory definition of a “voluntary consensus standards body” ­includes significant procedural protections: A voluntary consensus standards body is defined by the following attributes:

(i) Openness. (ii) Balance of interest. (iii) Due process. (vi) An appeals process. (v) Consensus, which is defined as general agreement, but not necessarily unanimity, and includes a process for ­attempting to resolve objections by interested parties, 110

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as long as all comments have been fairly considered, each objector is advised of the disposition of his or her objection(s) and the reasons why, and the consensus ­ body members are given an opportunity to change their votes after reviewing the comments.93 Again, there is almost no attention paid in the cases to these factors. Given the acceptance of these criteria in the business community and in statutes, there is every reason to hold standard-setting organizations to those standards when they eliminate informational competition. Although the cases do not generally do so, the 2008 investigation by the Connecticut attorney general into the IDSA’s procedures in developing Lyme standards did make a serious effort to assess the quality of those procedures. The investigation revealed what the attorney general described as “serious flaws” in the IDSA’s process for writing the guidelines.94 Among the findings were that “several of the 2006 Lyme disease panelists had conflicts of interest, that “[t]he IDSA’s 2000 and 2006 Lyme disease panels refused to accept or meaningfully consider information regarding the existence of chronic Lyme disease, once removing a panelist from the 2000 panel who dissented from the group’s position on chronic Lyme disease to achieve ‘consensus,’” and that “[t]he IDSA blocked appointment of scientists and physicians with divergent views on chronic Lyme who sought to serve on the 2006 guidelines panel by informing them that the panel was fully staffed, even though it was later expanded.”95 As a result of this scrutiny, the attorney general’s office entered into an agreement with the IDSA “calling for creation of a review panel to thoroughly scrutinize the 2006 Lyme disease guidelines and update or revise them if necessary,” though the 2006 guidelines would remain in place in the interim.96 In 2010, a review panel determined that no changes were necessary in the 2006 guidelines, though it offered some suggestions for the next updating of the IDSA’s Lyme guidelines.97 One wonders, of course, whether this remedy achieved anything of value, but it seems clear that some enforcement action is necessary when the standard-­ setting process has been conducted in a substandard manner. Moreover, the important issue is not the validity of any particular standard but the application of the principles established by the Supreme Court and recognized by private bodies to ensure the integrity of information markets. 111

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Who Are the Conspirators? Because standard-setting bodies are often trade associations or professional organizations, yet the challenged conduct is not always that of the organization as a whole but only of certain of its members, it is not always clear who should be the defendants in a standard-setting challenge. Perhaps only particular members should be defendants, and the organization itself could be viewed merely as an innocent bystander. On the other hand, if the organization created the standard-setting process that was exploited to anticompetitive effect, there may be reason to hold it responsible as well. But sometimes an organization is viewed by antitrust law as a single entity, in which case its actions would be unilateral, not the product of a conspiracy. A recent case addressing these issues was Abraham & Veneklasen Joint Venture v. American Quarter Horse Association (AQHA).98 The plaintiffs had formed a business to clone quarter horses with the goal of entering them into competitions sponsored by the defendant organization. According to the court, “‘[m]eaningful participation in this multimillion dollar industry is dependent upon AQHA membership and AQHA registration,’”99 but the organization’s board declared that cloned horses were ineligible for AQHA registration. Although the effect of this decision was more akin to a boycott in the ultimate product market (participation in quarter horse competitions) than a purely informational agreement, the court’s discussion of the conspiracy issue is instructive. It began from the Supreme Court’s American Needle decision, in which the Supreme Court said that the key to the conspiracy inquiry is whether the arrangement joins together “separate economic actors pursuing separate economic interests.”100 The AQHA court suggested that it was not clear that this test was well adapted to the AQHA, since its “self-interest as an organization is not limited to profit.”101 The court assumed, though, that a conspiracy was possible and moved on to consider whether there was sufficient evidence of one. The plaintiffs’ evidence focused primarily on the alleged interests of some horse breeders in excluding cloned horses and on those breeders’ influence on AQHA decision-making. The court rejected that evidence as insufficient, however, observing that “even if this ‘boys club’ existed to exert influence generally,”102 there was no direct evidence of conspiracy, and many of the members had no obvious financial interest in excluding cloned horses. The problem with this approach is that it demands direct evidence of 112

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one agreement—the one among the participants in the decision-making body—when there may be another agreement—the one constituting the decision-making body—that makes the first agreement unnecessary. The latter agreement in AQHA was one among the members of the organization as a whole that set up the board, and the former would have been another agreement among (some of) those who voted to prohibit cloned horses. The court is certainly right that the use by some members of their influence on others need not be viewed as an agreement. But it is also the case that the creation of a committee that is unbalanced, and that thus gives free rein to the influence of certain members, could, and should, be treated as an anticompetitive agreement. It is an agreement that fails, in Allied Tube’s words, to “prevent the standard-setting process from being biased by members with economic interests in stifling product competition.” The underlying problem here is that standard-setting organizations are often dominated, numerically at least, by members that have become prominent under past conditions, and who thus favor the status quo. Yet the important questions that standard-setting processes must decide are typically those that involve whether new products are satisfactory. For that reason, any standard-setting process that does not offer opportunities for new entrants to make their cases for compliance is likely to be inherently biased. This is exactly why the U.S. statutory procedural protections listed above focus on a balance of interests in the decision-­ making process and even on a right of appeal. Given the general acceptance of the importance of these factors, a failure of an organization to include them should give rise to liability, especially as it is the organization itself that controls the power that harms competition. Under these circumstances, requiring plaintiffs to prove an agreement among the specific members who block a new product does not address the problem. If the process includes only members who oppose the new product, or even only those who oppose it and those who are indifferent, then the product is unlikely to be approved. That was the case, for example, not just in AQHA but also in the Connecticut Lyme investigation, as well as in many other challenges to standard-setting activities. In Allied Tube, for example, there was arguably no agreement but simply an exploitation of the organization’s rules by a single party. Although the Court’s willingness to hold that individual party liable makes sense, it would equally make sense to hold the organization liable for implementing a process that is subject to that sort of exploitation. 113

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Perhaps for this reason, the U.S. Supreme Court has had no difficulty in treating even well-established trade associations as capable of establishing a conspiracy, even where the organization’s process was deliberately subverted by members. In American Society of Mechanical Engineers v. Hydrolevel Corp.,103 a member of the American Society of Mechanical Engineers (ASME) arranged for distribution of a letter on the ASME’s letterhead suggesting that a competitor’s product was not in compliance with an ASME standard. The Court said that “the injurious statements [we]re ‘effective, in part at least, because of the personality of the one publishing it,’” i.e., the ASME.104 It therefore found the ASME liable on an apparent authority theory. As a result of the case, the ASME modified its standard-setting procedures, which is exactly the result that the law should encourage. A European case, NV IAZ International Belgium v. Commission,105 referred specifically to the need for a standards organization to have rules that prevented exploitation by its members. In that case, manufacturers and importers of appliances in Belgium that were members of a certifying organization, ANSEAU, used their control over a seal of approval to deny competitors entry into the Belgian market. The manufacturers and importers acted intentionally in this respect, yet although the court said that ANSEAU itself was merely grossly negligent, it was also liable: It follows that ANSEAU was aware of the need to adopt rules which would not adversely affect parallel imports and that it was also aware that the other contracting parties had no intention of introducing any such rules. In those circumstances ANSEAU was guilty of gross negligence in becoming a party to the Agreement, particularly since its function is to act in the public interest and since the implementation of the proposed rules depended on its cooperation.106 A case like LIBOR is arguably more difficult. Recall that in that case, the British Bankers’ Association (BBA) set up a system for the submission of interest rate estimates by its member banks, which were then averaged to create the LIBOR rates used as benchmarks for variable-rate loans. The conspiracies that distorted LIBOR did not involve the BBA itself but were instead conspiracies between pairs of member banks. Perhaps the BBA could have prevented such conspiracies by imposing a system of checks, though, or perhaps the process of using private, 114

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self-interested banks to provide estimates that could not be easily assessed by others was inherently subject to exploitation.107 In that respect, perhaps the BBA had chosen an approach that could not, in the words of Allied Tube, “prevent the standard-setting process from being biased by members with economic interests in stifling product competition.” In sum, one could take this approach: If the anticompetitive conduct occurred because of insufficient procedural protections in the standard-­ setting process the organization created, the organization should be ­liable, as the ASME case indicates. If, on the other hand, the conduct occurred in spite of reasonable protections—no protections will be 100-percent effective—then liability for the organization is not obviously reasonable. In that case, it seems preferable to confine liability to the parties that avoided or subverted the organization’s protections. In that respect, confining liability in Allied Tube to the individual company that “stacked” the standards meeting with voters might have been appropriate; if, on the other hand, the organization failed to respond to that exploitation in its rules and it happened again, liability for the organization would be appropriate. One question that might arise with respect to organizational liability is whether a disadvantaged competitor should be able to sue a standard-­ setting organization, given that the organization is not generally itself a competitor in the market for the standardized product. But the producer and the organization are competitors in the information market. In the absence of the misuse of the organization’s informational power, either by the organization or by its members, an individual producer would generally be able to compete effectively in the information market with information that would succeed or fail on its merits to persuade consumers. To the extent that distortion of the information market can be attributed to the organization’s power and conduct, the organization should be responsible for its injury to individual producers in that market.

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n a hig h ly p u b l iciz e d 2 0 1 5 s t u dy ,

Michael Luca, Tim Wu, and others provided evidence suggesting that Google delivers low-quality search results in a way that disadvantages its competitors.1 Specifically, they focused on Google’s “Universal Search” results for so-called “local intent” searches. With “Universal Search,” Google does not display only a list of “ten blue links,” but also a box in which it provides additional links to particular businesses.2 “Local intent” searches are searches for businesses in a particular locality. In their study, Luca et al. displayed two alternative results to users: one was Google’s actual results page, in which Google includes only information from its own related products (like Google Plus Local and Google Shopping), and the other was a set of results from other providers. The results from other providers were compiled from Google’s own organic search results, though, and then substituted in the same box in which Google displays its own results.3 The study found that users selected the alternative results more often than Google’s own results.4 That is, users apparently preferred Google’s Universal Search box with the inclusion of non-Google information to the box limited to Google-only information. Stated that way, the results seem obvious: of course users would prefer results chosen from a broader pool than from a narrower one. But it is not so very easy to demonstrate these sorts of preferences, because it is not easy to construct the relevant side-by-side comparisons. Although Google determines what changes to make in its own search algorithm by conducting similar side-by-side comparisons, the results of its comparisons are of course not public. 116

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The study’s results are particularly interesting because the Federal Trade Commission (FTC) apparently relied on a somewhat similar approach in dismissing its investigation into Google’s alleged search bias: While Google’s prominent display of its own vertical search results on its search results page had the effect in some cases of pushing other results “below the fold,” the evidence suggests that Google’s primary goal in introducing this content was to quickly answer, and better satisfy, its users’ search queries by providing directly relevant information. . . . ​For example, contemporaneous evidence demonstrates that Google would typically test, monitor, and carefully consider the effect of introducing its vertical content on the quality of its general search results, and would demote its own content to a less prominent location when a higher ranking adversely affected the user experience. Analyses of “click through” data showing how consumers reacted to the proprietary content displayed by Google also suggest that users benefited from these changes to Google’s search results.5 How do we reconcile these two results? On the one hand, Luca et al. say that Google is delivering lower quality information than it could deliver; on the other, the FTC says that users benefit from Google’s choices regarding what to deliver. One possibility is that Google is careful in which head-to-head comparisons it makes, which would allow the company to justify almost any change to its results. For example, Google would not need to conduct the test that Luca et al. conducted. Instead, it could compare search results with and without the Universal Search box, and users would likely prefer results with the box. And it could compare different presentations of the box, all of which provide only Google results, and adopt the preferred versions. In this way, Google could continue to test and make incremental improvements to its results, all of which excluded its competitors, and the process would be consistent with the results both of the FTC and Luca et al. Whether Google in fact engages in this or a similar approach is, of course, unknown, given the secrecy with which it maintains its search practices.6 In any event, the upshot of the Luca study is that Google may be sacrificing informational quality in one of its products—its organic search results—to favor others of its products—the local, vertical search products that it includes in the Universal Search box.7 Why would it do such a thing? One possibility is that it is simply making a mistake. Another 117

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possibility, though, is that sending users to its own local search products is more profitable than sending them to similar products from its competitors. More precisely, it may profit more from local search than it loses from lowering the quality of its organic search results and making its organic search less attractive. It might even lose nothing from the lower quality of its results because users may not be aware when they view Google’s own products that they would prefer other alternatives that they are never offered. The question is whether in this and similar contexts antitrust would have a role to play.

Unilateral Exclusion When the conduct of single firms causes competitive harm, the nature of the harm is typically different from that caused by agreements. As described in the previous chapter, horizontal agreements cause harm by eliminating competition among the agreeing firms, restricting the options available to consumers. In some cases, single-firm conduct can cause similar harm if the firm is very large because then consumers may not have alternative sellers to which they can turn.8 But the concern regarding unilateral conduct is more often that of exclusion of competitors. When dominant firms control access to an important element of competition, they can deny access to competitors, putting those competitors at a disadvantage. This sort of exclusion can then give the dominant firm the power to raise prices or lower the quality of the goods that it provides to consumers. A typical example of this sort of exclusionary conduct, which is called monopolization in the United States and abuse of dominance in the EU, is Lorain Journal Co. v. United States.9 The dominant firm in that case was a newspaper publisher, which the Court said “enjoyed a substantial monopoly in Lorain [Ohio] of the mass dissemination of news and advertising, both of a local and national character.”10 When a radio station entered that market and competed for advertising, the publisher instituted a policy of refusing to accept advertising from any advertiser that also advertised on the radio station. Because many advertisers would have liked to advertise both in the newspaper and on the radio station “but could not afford to discontinue their newspaper advertising in order to use the radio,” the station could not obtain that business. Its inability to do so, the Court said, was “a major threat to its existence.”11 The Court affirmed the lower court’s conclusion that the newspaper’s denial of “its practically indispensable coverage of 99% of the Lorain families” 118

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was “an attempt by the publisher to destroy [the radio station] and, at the same time, to regain the publisher’s pre-1948 substantial monopoly over the mass dissemination of all news and advertising.”12 It was therefore a violation of Sherman Act section 2. Despite the informational element in Lorain Journal—the product market at issue was “the mass dissemination of news and advertising”— the Court did not address any distinctive informational issues. That is not surprising when one realizes that the exclusion was not accomplished through specifically informational means. The advertisers ceased doing business with the radio station not because they were persuaded to do so because of any particular informational content they were given or denied, but simply because the newspaper refused to deal with those advertisers who advertised on the radio station. In that sense, it was only incidental that the product involved was information. The case would have been the same if, for example, the newspaper had controlled, and denied, the only viable location for an antenna with which the radio station could reach customers in Lorain. In each case, the cause of the harm would be the refusal to deal, not truly informational conduct. Exclusion by information is different. Informational conduct presents distinctive competition problems when it is the content of information that is used to exclude competitors. This can happen in any of a variety of ways: the provision of false or misleading information, the selective provision of information, distortion of the manner in which information is presented, or the denial of information content to those who would use it in decision-making. In each case, though, the key is that it is the distortion of the market for information that causes the harm.13 Not all such distortions, of course, will rise to the level of an antitrust violation. Some will or should, however, when they present the elements of a unilateral violation of antitrust law. In the United States, those elements are the possession of monopoly power (or a dangerous probability of acquiring such power) and “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident”;14 in Europe, the analogous elements are market dominance and “abuse” of that dominance.15

Informational Exclusion The distinctive character of informational exclusion can be illustrated by comparing the essentially noninformational Lorain Journal case 119

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described above with another newspaper case, Home Placement Service, Inc. v. Providence Journal Co.16 In Providence Journal, the defendant newspaper refused to accept advertisements from a housing-rental service. The court took the view that the refusal was competitively motivated, pointing to evidence that “a rental referral business is in competition with a newspaper selling more traditional forms of advertising rentals because it is ‘removing potential buyers of . . . ​classified advertising.’”17 The court concluded that there was an antitrust violation because “the Journal was using its dominance in the newspaper advertising market to foreclose competition in the housing vacancy information market.”18 The role played by information in these cases can be clarified by considering the conduct element of a unilateral antitrust violation. Although the U.S. Supreme Court’s test given above, “willful acquisition or maintenance of [monopoly] power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident”—is somewhat ill-defined, later cases have given it more content. The test has developed in the United States to require a showing of “exclusionary” conduct, or conduct that severely disadvantages the injured firms in the market, together with a showing that the dominant firm’s conduct lacks a legitimate business purpose. Applying these tests to Lorain Journal makes clear that information content did not play a fundamental role in that case. The harm to the radio station was caused by the lost advertising business caused by the newspaper’s actions. The exclusionary effect was thus measurable by reference to those financial losses: to what extent was the station’s ability to compete injured by the loss of those advertisers? That is exactly the question on which the court focused, stating that the radio station’s “greatest potential source of income was local Lorain advertising. Loss of that was a major threat to its existence.” Turning to the second part of the conduct test, it is not clear what the Lorain newspaper could have offered as a legitimate business purpose for refusing profitable advertising. The Supreme Court has said, in fact, that “[t]he unilateral termination of a voluntary (and thus presumably profitable) course of dealing suggested a willingness to forsake short-term profits to achieve an anticompetitive end,” not a legitimate one.19 Providence Journal was different with respect to both parts of the conduct test. The harm there was the rental service’s inability to advertise in the newspaper. The degree of exclusion, therefore, was measured 120

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by the importance of that advertising avenue to the particular information content at issue, ads for apartment rental services. Indeed, the court said that competition was injured in “the housing vacancy information market,”20 not a general advertising market, as in Lorain Journal. More importantly, although it was important to the advertisers in Lorain Journal that it was their advertising that was at issue, the advertising was merely a source of revenue for the radio station. The station, that is, was being excluded from profits, not from any particular ability to communicate. The excluded advertiser in Providence Journal, in contrast, was prevented from communicating with the customers for which it and the newspaper were competing. Furthermore, the Providence Journal court’s focus in assessing whether there was a legitimate business purpose to the exclusion was informational, too. The same court had rejected a similar antitrust claim in a prior case brought by another rental service, Homefinders, against the same newspaper because the advertising of Homefinders “frequently was totally misleading.”21 Therefore, the court concluded in the earlier Homefinders case that the “defendant had a legitimate business justification for rejecting the advertisements.”22 In the subsequent case, though, the advertising information of Home Placement Service was accurate, so that the newspaper’s “refusal was not supported by a legitimate business reason.”23 Given the informational nature of these rental cases, then, the court’s focus in both was appropriately on the informational effects of the parties’ conduct. Sometimes issues of informational exclusion will be more difficult. The allegations of Google search bias, for example, present more challenging assessments with respect to both exclusionary effect and business purpose. The factual allegations are that Google places its own products, like Google Places and Google Shopping, higher in its general search results than those of competing services, even if the competing services are of higher quality or would be preferred by consumers, as described above. Drawing an analogy to the Providence Journal case, the allegations there were that the newspaper placed its own real-estate ads in the newspaper and excluded those of the rental service, even though consumers would have benefited from learning of the rental service. The exclusionary effect of the alleged conduct, then, would depend on how important equal treatment in Google’s search results was to the disadvantaged competing services. Google in fact focuses specifically on 121

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this issue in defending against the allegations, arguing that “competition is a click away.” That slogan points out that consumers need not use Google at all, and that if information about the competing services is sufficiently available through, say, Bing, or even directly at the competing service’s own URL, then there is unlikely to be significant exclusion. But the FTC acknowledged that exclusion, or demotion, in Google’s search results could cause injury: We nonetheless recognize that some of Google’s algorithm and design changes resulted in the demotion of websites that could, collectively, be considered threats to Google’s search business. For example, for shopping queries, Google demoted all but one or two comparison shopping properties from the first page of Google’s search results to a later page. Demoting comparison shopping properties had the effect of elevating to page one certain merchant and other websites. These changes resulted in significant traffic loss to the demoted comparison shopping properties, arguably weakening those websites as rivals to Google’s own shopping. 24 The FTC terminated its investigation, not because there was no exclusionary harm, but because it accepted that Google had a legitimate business justification for its conduct—the second aspect of the conduct test. Generally speaking, even exclusionary unilateral conduct with such a justification is permissible because to condemn conduct with legitimate justifications, even if such conduct causes competitive harm, would place firms in the difficult position of choosing between different forms of conduct, all of which have beneficial effects. The FTC pointed to this concern: Product design is an important dimension of competition and condemning legitimate product improvements risks harming consumers. Reasonable minds may differ as to the best way to design a search results page and the best way to allocate space among organic links, paid advertisements, and other features. And reasonable search algorithms may differ as to how best to rank any given website. Challenging Google’s product design decisions in this case would require the Commission—or a court—to second-guess a firm’s product design decisions where plausible procompetitive justifications have been offered, and where those justifications are supported by ample evidence. 25 122

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The challenge in assessing unilateral informational conduct, then, as with assessing all unilateral conduct, will often be determining whether a firm has legitimate reasons for the conduct.

Varieties of Informational Exclusion With this background, it is possible to consider in more detail the antitrust analysis of unilateral informational conduct. The paragraphs below discuss three variations on unilateral informational conduct. The first is straightforward misrepresentation. Here consumer-protection law typically creates a pre-existing legal obligation of truthfulness. One question, then, is when, if ever, a failure to meet that obligation should be a violation of antitrust law as well as consumer-protection law. A second question is whether the scope of conduct that should be viewed as false or deceptive should be broader for firms whose power could make them subject to antitrust law than for firms that do not have such power. As discussed in Chapter 1, power is not a focus of consumer-­ protection law, so this is an issue that is relatively unexplored. The second example is that of sites like TripAdvisor or Yelp that aggregate ratings or reviews of individual consumers. As described in the Introduction, the Italian case against TripAdvisor was based on claims that the firm’s conduct was not consistent with its statements that its reviews were genuine. The Italian antitrust authority brought its claim based on this inconsistency, not based directly on the falseness of the underlying ratings and reviews. But information providers like TripAdvisor have considerable power in their markets, so an antitrust approach is an alternative. An antitrust suit directed either at the reviewers themselves or at firms like TripAdvisor that aggregate them could be preferable to one of consumer-protection law directed at the statements about those ratings and reviews. The final example discussed below is that of search engines. If a search engine provides consumers with search results that are not as valuable as other results that it could provide, has it violated the antitrust laws? That is the subject of the current European case against Google, but the legal analysis that will apply in that case should it go to litigation is not at all clear. 26 It is clear that Google could, in theory, act in an exclusionary way, but not only is it not clear that it has done so, but it is also not clear how one would establish either the power or the conduct elements of an antitrust violation by Google. 123

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There is no claim here that these three variations on unilateral informational conduct exhaust the possibilities of such conduct. Many forms of such conduct are possible. The point here is only to survey a few scenarios in an attempt to suggest how antitrust might apply in these contexts. In each of the three contexts, the facts of these cases are compared to noninformational antitrust cases. The discussion is necessarily preliminary and hypothetical, particularly for the latter two types of conduct, because there has been no full litigation on these issues and the facts that would support or defeat a claim are unavailable. Nevertheless, in each instance the three fundamental aspects of a unilateral exclusion case—power, exclusionary conduct, and absence of a legitimate purpose—appear to be present, at least in some circumstances. Each of the discussions below is organized around those three elements. 27

Exclusion by Misrepresentation One form of unilateral informational conduct to which courts and commentators have given some attention as a possible antitrust violation is misrepresentation. This is so despite the usual application of consumer-­ protection law to misrepresentation. For example, in the leading antitrust treatise, Phillip Areeda and Herbert Hovenkamp say that “[a] monopolist’s misrepresentations encouraging the purchase of its product can fit our general test for an exclusionary practice when the impact on rivals is significant.”28 However, they also say that “[b]ecause the likelihood of a significant creation of durable market power is so small in most observed instances—and because the prevalence of arguably improper utterance is so great—the courts would be wise to regard misrepresentations as presumptively de minimis for § 2 purposes.”29 Areeda and Hovenkamp suggest, in a test subsequently approved by the Second and Ninth Circuits, that a plaintiff may overcome the de minimis presumption “by cumulative proof that the representations were clearly false, clearly material, clearly likely to induce reasonable reliance, made to buyers without knowledge of the subject matter, continued for prolonged periods, and not readily susceptible of neutralization or other offset by rivals.”30 The interesting thing about this test is how little it resembles typical antitrust analysis. The first four criteria are drawn more or less directly from false advertising law, focusing on the truth vel non of the statements. The fifth seems simply to be directed at assessing the magnitude of the effect. The sixth, however—whether 124

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the misrepresentation is susceptible to neutralization by competitors— could be viewed as an antitrust-based, i.e., market-oriented, criterion. Power.  A focus on the ability of competitors to respond to misrepresentations can be seen as directed at the informational power of the defendant, as discussed in Chapter 3. In fact, although the courts have not developed this test significantly, a focus on the ability of competitors to “neutralize” false information is exactly the approach one would expect for informational power. In noninformational contexts, competitors’ ability to “neutralize” a dominant firm’s power is generally measured by their market share, because share is an indicator of competitors’ ability to expand output to counter a dominant firm’s willingness to restrict output to raise price. But for informational products, the power measure must be different, because production capacity is not generally the relevant source of power. Absent atypical circumstances, one would expect competitors to be on an even playing field regarding much information, such as that in advertisements, which were the focus of Areeda and Hovenkamp’s proposal above. Informational market power is likely to exist only in the presence of atypical circumstances, so an antitrust inquiry in this area should focus on such circumstances. In fact, it might be preferable, instead of applying a de minimis presumption to all misrepresentations with the possibility of fact-specific rebuttal, as Areeda and Hovenkamp propose, to define particular circumstances in which such claims will be entertained by competition law. Perhaps in some instances those circumstances could derive from market share, or market-share-related characteristics of the market. In F.T.C. v. Procter & Gamble Co., 31 for example, the FTC challenged the merger of Procter & Gamble and Clorox, the leading manufacturer of bleach. Although some aspects of the Supreme Court’s opinion are no longer accepted, 32 its comments regarding advertising power are instructive: The major competitive weapon in the successful marketing of bleach is advertising. Clorox was limited in this area by its relatively small budget and its inability to obtain substantial discounts. By contrast, Procter’s budget was much larger; and, although it would not devote its entire budget to advertising Clorox, it could divert a large portion to meet the short-term threat of a 125

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new entrant. Procter would be able to use its volume discounts to advantage in advertising Clorox. Thus, a new entrant would be much more reluctant to face the giant Procter than it would have been to face the smaller Clorox.33 The Court thus recognized here an advantage derived from scale economies, or perhaps simply market power or bargaining power, in the advertising market. In the misrepresentation context, though, somewhat similar effects could be present where a seller has privileged access to a particular input that is advantageous for qualitative, rather than cost, reasons. Suppose, for example, that in a case like Providence Journal the newspaper did not refuse to carry the advertisements of its competitor but instead made false or misleading statements about it. If the competitor lacked access to a similar newspaper or other similar media, it probably could not “readily . . . ​neutraliz[e]” the misrepresentations.34 It is easy to see how similar problems could face firms whose products or financial health were misrepresented in a prominent media source. Another source of power could be competitors’ inability to match the authority, or apparent authority, of the party making a misrepresentation. In the few cases in which courts have found misrepresentations to present an antitrust problem, such circumstances have generally been present, with the statements represented as the product of a respected organization or government body. To counter such a claim where the organization or government body in fact has taken no position on the misrepresented fact, the injured firm perhaps could respond effectively only by itself countering the claim by also representing (falsely) that the counterclaim comes from the organization or government body. An example can be seen in one of the few deception cases in antitrust, American Professional Testing Service, Inc. v. Harcourt Brace Jovanovich Legal and Professional Publications, Inc.35 In that case, one competitor, Harcourt, distributed anonymous fliers suggesting that another, American, was the subject of a Securities and Exchange Commission (SEC) investigation and might be involved in a bankruptcy investigation.36 American was not, however, investigated by the SEC, nor was it accused of violations.37 Although Harcourt did not represent that the statements themselves came from the SEC, the statements would have been difficult for American to remedy. Consumers might accept a denial from the SEC, but it is unlikely that American could persuade the SEC to issue one. And the anonymity of 126

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the statements would have made them more difficult to refute, because any response from American could be seen as self-interested advertising (in contrast to the anonymous statements, which would not obviously be advertising). Anonymous denials, on the other hand, might be ineffective; for consumers who saw the original fliers, the effect would likely not be fully “neutralized,” and for those who did not see the originals, a denial might actually make things worse by raising doubts.38 The point in each of these instances is that the firm is not just making false or misleading statements, but also doing so in a manner that makes its statements more effective in preventing effective responses by competitors. Exclusionary Conduct. If a firm has power that makes its misstatements unusually effective, it is not clear why the conduct part of the antitrust test should require, as Areeda and Hovenkamp advocate, that those statements be false, or “clearly false.” It would seem sufficient to require that an injured party establish the usual conduct aspect of a unilateral antitrust violation: anticompetitive exclusion without a legitimate business purpose. In American Professional Testing Service, however, the court required American to “satisfy all six elements [of the Areeda treatise’s test] to overcome [the] de minimis presumption,”39 a requirement that it said American failed to meet. It also rejected American’s claim that its efforts at “neutralizing” the statements were unsuccessful, observing that “the test refers to ‘susceptible to neutralization’ not ‘successful in neutralization.”40 The court did not, however, point to any more effective means of neutralization that American might have used. On the other hand, actual misrepresentations may well be adequately addressed by consumer-protection law. That body of law in fact sometimes incorporates remedies that address exactly the sort of power issues addressed here, requiring that corrective statements be made by violators in manners that approximate those through which the misrepresentations were made.41 It is unclear, though, what the law of false advertising would do in circumstances in which it was argued that the statements were not easily correctable—“neutralizable”—regardless of the medium in which the correction was presented. That is exactly the point: when such circumstances are present, it is power as much as falsity that is creating the competitive effect, so antitrust has a role to play. Legitimate Business Purpose. It would be the rare case in which the dissemination of misleading information had a legitimate business 127

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justification. As Areeda and Hovenkamp say, “[t]here is no redeeming virtue in deception. . . .”42 That is especially so in that the FTC requires that advertising messages have a reasonable basis, so that an advertiser could not argue that its legitimate justification was to avoid incurring expenses on verification. It is possible, though, that outside the “advertising” context—for example, in face-to-face meetings—one firm might make statements about a competitor that it believed were true but that were in fact misleading. In such cases, it is possible that under antitrust rules condemnation should require not just falsity but the possession by the speaker of accurate information, as particularly in such instances there would seem to be no justification for providing the inaccurate information. As will be seen below, this is a test that can usefully be applied to search engines as well.

Exclusion by Ratings and Reviews The more important role for antitrust law, however, is not with respect to deception, which consumer-protection law already regulates, but with respect to areas where informational power presents problems that are currently not addressed by other bodies of law. Ratings and reviews are a prime example.43 They are not necessarily true or false in the usual sense of consumer-protection law, so consumer-protection law is not generally applicable. Indeed, the producers of such information commonly assert that they are merely “opinions” that cannot be true or false. It may even be simply the number of stars for a provider that creates the relevant competitive effect. As discussed in the Introduction, though, even the “opinions” of powerful speakers can have significant anticompetitive effects. The difficulty is in determining how to prevent those anticompetitive effects while still maintaining the incentives for speakers to offer valuable opinions. As described in the Introduction, the government agencies that have pursued these issues in recent cases have done so on the basis of the information providers’ fraudulent statements about the ratings and reviews they provide. In each case, the information provider was seeking to attract business by publishing or allowing publication of inaccurate ratings or reviews. Standard & Poor’s issued favorable ratings to attract rating business, thus gaining an advantage over its competitors. TripAdvisor failed to act sufficiently to screen inaccurate (presumably either too-positive or too-negative) ratings. Although the benefit that 128

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TripAdvisor received from this conduct is less clear than for Standard & Poor’s, presumably it derived benefits not just from hiding the fact that some of its reviews were not genuine but also from increasing the number of reviews on the site. The approach of the government agencies in these cases raises at least two difficult issues, though. First, should there be any remedy at all where the rating or review firm makes no statements regarding the accuracy or genuineness of its reviews? That question will be taken up in more detail in the discussion of Google and search engines below. Second, statements about the quality of ratings and reviews are not generally made about particular ratings and reviews. Therefore, they are really claims about the overall product of the rating or review firm, so it is presumably competing rating and review firms that would be entitled to challenge those statements in private litigation. It is not so clear that the firms actually injured by the ratings and reviews—securities issuers for Standard & Poor’s, and hotels and restaurants for TripAdvisor— would have standing to sue. Yet in other respects they seem like the best-positioned challengers of inaccurate ratings and reviews. Focusing on information markets addresses this problem but creates another. If we treat the market as one of information about firms—­ securities issuers or hotels and restaurants—then a rating or review site, like an individual reviewer, does arguably compete in providing that sort of information with the firms themselves. That is, although hotels and a review site like TripAdvisor are not in the same product market, information about a hotel provided by the hotel itself and information provided by a reviewer of the hotel on TripAdvisor may be in the same information market. The problem is that in these markets, it is presumably the site—e.g., TripAdvisor—that possesses informational market power, but it is individual reviewers that provide false information in reviews. Therefore, an antitrust suit against either would pose conceptual problems, since it requires showings that the (same) defendant both possessed power and engaged in exclusionary conduct. The paragraphs below consider possible claims against both potential defendants: reviewer and rating or review site.

Exclusion by Individual Reviewers Although TripAdvisor’s goal might have been to exclude Yelp or Expedia or other competitors by misrepresenting the genuineness of the ratings 129

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on its site, the individual subjects of those ratings, or their competitors, were also victims of the inaccurate ratings. In fact, they could well have suffered more severe injury than TripAdvisor’s competitors, especially if there were organized campaigns of inaccurate reviews intended to injure particular businesses. That raises the question of whether those hotels or restaurants or other businesses could themselves bring antitrust suits against their competitors who post false reviews or hire others to post them. The claim could be one of a distortion of or exclusion from the market for information about hotels or restaurants, or perhaps in the market for information about a few hotels or even one hotel. In this area, there has also been government enforcement through consumer-protection law. The enforcement action by New York Attorney General Eric Schneiderman against providers of false reviews was mentioned in the Introduction. Canada’s Competition Bureau also entered into a consent agreement with Bell Canada regarding the solicitation of reviews from employees without disclosure of the arrangement.44 Specifically, “certain Bell employees were encouraged to post positive reviews and ratings of the free MyBell Mobile app and Virgin My Account app on the iTunes App Store and the Google Play Store, without disclosing that they work for Bell.”45 Unlike much of the information discussed in this book, reviews are sometimes appropriately viewed as false or deceptive, and thus remediable through consumer-protection law. The focus in the paragraphs below, though, is on the possibility of antitrust enforcement when such reviews have power in the marketplace. Power. One obstacle to such a claim is that it is not clear that posting reviews only on, say, TripAdvisor or Yelp could be viewed as distortion of a market. There are many other sources of information on hotels and restaurants, so limiting the relevant market to one particular review provider may not be appropriate. That said, though, there is antitrust precedent for defining markets by reference to particular distribution avenues. In Pepsico, Inc. v. Coca-Cola Co., 46 for example, Pepsi sought to define the market as “the market for fountain-dispensed soft drinks distributed through [independent food service distributors] throughout the United States.”47 Although the court ultimately rejected Pepsi’s proposed market definition, it, like other courts, accepted the possibility of markets defined by reference to distribution avenues.

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Suppose, then, that a hotel in Cleveland sought to bring an antitrust action against another Cleveland hotel that had posted on TripAdvisor false negative reviews about the first hotel. What would be the relevant product market? Perhaps the market could be defined as narrowly as, say, information about Cleveland hotels distributed through TripAdvisor (or Expedia, or Yelp). The question, as always with market definition, is whether this market would be based on the lack of reasonable interchangeability with other products. It is presumably appropriate to limit the market to information about hotels in a particular city, because most of those searching for information about Cleveland hotels would not find information about Pittsburgh hotels to be a satisfactory substitute. Limiting the market to TripAdvisor is not so obviously appropriate, however. There might be no need for such a limitation, of course. A seller that posts false reviews on one site might well post them on several, so the injured hotel might be able to establish a violation even in a broader market, like “information about Cleveland hotels distributed through review sites (including TripAdvisor, Expedia, and Yelp).” But it is not clear to what extent users find even TripAdvisor and Expedia reasonably interchangeable. Perhaps significant numbers of consumers use only TripAdvisor, or only Expedia, so that for those consumers the two sites are not reasonably interchangeable.48 On the other hand, perhaps consumers do not confine their searches even to these review sites. Perhaps consumers also use the sites of hotel chains or even simply use a search engine to search for “Cleveland hotels.” The Pepsico case discussed the issue of defining markets based on particular customer groups, stating that “it is important to identify the customer base in order to evaluate the perspective of substitution and determine the relevant market. This is so because the market (or product) definition may be narrowed by the type of consumer.”49 The court pointed to two failed attempts to define such markets in other cases, one alleging a market for “‘general interest daily newspapers directed primarily to upscale readers’” and another for “rush” electronic delivery of advertisements.50 Despite the failure of those attempts to define markets by particular consumer classes, the Pepsico court did not reject the possibility of such markets. Instead, it said that “[t]hese cases illustrate that while, as a matter of law, the market may be narrowed by consumer definition, on a motion for summary judgment, the party attempting to

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so narrow the market must set forth evidence from which a factfinder could find a separate market for a product used by specific consumers.”51 Whether TripAdvisor users could be shown to be distinct from, say, Expedia users in this way is not clear. But it does seem plausible that users would typically use only one such provider, rather than several, and there is some empirical evidence that a single site could have power. Michael Luca has shown that star ratings on Yelp are significant, with a one-star increase causing a 5–9 percent increase in revenue, though only for independent restaurants, not chains.52 His work also includes some results that are relevant to the power of individual reviewers. On the one hand, a greater number of reviews for a restaurant causes the star rating to have a greater effect, which would likely lessen the impact of individual reviewers, though, of course, multiple reviews could be provided by an individual reviewer. (In other work, Luca and Georgios Zervas showed, consistent with this result, that restaurants are more likely to post fraudulent reviews when they have few reviews.53) On the other hand, reviewers that Yelp labels as “elite” have a greater influence, so that such reviewers could have disproportionate impacts. This research indicates that it should be possible, at least in certain circumstances, to make assessments of the power of reviewers on Yelp or similar sites, at least if the necessary information were made available. Illustrative examples can be found in allegations concerning Yelp.54 In one highly publicized instance, the owner of Hadeed Carpet in Alexandria, Virginia, sought to have Yelp identify posters of negative reviews whose names he could not match to his records.55 The court reported that on October 19, 2012, Yelp had seventy-five reviews of Hadeed, and Hadeed contended that seven of them had not been his customers, as Yelp requires.56 Although the Supreme Court of Virginia declined to order Yelp to produce the names, the power issue turns on how much influence false reviews would have. If seven of seventy-five reviews were negative and false, how much influence would those reviews have on Hadeed’s business? Hadeed alleged that there was similarity among those seven reviews, so they might all have been produced by a single competitor. (There have also been allegations that Yelp itself writes negative reviews, but such claims have been dismissed. 57) Would consumers read those reviews and go elsewhere? Would those reviews change Hadeed’s star rating, so that even without reading, it would lose business? Or do consumers choosing carpet cleaners go to multiple 132

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information providers, so that the effect of these reviews would be insignificant? The extent to which false reviews (assuming the reviews are false) could influence consumers without affecting consumers’ trust in Yelp would be an indication of the power of those reviews. For a reviewer to have power, though, it would also be necessary that competitors be unable to respond. One problem, as described in Chapter 3, is that recipients of false or low-quality reviews may not be aware that the information they are receiving is of low quality, so they might not switch to other providers, which in this case could mean discounting those reviews. Competitors could still respond, though, if the site gave injured firms a means of doing so. Indeed, the sites generally allow firms to post responses to negative (or positive) reviews, but that is a time-consuming process that might or might not counter the effect of a false review and in any event raises costs to the firm.58 As a result, some firms, even highly rated ones, have sought to remove themselves from the review sites entirely so as to avoid this burden and expense of monitoring their reviews. In a recent article, for example, one restaurant owner “said he feels captive to the effort it takes to monitor his reputation on TripAdvisor,” and the same article cited similar complaints about Yelp.59 Under these circumstances, reviewers on these sites may have a considerable advantage over firms’ efforts to respond to false or low-quality reviews. Exclusionary Conduct. The same considerations that could be used in measuring power would also be useful in measuring the exclusionary effect of ratings, as the “first principles” approach to antitrust would suggest. Without good empirical evidence of the effect of individual reviews, or the effect of a pattern of reviews solicited by a firm, the evidence of exclusion will necessarily be imperfect. As outlined above, however, some evidence indicates that reviews can be very important.60 Moreover, as with search engines, Yelp, TripAdvisor, Expedia, and similar sites are likely to have very good data on the effect of ratings of particular businesses or of the relationships between their positions in search results and profits, and such data could be used as measures of exclusion. It is possible, of course, that exclusion on sites like these might not be significant overall, but, again, the fact that firms have paid to produce deceptive reviews on these sites at the very least suggests that they may have significant effects. In fact, referring back to the Expedia-TripAdvisor study discussed in Chapter 2, which looked at the effect of local competition, it might be 133

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possible to assess the effect of reviews through a drop in actual business, rather than a drop in ratings on one of the sites. If it were possible to correlate a drop in business with the appearance of particular reviews on the sites, an exclusionary effect could presumably be demonstrated. It is important to realize here that even for tangible goods and services, a showing of exclusion frequently requires inferences from the challenged conduct. Although such inferences would likely be necessary in this context, too, it is quite possible that the availability of data in the online environment would make such inferences easier, not more difficult. Business Purpose.  As with more straightforward deceptive conduct, it is difficult to see a justification for exclusionary behavior involving inaccurate reviews on review sites. The more likely defense would be that such reviews are merely opinions that cannot truly be false or misleading. But the existence of firms and individuals that produce such reviews on request is an effective counter to the opinion argument, at least in some instances, particularly when reviews are posted by firms or individuals that in fact have no actual experience with the business being reviewed. In that respect, TripAdvisor’s lack of a requirement of demonstrable experience with the businesses reviewed, as discussed in Chapter 3, makes liability more likely. This freedom of reviewers to post a review without actually patronizing a business is also a source of complaint among those businesses that seek to respond to negative reviews,61 again suggesting that reviewers may have an advantage that gives them informational power vis-à-vis injured firms’ efforts to respond.

Exclusion by Review Sites As just illustrated, the review sites themselves, as well as those posting false reviews, bear some responsibility for any anticompetitive effects of false reviews or ratings. Indeed, each review site arguably creates and regulates a “market” for information. If it allows that market to be exploited by individual providers of reviews, it seems reasonable to hold it liable in the same way that the courts have held standard-setting organizations liable for allowing their systems to be exploited. The antitrust rules applicable would be different, of course, because the conduct of review sites is unilateral, not the product of agreements, but the competitive effects are similar. As noted above, from an antitrust point of view, a possible obstacle 134

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to a suit against a review site by a firm injured by an inaccurate rating or review is that the review site would not typically be thought to be the injured firm’s competitor. But that is true only in the product market, where a hotel, say, provides short-term accommodation services and TripAdvisor provides information about such services. Both hotels and TripAdvisor, however, compete in the market for information about short-term accommodations, just as Hadeed and Yelp compete in the market for information about carpet-cleaning services. The fact that review sites use information from reviewers as inputs to the aggregated information they provide should not obscure the fact that they are important players in the information markets themselves. Power. The review site is the entity that directly provides the information in the market and that does so in a way that increases its power. The power inquiry here is similar to that for individual reviewers on the site. But a ratings site like Yelp is likely to have a more significant share of the market for information on a particular business than would an individual reviewer. As discussed above, Michael Luca has shown that reviews on Yelp can have a significant impact on restaurant revenues. Moreover, because the reviews appear on Yelp and thus receive a possible imprimatur from their appearance there, the persuasive power of those reviews could be increased. On the other hand, by displaying individual reviews in the context of many other reviews, these sites perhaps lessen the power of individual reviews. So the effect of an information provider like Yelp or TripAdvisor on the power of its individual reviewers is complicated. What seems clear is that if, as is possible, a site like TripAdvisor systematically neglects to ensure the accuracy of its reviews, the collective effect of false or misleading reviews will be greatly increased. It is also true, though, that a site like TripAdvisor is probably more constrained in its use of power than are individual reviewers, in that it is more likely to suffer reputational damage if information about inaccurate ratings becomes known and accepted among consumers. But it is not clear that such reputational damage actually occurs. The underlying purpose of Italy’s TripAdvisor case was to remedy the fact that the site was able to represent itself as providing genuine reviews when many of its reviews were not in fact genuine. Exclusionary Conduct. The conduct inquiry is also not straightforward. There is a difficulty in deciding whether a ratings site should be 135

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viewed as acting in an exclusionary manner with respect to rated firms with which it does not compete. Generally speaking, a review site has no incentive to injure the reviewed firms, despite allegations that Yelp has demanded that sellers purchase advertising on its site in exchange for the posting of favorable reviews.62 But if the effect can be shown to be exclusionary, then it is not clear whether the absence of intent should play a role, because intent to exclude is not a requirement of the monopolization offense.63 And, of course, if in fact these sites do act to encourage or coerce advertising from the reviewed firms, even a showing of intent should pose no problem. Moreover, as suggested above, the conduct by a site like TripAdvisor in this context could be seen as an attempt to gain power, and perhaps to exclude, in the market for information. The Italian authority’s case against TripAdvisor turned on the mismatch between TripAdvisor’s statements about the reviews on its site and the genuineness of those reviews. That is, TripAdvisor was misrepresenting the quality of the product it was providing, presumably in an attempt to compete against Expedia and other sites. At the same, though, those statements were presumably intended to increase the willingness of consumers to rely on the reviews on the site, which would increase the impact of negative reviews. To the extent that reviews are false or low-quality information, then, the exclusionary effect would be increased by the statements of the site itself. Suppose, however, that the site made clear that a certain percentage of its reviews (apparently about 16 percent for Yelp64) is inaccurate. Would that be sufficient to make the presence of those reviews on the site nonexclusionary? Would it depend on whether users of the site actually discounted the information on the site in response to information about its inaccuracy? How would such discounting would be identified? Or, in light of the allegations against Yelp that it threatened to remove or post reviews that would lower the ratings of firms that did not advertise, would announcement of such a policy eliminate any otherwise-­ exclusionary effect? Would the site even need to announce these policies, or could it simply choose whatever course of conduct maximized its profits? These questions are especially important in light of a 2014 federal appeals court decision, Levitt v. Yelp! Inc., discussed briefly in Chapter 1.65 That case addressed allegations by several small businesses that Yelp had engaged in extortion by threatening removal of positive ratings or 136

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addition of negative ratings if they did not purchase advertising. The court rejected the extortion claim on the ground that the businesses had no pre-existing right to any particular treatment by Yelp, which could grant or deny its services to its customers as it liked. Generally speaking, this is a valid statement, but it is not necessarily valid for powerful firms. As the Supreme Court said in Lorain Journal, a firm generally has the right to refuse to deal with others, but the right is not absolute and “[i]ts exercise as a purposeful means of monopolizing interstate commerce is prohibited by the Sherman Act.”66 However, although the Levitt v. Yelp! plaintiffs made reference to harm to competition, their “very general allegation” was not in the context of an antitrust claim. Such a claim would need to consider the power and conduct issues outlined above, as well as the purpose behind Yelp’s conduct. Legitimate Business Purpose. Revealing to consumers the existence of inaccurate reviews on a review site could implicate the evaluation of a review site’s business purposes. In the face of the posting of inaccurate reviews, a site has at least three basic options: to do nothing, to do more to identify and remove them, or to warn consumers of them. A site that is more active in publicizing the problem would presumably be justified in doing less to detect false reviews. However, most competitive conduct is judged based on its effects, not on whether the seller has been misleading about its goals or conduct.67 But then most competitive conduct does not achieve its effects through persuasion. And, of course, the persuasive effect of information generally depends, or at least could depend, on representations about the goals and purposes for which the information is provided, as suggested above in the context of false advertising. Beyond the description of the genuineness of the reviews on a site, there is also the question of the extent to which a review site should be charged with filtering out invalid reviews. Filtering out such reviews could be expensive, and a legitimate justification could be that the cost of doing so effectively would be prohibitive or would filter out so many genuine, useful reviews that it would actually make the site less, not more, valuable for consumers. However, although this justification is in theory plausible, it appears to be undermined by the efforts in which some review sites, like Yelp, do in fact engage. Indeed, Yelp has sued at least one operator of businesses that promise to deliver positive reviews on Yelp.68 This presumably indicates that Yelp, at least, has determined that this sort of monitoring and enforcement is a reasonable business 137

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practice, so that would at least raise doubts regarding an argument to the contrary.

Exclusion by Search Results The problem of search-engine bias suggested in the study by Luca et al. and discussed at the beginning of this chapter illustrates the inadequacy of the misrepresentation test advanced by Areeda and Hovenkamp, at least outside the narrow misrepresentation context. Although Areeda and Hovenkamp’s emphasis on requiring that information problems be significant before antitrust comes into play is a valid one, distorted search results would rarely be what they call “clearly false.” It is not even clear what this would mean, since there is no clear “truth” for many search results.69 That does not mean that the results that Google delivers do not have power—they can make or break companies. It means, though, that it may be difficult to develop tests for assessing whether such effects are anticompetitive or procompetitive. Power. Competitors allege that Google has manipulated both its “organic” search results and its advertising to downgrade sites that are potential competitors.70 Although there has been little litigation that has reached the substantive antitrust issues, the French competition authority concluded in 2010 that “Google holds a dominant position on the advertising market linked to search engines.”71 There were two impor­ tant elements to this conclusion. First, the authority concluded that “[s]earch-related advertising represents a specific market that cannot be replaced (not substitutable) by other forms of communication.”72 That is, search-related advertising is a relevant antirust market. Second, the authority stated that “many elements” support its conclusion that Google is dominant in that market. Google’s market share is greater in Europe than in the United States, so the assessment in the United States could be different, but given the paucity of analyses of these issues by courts or agencies, the French authority’s conclusion is important. There is also more direct evidence that supports the authority’s conclusion. A January 2016 article in the New York Times reported that many results and ads that appear in response to Google searches for locksmiths actually point to “lead generators” that connect clients with local, low-quality locksmiths.73 Moreover, although many of the ads offer services for $19,74 the locksmiths often demand several hundred 138

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dollars when they arrive to provide their services. More importantly for the purposes of considering Google’s power, though, is the discrepancy between the prices listed in the ads and the prices advertisers pay for those ads. According to the Times, advertisers often pay $30 for these ads. Google surely knows that locksmiths will not pay $30 to make $19, yet Google also knows that customers are clicking on these ads, since Google only makes money when a searcher clicks on an ad. Google must therefore know that buyers are paying more than the price shown in the ads it is delivering. Is the ability to deliver an ad that is misleading in this way market power? From the consumer’s point of view, Google is delivering low-quality information. Indeed, although Google provides the information for free, if the consumer pays more for the locksmith delivered by a lead generator than she would from another, more legitimate locksmith, Google is providing ads that are effectively worth less than zero. The ability to deliver ads that cost consumers money is the ability to deliver a product of infracompetitive quality and could even be viewed as supracompetitive pricing, which would be evidence of market power. The pricing information in this locksmith example is available because advertisers pay for ads through Google’s AdWords program. What about Google’s organic results, for which it charges neither searchers nor websites? In a previous article, I suggested a tentative means of measuring Google’s power in the organic results by relying on Adwords prices.75 The approach assumed as a starting point that searchers would be unable to tell whether a particular ordering of Google search results was the correct one (however “correctness” is defined), at least with respect to results only one or a few positions apart.76 As a result, Google could deliver lower-quality results77 without any likelihood of consumer exit to other search engines or reputational loss. Drawing an analogy again, then, to supracompetitive pricing, the degree of which is often used as a measure of market power, the goal is to assess the degree to which quality is infracompetitive. That is, how much could Google lower the value of the results that it delivers, in comparison to what it would be forced to provide if it were effectively constrained by competition? In an effort to assess the value of the quality differential, I suggested a reference to Google’s AdWords results, which are displayed next to Google’s organic results. (AdWords was the primary focus of the French competition authority’s assessments.) I assumed that valuation differences for the AdWords results could be used as a benchmark for the organic results, though presumably the value of appearing in a high 139

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position in the organic results is greater than that of appearing in a comparable position in the advertising. Because advertisers bid to acquire particular positions in the AdWords results, it is possible to compare price differences between different placements to assess—again assuming that different placements in the results would not be identified by searchers as “correct” or “incorrect”—the change in value as a result of manipulation of the results. Using estimates from Google’s AdWords Traffic Estimator, it appeared in 2013 that there were differences in value of more than 20 percent between adjacent placements.78 The implication of this crude assessment is that it is plausible that Google could without detection alter search results in a way that would change the value of those results to the firms to which the results link by more than 20 percent. That is, by moving an ad or organic result down one or two spots in its list of results, Google could reduce the value of the display of that result by more than 20 percent. That is considerably more than the percentage often used to assess market power in the merger context,79 and thus is perhaps sufficient to provide direct evidence of monopoly power.80 To be sure, this assessment only looks to one side of Google’s two-sided market, the advertisers and websites. It is not clear what implications one can draw from this information for the value of its search results to users. It seems fair to say, though, that if advertisers are willing to pay significantly different amounts for different placements in search results, they are doing so because those placements have significant effects on users as well. Furthermore, turning to Chapter 3’s focus on the ability of competitors to respond to informational conduct, it is difficult to see how a competitor could counter being downgraded either in search results or in “search-related advertising.” Unlike typical advertising, which generally persists in a consistent form at least for some period of time, search results and related advertising are ephemeral. Moreover, competitors do not generally have the same sort of access to a user, at the right time, as does the search engine, making presenting an alternative view even more difficult. The commitments that Google proposed to address the European Commission’s concerns about its search practices address this issue, to some extent, by providing alternative links to other search services on Google’s own pages,81 but it is unclear whether these commitments (which the Commission ultimately did not accept) would have served these purposes well, and a court would be unlikely to impose similar “equal time” rules in private litigation. 140

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Similarly, it might be that responding effectively to a problem like the locksmith ads described above would require Google’s cooperation. The Times article, however, reported how difficult both legitimate locksmiths and others have found it to persuade Google to respond to these issues. It is possible that the problems are difficult to solve, even for Google, and the article cites a statement by Google to that effect. But charging $30 for an ad offering services for $19 seems to present an issue that is easy both to identify and to remedy. And in contemplating why Google has not responded effectively, even after appearance of the article, it is worth remembering that eliminating the ads from those locksmiths who charge higher fees, and thus are willing to pay more for ads, would be unprofitable for Google. In fact, the Times article reports Google’s statement regarding the problem and appears to express some skepticism regarding Google’s commitment to the problem: “There was no mention of a stronger verification system or a beefed-up spam team at Google. Without such systemic solutions, Google’s critics say, the change to local results will not rise even to the level of superficial.”82 Even if competitors had an effective means of response, there may be difficulties in demonstrating to users the benefits of alternative search results, as suggested in Chapter 3. In many cases, searchers will not be able to judge whether search results are accurate. That is likely to be true, however, only for some types of results. For example, results of a search for the “lowest price” on a particular good could probably be shown to be inadequate in a way that a search for the “best hotel” would not. Consequently, a search engine like Google would likely have greater power in markets for some information than in markets for others. Power would presumably be greatest in markets where consumers are faced with some urgency and are not likely to be repeat customers, at least over the short term. Locksmith services are an obvious example, as are auto-glass repair services, which are also mentioned in the Times article discussed above. To be sure, these means of assessing power are merely tentative and rely on limited data, because that is all that is publicly available. As suggested above for review sites, though, the information providers themselves have available considerable data of this kind. Looking at these providers from the outside, it is difficult to draw well-supported conclusions regarding their power or the competitive significance of their conduct. But with access to internal data—the kind of access that would come through discovery, should one of these cases get past a motion to 141

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dismiss, or that would be available to an enforcement agency—it would be quite possible to develop a well-supported analysis of market power in these contexts. Exclusionary Conduct. What would it mean for Google to behave in an exclusionary way? The competitive effects of the practices shown by Luca et al. are presumably quite significant. The firms excluded from the Universal Search box are consequently not able to deliver their information to searchers as effectively. It might be difficult to quantify this effect, but a court might be able to draw inferences from the sort of survey results in that study. That is, by using data on the number of searches of particular kinds and the number of users who would have clicked on Google competitors’ in those searches, a case could likely be made of significant exclusion. The problem is that not all exclusion is anticompetitive. In more traditional single-firm antitrust cases, like refusals to deal, the dominant firm’s conduct is often directed specifically at one or a few competitors. But firms appear to have suffered significantly from both ad hoc and systematic changes in Google’s algorithms.83 The ad hoc harm is perhaps similar to the harm in traditional cases, but a broader algorithmic change might be procompetitive overall but cause collateral damage to individual firms. Where the injured firms are competitors or potential competitors of Google, as vertical search engines are, Google’s conduct could be seen as exclusionary. However, if the effect of a change is as significant for noncompetitors as for competitors, a court might be unwilling to treat a change as exclusionary. In such instances, it is arguably less likely that the effort is directed at particular competitors, or at least it is more likely that there could be unintended effects, which might make it less likely that Google would make such changes. In a previous article, in fact, I suggested that Google could be required, as credit-rating agencies now are, to make algorithmic changes in an even-handed way.84 In the Dodd–Frank Wall Street Reform and Consumer Protection Act, Congress directed the SEC to prescribe rules that require credit-rating agencies, when making “material changes” to “rating procedures and methodologies,” to ensure that “the changes are applied consistently to all credit ratings to which the changed procedures and methodologies apply.”85 The Dodd-Frank Act also requires that credit-rating agencies disclose the reasons for the material changes to their algorithms,86 another requirement that could be imposed on search 142

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engines.87 At the very least, this approach would provide information from which one could assess whether the purpose of the change is a legitimate one. Although this book does not focus on procedural issues such as burdens of proof, it is important to consider them in this particular context. In a Sherman Act section 2 case, the plaintiff has the burden of showing exclusion, and if that burden is met, the general view is that the defendant then has the burden of showing a legitimate business purpose.88 Here, where the proof of anticompetitive exclusion and the legitimacy of the defendant’s business purpose are not easily distinguishable, the allocation of burdens is particularly salient. Courts so far have not taken the opportunity to address these issues, since the cases against Google have been dismissed on other grounds, most often the First Amendment, as will be discussed in Chapter 9. The key point is that some initial burden must be allocated to the plaintiff before imposing a burden on the search engine to justify its conduct. But that burden on the plaintiff may be difficult to meet, given that the search engine is a “black box” whose algorithms are unknown. Although these issues must ultimately be resolved in the courts, it seems that the plaintiff should be able to meet its burden by establishing two elements: that it was excluded and that it is plausible to infer that the exclusion was anticompetitive. For the first of these elements, it could show that it was downgraded or otherwise excluded in search results or search advertising in a way that would harm it significantly. The second is more difficult, in that without access to the algorithms of the search engine, it is difficult to determine whether the exclusion was truly anticompetitive or was merely, say, an unfortunate side effect of an algorithmic change that was procompetitive overall. The plaintiff should be required to introduce some evidence to exclude the latter possibility, but there should be some flexibility in that it is the search engine that has access to the best information here. It should be sufficient, it seems, for the plaintiff to identify some other, otherwise comparable website that is not a competitor or potential competitor of the search engine but that was not similarly downgraded or excluded. This approach is very imperfect in that it is not clear how a site that is different with respect to the markets in which it competes could be otherwise comparable. Still, it seems that if the courts are to scrutinize possible anticompetitive conduct by search engines, they will have to engage in inquiries of this kind, perhaps through a finer-grained allocation of burdens. To require a 143

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plaintiff to do much more when the relevant information is all within the control of the defendant is not only to accept the nature of a search engine as a “black box,” but to throw away the key. Legitimate Business Purpose.  As just discussed, Luca et al. conclude from their evidence that because consumers would select information different from that provided by Google if that alternative were made available to them, Google is acting anticompetitively. There is, however, no antitrust rule that requires Google, or any other seller, to provide the product that consumers would most prefer. Google might in fact believe that the results it is providing are better than those alternatives to which Luca et al. point, perhaps because consumers are relying on the wrong indicators of quality. The authors suggest, in fact, that consumers are relying largely on the number of reviews in the Universal Search box to decide which results they prefer.89 Perhaps that is a valid criterion, and perhaps not, but it is not clear that Google, or a court, should be required to adopt it as well. That is particularly so given the evidence that reviews are not always trustworthy. Thus, a demonstration that Google has no legitimate purpose would presumably require more. The most likely possibility would be internal evidence that Google was making decisions regarding which results to display based specifically on competitive advantage. Alternatively, perhaps it could be shown, as suggested above, that Google was specifically avoiding testing certain alternatives that would lead to greater competition.90 In either case, Google’s behavior would seem to be lacking a legitimate purpose, because, in either case, it would be choosing conduct other than that which would make its product more useful and attractive to consumers. This is an approach similar to that advocated by James Grimmelmann.91 In an insightful article that focuses particularly on the different roles that Google could be said to fill, he settles on the role of “advisor.” That is, Google is neither a mere “conduit” for information provided by others, because it exercises discretion in displaying search results, nor an “editor” in the sense that some of Google’s defenders argue, because its “opinions” arguably have an external reference point: relevance.92 Instead, it is, or should be, a helpful, trustworthy “advisor,” one that tries to respond to the user’s requests. So long as it does that, all is well. But Grimmelmann argues that when a search engine deviates from that role to provide information that “deliberately falls short of the best it is 144

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capable of for users,” its conduct is not protected. His primary focus is on the First Amendment’s speech protections, as discussed in Chapter 9, but he also presents the test as one for antitrust law.93 Thus Grimmelmann focuses on the quality of the information Google provides. The issue is not whether Google is providing “false” information—false in the sense that there is some ideal search result—but rather whether it is providing information that it knows is not in accord with the obligation it has taken on to be a trustworthy advisor.94 Although Google’s search results presumably are never determined solely by its commercial interests, those commercial interests may play a role. It would be difficult, of course, to look at Google’s search results and determine what they would have been in the absence of any commercial impact. But this approach is less a substantive test than a procedural one; as in the standard-setting cases, it asks whether Google has prevented its self-interest from injuring consumers. One might think that this approach would be difficult to implement. Perhaps Google (or another search engine) could simply find a proxy for its commercial interests, and use that in its search algorithm. For example, because most of the allegations against Google have been brought by vertical search engines, perhaps Google could claim that vertical search engines are downgraded in its results not to gain a competitive advantage but because searchers do not find vertical search engines to be valuable results. But antitrust law has considerable experience evaluating justifications to determine if they are pretextual. Google would presumably have to justify any algorithmic factors by reference to actual evidence of consumer preferences. The goal would not be to interfere with Google’s “editorial” discretion, but to determine whether it is truly editorial discretion or competitive advantage that is behind its results.

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6 “Confusopoly” and Information Asymmetries

S

It is not always easy to compare products that have different features and different pricing structures. Sometimes sellers even structure or disclose their pricing in a way that makes it difficult to determine the total amount buyers will pay. This is the insight behind Scott Adams’s coinage, in his Dilbert comic strip, of the term “confusopoly”: if sellers can make it difficult for buyers to compare products and prices, the sellers can gain pricing power in much the same way that market share provides such power to a monopolist. The cell-phone market is the one offered most often as an example: h o p pin g ca n b e c h a l l e n gin g.

In reality the mobile phone market is a perfect example of D ­ ilbert’s confusopoly. That is, various price propositions are on offer with different combinations of free minutes, texts, and other services, whilst in reality the same level of usage would result in roughly the same cost, leaving the users so confused that they simply choose the product with the users they like the most—a fact most notably recognised by the operator Orange with their animal-­themed tariffs, such as Dolphin and Raccoon. . . .1 There is considerable evidence that a lack of price transparency causes prices to be higher. Evidence shows, for example, that where advertising is banned, prices tend to be higher. 2 Advertising makes prices easier for buyers to find, of course, so it contributes significantly to transparency. But even where firms can and do advertise, buyers must be able to 146

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effectively compare prices for competition to work. Where sellers make that comparison difficult or costly, prices are higher and shopping is difficult. Airfares and their accompanying fees provide additional examples.3 Of course, sellers are not entirely free to exploit these opportunities. The law imposes a variety of disclosure obligations in particular contexts.4 Those obligations can not only require disclosure of specific information but also mandate consistent presentation of the information to make comparison easier. And, responding specifically to the concerns about air-travel fees mentioned above, the Department of Transportation has recently moved to make the costs of air travel more transparent. There are also more general legal constraints. Advertisers must ensure that they do not omit information that would prevent their advertisements from being deceptive. The Federal Trade Commission’s Policy Statement on Deception treats omissions as posing problems similar to those of representations, but there is generally no duty of disclosure unless the advertiser has made other statements that require additional disclosure “to prevent the claim, practice, or sale from being misleading.”5 That is, sellers have no general obligation to provide sufficient information to make selection efficient for consumers. Hence, legal constraints do not eliminate all instances in which buyers find it difficult to compare products. Difficulties can arise, of course, without any deliberate conduct by sellers, simply because sellers often compete by offering products or pricing that are different from those of their competitors. In such instances, where there is no specific legal obligation to disclose information or to present it in a particular way, and where the difficulties arise from legitimate efforts to compete, there would seem to be no room for antitrust intervention. Although consumers might still be harmed by the absence of sufficient information to make shopping easy or cost-effective, antitrust, and the law more generally, cannot solve all such problems. But where sellers appear to have deliberately made comparisons difficult, antitrust has a role to play.

The Toys “R” Us Case A prominent U.S. case, Toys “R” Us v. F.T.C., 6 involved efforts of Toys “R” Us (TRU) to lessen competition from warehouse clubs. TRU pioneered the superstore concept in toy retailing, and in doing so lowered toy prices to consumers. However, when warehouse clubs entered the 147

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market, selling at even lower prices, TRU sought to prevent them from competing. As FTC Chairman Robert Pitofsky wrote, “a remarkable irony of this case is that if the law were as TRU contends—if a large [retailer] could cut off or encumber a new or innovative entrant’s source of supply by exercising market power against suppliers—then TRU, itself an innovative marketer resented by larger and less dynamic incumbents a generation ago, could have been denied an opportunity to compete on the merits and win in the marketplace.”7 One of TRU’s goals was specifically to make it difficult for buyers to compare the products available at warehouse clubs with those available at its own stores. Negotiations between TRU and toy manufacturers eventually resulted in “a uniform policy of offering the clubs only goods that were significantly differentiated from those carried at TRU.”8 The clubs often sold “combination packs” that packaged several toys or products together, rather than selling the most-desired toy alone. As a TRU merchandising executive acknowledged, this packaging made comparison difficult: [T]he objective was that the consumer not be able to do it easily. And if, can I give you an example on that? If Sunshine Barbie individual doll is found everywhere at $9.99 and then the warehouse clubs sell Sunshine Barbie and two little friends with it and the warehouse clubs sell that for $14.99 or $16.99, the customer doesn’t really know the value of the little dolls. I mean, it’s hard to say is that worth—are the other retailers competitive or not competitive at $9.99 relative to that version being $14.99? Will you get more product? So those were the objectives, you know, so that they’re not easily comparable. Those were always our objectives.9 The FTC found that TRU had violated antitrust law, and the decision was affirmed on appeal. Because the court of appeals agreed with the FTC that TRU had orchestrated a horizontal agreement among toy manufacturers to impose the restrictions,10 it said there was no need for “an extensive inquiry into market power and economic pros and cons.”11 The FTC, however, had not only based its case on the horizontal-­ conspiracy theory but had also made specific allegations regarding the effects of the TRU policy: “[C]ompetition would have driven TRU to lower its prices had TRU not taken action to stifle the competitive threat posed by the clubs.”12 This allegation was confirmed by the court, which said that TRU “was remarkably successful in causing the 10 major toy 148

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manufacturers to reduce output of toys to the warehouse clubs, and that reduction in output protected TRU from having to lower its prices to meet the clubs’ price levels.”13 It is somewhat difficult to separate the product-market and the information-­market effects in Toys “R” Us. TRU’s conduct made it more difficult for buyers to compare prices, but it did so by preventing the same product from being sold in the same form at TRU and the warehouse clubs. Hence, the anticompetitive effect could have been caused by buyers’ inability to compare prices or by buyers’ unwillingness to go to another store to obtain the products they wanted. The two possibilities are illustrated by statements two club buyers made. One statement focused on information and decision-making: “Costco’s toy buyer testified that regular products were generally preferable to combo packs because combo packs could make it difficult for consumers to compare the club’s offerings to those sold by other retailers.”14 The other focused on the desirability of the products themselves: “The buyer for BJ’s, the warehouse club with the most extensive toy selection, testified that club customers generally resisted purchasing toys in combo packs. Such packs could be perceived as designed to force the customer to buy a second unwanted product in order to obtain the one the customer’s child wanted.”15 This is a distinction that may often be troublesome in considering informational issues. Product markets and information markets will always have different characteristics, and power in one market does not necessarily imply power in the other. But the focus of the TRU policies seemed clearly directed at the informational issue, as evidenced by the statement of the TRU executive quoted above. Moreover, even the difference in product availability is in part problematic because of information problems, as illustrated by the statement of another buyer: “Pace’s toy buyer also felt that combo packs needed to contain obvious, extra value to generate demand among club shoppers.”16 That is, the problem might not have been so much that the products were different as that the values of the additional items in the combination packs that the warehouse clubs were permitted to sell were unclear.

Cell Phones and Airfares What, then, does Toys “R” Us tell us about the antitrust legality of confusing cell-phone plans and airfares with hidden fees for baggage and 149

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other services? Unfortunately, it tells us little. Even without the horizontal agreement among toy manufacturers, Toys “R” Us would at least have involved agreements between TRU and individual manufacturers.17 Those agreements required specifically that the manufacturers agreed to sell products to warehouse clubs that were different from those sold to TRU,18 and TRU offered no convincing explanation of how that policy could provide any competitive benefits.19 In such circumstances, with clear anticompetitive effects and no showing of benefits, antitrust condemnation is easy. The creation of particular pricing structures for cell-phone plans and the imposition of separate fees for air passengers’ baggage are not so unambiguous. Some consumers almost certainly will benefit from such practices, at least if there is price transparency. For example, air passengers who do not check bags could easily argue that they should not have to pay for the baggage-check services airlines provide. 20 Of course, whether the fees airlines impose are in fact designed to recoup the costs of the particular services for which they charge is not clear. Moreover, Tim Wu argues that the airlines have incentives to make flying miserable for passengers who do not pay extra fees for more legroom, baggage checking, etc., to encourage them to pay fees to avoid that misery. 21 But if the airlines do in fact engage in such strategies, the costs to injured passengers would have to be balanced against any savings to other passengers. These potential benefits depend on price transparency, though. Different buyers have different needs and preferences, so providing different options can be beneficial. It is still important, though, that the market price those options, which requires transparency. As Omri BenShahar and Carl E. Schneider say, “proliferating choice requires increasingly elaborate and arcane knowledge.”22 For that reason, most of the concern in these contexts is not with the proliferation of cell-phone plans or air-travel fees in themselves—options can be good—but with the difficulty that they create for buyer decision-making. Although there are interesting questions about whether the provision of a greater number of options for buyers necessarily makes decision-making difficult, it seems fairly clear that sellers in these markets are not making efforts to help buyers make informed choices among their options. This is a primary focus, in fact, of Oren Bar-Gill’s book Seduction by Contract: Law, Economics, and Psychology in Consumer Markets. 23 Bar-Gill points out that contracts for consumer goods are often designed 150

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to take advantage of particular consumer weaknesses and biases. Two ways in which sellers do this are through contractual complexity and exploitation of consumers’ tendency to discount future costs. Both of these techniques are evident in cell-phone contracts. A third technique, which Bar-Gill presents as a variation on complexity, is that of bundling different goods together. The example he uses is that of low-priced cell phones and high-priced cell-phone service contracts, but the same technique is present with lower-priced airfares and additional fees for services that consumers must obtain, if at all, in connection with the purchase of basic airfare. Bar-Gill points out that even if a particular cell-phone provider or airline would prefer to price in a more transparent way, it might not be profitable to do so. 24 One of the central points in the present book is that information advantages can give sellers power over buyers that the sellers can exploit without the buyers’ awareness that they are being exploited. Bar-Gill’s point is the flip side of that one: even if a seller prefers not to exploit informational advantage, perhaps because the deal it offers is in fact better than those of its competitors, profiting from the strategy may be difficult. The same obstacles to buyers’ full understanding of the deals they are being offered will make it difficult and costly for even sellers that want to aid that understanding. Therefore, as Bar-Gill describes, competition is not necessarily a solution to these problems. In fact, because consumers’ decision-making weaknesses are often consistent, competition can worsen the problem because it forces sellers, in order to avoid being driven out of business by their competitors, to adopt the same sorts of consumer-attracting but consumer-exploiting practices. Whether these sorts of issues should be matters for antitrust is not clear. One view is that if the underlying problem is poor consumer ­decision-making, it is a consumer-protection matter, not an antitrust one. Bar-Gill in fact proposes disclosure remedies, not antitrust ones. But others take issue with the effectiveness of disclosure. 25 In More than You Wanted to Know: The Failure of Mandated Disclosure, 26 Omri Ben-Shahar and Carl E. Schneider argue that disclosure is in general an unsatisfactory solution: Mandated disclosure is a regulatory response to the problems of non-specialists facing unfamiliar and complex decisions. It is broadly, almost indiscriminately, used. But it fails to achieve its 151

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goals because unfamiliar and complex decisions are much harder than disclosurite ideology assumes. Giving consumers information about such decisions cannot equip them to make the truly informed decisions that disclosurites desire. Mandated disclosure is a fundamental failure that cannot be fundamentally fixed.27 Then what is the solution? Ben-Shahar and Schneider argue that there is no one solution, so it is necessary to have approaches tailored to ­particular problems. In a sense, that view is an underpinning of this book as well. Some information problems may be best remedied through consumer-­protection law, either by condemnation of deception or with disclosure obligations, but others may be best suited to antitrust law. Specifically, where an information problem is presented by a powerful information provider or by an agreement among providers, the usual legal remedy for market power, antitrust law, is the appropriate solution.

The Kodak Case An important U.S. Supreme Court case, Eastman Kodak Company v. Image Technical Services, Inc., 28 focused specifically on how uncertainty can create market power. The conduct at issue was Kodak’s practice of requiring that purchasers of its high-end photocopiers and other equipment also purchase service for those machines from Kodak. This conduct was challenged by a competing service provider as an illegal tying arrangement because it required buyers to take a second product— service—as a condition of buying the first—parts for the Kodak equipment. Tying arrangements are illegal under antitrust law, but only if the seller has market power. The plaintiff emphasized that Kodak was the only provider of many Kodak parts, so that it had a 100 percent market share, but Kodak argued that it did not have power because it faced significant competition from other equipment sellers. Even though the other sellers did not provide Kodak parts, Kodak argued that they prevented it from exploiting buyers of Kodak equipment through higher parts prices or a tying arrangement, because doing so would hurt its equipment sales, where it concededly faced competition from the other sellers. But the Court accepted the plaintiff’s argument that Kodak could have had power derived from the inability of buyers to perform “lifecycle pricing,” the determination of the long-term costs of purchasing and 152

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operating Kodak equipment. That is, although exploiting its parts monopoly might in theory harm Kodak in the equipment market, it might not do so in fact, because buyers in the equipment market might not have access to sufficient information to incorporate conditions in the parts market integral to their equipment-purchasing decisions. Buyers might not, for example, know how often parts failed or how much service would be required when they did fail. The Court referred to the costs (perhaps prohibitive) of acquiring such information as “information costs.” And buyers needed to have the information at the time of their initial equipment-purchasing decisions because “switching costs”—the costs of buying another brand of equipment and retraining personnel— would lock them in to their Kodak equipment after they made the initial purchase. The only issue before the Court in the Kodak case was whether Kodak had market power, so the Court’s conclusion that information costs and switching costs could provide such power was not a decision that Kodak had violated the antitrust laws. It was not even a decision that Kodak had market power as a matter of fact; it was only a decision that, in certain markets, the costs of gathering and using information might provide power. Nevertheless, the Kodak decision was quite controversial, in part because the sort of uncertainty that the Court held could establish market power is common in many markets; therefore, critics argued, incorrectly as it turned out, that the case would greatly increase antitrust litigation. There is another way to look at the Kodak case, however, that narrows it to particular circumstances like those present in the case. That is to recognize that the tying arrangement Kodak imposed operated not only in the product market, where buyers were forced to take Kodak service to get Kodak parts, but also in the information market, where buyers were faced with incorporating information about the costs of Kodak service into their purchasing decisions for Kodak equipment. 29 In the absence of the tie, buyers would have been able to use any service provider, and could presumably have done so regardless of which brand of equipment they bought. The costs of using alternative service providers therefore would not have been very important in their selection of equipment. With the tie, though, they were limited to Kodak service, and it became important to know how the costs of Kodak service compared to the costs of other service providers. The point, then, is that Kodak did not just take advantage of 153

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preexisting uncertainty—it created additional uncertainty. If the claim had been presented in this way,30 it would have been clear that similar facts are not as common as some alarmists argued following the decision. It would also have distinguished the facts from those that Justice Antonin Scalia offered in dissent.31 And, most importantly, presenting the claim in this way makes it an information-market analog of a well-­ established (if not universally beloved) product-market antitrust violation, the illegal tie. By conditioning purchase of a product—e.g., Kodak equipment—on the additional purchase of a second product—Kodak service—whose costs are more uncertain, a seller can import that uncertainty into the decision-making process for the first product. And in typical “first principles” fashion, the creation of that link is then both the source of the seller’s market power and the conduct that constitutes the antitrust violation.

From Copiers to Gym Contracts A recent UK case, Office of Fair Trading v. Ashbourne Management Services Ltd., 32 provides another illustration of this problem. A key issue in the case was whether the use of long-term gym membership contracts was “fair,” as required by the relevant UK laws at issue.33 The court explained why it viewed the long-term contracts as unfair: This average consumer tends to overestimate how often he will use the gym once he has become a member and further, unforeseen circumstances may make continued use of its facilities impractical or unaffordable. Indeed, it is, as the defendants say, a notorious fact that many people join such gym clubs having resolved to exercise regularly but fail to attend at all after two or three months. Yet, having entered into the agreement, they are locked into paying monthly subscriptions for the full minimum period. 34 As a result, the court said that “[i]n all these circumstances I believe that the defendants’ business model is designed and calculated to take advantage of the naivety and inexperience of the average consumer using gym clubs at the lower end of the market. As the many complaints received by the OFT show, the defendants’ standard form agreements contain a trap into which the average consumer is likely to fall.”35 More specifically, the trap about which the court was concerned was the long-term commitment required of members. The case was pursued 154

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not under antitrust law but under consumer-protection law, 36 and not on an informational basis but on one of substantive fairness. Under the EU’s Unfair Contract Terms Directive, a conclusion of unfairness requires, in part, that the contract have “a significant imbalance in the parties’ rights and obligations.” The court declared that minimum membership periods of twenty-four or thirty-six months were impermissible but that a minimum period of twelve months was not, because a “significant imbalance” was created only in the longer contracts. The court concluded that there was such an imbalance even in light of the defendants’ argument that the gyms offered “inducements” to enter into the long-term contracts and that there were also options to enter into shorter-term arrangements, though at higher monthly rates.37 Under an antitrust approach modeled on Kodak, the question would be whether Ashbourne used the structure of the transaction to increase uncertainty. In Ashbourne, it may appear that the long-term contracts did not increase the uncertainty faced by buyers faced. In contrast to Kodak, it was still possible for buyers to determine how much they would owe over the entire term. But the longer terms added another year or two of usage to the contract, so the uncertainty in the value of the contract was increased. Taking an approach that focuses on informational market power, then, as in Kodak, it could be argued that Ashbourne did not just exploit pre-existing uncertainty but also adopted a business model that was “designed and calculated” to take advantage of the uncertainty, and indeed to increase it. The uncertainty created by the long-term contracts created could then be viewed as a source of market power, and the creation of that uncertainty deemed anticompetitive. In the end, the result under antitrust law might have been similar to the fairness approach the court adopted, which is not particularly surprising given that a significant imbalance of rights is likely to exist when the seller has informational power. On the other hand, the focus in antitrust would have been on the magnitude of Ashbourne’s power in the market, rather than on whether there was an imbalance of rights. In antitrust, then, the availability of shorter-term contracts might have played a larger role in the analysis, in that they might have provided a competitive constraint on the longer-term contracts, however unfair those longer-term contracts were in themselves. The effectiveness of that constraint would have depended on the uncertainty created, but in antitrust, the magnitude of that uncertainty would be relevant, and that might have provided more structure to the analysis. 155

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Measuring Uncertainty Generalizing, then, one possible approach would be to determine whether antitrust is applicable by asking whether a seller’s sales practices have increased uncertainty for buyers, rather than just exploited a preexisting problem, and by how much the uncertainty is increased. Kodak increased the uncertainty buyers faced by linking two products that need not have been linked, and Ashbourne increased uncertainty by requiring a long-term contract (that is, by linking two time periods that need not have been linked). Greater uncertainty provides market power, but it is not clear how much power. One straightforward way of measuring power, perhaps, would be simply to determine the additional pricing uncertainty produced. For example, it would be possible to survey buyers to determine the degree of inaccuracy in their estimates of the costs they would pay. If buyers’ cost estimates would be, say, 10 percent lower than what they would actually pay without the seller’s conduct but are 20 percent lower with the seller’s conduct, then one could conclude, on the basis of the Merger Guidelines threshold of 5 percent, that the conduct created additional market power, if not monopoly power. It is also possible, though, that buyers would overestimate their costs rather than underestimate them. Presumably sellers know enough about buyers’ techniques and biases in making estimates to ensure that they underestimate, but if buyers did overestimate, then of course there would be no power problem. But this view seems to assume that buyers actually calculate such estimates and make decisions based on them. That might be true for some sophisticated buyers, like the buyers of Kodak copiers, but it probably would not be true for gym customers. It seems more likely that individual consumers would look at difficult pricing problems, throw up their hands, and use some sort of heuristic to estimate pricing and value. Consider cellphone contracts, for example. Maybe buyers simply look at the base monthly rate as a comparator among plans, even though they know that they will in fact pay more than that base rate. Then if the extra amount of uncertainty created by complex pricing were the same for all providers, it seems likely that none would gain power from the buyers’ uncertainty. If the extra amounts were different, then buyers might be led to make poor decisions, and one could use the price difference as a measure of power. But if buyers chose, in a sense, to ignore the charges beyond the base rate, it is not clear that antitrust, or indeed the law in general, should step 156

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in to provide a remedy. However, “choosing” can mean different things, as behavioral economics shows. This issue is taken up below in connection with airfares and extra fees. Alternatively, one could ask what the expense would be for buyers to determine the correct amount they would have to pay under a particular plan. For example, perhaps a buyer could use his or her past cell-phone usage and apply to that usage the pricing structure of a new contract to determine the price he or she would actually pay. Again, if that amount were a significant portion of the total price to be paid, or if it actually were not possible to make that determination, then perhaps one could conclude that the seller had power. In terms of conduct, however, it is not clear that any of this is exclusionary. Although, in a sense, one could say that a seller using opaque pricing makes it more difficult for others to compete, that is true only in a sense. It may be difficult to compete against opaque pricing with transparent pricing, but there is no obstacle to competitors also adopting opaque pricing arrangements. Bar-Gill argues, in fact, that they will be forced to do so. That would be anticompetitive, of course, but it would not be exclusionary. On the other hand, it is also not clear that any of this conduct has a legitimate business purpose. Therefore, if it could be shown to be exclusionary, and perhaps a theory could be developed, liability could follow. Scott Hemphill and Tim Wu have recently written on parallel exclusionary conduct,38 and Christopher Leslie has written more specifically about parallel tying arrangements.39 Although their examples generally involve conduct that would be exclusionary even if engaged in by a single firm, one could perhaps present an argument that relies more on parallelism than do their examples. One could argue, for example, that if firms like Kodak can act in an exclusionary manner unilaterally, because it makes it difficult for their competitors to demonstrate lower prices, the same practice is exclusionary when engaged in industry wide. That was basically the theory, in fact, of the Toys “R” Us case. The argument would be that even if competitors can respond in kind, and thus avoid being disadvantaged vis-à-vis each other, the parallel practice creates an information problem that prevents comparison shopping.

Oligopoly in Information However, even with this sort of oligopoly theory, there need not be any exclusion, only exploitation of consumers. If all of the (few) sellers in an 157

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oligopoly make their pricing difficult to understand, the effect could well be to exclude none of them but raise the price charged by all. In jurisdictions like Europe where unilateral pricing conduct can be condemned because it is exploitative, a remedy might be possible. However, the use of antitrust law to combat exploitative abuses is challenging in any case, and applying that law to the parallel conduct of oligopolists would likely be even more challenging. As Massimo Motta and Alexandre de Steel point out, it is especially problematic to apply antitrust in circumstances that would implicate both oligopoly and exploitative abuse.40 For these reasons, antitrust law may not be the best solution to these sorts of problems. On the other hand, consumer protection is not likely to be suitable, either, since the pricing structures are not typically deceptive. Some sort of sui generis solution may be most appropriate, as the action of Portugal’s Competition Authority suggests. The Authority issued a recommendation that mobile telephone operators provide on their websites “simulators” that would allow consumers to describe their user profiles and receive the pricing plan that would minimize their costs.41 This is an approach similar to that proposed by Oren Bar-Gill. He too suggests an approach based on consumer-use patterns, but he advocates going further than the Portugal plan. He points out, focusing particularly on credit-card and cell-phone contracts, that the sellers in those markets typically have excellent information about the ways in which consumers use their products. Indeed, Bar-Gill quotes a former Citigroup executive as saying that “[n]o other industry in the world knows consumers and their transaction behavior better than the bank card industry.”42 Bar-Gill proposes, then, that sellers could provide pricing information based on the information they possess.43 The information could be provided, he says, based on either aggregate statistics or the use patterns of individual consumers. In the latter case, the pricing provided would be similar to that provided by the Portugal plan, but based on the seller’s information, which may be more accurate than buyers’ own expectations regarding their usage. Whether or not such a disclosure approach would work, the problem does not seem inherently one of oligopoly. Although the cell-phone market may be oligopolistic, the credit-card one probably is not, with thousands of card-issuing banks. The problem therefore does not appear to be one of collective power, with consumers unable to benefit from competition because all sellers are engaging in the same practices. It seems instead to be more like the problems posed by advertising limitations, 158

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where the obstacle is simply the consumer’s cost of determining, when she is considering a purchase, whether another provider is offering a better deal. But advertising limitations are usually a product of agreement, where the difficulty here is unilaterally created.

Unbundling, Product Markets, and Information Markets The problem of confusopoly is in significant part due to charging individually for different elements of the overall product. The same is true for the creation of separate airline fees for services like baggage handling and boarding passes. This unbundling of fees is in a sense the reverse of the potential antitrust violation of tying. Where tying requires the purchaser to buy product B as a condition of buying product A (sometimes where, as in Kodak, the price of B is not known at the time of the purchase of A), unbundling takes products C and D, previously purchased together for a single price, and allows the consumer to choose whether to buy D.44 As one would expect, given the possible illegality of tying, this untying can be seen as a benefit in the product market. The problem with this unbundling of products is that it can make pricing determinations more difficult. That is, even if it is beneficial in the product market, it may be harmful in the information market. To the extent that the unbundling causes anticompetitive effects that injure some consumers in the market for information about airfares and fees (by making calculation of total costs more difficult), those anticompetitive effects should be balanced against the benefits to those buyers in the air-transportation product market who are able to avoid the fees for the untied products like baggage handling, which they may not use. Balancing effects in multiple markets, or at least pretending to do so,45 is not a new task for antitrust. In fact, that sort of balancing is what antitrust purports to do when manufacturers use agreements to lessen competition among their dealers.46 Such lessening of competition in the dealer market is said to cause dealers to invest more in promoting the manufacturers’ product, thus increasing competition in the market for those products. That is, less competition in the “intrabrand” market for dealer services can lead to more competition in the “interbrand” market for products. This can happen, for example, when a manufacturer requires that its goods be sold at a particular price. Because dealers cannot then compete on price, they will often compete on promotional services instead, seeking to increase their sales in that way. 159

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It is important to note, though, that in some cases the lessened competition in the dealer market is unnecessary. If competition in that market would not create the free-riding that can reduce incentives for promotion, then dealer competition can be lessened with no benefit to manufacturer competition. In such cases, the courts condemn the restraint. The analogy in the unbundling case would be the creation of harm in the information market with no benefit in the product market. That could occur, for example, if there were a proliferation of buying options that made comparison difficult or costly, but produced little benefit in the product market. And there might be little benefit if, for example, no or only very few consumers elected to purchase some of the available options. It might also be the case if it were clear that those who chose options did so at random rather than because they thought those options were actually preferable to them. Consider recent suggestions that cable television buyers, rather than being offered only a few alternative collections of channels, should be able to select the individual channels that they want to purchase. Antitrust law has not been receptive to such claims,47 but Congress is considering this sort of unbundling.48 But is it what consumers really want? The unbundling would give consumers the possibility of selecting only the channels they want, thus possibly leading to lower prices. But consumers who are not sure of the bundle they want might have to work through nontrivial calculations to compare products and prices. In the end, it is possible that the information-market costs could outweigh the product-market savings, at least for some consumers. There are reasons, after all, that some consumers choose unlimited-use arrangements, even when per-use ones might be less expensive. Admittedly, these issues depend much more on the decision-making practices of consumers than do most antitrust issues. One can assume, and the evidence shows, that individuals do not always make good decisions in such cases. The burgeoning area of behavioral economics provides numerous illustrations of the problems consumers face in decision-­ making. Much of the work in behavioral economics derives from the experiments of Nobel Prize winners Daniel Kahnemann (who did much of his early work with Amos Tversky)49 and Vernon Smith.50 Maurice Stucke and Avishalom Tor have written on the application of behavioral economics to antitrust, 51 and they describe a long list of deviations from rationality.52 The proper role of behavioral economics in antitrust law is quite controversial, though. Although scholars like Stucke and 160

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Tor advocate its application in antitrust law, it has received criticism from a number of quarters, notably former FTC Commissioner Joshua Wright.53 In any event, these behavioral issues are one reason offered in contending that disclosure remedies will be inadequate, as noted by Samuel Issacharoff: Already there is an important second generation of literature on the behavioral dimensions of consumer protection, showing that disclosure by itself is not enough. Product attribute disclosure alone is ineffective, given the innumerable errors that consumers are prone to make.54 Issacharoff, in contrast to Bar-Gill, takes this as evidence that we need to rely on information intermediaries. 55 Relying on the market may indeed be a better solution than either a consumer-protection or antitrust solution for these information problems, but that moves the antitrust problems one level up. If we are to rely on intermediaries to ensure that competition works in markets that are prone to information problems, then it is critical that the market for the intermediaries works well. 56

Market Solutions Despite the variety of problems posed by information asymmetries, perhaps they do not require legal remedies. If consumers need information, perhaps the market will provide it. Ben-Shahar and Schneider argue that this can be a better solution than is mandated disclosure: In addition, people ignore disclosures because they can get information—sometimes better information—elsewhere. For example, people often prefer advice to data. Mandates require listing a company’s contract terms; Amazon’s ratings and Yelp reviews tell you whether people liked what they bought. Many enterprises—from Consumer’s Reports [sic] to Standard & Poor’s—collect and offer information tailored to their clients. 57 They also reject the argument that these information intermediaries need disclosure rules to do their business, stating that “the service they perform, the information they use, and the advice they give, do not depend on mandated disclosure.”58 Given what we have seen earlier, offering Amazon, Yelp, and Standard 161

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& Poor’s as solutions to the information problem seems more than a little optimistic. It is certainly true, though, that information intermediaries offer the potential to lessen many of the problems described here. That seems especially possible in markets where competition appears to be effective, as in the market for travel purchases: Aggregators like Kayak and Orbitz play a big role in price transparency, as they allow travelers to compare their different options in an easy to read manner. These sites constantly add features, for example, calendars showing the most and least expensive travel days and, hopefully soon, an option to enter the amount of bags you’ll be checking for more accurate search result pricing, that can help travelers make more informed decisions regarding prices. 59 Of course, the point of this book is that antitrust law is needed to ensure that this sort of competition—i.e., the competition between Kayak, Orbitz, and Expedia—continues to be present. In any event, given the paucity of cases on information-asymmetry issues, it is difficult to do more than offer some possible avenues for antitrust in this area. Antitrust law’s treatment of uncertainty is in some sense more a policy question than a legal one, or, if a legal one, it is a question of the governing statutes rather than one that requires application of economics to the law. It is clear that uncertainty can cause harm to competition; after all, perfect information is one of the fundamental assumptions of the theory of perfect competition. It is also clear that every market exhibits some uncertainty, and antitrust cannot remedy every instance of it. Drawing the line between those exploitations of uncertainty that antirust will seek to remedy and those that it will not, perhaps leaving them to specific statutory disclosure requirements, is thus a task that turns on fundamental questions of antitrust law.

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n a r e c e n t s p e e c h that garnered much publicity, Tim Cook, the CEO of Apple, addressed the business practices of other Silicon Valley firms.1 Their business models, he said, involve “gobbling up everything they can learn about you and trying to monetize it.” He said that Apple takes a different approach: “We believe the customer should be in control of their [sic] own information. You might like these socalled free services, but we don’t think they’re worth having your email, your search history and now even your family photos data mined and sold off for god knows what advertising purpose. And we think some day, customers will see this for what it is.”2 However, many commentators argue that consumers are willing to give up their information in exchange for free, and better, services. Advertisers pay various online service providers for access to users. 3 More to the point, the advertisers are willing to pay more if the service provider is able to deliver their advertising to users who have been identified as more likely to respond to it. Personal information makes that targeting possible, and thus makes online service providers profitable. And the more money that the service provider makes from advertising, the better services that it can provide its users, with no (monetary) charge.4 None of this necessarily implies that the users have intentionally made a bargain to give up their information for better free services, but some evidence indeed suggests that they are willing to do so.5 On the other hand, a recent report from the Annenberg School for Communication at the University of Pennsylvania suggests that

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customers agree with Cook regarding what the report calls the “tradeoff fallacy.”6 The authors of the report asked Americans a variety of questions about the data-for-discounts exchange and found that the respondents do not necessarily accept the tradeoff willingly. For example, when asked, “If companies give me a discount, it is a fair exchange for them to collect information about me without my knowing it,” 91 percent responded “no.” Of course, consumers might in fact know about such exchanges, so the authors also asked, “Let’s say [the respondent’s usual] supermarket says it will give you discounts in exchange for its collecting information about all your grocery purchases. Would you accept the offer or not?” To that question, 52 percent responded “no,” but the authors also found that many more said they would reject the deal when asked about specific assumptions that the supermarket might make about them in response to the data gathered. The authors’ conclusion was that “the survey reveals most Americans do not believe that ‘data for discounts’ is a square deal.” The references to whether giving up data is “worth” what one receives or whether the exchange is a “square deal” suggest a commercial transaction. Indeed, Margrethe Vestager, the European Commissioner for competition, has said that “it’s clear that these are business transactions, not free giveaways.”7 There are human-rights implications of privacy as well, of course, and much of the legal commentary regarding privacy focuses primarily on those issues. However, there is increasing interest and focus on privacy from an antitrust point of view. Not surprisingly, given the novelty of the issues, some argue that the acquisition of private data by sellers presents a serious antitrust problem, others argue that it does not, and others take a middle ground. For present purposes, the most interesting perspective, perhaps, is the one that considers privacy, and “personal information,”8 as a commercial good in itself. At least three competition issues can arise in the context of “private” consumer information. One is the failure of competition, either with respect to firm conduct or as the product of mergers, to cause firms to respond to consumers’ privacy concerns, which is a lessening of the quality provided to consumers. The problem here is not the use of the information per se, but the failure of firms to provide consumers with adequate means of protecting it.9 The second problem is that of price discrimination, in which a seller’s detailed knowledge of consumers’ personal information and preferences allows the seller to charge a price calculated to each consumer’s willingness to pay. As a result, much or all of the value 164

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of the transaction is transferred from consumers to sellers. The third issue is the difficulty for sellers of competing in a market in which a dominant firm (Google, for example) has detailed knowledge of the consumers for which firms are competing.

Privacy and Personal Information as a Good The tradeoff perspective treats information about consumers as a commercial good. From this perspective, consumers exchange information about themselves for services, like search services. But like other information that is the subject of this book, the personal information of consumers both constitutes a market in itself and is information that affects other markets. As Maureen Ohlhausen and Alexander Okuliar write, “[i]n the online commercial world, consumer data is both an input for other online services and a commodity asset for advertisers.”10 Unlike other information in this book, though, the problem with personal information is not so much its accuracy (though, of course, that is impor­ tant in other contexts) but its availability. Information about consumers is in fact widely sold in market transactions. So-called “data brokers” buy data from a variety of sources and resell it for marketing and other purposes. In 2014, the FTC issued a report entitled Data Brokers: A Call for Transparency and Accountability.11 The report describes data brokers as “companies whose primary business is collecting personal information about consumers from a variety of sources and aggregating, analyzing, and sharing that information, or information derived from it, for purposes such as marketing products, verifying an individual’s identity, or detecting fraud.”12 Consumers, however, generally provide their data for free, or at least in exchange for services without an exchange of cash. Generally speaking, data brokers do not obtain information directly from consumers. Instead, as the FTC report describes, they rely on other sources, such as federal and state governments; publicly available sources, such as social media sites; and commercial sources. From the latter sources, as the report outlines, the brokers can obtain information including “the types of purchases (e.g., high-end shoes, natural food, toothpaste, items related to disabilities or orthopedic conditions), the dollar amount of the purchase, the date of the purchase, and the type of payment used.”13 They also obtain information from other data brokers, and the result is to allow them to form fairly detailed pictures of individual consumers. 165

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All of this information can then be used to commercial effect. A primary use is to predict consumer behavior. “The data brokers can identify a group of consumers that has already bought the product in which the data broker wants to predict an interest, analyze the characteristics the consumers share, and use the shared characteristic data to create a predictive model to apply to other consumers.”14 Or the broker, which typically uses data to divide consumers into segments of particular types, can use those segments predictively, perhaps in cooperation with a retailer: “The retailer gives the data broker its customer list and the data broker compares its stock segments, such as ‘Persons Interested in HighEnd Clothing’ or ‘Sophisticated Shoppers,’ to the retailer’s existing list of customers to predict which of the retailer’s customers will be interested in the new fashion line.”15 These practices can be of value to consumers, of course. Many consumers prefer to see advertisements that are tailored to their particular interests. But whether consumers value tailored advertising more than they value their privacy simply is not clear. And there are other costs to consumers resulting from sellers’ possession of detailed information about their preferences as well. Some of those, such as the risks of data breach, will not be considered here, because the focus of this book is on competition, but those costs should be significant parts of the broader privacy analysis.16

Privacy Per Se One perspective on privacy as a good is that it is simply a component of the service provided by, say, a search engine.17 In this respect, privacy would be just an element of nonprice competition, as is quality or durability. In fact, privacy could be seen as an element of quality.18 If consumers want a great deal of privacy, and they receive it from a service provider, then they are receiving a high-quality service. If instead they receive less privacy than they would prefer, they are receiving a low-­ quality good. Because it is generally recognized that nonprice factors like quality are as important as price, a loss of privacy should be a consumer harm that antitrust law deems important.19 Geoffrey Manne and Ben Sperry have resisted this equation of less privacy with consumer harm that presents an antitrust issue. One of their points is that even if some consumers want more privacy, others are willing to exchange it for value received through better targeting from 166

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sellers. That is surely correct, but not justification for a hands-off approach by antitrust, as discussed below. The more surprising argument they make is that less privacy is not a problem, even for consumers who want more, unless the loss causes some other, presumably tangible, harm: [C]laims that concentration will lead to a “less-privacy-protective structure” for online activity are analytically empty. One must make out a case, at minimum, that a move to this sort of structure would reward the monopolist in some way, either by reducing its costs or by increasing revenue from some other source.20 There are at least two flaws in this passage. The first is that a loss of privacy is in fact a transfer from consumers to producers. If producers take valuable consumer information without payment, or even without payment at a competitive price, then producers gain at the expense of consumers. And if it is market concentration—a “less-privacy-protective structure”—that is the cause of this exploitation, then it is a competition issue, not (only) a consumer protection one. 21 What appears to be going on in this passage is a rejection of the view that consumers are entitled simply to want privacy; the authors want consumers to justify their desire for it. 22 But Joseph Farrell has pointed out that this is not the usual approach in antitrust, which simply takes consumer demand as given: Thus it’s jarring for an (or this) economist to hear the notion that economics pushes public policy on privacy towards focusing on quantifiable, tangible, and verifiable specific harms from the loss of privacy, a notion that is also reflected in some court cases. Economics sometimes views intermediate goods that way, but for final goods, it normally takes tastes as given and asks how well a market or an economic system satisfies those tastes. 23 The second flaw is that there is no requirement that harms to consumers also provide benefits to producers to raise an antitrust issue. In the merger context, even the possibility of unilateral harm from a firm large enough to exploit consumers is of concern, and the U.S. agencies’ Merger Guidelines refer specifically to nonprice harms. 24 And even liability for single-firm conduct turns only on exclusionary conduct and the lack of a legitimate business purpose, not on increased profits. It has long been accepted that “[t]he best of all monopoly profits is a quiet life.”25 But Manne and Sperry are surely correct that privacy harms can 167

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cause other benefits. As they say, the relevant question is whether, on balance, the seller’s conduct is anticompetitive: At the same time, alleged harms arising from increased sharing of data with third parties (typically advertisers) [are] necessarily ambiguous, at best. While some consumers may view an increase in data sharing as a degradation of quality, the same or other consumers may also see the better-targeted advertising such sharing facilitates as a quality improvement, and in some cases “degraded” privacy may substitute for a (pro-competitive) price increase that would be far less attractive. 26 The upshot of this point, though, is simply that antitrust law must balance harms and benefits, not look only at one side of the ledger. That is an uncontroversial claim, but hardly one that eliminates privacy harms from antitrust consideration. In fact, however, the U.S. agencies have avoided informational quality issues even where they are more straightforward than privacy. This was particularly significant in the wave of radio mergers in the United States in the late 1990s. The Department of Justice focused almost exclusively on the price effects of the mergers on advertisers, rather than on the quality effects on listeners. 27 And it did so despite the fact that listeners care about radio programming more obviously than they care about privacy protections. The U.S. antitrust agencies’ relative neglect of information issues continued in the FTC’s recent review of the Google-DoubleClick merger. The Commission was rather cryptic about its consideration of privacy issues in that case: Although such issues may present important policy questions for the Nation, the sole purpose of federal antitrust review of mergers and acquisitions is to identify and remedy transactions that harm competition. Not only does the Commission lack legal authority to require conditions to this merger that do not relate to antitrust, regulating the privacy requirements of just one company could itself pose a serious detriment to competition in this vast and rapidly evolving industry. That said, we investigated the possibility that this transaction could adversely affect non-price attributes of competition, such as consumer privacy. We have concluded that the evidence does not support a conclusion that it would do so. We 168

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have therefore concluded that privacy considerations, as such, do not provide a basis to challenge this transaction. 28 The FTC’s decision not to focus on privacy issues was especially striking given the call for such a focus in the dissenting statement of Commissioner Pamela Jones Harbour: Traditional competition analysis of Google’s acquisition of DoubleClick fails to capture the interests of all the relevant parties. Google and DoubleClick’s customers are web-based publishers and advertisers who will profit from better-targeted advertising. From the perspective of these customers, the more data the combined firm is able to gather and mine, the better (assuming, as the majority presumably does, that the financial benefits of highly-­targeted advertising outweigh any harm caused by reduced competition). But this analysis does not reflect the values of the ­consumers whose data will be gathered and analyzed. 29 The approach in Europe has been similar, though European Commissioner Vestager has signaled greater attention to the issue. 30 In the Commission’s 2014 review of the acquisition by Facebook of WhatsApp, it specifically declined antitrust consideration of privacy issues: For the purposes of this decision, the Commission has analysed potential data concentration only to the extent that it is likely to strengthen Facebook’s position in the online advertising market or in any sub-segments thereof. Any privacy-related concerns flowing from the increased concentration of data within the control of Facebook as a result of the Transaction do not fall within the scope of the EU competition law rules but within the scope of the EU data protection rules.31 To be sure, quantifying harm from privacy losses is a challenging task. But the existence of firms like Datacoup, which pay for data, suggests that the task is possible. Datacoup offers to pay individuals for their information, with individuals able to receive up to $10 per month. 32 Bing’s rewards program offers similar possibilities.33 Although these forms of compensation are probably better measures of the value of information to search engines than they are of the value to users of keeping the information private, they seem at least to indicate that when users 169

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are giving up their data without payment, they are receiving less from the search engine than effective competition would provide them.

Privacy and Consumer Protection Of course, for the market for personal information to work, the value of information would have to be determinable by consumers, not just antitrust courts. Somewhat remarkably, Manne and Sperry express no concerns regarding this requirement: “Consumers, with the assistance of consumer protection agencies like the FTC itself, are generally able to assess the risks of disclosure or other misuse of their information, and to assess the costs to themselves.” Katherine Strandburg states, more plausibly, that “Internet users do not know the ‘prices’ they are paying for products and services supported by behavioral advertising because they cannot reasonably estimate the marginal disutility that particular instances of data collection impose on them.”34 Surely Strandburg is correct. As will be discussed below, such information can be used to price-discriminate among buyers, charging higher-​ demand buyers higher prices. Therefore, to determine what they are “paying” by giving up their personal information consumers would have to determine what future purchases they will make, what the overcharges will be, etc. To do this with any accuracy seems impossible, as Strandburg explains:35 Significantly, while a consumer who barters away the harvest of her vegetable garden to a neighbor must estimate the expected value of the uses she herself might make of the vegetables in order to decide whether to make the trade, she knows what vegetables she has traded away and does not much care what the neighbor does with them. The information needed to assess the expected disutility from a “payment” in data is of a different order. An Internet user’s potential disutility from data collection is almost entirely due to future uses or misuses of the data to which the actions of the data recipient, in combination with the actions of unknown others, might expose the user. Internet users do not know, and often cannot know, the likelihood or magnitude of various potential disutilities that might result from a particular stream of data collection. They do not know, and generally cannot know, sufficient detail about what data is collected by the companies with which 170

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they interact, how it will be secured, and what uses eventually will be made of it. If user data is a “payment” for online services, one might call it a “credence payment,” since users cannot determine the price they are paying either before or after they have paid it.36 Strandburg therefore advocates a ban on behavioral advertising. She states that “[t]he most straightforward approach would be to ban data collection and processing for behaviorally targeting advertising,”37 but she also considers other options, such as a “Do Not Track” option through which consumers could individually opt out of the collection of their data. Frank Pasquale offers a somewhat different approach to consumer protection in the privacy market. He too thinks it unlikely that individual exchanges of data for services will function well as a market, because “[w]hen a service collects information about a user, the situation is so far from the usual arm’s-length market transaction that transactional approaches can only be misleading.”38 He therefore proposes a regime that would depend on disclosure and monitoring of the uses of personal information, in an approach that echoes the disclosure remedy for information asymmetries discussed in the previous chapter. But the required disclosures would not be related to individual transactions with consumers but to disclosures of data. Modeling disclosures on those in the health-care industry, Pasquale argues that “it would not be unreasonable to expect big data firms to make ‘accountings of disclosures’ of the data they hold in the same way that entities covered under the Health Insurance Portability and Accountability Act (‘HIPAA’) are required to.”39 This approach is echoed in the FTC report on data brokers. The Commission’s recommendations regarding the use of data for marketing are to require data brokers “to give consumers (1) access to their data and (2) the ability to opt out of having it shared for marketing purposes.”40 Although, in itself, this approach does not seem clearly one of either antitrust or consumer protection, the FTC goes further to recommend that “legislation could also require the creation of a centralized mechanism, such as an Internet portal, where data brokers can identify themselves, describe their information collection and use practices, and provide links to access tools and opt outs.”41 These sorts of disclosure requirements seem to reflect an approach based on consumer protection rather than antitrust. A concern that straddles the antitrust–consumer protection line has been raised by the late former FTC Commissioner J. Thomas Rosch. 171

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When the FTC announced its decision to close its investigation into possible Google search bias,42 Commissioner Rosch issued a separate statement.43 Among the concerns he expressed was that Google might use “‘half-truths’—for example, that its gathering of information about the characteristics of a consumer is done solely for the consumer’s benefit.”44 Commissioner Rosch’s concern, though, was not the usual consumer-­ protection one of gaining an advantage in a particular transaction, but rather that Google might be gathering the information “to maintain a monopoly or near-monopoly position.”45 Although he did not articulate this theory more fully, it points to a relationship between control over personal information and antitrust.

Privacy and Antitrust As Ohlhausen and Okuliar say, “privacy protection has emerged as a small, but rapidly expanding, dimension of competition among digital platforms.”46 Nevertheless, they express doubts about using antitrust as a legal remedy for privacy violations. They say that “using the modern antitrust laws, which are empirically-focused on economic efficiency, to remedy harms relating to normative concerns about informational privacy contradicts the specialized nature of these laws and risks distorting them in ways that would leave both the law and consumers worse off.”47 Although they do not explain why “normative” concerns about privacy are not just “non-price” components of straightforward business transactions, they conclude that consumer protection, not antitrust, is the proper source for privacy protection. This focus on consumer protection, rather than antitrust, remedies perhaps derives from the limited nature of the goals of antitrust. In the merger context of Google​/ DoubleClick, the potential antitrust harm at issue would be a less competitive market. The fundamental privacy problem, however, is not primarily one that would be worsened by the merger of two such firms. The lead author of the Annenberg Center study described the problem in this way: “But what is really going on is a sense of resignation. Americans feel that they have no control over what companies do with their information or how they collect it.”48 That, presumably, is a harm Americans are already suffering, and it is not clear that it would be worsened by the merger of two large firms. Users have no control over their information now, and they will have no control over it after the merger. As Scott McNealy famously put it, “You have zero privacy anyway. Get over it.”49 172

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But as Ohlhausen and Okuliar say, firms are competing on privacy, so to the extent that firms’ actions lessen privacy protections, there seems no reason it would not be an antitrust matter. Search engines like DuckDuckGo, for example, use the fact that they do not gather consumer information as a marketing point.50 If DuckDuckGo were acquired by Bing or Google, and it were folded into the acquirer’s own search engines or its no-data policy were changed, that would presumably be the same sort of harm that is suffered whenever any “maverick” firm is acquired and its disruptive effect in the market eliminated.51 There are other sorts of conduct that also threaten what could be called privacy competition. There are various applications that allow users to protect their privacy. 52 Some allow users to monitor how their data is being used.53 More to the point, from a competition point of view, some of these apps have been blocked by Google at its Play Store, 54 and this has resulted in a competition-law complaint to the European Commission.55 The reason offered for the blocking is that the apps interfere with other apps, which is necessary if the blocking apps are to achieve their goals of protecting privacy. Some contend, however, that Google blocks the apps because they, to some extent, put at risk its business model of selling ads. If that were true, one could view the blocking, or, actually, both versions of blocking—the blocking of data gathering, and Google’s blocking of the apps—as competition with respect to overall business models. That is not to say, though, that business conduct could not also cause more specific harms. In this sense, Manne and Sperry are correct in that there is value in articulating the specific harms caused by a lessening of privacy. In that respect, it is important to consider the specific harms that a loss of privacy is said to cause, not just the general loss in quality that consumers suffer by being provided lower-quality services. There are two such harms to which commentators usually point. First is sellers’ use of consumers’ personal information to discriminate among buyers, charging buyers with higher demand higher prices and those with lower demand lower prices. Second is the consolidation of such information in few hands, which may make it difficult for new entrants to compete.

Price Discrimination Consumers have reason to care about privacy not just in the abstract, as a good of which they want more, but also because of potential price 173

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effects, the traditional focus of antitrust. Price discrimination is the use of information about individual consumers to charge them approximately the amount at which they value the products they are purchasing. Antitrust law prohibits some anticompetitive price discrimination in the United States, and more is condemned in Europe, but economics does not have a clear position on whether price discrimination is desirable or undesirable. It is generally accepted that imperfect price discrimination can have undesirable effects, but the effects of perfect price discrimination are more ambiguous. What seems clear is that the quantity of information collected by online information providers makes the potential of price discrimination much more significant. The competitive danger at issue in the previous chapter was information asymmetry; in the context of price discrimination, it is, in a sense, information symmetry. Traditionally, sellers had available to them much less information about their consumers than is now available. Therefore, consumers were able to benefit from not revealing their personal information, which forced sellers, at least in some instances, to set terms that were more favorable than needed to attract buyers. Now, to the extent that sellers have access to more personal information of consumers, this advantage of consumers could disappear.56 As discussed in Chapter 2, sellers, and particularly online sellers, have engaged in price discrimination on various bases. And, of course, the information that is potentially available to sellers is much more extensive and finer-grained than the simple identification of which computer a consumer is using or in what geographic area they live, examples that were discussed in Chapter 2. “Some marketing companies, for instance, segment individuals into clusters like ‘low-income elders’ or ‘small town, shallow pockets’ or categorize them by waistband size.”57 These sorts of categories can be used to improve dramatically sellers’ information regarding how much consumers are willing to pay for products. Because, however, price discrimination’s economic effects are ambiguous, the implications of this information are dismissed, or least discounted, by some authors.58 However, the markets at issue here are different in other ways from the markets that are typically considered in assessing price discrimination. The markets on which these discussions typically focus are those in which sellers have market power, or monopoly power. In that context, a seller that must charge every buyer the same price will charge a price above cost to maximize its profits. Although it could profit by charging 174

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only slightly above its cost, it profits more by charging a higher price. That is so because the lost profits from sales that do not occur because of the higher price are more than compensated for by the greater profits on sales that do occur. So the profits of the seller are greater, but the benefits to society are less. That is so because the increased profits on the sales that do occur are merely transfers from buyers—the buyers lose while the seller gains—making those exchanges neutral from a societal point of view, but the sales that do not occur create a loss to those customers who would have gained from their purchases, but no compensating benefit to the sellers. This is the so-called “deadweight loss” to society that is the harm of higher prices. Price discrimination can eliminate this loss because it can permit the seller to charge the value of the good to each buyer. In that way, the seller gains from the higher-priced sales while still making sales at lower prices. The key point here is that the price discrimination enables the seller to raise prices to some consumers while lowering the price to others. But that happens only if the seller was charging higher than its cost before the price discrimination. The price discrimination that could be made possible in online markets by consumers’ personal information would not necessarily involve sellers that have preexisting power. For example, in the Orbitz case described in Chapter 2, where Orbitz showed higher-price hotels to users of Apple computers, hotels would not generally be thought to have market power. They presumably operate in more-or-less competitive markets in which they face effective competition from other hotels, at least for consumers about whom they do not have detailed information. In those markets, having more personal information of consumers would not likely lead the hotels to lower their prices to any consumers, to whom they presumably would already be charging a competitive price. Instead, it would only raise prices to those consumers about whom they have personal information. That is, the hotels would present higher prices to those consumers—perhaps Mac users—that they believe would be willing to pay those higher prices. If sellers were able to price-discriminate perfectly, this would all matter less. In that case, money would be transferred from buyers to sellers, but society as a whole would not lose. But perfect price discrimination is not possible, or even likely. Not all Mac users want to, or are willing to, pay more for hotels. Yet if they are shown higher-priced hotels, and it is difficult for them to find lower-priced hotels, they might not choose the hotel they prefer or, worse, they might not travel at all. The same would 175

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be true for typical online buyers of consumer goods who are shown prices that are near to, but perhaps slightly above, the amounts they are willing to pay. The losses these buyers, or potential buyers, suffer could then be losses to society. In cases where a price-discriminating seller has market power, these losses from imperfect price discrimination might be balanced by gains to buyers who are able to make purchases at lower prices. But if the seller is operating in a competitive market and has no ability to make largescale reductions in prices to some buyers, any imperfections in its price discrimination will create lost sales. And the seller may not be sensitive to those lost sales because it will be making greater profits from its other sales. That is, its overall profit picture could improve so dramatically that its loss of some sales that it could have made—indeed, could still make—will not necessarily be noticed. Given the unhappiness of consumers when it is revealed that they have been subject to price discrimination—the most commonly used example is payment of different amounts for comparable airplane seats59 — it seems at least plausible that the widespread use of such practices, if known, would prompt calls for relief. The U.S. Supreme Court recently stated quite forcefully that price discrimination is not an entitlement of sellers, at least for copyrighted goods,60 which suggests that consideration of this price-increasing effect of the availability of personal information may be an appropriate subject for antitrust law.

Personal Information as a Competitive Advantage A final potential competitive harm is that large accumulations of personal data could lessen competition among firms for which data is an important input. This can happen in two ways. First, in some cases, data is simply important to providing high-quality service. In search, for example, consumer data enables search engines to provide results tailored to the characteristics of their users.61 It is difficult for a firm, particularly a new entrant in a market, to compete when its competitor, particularly an incumbent, has much more complete information about the consumers for whom both are competing. Manne and Sperry argue that “the incumbent almost certainly had to go through the same process and overcome the same barriers.” But that is not the case. Google is surely a more formidable competitor for new

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search engines than Google itself faced when it was entering the market. The D.C. Circuit Court of Appeals made a similar point about the advantages Microsoft possessed once it became established in the market: “When Microsoft entered the operating system market with MS-DOS and the first version of Windows, it did not confront a dominant rival operating system with as massive an installed base and as vast an existing array of applications as the Windows operating systems have since enjoyed.”62 Determining whether Google or Facebook63 possesses similarly formidable advantages now would require considerable research.64 It is clear, though, that Google similarly has a vast “installed base” (of users) and “array of applications” (such as gmail). It is therefore inappropriate to claim, without further evidence, that a new entrant in the search or social network would face no greater obstacles overcoming Google or Facebook than they faced overcoming AltaVista or MySpace. Surely the vast amounts of personal information possessed by Google and Facebook are part of the competitive landscape that newcomers would face. Moreover, it was to a large extent Google that made data the impor­ tant contributor to search that it is now. “Early search engines, like Yahoo! and AltaVista, found results based only on key words. Personalized search, as pioneered by Google, has become far more complex with the goal to ‘understand exactly what you mean and give you exactly what you want.’”65 Thus, if indeed a large collection of data is a competitive advantage, then new entrants now would face Google when Google has that advantage, while Google would have entered the market at a time when the established firms did not have such an advantage. It is true, though, as Manne and Sperry point out, that there may not be particular conduct by the dominant firms in these data-intensive markets that excludes competitors. That is, the firms might indeed possess more data than their competitors, and might have power as a result of the data, but they might not be acting anticompetitively. There is no reason to think that these firms have gathered information about customers in order to exclude competitors (though it is possible that it aids in that goal, as discussed below). On the contrary, there is every reason to think that they gather that information to improve their own services. To bring antitrust into play, at least outside the merger context, it would be necessary to develop a theory under which they could use this power to anticompetitive effect.

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Using Data to Exclude Competition One possible exclusionary technique would be to use data to enable the delivery of higher-quality services to customers that are at risk of leaving for a competitor. For example, if personal information is used by a shopping site to deliver higher prices to high-demand consumers, the site might instead deliver lower prices to consumers who, the site’s information suggests, might switch to a competing site. So long as the lower prices are not below cost, this would not constitute predatory pricing, but it is the sort of price discrimination with anticompetitive effects that can be an antitrust violation. Moreover, the importance of such competitively significant information about customers has been recognized by competition law in other contexts. A number of vertical-merger cases have allowed the mergers to be consummated only when the merging firms committed that neither would be permitted to use information obtained by the other. For example, when Google acquired ITA, which provided pricing and shopping systems to online travel sites, like Kayak and Orbitz, the Department of Justice and Google entered into a consent decree preventing Google from using data about ITA customers for its own benefit.66 The market relationship is similar, even in the consumer context, in that a firm in possession of information about consumers can use that information to gain or preserve an advantage over its competitors. Even if a dominant firm like Google did not obtain data through merger (though the data that Google obtained through its acquisition of DoubleClick could have been useful in this way), the competitive harm that it could produce with it is similar to that which the agency was concerned. Moreover, this is presumably the sort of harm that Commissioner Rosch had in mind in his statement regarding Google search bias. As described above, he expressed concern in that statement regarding Google’s “gathering of information about the characteristics of a consumer” in part “to maintain a monopoly or near-monopoly position.”67 This sort of conduct has also been of concern in Europe. Both article 101 TFEU, which governs concerted practices, and article 102, which governs abuses of dominance, condemn practices that apply “dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage.” Although this description appears to be aimed at so-called secondary-line price discrimination— price discrimination that injures competition among the discriminating 178

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firm’s customers—it has been applied by the European Commission and courts to primary-line discrimination—discrimination that injures competition between the discriminating firm and its own competitors.68 So if a firm used information about consumers to price-discriminate in such a way that it injured its competitors, for example, by using low prices only where it faced threats from the competitors, that could be seen as a competition problem. But the EU cases, like analogous U.S. ones, have generally involved discrimination among business customers, not consumers. It is not clear whether this is a result of the terms of the provisions at issue or the relative infrequency, so far, of price discrimination among consumers. If it is the latter, the increase in the amount of information sellers possess could bring competition law into play.

Collective Action on Privacy Privacy issues on the Internet are further complicated by the source of specifications for communication protocols, which, to some extent, determine the ease with which information can be protected. Much of this work is done by private organizations such as the World Wide Web Consortium (W3C) or the Internet Engineering Task Force (IETF). These organizations may or may not provide technical approaches that serve consumers’ interests, and firms operating on the Internet may or may not comply with the approaches that they provide. The dynamic here is a complicated one involving Internet firms, organizations like the W3C and the IETF, and governments, which could—but often do not— adopt legal privacy protections. Thus, antitrust may have only a limited role to play in what is a larger systemic problem, but the competitive implications here are significant. Two examples come from the specifications for HTTP (hyper-text transfer protocol), the communications protocol for the World Wide Web. HTTP provides several means for a website to obtain information about a user’s past browsing history. The website then can use this information to tailor the user’s experience based on that history. One means is Referer,69 an HTTP-specified field that provides information to a website about the previous site the user visited. With that information, websites can pay each other for referrals through links from one site to another. David Post outlined the use of Referer in his book In Search of Jefferson’s Moose, where he aptly characterized Referer as a primary determinant of Internet commerce.70 Post stated, for example, that 179

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Google “makes most of its money from the Referrer field.”71 Although other techniques can be used for the same purpose, they generally rely on the technical infrastructure that enables this sort of tracking.72 The commercial role played by Referer and related techniques seems innocuous, or at least reasonable, but there are problematic possibilities. For example, a seller could offer different prices to buyers depending on what site they came from. A recent study showed that consumers are unaware of this possibility,73 yet the author of that study noted that “[a] retail photography Web site, for example, charged different prices for the same digital cameras and related equipment, depending on whether shoppers had previously visited popular price-comparison sites.”74 And although some web browsers allow users to turn off Referer, at least with add-ons,75 it seems unlikely that many users take advantage (or disadvantage76) of this feature. Cookies are a better-known method of tracking browsing history. A cookie is text a web server sends and stores on a user’s computer by way of the user’s web browser. The cookie can then be retrieved later by the server. But some websites deliver information from multiple servers, including those providing advertising banners. When those banners are delivered by the same firm to multiple sites that a user visits, the firm can gather information from visits to all the sites and accumulate considerable information about users’ browsing histories. This is a key technique advertisers and others use to track users online. Because cookies are much better known than Referer, though, most, if not all, browsers provide the ability to deny cookies, even if doing so can cause problems with websites that depend on them. The original HTTP specification for cookies was adopted in 1997,77 and current approaches are outlined in a proposed standard from 2011.78 The proposed standard describes the use of cookies, but makes a distinction between cookies sent by the server the user visited and so-called third-party cookies, which are those sent by other servers (for example, those delivering advertising on the site the user visited).79 An earlier version of the cookie specification forbad third-party cookies,80 but the new version allows them, despite calling them “[p]articularly worrisome.”81 It is true that even under the superseded specification that prohibited third-party cookies, many website designers ignored the prohibition,82 but it is nevertheless troubling that the IETF has abandoned its prohibition, despite its expressed concern. As one website notes, some websites

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provide cookies for more than one hundred third-party domains, generally without the awareness of users.83 Generally speaking, the IETF, which sets technical standards in this area, gets considerable deference, as David Post describes.84 The IETF is an organization open to all, but like many standard-setting organizations, much of its work is done by representatives of organizations active in the industry because they support the work financially. Post and others85 are enthusiastic about the IETF’s role, but its composition and the history here are problematic. Like other standard-setting organizations discussed in Chapter 4, the IETF determines the nature of products provided to users. Unlike most other standard-setting organizations, its products—HTTP specifications, among others—define the fundamental nature of the online environment.86 Furthermore, that environment has greater public-policy implications than do many standards (though perhaps some medical standards could be seen as comparable). And, of course, most users are entirely unaware of the choices that the IETF is making for them. “The mission of the IETF is to make the Internet work better by producing high quality, relevant technical documents that influence the way people design, use, and manage the Internet.”87 As with standards generally, though, what it is to “work better” can be a highly contested matter and can evolve over time. To be sure, the controversial aspects of the IETF’s work have been recognized within the IETF, which has even issued an RFC that “identifies specific uses of Hypertext Transfer Protocol (HTTP) State Management protocol [like cookies] which are either (a) not recommended by the IETF, or (b) believed to be harmful, and discouraged.”88 And participation in the organization’s activities is open to all. Nevertheless, its work has significant competitive implications, particularly with regard to the control of user information, and thus could be subject to the antitrust laws.

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Part III Informational Limits on Antitrust: Intellectual Property and Freedom of Speech

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h e f o l low in g t w o c h a p t e r s focus on two bodies of law that can, in some circumstances, limit the application of antitrust law. Chapter 8 describes the often-difficult interface between antitrust law and intellectual property law, primarily patent and copyright law. Both patent law and copyright law protect information, giving patentees exclusive control over information about their inventions and copyright owners exclusive control over their copyrighted expression. Both of these types of intellectual property have limited scope, yet both patentees and copyright owners sometimes seek to extend their market control into other areas, some of which are informational. More importantly, courts sometimes do not distinguish carefully between the information that intellectual property law is intended to protect and other, related information in markets in which competition should continue to function. Chapter 9 addresses constitutional and treaty-based protections of freedom of speech. Information providers sometimes contend that their informational conduct cannot be regulated by competition law because the First Amendment in the United States and analogous protections in other jurisdictions prohibit such regulation. This argument has recently been successful for both credit-rating agencies and search engines. As this chapter describes, though, competition in information products is

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not inconsistent with freedom-of-speech protections. Indeed, it is ironic that the First Amendment, the basis of Justice Holmes’s statement that “the best test of truth is the power of the thought to get itself accepted in the competition of the market,”1 is now being used as a shield to prevent antitrust law from preserving competition in true marketplaces of information.

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8 Information and Intellectual Property

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at e n t s a n d c o p y r ig h t s give their owners exclusive rights over information.1 For a patent, the subject of that information is “any new and useful process, machine, manufacture, or composition of matter,”2 and patent law requires “a written description of the invention, and of the manner and process of making and using it.”3 For copyright, the information is “in original works of a‌ uthorship fixed in any tangible medium of expression.”4 Both bodies of law give owners of their respective intellectual property rights the power to prevent others from using the protected information in defined ways. In that respect, intellectual property law prevents competition in information, but it does so to provide inventors and authors the opportunities for profits that create incentives to innovate. Intellectual property law places limits on intellectual property protections, though. Those limits relate both to time, with patent and copyright law each having defined terms, 5 and to the scope of protection. To the extent that an intellectual property owner seeks to extend its exclusionary power beyond the scope of protection to which it is entitled, it can be in violation of antitrust law. A typical example of this sort of problem arises when a patentee imposes a condition that requires buyers, in order to gain access to its patented invention, to also buy a second, unpatented product.6 This sort of “tying” conduct is typically challenged though antitrust tying claims or through analogous claims of patent or copyright misuse.7 The misuse test, as it has been stated in recent years in the patent context, where most of these cases arise, is whether the

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challenged practice is “reasonably within the patent grant, i.e., that it relates to subject matter within the scope of the patent claims.”8 Beyond these efforts to extend the power of intellectual property protection into additional markets, though, there is another way in which intellectual property owners sometimes seek to extend their power, in a particularly informational way, with surprisingly little response from the law. Broadly speaking, in these circumstances, intellectual property owners seek to gain a competitive advantage not from the information that intellectual property law protects but rather from related, unprotected information. So, for example, as is discussed below, patentees have entered into agreements that suppress information about the validity of their patents, and copyright owners have agreed on how they would define and determine infringement. These sorts of information, though related to intellectual property rights, are not protected by those rights. In addition, patentees have sought to deceive potential buyers about future licensing terms and to exploit uncertainties regarding their patent portfolios, all in efforts to extract greater royalties. The purpose of this chapter is to point out how courts and other government officials sometimes defer to these sorts of exploitations of information (or the lack of information) in the intellectual property context. Instead of recognizing that the information at issue is not protected by intellectual property law, courts sometimes view the intellectual property owners’ conduct as a valid part of their enforcement of their patent or copyright rights. Instead, this conduct should be viewed as an impermissible attempt to use unprotected information to extend the power of intellectual property rights beyond their scope. It is essential in these cases that courts identify the information that is providing the intellectual property owner with power, and only if that information is protected by intellectual property law is its use a valid enforcement effort.

Probabilistic Patents Several aspects of uncertainties regarding patents have been the subject of recent articles. Most prominently, Mark Lemley and Carl Shapiro have discussed what they call “probabilistic patents,” observing that although all property rights are somewhat uncertain, “the uncertainty associated with patents is especially striking, and indeed is fundamental to understanding the effects of patents on innovation and competition.”9 They identify two distinct types of uncertainty: (1) uncertainty 186

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regarding the commercial value of patents, and (2) uncertainty regarding patents’ validity and scope, which becomes particularly significant in patent litigation and which they call “litigation uncertainty.”10 “Litigation uncertainty” has been particularly important in what have been called reverse-payment settlements. These are settlements of patent claims resulting from procedures established by the HatchWaxman Act.11 That Act was intended to ease the entry of generic drugs into markets dominated by patented brand-name drugs. Under the Hatch-Waxman procedures, a generic drug manufacturer that seeks to compete with a brand-name manufacturer can assert either that the patent is invalid, that its generic drug does not infringe, or both.12 In response to such assertions, the brand-name manufacturer could pursue litigation, but instead the result has sometimes been a settlement between the brand-name and generic manufacturers that allows the generic company’s entry into the market, but only after some years’ delay.13 Many of these settlements have been accompanied by payments from the patentee to the generic challenger, called “reverse payments” because payments in patent-litigation settlements typically run in the other direction, from licensee to patentee.14 The competitive effect of these settlements can be difficult to determine, as the Supreme Court’s recent determination that the rule of reason is applicable indicates.15 On the one hand, if a settlement allows entry by the generic company—the alleged infringer—before the patent expires, then one could view the settlement as promoting competition. On the other, if the patent-infringement suit, if litigated, would be unsuccessful, then delaying entry at all (or at least past the likely end of litigation) would be anticompetitive. Therefore, those who object to such settlements argue that any payment from the patentee to the entrant is made to (improperly) exclude competition until the agreed date.16 Those who support the settlements—and many court decisions have upheld them—respond that without the settlement, and assuming the validity of the patent, entry would have been delayed even longer, until the patent expired.17 Both arguments are focused on the entry date, and thus on the product market. The difficulty of assessing the effect of the settlement in this way arises, of course, from the lack of information about patent validity. If the patent is valid, the settlement does not eliminate any competition that would otherwise have existed; if it is not, then the settlement preserves a monopoly when none is deserved. Information about validity, if 187

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available, would determine whether the settlement had any anticompetitive effect in the product market. Because it is not available, however, courts are unable to determine actual effect. Instead, they sometimes rely on patent law’s presumption of validity.18 That is, they state that the patent is presumptively valid, so that there is no competitive harm from the settlement. In some cases, they have buttressed this approach by stating, somewhat disingenuously, that there is no challenge to the patent’s validity, when the cases in fact rely on at least the possibility of invalidity, even if the challenger does not seek to litigate the validity issue in the antitrust court.19 For the most part, Lemley and Shapiro view these sorts of problems as ones to be solved by patent law. 20 Although they treat the problem as one of uncertainty, they do not address the problem primarily as an informational one, but within the framework of patent law: [A] patent does not give its owner the right to exclude rivals who are allegedly infringing, at least not without a court order. Payments from patent holders to alleged infringers in exchange for their agreement to stay off the market therefore go beyond the patent grant and exclude allegedly infringing competition, to the detriment of consumers. 21 As Lemley and Shapiro argue, these settlement practices can “go beyond the patent grant,” but it is also possible to focus more explicitly on what that means as an informational matter. From an informational perspective, the fundamental problem is not that an uncertain patent is being treated as a certain one, as Lemley and Shapiro describe, though that too would be a misapplication of patent law, but that the competitive advantage produced by a private settlement preserves the uncertainty.

“Reverse-Payment” Settlements To make this perspective more clear, an alternative approach to these cases would not focus on the product market or patent validity at all. Settlements of patent litigation have effects in another “market,” the one for information regarding the patent’s validity. Patent litigation requires the parties to produce information relevant to both the validity and the scope of the patent at issue. This information then helps define the protection, if any, provided by the patent, which is useful both for the litigants and for nonparties to the litigation. 22 Settlement prevents this 188

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information from being produced, or at least prevents it from being made public. 23 In several extreme cases, parties to patent settlements have even successfully sought to have previous judgments vacated. 24 It is therefore critical to draw a distinction between two types of information distinguished here: information in patents, which is information about inventions, and information about patents. Only the first of these types of information is protected by patent law. In fact, the market for validity information is a real one, with firms competing in that market to provide search and analysis services for prior art.25 The parties to Hatch-Waxman settlements would likely contract for such services if the litigation proceeded, 26 so the agreement not to pursue litigation is in part an agreement not to participate in that market. From this perspective, a settlement of patent litigation is not so much a determination of the parties’ rights to patented technology as it is a technique for preserving uncertainty regarding the patent rights at issue. That uncertainty is of value both to the patentee and to the alleged infringer if the patent is in fact invalid, because the settlement allows them both privileged access to the market. 27 It is also valuable to both parties even if the patent appears to be valid. Access to the market is a windfall to the challenger in that case, but for the patentee it is also valuable to avoid litigation that might narrow the patent or reveal strategies or damaging information regarding prior art that could be used by future challengers. It might not be immediately clear how the information about the patent right differs from that right itself, but the distinction may be made more clear by reference to tangible property. Suppose there are two bridges, X and Y, over a river, and that all other means of crossing the river are significantly more expensive. Suppose also that A, the purported owner of both bridges, charges a monopoly price for crossing the river. Now, suppose that B asserts an ownership claim to bridge Y; perhaps B argues that a previous transfer to A was invalid and that B is the rightful owner. B also announces that if its claim to bridge Y is upheld, it will charge much less for crossing the river than A charges (though, of course, competition might make lower prices inevitable). Finally, suppose that A and B settle their dispute over ownership of bridge Y by agreeing that A will retain ownership for five years, after which ownership will be transferred to B. As part of this settlement, A pays B a sum of money, or compensates B in some other way. It is difficult to imagine that a court would approve a settlement that 189

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keeps the bridge in A’s hands, because the anticompetitive effect of such a settlement would be clear. By making its claim to bridge Y, just as generic drug companies must allege invalidity or noninfringement under the Hatch-Waxman Act, B makes information about the property right competitively important. Moreover, in this tangible-property context, the property at issue, which is the bridge itself, and the information about it, which would be documentation of ownership and transfers, are quite clearly separate. As a result, it is apparent that the competitive effects of settling the dispute arise from the agreement not to dispute that information, not from the property right itself. In the patent context, though, the patent is intangible property that gives the patentee exclusive rights over the use of the information disclosed in the patent. That information both defines the scope of the property right itself and, based on its relationship to the prior art, determines its validity. Hence, the patent as intangible property is not as easily distinguished from the information that determines its validity as in the case of tangible property. It may be for that reason that patent courts sometimes fail to distinguish the two sorts of information at issue: information about the invention, which is information over which the patentee has exclusive rights, and information about the patent’s validity, over which the patentee has no exclusive rights.

Litigation and the Production of Information All this suggests that, to the extent that some patent settlements serve to suppress valuable information, it could be appropriate to deny parties the ability to settle. 28 That may seem like an extreme solution, but the value of settlements has been questioned before. In his essay “Against Settlement,” Owen Fiss took issue with the then-recent push toward alternative dispute resolution, and particularly with settlement of litigation. 29 He stated that “[t]o be against settlement is only to suggest that when the parties settle, society gets less than what appears, and for a price it does not know it is paying.”30 He acknowledged a settlement’s benefit in resolving the dispute between the parties, but he nevertheless objected to settlements because they fail to achieve other purposes served by the judicial system.31 In general, he argued, settlement is not preferable to a court judgment and “should be treated instead as a highly problematic technique for streamlining dockets.”32 Several of Fiss’s concerns arise primarily with class actions and other 190

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litigation for social change, but his aim was broader.33 Anticipating an argument that his points would apply to only a subset of lawsuits, Fiss listed four situations in which he believed they are applicable, and one of those was “where there is a genuine social need for an authoritative interpretation of law.”34 Because of the costs of uncertainty regarding patents, patent litigation is an instance where there is such a need. This point is emphasized in the Supreme Court’s patent cases, where it has been unsympathetic to arguments that private parties should be permitted to retain for themselves the value of information that could have provided public benefits. It has been skeptical, even in the settlement context. In United States v. Singer Manufacturing Co., the government brought an antitrust challenge to a settlement of a patent interference proceeding, arguing that there was a possibility that the interference proceeding could have resulted in invalidation or narrowing of both parties’ claims.35 The Court condemned the agreement and Justice White offered the following comments in concurrence: In itself the desire to secure broad claims in a patent may well be unexceptionable—when purely unilateral action is involved. And the settlement of an interference in which the only interests at stake are those of the adversaries, as in the case of a dispute over relative priority only and where possible invalidity, because of known prior art, is not involved, may well be consistent with the general policy favoring settlement of litigation. But the present case involves a less innocuous setting. Singer and Gegauf agreed to settle an interference, at least in part, to prevent an open fight over validity. There is a public interest here, which the parties have subordinated to their private ends—the public interest in granting patent monopolies only when the progress of the useful arts and of science will be furthered because as the consideration for its grant the public is given a novel and useful invention.36 It is notable here that the Court rejected the settlement, even though there was only “possible invalidity.”37 That is, the result of the interference was uncertain, so the parties could have defended the settlement, just as drug companies do for reverse-payment settlements. Specifically, they could have argued that at least one of the patents might in fact be valid and be entitled to a broad scope, in which case there would be no harm, and that the settlement eliminated the uncertainty and its associated costs. Nevertheless, the Court struck down the settlement. 191

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The Court has reinforced this view, though outside the settlement context, in cases in which it has rejected contractual limitations on validity challenges.38 Notably, in one of these cases, Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 39 the Court drew a connection between validity challenges and leveraging cases.40 The Court said that “[a] patent yielding returns for a device that fails to meet the congressionally imposed criteria of patentability is anomalous,” and then observed that “[o]ne obvious manifestation of this principle has been the series of decisions in which the Court has condemned attempts to broaden the physical or temporal scope of the patent monopoly.”41 The reference to patent scope in this context was especially significant because the issue in Blonder-Tongue was whether a finding of invalidity in litigation against one infringer could be given res judicata effect in subsequent litigation against other infringers.42 A previous Supreme Court case had held that no estoppel effect would follow from a declaration of invalidity, but Blonder-Tongue overruled that holding.43 Thus, the effect of Blonder-Tongue was to take what had been private information, applicable only to the original litigants, and made it public information, available to all. This approach, of treating information about patents as public information, is exactly the one advocated here.

The Center for Copyright Information Another, very different agreement on information related to intellectual property has been put in place by the Center for Copyright Information (CCI). The CCI is a creation of the Recording Industry Association of America, Inc. (RIAA), the Motion Picture Association of America, Inc. (MPAA), a number of Internet service providers (ISPs), and some RIAA and MPAA members. The purpose of the CCI is to provide an additional, private enforcement mechanism to supplement copyright infringement suits in addressing online copyright infringement. The primary means through which the CCI pursues its goal is its Copyright Alert system.44 Under this system, copyright owners who believe there is infringement by a customer of an ISP send the ISP a notice, and the ISP responds in an agreed-upon sequence. First, the customer receives up to two “educational” notices,45 then it receives two “acknowledgment” notices,46 and then, if the alleged infringement has not stopped, the customer will be subject to two levels of “mitigation measures” that degrade the customer’s Internet services.47 The ISPs are 192

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required by the CCI’s Memorandum of Understanding to adopt these policies in their acceptable-use policies or terms of service. Obviously, it is critical for the CCI’s success and fairness, not to mention its competitive implications, that it use a reasonable approach to determining the existence of infringement. Here, too, the parties to the Memorandum of Understanding agreed on a single approach. Specifically, they agreed to the use the same company, MarkMonitor, “for ­monitoring, verifying, and enforcing online copyright infringement.”48 MarkMonitor receives lists of copyrighted works from the RIAA and MPAA members, then looks for infringing copies of these works, and then, when it finds such infringing copies, notifies the ISP associated with the infringement, which then implements the Copyright Alert system with respect to the ISP customer involved. The general approach of escalating responses that the CCI uses, which is termed a “graduated response” system, has also been adopted by the governments of several countries. France, New Zealand, and South Korea all have adopted such systems. The French law originally allowed for suspension of Internet access for repeat infringers, but that portion of the law was subsequently repealed. Generally speaking, advocates of the systems, including the CCI, claim that they have been successful, but a more independent survey recently concluded that there is little evidence of reduced infringement, of increased sales through legitimate avenues, or, more broadly reflecting copyright’s goals, of the production and dissemination of creative content.49

Agreement on Information Inputs and Outputs From an antitrust point of view, the key point with respect to this plan is that private parties are not generally allowed to agree on the terms under which they will deal with customers. 50 There is no exception for allegedly illegal acts, which courts have said should be pursued with legal remedies, not with private sanction. As the Supreme Court said in Fashion Originators’ Guild of America v. F.T.C. of an arguably analogous arrangement (though in Fashion Originators’ Guild the acts the parties were trying to stop were not themselves illegal), “the combination is in reality an extra-governmental agency which prescribes rules for the regulation and restraint of interstate commerce and provides extrajudicial tribunals for determination and punishment of violations, and thus ‘trenches upon the power of the national legislature and 193

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violates the [antitrust] statute.’”51 As in Fashion Originators’ Guild, the Center for Copyright Information has set up a private dispute resolution scheme. Moreover, the agreed-upon portions of the schemes are largely agreements on the treatment of information. The alert system is a general agreement on what sorts of information will be conveyed to allegedly infringing customers and how often that information will be conveyed. More importantly, perhaps, there is agreement on what information the ISPs will use to determine infringement: the detection system of MarkMonitor. Neither of these types of information—input from MarkMonitor regarding what conduct is infringement or output to customers regarding CCI-mandated enforcement—is protected by copyright law. The CCI’s Memorandum of Understanding also specifies how much alleged infringers will have to pay for an appeal of an imminent “mitigation measure”; although the amount is small, this is a form of price-fixing. Making these terms the subject of agreement eliminates competition that would otherwise exist among the ISPs, as well as competition between MarkMonitor and competing firms that could also be used to detect infringement. Competition among means of detecting infringement seems especially important, in that the “independent” ­ ­reviews of MarkMonitor commissioned by the CCI, though not surprisingly finding that MarkMonitor’s performance was satisfactory, recommended improvements.52 To make clear why the CCI agreement poses competitive problems, it is critical to note that any ISP could have chosen individually to impose similar sanctions, and most of them in fact did provide for such sanctions in their acceptable-use policies or terms of use prior to the creation of the CCI, but they often did not enforce them. Presumably the reason for the nonenforcement was concern about a possible competitive backlash from their customers. But that is exactly the point: the purpose of the CCI agreement seems to be to provide competitive cover. No agreement is necessary to accomplish the enforcement effort, 53 so the agreement seems instead to be intended specifically to eliminate competition in enforcement techniques that would otherwise exist. Nevertheless, the creation of the CCI, though not yet tested in the courts, was supported by government officials. In a press release, the RIAA acknowledged New York’s then-Attorney General Andrew Cuomo “for his deep involvement and personal efforts,”54 and U.S. VicePresident Joe Biden and intellectual property official Victoria Espinel 194

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were apparently involved as well.55 Why would they support a scheme that seems at the least to raise antitrust questions? As with HatchWaxman settlements, it seems possible that the presence of intellectual property, and in this case, the presence also of widespread infringement, has led to the overlooking of long-established and well-supported antitrust rules.

Deception in Standard-Setting Activities Another prominent information issue involving patents, this one unilateral, is that of patentees’ deceptive conduct before standard-setting organizations. Many products, such as cell phones, require a considerable degree of standardization for the products to interact. The standardization efforts are typically performed by national or international standard-​ setting organizations (SSOs) like the International Telecommunication Union, of which many of the affected companies are members. In recent years, because of concerns that standards may incorporate patented technology, many of these SSOs have adopted policies requiring that their members disclose any patents that may be infringed by technology under consideration for standards. 56 Furthermore, they often require that the firms commit to licensing on FRAND (fair, reasonable, and nondiscriminatory) terms if their patented technology is adopted into a standard. The informational problem here is straightforward: if information about the existence of the patent is hidden during the standard-setting process, or if false information is provided about the patentee’s future licensing terms, the SSO may adopt a standard that it would not have adopted with full and accurate information. Then, after adoption of a standard that incorporates its patented technology, the patentee can demand significant royalties. At that point, the commitment of users to the standard, and thus to the patented technology, allows the patentee to exploit them by extracting a higher license price, in what is often called a patent “holdup.”57 This phenomenon has been the subject of much attention, both from lawyers and economists. 58 Obviously, the information that is being exploited here is not protected by patent law. Patents are public, so existence of a patent that covers technology under consideration by an SSO should also be public. The SSO may be unaware of the patent only because of the difficulty of doing an exhaustive patent search,59 an issue that will be taken up 195

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further below in the context of patent portfolios. Patent applications can be private for a time, but they too are usually published eighteen months after filing.60 And the licensing terms that a patentee will demand, though not public, are also not the subject of patent protection; the patentee may attempt to keep them secret, but there is no intellectual property policy that protects them.61 So there would be no reason for courts to refer to patent policy in considering claims challenging this sort of conduct. Yet some courts have in fact treated these cases as typical patent cases. A particularly clear example was a district court decision in Broadcom Corp v. Qualcomm Inc., 62 even though it was later reversed by the Third Circuit:63 Qualcomm has a legal monopoly over the technology claimed in its patents. The incorporation of Qualcomm’s WCDMA patents into the UMTS standard does not make Qualcomm an unlawful monopolist in the WCDMA technology market. To conclude otherwise would subject every firm with patents incorporated into an industry standard to antitrust liability, and eliminate the procompetitive benefits a SDO [standards developing organization] is designed to facilitate. When an SDO decides to incorporate one company’s patented technology into a standard, the company holding the incorporated patents will be in a position to control that technology’s distribution. Qualcomm’s “power” to control the licensing of its patents is derived from the rights it enjoys as a patent-holder. The adoption of an industry standard neither diminishes nor augments this exclusionary right.64 These statements are correct as far as they go, but they completely ignore the key point, which is the initial competition among technologies before the SSO. The SSO effectively creates a forum for that competition, and it is disrupted if patentees fail to disclose information relevant to their rights. The Qualcomm district court acknowledged this aspect of the case, but rejected it as not relevant to antitrust law: The Court recognizes that Qualcomm’s alleged “inducement” of the SDO may be considered anticompetitive conduct in the sense that a false promise biased the SDO in Qualcomm’s favor, to the detriment of those patent-holders competing to have their patents incorporated into the standard. . . . ​While Qualcomm’s behavior 196

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may have influenced how the SDO would eliminate competition, it is the SDO’s decision to set a standard for WCDMA technology, not Qualcomm’s “inducement,” that results in the absence of competing WCDMA technologies. Qualcomm’s alleged inducement by false promise may give rise to a cause of action based on another legal theory, but they do not provide an antitrust cause of action.65 This argument is reminiscent of the one in the LIBOR case. The circumstances are analogous. In each case, the agreement—the BBA’s LIBOR or the SSO’s standard—has eliminated competition that would have otherwise existed. LIBOR eliminated potential competition among the BBA member banks (and others) to provide different interest-rate benchmarks, and standard-setting like that at issue in Qualcomm eliminates competition among different technology providers for incorporation of their technologies in the products at issue. This elimination of competition, at least in the technical standard-setting context, may be procompetitive, but to ensure that it is, the organization must ensure that the process is procompetitive, as discussed in Chapter 4. That is, although the elimination of competition can sometimes have benefits, an agreement to do so must ensure that those benefits are achieved with as little harm as possible. That is no less true when the process that replaces competition is an informational one.

Deception Is Not a Patent Right One might acknowledge all this, yet wonder what it has to do with patent law. The answer comes in considering why the courts overlook the effect of deception. It is helpful in this respect to consider two decisions of the D.C. Circuit: Rambus Inc. v. F.T.C., 66 a case similar to Qualcomm, and United States v. Microsoft Corp. 67 In Rambus, the court reached a conclusion similar to that of the Qualcomm district court discussed above,68 but in Microsoft it reached the opposite conclusion regarding deceptive conduct that contributed to Microsoft’s monopoly power.69 Bruce Kobayashi and Joshua Wright, who agree with the D.C. Circuit’s reversal of the FTC’s decision in Rambus, nevertheless point out that it is hard to reconcile the two decisions.70 In each case, the allegations are of deceptive acquisition of monopoly power. A likely explanation for the differing opinions is Rambus’s possession 197

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of a patent. The Rambus court, like the district court in Qualcomm, seemed to confuse possession of a patent with inevitable possession of monopoly power. This is evident in two respects. First, it places primary reliance on the statement that “an otherwise lawful monopolist’s use of deception simply to obtain higher prices normally has no particular tendency to exclude rivals and thus to diminish competition.”71 It is not at all clear, though, that Rambus was “an otherwise lawful monopolist.” A patent provides a legal monopoly, but it does not necessarily create an economic one. In Rambus, the FTC explained that there were multiple technologies competing to be the standard.72 At that point, Rambus’s patent did not provide an economic monopoly. It was only through the deception that led to adoption of its technology in the standard that Rambus acquired its monopoly. In other words, it was not a lawful monopolist, if “lawful” means that its power was acquired through legitimate means. Kobayashi and Wright make this point as well, focusing on the Rambus court’s reliance on the Supreme Court’s decision in NYNEX Corp. v. Discon, Inc.73 In NYNEX, the defendant participated in a fraudulent scheme to overcharge its customers by overpaying to a subcontractor, resulting in higher regulator-approved rates, then receiving rebates from the subcontractor.74 The plaintiff was a competitor of the subcontractor that lost business, it alleged, because it refused to participate in the scheme.75 But there was no allegation that the deception involved in the scheme gave NYNEX greater power, as distinguished from allowing it to avoid regulatory supervision, as Kobayashi and Wright emphasize: If the FTC’s theory depended on the proposition that a lawful monopolist’s deceit that raises prices is an antitrust violation, the D.C. Circuit is certainly correct that the proposition conflicts with NYNEX. Clearly, conduct by a lawful monopolist that merely results in higher prices is protected under both NYNEX and Trinko. However, for NYNEX to apply to deception claims, it must be the case that the patent holder is otherwise lawfully a monopolist at the time it engages in the deceptive conduct. But this is not the FTC’s anticompetitive theory of patent holdup at all.76 As they say, the D.C. Circuit “does not clearly articulate its view concerning the relationship between NYNEX and conventional deceptive

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patent holdup theory—that is, the defendant’s deception results in the acquisition of otherwise nonexisting monopoly power and excludes alternative technologies as a consequence.”77 The court’s attribution of Rambus’s post-standardization power to its patent is also evident in its apparent view that only if unpatented technology had been adopted in the standard would competition have been preserved. It says that “if Rambus’s more complete disclosure would have caused JEDEC to adopt a different (open, non-proprietary) standard, then its failure to disclose harmed competition and would support a monopolization claim.”78 The limitation to “non-proprietary” technologies suggests that the court believes that JEDEC’s adoption of any patented technology, whether Rambus’s or another’s, would create an “otherwise lawful monopolist” for which deception would be irrelevant. Once again, this neglects the role that deception played in creating Rambus’s monopoly power. It seems unlikely that the court would have taken the same approach if Rambus’s “monopoly” was not from a patent. Suppose, for example, that a standard-setting organization was choosing between several alternative minerals for a standard, and one company, which owned all of the sources of one of the minerals, monopolium (perhaps through different companies, so that the unified ownership was not apparent), did not reveal its complete control over monopolium despite a requirement to do so. Then suppose that, after adoption of a standard requiring the use of monopolium, the company sought to charge a high price. Although it is possible that the Rambus court would have said even under these circumstances that the company was a “lawful monopolist” of monopolium, it seems more likely that it would have recognized that it was the company’s deception, not its legitimate control over the mineral, that had given it power. In the standard-setting cases, then, although the courts have not misapplied patent-law concepts like the “scope of the patent,” they seem to have misapplied the basic concept of patent protection. It is not the case that a patent necessarily produces an economic monopoly, as courts frequently point out in other contexts. Patentees, like other sellers, can face competition or can make commitments that limit their power. Courts should give such competition and such commitments the same effect in cases involving patents as they do in other cases. Like information about the validity or existence of a patent, information about the possession of

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relevant patents or the licensing plans of the patentee is not information over which patent law grants exclusive control, so the presence of a patent should not alter the treatment of anticompetitive deception.

Patent Portfolios Another patent information issue is addressed by Gideon Parchomovsky and Polk Wagner, who consider patent portfolios.79 As Parchomovsky and Wagner argue, when patent portfolios become larger, the inventions described and claimed in the individual patents in the portfolios become increasingly irrelevant.80 And patent portfolios have indeed become large. Microsoft apparently has more than 50,000 patents,81 and very large portfolios have recently been transferred in significant acquisitions. Google acquired Motorola Mobility’s portfolio of 17,000 patents and 6,800 applications in 2012,82 and a coalition of Microsoft, Apple, RIM, and others acquired Nortel’s portfolio, with 6,000 patents, in 2011.83 The possible negative effects of these large portfolios include increased complexity of patent litigation and advantages for holders of the portfolios.84 Parchomovsky and Wagner propose several responses, mostly from within patent law. However, they also consider how antitrust law might respond to the shift toward portfolios, pointing to work by Daniel Rubinfeld and Robert Maness.85 Rubinfeld and Maness address the uncertainty issue more directly: The patent thicket creates considerable uncertainty for competitors about whether their technology infringes, especially with respect to a hidden or submarine patent. Even if a firm is not practicing submarine patents, a patent thicket makes it hard to design and sell products without running the risk of infringing on a competitor’s patent. The resulting uncertainty can allow a firm to threaten infringement suits against competitors. One beneficial outcome (perhaps for both firms, but not necessarily for the public) is a cross licensing arrangement with a competitor. . . . . . . . The uncertainty about the validity of each of the patents in the patent thicket along with the potentially substantial cost of litigation creates a strong incentive for the competitor to accept a licensing arrangement. As described previously, the license fee 200

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or royalty raises rivals’ costs, and in doing so, creates a strategic advantage.86 There is not necessarily anything anticompetitive, of course, with incentives to license, even if the license is to a patent portfolio rather than to an individual patent.87 Potential licensees certainly want access to some of the specific technologies in these portfolios. It is also true, though, that the sheer number of patents in the portfolios makes evaluation of possible infringement very difficult. More important for competition purposes, the cost of assessing infringement potential is greater for larger portfolios. Therefore, holders of small portfolios are at a relative cost disadvantage to those with larger ones, independent of the significance of the patents themselves. This cost disadvantage in itself, independent of the actual content of the patents, can give holders of large portfolios a competitive advantage. A more specific problem can arise, however, if the licensee is forced to take a license not so much as a means of gaining access to patented technology but instead as a means of avoiding uncertainty. It is not clear that the advantages conferred by this uncertainty are properly viewed as the rights of patentees. The uncertainty is not a product of innovation, so there is no clear reason for patent law to play a role. Instead, as discussed below, it could be that the costs created by the uncertainty, or at least any exacerbation of the uncertainty, should be viewed as the responsibility of the patentees. At the very least, courts should not use patent law, as the Federal Circuit has done, to provide additional protections for patentees when, in the words of Rubinfeld and Maness, a “patent thicket creates considerable uncertainty for competitors about whether their technology infringes.”

Information and Licensing In the litigation context, the importance of the informational issue is highlighted when a firm seeks specifically to exploit it. An example of this occurred in litigation between Microsoft, as the patentee, and Barnes & Noble, maker of the Nook e-reader, which is an Android product.88 Barnes & Noble alleged that in their negotiations Microsoft initially refused to disclose which patents it claimed were being infringed unless Barnes & Noble agreed to a nondisclosure agreement.89 Then, when Microsoft filed a complaint with the International Trade Commission, 201

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some of the patents that it alleged were infringed were ones that it had not previously disclosed in the negotiations.90 There is of course no general obligation on patentees to disclose their patents to infringers prior to bringing suit,91 but Barnes & Noble contended, in effect, that Microsoft’s practice was to use the informational value of its portfolio, as the court described: Barnes & Noble argues that Microsoft has never definitely identified which of Microsoft’s over 65,000 patents are infringed by Android and that Microsoft has not conducted “sufficient technical analysis before demanding licensing fees from original equipment manufacturers (‘OEMs’) and original device manufacturers (‘ODMs’).” Barnes & Noble contends that even though the patents are “trivial” it cannot work around them because Microsoft has said that it would simply come forward with other patents to assert against Barnes & Noble.92 More colorfully, in its petition for reconsideration of the dismissal of its misuse claim, Barnes & Noble cited deposition testimony: [W]hat [Microsoft] basically told us was, it doesn’t matter if you have defenses, whether you don’t infringe, whether our patents are invalid, you’re going to need to take a license, because there’s no way that you can get out of our grasp, that we have so many patents that we could overwhelm you.93 Although Microsoft and Barnes & Noble settled the case,94 preventing further development of the law on these issues, the dispute illustrates how a single patentee with 1,000 patents could potentially have greater power, at least in some respects, than 1,000 patentees, each with a single patent. The holder of a large portfolio of patents can threaten to exploit them sequentially as Microsoft did and can use nondisclosure to increase its power, options that are not available to holders of one or a few patents. The question then is whether this conduct should be permissible. This informational issue was addressed in Huawei Technologies Co. Ltd. v. ZTE Corp.,95 a 2015 decision of the Court of Justice of the European Union. The case involved a now-common scenario similar to that described above: an infringement suit by a patentee that had committed to FRAND licensing for a standard-essential patent (SEP), i.e., a patent necessary to practice the standard at issue. The parties could not agree, however, on what licensing terms were FRAND, so the court was 202

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called upon to determine the parties’ rights in the dispute. The court imposed multiple requirements on both parties for FRAND licensing negotiations, but one is particularly important with respect to patent portfolios. The court stated that “in view of the large number of SEPs composing a standard such as that at issue in the main proceedings, it is not certain that the infringer of one of those SEPs will necessarily be aware that it is using the teaching of an SEP that is both valid and essential to a standard.”96 This points directly to the informational problem facing an alleged infringer pursued by a patentee with a large portfolio of patents. In those circumstances, the alleged infringer that does not know which SEPs are at issue will find it difficult to assess any licensing offer by the patentee. Therefore, the court said, the patentee must “alert the alleged infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed.”97 If the patentee does not do so, its conduct may be an abuse of dominance under EU competition law. In this way, the Court of Justice has specifically recognized the importance of information at the patent-antitrust interface.

The Costs of Validity Challenges In the Microsoft–Barnes & Noble litigation discussed above, the administrative law judge (ALJ) rejected a patent-misuse theory, stating that “there is absolutely nothing about such tactics that expand the scope of any patent.”98 As with the use of the “scope” analysis for Hatch-Waxman settlements, it is unclear what the ALJ might have meant by this conclusion. It is true that Microsoft did not seek to restrict the use of noninfringing products, the most typical misuse practice.99 But Microsoft’s reference to its plan to assert other patents suggests that enforcing the particular patents that it sued on was not Microsoft’s goal, either. Its goal, that is, was broader than those patents, and that begins to sound like misuse. Suppose, drawing on Barnes & Noble’s allegation, that a patentee claimed to have dozens of individual patents that were infringed by a competitor’s product, but that it would not identify those patents for the competitor. Further suppose that the competitor could easily (though perhaps not quickly) design around each of those patents. Finally, suppose that the patentee brought suit on each patent sequentially, making clear that further suits were in the offing. What is the purpose, in an infringement suit 203

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based on patent A, of warning the alleged infringer that future suits, based on undisclosed patents B, C, D, E, and F, are coming? It seems that such a warning cannot be motivated by anything within the scope of patent A. Nor, presumably, could it be within the defined scope of the other patents, since those patents have not even been disclosed. As discussed above, for information to be within the scope of a patent, the information should be that which is protected by patent law. It is difficult to see how the use, or threatened use, of patents that are not disclosed could satisfy this test. Given that the alleged infringer has no means of assessing either validity or infringement, the “assertion” of undisclosed patents seems intended to exploit uncertainty, not to exploit patents. A somewhat similar point regarding scope was made by Rubinfeld and Maness regarding the linking together in portfolios of strong and weak patents: Bundling patents together into inseparable packages may also reduce a firm’s incentive to challenge individual patents. If the cost of challenging patents increases with the number of patents included in the bundle, a firm may have an incentive to include weak patents in the package. Weak patents in conjunction with inseparable bundles can lead to patent misuse if the bundle is used to extend a firm’s monopoly power from the “space” covered by a strong patent to the space encompassed by the strong and weak patents together. The package itself alters rivals’ behavior in deciding whether it is efficient to license or design around individual patents, and raise costs directly (through license fees) and indirectly by altering the incentive to invest in R&D and to innovate.100 The difference between the approaches of Microsoft and Barnes & Noble seems to be based on a fundamental difference in how the two parties view the role of patent portfolios. Microsoft seems to view a portfolio as a unit, to be licensed as a whole and in which the individual patents are not significant (presumably assuming that at least one of them is infringed). Barnes & Noble, on the other hand, appears to view a portfolio as a collection of individual patents, in which the validity and infringement of each is relevant. For Barnes & Noble, it appears that the royalties paid for a portfolio should be the sum of royalties on individual patents, rather than an undifferentiated total. The Federal Circuit’s cases seem to take Microsoft’s side. Although the court has not considered portfolio issues in exactly this context, it 204

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has discussed related points in the context of patent pools, particularly in U.S. Philips Corp. v. ITC.101 The court there relied on the difficulty of valuing individual patents in rejecting a claim of misuse based on a requirement of package licensing: Finally, grouping licenses in a package allows the parties to price the package based on their estimate of what it is worth to practice a particular technology, which is typically much easier to calculate than determining the marginal benefit provided by a license to each individual patent. In short, package licensing has the procompetitive effect of reducing the degree of uncertainty associated with investment decisions.102 As with the Hatch-Waxman courts above, the Federal Circuit here rightly points to the costs of uncertainty, but wrongly neglects the costs of the solution it approves. The discussion above suggests that potential licensees in the portfolio context could pay less, or perhaps avoid infringement entirely, if they knew what patents they were accused of infringing and whether it would be more efficient to license or design around the patents. To make the latter decision, the individual cost of licensing each individual patent would be needed. But if a patentee insists on licensing its portfolio as a whole, without identifying which particular patents are infringed or what the royalty for licensing them individually would be, a licensee is unable to make the determinations that are necessary for sensible decision-making in the licensing process. Moreover, the passage above shows little concern for the possibility of and incentives for challenging individual patents. Directly relevant here is Lear, Inc. v. Adkins,103 where the Supreme Court considered “licensee estoppel,” a contract doctrine that estopped licensees from challenging the validity of patents they licensed. The Court rejected this doctrine in the patent context, pointing to the value of patent challenges: Surely the equities of the licensor do not weigh very heavily when they are balanced against the important public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain. Licensees may often be the only individuals with enough economic incentive to challenge the ­patentability of an inventor’s discovery. If they are muzzled, the ­public may continually be required to pay tribute to would-be ­monopolists without need or justification.104 205

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Yet the Federal Circuit in U.S. Philips justified its decision in part based on arguments that are directly contrary to the Supreme Court’s views in Lear: Package licensing can also obviate any potential patent disputes between a licensor and a licensee and thus reduce the likelihood that a licensee will find itself involved in costly litigation over unlicensed patents with potentially adverse consequences for both parties, such as a finding that the licensee infringed the unlicensed patents or that the unlicensed patents were invalid.105 This turns the uncertainty problem on its head. As the Supreme Court has made clear, the licensing of an invalid patent is at least akin to misuse,106 so if package licensing assists patentees in avoiding findings of invalidity, that should be viewed as a cost, not a benefit. In any event, whatever is the ultimate effect of the difficulty of obtaining or using information about the patents in a portfolio, that information is not itself protected by patent law. The assessment of the competitive effect of exploitation of that information therefore should be no different in the patent-law context than in a context in which no intellectual property right is at issue. As with the other information discussed in this chapter, courts must seek to distinguish protected information from unprotected information, so that the law can vindicate not only the purposes of intellectual property but also the value of competition in information.

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and one that has been decisive in several recent cases, is that information can be viewed as “speech,” and thus be protected by the First Amendment or analogous speech protections. As the U.S. Supreme Court has held, “the creation and dissemination of information are speech within the meaning of the First Amendment.”1 Although courts have dismissed freedom-of-speech protections in several antitrust cases—in fact, the Supreme Court has been unreceptive to First Amendment arguments in antitrust cases generally—lower courts have dismissed antitrust challenges to both credit-rating agencies and search engines on the ground that they involved First Amendment-protected “opinions.” The common feature in all of these cases, though, has been the lack of thorough analysis, as several commentators have observed.2 In the United States, special protection for information and communication arises primarily from the First Amendment, under which “Congress shall make no law . . . ​abridging the freedom of speech, or of the press.”3 Although this provision refers to “Congress,” the Supreme Court has interpreted it to apply to the federal government as a whole, and therefore to the federal antitrust laws.4 The European Convention on Human Rights is more explicit: “Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers.”5 Despite their verbal differences, the substantive protections offered by these provisions, and by analogous protections in other jurisdictions, are similar. f in a l , f u n da m e n ta l is s u e ,

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These protections can apply to the sort of commercial information and data at issue in this book. For example, in Sorrell v. IMS Health Inc., 6 a 2011 U.S. Supreme Court case, the Court considered a statute of the state of Vermont that restricted the use of information about pharmaceutical sales. The specific information at issue was information regarding the prescribing history of physicians with respect to particular pharmaceuticals. This information was often sold by pharmacies to “data miners,” which then sold it to pharmaceutical companies for marketing purposes. The Vermont statute at issue, however, banned the sale or use of this information for pharmaceutical marketing—a practice called “detailing”; Vermont’s goal was to make the marketing of expensive drugs more difficult. The Court viewed the statute’s restriction as content- and speaker-­ based, which are key determinants of protection under the First Amendment. It was content-based because it “disfavor[ed]” marketing, and it was speaker-based because it had “the effect of preventing detailers—and only detailers—from communicating with physicians in an effective and informative manner.”7 Therefore, the Court said, the statute required “heightened judicial scrutiny.”8 The Court was somewhat unclear regarding whether the information at issue was “commercial speech,” a category to which it had previously applied less restrictive scrutiny. Nevertheless, it ultimately applied a test derived from its commercial-s­peech cases, requiring that “the State must show at least that the statute directly advances a substantial governmental interest and that the measure is drawn to achieve that interest.”9 The Court held that the statute failed that test. Although it said that Vermont’s goals of “lowering the costs of medical services and promoting public health” might be proper, the restriction was not a permissible way to achieve them. That was so, the Court said, because “the ‘fear that people would make bad decisions if given truthful information’ cannot justify content-based burdens on speech.”10 It was the ban’s applicability to truthful speech, and the state’s capacity to respond to that speech to promote its own goals, that appeared to drive the Court’s decision. The Court made clear that its previous approvals of restrictions on false or misleading speech stood on a different footing: It is true that content-based restrictions on protected expression are sometimes permissible, and that principle applies to commercial speech. Indeed the government’s legitimate interest in 208

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protecting consumers from “commercial harms” explains “why commercial speech can be subject to greater governmental regulation than noncommercial speech.” The Court has noted, for example, that “a State may choose to regulate price advertising in one industry but not in others, because the risk of fraud . . . ​is in its view greater there.” Here, however, Vermont has not shown that its law has a neutral justification.11 Thus, information, including the sort of sales-promoting information at issue in Sorrell and in this book, can be subject to extra protections that may make application of antitrust law problematic. But harms to competition are also the sort of “commercial harms” that make regulation permissible, particularly if the regulation is “neutral,” in that it is not focused on particular content or particular speakers.12 As noted above, the antitrust cases in this area are not consistent. Traditionally, antitrust courts have not hesitated to condemn even informational restrictions, but recently courts have been either more reluctant to apply antitrust law or more eager to dispose of antitrust challenges. As noted above, these recent cases have involved both credit-rating agencies and Google.

Credit-Rating Agencies and the First Amendment In Jefferson County School District No. R-1. v. Moody’s Investor’s Services, Inc.,13 the plaintiff school district alleged, among other things, an antitrust violation and defamation on the part of credit-rating agency Moody’s. The school district had, in connection with a bond issue, decided not to hire Moody’s as a rating agency, though it had used it in the past. Moody’s then issued some negative statements regarding the school district’s financial position, though the district alleged that Moody’s did not have up-to-date information about the district’s finances. The district alleged that the statements were materially false and were issued to retaliate against the district for using other rating agencies. The district claimed as damages the loss it suffered as a result of having to pay a higher interest rate on the bond issue. Focusing initially on the district’s defamation claims, the court of appeals quoted the Supreme Court’s statement that “a statement of ­opinion relating to matters of public concern which does not contain a ­ provably false factual connotation will receive full constitutional 209

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protection.”14 This was not, the court said, “a wholesale defamation exemption for anything that might be labeled ‘opinion,’”15 but called for an inquiry into whether the statement stated or implied provably false facts. The Moody’s statement that the district was not creditworthy did not do so, the court said, because the statement “could well depend on a myriad of factors, many of them not provably true or false.”16 Similarly, the Moody’s statement that the district faced “ongoing financial pressures” could have depended on a range of factors that was “vast, ranging from constitutional and statutory changes, court decisions, property values, inflation, and labor costs to many other factors too numerous to catalogue.”17 To base claims on these statements, the court would have required the school district to specify factual assertions that the statements implied and then to show that those assertions were false. The school district sought to characterize its antitrust claims as directed at conduct, however, not speech. In this respect, the district relied on National Society of Professional Engineers v. United States,18 in which the Supreme Court concluded that the National Society of Professional Engineers (NSPE) violated the Sherman Act by publishing an ethical code that prohibited engineers from engaging in competitive bidding. The district pointed out that the determination that the NSPE code violated the antitrust laws was a speech restriction because the prohibited competitive bidding was speech. Indeed, the Supreme Court had rejected a First Amendment challenge in Professional Engineers, but the Moody’s court rejected the analogy: In National Society of Professional Engineers it was not the professional association’s code of ethics that itself constituted the unlawful restraint of trade. Rather, it was the effect of the publication of the code—that engineers following the code refused to engage in competitive bidding—that established the antitrust violation. In the other cases on which the School District relies, the defendant engaged in a course of conduct found to constitute a restraint of trade. Although certain forms of speech were used to further the scheme, the speech itself was not the sole means of restraining trade. Thus, these decisions do not suggest that merely engaging in protected speech may constitute an antitrust violation. For example, there is no indication in the Supreme Court’s decision in National Society of Professional Engineers that the

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professional association could be held liable for antitrust violations if it had simply expressed its opinion about competitive bidding rather than influencing the conduct of engineers marketing their services.19 The court concluded by stating that, in its view, “the First Amendment does not allow antitrust claims to be predicated solely on protected speech.”20 The court’s use of “protected” here makes its proposition unclear. If the court meant this statement to say that an antitrust claim cannot be predicated on speech to which the First Amendment applies, that is incorrect, as will be described below. If it meant only to say that an antitrust claim cannot be predicated on speech for which a determination has (already) been made under the First Amendment that it cannot be restricted, then the statement is circular. The murkiness of the court’s discussion is clear in the distinction it attempts to draw regarding the association’s conduct in National Society of Professional Engineers. The Moody’s court said that if the NSPE had only “expressed its opinion” about competitive bidding, all would have been well, but the problem was that it was “influencing the conduct of engineers.” The purpose of many expressed opinions, of course, is to influence those who receive them, as was certainly the case for the statements by Moody’s. If “influence” is the dividing line, then much, if not most, speech will be unprotected. If, on the other hand, the court meant that the NSPE was engaging in conduct other than speech in an effort to persuade engineers to conform to its opinion, the truth of this assertion is not clear. Although the Supreme Court in Professional Engineers described the claim as one that “members of the Society have unlawfully agreed to refuse to negotiate,” the evidence to which it pointed was that “the District Court specifically found that the record ‘support[ed] a finding that NSPE and its members actively pursue a course of policing adherence to the competitive bid ban through direct and indirect communication with members and prospective clients.’”21 The district court had described these communications, however, as “educational campaigns and personal admonitions to members and clients who were suspected of engaging in competitive bidding practices.”22 If “educational campaigns” and “admonitions” are sufficient to transform speech into conduct, then it will be the rare case that is “predicated solely on protected speech.”23

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Search Engines and the First Amendment In part in reliance on Moody’s, several district courts have dismissed claims against Google on the ground that Google’s search results are protected opinion. In Search King, Inc. v. Google Technology, Inc., 24 the plaintiff alleged tortious interference with contractual relations (though not antitrust claims) deriving from Google’s downgrading of Search King’s websites after Google learned that one of Search King’s sites was competing with Google by selling ad space on highly ranked web pages. Search King argued that Google had deviated from its search algorithm, which Google had previously described as “objective,” and Google responded that its search results were subjective opinions. In making this argument, Google relied on Moody’s, and the court agreed, finding that the results of Google’s PageRank algorithm, which largely determines the ordering of search results, “are opinions—opinions of the significance of particular web sites as they correspond to a search query.”25 The key point about the PageRank “opinions,” the Search King court said, is that “there is no conceivable way to prove that the relative significance assigned to a given web site is false.” Therefore, the court said, citing Moody’s and the Supreme Court’s opinion in Milkovich v. Lorain Journal Co., 26 which is discussed below, Google’s conduct was entitled to “full constitutional protection.” As will be seen below, “full constitutional protection” is more protection than is often provided to commercially motivated speech. Nevertheless, at least one other court has apparently reached a similar conclusion, 27 and Google has made the same argument in a third case, though that case was dismissed on other grounds. 28 James Grimmelmann explains convincingly why Search King’s reliance on the “opinion” shibboleth is misguided: The Search King court wrote that rankings are subjective “because every algorithm employed by every search engine is different, and will produce a different representation of the relative significance of a particular web site.” Replace “relative significance of a particular web site” with “the number of jellybeans it would take to fill Soldier Field” and the fallacy is apparent. Search King could come to court with better math, and Google’s “representation” would be demonstrably false. Search King conflated users’ normative 212

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opinions about websites with search engines’ descriptive opinions about which websites users will find relevant. 29 That is, there are opinions, and then there are “opinions.” As Grimmelmann explains, the reasons for protecting different sorts of opinions differ, 30 and the Supreme Court in Milkovich, in response to a similar argument, rejected the view that one of its previous decisions “was intended to create a wholesale defamation exemption for anything that might be labeled ‘opinion.’”31 The different contexts can be illustrated by the cases against search engines in which the information at issue was political, rather than commercial. For example, in Langdon v. Google, Inc., 32 plaintiff Christopher Langdon, the owner of two websites, www.NCJusticeFraud.com and www.ChinaIsEvil.com, alleged that several search engines, including Google, refused to carry advertisements for his websites. Langdon brought a number of claims (though not an antitrust claim) and alleged that Google’s “rejection or acceptance of ads is based upon whether the political viewpoint of the ad and the related website agree with those of Google’s executives and employees, all in contravention of its ‘fraudulent content policy.’”33 He also alleged that Google removed one of his sites from its search results for a time. Langdon sought, among other forms of relief, an order that Google and other search engines place Langdon’s ads in their search engine results. The court agreed with Google and Microsoft that this would violate their First Amendment rights, and it dismissed the claim. A somewhat similar claim was brought against Baidu, a Chinese search engine. The plaintiffs in Zhang v. Baidu.com Inc. 34 claimed that Baidu blocked “pro-democracy” materials related to China from appearing in its search results. The court noted the “scholarly debate” regarding the protection offered to search engines by the First Amendment, but said that it need not address the general question because the First Amendment “plainly shield[ed]” Baidu. That was so, it said, because the plaintiffs’ specific allegations were that Baidu had used its editorial discretion to exclude their materials. However, the court noted that given the nature of those allegations, there was “no need to address whether laws of general applicability, such as antitrust laws, can be applied to search engines without implicating the First Amendment.”35 The political opinions alleged in Langdon and Baidu are different from the opinions at issue in Moody’s and Search King in two respects. First, any 213

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commercial motivation for a search engine to block results on a political basis is surely more attenuated than the commercial incentives alleged in Moody’s and Search King. Second, there is no external reference point for political opinion in the way that there is for opinions regarding financial soundness or relevance to search queries.

Antitrust and the First Amendment Despite the success of these First Amendment arguments in the lower courts, antitrust enforcement has often withstood First Amendment challenges.36 The quintessential antitrust violations, price-fixing agreements and group boycotts, are often effected through speech, but that has never prevented condemnation of such agreements: “[I]t has never been deemed an abridgement of freedom of speech or press to make a course of conduct illegal merely because the conduct was in part initiated, evidenced, or carried out by means of language, either spoken, written, or printed.”37 Therefore, in a number of cases, the Supreme Court has rejected challenges to antitrust remedies that restricted the speech of the defendants.38 In Associated Press v. United States, 39 for example, the bylaws of Associated Press, an organization of newspapers, prohibited members from selling news to nonmembers. The organization argued that application of the antitrust laws to its bylaws would violate the First Amendment, but the Court rejected that argument in very vigorous terms: Surely a command that the government itself shall not impede the free flow of ideas does not afford nongovernmental combinations a refuge if they impose restraints upon that constitutionally guaranteed freedom. Freedom to publish means freedom for all, and not for some. Freedom to publish is guaranteed by the Constitution, but freedom to combine to keep others from publishing is not. Freedom of the press from governmental interference under the First Amendment does not sanction repression of that freedom by private interests. The First Amendment affords not the slightest support for the contention that a combination to restrain trade in news and views has any constitutional immunity.40 Nor is the Court’s unwillingness to accept a First Amendment defense limited to agreements. As discussed in Chapter 5, the Court in Lorain Journal Co. v. United States 41 condemned the Lorain Journal’s 214

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refusal to accept advertisements from sellers who also advertised on a radio station that competed with the Journal. The trial court issued an order, affirmed by the Supreme Court, that enjoined the newspaper from refusing to accept advertisements, or from conditioning its acceptance of advertisements, based on whether the advertiser also advertised elsewhere. Although this order arguably restricted the newspaper’s discretion, the Court quickly dismissed its First Amendment argument: “We find in it no restriction upon any guaranteed freedom of the press. The injunction applies to a publisher what the law applies to others.”42 Of course, Moody’s and Google would argue that they, unlike the Associated Press and the Lorain Journal, are exercising editorial discretion. But that cannot mean only that they are making a decision—any decision—regarding what content to provide. The Lorain Journal’s conduct met that test. Yet that is effectively the approach the courts have taken considering the First Amendment arguments of Moody’s and Google: the label “opinion” was enough to make their speech protected. In none of the cases was the defendant required to introduce evidence either that its speech met any particular criterion of accuracy, relevance, or objectivity or that it was reached through a process that could be defended as objective. As described in Chapter 5, such criteria are in fact available, and the courts should apply them. It is not clear, therefore, what would have been the First Amendment implications if, for example, there had been evidence before a court that Moody’s or Google had used its algorithms to derive initial results and then had altered them based on its commercial interests. Because the cases against both information providers were dismissed before discovery, the plaintiffs had no opportunity to develop such evidence. But that sort of conduct is exactly what Standard & Poor’s, a direct competitor of Moody’s, acknowledged in its settlement with the U.S. Department of Justice discussed earlier.43 Neither Associated Press nor Lorain Journal supports a view that if some—any—element of editorial discretion was involved in producing the speech at issue, it is immune from scrutiny. At the very least, one would think that commercially motivated conduct that overrode editorial discretion would be unprotected.

Commercial Speech In both the United States and Europe, speech protections are less extensive in the commercial context.44 But the definition of “commercial 215

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speech” is not clear. In the United States, the Supreme Court has offered several different definitions. The most narrow defines commercial speech as “speech which does ‘no more than propose a commercial transaction.’”45 Under that definition, commercial speech is speech tied to a particular transaction in the same way that consumer-protection law focuses on particular transactions. In some cases, the “speech” of credit-­ rating agencies and search engines might not satisfy that test. However, when a search engine, in response to a search for information about a particular product, presents links to particular providers of that product, and to particular web pages where the product can be purchased, even this narrow test could be satisfied. In any event, the Court has also offered broader definitions. In what is probably its leading commercial-speech case, Central Hudson Gas & Electric Corp. v. Public Service Commission of New York,46 commercial speech was defined as “expression related solely to the economic interests of the speaker and its audience.”47 Under this test, at least credit ratings and search results related to commercial inquiries would presumably be commercial speech. Indeed, in a later plurality opinion, the Supreme Court said that a false credit report regarding a business “concern[ed] no public issue” and “was speech solely in the individual interest of the speaker and its specific business audience,” citing Central Hudson.48 Although the opinion did not rely, except indirectly, on the commercial-speech doctrine, it said that credit reporting, “like advertising, is hardy and unlikely to be deterred by incidental state regulation.”49 In Europe, the approach has been similar, focusing on whether something other than narrow economic interests is at stake. Under Article 10 of the European Convention on Human Rights, a restriction on expression must be “prescribed by law,” pursue a legitimate aim under the Convention, and be “necessary in a democratic society.” One of the legitimate aims enumerated in Article 10 is “the protection of the reputation or rights of others,” which has been interpreted to apply to claims of unfair competition.50 It is with the necessity requirement that the public-commercial distinction comes into play. For example, the European Court of Human Rights has asked whether the speech at issue “participat[es] in a debate affecting the general interest.”51 In a more recent case, however, the same court offered a less demanding test, focusing on whether the “purpose” of the speaker was “primarily commercial.”52 This issue comes into play primarily in determining the “margin of appreciation” that EU states have in restricting freedom of expression. In 216

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one of the leading cases, markt intern Verlag GmbH v. Germany, 53 the European Court of Human Rights stated that “[s]uch a margin of appreciation is essential in commercial matters and, in particular, in an area as complex and fluctuating as that of unfair competition.”54 Nor did the court appear to be adopting a narrow understanding of “unfair competition,” in that it referred in a later case, Jacubowski v. Germany, to “the essentially competitive purpose of the exercise.”55 The court has said, though, that it is “necessary to reduce the extent of the margin of appreciation when what is at stake is not a given individual’s purely ‘commercial’ statements, but his participation in a debate affecting the general interest, for example, over public health.” That statement comes from Hertel v. Switzerland, which involved the safety of microwave ovens and in which the author of an article contending that they were dangerous did not stand to profit from the article. 56 The commercial interests both of credit-rating agencies and search engines and of the recipients of their information would seem to fall on the commercial side of the line drawn in these cases. The implications of the commercial-noncommercial distinction in the United States are more detailed, if not more clear, than this “margin of appreciation” approach. The U.S. Supreme Court in Central Hudson set out the standard: In commercial speech cases, then, a four-part analysis has developed. At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest. 57 There is some dispute over whether this test, as the Supreme Court has applied it, is actually any more lenient than the “strict scrutiny” standard the Court applies in other contexts.58 That dispute has arguably arisen, however, because the Court’s commercial-speech cases in recent years have, like Sorrell, involved government efforts to discourage particular commercial activities by suppressing advertising or other speech about those activities. 59 In that respect, the restrictions at issue were directed at particular content, as the Court said explicitly about the 217

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restriction in Sorrell. Although the applicability of the Central Hudson test is thus not entirely clear, several justices sought in 44 Liquormart, Inc. v. Rhode Island to identify a narrower range of commercial-speech cases in which less-strict scrutiny would apply: “When a State regulates commercial messages to protect consumers from misleading, deceptive, or aggressive sales practices. . . , the purpose of its regulation is consistent with the reasons for according constitutional protection to commercial speech and therefore justifies less than strict review.”60 Given this emphasis on what Sorrell called “commercial harms” and the Court’s historical acceptance of speech regulation in antitrust cases, as discussed above, it seems likely that an antitrust approach focused on power, not content, would be permissible. The “margin of appreciation” approach in Europe is applied in a way that is somewhat similar to the United States’s Central Hudson test. As the European Court of Human Rights said in Hertel v. Switzerland, “what the Court has to do is to look at the interference complained of in the light of the case as a whole and determine whether it was ‘proportionate to the legitimate aim pursued’ and whether the reasons adduced by the national authorities to justify it are ‘relevant and sufficient.’”61 Although “relevant and sufficient” is presumably a less demanding test than Central Hudson’s “substantial” requirement, and although “proportionate” is presumably less demanding than “not more extensive than is necessary,” the general approach is similar. In each jurisdiction, speech may be restricted if the justification is important enough and if the restriction is appropriate to the justification.62

The Blending of Editorial and Commercial Not only have the definition and implications of commercial speech long been unclear as a legal matter, but factually the line between commercial and editorial has also been becoming less clear. From product placements to “advertorials” to native advertising, the forms of information that can appear to be editorial content but are actually commercially motivated is quite broad. The U.S. Federal Trade Commission (FTC) has issued a variety of rules that are intended to prevent such information from being misleading, and some of those rules could be seen as applicable to online search or comparison services. Although the FTC Act gives the agency the authority to regulate “unfair or deceptive acts or practices,” and although the F.T.C. states that its authority applies broadly to 218

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“advertising, marketing and sales,”63 its rules and guidelines often by their terms apply only to advertising.64 However, it is unclear why information that purports not to be advertising but is directed at influencing consumer decision-making should be judged more generously than advertising, given that consumers are likely to approach the latter more skeptically. For example, the FTC has issued rules on expert endorsements, where it defines an expert as “an individual, group, or institution possessing, as a result of experience, study, or training, knowledge of a particular subject, which knowledge is superior to what ordinary individuals generally acquire.”65 An endorsement, for which the agency sets out rules in the context of advertising, must provide what it purports to provide: To the extent that the advertisement implies that the endorsement was based upon a comparison, such comparison must have been included in the expert’s evaluation; and as a result of such comparison, the expert must have concluded that, with respect to those features on which he or she is expert and which are relevant and available to an ordinary consumer, the endorsed product is at least equal overall to the competitors’ products. Moreover, where the net impression created by the endorsement is that the advertised product is superior to other products with respect to any such feature or features, then the expert must in fact have found such superiority.66 Search engines and other information intermediaries in fact purport to be experts on available information, and one could perhaps view at least some of the results they provide as endorsements of the quality of those results. Thus, although the products of online information providers may not be advertisements, so the FTC rules would not be directly applicable, those rules at least suggest that an expert “opinion” can be subject to legal regulation without conflicting with the First Amendment. Moreover, the FTC has also focused specifically on search engines. The agency has twice provided guidance to search engines, most recently in 2013. It presented its 2013 letter, it said, as a follow-up to guidelines on online advertising and the guide on endorsements described above.67 It said that “[i]ncluding or ranking a search result in whole or in part based on payment is a form of advertising.”68 The letter was intended to address advertising placed near organic search results, but it was also focused in part on some forms of “specialized search” in which results 219

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“are based at least in part on payments from a third party.”69 It is a small step from the latter concern to general “organic” results that are influenced by the commercial interests of advertisers or the search engine itself. The point here is not that the applicable law should be consumer-­ protection law as applied by the FTC, but that the commercial-editorial line is not very clear. Moreover, given that the Central Hudson commercial-­ speech test exempts misleading speech from First Amendment protection entirely, the FTC’s expert view that this sort of mixed speech can be misleading suggests that there may be no, or very limited, First Amendment protection for such speech. At the very least, it suggests that the courts may be required to reassess their tests for what speech qualifies as commercial speech, and thus is entitled to less protection. Gilbert Cranberg, a journalism professor and the former editorial-page editor of The Des Moines Register, made a related point more than two decades ago.70 He noted the blurring of the line between editorial content and advertising, and he argued that newspapers should keep the two distinct to avoid having the blended material treated as commercial speech. The commercial influences on editorial content have become even greater in recent years.

Online Speech in Europe In Europe, the focus is arguably less on the editorial-commercial line than on possible distinctions between traditional speech and online information. The European Court of Human Rights has indicated that its approach of confronting speech protections with other interests may require a different balance online: “The risk of harm posed by content and communications on the Internet to the exercise and enjoyment of human rights and freedoms, particularly the right to respect for private life, is certainly higher than that posed by the press.”71 The extent to which the Strasbourg Court would apply this principle in other contexts, like that of competition, is unclear, but Oreste Pollicino has stated that in Brussels recent Internet cases at the Court of Justice of the European Union “seem to downgrade the role of freedom of expression, which is considered [merely] as a fundamental right alongside others, especially entrepreneurial freedom.”72 Moreover, similar to the FTC’s search engine letter, the European Union’s E-Commerce Directive states that “commercial communications” that are part of an “information society service,” which would include a 220

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search engine, must be clearly identified as commercial and must identify the party on whose behalf the statement is made.73 A “commercial communication” is defined as “any form of communication designed to promote, directly or indirectly, the goods, services or image of a company, organisation or person pursuing a commercial, industrial or craft activity or exercising a regulated profession.”74 There is an exception, however, for “communications relating to the goods, services or image of the company, organisation or person compiled in an independent manner, particularly when this is without financial consideration.”75 Joris van Hoboken addresses the applicability of this provision to search in a book on Google and the freedom of expression.76 Although the book focuses on political speech, van Hoboken argues that on the basis of the provisions just quoted organic search results probably could avoid characterization as commercial communications.77 But he also presents a compelling critique of the approaches of the FTC and the E-Commerce Directive, both of which he says fail to give sufficient consideration to the way that users perceive search-engine results. Specifically, he argues that a requirement of the disclosure of commercial interests “is confused and arguably naïve in its trust of objectivity and impartiality of organic search results.”78 He calls instead for a more informative disclosure and internal controls: [E]nd-users should be, or be made, aware of the many ways in which organic search results are, in fact, shaped by different forms of external pressure, including not only pressure from advertisers but also from other special interests. Search engines should complement the existent practice of labeling with additional internal policies and strategies to prevent the crowding out of objectively valuable, non-commercial references in their index.79 As a result, van Hoboken argues, the parallel with “traditional editorial media” breaks down. In that respect, his views are consistent with those described above, in which European courts and observers express greater concern about online speech. He also points to competition law as a driver for the increased transparency he advocates, but he acknowledges that the various competition authorities investigating Google “will also have to come to terms, at some point, with the question about the editorial freedom of search engine providers to rank and select search results.”80 Although he does not advance an alternative freedom-ofspeech analysis in this context, his recognition of the particular 221

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problems search engines pose is more realistic, and more specific, than much other work in this area.

A Battle of White Papers The possible existence and extent of speech protections for search engines, and Google in particular, has generated an interesting bout of dueling white papers. The one that has received the most publicity was sponsored by Google and written by Professor Eugene Volokh and Donald Falk.81 At the outset, it is worth noting an interesting characteristic of this white paper. In announcing the white paper on his blog, Volokh issued something approaching a disclaimer regarding it: “I wrote the paper as an advocate, and not as a disinterested academic, but I hope some of our readers might find it interesting nonetheless.”82 And the white paper itself states that it “was commissioned by Google, but the views within it should not necessarily be ascribed to Google.”83 So the white paper should apparently be viewed as a component of Google’s considerable advocacy efforts, akin, perhaps, to a legal brief, rather than as the expression of the actual views of either the authors or Google itself. Fundamentally, the Volokh-Falk, or Google, white paper starts from some assumptions that critics contest. It states that the results of search engines “direct users to material created by others, by referencing the titles of Web pages that the search engines judge to be most responsive to the query, coupled with short excerpts from each page.”84 This assertion assumes the question to be decided, which is whether search engines do indeed deliver the results they believe are the most responsive or if they instead are willing to deliver less-responsive results if doing so will give them, or an advertiser, a competitive advantage.85 Translating the assumption into First Amendment terms, the paper asserts that a search engine’s “judgments are all, at their core, editorial judgments about what users are likely to find interesting and valuable.”86 If one starts, as the white paper does, from an assumption that Google does not allow its competitive interests to influence its search results, then indeed there is likely no anticompetitive conduct to be addressed. Although the antitrust laws sometimes condemn conduct that has anticompetitive effects even where there is no anticompetitive purpose, such condemnation would be unlikely for a firm acting unilaterally. Unilateral conduct is generally permissible despite anticompetitive effects if it has a 222

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legitimate business purpose, so if Google’s conduct were motivated by serving its users,87 then it presumably would not face liability. The argument to which this white paper and some other defenders of Google respond—that Google has an obligation to be fair or neutral in some objective sense, even where it cannot be charged with specific anticompetitive goals—is largely a straw man.88 The second white paper was written by Kurt Wimmer, a partner at Covington & Burling, a firm that represents Microsoft, but Mr. Wimmer says that the views expressed are his own.89 This white paper focuses specifically on the issue that Google’s white paper assumes away: the implications of the possibility that Google’s search results are indeed manipulated for competitive advantage: “Google’s critics assert that its non-sponsored search results deviate from this purportedly ‘simple’ mission by often providing an artificially prominent ranking and placement for Google services while artificially demoting or even de-listing entirely competitors’ sites.”90 Under that understanding, Wimmer argues, conduct of Google could be subject to condemnation in two ways without running afoul of the First Amendment. First, he says, Google’s description of its search results could be deceptive: “[C]onsumers, relying on Google’s representations, reasonably expect Google to use the same algorithmic variables to rank all websites.”91 If instead Google is manipulating its results, its representations regarding its search results could be deceptive. Because the Volokh-Falk white paper assumes away this possibility, they do not address this issue at all, but Wimmer points out that the Central Hudson test quoted above provides no protection for deceptive speech: Google establishes the expectation that it applies the same algorithmic criteria in every case “to give people the most relevant answers to their queries,” when it may, in fact, deviate from those criteria without disclosure in certain cases to punish competitors and prop up its own services. Such commercial deception is actionable under the antitrust laws consistent with the First Amendment.92 Second, Wimmer argues that antitrust regulation is as a general matter content-neutral and thus likely permissible under the First Amendment. As he says, “[t]he antitrust laws are intended to promote competition rather than to regulate a particular type of speech; when the antitrust laws do regulate speech, they do so based on speech’s anticompetitive 223

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effect rather than its expressive content. Therefore, the antitrust laws are content neutral.”93 Content-neutral restrictions need only be narrowly tailored to the relevant government interest; they need not be the least speech-restrictive means of achieving that interest. Wimmer claims that antitrust scrutiny would be narrowly tailored “because it would arise only out of Google’s abuse of its monopoly position and would be necessary to deter Google’s harmful misconduct effectively.”94 Even if that explanation does not quite establish the narrow tailoring that Wimmer claims, further support for both aspects of Wimmer’s approach is discussed below.

Deception about the Nature of Information Provided The first possibility Wimmer suggested was that the anticompetitive conduct could be viewed not as the provision of misleading search results or reviews, but as the representation of such results or reviews as unbiased and accurate. This approach, in fact, is exactly the one taken by the U.S. Department of Justice with Standard & Poor’s and by Italy’s competition authority regarding TripAdvisor. As Wimmer points out, this would pose no First Amendment problem, at least if the speech were viewed as commercial speech, because there is no protection for misleading speech. And, of course, viewing the product about which the information providers are deceptive as the search results and reviews that they present is consistent with the approach advocated in this book, that of treating information itself as the product of concern. Moreover, viewing information as the product makes a commercial speech analysis quite appropriate. Even if Google’s search results or Moody’s ratings are “opinions,” they are also the products that the providers sell, or perhaps “sell” in Google’s case, since it does not charge directly for its results. Hence, statements about those information products satisfy even the narrow definition of commercial speech in Virginia State Board, that of “speech which does ‘no more than propose a commercial transaction.’”95 Those statements are akin, that is, to a representation by a magazine like Consumer Reports that it accepts no advertising to avoid a financial conflict of interest. If Consumer Reports made that representation falsely, it would be liable for deception, and the rule should be no different for Google or Moody’s. However, this is not an antitrust approach to the problem, but a consumer-protection one. There is no particular problem with ­ 224

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addressing the issue through consumer-protection law, except that information providers might find it easy to avoid deception while still presenting the same competitive problems. Consider how Google’s statements regarding the objectivity of its search results have evolved.96 In 2007, it said, “Our search results are generated completely objectively and are independent of the beliefs and preferences of those who work at Google.”97 Subsequently it said that it was delivering the results that searchers wanted. More recently, it has said that “Google’s search results are ultimately a scientific opinion as to what information users will find most useful.”98 Because “usefulness” is in the eye of the beholder, it is not clear that such a statement could be misleading. At times, Google makes no reference to any external reference at all, saying in its documentation, for example, that it has “tried to clarify where possible that although we employ algorithms in our rankings, ultimately we consider our search results to be our opinion.”99 And Google, if it chose, could simply say, “We provide the search results that we want to provide.” If an information provider stated that it made no representations about objectivity or disinterestedness or accuracy, it would be hard to say that it acted deceptively, no matter how low the quality of the information it provided. Yet even if it were clear that the quality of information Google or TripAdvisor or Moody’s provided were low, it seems likely that users would still rely on it because they would not have any other remotely comparable options. As Senator Al Franken said of Google in the privacy context, to get the services you prefer, “you will have to find a search engine that’s comparable to Google. Not easy.”100 Antitrust is still needed to preserve competition in these markets.

Competitive Informational Conduct Generally speaking, the concern of this book is that the information we receive and the decisions to provide it may be influenced by the information provider’s competitive position. In many cases, the information provider may be balancing two goals: to provide information that is sufficiently valuable to make those who receive that information return for more, and to gain a competitive advantage. The latter goal might be furthered by using the information provided to either direct or influence those who receive the information away from competing information providers.101 Although in some instances providers may deliver information that is chosen solely for competitive advantage, and there might be 225

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more instances in which they would like to do so, competition and reputational concerns are likely to make those the exception. So we could view the information provided as a mixture of (true) editorial discretion and a competitive, or anticompetitive, overlay that influences that information. In some sense, then, assuming we recognize the possibility that editorial discretion can be influenced in this way, the question is whether we can distinguish the two parts of the mixture. More to the point, given the nature of freedom-of-speech protections, the question is whether we can identify a permissible approach to regulating the competition-affecting information. A characteristic shared by the Associated Press and Lorain Journal cases is that they did not require the courts to define what the defendants could or could not say. Both cases simply prohibited the defendants from making decisions based on what other competing information provider was at issue. Thus, the Associated Press was not permitted to prevent sales to nonmembers, and the Lorain Journal was not permitted to refuse advertising from customers that advertised elsewhere. The competitive effect of the conduct in each case was identified and remedied not by reference to the content of the information at issue, but by reference to the competitive relationships and the effects of particular conduct on those relationships.102 This is especially apparent in the remedies in the two cases. In Associated Press, the court enjoined the bylaws of the Associated Press, but said the organization was free to adopt new ones, so long as it “affirmatively declare[d] that the effect of admission upon the ability of such applicant [for Associated Press membership] to compete with [existing] members in the same city and ‘field’ shall not be taken into consideration in passing upon its application.”103 Similarly, the Lorain Journal was enjoined from refusing advertisements if the refusal was “in whole or in part, express or implied, that the person, firm or corporation submitting the advertisement or advertisements has advertised, advertises, has proposed or proposes to advertise in or through any other advertising medium.”104 These remedies are not content-based, nor are they speaker-based, if “speaker-based” means based on the identity of the speaker, as distinguished from the speaker’s competitive position in the market, relative to the defendant. Wimmer in fact points out that this sort of remedy has been adopted also in the Department of Transportation’s regulations for airline computer reservation systems.105 Those regulations, which are designed “to 226

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prevent unfair, deceptive, predatory, and anticompetitive practices in air transportation and the sale of air transportation,”106 currently require that “[i]n ordering the information contained in an integrated display, systems shall not use any factors directly or indirectly relating to carrier identity.”107 As Wimmer emphasizes, the Department of Transportation defended its regulations against First Amendment objection by arguing that the regulations were “intended to prevent deceptive or misleading messages.”108 It also said that the regulations “come within the bounds of permissible economic regulation, for we are prohibiting display bias in part to prevent unfair methods of competition,”109 echoing the focus on unfair competition of the EU cases discussed above.

Information Bias and the First Amendment This suggests that the same sort of remedy could be applied to a firm like Google. Although Google’s search results presumably are never determined solely by its commercial interests, those commercial interests may play a role. It would be difficult, of course, to look at Google’s search results and determine what they would have been in the absence of any commercial impact. In any event, Volokh and Falk are surely correct that directing Google to issue particular results would be problematic with respect to freedom of speech. But Wimmer is also correct that no such intrusion would be necessary in that antitrust could regulate Google’s process, not its results. As in Associated Press and Lorain Journal, a court could simply prohibit the interference of commercial bias in the information delivered. This is an approach similar to that advocated by James Grimmelmann. As discussed in Chapter 5, Grimmelmann argues that when a search engine deviates from its appropriate role of trying to respond to users’ requests and instead provides information that “deliberately falls short of the best it is capable of for users,” it is not protected by the First Amendment.110 He supports his position by reference to the Supreme Court’s opinion in Milkovich v. Lorain Journal Co. (yes, the Lorain Journal again).111 Milkovich was a case in which the “opinion” shibboleth was relied upon but rejected by the Court. The Court drew a distinction between opinions that do and do not imply facts, with those that “imply a false assertion of fact” being possible bases for liability. In a particularly useful reference, the Court cited an observation from an opinion by Judge Friendly, Cianci v. New York Times Publishing Co.,112 that pointed to the 227

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origin of the “opinion” argument, which Judge Friendly said “points strongly to the view that the ‘opinions’ held to be constitutionally protected were the sort of thing that could be corrected by discussion.”113 The point, then, is that antitrust should not ask, “Is the search result correct?,” a question whose answer will often be open to discussion, but should instead ask, “Was Google seeking to provide a useful product to consumers?,” which will likely be more clear. As described in Chapter 5, that is very close to the usual antitrust question asked regarding single-­ firm conduct, which is whether the conduct had a legitimate business purpose. Answering the question would require a careful review of how Google (or any other search engine) determines its results. Is Google’s goal, as the FTC said in dismissing its investigation of Google, “to quickly answer, and better satisfy, its users’ search queries,”114 or does Google allow its commercial interests to interfere with the results it delivers? Admittedly, delving into a firm’s design practices—opening the “black box”—is not a task in which antitrust should engage lightly, but as noted in Chapter 5, Congress has already decided to open up to some extent the algorithmic processes of credit-rating agencies, so the approach would not be unprecedented.115 Returning to the freedom of speech, this approach is supported directly by a U.S. Supreme Court opinion from 2015, Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund.116 This case arose under the U.S. securities laws, and although it did not explicitly consider freedom of speech under the First Amendment, the Court made some important statements about opinions. The defendant, Omnicare, argued that “a pure statement of opinion,” if it is sincerely held, cannot be misleading. The Court acknowledged that a reasonable person takes into account the differences between statements of fact and statements of opinion, but it also refused to immunize opinions in a passage that recalled the First Amendment discussion in Milkovich: But Omnicare takes its point too far, because a reasonable investor may, depending on the circumstances, understand an opinion statement to convey facts about how the speaker has formed the opinion—or, otherwise put, about the speaker’s basis for holding that view. And if the real facts are otherwise, but not provided, the opinion statement will mislead its audience.117 This approach, which the Court supported also by references to the law of misrepresentation, supports the approach discussed above, which 228

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would scrutinize the method by which Google, or any other information provider, produced the information it provided. Furthermore, the Court in Omnicare emphasized the importance of context, including the formality or informality of the statements at issue and the expectations of the recipients of the statements. The context in which information is received is what determines its effects not just on the investors at issue in Omnicare, of course, but also information’s competitive effects on the consumers who are the focus of antitrust law. In that respect, all of these bodies of law—securities law, consumer-­ protection law, and antitrust law—have substantive standards that incorporate elements analogous to those that are relevant to the freedom of speech. That suggests that the reason that antitrust courts, or at least the Supreme Court’s antitrust cases, have given so little attention to the First Amendment, even in cases involving information, is that the antitrust laws themselves satisfy the commercial speech standard.118 That is, to the extent that antitrust confines itself to the regulation of anticompetitive conduct, it is not likely to impinge on the legitimate scope of freedom of speech.119 Competition, after all, is a substantial governmental interest, and as long as antitrust rules are confined to anticompetitive practices, they are tailored to that interest. Antitrust’s preservation of market competition is consistent with, and in fact reinforces, protection of the marketplace of ideas.

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I

n his 1 974 e s s ay “The Market for Goods and the Market for Ideas,” Nobel laureate Ronald Coase argued that we should take the same approach to regulating both markets.1 Although Coase was writing of “ideas” in general, including noncommercial ones, his points apply at least as strongly to market information—the “ideas” at issue in this book. Coase states the issue succinctly:

In all markets, producers have some reasons for being honest and some for being dishonest; consumers have some information but are not fully informed or even able to digest the information they have; regulators commonly wish to do a good job, and though often incompetent and subject to the influence of special interests, they act like this because, like all of us, they are human beings whose strongest motives are not the highest. 2 This book takes up Coase’s argument and seeks to apply antitrust law to information in the same way that it is applied to other goods. That does not mean, of course, that the application of antitrust, or any other form of regulation, will be the same for information as for goods. As Coase says explicitly, the argument is only that the same basic approach should be applied.3 There are market failures in markets for information just as there are in markets for tangible goods and services, and in each context the law can and should step in to address those failures. In that respect, this book is related to recent books, like

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Seduction by Contract by Oren Bar-Gill and Phishing for Phools by George Akerlof and Robert Shiller (two more Nobel laureates), that point to the ways in which market competition fails to produce the information that consumers need.4 This book explains how antitrust law can be adapted to the ways in which information products differ from other products. These differences are present in both aspects of antitrust analysis: power and conduct. Market power is a seller’s ability to act without regard to competition, typically by selling at high prices because competitors lack the productive capacity to meet demand at lower prices. An informational equivalent, particularly when information is provided for free, is a provider’s ability to influence consumers with low-quality information because competitors are unable to deliver higher-quality information to consumers. This informational power will often be the result of size— large information providers are not rare—but it can also result from the unique character of information: When consumers are seeking information, it will often be difficult for them to assess the quality of information they receive.5 The evaluation of informational conduct, too, has both similarities to and differences from the evaluation of more typical competitive conduct. Some informational conduct is simply deceptive, and deception is a straightforward form of consumer exploitation, much as price-fixing is, with low quality substituting for high prices. But the goal of much competitive use of information is not just the exploitation of consumers but also the exclusion of competitors. Information can be used to steer consumers to one product rather than another, so a seller that dominates an information market can also gain an advantage in product markets. Moreover, a firm’s delivery of inaccurate information when it is in possession of accurate information generally will not have a “legitimate business justification,” an important consideration in antitrust law. It may not be easy, though, to label information “accurate” or “inaccurate.” Many sorts of information are more ambiguous. Both the Federal Trade Commission and economists have sought to use consumer preferences as a touchstone, by asking whether an information provider is seeking to better meet consumer demand. In light of antitrust’s goal of advancing consumer welfare, that is a reasonable standard, but it may be a difficult one to apply. Because information is difficult for consumers to assess, their choices may not always be the same as those they would make with more time and better information about the information they 232

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are selecting. And this can be so especially when information providers have detailed information about their customers, so that they can provide information tailored to each individual customer. These difficulties do not seem insurmountable, however. Analogous difficulties are often present in the antitrust analysis of conduct in markets for tangible goods and services. The question in both contexts is not whether antitrust scrutiny of the practices at issue will produce perfect results, but whether it will improve the functioning of markets. This book provides reason to think that antitrust can in fact be applied to information markets. Information increasingly offers the same potential for anticompetitive collusion and exclusion that have long been problems in markets for other products, and antitrust analyses developed over the last one hundred years in those other markets can be usefully extended to information markets.

The Changing Role of Market Information The way in which information is increasingly being used to anticompetitive effect is illustrated by the changing role of standards discussed in Chapter 4. Product standards, or agreements on the definitions of desirable product characteristics, have been commonly issued for many years, and they are often procompetitive. When products need to work together, providing information on how that interoperability can be accomplished is often the best solution, and standards can also be valuable when there is a market failure that can be remedied by information that helps promote safety or some other important product quality. But courts in both the United States and Europe have also recognized that there are competitive dangers from standards, so their use requires, in the words of the U.S. Supreme Court, “objective expert judgments” and “procedures that prevent the standard-setting process from being biased.”6 In recent years, however, standards have been adopted, often eliminating competition, where there is neither any evident need for coordination nor a market failure. As examples, Chapter 4 describes an agreement among major law firms on contestable interpretations of federal corporate law and guidelines issued by medical societies on treatment recommendations for medical conditions. Similarly, Chapter 8 describes an agreement among Internet service providers (ISPs) on a common enforcement scheme to prevent copyright infringement. In each of these instances, the standard served to eliminate desirable competition. 233

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Lawyers are supposed to exercise their own independent judgment, not agree with each other on the advice they will give. Doctors can benefit from expert assessments of medical treatments, but the medical standards discussed appeared to be driven as much by one group’s concerns about competition from another as by expertise. And ISPs are free to develop their own individual techniques for copyright enforcement in cooperation with content providers.7 In each case, the Supreme Court’s calls for objectivity and unbiased procedures appear to have gone unheeded. The historical absence of searching scrutiny in standard-setting cases seems to have emboldened competitors to use standard-setting not to eliminate market failures but simply to provide competitive cover. The LIBOR conspiracy, and similar problems in the foreign-exchange market, present a different but related problem. These cases involve not standardization of existing products but the creation of financial benchmarks for use as components of other, existing products—with LIBOR, variable-rate loans. These benchmarks are information: definitions of interest rates or exchange rates. They offer the possibility of efficiencies that can be created by establishing a single information product rather than requiring duplication of effort. But the benchmarks were created through processes with so little protection from exploitation that they were easily manipulated by the banks involved. Again, there was insufficient attention to preserving the integrity of market information. The role of information has changed even more with the rise of powerful providers of market information on the Internet. Firms like Google, Yelp, Expedia, and Amazon provide a wide variety of product information, including not only descriptions of product characteristics and price but also buyer reviews. The competitive danger from these firms does not arise from agreements among them—there appear to be few or no such agreements—but from efforts to exclude potential competitors. Google, for example, is being pursued by the European Commission for its practice of including only Google-related websites in its Universal Search results, when there is some evidence that users would prefer to see other, competing sites, as discussed in Chapter 5. Given the power of Google, Yelp, and similar information providers, whose use in making purchasing decisions is widespread, anticompetitive conduct could not only harm competing sites but also steer consumers to make suboptimal purchases. This is the broader point: the power of these information providers can do considerable harm to consumers’ purchasing decisions if the 234

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providers do not deliver information in an accurate and unbiased way. Although neither “accurate” nor “unbiased” is a self-defining term here, there are circumstances in which information providers could be shown to have failed to meet those standards. For example, if Google or Yelp or a reviewer on Yelp delivered information with knowledge that consumers would prefer other information in its possession, or simply provided information without regard to its truth, that conduct would seem to be uncontroversially anticompetitive. Until recently, information providers did not have power that would have justified antitrust scrutiny of their business practices, but the new Internet-based information providers have sufficient power to impose significant harm on consumers, and their conduct should no longer escape scrutiny. These problems are exacerbated by the amount of information firms now possess about consumers. With this information, they can deliver information precisely tailored to their users. This ability can be beneficial if they deliver information tailored to what the users want. It can be harmful, however, if they deliver information that steers consumers to make purchases from firms who pay them for that service. A 2013 European Commission report on price- and product-comparison websites showed that many such sites “perform sub-optimally in one of their major functions, the presentation of prices,” providing inaccurate information or making it difficult to display offers in ascending order of price.8 The report also found that the comparison tools often did not reveal the sources of their financing and often “did not indicate clearly if the retailers appearing on the specific price comparison website had paid to have their products listed.”9 This is, in part, why consumers sometimes notice that prices on websites are not consistent. A site might deliver one price when a consumer visits it after visiting a competitor, because in those circumstances the site has an interest in drawing the consumer to its own site and away from the competitor. But when the consumer is loyal to a particular site, and rarely visits others, the site will often have that information, and then it knows that it can provide less useful information without much danger that the consumer will learn of better information. It might, for example, make the product of a firm from which it receives payment look like the best deal, perhaps by displaying it with other, higher-priced goods from other firms. The extent to which firms engage in this conduct is unknown, in part because these firms generally act as “black boxes,” as Frank Pasquale has shown.10 235

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After presenting antitrust approaches to these issues, this book turns to two specific bodies of law that might pose obstacles to antitrust remedies: intellectual property law and freedom-of-speech protections. Neither body of law, though, poses insurmountable obstacles to antitrust scrutiny of the market information at issue in this book. As discussed in Chapter 8, rarely is market information protected by intellectual property law because market information is usually information about intellectual property and not itself intellectual property, though courts do not always draw this distinction. In contrast, as discussed in Chapter 9, the First Amendment and other speech protections do apply to market information. Those protections, however, generally give way before general-purpose law that, like antitrust law, is not directed at limiting speech but does so only incidentally in protecting consumers from “commercial harms.”11

Beyond Commerce? The focus in this book is on commercially significant information, but as Coase suggests, the principles set out here could be applied more broadly. The influence of powerful media companies has long been a concern, though not generally in commercial markets, and that concern has recently been directed at some of the providers discussed here. For example, Google’s acquiescence in various censorship efforts of foreign governments has received considerable publicity.12 There have also been concerns raised about whether Google’s results are politically biased in a more general way.13 The increasing tendency of consumers—and citizens—to turn to a limited number of sources for their information increases the importance of any possible bias. Although antitrust law would likely not play a direct role in political contexts,14 a more explicit focus on the effectiveness of competition in information markets could at least shed some light on problems of this kind. Private control and exploitation of information are phenomena that likely function similarly both in commercial and noncommercial contexts. Moreover, antitrust could also be relevant to some sorts of commercially significant information that has political implications. For example, the New York attorney general is investigating Exxon for possible misrepresentations regarding climate change, an investigation that might expand to other companies,15 which recalls the conspiracy verdict against tobacco companies for misrepresenting the dangers of smoking.16 The 236

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purpose of such conduct by these companies is to influence public opinion by altering the overall mix of information available. The conduct is therefore an effort to use informational power to influence decision-­ makers, including, presumably, both investors and consumers. The 2010 book Merchants of Doubt describes organized campaigns by firms to exert this sort of influence.17 Although application of antitrust in these circumstances would present considerable obstacles, the conduct serves as a cautionary indicator of the influence of informational power. Of course, even if principles of informational power and exclusion that were developed in the commercial context of antitrust could be applied, if not directly then at least by analogy, in other spheres, freedom of speech would play a greater role in the political context. Here, though, the long-used “marketplaces of ideas” metaphor is becoming increasingly misleading. When the metaphor was developed by John Stuart Mill in 1859 and then applied by Justice Holmes in his Abrams v. United States dissent sixty years later,18 information might reasonably have been thought to be provided in markets that functioned well. Now, however, markets for information both commercial and political are more and more concentrated, and consumers of information likely do not even use all of the alternative information sources that are available to them. Under these circumstances, whether we should cling to an understanding of the First Amendment that developed in a very different environment is at best unclear. It may be time for a reappraisal of the very different informational environment in which we live now.19 One possibility would be to take the marketplace metaphor seriously and consider to what extent the freedom of information is limited by private restraint and to what extent by governments. Perhaps at least some government restraints on private control and dissemination of information should be viewed not as “abridging the freedom of speech”20 but instead as protecting the freedom of speech from private restraint. In the past, speech protections have sometimes given way before concerns about fairness, particularly in broadcasting, where access to radio and television spectrum was limited. 21 Although control over the technological means of communication has largely disappeared with the development of the Internet, other forms of power over information may be increasing. Antitrust law applies only to commerce, but its principles could be applied more broadly, to ensure that we indeed have free speech and are the beneficiaries of true marketplaces of information. 237

Notes

Introduction 1. U.S. Department of Justice, “Remarks for Attorney General Eric Holder Press Conference Announcing Settlement with S&P,” Feb. 3, 2015, http:​//www .justice.gov​/opa​/speech ​/remarks-attorney-general-eric-holder-press -conference-announcing-settlement-sp; U.S. Department of Justice, press release, “Department of Justice Sues Standard & Poor’s for Fraud in Rating Mortgage-Backed Securities in the Years Leading Up to the Financial Crisis,” Feb. 5, 2013, https: // www.justice.gov / opa / pr / department-justice-sues -standard-poor-s-fraud-rating-mortgage-backed-securities-years-leading. 2. European Commission, “Antitrust: Commission Sends Statement of Objections to Google on Comparison Shopping Service,” press release, Apr. 15, 2015, http:​//europa.eu​/rapid​/press-release_MEMO-15-4781_en.htm. 3. Statement of the Federal Trade Commission Regarding Google’s Search Practices, In re Google Inc., F.T.C. File Number 111–0163, Jan. 3, 2013. See also Edward Wyatt, “A Victory for Google as F.T.C. Takes No Formal Steps,” New York Times, Jan. 4, 2013 at A1. Available at http:​//www.nytimes.com​ /2013​/01​/04​/technology​/google-agrees-to-changes-in-search-ending-us-antitrust -inquiry.html?_r=0 (visited October 21, 2014). Recent reports suggest that the FTC may be reconsidering this decision. Nancy Scola, “Sources: Feds taking second look at Google search,” Politico, May 11, 2016, http://www.politico .com/story/2016/05/federal-trade-commission-google-search-questions-223078. 4. See The Power of Google: Serving Consumers or Threatening Competition?: Hearing Before the Subcommittee on Antitrust, Competition Policy and Consumer Rights of the Senate Committee on the Judiciary, 112th Cong., 1st Sess. 234 (2011). Available at https:​//www.gpo.gov​/fdsys​/pkg​/CHRG -112shrg71471​/pdf​/CHRG-112shrg71471.pdf. 5. See, e.g., Kinderstart.com, LLC v. Google, Inc., Case No. C 06–2057 JF 239

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(RS), 2007 WL 831806 (N.D. Cal. 2007), http:​//www.wsgr.com​/attorneys​/ BIOS​ /PDFs​/ kinderstart_google.pdf (organic results); TradeComet.com LLC v. Google, Inc., 693 F. Supp. 2d 370 (S.D.N.Y. 2010), affirmed, Case No. 10-911cv (2d Cir. July 26, 2011) (AdWords). 6. Autorità Garante della Concorrenza e del Mercato (Italian Competition Authority), “Half a Million Fine Against Tripadvisor,” press release, Dec. 22, 2014, http:​//www.agcm.it ​/en ​/newsroom ​/press-releases​/2178-ps9345-half-a -million-fine-against-tripadvisor.html; New York State Attorney General, “A. G. Schneiderman Announces Agreement with 19 Companies to Stop Writing Fake Online Reviews and Pay More Than $350,000 in Fines,” press release, Sept. 23, 2013, http:​//www.ag.ny.gov​/press-release​/ag-schneiderman-announces -agreement-19-companies-stop-writing-fake-online-reviews-and. 7. Justin Jouvenal, “Fairfax Jury Declares a Draw in Closely Watched Case Over ‘Yelp’ Reviews,” Washington Post, Feb. 1, 2014, available at http:​//www .washingtonpost.com​/ local​/in-closely-watched-yelp-case-jury-finds-dual-victory​ /2014​/01​/31​/2d174580-8ae5-11e3-a5bd-844629433ba3_story.html; Kellan Howell and Phillip Swarts, “Yelp Critics Must Be Identified, Court Rules in Online Landscape Altering Decision,” Washington Times, Jan. 8, 2014, available at http:​//www.washingtontimes.com ​/news​/2014​/jan ​/8​/court-rules-yelp -website-must-identify-seven-negat ​/. 8. European Commission, “Comparison Tools: Report from the Multi-Stakeholder Dialogue: Providing Consumers with Transparent and Reliable Information,” Mar. 18–19, 2013. Available at http:​//ec.europa.eu ​/consumers​/documents​/consumer-summit-2013-msdct-report_en.pdf. The European Commission Consumers, Health and Food Executive Agency recently issued a follow-up report. “Study on the Coverage, Functioning and Consumer Use of Comparison Tools and Third-Party Verification Schemes for Such Tools, EAHC​/FWC​/2013 85 07. Available at http:​//ec.europa.eu​/consumers​/consumer _evidence​/market_studies​/docs​/final_report_study_on_comparison_tools.pdf. 9. European Commission, “Comparison Tools: Report from the Multi-Stakeholder Dialogue,” 19. 10. U.S., UK, and EU fines are broken down at Clayton Browne, “Large Bank LIBOR Liabilities; A Look At Fines Paid To Date,” ValueWalk, May 28, 2014, http:​//www.valuewalk.com ​/2014​/05​/ large-bank-libor-liabilities​/. 11. The LIBOR case is discussed further subsequently in this book, but an outline is available at Michael J. de la Merced, “Q. and A.: Understanding Libor,” New York Times, July 10, 2012. Available at http:​//dealbook.nytimes .com ​/2012​/07​/10​/q-and-a-understanding-libor​/. 12. Department of Justice, press release, “Five Major Banks Agree to Parent-Level Guilty Pleas,” May 20, 2015, https://www.justice.gov/opa/pr /five-major-banks-agree-parent-level-guilty-pleas (announcing $2.5 billion in fines for “conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market”). 13. Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979 (9th Cir. 2000) (alleged manipulation of a benchmark based on cheese prices, which “determined the cost of fluid milk”). 240

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14. Connecticut Attorney General’s Office, “Attorney General’s Investigation Reveals Flawed Lyme Disease Guideline Process, IDSA Agrees to Reassess Guidelines, Install Independent Arbiter” (press release), May 1, 2008, http:​// www.ct.gov​/ag​/cwp​/view.asp?a=2795&q=414284. 15. Ibid. 16. There are several areas, however, in which antitrust has confronted information issues. It has done so, for example where sellers exchanged information that promoted collusion among them and where firms entered into agreements to suppress information or to refuse to provide it to competitors. See, e.g., American Column & Lumber Co. v. U.S., 257 U.S. 377 (1921); Maple Flooring Mfrs. Ass’n v. U.S., 268 U.S. 563 (1925); Bates v. State Bar of Arizona, 433 U.S. 350 (1977); F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447 (1986); Associated Press v. United States, 326 U.S. 1 (1945). Several of these cases are discussed below, as are the reasons that they do not resolve the issues raised by today’s information providers. 17. Nicolas Petit, “‘Problem Practices’ in EU Competition Law,” http:​// competitionpolicy.ac.uk ​/documents​/8158338​/8253850​/ Nicolas+Petit.pdf​ /f3beb51d-8b2f-47a9-894d-00ebc4cd7b0f. 18. Moore v. Boating Industry Associations, 819 F.2d 693 (7th Cir. 1987). 19. TYR Sport, Inc. v. Warnaco Swimwear, Inc., 709 F. Supp. 2d 802 (C.D. Cal. 2010). 20. Schachar v. American Academy of Ophthalmology, Inc., 870 F.2d 397, 400 (7th Cir 1989). 21. See, e.g., Lorain Journal Co. v. United States, 342 U.S. 143 (1951); Home Placement Service, Inc. et al., Plaintiffs, Appellants, v. the Providence Journal Company, Defendant, Appellee, 682 F.2d 274 (1st Cir. 1982). 22. Dissenting Statement, Pamela Jones Harbour, In re Google​/ DoubleClick, F.T.C. File No. 071–0170, Dec 20, 2007. Available at https:​//www.ftc.gov​/sites ​/default ​/files​/documents​/public_statements​/statement-matter-google​/doubleclick​ /071220harbour_0.pdf. 23. For example, although the U.S. has pursued its actions against the participants in the LIBOR conspiracy almost exclusively through fraud claims, not antitrust one, the European Commission has used antitrust. Indeed, EU Commissioner Joaquín Almunia said, perhaps directing his statement at U.S. antitrust authorities, “What is shocking about the LIBOR and EURIBOR scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other.” European Commission, “Antitrust: Commission fines banks 1.71 billion for participating in cartels in the interest rate derivatives industry,” Dec. 4, 2013, http:​//europa.eu​/rapid​/press-release_IP -13-1208_en.htm. 24. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), overruled by Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007). 25. See, e.g., American Column & Lumber Co. v. U.S., 257 U.S. 377 (1921); Maple Flooring Mfrs. Ass’n v. U.S., 268 U.S. 563 (1925). 241

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26. Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36 (1977); State Oil Co. v. Khan, 522 U.S. 3 (1997); Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007). 27. Robert H. Bork, The Antitrust Paradox: A Policy at War With Itself (New York: Basic Books, 1978): 290–291, 435–439, 449–450 (asserting that vertical distribution restraints produce significant benefits); Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and Its Practice, 2d ed. (St. Paul: West Group 1999): 485, § 11.7a (“most price and nonprice [vertical] restraints are efficient and benefit consumers”). 28. Warren S. Grimes, “Spiff, Polish, and Consumer Demand Quality: Vertical Price Restraints Revisited,” California Law Review 80 (1992): 815–55. 29. The book is Carl Shapiro and Hal R. Varian, Information Rules: A Strategic Guide to the Network Economy (Boston: Harvard Business School Press, 1999), and the quotation comes from a website associated with the book, Information Rules, http:​//www.inforules.com​/ (visited July 24, 2014). 30. See Dirk Auer and Nicolas Petit, “Two-Sided Markets and the Challenge of Turning Economic Theory into Antitrust Policy,” Antitrust Bulletin 60 (2015): 426–461. 31. An excellent review of credit-rating agencies, focusing specifically on this intermediary function, is Thomas J. Fitzpatrick, IV and Chris Sagers, “Faith-Based Financial Regulation: A Primer on Oversight of Credit Rating Organizations,” Administrative Law Review 61 (2009): 557–610. See also Memorandum from Gary Shorter to House Financial Service Committee, “Overview of the Credit Rating Agencies and their Regulation,” May 15, 2009, http:​//garrettforms .house.gov​/uploadedfiles​/crs_report_may_15_2009_overview_of_the_credit _rating_agencies_and_their_regulation.pdf. 32. See Mark R. Patterson, “Manipulation of Product Ratings: Credit-​ Rating Agencies, Google, and Antitrust,” CPI Antitrust Chronicle, Apr. 2012 (1), https:​//www.competitionpolicyinternational.com​/manipulation-of-product -​ratings-credit-rating-agencies-google-and-antitrust​/. 33. In a polemical piece some years ago, however, I took the position that the pressures to do so are considerable. Mark R. Patterson, “On the Impossibility of Information Intermediaries,” Fordham Law and Economic Research Paper No. 13, July 2001, http:​//papers.ssrn.com​/sol3​/papers.cfm?abstract_id=276968. 34. Compare Johannes Hörner, “Reputation and Competition,” American Economic Review 92 (2002): 644–663 and Carl Shapiro, “Premiums for High Quality Products as Returns to Reputations,” Quarterly Journal of Economics 98 (1983): 659–679 with Miguel Carriquiry & Bruce A. Babcock, “Reputations, Market Structure, and the Choice of Quality Assurance Systems in the Food Industry,” American Journal of Agricultural Economics 89 (2007): 12–23. Indeed, as will be discussed below, George Akerlof and Robert Shiller argue that conduct like that of S&P can be explained by a theory—which they call reputation mining—in which reputation is used as a resource for exploitation of credulous consumers. George A. Akerlof and Robert J. Shiller, Phishing for Phools; The Economics of Manipulation and Deception (Princeton: Princeton University Press, 2015), 23–37. 242

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35. Federal Trade Commission, “FTC Publishes Final Guides Governing Endorsements, Testimonials,” Oct. 5, 2009, http:​//www.ftc.gov​/news-events ​/press-releases​/2009​/10​/ftc-publishes-final-guides-governing-endorsements -testimonials. See also Federal Trade Commission, “FTC Approved Final Order Settling Charges that Public Relations Firm Used Misleading Online Endorsements to Market Gaming Apps,” Nov. 26, 2010, http:​//www.ftc.gov​/news -events​/press-releases​/2010​/11​/ftc-approves-final-order-settling-charges-public -relations-firm; Patrick Clark, “New York State Cracks Down on Fake Online Reviews,” Bloomberg Businessweek, Sept. 23, 2013, http:​//www.businessweek .com ​/articles​/2013-09-23​/new-york-state-cracks-down-on-fake-online-reviews. In the last several years, the Federal Trade Commission has become increasingly concerned about so-called “native advertising,” Edward Wyatt, “As Online Ads Look More Like News Articles, F.T.C. Warns Against Deception,” New York Times, Dec. 4, 2013. Available at http:​//nyti.ms​/1LXlcMm. See Federal Trade Commission, “Blurred Lines: Advertising or Content?—An FTC Workshop on Native Advertising,” Dec. 4, 2013, https:​//www.ftc.gov​/news-events​/events -calendar​/2013​/12​/ blurred-lines-advertising-or-content-ftc-workshop-native. 36. David Streitfeld, “Give Yourself 5 Stars? Online, It Might Cost You,” New York Times, Sept. 22, 2013; see also Alex Chisholm, Speech, “Data and Trust in Digital Markets: What Are the Concerns for Competition and Consumers?,” June 19, 2015, https: // www.gov.uk / government / speeches / alex -chisholm-speaks-about-data-and-trust-in-digital-markets (“This matters because as consumers we are not passive: we behave differently when we know we are experiencing advertising from when we believe we are receiving unbiased, impartial advice.”). This practice is not limited to commercial transactions, of course. In the political arena as well, advertisers sometimes seek to hide the source of their ads. See Eric Lipton, “Opaque System Obscures Support for Health Care Ad,” New York Times, July 26, 2014 (quoting Sheila Krumholz, the executive director of the Center for Responsive Politics, saying “If people who see this ad have no idea who is actually bankrolling it, they are in effect being misinformed.”). Available at http:​//www.nytimes.com ​/2014​/07​/26​/us​/politics ​/insurer-backed-health-care-ad-illustrates-opaque-finance-system.html. 37. See David Streitfeld, “Amazon and Hachette Resolve Dispute,” New York Times, Nov. 13, 2014, available at http:​//www.nytimes.com​/2014​/11​/14 /technology​/amazon-hachette-ebook-dispute.html; see also “Amazon v. Hachette: Frozen Conflict,” The Economist, Nov. 14, 2014. Available at http:​// www.economist.com ​/news​/ business-and-finance​/21632802-deal-between -two-firms-unlikely-end-dispute-over-prices-and-profits-e-books-frozen; Melissa Eddy, “German Publishers Seek Amazon Inquiry,” New York Times, June 25, 2014 at B2. Available at http:​//www.nytimes.com​/2014​/06​/25​/ business​ /international​/amazon-accused-in-Germany-of-antitrust-violation.html; see also Huw Jones, “EU Competition Chief to Examine Amazon, Hachette E-Book Spat,” Reuters, June 5, 2014, http:​//www.reuters.com​/article​/2014​/06​/05 /eu-amazoncom-competition-idUSL6N0OM2VJ20140605. See generally David Streitfeld and Melissa Eddy, “As Publishers Fight Amazon, Books Vanish,” New 243

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York Times, May 24, 2014 at A1. Available at http:​//bits.blogs.nytimes.com​ /2014​/05​/23​/amazon-escalates-its-battle-against-hachette​/. 38. For an attempt to assess the validity of these concerns, see Ralf Dewenter and Ulrich Heimeshoff, “Media Bias and Advertising: Evidence from a German Car Magazine,” Review of Economics 65 (2014.): 77–94. Available at http:​// www.review-of-economics.com ​/details.php?id=312. 39. Broadcast radio and television traditionally used the same model, but in those instances were consuming directly the products—radio and television programs—that the broadcasters were providing. Consequently, it was more clear that consumers were getting value from those products. 40. U.S. Federal Trade Commission, “The Antitrust Laws,” https:​//www.ftc .gov​/tips-advice​/competition-guidance​/guide-antitrust-laws​/antitrust-laws (“[F]or over 100 years, the antitrust laws have had the same basic objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up.”); European Commission, “Why Is Competition Policy Important For Consumers?,” http:​//ec.europa.eu​/competition​/consumers​ /why_en.html (“Competition policy is about applying rules to make sure businesses and companies compete fairly with each other. This encourages enterprise and efficiency, creates a wider choice for consumers and helps reduce prices and improve quality.”) 41. Some definitions of a “market” might exclude circumstances in which goods are provided for “free.” But a “market” is most often defined as forum for providers and consumers of goods to effect an exchange. In the case of “free” markets like those in which users obtain search results, the users typically receive the provider’s product in exchange for their time, with at least the potential for viewing advertisements, and often their personal data. See generally John M. Newman, “Antitrust in Zero-Price Markets: Foundations,” University of Pennsylvania Law Review 164 (2014): 189-195. 42. Organisation for Economic Co-operation and Development, Directorate for Financial and Enterprise Affairs, Competition Committee, “The Role and Measurement of Quality in Competition Analysis,” DAF​/COMP (2013)17, Oct. 28, 2013. Available at http:​//www.oecd.org​/competition​/Quality-in -competition-analysis-2013.pdf. 43. In Europe and many other jurisdictions, though not in the U.S., so-called “exploitative” abuses that injure consumers, even without excluding competitors, can also be violations. Although this possibility could in theory be applied to the provision of low-quality products, it has typically been applied to high prices, and then only rarely. 44. Scott Adams, The Dilbert Future (New York: Harper Collins, 1997): 159. See also Joshua Gans, “Breaking Up the Retail-Price Confusopoly,” Harvard Business Review (blog), Nov. 30, 2010, https:​//hbr.org​/2010​/11 ​/ breaking-up-the-confusopolies. 45. Toys “R” Us, Inc. v. F.T.C., 221 F.3d 928 (7th Cir. 2000). The case involved allegations of an agreement among the toy manufacturers, orchestrated

244

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by Toys “R” Us. That makes the case different from the “confusopoly” scenario, in which the theory is that firms merely act in parallel. Although the harm in each case is the same, the antitrust implications are very different. 46. Dissenting Statement, Pamela Jones Harbour, In re Google​/ DoubleClick. 47. For a few examples, see Adam Tanner, “Different Customers, Different Prices, Thanks To Big Data,,” Forbes (blog), Mar. 26, 2014, http:​//www.forbes .com ​/sites​/adamtanner​/2014​/03​/26​/different-customers-different-prices -thanks-to-big-data​/; Jennifer Valentino-DeVries et al., “Websites Vary Prices, Deals Based on Users’ Information,,” Wall Street Journal, Dec. 24, 2012. Available at http:​//www.wsj.com​/articles​/SB10001424127887323777204578189 391813881534; Constance L. Hays, “Variable-Price Coke Machine Being Tested,,” New York Times, (Oct. 28, 1999), http:​//www.nytimes.com​/1999​/10​ /28​/ business​/variable-price-coke-machine-being-tested.html. 48. European Data Protection Supervisor, “Preliminary Opinion: Privacy and Competitiveness in the Age of Big Data: The Interplay Between Data Protection, Competition Law and Consumer Protection in the Digital Economy,” Mar. 2014, https:​//secure.edps.europa.eu​/ EDPSWEB​/webdav​/shared ​/ Documents​/Consultation​/Opinions​/2014​/14-03-26_competitition_law_big _data_EN.pdf. 49. Anna Bernasek and D. T. Mongan, All You Can Pay: How Companies Use Our Data to Empty Our Wallets (New York: Nation Books, 2015), 21–41. 50. Ibid., 86. 51. F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447 (1986). 52. Ibid., 461–62. 53. Ibid., 456. 54. Jefferson County School Dist. No. R-1 v. Moody’s Investor’s Services, Inc., 988 F.Supp. 1341 (D. Colo. 1997), affirmed, 175 F.3d 848 (10th Cir. 1999). 55. Moody’s district court opinion, 1343. 56. Moody’s appeals court opinion, 856. 57. Google, “An Explanation of Our Search Results,” Mar. 21, 2007, http:​// web.archive.org​/webweb​/20070321092528​/ http:​//www.google.com /explanation.html. 58. See The Power of Google: Serving Consumers or Threatening Competition? (Testimony of Eric Schmidt, Executive Chairman, Google Inc., Sept., 21, 2011, at 3). 59. Matt Cutts, Dec. 1, 2010 (11:43 a.m.), comment to comment on John Battelle “In Google’s Opinion . . . ,” John Battelle’s Search Blog, Dec. 1, 2010, http:​//battellemedia.com ​/archives​/2010​/12​/in_googles_opinion.php. 60. Sorrell v. IMS Health Inc., 131 S. Ct. 2653, 2667 (2011) (citations omitted). 61. Ibid., 2672. 62. Mark R. Patterson, “Leveraging Information about Patents: Settlements, Portfolios, and Holdups,” Houston Law Review 50 (2012): 483–522. 63. United States v. Topco Associates, Inc., 405 U.S. 596 (1972).

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Part I. Market Effects of Information: Persuasion and Power 1. George J. Stigler, The Intellectual and the Market Place, http:​//www .chicagobooth.edu ​/~​/media ​/C05FEC42BA7747E8BDD37C1A500F0C33.pdf, 4.

1. Competition and Consumer Protection 1. Antitrust law has, however, addressed some information issues. As discussed in the Introduction, the U.S. Supreme Court in Indiana Federation of Dentists condemned an agreement among sellers to refuse to provide information to their customers. Somewhat relatedly, the courts in a number of cases have considered challenges to standard-setting activities, under which sellers agree on information that defines product characteristics; these cases are discussed in Chapter 4. And antitrust for many years has condemned some exchanges of information among sellers, typically when the information exchange would facilitate price-fixing. See, e.g., American Column & Lumber Co. v. U.S., 257 U.S. 377 (1921); Maple Flooring Mfrs. Association v. U.S., 268 U.S. 563 (1925). 2. Neil W. Averitt and Robert H. Lande, “Consumer Sovereignty: A Unified Theory of Antitrust and Consumer Protection Law,” Antitrust Law Journal 65 (1997): 713–714. Another similar perspective holds that antitrust focuses on practices that limit supply, while consumer protection governs practices that affect demand. Schachar v. American Academy of Ophthalmology, Inc., 870 F.2d 399, 400 (7th Cir 1989) (“Antitrust law . . . ​condemns reductions in output that drive up prices as consumers bid for the remaining supply.”). 3. Ibid., 736. 4. Kati Cseres, “Competition and Consumer Policies: Starting Points for Better Convergence,” Amsterdam Center for Law & Economics Working Paper No. 2009–06 (2009), http:​//papers.ssrn.com ​/sol3​/papers.cfm?abstract _id=1379322; Katalin Judit Cseres, Competition Law and Consumer Protection (The Hague: Kluwer Law International, 2005); see also Organisation for Economic Co-operation and Development, Policy Roundtable, “The Interface Between Competition and Consumer Policies” DAF​/COMP​/GF(2008)10, Jun. 5, 2008, available at http:​//www.oecd.org​/regreform​/sectors​/40898016.pdf; Meglena Kuneva, European Commissioner for Consumer Protection, Speech, OECD Global Forum on Competition, Paris, France, “Consumer and Competition Policies—Both for Welfare and Growth” (speech), Feb. 22, 2008, OECD Global Forum on Competition, Paris, France. 5. An exception is a presentation by Nicolas Petit that discusses a variety of practices that he suggests fall within “gaps” in competition and consumerprotection law. Nicolas Petit, “‘Problem Practices’ in EU Competition Law,” http:​//competitionpolicy.ac.uk ​/documents​/8158338​/8253850​/ Nicolas+Petit.pdf​ /f3beb51d-8b2f-47a9-894d-00ebc4cd7b0f. 6. A related presentation of the recent portion of the history offered below is Tony Curzon Price, Presentation, “PCWs [Price Comparison Websites] & Other 246

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Matching Platforms—The Frenemies of Competition,” Jun. 14, 2015, http: // competitionpolicy.ac.uk / documents / 8158338 / 9330040 / Tony +Curzon-Price+-+CCP+Conference+2015.pdf/9f80ee66-439f-4588-8f68 -8edf356f280e. 7. See, e.g., Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323 (Tex. 2011), 337 (“The elements of common law fraud are (1) a material representation was made; (2) that was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on it; and (6) the party thereby suffered injury.”) (citation omitted); Gennari v. Weichert Co. Realtors, 691 A.2d 350 (N.J. 2007), 367 (“The five elements of common-law fraud are: (1) a material misrepre­ sentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages.”) (citation omitted). 8. Milton Handler, “False and Misleading Advertising,” Yale Law Journal 39 (1929): 22 (“There are not many signs at present that the common law in this field possesses sufficient capacity for growth to originate a new action on the case for damages flowing from false statements contained in advertisements.”). 9. In the United States, deceived consumers may not themselves sue under federal law. The FTC Act does not provide standing for private plaintiffs, and although private plaintiffs may sue under the Lanham Act, consumers may not do so. Because that Act provides that it is intended “to protect persons engaged in . . . ​commerce against unfair competition,” courts view competitors as the proper plaintiffs in false-advertising cases. This view was confirmed by the U.S. Supreme Court in 2014 when it rejected consumer standing to sue, stating that a proper plaintiff in a Lanham Act false-advertising case “must allege an injury to a commercial interest in reputation or sales.” Lexmark International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1390 (2014). 10. The different roles of reliance in fraud law and in consumer protection more generally are discussed in John C. P. Goldberg, Anthony J. Sebok, and Benjamin C. Zipursky, “The Place of Reliance in Fraud,” Arizona Law Review 48 (2006): 1001–1026. 11. This likelihood is usually established through survey evidence. 12. Ivan Preston, “Puffery and Other ‘Loophole’ Claims: How the Law’s ‘Don’t Ask, Don’t Tell’ Policy Condones Fraudulent Falsity in Advertising,” Journal of Law and Commerce 18 (1998): 91. 13. Ibid. 14. Ibid., 93. 15. Ibid., 105. As Kati Cseres writes, “[d]eceit by one group of sellers may lead consumers to doubt the integrity of an entire industry or to distrust markets generally. Therefore competition is not simply fundamental to consumer policy but, as the chairman of the OFT remarked, ‘much consumer policy is competition policy.’” Kati Cseres, “Competition and Consumer Policies,” 21 247

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n. 82 (quoting Jon Vickers, “Economics for Consumer Policy,” British Academy Keynes Lecture, Oct. 29, 2003, 716–717). 16. Preston, “Puffery and Other ‘Loophole’ Claims,” 105. Consumers could just not transact, of course, but Preston does not think that is a viable alternative: In other words, consumers have a “reliance interest” that the law should weigh as heavily as or even more heavily than the traditional concept of adverse interest. Consumers need to deal in the marketplace and, thus, need to rely on the best experts, the sellers. Although they recognize and appreciate sellers’ adverse interest, consumers’ decisions to rely are determined primarily by their inescapable need to buy. Consumers may feel distrustful, but cannot translate such sentiment into their actions; consumers cannot honor their skepticism if the only way to exercise it is to avoid all transactions. When consumers buy, trust is unavoidable. Ibid. at 103 (footnotes omitted). 17. A typical definition describes puffery to include two forms: “(1) an exaggerated, blustering, and boasting statement upon which no reasonable buyer would be justified in relying; or (2) a general claim of superiority over comparable products that is so vague that it can be understood as nothing more than a mere expression of opinion.” Pizza Hut, Inc. v. Papa John’s Int’l, Inc., 227 F.3d 489, 497 (5th Cir. 2000). 18. Preston, “Puffery and Other ‘Loophole’ Claims,” 78–95. 19. Others suggest different dividing lines between antitrust and consumer protection. For example, Neil Averitt and Robert Lande would confine antitrust to practices that change what products are available, allocating to consumer protection the regulation of practices that distort choices among those products: Can deception and these other [informational] market failures give rise to antitrust violations, or should we instead term whatever harms they cause “consumer protection” problems? It all depends upon whether they distort the offerings of the market in question. This is because all antitrust violations have in common the fact that they all affect or distort the offerings that the market provides. They change the choices that would be offered to consumers by the functioning of the free market competition. Consumer protection violations, by contrast, detrimentally affect consumers’ ability to choose from among the options provided by the market. When imperfect information, deception or coercion distorts the options offered by the market, this quite properly gives rise to an antitrust violation. Robert H. Lande, “Market Power Without A Large Market Share: The Role of Imperfect Information and other ‘Consumer Protection’ Market Failures,” Mar. 8, 2007, http:​//www.justice.gov​/atr​/public​/ hearings​/single_firm​ /docs​/222102.htm (citing Neil W. Averitt & Robert H. Lande, “Consumer Sovereignty,” 718–722). 248

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It is not clear, however, that the distinction drawn in this passage is satisfactory. Any conduct that affects consumers’ choices will also be one that, at least in the long term, affects availability of products on the market. Why would producers continue to provide products that consumers do not buy? And some competition cases bear this out. Microsoft, for example, was alleged in the 1990s to have engaged in campaigns of “fear, uncertainty, and doubt” by, among other things, making inaccurate product announcements and including code in its software that would generate fake error messages. The goal was to affect purchases of DR-DOS, a product that competed with Microsoft’s MS-DOS, according to a Microsoft memo: “What the [user] is supposed to do is feel uncomfortable, and when he has bugs, suspect that the problem is DR-DOS and then go out to buy MS-DOS.” Brad Silverberg, e-mail message, quoted in Dan Goodin, “Microsoft emails focus on DR-DOS threat,” CNET News, Apr. 28, 1999, http:​//news.cnet.com​/2100-1001-225129.html. The desired effect, then, appeared to be one of an ability to choose, but the result of widespread distortion of choices was also to affect the products available on the market. As the producer of DR-DOS alleged in its antitrust complaint against Microsoft, “the impact of such fear, uncertainty and doubt . . . ​dealt [the company] a devastating blow in its ability to continue to market its DR DOS products.” First Amended Complaint and Jury Demand para. 61, Caldera, Inc. v. Microsoft Corp., No. 2:96CV645B (D. Utah filed Feb. 23, 1998). 20. The law on this issue is outlined in Prestige Builder & Management LLC v. Safeco Ins. Co. of America, 896 F.Supp. 2d 198 (E.D.N.Y. 2012). 21. American Home Products, 98 F.T.C. 136, 369–370 (1981), affirmed, 695 F.2d 681 (3d Cir. 1982). See also Jef I. Richards and Ivan L. Preston, “Proving and Disproving Materiality of Deceptive Advertising Claims,” Journal of Public Policy and Marketing 11 (1992): 45–56. 22. A consumer survey aggregates the views of individual consumers, typically on a particular demand-related issue, whereas a market derives a price from overall supply and demand. 23. Basic Inc. v. Levinson, 485 U.S. 224 (1988). 24. Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014). 25. Vincenzo Zeno-Zencovich, Freedom of Expression: A Critical and Comparative Analysis (Abingdon: Routledge-Cavendish, 2008), 59 (“[F]rom an economic and hence legal point of view, the idea that the advertising is somehow separate from the product has about as much validity as claiming the same for the label or packaging of a product.”) The Lanham Act, for example, applies to “any false designation of origin, false or misleading description of fact, or false or misleading representation of fact,” but only when they are used “in connection with any goods or services.” 15 U.S.C. § 1125(a)(1). F.T.C. Commissioner Maureen Ohlhausen makes this point in a recent article: “Both deception and unfairness seek to safeguard ‘consumer sovereignty’ allowing for informed choice when the consumer enters a transaction or uses a product or service.” Maureen K. Ohlhausen and Alexander P. Okuliar, “Competition, Consumer Protection, and the Right [Approach] to Privacy,” Antitrust Law Journal 80 (2015): 154–155 (citing Timothy J. Muris, Remarks Before the Aspen Summit, 249

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Cyberspace and the American Dream, The Progress and Freedom Foundation: The Federal Trade Commission and the Future of U.S. Consumer Protection Policy (Aug. 19, 2003), http:​//www ftc.gov​/public-statements​/2003​/08​ /federal-trade-commission-and-future-development-us-consumer-protection). 26. Actually, high prices can themselves violate the antitrust laws in most jurisdictions other than the United States, but even then, some other element generally establishes that the high price is a violation. 27. Anthony J. Dukes, “Advertising and Competition,” in Issues in Competition Law and Policy, (ABA Section of Antirust Law, 2009), 515. 28. Bates v. State Bar of Arizona, 433 U.S. 350 (1977). 29. California Dental Association v. F.T.C., 526 U.S. 756 (1999). 30. There is also a similarity in that both agreements may serve the self-­ interest of the organization’s members. Indeed, some of the antitrust cases challenging standard-setting activities have involved exploitation of the ­standard-setting process by self-interested members of the organization seeking to promote their own products at the expense of others. See, e.g., Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500 (1988) (“There is no doubt that the members of such associations often have economic incentives to restrain competition and that the product standards set by such associations have a serious potential for anticompetitive harm.”); American Society of Mechanical Engineers, Inc. v. Hydrolevel Corp., 456 U.S. 556 (1982). 31. As will be discussed in Chapter 4, though, a standard-setting organization’s agreement on a standard will likely result in less provision of information by its members, even if there is no agreement restricting such information. 32. Actually, at times, courts have described standard-setting in terms that are not informational at all. For example, the U.S. Supreme Court in Allied Tube said that “[a]greement on a product standard is, after all, implicitly an agreement not to manufacture, distribute, or purchase certain types of products.” Allied Tube, 500. However, not all standards can be viewed in this way. In fact, many standard-setting efforts meet considerable opposition, and some providers that oppose the standards may choose not to comply with them. The noncomplying sellers may still suffer harm from the promulgation of the standard, though, because consumers may be persuaded by the standard to avoid those sellers’ products. 33. 486 U.S. 492 (1988). 34. Ibid., 507. 35. Dukes, “Advertising and Competition,” 516. 36. Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485 (1984). 37. The magazine had reported that through the speakers, musical instruments “tended to wander about the room,” though its tests apparently showed only that the sound wandered “along the wall.” Ibid., 487–491 & n. 5. 38. Fleishman-Hillard, “2012 Digital Influence Index Shows Internet as Leading Influence in Consumer Purchasing Choices,” Jan. 31, 2012, http:​//fleishmanhillard.com ​/2012​/01​/31​/2012-digital-influence-index-shows -internet-as-leading-influence-in-consumer-purchasing-choices​/. 250

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39. This is not necessarily true for Amazon, which, of course, sells products in addition to providing information about them. But Amazon makes money not only on the products it sells itself but also on products others sell through its platform. 40. Indeed, this is the theme of books on both Google and Amazon. See Randall Stross, Planet Google: One Company’s Audacious Plan To Organize Everything We Know (New York: Free Press, 2008); Vanessa Fox, Marketing in the Age of Google: Your Online Strategy IS Your Business Strategy, revised and updated (Hoboken; John Wiley & Sons, 2012); Brad Stone, The Everything Store: Jeff Bezos and the Age of Amazon (New York: Little, Brown, 2013). 41. Federal Trade Commission, Staff Report to Congress, “Slotting Allowances in the Retail Grocery Industry: Selected Case Studies in Five Product Categories” (2003). Available at https:​//www.ftc.gov​/sites​/default​/files​/documents​ /reports​/use-slotting-allowances-retail-grocery-industry​/slottingallowancerpt​ 031114.pdf; Conwood Co. v. United States Tobacco Co., 290 F. 3d 768 (6th Cir. 2002); Benjamin Klein and Joshua D. Wright, “Antitrust Analysis of Category Management: Conwood v. United States Tobacco,” Nov. 10, 2006, http:​// www.justice.gov​/atr​/antitrust-analysis-category-management-conwood-v -united-states-tobacco. 42. Levitt v. Yelp! Inc., 765 F.3d 1123 (9th Cir. 2014). 43. Ibid., 1133.

2. The Economics of Information 1. A recent paper discussing some other characteristics of information is Tim Wu, “Properties of Information & the Legal Implications of Same,” Jun. 5, 2014, http:​//papers.ssrn.com ​/sol3​/papers.cfm?abstract_id=2446577. 2. It might be more accurate to say that any novelty in antitrust claims regarding such products is not likely to derive from the fact that they are information products. The recent Apple ebooks case, for example, presented some novel antitrust issues, but those issues derived primarily from the powerful presence of Amazon in the market and whether that should change the usual antitrust analysis. United States v. Apple, Inc., No. 13–3741 (2d Cir. 2015). 3. Economists have recently been investigating this issue. See, e.g., Aniko Hannak et al., “Measuring Price Discrimination and Steering on E-commerce Web Sites,” Nov. 5–7, 2014, http:​//www.ccs.neu.edu​/ home​/cbw​/pdf​ /imc151-hannak.pdf. 4. Carl Shapiro and Hal R. Varian, Information Rules: A Strategic Guide to the Network Economy (Boston: Harvard Business School Press, 1999), 3. 5. Robert E. Hall, “The Relation Between Price and Marginal Cost in U.S. Industry,” Journal of Political Economy 96 (1988): 921 (“A competitive firm equates its marginal cost to the market price of its product.”); Richard S. Markovits, Economics and the Interpretation and Application of U.S. and E.U. Antitrust, (New York: Springer Heidelberg, 2014), xiv (“Conventional analyses . . . ​focus on the total difference between price and marginal cost. . . .”). 251

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6. John Newman makes this point for zero-price products: Multiple categories of sustainable (i.e., long-run) business models have gained prominence in zero-price markets. These include tying strategies, two- or multisided models, and “premium upgrade” or (more commonly) “freemium” models. The common thread between each of these categories is the presence of interrelated products. Where for-profit firms are competing in zero-price markets, invariably they are making money somehow. In this context, they do so by offering some other product that is somehow interrelated with the zero-price product. John M. Newman, “Antitrust in Zero-Price Markets: Foundations,” University of Pennsylvania Law Review 164 (2014): 154. 7. Shapiro and Varian, Information Rules, 3. 8. Ibid. 9. This is known as third-degree price discrimination. Douglas A Ruby, “Price Discrimination,” Digital Economist, http:​//digitaleconomist.org​ /pd_4010.html. First-degree price discrimination is perfect price discrimination—charging each customer exactly the amount the customer is willing to pay—and second-degree price discrimination is pricing based on the quantity purchased, as in quantity discounts. Ibid. 10. See, e.g, Felix Salmon, “Why Is an FT Subscription So Expensive?,” Reuters Counterparties Blog, May 3, 2012, http:​//blogs.reuters.com​ /felix-salmon ​/2012 ​/05​/03​/why-is-an-ft-subscription-so-expensive ​/ (“A standard online subscription [to the Financial Times] in the United States, which excludes the Lex column and a handful of other extras, shows up for some people as $4.99 a week. Others see $5.39, $5.75, $5.79, or $6.25.”); Anita Ramasastry, “Web Sites Change Prices Based on Customers’ Habits,” Law Center (blog), CNN International, June 24, 2015, http:​//edition.cnn.com​/2005​/ LAW​/06​/24​ /ramasastry.website.prices​/; Jennifer Valentino-DeVries et al., “Websites Vary Prices, Deals Based on Users’ Information,” Wall Street Journal, Dec. 24, 2012, http:​//www.wsj.com​/articles​/SB100014241278873237772045781893918138815 34; Aniko Hannak et al., “Measuring Price Discrimination and Steering on E-commerce Web Sites,” Nov. 5–7, 2014, http:​//www.ccs.neu.edu​/ home​/cbw​/pdf​ /imc151-hannak.pdf. 11. “Bezos calls Amazon experiment ‘a mistake,’” Puget Sound Business Journal, Sep 28, 2000. Available at http:​//www.bizjournals.com​/seattle​/stories​ /2000​/09​/25​/daily21.html. 12. See, e.g., Kara Brandeisky, “How to Beat Online Price Discrimination,” Money, Oct. 23, 2014, http:​//time.com​/money​/3534651​/price-discrimination -travelocity-orbitz-home-depot​/. 13. Dana Mattioli, “On Orbitz, Mac Users Steered to Pricier Hotels,” Wall Street Journal, Aug. 23, 2012. Available at http:​//online.wsj.com​/news​/articles​ /SB10001424052702304458604577488822667325882. 14. Adam Tanner, “Different Customers, Different Prices, Thanks To Big Data,” Forbes, Apr. 14, 2014. Available at http:​//www.forbes.com​/sites​/adamtanner​ /2014​/03​/26​/different-customers-different-prices-thanks-to-big-data/ 252

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(“Founded by Sam Odio, the former product manager of photos for Facebook, Freshplum does not charge anyone extra but promotes discounts to narrow categories such as specific geographic areas, repeat customers or those seen as unlikely to buy.”). 15. See, e.g, Hannak et al., “Measuring Price Discrimination.” 16. Orbitz presumably receives payment when users make purchases through its site, and Google similarly benefits at least indirectly from sales made through ads displayed with search results. But Orbitz competes more directly with Expedia, and Google more directly with Bing, than either does with any of the product or service providers about which they provide information. 17. Eugene Volokh and Donald M. Falk, “First Amendment Protection for Search Engine Search Results,” Google White Paper, Apr. 20, 2012, http:​// volokh.com ​/wp-content ​/uploads​/2012​/05​/SearchEngineFirstAmendment.pdf, 19. 18. Jean-Charles Rochet and Jean Tirole, “Two-Sided Markets: A Progress Report,” RAND Journal of Economics 37 (2006): 645–667; Jean-Charles Rochet and Jean Tirole, “Two-Sided Markets: An Overview,” Mar. 12, 2004, http:​//faculty.haas.berkeley.edu​/ hermalin ​/rochet_tirole.pdf. 19. See Dirk Auer and Nicolas Petit, “Two-Sided Markets and the Challenge of Turning Economic Theory into Antitrust Policy,” Antitrust Bulletin 60 (2015): 426–461; Alexi Alexandrov, George Deltas and Daniel F. Spulber, “Antitrust and Competition in Two-Sided Markets,” Journal of Comparative Law & Economics 7 (2011): 775–812; Richard Schmalensee and David S. Evans, “Industrial Organization of Markets with Two-Sided Platforms,” Comparative Policy International 3 (2007): 151–179. See also Rochet and Tirole, “Two-Sided Markets: A Progress Report.” 20. But see Alexander White, “Search Engines: Left Side Quality versus Right Side Profits,” International Journal of Industrial Organization 31 (2013): 690–701; Ioannis Lianos and Evgenia Motchenkova, “Market Dominance and Quality of Search Results in the Search Engine Market,” Discussion Paper No. 2012–036 (Tilburg Law and Economics Center), 2012, http:​//ssrn.com ​/abstract=2169343. 21. See James D. Ratliff and Daniel L. Rubinfeld, “Is There a Market for Organic Search Engine Results and Can Their Manipulation Give Rise to Antitrust Liability,” Journal of Competition Law & Economics 10 (2014): 526 (observing that a publisher will co-determine its organic content and advertising to maximize its profit). 22. “Algorithms,” Google Inside Search, https:​//www.google.com​ /insidesearch​/ howsearchworks​/algorithms.html (accessed Jan. 13, 2016). 23. Frank Pasquale, The Black Box Society: The Secret Algorithms That Control Money and Information (Cambridge: Harvard University Press, 2015). 24. Barry Schwartz, “Google’s Vince Update Produces Big Brand Rankings; Google Calls It A Trust ‘Change’,” Search Engine Land, May 5, 2009, http:​// searchengineland.com ​/google-searchs-vince-change-google-says-not-brand -push-16803. 25. It could have the opposite effect, though, as large brands are also 253

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purchasers of advertising on Google. Large brands, however, may devote a smaller portion of their advertising budget to Google ads. 26. Vanessa Fox, “Google Confirms ‘Mayday’ Update Impacts Long Tail Traffic,” Search Engine Land, May 27, 2010, http:​//searchengineland.com​ /google-confirms-mayday-update-impacts-long-tail-traffic-43054. 27. Google uses site quality to price its advertisements, too, so it is also possible that the sites that were moved down in the “organic” results would also have been priced out of Google’s advertising. 28. Jonathan Reuter, “Does Advertising Bias Product Reviews? An Analysis of Wine Ratings,” Journal of Wine Economics 4 (2009): 125–151. 29. See, e.g., David S. Evans and Richard Schmalensee, “The Antitrust Analysis of Multi-Sided Platform Businesses,” Coase-Sandor Institute for Law & Economics Working Paper No. 623, 2012, http:​//chicagounbound.uchicago .edu ​/cgi ​/viewcontent.cgi?article=1482&context=law_and_economics, 11 (“For antitrust an important and immediate implication of the multi-sided platform models is that an accurate analysis of the impact of any platform decision on consumer welfare must take into account all interdependent customer groups the platform serves.”), 20 (“Several authors have warned against basing judgments about market power on analysis of only a single side of a multi-sided platform.”). 30. An approach of this kind is advocated in Nicolo Zingales, “Product Market Definition in Online Search and Advertising,” Competition Law Review 9 (2013): 36–38. 31. An excellent exploration of this issue is Auer and Petit, “Two-Sided Markets,” 426–461. In fact, antitrust law has considered only one side of two-sided markets before. Radio stations are typical two-sided platforms, with listeners on one side and advertisers on the other. Yet in the wave of radio mergers in the 1990s, the Department of Justice’s review focused on the market for advertising. Maurice E. Stucke and Allen P. Grunes, “Why More Antitrust Immunity for the Media Is a Bad Idea,” Northwestern University Law Review 105 (2001): 1411; Newman, “Antitrust in Zero-Price Markets,” 189–195. 32. See, e.g., Ratliff and Rubinfeld, “Is There a Market for Organic Search Engine Results,” 517–541. 33. Typically, therefore, this practice is used when the price-discriminating seller has deeper pockets than its competitor, or sometimes when it can subsidize lower-priced sales with higher-priced ones where it faces less competition. 34. I used Firefox in its private-browsing mode. 35. Although it is possible that Google’s contractual arrangements with its advertisers prevent it from using information in the advertisements, Google presumably could obtain that information on its own. It is possible, however, that a robots.txt file on certain sites could cause Google not to crawl those sites for the relevant information. 36. Google authors have published some research that offers a different perspective on this issue. David X. Chan, Deepak Kumar, Sheng Ma, Jim Koehler, “Impact Of Ranking of Organic Search Results on the Incrementality of Search Ads,” Google, Mar. 9, 2012, http:​//static.googleusercontent.com​ 254

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/media​/research.google.com​/en​//pubs​/archive​/37731.pdf. However, that research addresses a different type of search, not one for prices on particular products. But it is certainly true that without knowing more about the Google search and advertising algorithms it is difficult to know what is happening here. See Pasquale, The Black Box Society. 37. There may be additional effects of zero prices that are not addressed here. John Newman briefly explores some of these issues in his recent article on the implications of zero prices for antitrust law. Newman, “Antitrust in Zero-Price Markets,”174–197. See also David S. Evans, “The Antitrust Economics of Free,” Competition Policy International 7 (2011): 71–89. Available at https:​//www.competitionpolicyinternational.com​/assets​/ Uploads​/ Evans-with -Cover.pdf. 38. This issue is discussed in Auer and Petit, “Two-Sided Markets,” 426– 461. 39. The distinction between search and experience characteristics was originated by Philip Nelson. Philip Nelson, “Information and Consumer Behavior,” Journal of Political Economy 78(2) (1970): 311–329; Philip Nelson, “Advertising as Information,” Journal of Political Economy 83 (1974): 729– 754. 40. Ibid. 41. The concept of credence goods was introduced in Michael R. Darby and Edi Karni, “Free Competition and the Optimal Amount of Fraud,” Journal of Law and Economics 16 (1973): 67–88. 42. Some of the reviews that do exist are peculiar. For example, a review entitled “The Top Ten Search Engines of 2015” listed these as the top ten: 1. USA.gov; 2. Wolfram Alpha; 3. Duck Duck Go; 4. LinkedIn; 5. Bing; 6. Facebook; 7. YouTube; 8. Twitter; 9. Pinterest; 10. Google. http:​//websearch .about.com ​/od ​/ Top-Ten-Lists​/ss​/Search-Engines-The-Top-Ten-of-2015 .htm#step11. Other reviews are more predictable. See, e.g., Paul Lilly, “Best Search Engine: Google, Bing, and DuckDuckGo Compared!,” MaximumPC, Nov. 18, 2015, http:​//www.maximumpc.com​/ best-search-engine-2014​/#page-3 (determining that Google is the best, but not ranking the other two). In arguing that consumers will recognize low-quality sites, James Ratliff and Daniel Rubinfeld point to the possibility of news-media recommendations. Their first example, though, is a 2012 article recommending Hipmunk as the best travel site. Ratliff and Rubinfeld, “Is There a Market for Organic Search Engine Results?,” 531 n. 39 (citing Bruce Upbin, “Why Hipmunk Is the World’s Best Travel Site,” Forbes, Jun. 29, 2012, http:​//www.forbes.com​/sites​/ bruceupbin​ /2012​/06​/29​/why-hipmunk-is-the-worlds-best-travel-site). Given the continuing relative obscurity of Hipmunk, this example does not suggest that these comparisons are very effective. 43. European Commission, “Comparison Tools: Report from the Multi-Stakeholder Dialogue: Providing Consumers with Transparent and Reliable Information,” report presented at the European Consumer Summit, Mar. 18–19, 2013. Available at http:​//ec.europa.eu​/consumers​/documents​ /consumer-summit-2013-msdct-report_en.pdf, 18–20 (discussing impartiality 255

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and financing), 21–22 (ranking methodology), 23 (search neutrality), 23–24 (personalized pricing), 24–26 (“quality of information”). 44. As Shapiro and Varian say, “[I]nformation is an experience good every time it’s consumed. How do you know whether today’s Wall Street Journal is worth 75 cents until you’ve read it? Answer: you don’t.” Information Rules, 5. 45. See Makoto Nakayama et al., “Has the Web Transformed Experience Goods Into Search Goods?,” Electron Markets 20 (2010): 251–262. 46. Pierre Zarokian, “Does Yelp Filter Positive Reviews if a Business Refuses to Pay for Advertising?,” Search Engine Journal, Apr. 10, 2014, http:​//www .searchenginejournal.com ​/yelp-filter-positive-reviews-business-refuses-pay -advertising​/98695​/. A federal court of appeals has held that such a practice, at least in some forms, is not “extortion,” but it did not consider an antitrust claim. Levitt v. Yelp! Inc., 765 F.3d 1123 (2014). 47. See Esben Sloth Andersen and Kristian Philipsen, “The Evolution of Credence Goods In Customer Markets: Exchanging ‘Pigs In Pokes,’” Jan. 10, 1998, https:​//www.researchgate.net​/publication​/267402623_The_evolution_of _credence_goods_in_customer_markets_exchanging_’pigs_in_pokes’. 48. Settlement Agreement, United States v. McGraw-Hill Companies, Inc., No. CV 13-007799-DOC (C.D. Cal. filed Feb. 4, 2013) and other cases, Annex 1, para. 9, http:​//www.justice.gov​/file​/338701​/download. 49. Michael Luca and Georgios Zervas, “Fake It Till You Make It: Reputation, Competition, and Yelp Review Fraud,” Jul. 20, 2015, http:​//people.hbs.edu​ /mluca​/fakeittillyoumakeit.pdf; Dina Mayzlin, Yaniv Dover and Judith ­Chevalier, “Promotional Reviews: An Empirical Investigation of Online Review Manipulation,” American Economic Review 104 (2014): 2421–2455. 50. Cyrus Farivar, “Yelp Sues Startup that Claims It Can Facilitate ‘All Positive Reviews,’” arstechnica, Feb. 17, 2015, http://arstechnica.com/tech-policy /2015/02/yelp-sues-startup-that-claims-it-can-facilitate-all-positive-reviews/. 51. Autorità Garante della Concorrenza e del Mercato (Italian Competition Authority), “Half a Million Fine Against Tripadvisor,” press release, Dec. 22, 2014, http:​//www.agcm.it ​/en ​/newsroom ​/press-releases​/2178-ps9345-half-a -million-fine-against-tripadvisor.html; Marnie Hunter, “TripAdvisor Scolded by UK Ad regulator for ‘Trust’ Claims,” CNN, Feb. 1, 2012. 52. “Timeline: Libor-fixing scandal,” BBC News, Feb. 6, 2013, http:​//www .bbc.com​/news​/ business-18671255; David Enrich et al., “U.S. Libor Probe Includes BofA, Citi, UBS,” The Wall Street Journal, Mar. 18, 2011, http:​//www .wsj.com​/articles​/SB10001424052748703818204576205991698548286. 53. Jamie McGeever, “TIMELINE-The FX market ‘fixing’ probe,” Reuters, Jun. 13, 2014, http:​//www.reuters.com​/article​/2014​/06​/13​/forex-fixing -idUSL5N0OU3B520140613; Information, United States v. Citicorp, No. 3:15CR78 (SRU) (D. Conn. filed May 20, 2015) (alleging that the conspiracy “began at least as early as December 2007 and continued until at least January 2013”). 54. George A. Akerlof and Robert J. Shiller, Phishing for Phools; The Economics of Manipulation and Deception (Princeton: Princeton University Press, 2015), 23–37. 256

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55. Carl Shapiro, “Consumer Information, Product Quality, and Seller Reputation,” Bell Journal of Economics 13 (1982): 20–35.

3. Information and Market Power 1. See, e.g., Rebel Oil Co., Inc. v. Atlantic Richfield Co., 51 F.3d 1421, 1439 (9th Cir. 1995) (“To justify a finding that a defendant has the power to control prices, entry barriers must be significant—they must be capable of constraining the normal operation of the market to the extent that the problem is unlikely to be self-correcting.”). 2. George A. Hay, “Market Power in Antitrust,” Antitrust Law Journal 60 (1992): 808 (“If we accept the notion that the point of antitrust is promoting consumer welfare, then it is clear why the concept of market power plays such a prominent role in antitrust analysis. If the structure of the market is such that there is little potential for consumers to be harmed, we need not be especially concerned with how firms behave because the presence of effective competition will provide a powerful antidote to any effort to exploit consumers.”). 3. F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447, 460–61 (1986); see also Mark R. Patterson, “The Role of Power in the Rule of Reason,” Antitrust Law Journal 68 (2000): 429–460. 4. Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and Its Practice, 3d ed. (St. Paul: West Publishing Co., 1994), 80–81. 5. One might argue that providers that deliver information for free would not have power under this measure even if the marginal cost of delivering the information is near zero. However, there are other ways of measuring what consumers “pay” for free information. See, e.g., Erik Brynjolfsson & Joo Hee Oh, “The Attention Economy: Measuring the Value of Free Digital Services on the Internet,” Proceedings of the Thirty-Third International Conference on Information Systems, Orlando, Florida, December 2012, http: // aisel.aisnet.org / cgi / viewcontent.cgi?article=1045&context=icis2012. 6. Hovenkamp, Federal Antitrust Policy, 81 (“Marginal costs and firm elasticity of demand are extraordinarily difficult to measure. For most markets, they cannot realistically be measured in the courtroom. Courts rely instead on the fact that there is a positive correlation between market share and market power.”). See, e.g., United States v. Aluminum Corp. of America, 148 F.2d 416 (2d Cir. 1945); Case 85​/ 76, Hoffmann-La Roche & Co. AG v Commission, [1979] ECR 461, ¶ 39 (“The existence of a dominant position may derive from several factors which, taken separately, are not necessarily determinative but among these factors a highly important one is the existence of very large market shares.”). 7. Hovenkamp, Federal Antitrust Policy, 81–82. 8. Ibid. 9. This point is explained by Judge Easterbrook: 257

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In many cases a firm’s share of current sales does indicate power. Sales may reflect the ownership of the productive assets in the business. Market power comes from the ability to cut back the market’s total output and so raise price; consumers bid more in competing against one another to obtain the smaller quantity available. When a firm (or group of firms) controls a significant percentage of the productive assets in the market, the remaining firms may not have the capacity to increase their sales quickly to make up for any reduction by the dominant firm or group of firms. In other cases, however, a firm’s share of current sales does not reflect an ability to reduce the total output in the market, and therefore it does not convey power over price. Other firms may be able, for example, to divert production into the market from outside. They may be able to convert other productive capacity to the product in question or import the product from out of the area. If firms are able to enter, expand, or import sufficiently quickly, that may counteract a reduction in output by existing firms. And if current sales are not based on the ownership of productive assets—so that entrants do not need to build new plants or otherwise take a long time to supply consumers’ wants—the existing firms may have no power at all to cut back the market’s output. To put these points a little differently, the lower the barriers to entry, and the shorter the lags of new entry, the less power existing firms have. When the supply is highly elastic, existing market share does not signify power. Ball Memorial Hospital, Inc. v. Mutual Hospital Insurance, Inc., 784 F.2d 1325, 1335 (7th Cir. 1986) (citations omitted) 10. These are circumstances like those described in the quotation from Ball Memorial Hospital. 11. Indiana Federation of Dentists, 460–461. 12. See Steven C. Salop, “The First Principles Approach to Antitrust, Kodak, and Antitrust at the Millennium,” Antitrust Law Journal 68 (2000): 187–202. 13. The value of approaches focused on market definition and market share has been a subject of recent debate. Cf. Louis Kaplow, “Why (Ever) Define Markets?,” Harvard Law Review 124 (2010): 437–515 with Gregory J. Werden, “Why (Ever) Define Markets? An Answer to Professor Kaplow,” Antitrust Law Journal 78 (2013): 729–746. 14. Gregory J. Werden, “The Relevant Market: Possible and Productive,” Antitrust Law Journal Online, Apr. 2014, http:​//www.americanbar.org​/content ​/dam ​/aba​/publishing​/antitrust_law_journal​/at_alj_werden.authcheckdam.pdf, at 2. 15. Indeed, trademark law provides for the protection of “certification marks.” 15 U.S.C. § 1127. 16. ICE Benchmark Administration, “Licensing and Distribution FAQs— LIBOR,” ver. 2.1, Feb. 2015, https:​//www.theice.com​/publicdocs​/ IBA _LICENSING_FAQ.pdf; https:​//www.theice.com ​/publicdocs​/ IBA_Master _Licence_Agreement_Usage_Historical.pdf. 258

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17. Commission Decision of 15 November 2011 in Case COMP​/39.592— Standard & Poor’s (summary at O.J. C 31​/8, 4.2.2012); Commission Decision of 20 December 2012 in Case COMP​/39.654—Reuters Instrument Codes (RICs) (summary at O.J. C 326​/4, 12.11.2013). 18. Ferdinand Rauch, “Advertising Expenditure and Consumer Prices,” Nov. 13, 2012, http:​//www.voxeu.org​/article​/advertising-and-consumer-prices; John E. Kwoka, Jr., “Advertising and the Price and Quality of Optometric Service,” American Economic Review 74 (1984): 211–216. 19. This has been an active area of inquiry in recent years. See, e.g., American Bar Association panel discussion, “Market Definition and Market Power in Distribution Markets,” July 27, 2015, http:​//shop.americanbar.org​/ebus​ /ABAEventsCalendar​/ EventDetails.aspx?productId=203252629. 20. Although the courts have sometimes not accepted arguments based on distribution channels, the focus is generally on whether a particular channel provides cost savings. PepsiCo, Inc. v. Coca-Cola Co, 315 F.3d 101, 108 (2d Cir. 2002) (describing Pepsi’s argument “that because the cost of [independent food distributors (IFDs)] is allegedly lower than bottlers, Coca-Cola—by controlling this distribution channel—has the opportunity to charge supracompetitive prices” but rejecting it because “because no evidence was proffered to establish that it is cheaper for Coca-Cola to deliver fountain syrup through IFDs than through other delivery methods”). 21. Varun Grover and Pardipkumar Ramanlal, “Six Myths of Information and Markets: Information Technology Networks, Electronic Commerce, and the Battle for Consumer Surplus,” MIS Quarterly 23 (1999): 470. As noted in the Introduction, this point is explored in more detail in Anna Bernasek and D. T. Mongan, All You Can Pay: How Companies Use Our Data to Empty Our Wallets (New York: Nation Books, 2015). 22. Toys “R” Us v. F.T.C., 221 F.3d 928 (7th Cir. 2000). 23. Ibid., 932. 24. Although some commentators argue that consumers will recognize low-quality sites, these claims are often made without citation or any explanation of how, or how effectively, consumers would do so for particular forms of information. See, e.g., James D. Ratliff and Daniel L. Rubinfeld, “Is There a Market for Organic Search Engine Results and Can Their Manipulation Give Rise to Antitrust Liability,” Journal of Competition Law & Economics 10 (2014): 531. 25. Kenneth J. Arrow, “Economic Welfare and the Allocation of Resources for Invention,” in The Rate and Direction of Inventive Activity: Economic and Social Factors (Princeton: Princeton University Press, 1962), 615. Available at http: ​//www.nber.org ​/chapters ​/c2144.pdf. 26. Ibid. 27. Ginger Jin, Michael Luca, and Daniel Martin, “Is No News (Perceived as) Bad News?: An Experimental Investigation of Information Disclosure,” Mar. 31, 2015, http:​//people.hbs.edu​/mluca​/ InformationDisclosure.pdf. 28. Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992). 259

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29. Ibid., 474. 30. Actually, it is not clear who were the “competitors” at issue in the LIBOR case. The individual banks provided the rate estimates, but it was the British Bankers’ Association (BBA), which administered LIBOR at the time, that used those estimates to create the LIBOR rate. There was no other organization in a comparable position to produce its own “LIBOR II,” which would have allowed comparison of the two rates. Moreover, given that the BBA included many of the largest international banks, it would have been impossible to create a comparable LIBOR II because the characteristics of the banks would not have been comparable. 31. It would have been conceivable for a bank to represent to another bank that it would be making a false estimate, but then, in fact, submit a correct estimate. 32. Carrick Mollenkamp and Mark Whitehouse, “Study Casts Doubt on Key Rate,” Wall Street Journal, May 29, 2008, http:​//www.wsj.com​/articles ​/SB121200703762027135. 33. Timothy Geithner, “Recommendations for Enhancing the Credibility of LIBOR FRBNY Markets and Research and Statistics Groups,” May 27, 2008, http:​//www.newyorkfed.org​/newsevents​/news​/markets​/2012​/ libor​/ June_1_2008 _LIBOR_recommendations.pdf. 34. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988). 35. Ibid., 501. 36. Complaint for Civil Money Penalties and Demand for Jury Trial. United States v. McGraw-Hill Cos., Inc., No. CV13-00779, (S.D.N.Y. Feb. 4, 2013), http:​//www.justice.gov​/iso​/opa​/resources​/849201325104924250796.PDF, ¶ 9. 37. Frank Pasquale, The Black Box Society: The Secret Algorithms That Control Money and Information (Cambridge: Harvard, 2015). 38. Ibid., 2 39. Ibid., 191. 40. Ibid., 162. 41. Ibid. 42. Ibid., 163. 43. Ibid., 95. 44. 682 F.2d 274 (1st Cir. 1982). 45. Ibid., 280. 46. 900 F.2d 566 (2d Cir. 1990). 47. Ibid., 570. 48. Ibid. 49. Moreover, this is the basis of the EU case against Google, providing some evidence that the concerns of competing vertical search engines also pose harm to consumers. 50. European Commission, “Antitrust: Commission Sends Statement of Objections to Google on Comparison Shopping Service,” Apr. 15, 2015, http:​// europa.eu​/rapid​/press-release_MEMO-15-4781_en.htm. 51. Ibid. 52. Eastman Kodak, 474. 260

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53. Ibid., 474 n.21 (quoting Howard Beales, Richard Craswell, and Steven C. Salop, “The Efficient Regulation of Consumer Information,” Journal of Law & Economics 24 (1981): 503–504, 506) (citations omitted). 54. For example, one can find conflicting views on likely genuineness of reviews on Yelp and TripAdvisor. One individual notes that “[u]nlike Yelp, TripAdvisor will not publish your review until it gets approved by the TripAdvisor team.” http: ​//www.rovingprofessor.com ​/ Roving ​/ Blogs​/ Entries​/2012 ​/3​/25 _Yelp_vs._TripAdvisor.html. This, he says “to make sure that no ‘false’ reviews make it on the site,” which he says “should indicate that a review on TripAdvisor is more authentic than one on Yelp.” As described in the previous chapter, though, others suggest that Expedia may be more reliable than TripAdvisor, because to post a review on Expedia, one needs to have made a booking on the site, while TripAdvisor does not have such a requirement. 55. George A. Akerlof and Robert J. Shiller, Phishing for Phools; The Economics of Manipulation and Deception (Princeton: Princeton University Press, 2015), 23–37. 56. This point was made in a UK case brought against Google by a map company that claimed it was excluded from the online market by Google’s conduct. Streetmap.EU Limited v Google Inc., [2016] EWHC 253 (Ch.). Although Google prevailed, the court’s response to a Google argument regarding the value of its reputation was instructive. The court noted Google’s response to the claim that the way it displayed results could distort competition: “Google sought to rebut the suggestion that this could distort competition in online maps on the basis that the ‘presentation bias’ merely reflected the confidence which consumers had in Google: they trusted Google to place the most relevant result at the top because, in summary, Google Search does such a good and careful job in ranking the answers it provides to a search query.” Ibid., ¶ 105. The court took a very different view: “The very fact that Google Search may have built up such confidence in its users only increases the effect which the positioning of the link to a related product may have in the related product market.” Ibid. 57. United States v. E.I. du Pont de Nemours and Co., 351 U.S. 377, 391 (1956). 58. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 (1994). 59. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993).

Part II. Information Problems and Antitrust: Distortion and Access 1. Carl Shapiro and Hal Varian, Information Rules: A Strategic Guide to the Network Economy (Boston: Harvard Business School Press, 1999), 159–162. 2. “The complexity of modern technologies, especially their system character, has led to a steady increase in the number and variety of standards that affect a single industry or market.” Gregory Tassey, “The Economic Nature of Knowledge Embodied in Standards for Technology-Based Industries,” in 261

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Routledge Handbook of the Economics of Knowledge, ed. Cristiano Antonelli & Albert N. Link (Abingdon: Routledge 2014), 189–190.

4. Agreements on Information 1. Sarbanes-Oxley Act of 2002, Pub. L. No. 107–204, 116 Stat. 745 (2002). 2. See generally Paul Hodgson, “My Big Fat Corporate Loan,” The Corporate Library, Dec. 2002, http:​//www.thecorporatelibrary.com​/company_research ​/reports​/ loanreport_120402.pdf. 3. Sen. Carl Levin, The Sarbanes-Oxley Ban on Insider Corporate Loans, 149 Cong. Rec. S 2178 (Feb. 11, 2003). An outline of the scanty legislative history of section 402 can be found in John T. Bostelman, The Sarbanes-Oxley Deskbook (Practising Law Institute, 2003), § 13:2.2. 4. The section is worded very broadly: It shall be unlawful for any issuer . . . ​to extend or maintain credit, to arrange for the extension of credit, or to renew an extension of credit, in the form of a personal loan to or for any director or executive officer (or equivalent thereof) of that issuer. An extension of credit maintained by the issuer on the date of enactment of this subsection shall not be subject to the provisions of this subsection, provided that there is no material modification to any term of any such extension of credit or any renewal of any such extension of credit on or after that date of enactment. Sarbanes-Oxley Act of 2002 § 402, Pub. L. No. 107–204, 116 Stat. 745, codified at 15 U.S.C. § 78m(k). 5. “Sarbanes-Oxley Act Interpretive Issues Under § 402—Prohibition of Certain Insider Loans,” Oct. 15, 2002, http:​//www.dorsey.com​/files​/upload​ /Sarbanes-Oxley.pdf. I discuss this position paper in more detail in Mark R. ­Patterson, “Law-Fixing: Should Lawyers Agree How to Interpret Statutes?,” May 5, 2004, http:​//papers.ssrn.com ​/sol3​/papers.cfm?abstract_id=555706. 6. The position paper does not analyze every possible type of loan, though, so of course it does not conclude that a straight loan would be permissible. And it does suggest that, under some circumstances, some of the loans it discusses could pose a risk of a Section 402 violation. 7. At least one attorney at a firm that is not one of the twenty-five has expressed some skepticism regarding the position paper’s view on loan forgiveness, discussed below: “Forgiveness of existing loans. While this might seem to be a classic example of a modification of an existing loan, the 25 Firms memo takes the position that forgiveness of a loan in place in July, 2002 is not prohibited by Section 402.” Justin G. Klimko, “The Impact of the Sarbanes-Oxley Act on Privately Held Companies,” http:​//www.butzel.com​/special​/Sarbanes%20 Oxley%20for%20Privately%20Held%20Companies.pdf, at 9. 8. 15 U.S.C. § 78m(k)(1). 9. “Sarbanes-Oxley Act Interpretive Issues Under § 402,” 12. 10. Ibid. 262

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11. See Gray Cary, “Gray Cary e-Alert: Sarbanes-Oxley Act of 2002 Casts Doubt on Legality of Cashless Exercise of Stock Options by Executive Officers and Directors,” Aug. 6, 2002, http:​//www.graycary.com​/gcc​/graycary-c/news --arti​/newsletter​/corpgov​/0208​/index.html (visited Nov. 8, 2003) (“Thus, for example, companies are prohibited from forgiving outstanding loans unless the terms of the loan in place on July 30, 2002 provide specifically for forgiveness.”). Sutherland, Asbill & Brennan LLP, “Legal Alert:Prohibition on Personal Loans to Directors and Executive Officers of Public Companies,” Oct. 8, 2002, http:​//www.sutherland.com​/portalresource​/ lookup​/poid  /Z1tOl9NPluKPt DNIqLMRV56Pab6TfzcRXncKbDtRr9tObDdEu4pDm0! /fileUpload.name=​ /ProhibitiononPersonalLoanstoDirectors.pdf (“A full forgiveness of the loan would constitute a material modification, but it would result in elimination of the loan, so it should not result in a violation of Section 402. It is far less clear how a partial forgiveness would be treated, however.”); Alston & Bird LLP, “Executive Compensation Issues Under Sections 402 and 403 of Sarbanes-­ Oxley,” Aug. 22, 2002, http:​//www.alston.com ​/ Files​/ Publication ​/af44e725 -1286-4a17-a45e-6e9a53d26df1​/ Presentation​/ PublicationAttachment​/f5432881 -688a-4f52-8d75-077aabe76a1a​/ Executive%20Compensation%20Issues.pdf (“An agreement to forbear from collection or an informal continuing failure to collect a delinquent loan likely would be considered a modification or extension of the loan in violation of Section 402.”) 12. In re Goodfellow and Molaris, File No. 3–12117, Dec. 1, 2005, https:​// www.sec.gov​/ litigation​/admin​/34-52865.pdf. The SEC stated that the defendant “claimed that the loans were ‘advances’ that were not prohibited by Section 13(k), but that section contains no exception for ‘advances’ and draws no distinction between ‘advances’ and loans.” This is arguably inconsistent with the position paper, which seeks to distinguish between the “personal loans” governed by Sarbanes-Oxley and other extensions of credit. 13. In my paper on this topic, I discuss possible procompetitive justifications for the position paper. Patterson, “Law-Fixing,” 12–14. 14. National Macaroni Manufacturers Association, 65 F.T.C. 583 (1964), enforced, 345 F.2d 421 (7th Cir. 1965). The court stated that the “Commission concluded that ‘where all or the dominant firms in a market combine to fix the composition of their product with the design and result of depressing the price of an essential raw material, they violate the rule against price-fixing agreements as it has been laid down by the Supreme Court.’” Ibid., 426. This might be read to treat the case as one of price-fixing, not of agreement on a product, but other cases support the latter interpretation. See, e.g., F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447, 452 (1986); Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980). Interestingly, Herbert Hovenkamp characterizes the agreement in the Macaroni case not as an agreement on what sort of pasta to produce but as one of “setting a product standard,” albeit with the goal of suppressing price. Herbert Hovenkamp, “Standards Ownership and Competition Policy,” Boston College Law Review 48 (2007): 92–93. That is, he characterizes it not as an (explicit) agreement on the ultimate product, pasta, but as one on information, a standard. 263

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15. “Laws, like sausages, cease to inspire respect in proportion as we know how they are made.” John Godfrey Saxe, University Chronicle. University of Michigan (Mar. 27, 1869). 16. “Sarbanes-Oxley Act Interpretive Issues Under § 402,” 12. 17. Ater Wynne LLP, “Ten HR Issues From 2002,” Dec. 12, 2002, http:​// www.aterwynne.com ​/resources​/ hrissues3.html. 18. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988). 19. Ibid., 496–497. 20. Ibid., 497. 21. Ibid., 509 (footnote omitted). 22. Ibid., 508. The Court also made the same point more generally: “Agreement on a product standard is, after all, implicitly an agreement not to manufacture, distribute, or purchase certain types of products.” Ibid., 500. 23. For example, in National Society of Professional Engineers v. United States, 435 U.S. 679 (1978), the Court described the claim as one that “members of the Society have unlawfully agreed to refuse to negotiate,” but the evidence to which it pointed was that “the District Court specifically found that the record ‘support[s] a finding that NSPE and its members actively pursue a course of policing adherence to the competitive bid ban through direct and indirect communication with members and prospective clients.’” Professional Engineers, 684 n.5 (quoting United States v. National Society of Professional Engineers, 389 F. Supp. 1193, 1200 (D.D.C. 1974)). The nature of those communications, however, was said by the district court to be “educational campaigns and personal admonitions to members and clients who were suspected of engaging in competitive bidding practices.” 389 F. Supp., 1200. If “educational campaigns” and “admonitions” are sufficient to transform speech into conduct, then it will be the rare case that is “predicated solely on protected speech.” 24. Schachar v. American Academy of Ophthalmology, Inc., 870 F.2d 397 (7th Cir. 1989). 25. Ibid., 400. 26. Clark C. Havighurst and Peter M. Brody, “Accrediting and the Sherman Act,” Law and Contemporary Problems 57 (1994): 199. 27. Ibid., 230. 28. Ruben Schellingerhout, “Standard-Setting from a Competition Law Perspective,” Competition Policy Newsletter 1 (2011): 3 (“Competition regulators pay attention to standard setting because legally a standard constitutes an agreement between companies.”). American Needle, Inc. v. National Football League, 560 U.S. 183, 195 (2010). 29. Michael J. de la Merced, “Q. and A.: Understanding Libor,” New York Times, July 10, 2012. Available at http:​//dealbook.nytimes.com​/2012​/07​/10​ /q-and-a-understanding-libor​/. 30. In re LIBOR-Based Financial Instruments Antitrust Litigation, 935 F. Supp. 2d 666, 688 (S.D.N.Y. 2013), vacated and remanded, Gelboim v. Bank of America Corp., No. 13-3565, (2d Cir. May 23, 2016). 31. Rambus, Inc. v. F.T.C., 522 F.3d 456 (D.C. Cir. 2008), was a monopoli264

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zation case, alleging that Rambus had misled a standard-setting body, JEDEC, regarding its patent interests in technologies that the organization was considering. The FTC alleged that “[h]ad Rambus fully disclosed its intellectual property, ‘JEDEC either would have excluded Rambus’s patented technologies from the JEDEC DRAM standards, or would have demanded RAND assurances [i.e., assurances of reasonable and non-discriminatory licensing terms], with an opportunity for ex ante licensing negotiations.” Ibid., 463 (quoting In re Rambus, Inc., Docket No. 9302 (FTC Jul. 31, 2006), 74). The court said that it “assume[d] without deciding that avoidance of the first of these possible outcomes was indeed anticompetitive,” but it said that was not enough: “[W]hile we can assume that Rambus’s nondisclosure made the adoption of its technologies somewhat more likely than broad disclosure would have, the Commission made clear in its remedial opinion that there was insufficient evidence that JEDEC would have standardized other technologies had it known the full scope of Rambus’s intellectual property.” Therefore, it said, the FTC had not made its case. This is a significantly higher standard than is typically applied. 32. It is worth noting, though, that some do view the process of standard-­ setting itself as a competitive one. The European Commission, for example, states that “[w]hile a standard is being developed, alternative technologies can compete for inclusion in the standard.” European Commission, “Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-operation Agreements,” 2011​/C 11​/01, ¶ 266. In some standard-setting contexts, the standard-setting process does indeed resemble a competition, with firms proposing different technologies for adoption. Particularly where an organization is considering alternative technologies for a standard in which only one technology can be chosen, firms may advocate for their preferred technologies, and that advocacy can be viewed as competition for acceptance by the standard-setting organization as a whole. But this “competition” is not exactly market competition, of course. Sometimes, where the standard-setting organization includes both sellers whose products are necessary for the standard and potential users of the standards who will have to buy those products, the process can look much like a market. This is the case, for example, in much standardization for which access to patented technologies will be required. In those instances, the standard-setting organization may consider the costs and benefits of particular technologies, so the process comes to resemble fairly closely actual market competition. Even then, though, there is not really a functioning market, but only, at most, an effort to simulate or predict what result a market would reach. In fact, the “competition” that occurs in standard-setting organizations is really competition for informational acceptance in a metaphorical “marketplace of ideas.” Typically, the victor will be determined more by right and wrong, or better and worse, than by supply and demand. It is true, though, that sometimes the competition in the standard-setting organization can also be distorted, as with the patent “ambushes” that will be discussed in Chapter 8. Schellingerhout, “Standard-Setting from a Competition 265

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Law Perspective,” 4 (“During the standard-setting process multiple technologies may compete for incorporation into the standard, but—as a result of the ambush—crucial information on the cost of one of the technologies is intentionally hidden.”). 33. Richard Wolfram, “In re LIBOR: ‘More Light, Please!’—Questions and Observations as the Decision Dismissing Antitrust Claims for Lack of Antitrust Injury Now Faces Appellate Review,” AntitrustConnect Blog, Jan. 28, 2015, http: ​//antitrustconnect.com ​/2015​/01​/28​/in-re-libor-more-light-please-questions -and-observations-as-the-decision-dismissing-antitrust-claims-for-lack-of -antitrust-injury-now-faces-appellate-review​/. 34. Gelboim v. Bank of America Corp., No. 13-3565, slip op. at 31 (2d Cir. May 23, 2016). 35. Ibid. (citing Maple Flooring Manufacturers’ Association v. United States, 268 U.S. 563, 582–583 (1925)). 36. The U.S. antitrust agencies’ Competitor Collaboration Guidelines state that collaborative agreements are often procompetitive when the participants “combine complementary technologies, know-how, or other assets to enable the collaboration to produce a good more efficiently or to produce a good that no one participant alone could produce.” Federal Trade Commission & U.S. Department of Justice, “Antitrust Guidelines for Collaborations Among Competitors,” Apr. 2000, § 3.31(a). This quotation comes from a section of the guidelines considering “Production Collaborations,” because in considering joint production of information, that seems the most appropriate category, though some standard-setting activities might also be considered as “Research & Development Collaborations.” However, the guidelines note that collaboration agreements need not be procompetitive if there are collateral anticompetitive agreements: “production collaborations may involve agreements on the level of output or the use of key assets, or on the price at which the product will be marketed by the collaboration, or on other competitively significant variables, such as quality, service, or promotional strategies, that can result in anticompetitive harm.” Ibid. 37. The nature of competition in the card industry is described in United States v. Visa U.S.A., Inc., 344 F.3d 229 (2d Cir. 2003). 38. An FTC report states that “[i]n markets characterized by asymmetric information about product quality (sellers know more about product quality than buyers), standards can provide significant benefits to purchasers by increasing and improving market information, and by reducing transaction costs that arise as a result of imperfect product information.” Federal Trade Commission, Bureau of Competition, Final Staff Report, Standards and Certification (Apr. 1983), 50. But the sellers and the buyers of the position paper are the same—lawyers—so there is no information asymmetry. A better justification, perhaps, is that “[b]y centralizing the results of costly research and development activity into a single document, standards can facilitate the transfer of technology throughout industries.” Ibid., 52. But preparation of the position paper did not obviously require “costly research . . . ​activity.” Instead, it presumably required legal analysis of the sort that law firms do every day without joining 266

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together to agree on their positions; it is not clear why the interpretive questions in this case required such an agreement. 39. Federal Trade Commission & U.S. Department of Justice, “Antitrust Guidelines for Collaborations Among Competitors,” § 3.31(a). 40. FTC, Standards and Certification, 49–58. 41. Ibid., 49–50. 42. Ibid., 50. 43. Mark R. Patterson, “Coercion, Deception, and Other Demand-­ Increasing Practices in Antitrust Law,” Antitrust Law Journal 66 (1997): 1–90. 44. Schachar, 399. 45. “When adopted by government entities, standards take on the force of law and significantly affect markets, i.e., they prohibit the purchase or use of noncomplying products.” FTC, Standards and Certification, 30. 46. Ibid., 30. 47. Mark R. Barron, Comment, “Creating Consumer Confidence or Confusion? The Role of Product Certification in the Market Today,” Marquette Intellectual Property Law Review 11 (2007): 418 (“The increase in the number, type, and uses of certification marks can be attributed in part to changes in global product safety and conformity assessment regulations.”) (citation omitted) 48. Allied Tube, 501. 49. Ibid., 506. 50. Ibid., 510–511. 51. Jane Gross, “In Lyme Disease Debate, Some Patients Feel Lost,” New York Times, Jul. 7, 2001. Available at http:​//www.nytimes.com​/2001​/07​/07​ /nyregion​/in-lyme-disease-debate-some-patients-feel-lost.html. 52. The 2006 IDSA guidelines reflect this position: There is no convincing biologic evidence for the existence of symptomatic chronic B. burgdorferi infection among patients after receipt of recommended treatment regimens for Lyme disease. Antibiotic therapy has not proven to be useful and is not recommended for patients with chronic (≥6 months) subjective symptoms after recommended treatment regimens for Lyme disease (E-I). Gary P. Wormser et al., “The Clinical Assessment, Treatment, and Prevention of Lyme Disease, Human Granulocytic Anaplasmosis, and Babesiosis: Clinical Practice Guidelines by the Infectious Diseases Society of America,” Clinical Infectious Diseases 43 (2006): 1094. 53. Holcomb B. Noble, “Lyme Doctors Rally Behind A Colleague Under Inquiry,” New York Times, Nov. 10, 2000. Available at http:​//www.nytimes .com ​/2000​/11​/10​/us​/ lyme-doctors-rally-behind-a-colleague-under-inquiry.html. 54. Compare Gary P. Wormser et al., “The Clinical Assessment, Treatment, and Prevention of Lyme Disease, Human Granulocytic Anaplasmosis, and Babesiosis: Clinical Practice Guidelines by the Infectious Diseases Society of America,” Clinical Infectious Diseases 43 (2006): 1089–1134, available at http:​//cid.oxfordjournals.org​/content​/43​/9​/1089.full.pdf+html, with Paul G. 267

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Auwaerter et al. “Lyme Disease Antiscience—Authors’ Reply,” The Lancet: Infectious Diseases 12 (2012): 362–363, available at http:​//www.lancet.com ​/journals​/ laninf​/article​/ PIIS1473-3099(12)70056-7​/fulltext; Lorraine Johnson, “LYMEPOLICYWONK: Full Disclosure. IDSA Enforces Its “Voluntary” Guidelines,” Lymepolicywonk Blog, Jun. 15, 2012, https:​//www.lymedisease .org ​/ lymepolicywonk-full-disclosure-idsa-enforces-its-voluntary-guidelines​/. 55. Joseph Burrascano, Determination and Order, BPMC #01–265, State of New York Department of Health, Nov. 2, 2001). Available at http:​//w3.health .state.ny.us​/opmc​/factions.nsf​/58220xa7f9eeaafab85256b180058c032  /7f57f08d61de929c85256a4a0047c6da7f57f08d61de929c85256a4a0047c6da  /$FILE​/ATTIDOPD​/ lc145623.pdf. 56. In the Lyme case, for example, the Connecticut attorney general noted that “United Healthcare, Health Net, Blue Cross of California, Kaiser Foundation Health Plan and other insurers have used the [original IDSA] guidelines as justification to deny reimbursement for long-term antibiotic treatment.” Connecticut Attorney General’s Office, “Attorney General’s Investigation Reveals Flawed Lyme Disease Guideline Process, IDSA Agrees To Reassess Guidelines, Install Independent Arbiter” (press release), May 1, 2008, http:​// www.ct.gov​/ag​/cwp​/view.asp?a=2795&q=414284. 57. Allied Tube, 510 n.13. 58. F.T.C. v. Ticor Title Insurance Co., 504 U.S. 621 (1992). If the state does not delegate power to private parties, but instead itself takes the action at issue, this active supervision requirement does not apply, at least if it is the state acting as sovereign that takes the action. See Hoover v. Ronwin, 466 U.S. 558 (1984); see generally American Bar Association, Handbook on Antitrust Aspects of Standard Setting (Chicago: ABA Book Publishing, 2005), 149–152. Thus, whether the active supervision requirement would apply could require case-bybase determination. Even where it does not apply, though, the implication is not that the standard-setting is precompetitive, only that the state has chosen to displace competition. 59. In re American Society of Sanitary Engineering, F.T.C. Docket No. 3169, 106 F.T.C. 324 (Oct. 3, 1985). 60. Ibid., 331. 61. Ibid., 328. 62. Ibid., 326. 63. Ibid. 64. FTC, Standards and Certification, 15. 65. American Society of Sanitary Engineering, 326. 66. Commission Decision Rejecting a Complaint, EMC​/European Cement Producers, Case COMP​/ F-2​/38.40, Sept. 28, 2005. 67. Ibid., ¶ 89. 68. Ibid., ¶ 51. 69. European Commission, “Guidelines on the Applicability of Article 101 to Horizontal Co-operation Agreements,” ¶ 266 (emphasis added). 70. Consolidated Metal Products, Inc. v. American Petroleum Institute, 846 F.2d 284 (5th Cir. 1988). 268

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71. Ibid., 296. 72. The agencies both in the United States and EU focus on the portion of the product market that consists of products that comply with the standard. European Commission, “Guidelines on the Applicability of Article 101 to Horizontal Co-operation Agreements,” ¶ 296 (“To assess the effects of a standard-setting agreement, the market shares of the goods or services based on the standard should be taken into account.”) (emphasis removed); Federal Trade Commission & U.S. Department of Justice, “Antitrust Guidelines for Collaborations Among Competitors,” § 3.33 (“In assessing whether an agreement may cause anticompetitive harm, the Agencies typically calculate the market shares of the participants and of the collaboration.”). However, that conflates power in the product market with power in the information market in which the standard itself competes. 73. Havighurst and Brody, “Accrediting and the Sherman Act,” 236. 74. Archana Venkatraman, “Competing Standards Could Damage Cloud Industry, Warns APM Group,” Computer Digest, Dec. 11, 2012, http:​//www .computerweekly.com​/news​/2240174262​/Competing-standards-could-damage -cloud-industry-warns-APM-group. 75. FTC, Standards and Certification, 29. 76. See Fair World Project, Fair Trade Certifiers & Membership Orgs, http:​// fairworldproject.org​/overview​/movements​/fair-trade​/certifiers-membership-orgs​/. 77. Darren A. Prum et al., “In Third Parties We Trust? The Growing Antitrust Impact of Third-Party Green Building Certification Systems for State and Local Governments,” Journal of Environmental Law and Litigation 27 (2012): 191. 78. Ibid.; Jessica Alfano, “Can We (Anti)Trust LEED?: An Analysis of the Antitrust Implications for the Green Building Movement,” Boston College Environmental Affairs Law Review 41 (2014): 427–454. See also Pola Karolczyk, “Product Certification—The Next Big Standard-Setting Debate?,” Kluwer Competition Law Blog, Mar. 14, 2013, http: // kluwercompetitionlawblog.com /2013/03/14/product-certification-the-next-big-standard-setting-debate/. 79. Havighurst and Brody, “Accrediting and the Sherman Act,” 230. 80. Ibid. 81. FTC, Standards and Certification, 20–21. 82. The FTC’s complaint does not state how many members the ASSE had, but it does say that the “ASSE’s membership consists of plumbers, plumbing equipment manufacturers, plumbing designers, plumbing contractors, plumbing inspectors, sanitary inspectors, health officers, architects, and engineers.” American Society of Sanitary Engineering, ¶ 1. 83. Allied Tube, 501. 84. Ibid., 500. 85. Ibid., 501. 86. It is fair to say, though, that the U.S. Supreme Court has been ambivalent about procedural protections as a determinant of antitrust liability. Compare Silver v. New York Stock Exchange, 373 U.S. 341 (1963) with Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co., 472 269

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U.S. 284 (1985). Following Silver’s reliance on a procedural approach, one standard-setting case took that approach, but its decision was vacated, to be reconsidered in light of Northwest Stationers. Moore v. Boating Industry Associations 754 F.2d 698 (7th Cir. 1985), vacated by Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co., 472 U.S. 284 (1985). On remand, the court abandoned the procedural approach. 819 F.2d 693 (7th Cir. 1987). On the other hand, the Allied Tube decision came subsequent to Northwest Stationers, so it appears to revive a procedural approach, at least for standard-setting activities. 87. Hovenkamp, “Standards Ownership and Competition Policy,” 91. 88. Institute of Medicine, “Clinical Practice Guidelines We Can Trust,” 2011, http:​//www.nap.edu​/catalog ​/13058​/clinical-practice-guidelines-we-can -trust. This study found a wide variety of problems regarding evidence used. “For example, in a study of practice bulletins from the American College of Obstetricians and Gynecologists, just 29 percent of recommendations were supported by ‘good and consistent scientific evidence.’” Ibid., 20 (quoting Chauhan et al., 2006, p. 94). And this is in medicine; it seems unlikely that standards would be of better quality in other areas. 89. Ibid., 24–25. 90. This difference between performance and design criteria is a widely recognized and long-established one. FTC, Standards and Certification, 14. In its report, the FTC noted the importance and competitive effects of this distinction under the heading “Standards actions that exclude products that are equivalent in performance under actual use conditions to products not excluded”: In several of the complaints presented during the rulemaking proceeding, standards actions which impeded the marketability of products equivalent in performance under actual use conditions to products not excluded were challenged by the affected producers as unjustified. In each of these complaints the producer presented technical evidence that supported its allegation, while the standards developer did not provide a persuasive justification for the restriction. Ibid., 70. 91. 19 U.S.C. § 2532. 92. 15 U.S.C. § 272, note. There is an exception to this requirement where doing so “is inconsistent with applicable law or otherwise impractical.” Ibid. 93. Office of Management and Budget, Circular No. A-119 (Feb. 10, 1998). Moreover, private bodies apply similar rules. For example, following the Supreme Court case against the American Society of Mechanical Engineers, the society adopted new rules for its processes: The most striking changes affect the Society’s handling of codes and standards interpretations. All such interpretations must now be reviewed by at least five persons before release; before, the review of only two people was necessary. Interpretations are available to the public, with 270

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replies to nonstandard inquiries published each month in the Codes and Standards section of ME or other ASME publications. Previously, such responses were kept between the inquirer and the involved committee or subcommittee. Lastly, ASME incorporates printed disclaimers on the letterhead used for code interpretations, spelling out their limitations: that they are subject to change should additional information become available and that individuals have the right to appeal interpretations they consider unfair. Regarding conflict-of-interest, ASME now requires all staff and volunteer committee members to sign statements pledging their adherence to a comprehensive and well-defined set of guidelines regarding potential conflicts. Additionally, the Society now provides all staff and volunteers with copies of the engineering code of ethics along with a publication outlining the legal implications of standards activities. Engineering.com, ASME vs Hydrolevel, http:​//www.engineering.com​/ Library​ /ArticlesPage​/tabid​/85​/ArticleID​/68​/ASME-vs-Hydrolevel.aspx. 94. Connecticut Attorney General’s Office, “Attorney General’s Investigation Reveals Flawed Lyme Disease Guideline Process.” 95. Ibid. 96. Ibid.; see “An Agreement Between the Attorney General of the State of Connecticut and the Infectious Diseases Society of America,” Apr. 30, 2008, http:​//www.ct.gov​/ag ​/ lib​/ag ​/ health ​/idsaagreement.pdf. 97. Carol J. Baker, MD, et al, “Final Report of the Lyme Disease Review Panel of the Infectious Diseases Society of America (IDSA),” Apr. 22, 2010, http:​//www.idsociety.org​/uploadedFiles​/ IDSA​/ Topics_of_Interest​/ Lyme_Disease​ /IDSALymeDiseaseFinalReport.pdf. 98. Abraham & Veneklasen Joint Venture v. American Quarter Horse Association (AQHA), 776 F.3d 321 (5th Cir. 2015). 99. Ibid., 325, quoting Hatley v. American Quarter Horse Association, 552 F.2d 646, 654 (5th Cir. 1977). 100. American Needle, Inc. v. National Football League, 560 U.S. 183, 195 (2010). 101. American Quarter Horse Association, 329. 102. Ibid., 332. 103. American Society of Mechanical Engineers v. Hydrolevel Corp., 456 U.S. 556 (1982). 104. Ibid., 566–567. 105. Joined cases 96–102, 104, 105, 108 and 110​/82, N V IAZ International Belgium v. Commission, 1983 ECR 3369. 106. Ibid., 3399. 107. See Mark R. Patterson, “Who Is Responsible for Libor Rate-Fixing?,” Harvard Law School Forum on Corporate Governance and Financial Regulation, Dec. 26, 2013, http:​//blogs.law.harvard.edu ​/corpgov​/2013​/12​/26​/who-is -responsible-for-libor-rate-fixing ​/.

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5. Exclusion by Information 1. Michael Luca et al., “Does Google Content Degrade Google Search? Experimental Evidence,” Harvard Business School Working Paper 16–035, Oct. 2, 2015, http:​//ssrn.com​/abstract=2667143. Two other, dramatically different approaches to the “search bias” issue can be found in Benjamin Edelman & Benjamin Lockwood, “Measuring Bias in ‘Organic’ Web Search, http: // www .benedelman.org / searchbias/, and Joshua D. Wright, “Defining and Measuring Search Bias: Some Preliminary Evidence,” Nov. 3, 2011, http: // papers.ssrn.com / sol3 / papers.cfm?abstract_id=2004649. 2. Luca et al., “Does Google Content Degrade Google Search?,” 4, 40–41. 3. The source of these alternative results was a plugin for Google’s browser Chrome: Our main treatment uses data from a Chrome Browser Extension called Focus on the User—Local (FOTU), which was designed to detect Local OneBoxes and perform alternative searches for results from online review websites. Upon detecting a Local OneBox in Google search results, FOTU conducted a search for links to third party local review websites (such as Yelp, TripAdvisor, and ZocDoc). FOTU then extracted and ranked results from these websites (as well as from Google’s review content), according to a combination of Google’s organic ranking, the business’s average star rating, and the number of reviews. Ibid., 23. 4. Ibid., 25–26. The authors find that the apparent source of the users’ preference for the alternative was the inclusion of greater numbers of reviews in the alternatives’ results. Ibid., 26–27. 5. Statement of the Federal Trade Commission Regarding Google’s Search Practices, In re Google Inc., F.T.C. File Number 111–0163, Jan. 3, 2013, https:​// www.ftc.gov​/system ​/files​/documents​/public_statements​/295971​/130103 googlesearchstmtofcomm.pdf. 6. This secrecy is the focus of the “Hidden Logics of Search” portion of Frank Pasquale, The Black Box Society: The Secret Algorithms That Control Money and Information (Cambridge: Harvard, 2015), 59–100. 7. In the discussion below, I point out that the Luca et al. study does not exclude the possibility that Google in fact is providing the best results, at least in a sense. 8. As described in Chapter 3, an important determinant of market power is whether competing firms have the capacity to respond if a single large firm behaves anticompetitively. 9. Lorain Journal Co. v. United States, 342 U.S. 143 (1951). 10. Ibid., 147. 11. Ibid., 148. 12. Ibid., 149–50, 153. 13. In Lorain Journal, the distortion of the market involved a lessening of the ability of the competing radio to deliver its advertising to consumers. In that 272

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sense, it was a denial of information, but the content of the information was not central to the competitive issue. 14. United States v. Grinnell Corp., 384 U.S. 563 (1966), 570–571. 15. Article 102 TFEU. 16. Home Placement Service, Inc. v. Providence Journal Co., 682 F.2d 274 (1st Cir. 1982). 17. Ibid., 278. 18. Ibid., 279. 19. Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004), 409 (emphasis in original). 20. The same sort of injury could have been at issue in Lorain Journal if advertisers had sued. 21. The prior case was Homefinders of America, Inc. v. Providence Journal Co., 621 F.2d 441 (1st Cir. 1980). 22. Home Placement Service, 278. 23. Ibid., 281. 24. Statement of the Federal Trade Commission Regarding Google’s Search Practices, In re Google Inc. 25. Ibid. 26. Kent Walker “Improving Quality Isn’t Anticompetitive,” Google Europe Blog, Aug. 27, 2015, http:​//googlepolicyeurope.blogspot.com​/2015​/08​/improving -quality-isnt-anti-competitive.html (“But the [European Commission’s Statement of Objections] doesn’t provide a clear legal theory to connect its claims with its proposed remedy.”) 27. In the paper by Luca et al., the authors present three alternative formulations for the conduct element: “naked exclusion,” “neglect of less restrictive alternatives,” and “sacrifice of product quality.” Luca et al., “Does Google Content Degrade Google Search?,” 29. The first and third can be seen as restatements of the test used here, with “naked exclusion” describing instances of exclusion with no justification and “sacrifice of product quality” also revealing the lack of a legitimate business justification. A “less restrictive alternative” test is more often applied in the context of anticompetitive agreements, rather than unilateral conduct, though a comparable test is applied in Europe. European Commission, Guidance on the Commission’s Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings, 2209​/C 45​/02, O.J. C 45, Feb. 24, 2009, ¶28 (“In this context, the Commission will assess whether the conduct in question is indispensable and proportionate to the goal allegedly pursued by the dominant undertaking.”). See C. Scott Hemphill, “Less Restrictive Alternatives in Antitrust Law,” Columbia Law Review 116 (2016): 963-968, 970-973 (arguing for application of the less-restrictive-alternative test to derive inferences about intent and pretext, issues relevant to unilateral conduct). 28. Phillip E. Areeda and Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application, vol. 3A, 2d ed. (New York: Aspen Law & Business, 2002), 273. 29. Ibid., 274. 273

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30. Ibid. The test was adopted from an earlier version of the treatise in National Association of Pharmaceutical Manufacturers, Inc. v. Ayerst Laboratories, 850 F.2d 904, 916 (2d Cir. 1988) (quoting Phillip E. Areeda and Donald F. Turner, Antitrust Law: An Analysis of Antitrust Principles and Their Application, vol. 3 (1978) ¶ 738a, at 279); American Professional Testing Service, Inc. v. Harcourt Brace Jovanovich Legal and Professional Publications, Inc., 108 F.3d 1147, 1152 (9th Cir. 1997) (same). 31. F.T.C. v. Procter & Gamble Co., 386 U.S. 568 (1967). 32. The Court appeared to view efficiencies as a factor militating for condemnation of a merger, rather than against. 33. Procter & Gamble, 579. 34. Twin Laboratories, Inc. v. Weider Health & Fitness, 900 F.2d 566 (2d Cir. 1990). 35. American Professional Testing Service, Inc. v. Harcourt Brace Jovanovich Legal and Professional Publications, Inc., 108 F.3d 1147 (9th Cir. 1997). 36. Ibid., 1150. 37. Ibid. 38. Or, of course, anonymous statements might be discounted as well. Presumably Harcourt’s use of anonymity suggested, however, its view that anonymity would make the statements more powerful. 39. Harcourt, 1152. 40. Ibid. 41. Novartis Corp. v. F.T.C., 223 F.3d 783 (D.C. Cir. 2000). 42. Areeda and Hovenkamp, Antitrust Law, 273. 43. Some aspects of the ratings and reviews (R&R) industry are discussed in an opinion resulting from the merger of two firms offering R&R platforms for web sites. United States v. Bazaarvoice, Inc., (N.D. Calif. Jan. 8, 2014), http:​// www.justice.gov​/file​/488846​/download. 44. Competition Bureau, press release, “Bell Canada Reaches Agreement with Competition Bureau over Online Reviews,” Oct. 14, 2015, http: // www .competitionbureau.gc.ca / eic / site / cb-bc.nsf / eng / 03992.html. 45. Ibid. 46. Pepsico, Inc. v. Coca-Cola Co., 114 F. Supp. 2d 243 (S.D.N.Y. 2000), affirmed, 315 F.3d 101 (2d Cir. 2002). 47. Pepsico appeals court opinion, 105. Independent food service distributors are outlets that supply a wide variety of products needed by restaurants, theater chains, and similar food sellers. Because they provide many different goods, they allow food sellers to use “one-stop shopping” and its consequent cost savings. 48. The simple fact of choosing to use only one site would not prevent another from being reasonably interchangeable. But if a consumer were to become familiar with a particular site, so that switching to another required sacrificing some ability to make effective use of the site, a narrow market definition would be possible. In fact, the sites do have peculiarities that require some adaptation. 49. Pepsico district court opinion, 248–249. 274

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50. Ibid, citing Belfiore v. New York Times Co., 654 F. Supp. 842, 846 (D. Conn.1986), affirmed, 826 F.2d 177 (2d Cir. 1987); AD​/SAT, Div. of Skylight Inc. v. Associated Press, 920 F. Supp. 1287, 1298 (S.D.N.Y. 1996), affirmed, 181 F.3d 216, 227 (2d Cir. 1999). 51. Ibid. 52. Michael Luca, “Reviews, Reputation, and Revenue: The Case of Yelp. com,” Harvard Business School Working Paper 12–016, Sept. 16, 2011, http:​// papers.ssrn.com ​/sol3​/papers.cfm?abstract_id=1928601. 53. Michael Luca and Georgios Zervas, “Fake It Till You Make It: Reputation, Competition, and Yelp Review Fraud,” Jul. 20, 2015, http:​//people.hbs.edu​ /mluca​/fakeittillyoumakeit.pdf. 54. See, e.g., David Streitfeld, “Carpet Bombing: How One Business Is Trying to Get Rid of Bad Reviews,” New York Times, Jan. 16, 2014, available at http:​//bits.blogs.nytimes.com​/2014​/01​/16​/carpet-bombing-how-one-business -is-trying-to-get-rid-of-bad-reviews​/; Channaly Oum, “Help, It’s Yelp!,” Epoch Times, May 2, 2014, http:​//www.theepochtimes.com​/n3​/653074-help-its-yelp​/. 55. Yelp, Inc. v. Hadeed Carpet Cleaning, Inc., 752 S.E.2d 554 (Va. App. 2014), vacated, 770 S.E.2d 440 (Va. 2015). 56. Yelp v. Hadeed, 558. 57. Levitt v. Yelp! Inc., 765 F.3d 1123 (9th Cir. 2014). 58. The strategy of “raising rivals’ costs” is a well-recognized means of exclusion in antitrust. Steven C. Salop and David T. Scheffman, “Raising Rivals’ Costs,” American Economic Review 73 (1983): 267–271; Thomas G. Krattenmaker and Steven C. Salop, “Anticompetitive Exclusion: Raising Rivals’ Costs to Achieve Power over Price,” Yale Law Journal 96 (1986): 209–293; David T. Scheffman and Richard S. Higgins, “Twenty Years of Raising Rivals’ Costs: History, Assessment, and Future,” George Mason Law Review 12 (2003): 371–387. 59. Megan Woolhouse, “A five-star rating on TripAdvisor, but he wants out,” Boston Globe, May 4, 2016, available at https: // www.bostonglobe.com /business/2016/05/03/five-star-rating-tripadvisor-but-wants-out/eSzFF9X JUUCvjZXUEdS6RO / story.html; see also Constance Gustke, “A Bad Review Is Forever: How to Counter Online Complaints,” New York Times, Dec. 9. 2015, http: // www.nytimes.com/2015/12/10/business/smallbusiness/small -business-counter-bad-reviews.html. 60. Michael Luca, “Reviews, Reputation, and Revenue: The Case of Yelp. com,” Harvard Business School Working Paper 12–016, Sept. 11, 2011, http:​// www.hbs.edu ​/faculty​/ Pages​/download.aspx?name=12-016.pdf. 61. Woolhouse, “A five-star rating on TripAdvisor, but he wants out.” 62. Channaly Oum, “Help, It’s Yelp!” 63. It is a requirement of an attempt to monopolize claim, though, so a review site that has not yet achieved monopoly power would likely escape liability in this context. 64. Luca and Zervas, “Fake It Till You Make It.” 65. Levitt v. Yelp! Inc., 765 F.3d 1123 (9th Cir. 2014). 66. Lorain Journal, 155. 275

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67. That is true even for evaluation of a “legitimate business purpose,” which is usually treated as meaning “provides competitive benefits.” 68. Aimee Picchi, “Yelp Sues Companies Promising Positive Reviews,” CBS Moneywatch, Feb. 19, 2015, http:​//www.cbsnews.com​/news​/yelp-sues -companies-promising-positive-reviews​/. 69. James Grimmelmann argues that a standard of “subjective falsity” should apply to the evaluation of search engines results. James Grimmelmann, “Speech Engines,” Minnesota Law Review 98 (2014): 922–932. In making this claim, though, he relies on the view that “Google holds out to the world that its rankings attempt to maximize relevance.” Ibid., 929. That establishes, ­Grimmelmann says, a criterion for evaluation the “falseness” of Google’s results. It is not entirely clear, however, whether “relevance” is a well-defined term, at least outside Google. Google might, for example, argue that the results consumers preferred in the Luca et al. study are not in fact the most relevant, as discussed in the text. And if the standard that Grimmelmann is proposing is one that exists only inside Google, so that “relevance” is a synonym for “what we do,” then the criterion is really one of deviation from Google’s established practice. That could be called “subjective falsity,” but it might be more satisfactory to focus specifically on process rather than ­substance. 70. Kinderstart.com, LLC v. Google, Inc., Case No. C 06–2057 JF (RS), 2007 WL 831806 (N.D. Cal. 2007), http:​//www.wsgr.com​/attorneys​/ BIOS ​/ PDFs​/ kinderstart_google.pdf (organic results); TradeComet.com LLC v. Google, Inc., 693 F. Supp. 2d 370 (S.D.N.Y. 2010), affirmed, Case No. 10-911-cv (2d Cir. July 26, 2011) (AdWords). 71. Autorité de la Concurrence, press release (English version), Dec. 14, 2010, available at http://www.autoritedelaconcurrence.fr/user/standard.php?id _rub=368&id_article=1514. 72. Ibid. 73. David Segal, “Fake Online Locksmiths May Be Out to Pick Your Pocket, Too,” New York Times, January 30, 2016, http://www.nytimes.com/2016/01/31 /business/fake-online-locksmiths-may-be-out-to-pick-your-pocket-too.html. 74. You can try this yourself, but if you are not in a large city, prices sometimes do not appear. In New York between May and July 2016, the price that appeared in multiple ads was $15. 75. Mark R. Patterson, “Google and Search-Engine Market Power,” Harvard Journal of Law & Technology Occasional Paper Series, July 2013, http:​//jolt.law.harvard.edu​/antitrust​/articles​/ Patterson.pdf. 76. Ibid., 15–22. 77. “Low-quality” results here should be read to mean results that do not conform to Google’s own criteria. These results would be those that are “subjectively false” in James Grimmelmann’s analysis. Grimmelmann, “Speech Engines.” 78. Ibid., 21. 79. U.S. Department of Justice and the Federal Trade Commission, “Horizontal Merger Guidelines,” § 4.1.2 (“The Agencies most often use a SSNIP of 276

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five percent of the price paid by customers for the products or services to which the merging firms contribute value.”), Aug. 19, 2010. 80. RE​/MAX International, Inc. v. Realty One, Inc., 173 F.3d 995, 1018 (6th Cir. 1999) (“We agree that an antitrust plaintiff is not required to rely on indirect evidence of a defendant’s monopoly power, such as high market share within a defined market, when there is direct evidence that the defendant has actually set prices or excluded competition.”). 81. European Commission, “Antitrust: Commission Obtains from Google Comparable Display of Specialised Search Rivals” (press release), Feb. 5, 2014, http:​//europa.eu​/rapid​/press-release_IP-14-116_en.htm. 82. David Segal, “Fake Online Locksmiths.” 83. Richard Wray, “Search for Answers to Google’s Power Leaves UK Internet Firm Baffled,” The Guardian, Aug. 17, 2009. Available at http:​//www .theguardian.com ​/ business​/2009​/aug ​/17​/google-search-baffles-internet-firm; Mike O’Brien, “Fallout From Panda Update Already Starting to Show,” Search Engine Watch, July 24, 2015, http:​//searchenginewatch.com​/sew​/news​/2419293​ /fallout-from-panda-update-already-starting-to-show#; Chris Crum, “Google Algorithm Update Casualties Speak,” http: // www.webpronews.com/google -algorithm-update-casualties-speak-2011-03/. 84. Mark R. Patterson, “Manipulation of Product Ratings: Credit-Rating Agencies, Google, and Antitrust,” CPI Antitrust Chronicle, April 2012, available at https: // www.competitionpolicyinternational.com/manipulation -of-product-ratings-credit-rating-agencies-google-and-antitrust/; Daniel Fisher, “Should Regulators Treat Google Like Standard & Poor’s?,” Forbes (Sept. 29, 2011), available at http: // www.forbes.com/sites/danielfisher/2011/09/29 /should-regulators-treat-google-like-standard-poors (presenting my argument). 85. Pub. L. No. 111-203, Dodd–Frank Wall Street Reform and Consumer Protection Act § 932(a)(8), codified at 15 U.S.C. § 78o–7(r)(2)(A). The rules adopted by the SEC basically restate this requirement. See 17 C.F.R. § 240.17g-8(a)(3)(i) (requiring “[t]hat material changes to the procedures and methodologies, including changes to qualitative and quantitative data and models, the nationally recognized statistical rating organization uses to determine credit ratings are . . . [a]pplied consistently to all current and future credit ratings to which the changed procedures or methodologies apply”). 86. 15 U.S.C. § 78o–7(r)(2)(C); 17 C.F.R. § 240.17g-8(a)(4). 87. Patterson, “Manipulation of Product Ratings.” 88. See, e.g., Antitrust Law Developments (Sixth), vol. 2, ed. Jonathan M. Jacobson et al. (Chicago: ABA Book Publishing, 2007), 300-01 (“Most courts apply a burden-shifting regime, requiring defendants to provide a legitimate business justification for their conduct after a plaintiff establishes an anticompetitive effect.” (footnote omitted). Mark S. Popofsky, “Defining Exclusionary Conduct: Section 2, the Rule of Reason, and the Unifying Principle Underlying Antitrust Rules,” Antitrust Law Journal 73 (2006): 439 (noting that in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985, the leading Supreme Court monopolization case, “the defendant failed to establish a justification”) (emphasis in original). 277

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89. Luca et al., “Does Google Content Degrade Google Search?” 90. Grimmelmann argues that the FTC “asked the right question (‘Did Google adjust its algorithms for the purpose of sending users to less relevant sites?’) and came to a defensible answer (‘No.’).” James Grimmelmann, “Speech Engines,” 935. But there are really two right questions. One is, as Grimmelmann says, whether adjusted its search algorithms to send users to less relevant sites, and it is that question that the FTC answered correctly. Another question, however, is whether Google applied a testing scheme in a way that produced the “relevance” answers that it want to receive, and whether the FTC answered (or asked) that question is not clear from its statement. 91. Ibid., 868–952. 92. Grimmelmann argues that “[i]f there is one thing everyone can agree on in the search bias debate, it is that the sine qua non of search results is relevance.” Ibid., 913. This may not be true, or may not always be true, though, in that Google might disclaim relevance. But Grimmelmann’s argument works with any external reference point, such as, for example, the absence of anticompetitive influence. 93. Ibid., 934–936. 94. Ibid., 926–931.

6. “Confusopoly” and Information Asymmetries 1. Jakob Eg Larsen, Kristian Kristensen, Reuben Edwards, and Paul Coulton, “Mobile Users: Comparing Trends in Denmark and Britain,” 2008, http:​//www2.imm.dtu.dk​/pubdb​/views​/edoc_download.php​/5714​/pdf​/imm5714 .pdf. 2. John E. Kwoka, Jr., “Advertising and the Price and Quality of Optometric Services,” The American Economic Review 74 (1984): 211–216. 3. Ashley Halsey III, “Transparency Sought on Airline Baggage Fees,” Washington Post, Sept. 30, 2014. Available at http:​//www.washingtonpost.com​ /blogs​/dr-gridlock ​/wp​/2014​/09​/30​/transparency-sought-on-airline-baggage-fees/. A trade group, the Open Allies for Airfare Transparency, describes the problem: “The ability to easily compare prices and schedules allows consumers to make better-informed choices, saves substantial search costs, and leads to better product and price offerings for consumers. Consumers lose the benefits of the comparative shopping experience when they are unable to transact services using the indirect channel.” Ibid. 4. In their recent critique of mandated disclosure, Omri Ben-Shahar and Carl E. Schneider list many of them: Vast stretches of consumer-protection law mandate disclosures. ­Mortgages, savings accounts, checking accounts, retirement accounts, credit cards, pawnshops, and rent-to-own plans are subject to disclosure mandates. Health law abounds in disclosures—in informed consent, drug labeling, research regulation, health insurance, living wills, and 278

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medical privacy. Mandated disclosures adorn food labels, travel tickets, leases, copyright warnings, time-share agreements, house sales, store return policies, school enrollment and graduation data, college crime reports, flight-safety announcements, parking-garage stubs, product and environmental hazards, and care and home repairs. Omri Ben-Shahar and Carl E. Schneider, More than You Wanted to Know: The Failure of Mandated Disclosure, (Princeton: Princeton University Press, 2014), 4. 5. Federal Trade Commission, FTC Policy Statement on Deception, Part II, Oct. 14, 1983, https:​//www.ftc.gov​/public-statements​/1983​/10​/ftc-policy -statement-deception. 6. Toys “R” Us v. F.T.C., 221 F.3d 928 (7th Cir. 2000), affirming In re Toys “R” Us, F.T.C. Docket No. 9278 (F.T.C. Oct. 14, 1998). 7. Opinion of the Commission [Public Record Version] 2, In re Toys “R” Us, F.T.C. Docket No. 9278 (F.T.C. Oct. 14, 1998), available at https: // www.ftc .gov / sites / default / files / documents / cases / 1998 / 10 / toyspubl_0.pdf, affirmed, 221 F.3d 928 (7th Cir. 2000). 8. Ibid., 38. 9. Ibid. 10. TRU used the horizontal agreement to ensure that the sellers would agree: It worked for over a year and a half to put the vertical agreements in place, but “the biggest hindrance TRU had to overcome was the major toy companies’ reluctance to give up a new, fast-growing, and profitable channel of distribution.” The manufacturers were also concerned that any of their rivals who broke ranks and sold to the clubs might gain sales at their expense, given the widespread and increasing popularity of the club format. To address this problem, the Commission found, TRU orchestrated a horizontal agreement among its key suppliers to boycott the clubs. The evidence on which the Commission relied showed that, at a minimum, Mattel, Hasbro, Fisher Price, Tyco, Little Tikes, Today’s Kids, and Tiger Electronics agreed to join in the boycott “on the condition that their competitors would do the same.” Toys “R” Us appeals court opinion, 932 (quoting FTC Opinion) (emphasis in court option). 11. Ibid., 936. 12. Toys “R” Us FTC Opinion, 40. 13. Toys “R” Us appeals court opinion, 937. 14. Toys “R” Us FTC Opinion, 10. 15. Ibid. 16. Ibid. 17. Ibid., 15–26. 18. Ibid., 22–28, notes 23 & 24. 19. TRU argued that it provided valuable services to toy manufacturers, and 279

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that if its prices could be undercut by free-riding warehouse clubs, it would be unable to provide those services, to the detriment of both the manufacturers and, presumably, consumers. But the FTC pointed out that TRU was compensated by the manufacturers, so that free-riding was not a problem: TRU provides several services that might be important to consumers. These include advertising, carrying an inventory of goods early in the year, and supporting a full line of products. But the evidence indicates that the manufacturers compensate TRU for advertising toys, storing toys made early in the year, and stocking a broad line of each maker’s toys under one roof. Given TRU’s hard bargaining with the toy companies over prices and other terms of sale, and due to the industry’s desire to support TRU, TRU has consistently been able to extract subsidies, discounts, and other concessions from the toy companies that enable TRU to provide the services the toy industry wants. Toys “R” Us FTC Opinion, 41. 20. Tim Wu, “Why Airlines Want to Make You Suffer,” The New Yorker, Dec. 26, 2014. Available at http:​//www.newyorker.com​/ business​/currency​ /airlines-want-you-to-suffer (“The airlines, and some economists, argue that the rise of the fee model is good for travellers. You only pay for what you want, and you can therefore save money if you, for instance, don’t mind sitting in middle seats in the back, waiting in line to board, or bringing your own food.”). Air travelers might even benefit in other ways, with one commentator arguing that they force travelers to travel lighter, which reduces stress. “Airline Baggage Fees: Sky-High Profits,” The Economist, May 5, 2015. Available at http:​//www .economist.com ​/ blogs​/gulliver​/2015​/05​/airline-baggage-fees. 21. Tim Wu, “Why Airlines Want to Make You Suffer.” 22. Omri Ben-Shahar and Schneider, More than You Wanted to Know, 5. 23. Oren Bar-Gill, Seduction by Contract: Law, Economics, and Psychology in Consumer Markets (Oxford: Oxford University Press, 2012). 24. Ibid., 23–25; see also Oren Bar-Gill, “Competition and Consumer Protection: A Behavioral Economics Account,” NYU Law and Economics Research Paper No. 11–42, Dec 19, 2011, http:​//ssrn.com​/abstract=1974499. 25. In addition to the work by Ben-Shahar and Schneider discussed below, another critique, though one that sounds a more hopeful note regarding the potential of disclosure, is Archon Fung, Mary Graham & David Weil, Full Disclosure: The Perils and Promise of Transparency (Cambridge: Cambridge University Press, 2007). See also Clifford Winston, “The Efficacy of Information Policy: A Review of Archon Fund, Mary Graham and David Weil’s ‘Full Disclosure: The Perils and Promise of Transparency’,” Journal Economic Literature 46 (2008): 704–717. 26. Omri Ben-Shahar and Schneider, More than You Wanted to Know. 27. Ibid., 12. 28. Eastman Kodak Company v. Image Technical Services, Inc., 504 U.S. 451 (1992). 29. Mark R. Patterson, “Product Definition, Product Information, and 280

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Market Power: Kodak in Perspective,” North Carolina Law Review 73 (1994): 185–254. 30. In fact, the claim as initially presented was in fact closer to the position here than was the claim as it reached the Supreme Court, in that the original claim treated the equipment as the tying product. 31. Justice Scalia emphasized Kodak’s imposition of the tie after the initial sale of the equipment: Had Kodak—from the date of its entry into the micrographic and photocopying equipment markets—included a lifetime parts and service warranty with all original equipment, or required consumers to purchase a lifetime parts and service contract with each machine, that bundling of equipment, parts, and service would no doubt constitute a tie under the tests enunciated in Jefferson Parish. Nevertheless, it would be immune from per se scrutiny under the antitrust laws because the tying product would be equipment, a market in which (we assume) Kodak has no power to influence price or quantity. Eastman Kodak, 490–491 (Scalia, J., dissenting). The point in the text is that the tie actually increased uncertainty in the equipment market. Whether the degree of uncertainty with the tie was sufficient to bring tying law into play is unclear, but the increase in uncertainty arises even if the existence of the tie is known. 32. Office of Fair Trading v. Ashbourne Management Services Ltd., [2011] EWHC 1237 (Ch). 33. Enterprise Act 2002 and Unfair Terms in Consumer Contracts Regulations 1999. 34. Ashbourne, ¶ 164. 35. Ibid., ¶ 173. 36. Although the Enterprise Act 2002 is the UK legislation that implements competition law, the particular provisions that the Office of Fair Trading relied upon in the case were those that provide for enforcement actions against any “Community infringement,” which “is an act or omission which harms the collective interests of consumers” and which violates an EU directive as given effect in the UK. The directives to which the court referred were the Unfair Contract Terms Directive and the Unfair Business Practices Directive. Thus, although the concern, as with competition law, was harm to consumers, the case was arguably more in the nature of consumer law than competition law. 37. Ashbourne, ¶ 137–138. 38. C. Scott Hemphill and Tim Wu, “Parallel Exclusion,” Yale Law Journal 122 (2013): 1182–1253. 39. Christopher R. Leslie, “Tying Conspiracies,” William and Mary Law Review 48 (2007): 2247–2312. 40. Massimo Motta and Alexandre de Steel, “Excessive Pricing in Competition Law: Never say Never?,” in The Pros and Cons of High Prices (Stockholm: Swedish Competition Authority, 2007): 23–24. Available at http:​//www 281

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.konkurrensverket.se​/globalassets​/english ​/research ​/the-pros-and-cons-of-high -prices-14mb.pdf. 41. OECD Directorate for Financial and Enterprise Affairs, Competition Committee, “The Interface Between Competition and Consumer Policies,” DAF​ /COMP​/GF(2008). Available at http:​//www.oecd.org​/regreform​/sectors​ /40898016.pdf, Jun. 5, 2008: 177–178. The confusopoly problem is presented in the mobile context is presented in Joshua Gans, “Real Consumers and Telco Choice: The Road to Confusopoly,” Presentation to the Australian Telecommunications Summit, Nov. 21, 2005, http:​//www.powershow.com​/view​ /105181-ZGI0M​/Real_Consumers_and_Telco_Choice_The_Road_to _Confusopoly_powerpoint_ppt_presentation. See also, Joshua Gans, “The Road to Confusopoly,” https:​//www.accc.gov.au​/system​/files​/ Joshua%20Gans %20%28slides%29%20-%20The%20Road%20to%20Confusopoly.pdf. 42. Bar-Gill, Seduction by Contract, 108 (quoting Duncan McDonald, former general counsel of Citigroup’s European and North American card businesses). 43. Ibid., 107–110, 240–246. 44. That is so, at least, if the charges for the basic airfare go down when the fees for other services are unbundled. 45. Rebecca Haw Allensworth, “The Commensurability Myth in Antitrust,” Vanderbilt Law Review 69 (2106): 1–69. 46. The analogy between tying like that in Kodak and distribution restraints has been emphasized in Thomas C. Arthur, “‘Formalistic Line Drawing’: Exclusion of Unauthorized Servicers from Single Grand Aftermarkets under Kodak and Sylvania,” Journal of Corporation Law 24 (1999): 603–639. 47. Brantley v. NBC Universal, Inc., 675 F.3d 1192 (9th Cir. 2012). 48. S.912—Television Consumer Freedom Act of 2013,113th Congress (2013–2014). 49. Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus and Giroux, 2011); Daniel Kahneman and Amos Tversky, “Prospect Theory: An Analysis of Decision Under Risk” Econometrica 47 (2) (1979): 263–292. 50. A collection of essays on behavioral economics in the law is The Law and Economics of Irrational Behavior, eds. Francesco Parisi and Vernon L. Smith (Stanford: Stanford University Press, 2005). 51. Avishalom Tor, “Understanding Behavioral Antitrust,” Texas Law Review 92 (2014): 573–667; Avishalom Tor and William J. Rinner, “Behavioral Antitrust: A New Approach to the Rule of Reason after Leegin,” University of Illinois Law Review 2011 (2011): 805–864; Amanda P. Reeves and Maurice E. Stucke, “Behavioral Antitrust,” Indiana Law Journal 86 (2011): 1527–1586. 52. Reeves and Stucke, for example, list “the endowment effect—when we demand much more to give up and sell an object than what we would be willing to pay to acquire that object”; “status quo bias—when the choice of default option impacts the outcome”; “anchoring effects—how a randomly chosen standard may subsequently influence a judgment on the same task”; “availability heuristic—when we assess the probability of an event by asking whether relevant examples come readily to mind”; “representative heuristic—when we 282

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ignore the ‘base rates and overestimate the correlation between what something appears to be and what something actually is’”; “overconfidence bias—where, for example, executives in several behavioral studies were overconfident in their ability to manage a company, systematically underestimated their competitors’ strength, and were prone to self-serving interpretations of reality (such as taking credit for positive outcomes, and blaming the environment for negative outcomes)”; “optimistic bias—when we believe that good things are more likely (and bad things less likely) than average to happen to us”; and “hindsight bias—our tendency to increase the likelihood of an event’s occurrence after learning that it actually did occur.” Reeves and Stucke, “Behavioral Antitrust,” 1534–1535. 53. Joshua D. Wright and Judd E. Stone II, “Misbehavioral Economics: The Case Against Behavioral Antitrust,” Cardozo Law Review 33 (2012): 1517– 1586. A compelling review of Wright’s writings in this area is Max Huffman, “Commissioner Wright and Behavioral Antitrust,” The Antitrust Source, Apr. 2013, http:​//www.americanbar.org ​/content​/dam ​/aba​/publishing​/antitrust _source​/apr13_papertrail.authcheckdam.pdf. 54. Samuel Issacharoff, Disclosure, Agents, and Consumer Protection, Journal of Institutional and Theoretical Economics 167 (2011): 56. An article considering the consumer-protection implications in Europe of some of these behavioral economics issues is Willem H. van Boom, “Price Intransparency, Consumer Decision Making and European Consumer Law,” Journal of Consumer Policy 34 (2011): 359–376. 55. Others have made the same argument. For example, in the insurance context, Daniel Schwarz argues that “the intended audience of full disclosure includes consumer-oriented magazines and journalists, consumer advocates, academics, sophisticated consumers, and government actors” who will “scrutinize the relevant data” and “inform the public of their findings.” Daniel Schwarz, “Transparently Opaque: Understanding the Lack of Transparency in Insurance Consumer Protection,” UCLA Law Review 61 (2014): 394. 56. I have also argued against the value of information intermediaries more generally, and more polemically. Mark R. Patterson, “On the Impossibility of Information Intermediaries,” July 2001, http:​//papers.ssrn.com​/sol3​/papers .cfm?abstract_id=276968. 57. Ben-Shahar and Schneider, More than You Wanted to Know, 13. 58. Ibid., 190. 59. WeHostels Blog, “Why You Won’t Get Screwed Over by Airline Fees This Year,” http:​//blog.wehostels.com ​/price-transparency​/.

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7. Privacy as an Information Product 1. Matthew Panzarino, “Apple’s Tim Cook Delivers Blistering Speech on Encryption, Privacy,” TechCrunch, June 2, 2015, http:​//techcrunch.com​/2015​ /06​/02​/apples-tim-cook-delivers-blistering-speech-on-encryption-privacy​/# .xkojkd:Qepb. See also Natasha Singer, “Sharing Data, but Not Happily,” New York Times, B1 Jun. 5, 2015. Available at http:​//www.nytimes.com​/2015​/06​/05​ /technology​/consumers-conflicted-over-data-mining-policies-report-finds .html?_r=0. 2. Panzarino, “Apple’s Tim Cook Delivers Blistering Speech.” 3. Some firms that would not necessarily be labelled as “information providers,” like providers of email services, also gather private consumer information. The focus here, however, will be on information providers like search engines and shopping sites, i.e., sites that provide market information to consumers. 4. James C. Cooper, “Privacy and Antitrust: Underpants Gnomes, The First Amendment, and Subjectivity,” George Mason Law Review 20 (2013): 1135– 1138; Giacomo Luchetta, “Is the Google Platform A Two-Sided Market?,” Apr. 30, 2012, http:​//ssrn.com​/abstract=2048683. 5. Accenture Interactive—Today’s Shopper Preferences, Nov. 22, 2012, http:​ //www.thelbma.com ​/files​/317-Accenture-Interactive-Survey.pdf. 6. Joseph Turow, Michael Hennessy, and Nora Draper, “The Tradeoff Fallacy: How Marketers Are Misrepresenting American Consumers and Opening Them Up to Exploitation,” Annenberg School for Communication— University of Pennsylvania, June 2015, https:​//www.asc.upenn.edu​/sites​/default​ /files​/ TradeoffFallacy_1.pdf; see also Joseph Turow, Jennifer King, Chris Jay Hoofnagle, Amy Bleakley and Michael Hennessey, “Contrary to What Marketers Say, Americans Reject Tailored Advertising and Three Activities that Enable It,” Sept. 2009, https:​//www.eff.org​/files​/turow_king_hoofnagle_2010_0.pdf. 7. Margrethe Vestager, “Competition in a Big Data World” (speech), Jan. 17, 2016, https:​//ec.europa.eu​/commission​/2014-2019​/vestager​/announcements​ /competition-big-data-world_en. 8. Although different definitions of the information of concern for privacy purposes are used in different jurisdictions, notably the United States and the EU, here the term “personal information” is used generally to mean information about an individual provided by that individual to an organization. 9. Geoffrey Manne and Ben Sperry contest this view, arguing that “claims that concentration will lead to a ‘less-privacy-protective structure’ for online activity are analytically empty.” Geoffrey A. Manne and R. Ben Sperry, “The Problems and Perils of Bootstrapping Privacy and Data into an Antitrust Framework,” CPI Antitrust Chronicle (May 2015): 2–11. Available at https:​// www.competitionpolicyinternational.com ​/the-problems-and-perils-of -bootstrapping-privacy-and-data-into-an-antitrust-framework ​/. 10. Maureen K. Ohlhausen and Alexander P. Okuliar, “Competition, Consumer Protection, and the Right [Approach] to Privacy,” Antitrust Law Journal 80 (2015): 121–156. 284

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11. Federal Trade Commission, “Data Brokers: A Call for Transparency and Accountability”, May 2014. Available at https:​//www.ftc.gov​/system​/files​ /documents​/reports​/data-brokers-call-transparency-accountability-report-federal -trade-commission-may-2014​/140527databrokerreport.pdf. 12. Ibid., 3. 13. Ibid., 13. 14. Ibid., 19. 15. Ibid., 28. 16. A broader economic survey of privacy is Alessandro Acquisti, Curtis Taylor, and Liad Wagman, “The Economics of Privacy,” Mar. 18, 2015, http:​// papers.ssrn.com ​/sol3​/papers.cfm?abstract_id=2580411. 17. Ohlhausen and Okuliar, “Competition, Consumer Protection, and the Right [Approach] to Privacy,” 37 (“Most of the proposals to use competition law to address privacy are concerned about mergers or acquisitions by data-rich companies that combine previously separate pools of information about consumers. They contend the combination of data itself raises a privacy concern warranting intervention, rather than arguing that the transaction reduces privacy as a non-price attribute of competition or that it will create undue power in the market for consumer data.”). 18. Peter Swire, “Protecting Consumers: Privacy Matters in Antitrust Analysis,” Center for American Progress, Oct. 19, 2007, https:​//www .americanprogress.org ​/issues​/regulation ​/news​/2007​/10​/19​/3564​/protecting -consumers-privacy-matters-in-antitrust-analysis​/. 19. Ibid.; Nathan Newman, “The Costs of Lost Privacy: Consumer Harm and Rising Income Inequality in the Age of Google,” William Mitchell Law Review 40 (2014): 849–888. 20. Manne and Sperry, ibid., 4–5. See also Joshua D. Wright, “How to Regulate the Internet of Things Without Harming Its Future: Some Do’s and Don’ts” (speech), May 21, 2015, https:​//www.ftc.gov​/system​/files​/documents​ /public_statements​/644381​/150521iotchamber.pdf, 11–12. 21. To be sure, it is not clear that there is a deadweight loss because buyers may not know that they are being exploited and thus may not cease using the services at issue, but there is no need for such a loss to present an antitrust issue. A merger that raised prices would still be anticompetitive, even if all buyers continue to purchase at the higher price. 22. A somewhat different concern is expressed by Maureen Ohlhausen and Alexander Okuliar: “[I]f the traditional antitrust analysis is modified to allow for subjective determinations of harm to consumer privacy, it could result in differential treatment among mergers—the outcome of each depending heavily on the identity of the reviewers and their unique perceptions of privacy—and as between mergers and other forms of data accumulation with similar privacy implications.” Ohlhausen and Okuliar, “Competition, Consumer Protection, and the Right [Approach] to Privacy,” 36–37. 23. Joseph Farrell, “Can Privacy Be Just Another Good,” Journal on Telecommunications and High Technology Law 10 (2012): 253. 24. U.S. Department of Justice and the Federal Trade Commission, Horizontal 285

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Merger Guidelines, Aug. 19, 2010, https:​//www.ftc.gov​/sites​/default​/files​ /attachments​/merger-review​/100819hmg.pdf, 2 (“Enhanced market power can also be manifested in non-price terms and conditions that adversely affect customers, including reduced product quality, reduced product variety, reduced service, or diminished innovation. Such non-price effects may coexist with price effects, or can arise in their absence.”). 25. J. R. Hicks, “Annual Survey of Economic Theory: The Theory of Monopoly,” Econometrica 3 (1935): 8. 26. Manne and Sperry, “The Problems and Perils of Bootstrapping Privacy and Data,” 4. 27. Maurice E. Stucke and Allen P. Grunes, “Why More Antitrust Immunity for the Media Is a Bad Idea,” Northwestern University Law Review 105 (2001): 1411. 28. Statement of Federal Trade Commission Concerning Google​/ DoubleClick 2–3, FTC File No. 071-0170, Dec. 20, 2007, http:​//www.ftc.gov​/os ​/caselist​/0710170​/071220statement.pdf. 29. Dissenting Statement of Commissioner Pamela Jones Harbour, In re Google​/ DoubleClick, F.T.C. File No. 071-0170, Dec. 20, 2007, http:​//www.ftc .gov​/os​/caselist ​/0710170​/071220harbour.pdf. 30. Margrethe Vestager, “Competition in a Big Data World.” 31. Case No. COMP​/ M.7217, Facebook​/ WhatsApp, http:​//ec.europa.eu​ /competition ​/mergers​/cases​/decisions​/m7217_20141003_20310_3962132 _EN.pdf (Oct. 3, 2014). 32. Tom Brewster, “Meet Datacoup—The Company That Wants to Help You Sell Your Data,” The Guardian, Sept. 5, 2014. Available at http:​//www .theguardian.com ​/technology​/2014​/sep​/05​/datacoup-consumer-sell-data-control -privacy-advertising. 33. Microsoft, “Search Bing. Earn free rewards,” https:​//www.bing.com ​/explore​/rewards. 34. Katherine J. Strandburg, “Free Fall: The Online Market’s Consumer Preference Disconnect,” University of Chicago Legal Forum 2013: 95–172; see also Newman “The Costs of Lost Privacy.” 35. Strandburg, “Free Fall,” 131 (“Most importantly, the debate has virtually ignored the fact that it is nearly impossible for a consumer to estimate the increment in expected harm associated with a given instance of data collection.”). 36. Ibid., 132. More specifically, Strandburg lists the sort of information that consumers lack: First, users lack information about the types of harms that may arise from data collection, the prevalence of those harms, and their costs. ­Second, users lack detailed and useful information about company practices involving data collection, storage, and use. Third, users lack information about how any given instance of data collection fits into the data about them that is already flowing in the online ecosystem. Ibid., 133. 286

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37. Ibid., 167. 38. Frank Pasquale, “Privacy, Antitrust, and Power,” George Mason Law Review 20 (2013): 1016. 39. Ibid., 1019. 40. FTC, Data Brokers, ibid., 50. 41. Ibid. 42. Statement of the Federal Trade Commission Regarding Google’s Search Practices, In the Matter of Google Inc., FTC File Number 111–0163, Jan. 3, 2013, https:​//www.ftc.gov​/system ​/files​/documents​/public_statements​/295971​ /130103googlesearchstmtofcomm.pdf. 43. Concurring and Dissenting Statement of Commissioner J. Thomas Rosch Regarding Google’s Search Practices, In the Matter of Google Inc., FTC File Number 111-0163, Jan. 3, 2013, https:​//www.ftc.gov​/sites​/default​/files​ /documents​/public_statements​/concurring-and-dissenting-statement-commissioner -j.thomas-rosch-regarding-googles-search-practices​/130103googlesearchstmt .pdf. 44. Ibid., 1 n. 1. 45. Ibid. 46. Ohlhausen and Okuliar, “Competition, Consumer Protection, and the Right [Approach] to Privacy,” 15. 47. Ibid., 39–40. 48. Natasha Singer, “Sharing Data, But Not Happily,” (quoting Joseph Turow). 49. Polly Sprenger, “Sun on Privacy: ‘Get Over It,’” Wired, Jan. 26, 1999, http: // archive.wired.com / politics / law / news / 1999 / 01 / 17538. 50. http:​//www.howtogeek.com ​/113513​/5-alternative-search-engines-that -respect-your-privacy​/. 51. See Jonathan B. Baker, “Mavericks, Mergers, and Exclusion: Providing Coordinated Competitive Effects Under the Antitrust Laws,” New York University Law Review 77 (2002): 135–203. 52. Rick Broida, “Six Browser Plug-Ins That Protect Your Privacy,” Computer World, Oct. 17, 2014, http:​//www.computerworld.com​/article​/2692560​ /six-browser-plug-ins-that-protect-your-privacy.html. 53. Singer, “Sharing Data, But Not Happily” (“The potential risk of inferior treatment is one reason that an increasing number of Internet users are downloading Ghostery, a free plug-in that allows consumers to see and control online tracking by data brokers, advertising networks and other third parties.”). 54. Reed Albergotti, Alistair Barr, and Elizabeth Dwoskin, “Why Some Privacy Apps Get Blocked From the Android Play Store,” Wall Street Journal, Aug. 28, 2014. Available at http:​//blogs.wsj.com​/digits​/2014​/08​/28​/why-some -privacy-apps-get-blocked-from-the-android-play-store​/. 55. Alistair Barr, “App Maker Files EU Complaint Against Google, Alleging Abuse of Android Dominance,” Wall Street Journal, Jun. 1, 2015, http://www .wsj.com/articles/app-maker-files-eu-complaint-against-google-alleging-abuse -of-android-dominance-1433204706. 56. This is the central topic of Anna Bernasek and D. T. Mongan, All You 287

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Can Pay: How Companies Use Our Data to Empty Our Wallets (New York: Nation Books, 2015). 57. Singer, “Sharing Data, But Not Happily.” 58. Manne and Sperry, “The Problems and Perils of Bootstrapping Privacy and Data,” 6–8. See also Executive Office of the President of the United States, Big Data and Differential Pricing (Feb. 2015). Available at https:​// www.whitehouse.gov​/sites​/default ​/files​/docs​/ Big_Data_Report_Nonembargo _v2.pdf. 59. Scott McCartney, “Absurd Airfare-Pricing System Leads To Confusion, Irritation for Travelers,” Wall Street Journal, Apr. 17, 2002. Available at http:​// www.wsj.com​/articles​/SB1018960058246050560​/. 60. Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013). 61. Nathan Newman, “Search, Antitrust and the Economics of the Control of User Data,” Yale Journal on Regulation 30 (3) (2014): 1–73. Available at http:​//papers.ssrn.com ​/sol3​/papers.cfm?abstract_id=2309547##. 62. United States v. Microsoft Corp., 253 F.3d 34, 56 (D.C. Cir. 2001). 63. Harrison Jacobs, “Former Myspace CEO Explains Why Facebook Was Able to Dominate Social Media Despite Coming Second,” Business Insider, May 9, 2015, http:​//www.businessinsider.com​/former-myspace-ceo-explains-why -facebook-was-able-to-dominate-social-media-despite-coming-second-2015-5; Paul Armstrong, “Facebook Too Big to Fail? Three Warnings from Myspace,” The Guardian, July 29, 2014. Available at http:​//www.theguardian.com​/media​ /2014​/jul ​/29​/facebook-myspace-lessons-social-media-zuckerberg (“[T]here has never been an entity like Facebook before, playing a pivotal role in the lives of its 829 million daily users.”). 64. As EU Commissioner Vestager has asked: “We also need to ask why competitors couldn’t get hold of equally good information. What’s to stop them from collecting the same data from their customers, or buying it from a data analytics company?” Vestager, “Competition in a Bid Data World.” 65. Wikipedia, Personalized Search, Aug. 28, 2015. An early article on this topic is James Pitkow et al., “Personalized Search,” Communications of the ACM 45 (2002): 50–55. Available at http:​//www.cond.org​/p50-pitkow.pdf. 66. Competitive Impact Statement at 13–14, United States v. Google Inc., No. 1:11-cv-00688 (D.D.C. Apr. 8, 2011). Available at http:​//www.justice.gov ​/atr​/cases​/f269600​/269620.pdf, 13–14. 67. Concurring and Dissenting Statement of Commissioner J. Thomas Rosch, ibid., 1 n. 1. 68. The application of Article 102 to primary-line price discrimination is discussed in Damien Geradin and Nicolas Petit, “Price Discrimination under EC Competition Law: The Need for a Case-by-Case Approach,” Global Competition Law Centre Working Paper 07​/05, https:​//www.coleurope.eu​/system​/files _force​/research-paper​/gclc_wp_07-05.pdf, 11–18. 69. The technical specification refers to “Referer,” rather than to “Referrer,” so I will do the same here. 70. David G. Post, In Search of Jefferson’s Moose: Notes on the State of Cyberspace (New York: Oxford University Press, 2009), 129–131. 288

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71. Ibid., 130. 72. See Joel R. Reidenberg, “Lex Informatica: The Formulation of Information Policy Rules through Technology,” Texas Law Review 76 (1998): 552–593. 73. Joseph Turow et al., “Open to Exploitation: America’s Shoppers Online and Offline,” Annenberg School for Communication—University of Pennsylvania, June 2005. Available at http:​//repository.upenn.edu​/cgi​/viewcontent.cgi ?article= 1035&context=asc_papers. 74. Anita Ramasastry, “Web Sites Change Prices Based on Customers’ Habits,” CNN.COM, June 24, 2005, http:​//www.cnn.com​/2005​/ LAW​/06​/24​ /ramasastry.website.prices​/; see also Joseph Turow, “Have They Got a Deal for You: It’s Suspiciously Cozy in the Cybermarket,” Washington Post, June 19, 2005, at B1. Available at http:​//www.washingtonpost.com​/wp-dyn​/content​ /article​/2005​/06​/18​/AR2005061800070.html. 75. See, e.g., HTTP Referer, https:​//en.wikipedia.org​/wiki​/ HTTP_referer; James Abbatiello, “RefControl: Add-ons for Firefox,” https:​//addons.mozilla. org​/en-US​/firefox​/addon​/953 (last visited Apr. 3, 2010). 76. By turning off Referer, a user would sacrifice any benefits that might be received by using it. For example, if websites offered better prices to those who came to it from comparison-shopping sites, turning off Referer would mean the user would not receive those better prices. If, as seems likely, users that know how to turn off Referer are the same users who shop more carefully, it would be exactly those users who know how to turn off Referer who would suffer from doing so. 77. HTTP State Management Mechanism, Feb. 1997, http:​//tools.ietf.org​ /html​/rfc2109. 78. HTTP State Management Mechanism, Apr. 2011, http:​//tools.ietf.org​ /html​/rfc6265. 79. Ibid. 80. The earlier version labelled the sort of automatic requests to third-party servers that allow third-party cookies as “unverifiable transactions,” HTTP State Management Mechanism, Oct. 2000, http:​//tools.ietf.org​/ html​/rfc2965 (“Unverifiable transactions typically arise when a user agent automatically requests inlined or embedded entities or when it resolves redirection (3xx) responses from an origin server.”), and the specification said that “[w]hen it makes an unverifiable transaction, a user agent MUST disable all cookie processing (i.e., MUST NOT send cookies, and MUST NOT accept any received cookies) if the transaction is to a third-party host.,” ibid. 81. HTTP State Management Mechanism, Apr. 2011, ibid. 82. HTTP Cookie, Wikipedia, http:​//en.wikipedia.org​/wiki​/ HTTP cookie (last visited Apr. 3, 2010). 83. WebCookies.org, “Third party domains,” http:​//webcookies.org​/third -party-cookies​/. 84. Post, In Search of Jefferson’s Moose, 133–141. 85. See, e.g., A. Michael Froomkin, “[email protected]: Toward a Critical Theory of Cyberspace,” Harvard Law Review 116 (2003): 749–873. 86. Reidenberg, “Lex Informatica.” 289

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87. Internet Engineering Task Force, Mission Statement, https:​//www.ietf .org​/about​/mission.html. 88. Use of HTTP State Management, http:​//tools.ietf.org​/ html​/rfc2964.

Part III. Informational Limits on Antitrust: Intellectual Property and Freedom of Speech 1. Abrams v. United States, 250 U.S. 616, 630 (1919) (Holmes, J., dissenting).

8. Information and Intellectual Property 1. The truth of this claim, of course, depends on one’s definition of information. An interesting, more theoretical discussion of the relationship between information and intellectual property is Thomas Dreier, “Regulating Information: Some Thoughts on a Perhaps Not Quite So New Way of Looking at Intellectual Property,” in Technology and Competition: Contributions in Honour of Hanns Ullrich, ed. Josef Drexl et al. (Brussels: Editions Larcier, 2009). Dreier adopts an understanding of information that is “closer to ‘data’ than to ‘knowledge,’” ibid., 41, and with that understanding finds little overlap: “[I]nformation as such is generally not considered to be an object of protection in intellectual property law, such as, in particular, in copyright law. At times it is even—at least in part—excluded from protection, such as in the case of a ‘presentation of information’ in patent law.” Ibid., 46. 2. 35 U.S.C. § 101. My references here will be to U.S. law, but the law in other jurisdictions is similar for my purposes here. 3. 35 U.S.C. § 112. 4. 17 U.S.C. § 102(a). 5. 35 U.S.C. § 154(a)(2) (patent); 17 U.S.C. § 302–304 (copyright). 6. See, e.g., International Salt Co., Inc. v. United States, 332 U.S. 392 (1947). 7. The standards applicable to the antitrust claims and to the misuse defense have been similar. 8. Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 708 (Fed. Cir. 1992). That is the test, the Mallinckrodt court said, when the conduct does not involve per se violations, like price-fixing or tying. Ibid. 9. See Mark A. Lemley and Carl Shapiro, “Probabilistic Patents,” Journal of Economic Perspectives 19 (2005): 76. 10. Ibid. 11. Drug Price Competition and Patent Term Restoration Act of 1984, 98 Stat. 1585. 12. 21 U.S.C. §355(j)(2)(A)(vii)(IV). 13. Federal Trade Commission, “Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions,” July 2010, http:​//www.ftc.gov​/os​/2010​/01​ /100112payfordelayrpt.pdf, 2

290

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14. See ibid., 4–10. More recently, such payments have been eliminated in favor of other provisions, though some of those provisions can also be seen as compensation to the generic company for the delay. See Michael A. Carrier, “Unsettling Drug Patent Settlements: A Framework for Presumptive Illegality,” Michigan Law Review 108 (2009): 78–79 (describing how payments for generics not to enter the market have been replaced by payments for “IP licenses, for the supply of raw materials or finished products, and for helping promote products.”). 15. See F.T.C. v. Actavis, Inc., 133 S. Ct. 2223 (2013). In Actavis, the Court referred to the effect of settlement in a way that could be read to support the informational approach here, saying that the Hatch-Waxman “litigation in this case put the patent’s validity at issue, as well as its actual preclusive scope,” but “[t]he parties’ settlement ended that litigation.” Ibid., 2231. It also said that in evaluating a reverse-payment settlement “it is normally not necessary to litigate patent validity to answer the antitrust question.” Ibid., 2236. But the Court’s approach was not explicitly informational. 16. See, e.g., Carl Shapiro, “Antitrust Limits to Patent Settlements,” The RAND Journal of Economics 34 (2003): 407. 17. See Henry N. Butler & Jeffrey Paul Jarosch, “Policy Reversal on Reverse Payments: Why Courts Should Not Follow The New DOJ Position on Reverse-­ Payment Settlements of Pharmaceutical Patent Litigation,” Iowa Law Review 96 (2010): 98 (noting that some generic companies would not survive until the patent expiration date without a reverse payment). 18. 35 U.S.C. § 282(a). 19. See In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323, 1336 (Fed. Cir. 2008) (“[W]e agree with the Second and Eleventh Circuits . . . ​ that, in the absence of evidence of fraud before the PTO or sham litigation, the court need not consider the validity of the patent in the antitrust analysis of a settlement agreement involving a reverse payment.”). 20. See Lemley and Shapiro, “Probabilistic Patents,” 79–80, 85–87. 21. Ibid., 93 (citation omitted). 22. See generally Jay Pil Choi, “Patent Litigation as an Information-­ Transmission Mechanism,” American Economic Review 88 (1998): 1249–1263. 23. It is possible that the parties would already be in possession of such information, which they might have obtained in anticipation of or preparation for the litigation. 24. See Jeremy W. Bock, “An Empirical Study of Certain Settlement-Related Motions for Vacatur in Patent Cases,” Indiana Law Journal 88 (2013): 919–979 (noting the results of an analysis in which 78.5 percent of cases resulted in a granted motion for vacatur). 25. See, e.g., “List of Patent Search Firms,” American Association of Law Libraries, http:​//www.aallnet.org​/sis​/pllsis​/Groups​/ PatentSearchFirms.doc (last visited Nov. 9, 2012) (listing multiple patent search firms in America, Japan, and the United Kingdom); Farhad Manjoo, “How a Bunch of Amateur Sleuths Are Stamping Out Patent Trolls,” Slate.com, Feb. 29, 2012, http:​//www.slate

291

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.com​/articles​/technology​/technology​/2012​/02​/article_one_partners_how_a _bunch_of_amateur_sleuths_are_stamping_out_patent_trolls_.html (“There’s an entire industry devoted to conducting such searches.”). 26. See Manjoo, “Amateur Sleuths” (“When companies are sued for patent infringement, or when they’re proactively protecting themselves from an infringement claim, they often hire a prior art search firm to look for related inventions.”). 27. The generic company’s actual access comes only with some delay, but if the settlement compensates it in some way for the delay, then it effectively enters the market immediately. 28. Carl Shapiro, “Antitrust Limits to Patent Settlements,” 407–411. 29. See Owen M. Fiss, “Against Settlement,” Yale Law Journal 93 (1984): 1076 (discussing how alternative dispute resolution pressures parties to settle existing litigation and reduces future litigation). 30. Ibid., 1085. 31. See ibid. (stating that adjudication “employs not strangers chosen by the parties but public officials” whose duty is to interpret and uphold the values in “authoritative texts such as the Constitution and statutes”). 32. Ibid., 1075. 33. See ibid., 1078–1080, 1087 (stating that settlements impair individuals’ autonomy and do not provide procedures for authoritative consent from groups such as ethnic or racial minorities, inmates of prisons, or the mentally ill). 34. Ibid., 1087. 35. United States v. Singer Mfg. Co., 374 U.S. 174, 185–89 (1963). 36. Ibid., 199–200 (White, J., concurring) (citations omitted). 37. Ibid., 198–199. 38. Lear, Inc. v. Adkins, 395 U.S. 653 (1969); MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007). 39. Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 343 (1971). 40. See Alfred C. Server & Peter Singleton, “Licensee Patent Validity Challenges Following MedImmune: Implications for Patent Licensing,” Hastings Science & Technology Law Journal 3 (2011): 333–337. 41. Blonder-Tongue, 343. 42. Ibid., 317. 43. Ibid., 349–350, overruling Triplett v. Lowell, 297 U.S. 638 (1936). 44. Center for Copyright Information, Memorandum of Understanding, July 6, 2011, http:​//www.copyrightinformation.org​/wp-content​/uploads​/2013​/02 ​/ Memorandum-of-Understanding.pdf. 45. Ibid., § 4.G(i). 46. Ibid., § 4.G(ii). 47. Ibid., § 4.G(iii), (iv). 48. Storz Friedberg, “Independent Expert Assessment of MarkMonitor AntiPiracy Methodologies,” Nov. 1, 2012, http:​//www.copyrightinformation .org​/wp-content​/uploads​/2012​/12​/ Independent-Expert-Assessment-­Content -CCI-Redacted.pdf, 1. 49. Rebecca Giblin, “Evaluating Graduated Response,” Columbia Journal of 292

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Law and the Arts 37 (2013): 147–210; Brett Schiff, “Copyright Alert System: Six-Strikes and Forced Arbitration Might Not Be the Answer,” Cardozo Journal of Conflict Resolution 16 (2014): 909–938. 50. Timothy B. Lee, “What the 1930s Fashion Industry Tells Us About Big Content’s ‘Six Strikes’ Plan,” Ars Technica, July 28, 2011, http:​//arstechnica .com​/tech-policy​/2011​/07​/what-the-1930s-fashion-industry-means-for-big-contents -six-strikes-plan​/; Sean M. Flaim, “Copyright Conspiracy: How the New Copyright Alert System May Violate the Sherman Act,” New York University Journal of Intellectual Property and Entertainment Law 2 (2011): 142–187. 51. Fashion Originators’ Guild of America v. Federal Trade Commission, 312 U.S. 457, 465 (1941). See Timothy B. Lee, “What the 1930s Fashion Industry Tells Us About Big Content’s ‘Six Strikes’ Plan.” 52. Storz Friedberg, “Independent Expert Assessment of MarkMonitor AntiPiracy Methodologies,”; Harbor Labs, “Evaluation of the MarkMonitor AntiPiracy System,” Mar. 3, 2014, http:​//cciwebsite.wpengine.com​/wp-content ​/uploads​/2014​/11​/ Harbor-Labs-Executive-Summary.pdf. 53. In conversations with MPAA and RIAA several years ago, the only efficiency of the agreement that they offered was that it allows use of a single form or mechanism for the content providers to inform ISPs of alleged violations. This efficiency, however, is not related to the agreement on sanctions. The parties could simply have agreed on a common form if they thought that was important. By going further, they have greatly exceeded the least restrictive alternative available to achieve the efficiencies they point to. 54. Milton Mueller, Andreas Kuehn, and Stephanie Michelle Santoso, “Policing the Network: Using DPI for Copyright Enforcement,” Surveillance & Society 9 (2012): 348–364. Available at http:​//library.queensu.ca​/ojs​/index.php​ /surveillance-and-society​/article​/download ​/pol_net ​/pol_net. 55. Ernesto Van der Sar “Joe Biden Pushed for ‘Six Strikes’ Anti-Piracy Plan, IFPI Says,” Torrent Freak, Apr. 7, 2013, https:​//torrentfreak.com​/ifpi-governments -should-push-for-3-strikes-anti-piracy-plans-130407​/. 56. Mark A. Lemley, “Intellectual Property Rights and Standard-Setting Organizations,” California Law Review 90 (2002): 1889–1980; Rudi Bekkers and Andrew Updegrove, “IPR Policies and Practices of a Representative Group of Standards-Setting Organizations Worldwide,” May 2013, http:​//sites .nationalacademies.org​/cs​/groups​/pgasite​/documents​/webpage​/pga_072197.pdf. 57. Julie Brill, Commissioner, Federal Trade Commission, “The Intersection of Patent Law and Competition Policy” (speech), Oct. 3, 2012, http:​//www.ftc .gov​/speeches​/ brill​/121003patentip.pdf, 3 (“We also recommended that courts incorporate into their injunction analysis concerns about the effect that an injunction may have on a patent holder’s ability to obtain royalties exceeding the economic value of an invention—what we call ‘patent hold-up.’”). 58. Janice M. Mueller, “Patenting Industry Standards,” John Marshall Law Review 34 (4) (2001): 897–946; Mark R. Patterson, “Inventions, Industry Standards, and Intellectual Property,” Berkeley Technology Law Journal 17 (2002): 1043–1084; David J. Teece & Edward F. Sherry, “Standards Setting and Antitrust,” Minnesota Law Review, 87 (2003): 1913–1994. 293

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59. It might also be unaware of the patent because it has not yet been issued. For example, in the Rambus case, the “patent interests” that were not disclosed at the time of the standard-setting activity “ranged from issued patents, to pending patent applications, to plans to amend those patent applications to add new claims.” Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008). 60. 35 U.S. Code § 122(b)(1)(A). 61. A patentee might seek to maintain its licensing terms as a trade secret, but I am not aware of any patentee taking that approach, let alone claiming that it should lead to more deferential treatment of the effects of the secrecy. Compare Gideon Parchomovsky and Peter Siegelman, “Towards an Integrated Theory of Intellectual Property,” University of Virginia Law Review 88 (2002): 1455–1528. 62. Broadcom Corp. v. Qualcomm Inc., No. 05–3350 (MLC), 2006 WL 2528545 at *9 (D.N.J. Aug. 31, 2006), reversed, 501 F.3d 297 (3d Cir. 2007). 63. The Third Circuit in reversing the district court adopted a test directed particularly to the operation of standards-development organizations (SDOs): We hold that (1) in a consensus-oriented private standard-setting ­environment, (2) a patent holder’s intentionally false promise to license essential proprietary technology on [fair, reasonable, and nondiscriminatory, or FRAND] terms, (3) coupled with an SDO’s reliance on that promise when including the technology in a standard, and (4) the patent holder’s subsequent breach of that promise, is actionable anticompetitive conduct. Qualcomm appeals court opinion, 314. The court concluded, therefore, that the allegations of deception in that case were sufficient to state an antitrust claim, on something akin to breach-of-contract theory, but not all courts have reached similar results. 64. Qualcomm district court opinion, *9. 65. Ibid. 66. Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008). 67. United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001). 68. In Rambus, the D.C. Circuit reversed the FTC’s condemnation of Rambus’s failure to disclose. The FTC had concluded that if Rambus had disclosed its patent position to the standard-setting organization, JEDEC, there would have one of two results: “JEDEC either would have excluded Rambus’s patented technologies from the JEDEC DRAM standards, or would have demanded RAND assurances, with an opportunity for ex ante licensing negotiations.” Opinion of the Commission [Public Record Version], In re Rambus, Inc., No. 9302, at 74 (F.T.C. July 31, 2006), quoted in Rambus appeals court opinion, 461. The court rejected the first of these alternatives because the Commission conceded that it could not prove that another technology would have been chosen. Rambus appeals court opinion, 464. The court also rejected the second possibility because, it said, “an otherwise lawful monopolist’s use of deception simply to obtain higher prices normally has no particular tendency to exclude rivals and thus to diminish competition.” Ibid. 294

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69. Microsoft, 67. 70. See Bruce H. Kobayashi & Joshua D. Wright, “Federalism, Substantive Preemption, and Limits on Antitrust: An Application to Patent Holdup,” Journal of Competition Law and Economics 5 (2009): 491–492. 71. Rambus, 464. 72. Ibid., 459. 73. See Kobayashi & Wright, “Federalism, Substantive Preemption, and Limits on Antitrust,” 471 (citing NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998)). 74. NYNEX, 525 U.S. at 131–132. 75. Ibid., 132. 76. Kobayashi & Wright, “Federalism, Substantive Preemption, and Limits on Antitrust,” 490. 77. Ibid. (emphasis added). 78. Rambus, 463. 79. See Gideon Parchomovsky and R. Polk Wagner, “Patent Portfolios,” University of Pennsylvania Law Review 154 (2005): 27–41. 80. See ibid., 66 (stating that investors will focus on the value of an entire patent portfolio rather than individual patents because of the difficulty in assessing the value of individual patents). 81. See Order No. 32: Initial Determination Granting Microsoft’s Motion for Summary Determination of Respondents’ First Affirmative Defense of Patent Misuse at 5, In re Certain Handheld Electronic Computing Devices, Related Software, and Components Thereof, Inv. No. 337-TA-769 (International Trade Commission Jan. 31, 2012), 2012 WL 504367 at *2 (referring to “Microsoft’s over 65,000 patents”); Joff Wild, “Microsoft to Have 50,000 Patents Within Two Years, Phelps Reveals,” Intellectual Asset Management Blog, Oct. 21, 2008, http:​//www.iam-magazine.com​/ blog​/ Detail.aspx?g=ae6e078c-5c40-4b8f -bb54-6e27314a4b39 (last visited Nov. 9, 2012) (reporting that Marshall Phelps, Corporate Vice President for Intellectual Property Policy and Strategy at Microsoft, stated that in 2010 Microsoft would have a portfolio of approximately 50,000 patents). 82. Department of Justice, Statement of the Department of Justice’s Antitrust Division on Its Decision to Close Its Investigations of Google Inc.’s Acquisition of Motorola Mobility Holdings Inc. and the Acquisitions of Certain Patents by Apple Inc., Microsoft Corp. and Research in Motion Ltd. (press release), Feb. 13, 2012, http:​//www.justice.gov​/opa​/pr​/2012​/ February​/12-at-210 .html. 83. Ibid. 84. Parchomovsky and Wagner, “Patent Portfolios,” 63–65. 85. Ibid., 71–74 (discussing Daniel L. Rubinfeld & Robert Maness, “The Strategic Use of Patents: Implications for Antitrust,” in Antitrust, Patents and Copyright: EU and US Perspectives, eds. François Lévêque & Howard A. Shelanski (Edward Elgar Pub., 2005), 89–91. 86. Rubinfeld & Maness, “The Strategic Use of Patents,” 89. 87. It is often assumed that these large patent portfolios are routinely 295

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cross-licensed. For example, the U.S. antitrust agencies’ 2007 report on antitrust and intellectual property considered the possibility that portfolio licensing could act as a barrier to entry, but said that some who had testified at the hearings questioned the significance of that danger because “companies engaged in portfolio cross-licensing are generally willing to license their portfolios to all interested parties.” U.S. Department of Justice & Federal Trade Commission, Antitrust Enforcement and Intellectual Prop. Rights: Promoting Innovation and Competition, April 2007, http:​//www.justice.gov​/sites​/default​/files​/atr​/ legacy​ /2007​/07​/11​/222655.pdf, 62. This might have been true once, but the ongoing cell phone patent wars show that it is true no longer. For general information on the cell phone patent wars, see FOSS Patents, http:​//www.fosspatents.com. Moreover, even if licensing is achieved, the licensing, or cross-licensing, process is expensive. There is surprisingly little research on the mechanics of the cross-licensing process, given its importance, but the source often cited, an article by Peter Grindley and David Teece from 1997, describes years of preparatory work in cross-licensing. Peter C. Grindley & David J. Teece, “Managing Intellectual Capital: Licensing and Cross-licensing in Semiconductors and Electronics,” California Management Review 39 (1997): 19. 88. Amended Verified Complaint of Microsoft Corporation Under Section 337 of the Tariff Act of 1930, as Amended, Certain Handheld Electronic Computing Devices, Related Software, and Components Thereof, Inv. No. 337-TA-769 (Apr. 8, 2011), 2011 WL 1823599 ¶ 27. 89. Jay Greene, “Barnes & Noble Wants DOJ Probe into Microsoft Patent Tactics,” CNET News, Nov. 8, 2011, http:​//news.cnet.com​/8301-10805_3 -57320800-75​/ barnes-noble-wants-doj-probe-into-microsoft-patent-tactics​/. 90. Order No. 32, In re Certain Handheld Electronic Computing Devices, Related Software, and Components Thereof, *2. This is not the first occasion on which Microsoft has “asserted” patents without disclosing them. See Roger Parloff, “Microsoft Takes on the Free World,” Fortune, May 14, 2007, http:​// money.cnn.com ​/magazines​/fortune ​/fortune_archive ​/2007​/05​/28​/100033867​/, 76, 82 (“[Microsoft licensing official Horacio] Gutierrez refuses to identify specific patents or explain how they’re being infringed, lest FOSS [free and open-source software] advocates start filing challenges to them.”). 91. T. J. Chiang has argued that we should approach the problem of matching patents and possible infringers as one of imposing the search obligation on the lower-cost searcher, and that when a patentee is the lower-cost searcher but fails in its duty, the infringer should have a defense against infringement claims. See T. J. Chiang, “The Reciprocity of Search,” Vanderbilt Law Review 66 (2013): 19–20, 36–37. 92. Order No. 32, In re Certain Handheld Electronic Computing Devices, Related Software, and Components Thereof, *5. 93. Respondents Barnes & Noble, Inc.’s and Barnesandnoble.com LLC’s Petition for Review of Order No. 32: Initial Determination Granting Microsoft’s Motion for Summary Determination of Respondent’s First Affirmative Defense of Patent Misuse 7, Certain Handheld Electronic Computing Devices, Related

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Software, and Components Thereof, Inv. No. 337-TA-769 (Apr. 8, 2011). Available at http:​//www.groklaw.net​/pdf3​/ MSvBNITC-719445-471458.pdf. 94. Paul Thurrott, “Microsoft and Barnes & Noble Settle Patent Battle, Will Team on Nook Spinoff,” Windows IT Pro, Apr. 30, 2012, http:​//www .windowsitpro.com​/article​/paul-thurrotts-wininfo​/microsoft-barnes-noble -settle-patent-battle-team-nook-spinoff-142947. 95. Case C-170​/13, Huawei Technology Co. Ltd v ZTE Corp., Judgment of the Court of July 16, 2015 (CJEU). 96. Ibid., ¶ 62. 97. Ibid., ¶ 61. 98. Order No. 32, In re Certain Handheld Electronic Computing Devices, Related Software, and Components Thereof, *5. It is worth noting, though, that the ALJ also said that “the patent laws provide Barnes & Noble with other avenues to obtain relief if the case is meritless or Microsoft engages in other litigation misconduct.” Ibid. 99. See Robin C. Feldman, “The Insufficiency of Antitrust Analysis for Patent Misuse,” Hastings Law Journal 55 (2003): 402 (discussing the history and theory behind patent misuse). 100. Rubinfeld & Maness, “The Strategic Use of Patents,” 90–91. 101. U.S. Philips Corp. v. ITC, 424 F.3d 1179, 1191–93 (Fed. Cir. 2005). 102. Ibid., 1193. 103. Lear, Inc. v. Adkins, 395 U.S. 653 (1969). 104. Ibid., 670–671. 105. U.S. Philips, 1192–1193. 106. Blonder-Tongue, 343.

9. Restraint of Trade and Freedom of Speech 1. Sorrell v. IMS Health Inc., 131 S. Ct. 2653, 2667 (2011) (citations omitted). 2. Hillary Greene, “Muzzling Antitrust: Information Products, Innovation and Free Speech,” Boston University Law Review, 95 (2015): 39 (rejecting prior approaches as “overly simplistic”); Tim Wu, “Machine Speech,” University of Pennsylvania Law Review 161 (2013): 1527 (stating of Search King, a case discussed below, that “[n]or is the district court’s reasoning particularly helpful (other than as an example of oversimplification”). 3. U.S. Constitution, Amendment I. The states have analogous state constitutional protections. See, e.g., New York Constitution, § 1(8). 4. The First Amendment and similar state constitutional provisions also apply to the states, and thus to state antitrust laws. Gitlow v. New York, 268 U.S. 652, 666 (1925) (assuming applicability of the First Amendment to the states). 5. Convention for the Protection of Human Rights and Fundamental Freedoms, art. 10(1), Nov. 4, 1950, 213 U.N.T.S. 221.The EU Charter of

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Fundamental Rights has identical language. Charter of Fundamental Rights of the European Union, art. 11(1), 2012 O.J. (C 326) 391. 6. Sorrell v. IMS Health, 2667. 7. Ibid., 2663. 8. Ibid., 2664. 9. Ibid., 2667–2668. 10. Ibid., 2670–2671. 11. Ibid., 2672. 12. Ibid. (“It is also true that the First Amendment does not prevent restrictions directed at commerce or conduct from imposing incidental burdens on speech. That is . . . ​why antitrust laws can prohibit ‘agreements in restraint of trade.’”), citing Giboney v. Empire Storage & Ice Co., 336 U.S. 490, 502 (1949). 13. Jefferson County School District No. 1. v. Moody’s Investor’s Services, Inc., 175 F.3d 848 (10th Cir. 1999). 14. Ibid., 852 (quoting Milkovich v. Lorain Journal Co., 497 U.S. 1, 20 (1990)). 15. Ibid. (quoting Milkovich v. Lorain Journal Co., 497 U.S. 1, 18 (1990)). 16. Ibid., 855. 17. Ibid. 18. National Society of Professional Engineers v. United States, 435 U.S. 679 (1978). 19. Moody’s, 860. 20. Ibid. 21. Professional Engineers, 684 n.5 (quoting United States v. National Society of Professional Engineers, 389 F.Supp. 1193, 1200 (D.D.C. 1974)). 22. Professional Engineers district court opinion, 1200. 23. In that respect, a similar case was Wilk v. American Medical Association, 719 F.2d 207 (7th Cir. 1983), where a chiropractor challenged the policy of the American Medical Association to “boycott” chiropractors. The boycott was effected through the AMA Principles of Medical Ethics, which provided that “[a] physician should practice a method of healing founded on a scientific basis; and he should not voluntarily professionally associate with anyone who violates this principle.” Ibid., 213. The AMA House of Delegates also issued a resolution labeling chiropractic as “an unscientific cult,” which, combined with the ethical principle, sought to influence physicians not to associate with chiropractors. And the AMA Board of Trustees established a “Committee on Quackery” that “prepared numerous publications critical of chiropractic for distribution to medical professionals and laypersons.” The purpose of this conduct, the plaintiffs alleged, was to implement a boycott “by agreeing to induce individual medical doctors to forego [sic] any form of professional, research, or educational association with chiropractors, to induce hospital and other health care facilities to deny access to chiropractors, and to induce actual and prospective patients of chiropractors to avoid seeking chiropractic services.” The Wilk court considered Professional Engineers and concluded that “even without coercive enforcement, a court may find that members of an association promulgating guidelines sanctioning conduct in 298

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violation of Sec. 1 participated in an agreement to engage in an illegal refusal to deal.” It said that a jury instruction requested by the plaintiff, but not given by the trial court, “correctly states that law”: There need be no assurances among the conspirators, either oral or in writing, to the effect that they would adhere to the plan. Nor is it necessary that there exist a coercive mechanism by which the conspiracy may be enforced. It is enough that a mutual understanding was reached, and that the defendants in fact conformed to the arrangement. Ibid., 231. 24. Search King, Inc. v. Google Technology, Inc., Case No. CIV-02-1457-M, 2003 U.S. Dist. LEXIS 27193 (W.D. Okla. 2003), http: // news.findlaw.com / hdocs / docs / google /skgoogle101702cmp.pdf. 25. Ibid., *11–*12. 26. Milkovich v. Lorain Journal Co., 497 U.S. 1 (1990). 27. S. Louis Martin v. Google, Inc., Case CGC-14-539972 (Sup. Ct. Calif. Nov. 13, 2014) (“Defendant has met its burden of showing that the claims asserted against it arise from constitutionally protected activity, thereby shifting the burden to Plaintiff to demonstrated a probability of prevailing on the merits of the Complaint.”). 28. Kinderstart.com, LLC v. Google, Inc., Case No. C 06–2057 JF (RS), 2007 WL 831806 (N.D. Cal. 2007), http:​//www.wsgr.com​/attorneys​/ BIOS​ /PDFs​/ kinderstart_google.pdf. 29. James Grimmelmann, “Speech Engines,” Minnesota Law Review 98 (2014): 924. 30. “[T]he two kinds of opinions are protected speech for different reasons and to very different extents. Normative opinions are protected speech because we have decided as a society to treat matters of taste and value as questions of individual conscience rather than objective agreement. . . . ​In contrast, freedom of expression for descriptive opinions is an instrumental goal: it helps encourage the creation of better and more accurate knowledge about the world.” Ibid., 924–925. 31. Milkovich, 18 (referring to Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974), and citing Cianci v. New Times Publishing Co., 639 F.2d 54, 62 n.10 (2d Cir. 1980)). 32. Langdon v. Google, Inc., No. 06-319-JJF (D. Del. February 20, 2007), http: // www.internetlibrary.com / pdf / langdon.pdf. 33. Ibid., 4. 34. Zhang v. Baidu.com Inc., 10 F. Supp. 3d 433 (S.D.N.Y. 2014). 35. Ibid., 439 n.2. 36. See Hillary Greene, “Muzzling Antitrust,” 35–107. 37. Giboney v. Empire Storage & Ice Co., 336 U.S. 490, 502 (1949). 38. Ibid.; see also Professional Engineers. 39. Associated Press v. United States, 326 U.S. 1 (1945). 40. Ibid., 20. 41. Lorain Journal Co. v. United States, 342 U.S. 143 (1951). 299

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42. Ibid., 155–156. 43. U.S. Department of Justice, “Remarks for Attorney General Eric Holder Press Conference Announcing Settlement with S&P,” Feb. 3, 2015, http:​//www .justice.gov​/opa ​/speech ​/remarks-attorney-general-eric-holder-press-conference -announcing-settlement-sp. 44. For recent articles discussing commercial speech standards generally, see Victor Brudney, “The First Amendment and Commercial Speech,” Boston College Law Review 53: (2012): 1153–1223; Joanna Krzemi ska, “Freedom of Commercial Speech in Europe,” http:​//aei.pitt.edu​/3043​/2​/ JKrzeminska_EUSA _paper.doc; Colin R. Munro, “The Value of Commercial Speech,” 3 Cambridge Law Journal 3 (2003): 134–158. 45. Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 762 (1976) (quoting Pittsburgh Press Co. v. Pittsburgh Commission on Human Relations, 413 U.S. 376, 385 (1973)). 46. Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980). 47. Ibid., 561. 48. Dun & Bradstreet, Inc. v. Greenmoss Builders, 472 U.S. 749, 762 (1985). In a later case, Bose Corp. v. Consumers Union, 466 U.S. 485 (1984), the Court indicated that the defendant, a magazine publisher, was a “media” defendant, so that the holding in Dun & Bradstreet did not apply to it. Although it might seem that a search engine would also be a member of the media, that is not clear, given that search engine results are delivered from the search engine to individual users. See Dun & Bradstreet, ibid., 762 (noting that “since the credit report was made available to only five subscribers, who, under the terms of the subscription agreement, could not disseminate it further, it cannot be said that the report involves any ‘strong interest in the free flow of commercial information’”). 49. Ibid. Notably, the Court added that “the market provides a powerful incentive to a credit reporting agency to be accurate, since false credit reporting is of no use to creditors. Thus, any incremental ‘chilling’ effect of libel suits would be of decreased significance.” Ibid., 762–763. 50. Barthold v. Germany, 90 Eur. Ct. H.R. (ser. A), 21–23 (1985); markt intern Verlag GmbH and Klaus Beermann v. Germany, 165 Eur. Ct. H.R. (ser. A), 17–19 (1989). 51. Hertel v. Switzerland, 1998-VI Eur. Ct. H.R. 2298, 2330. 52. Demuth v. Switzerland, 2002-IX Eur. Ct. H.R. 1, 14. A somewhat similar approach was taken by the court in 2012 in Mouvement Raëlien Suisse v. Switzerland, 2012-IV Eur. Ct. H.R. 373, 399 (“The Court takes the view that the type of speech in question is not political because the main aim of the website in question is to draw people to the cause of the applicant association and not to address matters of political debate in Switzerland. Even if the applicant association’s speech falls outside the commercial advertising context— there is no inducement to buy a particular product—it is nevertheless closer to commercial speech than to political speech per se, as it has a certain proselytising function.”).

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53. markt intern Verlag GmbH. 54. markt intern Verlag GmbH, 19–20. See also Hertel, 2330 (“[A] margin of appreciation is particularly essential in commercial matters, especially in an area as complex and fluctuating as that of unfair competition.”). This view has been rearticulated more recently by the European Court of Justice, which said that the European Court of Human Rights had made the national authorities’ “discretion in deciding whether there is a pressing social need capable of justifying a restriction on freedom of expression” “particularly essential in commercial matters and especially in a field as complex and fluctuating as advertising.” Case C-245​/01, RTL Television GmbH v. Niedersächsische Landesmedienanstalt für privaten Rundfunk, [2003] ECR I-12498, 12527, (citing VGT Verein gegen Tierfabriken v. Switzerland, 2001-VI Eur. Ct. H.R. 243, 263–264). 55. Jacubowski v. Germany, 291 Eur. Ct. H.R. (ser. A) (1994), ¶ 28. 56. Helpful discussions of Hertel can be found at A. Kamperman Sanders, “Unfair Competition Law and the European Court of Human Rights: the Case of Hertel v. Switzerland and Beyond,” Fordham Intellectual Property, Media and Entertainment Law Journal 10 (1999): 305–329; Thomas Cottier and Sangeeta Khorana, “Linkages between Freedom of Expression and Unfair Competition Rules in International Trade: The Hertel Case and Beyond,” in Human Rights and International Trade, ed. Thomas Cottier, Joost Pauwelyn, and Elisabeth Bürgi (Oxford: Oxford University Press, 2005), 245–272; Christoph B Graber, “The Hertel Case and the Distinction between Commercial and Non-Commercial Speech,” in Human Rights and International Trade, ed. Thomas Cottier, Joost Pauwelyn, and Elisabeth Bürgi (Oxford: Oxford University Press, 2005), 273–278. 57. Central Hudson, 566. 58. See 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 517 (1996) (Scalia, J., concurring in part and concurring in the judgment) (“I share Justice Thomas’s discomfort with the Central Hudson test, which seems to me to have nothing more than policy intuition to support it.”). 59. See Thompson v. Western States Medical Center, 535 U.S. 357 (2002); Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001); 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996); Rubin v. Coors Brewing Co., 514 U.S. 476 (1995). 60. 44 Liquormart, 501 (opinion of Justices Stevens, Kennedy, and Ginsburg). 61. Hertel, 2330. See also markt intern Verlag GmbH 17–19 (stating that “in order to establish whether the interference was proportionate it is necessary to weigh the requirements of the protection of the reputation and the rights of others against the publication of the information in question”) 62. Indeed, in Germany v. Parliament and Council, a case before the EU Court of First Instance, Advocate General Fennelly interpreted the European Court of Human Rights to require an approach very similar to that used in the United States:

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I would advocate, therefore, that a similar approach be adopted in the Community legal order. Where it is established that a Community ­measure restricts freedom of commercial expression, . . . ​the Community legislator should also be obliged to satisfy the Court that it had reasonable grounds for adopting the measure in question in the public interest. In concrete terms, it should supply coherent evidence that the measure will be effective in achieving the public interest objective invoked—in these cases, a reduction in tobacco consumption relative to the level which would otherwise have obtained—and that less restrictive measures would not have been equally effective. Opinion of Advocate General Fennelly, Cases C-376​/98 and C-74​/99, Germany v. Parliament and Council, 2000E.C.R. I-8419, 8489–8490. 63. Federal Trade Commission, “.com Disclosures: How to Make Effective Disclosures in Digital Advertising,” 2 (2013). Available at https:​//www.ftc.gov​ /system ​/files​/documents​/plain-language​/ bus41-dot-com-disclosures-information -about-online-advertising.pdf. 64. For example, the .com Disclosures, after referring not just advertising but also to marketing and sales, as shown in the preceding note, go on to set out principles directed specifically at advertising. 65. 16 C.F.R. § 255.0(e). 66. 16 C.F.R. § 255.3(b). 67. Federal Trade Commission (Lesley Fair), FTC staff to search engines: Differentiate ads from natural results, June 25, 2013. Available at https:​//www .ftc.gov​/news-events​/ blogs​/ business-blog ​/2013​/06​/ftc-staff-search-engines -differentiate-ads-natural-results. 68. Letter from Mary K. Engle, Associate Director for Advertising Practices, Federal Trade Commission to search engine companies, https:​//www.ftc.gov​ /sites​/default ​/files​/attachments​/press-releases​/ftc-consumer-protection-staff -updates-agencys-guidance-search-engine-industryon-need-distinguish​ /130625searchenginegeneralletter.pdf, June 25, 2013. 69. Ibid. 70. M. L. Stein, “Advertorials and the First Amendment,” Editor and Publisher 126 (1983): 24; see also Howell A. Burkhalter, “Advertorial Advertising and the Commercial Speech Doctrine,” Wake Forest Law Review 25 (1990): 861–884. 71. Editorial Board of Pravoye Delo and Shtekel v. Ukraine, 2011-II Eur. Ct. H.R. 383, 401. See also Wolfgang Benedek and Matthias C. Kettemann, Freedom of Expression and the Internet (Strasbourg: Council of Europe, 2013). 72. Oreste Pollicino, “European Judicial Dialogue and the Protection of Fundamental Rights in the New Digital Environment: An Attempt at Emancipation and Reconciliation: The Case of Freedom of Speech,” in Fundamental Rights in the EU. A Matter for Two Courts, ed. Sonia Morano-Foadi and Lucy Vickers (Oxford: Hart Publishing, 2015), 110. 73. Directive 2000​/31 on Certain Legal Aspects of Information Society

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Services, in Particular Electronic Commerce, in the Internal Market, art. 6, 2000 O.J. (L 178)1, 2 (EC). 74. Ibid., art. 2(f). 75. Ibid. 76. Joris van Hoboken, Search Engine Freedom: On the Implications of the Right to Freedom of Expression for the Legal Governance of Web Search Engines (Alphen aan den Rijn, Netherlands: Wolters Kluwer, 2012). 77. Ibid., 306. 78. Ibid., 308. 79. Ibid., 310. 80. Ibid., 359. 81. Eugene Volokh & Donald M. Falk, “First Amendment Protection for Search Engine Search Results,” April 20, 2012, http:​//volokh.com​/wp-content​ /uploads​/2012​/05​/SearchEngineFirstAmendment.pdf. Professor Volokh, of UCLA School of Law, does not list his academic affiliation on the white paper, but describes himself as an “Academic Affiliate” of Mayer Brown LLP, the firm at which Mr. Falk is a partner. 82. Eugene Volokh, The Volokh Conspiracy, First Amendment Protection for Search Engine Search Results, May 9, 2012, http:​//volokh.com​/2012​/05​/09​ /first-amendment-protection-for-search-engine-search-results​/. He was arguably even more clear on this point in an American Bar Association seminar on antitrust and informational issues: I’ve written a white paper for Google on the subject. I should stress this is a white paper that was commissioned by Google, so it wasn’t part of my independent scholarly production. I’m not speaking on behalf of Google right now, but I’m going to be talking based on that white paper, so please keep in mind that it was commissioned work. American Bar Association panel discussion, Antitrust and the First Amendment (May 13, 2013), available at http:​//www.americanbar.org​/content​/dam​/aba​ /directories​/antitrust​/20130513_at130321.authcheck. 83. Volokh & Falk, “First Amendment Protection for Search Engine Search Results,” 1. 84. Ibid., 3. 85. In one section, the paper suggests that Google might not, or at least reserves the right not to, be so user-oriented: “Google has never given up its right as a speaker to select what information it presents and how it presents it.” Ibid., 17. Notably, the white paper turns to the market as a remedy if Google provides biased results: “If users do find Google’s results to be unreliably skewed, Google will be punished by the marketplace, as frustrated users shift to other easily available search engines.” Ibid., 19 (footnote omitted). But that may not be a satisfactory solution if Google has market power, of course. 86. Ibid. 87. This was effectively the view the FTC expressed in announcing the end of its investigation of search bias by Google. Statement of the Federal Trade

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Commission Regarding Google’s Search Practices, In re Google Inc., FTC File No. 111–0163, Jan. 3, 2013 (“The totality of the evidence indicates that, in the main, Google adopted the design changes that the Commission investigated to improve the quality of its search results, and that any negative impact on actual or potential competitors was incidental to that purpose.”). 88. Largely, but not entirely. There is some criticism of Google that can be read to take this position. Scott Cleland argues that “Google should be subject to any FCC open Internet regulations designed to prevent those with market power from anti-competitively discriminating against any content of a users’ [sic] choice.” Scott Cleland, “Why Google Is Not Neutral,” Nov. 4, 2009, http:​//precursorblog.com​/content​/why-google-is-not-neutral. Among other problems, though, it is not clear what “a user’s choice” would mean here. James Grimmelmann rightly contests this view primarily on that ground, arguing that nonneutrality is the point of Google, in that it is exactly that nonneutrality that makes search results useful to users. James Grimmelmann, “Some Skepticism About Search Neutrality,” in The Next Digital Decade: Essays on the Future of the Internet, ed. Berin Szoka and Adam Marcus (Washington: TechFreedom, 2010), 442–443. 89. Kurt Wimmer, “The Proper Standard for Constitutional Protection of Internet Search Practices,” June 21, 2012, http:​//mediacompolicy.wp.lexblogs .com ​/wp-content ​/uploads​/sites​/296​/2012​/06​/ First-Amendment-Issues-in-Search -and-Antitrust-6-2.pdf. Wimmer writes that he “represents a number of companies in the technology and media space, including Microsoft, but the views expressed in this paper are solely his own.” Ibid., 1. 90. Ibid., 6. 91. Ibid., 9. 92. Ibid., 12. 93. Ibid., 16. 94. Ibid. 95. Virginia State Board, 762. 96. See Cade Metz, “Google Drops Nuke on ‘Objective’ Search Engine Utopia,” The Register, Dec. 12, 2010\, http:​//www.theregister.co.uk​/2010​/12​/16​ /google_algorithms_are_google_opinions​/. 97. Google, “An Explanation of Our Search Results,” Mar. 21, 2007, http:​// web.archive.org​/web​/20070321092528​/ http:​//www.google.com​/explanation .html. 98. See The Power of Google: Serving Consumers or Threatening Competition?: Hearing Before the Subcommittee on Antitrust, Competition Policy & Consumer Rights of the Committee on the Judiciary, United States Senate, 112th Cong., 1st Sess. 234 (2011) (Testimony of Eric Schmidt, Executive Chairman, Google Inc., Sept., 21, 2011, at 3), available at https:​//www.gpo.gov​ /fdsys​/pkg​/CHRG-112shrg71471​/pdf​/CHRG-112shrg71471.pdf (emphasis in original). 99. Matt Cutts, Dec. 1, 2010 (6:21 p.m.), comment on JBAT, “In Google’s Opinion. . . ,” John Battelle’s Search Blog, Dec. 1, 2010, http:​//battellemedia .com​/archives​/2010​/12​/in_googles_opinion.php; see also Schmidt Testimony, ibid. 304

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100. Senator Al Franken, “How Privacy Has Become an Antitrust Issue,” Huffington Post, Mar. 30, 2012, http:​//www.huffingtonpost.com​/al-franken​ /how-privacy-has-become-an_b_1392580.html. 101. See, e.g., Aniko Hannak et al., Measuring Price Discrimination and Steering on E-commerce Web Sites, http:​//www.ccs.neu.edu​/ home​/cbw​/pdf​ /imc151-hannak.pdf. 102. This perspective is perhaps analogous to Tim Wu’s focus on the “functionality” of machine speech. See Tim Wu, “Machine Speech,” University of Pennsylvania Law Review 161 (2013): 1495–1533. In the present context, the “function” that the informational conduct at issue performs is that of aiding the speaker to gain a competitive advantage. Although that is not the sort of function on which Wu focuses, the suggestion here, as in Wu’s article, is that the role played by the information should help determine its First Amendment treatment. See also Oren Bracha and Frank Pasquale, “Federal Search Commission? Access, Fairness, and Accountability in the Law of Search,” Cornell Law Review 93 (2008): 1188–1202. 103. Associated Press, 21. 104. Lorain Journal, ibid. 105. Wimmer, “The Proper Standard for Constitutional Protection of Internet Search Practices.” See also 14 C.F.R. part 255, Airline Computer Reservation Systems. 106. 14 C.F.R. § 255.1(a). 107. 14 C.F.R. § 255.4(b). 108. Computer Reservation System (CRS) Regulations, 57 Fed. Reg. 43,780 (Sept. 22, 1992). 109. Ibid. 110. A more elaborate approach to reconciling antitrust and freedom of speech, focusing not just on commercial interests but also on transparency, is offered in Hillary Greene, “Muzzling Antitrust.” 111. Milkovich, 1. 112. Cianci v. New York Times Publishing Co., 639 F.2d 54 (2d Cir. 1980). 113. Milkovich, 18 (quoting Cianci, 62 n.10). The case to which Judge Friendly referred was Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974), where “[t]he sort of idea which can never be false was illustrated by reference to Thomas Jefferson’s Inaugural Address, where the President argued for freedom for those ‘who would wish to dissolve this Union or change its republican form.’” Cianci, 62 (quoting 418 U.S., 340 n.8) 114. Recent news reports suggest that the FTC may be considering reopening its investigation. Nancy Scola, “Sources: Feds taking second look at Google search,” Politico, May 11, 2016, http://www.politico.com/story/2016/05/federal -trade-commission-google-search-questions-223078. 115. This is not to understate the differences between Congressional legislation and litigation. The possible burdens on private parties in litigation are addressed briefly in Chapter 5. 116. Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015). 305

n ot e s to pag e s 2 2 8 –2 3 4

117. Ibid., 1328. 118. In this respect, in the case against the Chinese search engine Baidu discussed above, the court said that the commercial speech definition “would presumably apply to advertisements displayed by a search engine, and might even apply to ‘search results shown to purposefully advance an internal commercial interest of the search provider.’” Zhang v. Baidu, 443 (quoting Michael J. Ballanco, Comment, “Searching for the First Amendment: An Inquisitive Free Speech Approach to Search Engine Rankings,” George Mason University Civil Rights Law Journal 24 (2013): 90). 119. The same argument has been made for related bodies of law. For example, in a product-disparagement case, which presents somewhat similar issues of injurious information, the Washington Legal Foundation, which says that its “mission is to preserve and defend America’s free-enterprise system,” argued that “[p]roduct disparagement [law] furnishes sufficient protection to satisfy the First Amendment.” Brief Amicus Curiae of Washington Legal Foundation Supporting Plaintiff-Appellant and Supporting Reversal, Suzuki Motor Corp. v. Consumers Union of United States, Inc., No. 00–56043 (9th Cir. Oct. 19, 2000), 21.

Conclusion 1. R. H. Coase, “The Market for Goods and the Market for Ideas,” American Economic Review 64 (1974): 384–391. 2. Ibid., 389. 3. Ibid. (“The special characteristics of each market lead to the same factors having different weights, and the appropriate social arrangements will vary accordingly.”) 4. Oren Bar-Gill, Seduction by Contract: Law, Economics, and Psychology in Consumer Markets (Oxford: Oxford University Press, 2012); George A. Akerlof and Robert J. Shiller, Phishing for Phools; The Economics of Manipulation and Deception (Princeton: Princeton University Press, 2015). 5. This is an insight underlying Arrow’s information paradox. Kenneth J. Arrow, “Economic Welfare and the Allocation of Resources for Invention,” in The Rate and Direction of Inventive Activity: Economic and Social Factors (Princeton: Princeton University Press, 1962): 615 (“[T]here is a fundamental paradox in the determination of demand for information; its value for the purchaser is not known until he has the information. . . . ​[ Therefore,] the potential buyer will base his decision to purchase information on less than optimal criteria.”). Available at http:​//www.nber.org​/chapters​/c2144.pdf. 6. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 501 (1988). 7. Fashion Originators’ Guild of America v. F.T.C., 312 U.S. 457 (1941); Timothy B. Lee, “What the 1930s Fashion Industry Tells Us About Big Content’s ‘Six Strikes’ Plan,” Ars Technica, July 28, 2011, http:​//arstechnica.com

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​/tech-policy​/2011​/07​/what-the-1930s-fashion-industry-means-for-big-contents -six-strikes-plan ​/. 8. European Commission, “Comparison Tools: Report from the Multi-Stakeholder Dialogue: Providing Consumers with Transparent and Reliable Information,” Mar. 18–19, 2013. Available at http:​//ec.europa.eu​ /consumers​/documents​/consumer-summit-2013-msdct-report_en.pdf. See also European Commission Consumers, Health and Food Executive Agency, “Study on the Coverage, Functioning and Consumer Use of Comparison Tools and Third-Party Verification Schemes for Such Tools, EAHC​/FWC​/2013 85 07. Available at http:​//ec.europa.eu​/consumers​/consumer_evidence​/market_studies​ /docs​/final_report_study_on_comparison_tools.pdf. 9. European Commission, “Comparison Tools: Report from the Multi-Stakeholder Dialogue,” 19. 10. Frank Pasquale, The Black Box Society: The Secret Algorithms That Control Money and Information (Cambridge: Harvard University Press, 2015). 11. Sorrell v. IMS Health Inc., 131 S. Ct. 2653, 2672 (2011) (“It is also true that the First Amendment does not prevent restrictions directed at commerce or conduct from imposing incidental burdens on speech. That is . . . ​why antitrust laws can prohibit ‘agreements in restraint of trade.’”). 12. Jeffrey Rosen, “Google’s Gatekeepers,” New York Times, Nov. 28, 2008, http:​//www.nytimes.com ​/2008​/11​/30​/magazine​/30google-t.html. 13. The Political Omnivore, “The Politics Of: Google vs. Bing,” June 11, 2013, http:​//politicalomnivore.blogspot.com​/2013​/06​/the-politics-of-google-vs -bing.html; Andrew Pulver, “Rightwing US Film-Maker Claims Google Search Is Politically Biased,” The Guardian, July 9, 2014, http:​//www.theguardian.com​ /film​/2014​/jul​/09​/rightwing-us-film-maker-claims-google-search-is-politically -biased; Chris Crum, “Is Google Showing Political Bias with Search Results?,” WebProNews, Feb. 2, 2009, http:​//www.webpronews.com​/is-google-showing -political-bias-with-search-results-2009-02 ​/. 14. In Europe, however, concerns about media pluralism have competition undertones. See, e.g., “Independent Study on Indicators for Media Pluralism in the Member States—Towards a Risk-Based Approach,” report prepared for the European Commission, July 2009, 3 (“Even though the competition rules . . . ​ leave less and less scope for taking into account non-economic considerations. . . , it is usually acknowledged that competition law indirectly contributes to media pluralism by keeping markets open and competitive, by preventing undue concentration of markets, and by remedying abusive behaviour.”) (citing Mónica Ariño, “Competition Law and Pluralism in European Digital Broadcasting: Addressing the Gaps,” Communications & Strategies 54 (2004): 97–128). Available at https:​//ec.europa.eu​/digital-agenda​/sites​/digital-agenda​/files​/final _report_09.pdf. 15. Justin Gillis and Clifford Krauss, “Exxon Mobil Investigated for Possible Climate Change Lies by New York Attorney General,” New York Times, Nov. 5, 2105. Available at http:​//www.nytimes.com​/2015​/11​/06​/science​/exxon-mobil -under-investigation-in-new-york-over-climate-statements.html.

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16. Amended Final Opinion, United States v. Philip Morris USA, Inc., No. Civil Action No. 99–2496 (GK) (D.D.C. Aug. 17, 2006). See also Myron Levin, “Big Tobacco Is Guilty of Conspiracy,” Los Angeles Times, Aug. 18, 2006, http:​//articles.latimes.com ​/2006​/aug ​/18​/nation ​/na-smoke18. 17. Naomi Oreskes and Erik M. Conway, Merchants of Doubt: How a Handful of Scientists Obscured the Truth on Issues from Tobacco Smoke to Global Warming (New York: Bloomsbury, 2010). 18. John Stuart Mill, On Liberty; Abrams v. United States, 250 U.S. 616 (1919), 630 (Holmes, J., dissenting). 19. A book like Vincenzo Zeno-Zincovich’s Freedom of Expression: A Critical and Comparative Analysis (Abingdon: Routledge-Cavendish, 2008), takes an important step in this direction, examining freedom of speech and information both in a variety of contexts and from an unusually broad range of perspectives, including competition. 20. U.S. Constitution, Amendment I. 21. Compare Turner Broadcasting System, Inc. v. F.C.C., 520 U.S. 180 (1997); Turner Broadcasting System, Inc. v. FCC , 512 US 622 (1994); Red Lion Broadcasting Co. v. Federal Communications Commission, 395 U.S. 367 (1969), with Miami Herald Publishing Co. v. Tornillo, 418 U.S. 241 (1974).

308

Acknowledgments

This book had its origin in seminars entitled “Competition and Information” that I offered in the 1990s at Fordham University School of Law. I ­co-taught those seminars with attorneys Jonathan Sherman, now at Boies Schiller & Flexner LLP, and Elai Katz of Cahill Gordon & Reindel LLP, and I appreciate the contributions they and the students made to my thoughts on these issues. Jon’s expertise in the First Amendment was especially helpful in providing a counterpoint to my emphasis on antitrust. Since then, I have continued to work on and think about these issues, and I have benefited from conversations with Fordham colleagues and from student input in subsequent seminars. I have also benefited from feedback on presentations at Fordham, Bocconi University, Columbia Law School, the European University Institute, the George Mason Law & Economics Center, the Mannheim Centre for Competition and Innovation, the Treviso Antitrust Conference, the annual conference of the University of Houston Law Center’s Institute for Intellectual Property & Information Law, and the law firm Rucellai & Raffaelli in Milan, as well as at conferences of the American Bar Association, the Association of American Law Schools, and the Italian Society of Law and Economics. A number of colleagues have also provided valuable comments on the manuscript itself. They include Fabrizio Cafaggi, Abner Greene, Barry Hawk, Mariateresa Maggiolino, Joel Reidenberg, Heike Schweitzer, Olivier Sylvain, Steve Thel, and two anonymous readers. Barry Hawk, in particular, provided helpful comments on the entire manuscript. 309

Ac k n o w l e d g m e n t s

Finally, I am grateful for assistance from the staff of the Fordham Law Library, especially Alison Shea, and for careful work on the manuscript by Ben Chisholm. Several Fordham students, including Tiffany Mahmood, Max Meadows, Jeff Nelson, and Kaitlyn Schwendeman, provided valuable research assistance. Fordham University School of Law provided important financial support for this research. Chapter 8 incorporates portions of a previously published article, Mark R. Patterson, “Leveraging Information about Patents: Settlements, Portfolios, and Holdups,” Houston Law Review 50 (2012): 483–522.

310

Index

advertising: as a market, 34, 120, 126, 138, 169; as an antitrust violation, 124–128; distinction from ratings, reviews, and search results, 33–36; evolution of law of, 25–27, 30–31, 124– 125; false statements about information provided, 6, 59, 123, 128, 136; requirement of reli­ ance, 27–29. See also consumer protection AdWords. See Google: AdWords airfares. See uncertainty: airfares Akerlof, George, 59, 82, 232 Allied Tube & Conduit Corp. v. Indian Head, Inc., 89–91. See also standard-setting Amazon, 36, 53, 68, 161; and Hachette, 11; as information provider, 8–9, 32, 234; price discrimination, 42–43 Areeda, Phillip, 124–125, 127–128, 138 Arrow, Kenneth, 69 Associated Press v. United States, 214–215, 226 Averitt, Neil, 23–24

Bar-Gill, Oren, 150–151, 157–158, 161, 232 behavioral economics, 157, 160 behavioral targeting. See price discrimination Ben-Shahar, Omri, 150–152, 161 Bernasek, Anna, 14 Biden, Joe, 194 big data. See personal consumer information Bing, 35, 57, 76–77, 80–83, 122 “black boxes,” 73–75, 235; access to internal information as evidence, 132–133, 143–144; and competi­ tion among information provid­ ers, 70; and reputation, 57; secret algorithms, 53, 73, 228 British Bankers’ Association. See LIBOR (London Interbank Offered Rate) Brody, Peter, 91, 105 cellphone plans. See uncertainty: cellphone plans Center for Copyright Information, 192–194 Coase, Ronald, 231, 236

311

index

commercial speech. See freedom of speech comparison websites, 2, 46, 180, 235 confusopoly, 13, 19, 68, 146, 159; Scott Adams in Dilbert, 13, 19, 146. See also uncertainty consumer protection: and antitrust, 4, 21, 23–25, 29–33; product disparagement, 35; transaction-­ based nature of, 24, 26, 31–33, 172 Consumer Reports, 35–36, 161, 224 cookies, 180–181 Copyright Alert system. See Center for Copyright Information Cranberg, Gilbert, 220 credit-rating agencies, 2–3, 5, 73–75; antitrust claim against Moody’s, 16–17; Dodd-Frank Act and analogy to search engines, 142; fraud claim against Standard & Poor’s, 2, 5–6, 128–129; and freedom of speech, 16–17, 210, 215–216, 224; power of, 225; reputation as constraint on, 10, 57; “reputation mining,” 82; as two-sided markets, 10; as valuable information intermedi­ aries, 161. See also Moody’s; Standard & Poor’s Cseres, Kati, 24 Cuomo, Andrew, 194 Datacoup, 169 DuckDuckGo, 173 Eastman Kodak Company v. Image Technical Services, Inc. See uncertainty

Expedia, 66, 234; Expedia-­ TripAdvisor study, 57–58. See also review sites Exxon, 236. See also “marketplace of ideas” Facebook, 68, 169, 177 Falk, Donald. See Google: white papers Farrell, Joseph, 167 financial markets, 59. See also credit-rating agencies; LIBOR “first principles” approach to antitrust, 64, 69, 133, 154 Fiss, Owen, 190–191 Franken, Al, 225 freedom of speech: commercial speech, 17, 208, 218, 220, 229; commercial speech protections in Europe, 216–218; commercial speech protections in U.S., 18, 208–209, 215–218, 224; merging of editorial and commercial, 218–221; Milkovich v. Lorain Journal Co., 212–213, 227–228; opinions, 134, 212, 227–229; political speech, 213, 236–237; speech vs. conduct, 210–211 F.T.C. v. Indiana Federation of Dentists, 15–16, 24. See also information: as a product gatekeepers. See information: access to Geithner, Timothy, 72 Google, 2, 50; acquisition of ITA, 178; as “advisor,” 144, 227–228; AdWords, 47, 139–140; algo­ rithm as “black box,” 47, 53;

312

index

allegations of search bias, 57, 79–80, 121, 138, 227; blocking of privacy apps, 173; changes in algorithm, 47, 116–117, 122, 142; competition between advertising and organic results, 47–48, 52; “Competition is a click away,” 45, 56, 121–122; effects of algorithm, 53, 145, 212, 215; European Commission proceed­ ings, 2, 6, 37; and freedom of speech, 17, 212–213, 215, 221; French competition authority’s finding of power, 138; F.T.C. investigation, 2, 6, 117, 122, 172, 178; and locksmiths, 138–139, 141; Luca study, 116–117; merger with DoubleClick, 6, 14, 168– 169, 172; and personal consumer information, 225; power of, 2, 35, 63, 138–141, 176; private litigation, 17; representations regarding objectivity, 225; search example, 50; Search King, Inc. v. Google Technology, Inc., 212–214; as two-sided market, 48, 140; white papers, 45, 222–223. See also search engines Grimmelmann, James, 144–145, 212–213, 227 Harbour, Pamela Jones, 25 Havighurst, Clark, 91, 105 Hemphill, Scott, 157 Holmes, Oliver Wendell, Jr., 184, 237 Hovenkamp, Herbert, 108, 124– 125, 127–128, 138

IETF (Internet Engineering Task Force), 179–181 information: access to, 36–38; consumer skepticism regarding, 10–11; evaluation of conduct, 120–121; experience and credence goods, 54, 97; inappli­ cabiliy of advertising law, 35–36; incentive to disclose quality, 70; market definition, 64–68, 76–77, 80, 129–132; power of providers (see market power); as a product, 14–16, 18, 165; quality, 11–12, 46–48, 54, 168, 232; quality discrimination, 43–44, 67, 174; representations about informa­ tion provided, 70, 136, 224–225; as speech, 16–18, 208 (see also freedom of speech); two-sided markets, 10–11, 46, 48; use of content to exclude, 12, 119–121; value of intermediaries, 161 In re American Society of Sanitary Engineering, 102–103, 106–107, 110. See also standard-setting intellectual property, 19, 183, 195, 206, 236; scope of protection, 183, 185, 192. See also patents Internet Engineering Task Force. See IETF Kahnemann, Daniel, 160 Kaplow, Louis, 64 King, Sir Mervyn, 72 Kobayashi, Bruce, 197–198 Lande, Robert, 23–24 Lemley, Mark, 186, 188 Leslie, Christopher, 157

313

index

LIBOR (London Interbank Offered Rate), 3, 65, 92–95; banks’ manipulation of, 57, 59, 72, 92–93, 114; BBA calculation of, 92, 234; competition and cooperation, 93–94, 197; difficulty of competing with, 94, 107; district court opinion, 93–94, 108; lack of objective reference, 71–72; lack of proce­ dural protections, 72, 94, 114; as a standard, 86, 93, 197, 234; use as a benchmark, 3, 92–93, 114, 197, 234 London Interbank Offered Rate. See LIBOR Lorain Journal Co. v. United States, 118–121, 137, 214–215, 226–227 Luca, Michael, 116–117, 132, 135, 138, 142, 144 Lyme disease guidelines, 3–4, 100–101, 111; Connecticut Attorney General investigation, 3, 100, 108, 111 Maness, Robert, 200–201, 204 Manne, Geoffrey, 166–167, 170, 173, 176–177 marginal costs and fixed costs, 41–42, 62 market definition. See information: market definition “marketplace of ideas,” 5, 18, 45, 93, 184, 236 market power, 61–62, 83, 125, 152, 232; and advertising, 85, 124, 126; from agreement on infor­ mation, 96, 102; authority as

source of, 105; competitors’ inability to respond as a source of, 71–74, 76–81, 140; consum­ ers’ inability to assess as a source of, 57, 80–81, 118, 140; costbased measure, 62; as difference between antitrust and consumer protection, 21, 24, 33, 36; “first principles,” 64, 83–84, 154; information asymmetry as a source of, 71, 75, 152–153, 155–156; low quality as evidence of, 60, 139–140; and market share, 62–63; and price discrimi­ nation, 42, 174–176; share as poor proxy with information, 64 McNealy, Scott, 172 Mill, John Stuart, 237 mindshare, 82 Mongan, D. T., 14 Moody’s, antitrust allegations in Jefferson County School District No. R-1. v. Moody’s Investor’s Services, Inc., 16–17, 209–215. See also credit-rating agencies Motta, Massimo, 158 nonprice competition, 12, 166–167. See also information: quality; privacy NV IAZ International Belgium v. Commission, 114. See also standard-setting Office of Fair Trading v. Ashbourne Management Services Ltd., 154–156

314

index

Ohlhausen, Maureen, 165, 172–173 Okuliar, Alexander, 165, 172–173 Orbitz, 162, 178; price discrimina­ tion, 44–45, 175 Parchomovsky, Gideon, 200 Pasquale, Frank, 46, 57, 74–75, 171, 235. See also “black boxes” patents: deception regarding, 196–199, 202–203; desirability of challenges to, 191–192, 205; portfolios, 186, 196, 200–201, 203–206; probabilistic, 186; public interest, 191–192; ­reverse-payment settlements, 188; scope of protection, 189, 195, 199, 203–204 personal consumer information, 68, 165, 173–175; price discrimina­ tion, 170, 173–176; use of, to exclude, 176–179 Petit, Nicolas, 4 Pitofsky, Robert, 148 Pollicino, Oreste, 220 Post, David, 179, 181 Preston, Ivan, 27–28 price discrimination, 14, 41–44, 173–176, 178–179; compared to information-quality discrimina­ tion, 43; competitive harm, 49, 174, 176, 178; and narrow markets, 14, 67; online, 42–43. See also personal consumer information privacy: and consumer protection, 170–172; consumers’ prefer­ ences, 163–164, 168; as nonprice competition, 166–171, 173;

standards for, 179. See also personal consumer information product distribution, evolution of, 8–9 proof issues, 83–84, 143–144. See also “black boxes” “pure” information providers, 3, 9–11, 32, 35 Referer, 179–180 reliance, 26, 28–31, 103, 124, 212; “fraud on the market” presump­ tion, 30–31; puffery, 28; require­ ment of in advertising law, 27, 29; third-party, 30; on truth and on markets, 29–31, 35–36 reputation as a constraint on information providers, 10, 57–60, 81–82 review sites, 70; competition among, 129, 136, 162; evaluating conduct of, 133–138; false reviews, 2, 57–58, 130–134, 137; harm to reviewed sites, 129–130, 133; power of, 130, 132–133, 135, 234 (see also market power); reputation as constraint on, 59; and reviewers, 129; star ratings, 36, 52, 70, 132; types of informa­ tion provided, 36, 70 Rosch, J. Thomas, 171–172, 178 Rubinfeld, Daniel, 200–201, 204 Salop, Steven, 64 Sarbanes-Oxley Act, 87, 91 Schachar v. American Academy of Ophthalmology, Inc., 90–91, 97–98, 101

315

index

Schneider, Carl, 150–152, 161 search, experience, and credence goods, 54–57. See also informa­ tion: experience and credence goods; search engines: results as experience or credence goods search engines, 50, 123, 213, 225; algorithms, 46, 122, 145; “black boxes,” 53, 57, 133, 143–144; commercial interests of, 221; competition among, 77; competi­ tion between advertising and organic listings, 46–47, 52; consumers’ inability to assess results, 74, 76, 80, 82, 141; evaluating conduct of, 143–145; and freedom of speech, 17, 216–217, 219–221, 228; possible bias of, 37, 138, 219; power of, 138–141 (see also market power); and privacy, 169–170, 173; as “pure” information providers, 8–9, 29, 35; reputation as constraint on, 81–82; results as experience or credence goods, 55–56; results as opinions, 17, 75, 207, 212–214, 227; use of consumer information to exclude, 176–177 Shapiro, Carl, 8–9, 40–41, 59, 85, 186, 188 Shiller, Robert, 59, 82, 232 Smith, Vernon, 160 Sorrell v. IMS Health Inc.: See information, as speech speech, freedom of. See freedom of speech Sperry, Ben, 166–167, 170, 173, 176–177

Standard & Poor’s: Department of Justice fraud settlement with, 2, 5–6, 10, 128–129. See also credit-rating agencies standard-essential patents. See patents: deception regarding standard-setting: Allied Tube, 89–91; benefits and harms of, 88–91, 97, 102, 108, 233; competition among organiza­ tions, 94, 96, 105–107; contrast with refusal to deal, 89–91; as elimination of informational competition, 92, 94–95, 101, 192–195, 197; industry standards for, 109–111; legal requirements for, 73, 97, 101–102, 108; organization members’ responsi­ bility for standards, 112–115; organizations’ responsibility for standards, 112–115; power of organizations, 34–35, 102–105 Stigler, George, 22, 35 Strandburg, Katherine, 170–171 Stucke, Maurice, 160 Tirole, Jean, 45 tobacco companies, 236. See also “marketplace of ideas” Tor, Avishalom, 160–161 Toys “R” Us v. F.T.C. See uncer­ tainty TripAdvisor: action by Italian competition authority, 2, 55, 129, 136 (see also advertising: false statements about infor­ mation provided); Expedia-­ TripAdvisor study, 58, 65 Tversky, Amos, 160

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two-sided markets, 10, 45–46, 48–49, 54, 140 uncertainty: airfares, 147, 149, 157, 159; antitrust treatment of, 162; avoiding, 201; bundling and unbundling, 159; cellphone plans, 149–151; costs of, 153; Eastman Kodak Company v. Image Technical Services, Inc., 71, 78, 152–153, 155–157, 159; and exclusion, 157; increasing or preserving, 156, 189; patent portfolios, 186, 196, 200–201, 203–206; preexisting, 154–155; probabilistic patents, 186; Toys “R” Us v. F.T.C., 147–150 van Hoboken, Joris, 221 Varian, Hal, 8–9, 40–41, 85 Vestager, Margrethe, 164 Volokh, Eugene. See Google: white papers

Wagner, R. Polk, 200 Werden, Gregory, 64 Wimmer, Kurt. See Google: white papers Wright, Joshua, 161, 197 Wu, Tim, 116, 150, 157 Yelp, 37–38, 58, 132–133, 135, 137; false-review study, 57, 132; filtering of false reviews, 57; Levitt v. Yelp! Inc., 37–38, 55, 136–137; New York Attorney General fining of fraudulent reviewers, 2, 11, 130; study on significance of ratings, 132; Yelp, Inc. v. Hadeed Carpet Cleaning, Inc., 132, 135. See also review sites Zervas, Georgios, 132

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