In this issue, we discuss why the Supreme Court’s recent opinion in Apple v. Pepper may indicate a profound shift in antitrust philosophy and enforcement.

Open Markets, Food & Water Watch, Organization for Competitive Markets Call on Justice to Block Slaughterhouse Merger

On Tuesday, the Open Markets Institute, Food & Water Watch, and the Organization for Competitive Markets wrote a letter to the Justice Department calling on it to block National Beef’s proposed acquisition of Iowa Premium. Open Markets’ Claire Kelloway explains, “True open and competitive cattle auctions are disappearing as ranchers become more beholden to powerful corporations … This merger will shrink the number of cattle buyers in the Upper Midwest at a time when ranchers are already suffering alleged price manipulation by dominant beef packers.”

You can read the letter here.

In Groundbreaking Op-ed, Facebook Co-Founder Chris Hughes Calls for Breaking Facebook Up

Last week, Facebook co-founder Chris Hughes wrote an essay for The New York Times calling on antitrust enforcers to break up Facebook by unwinding its Instagram and WhatsApp acquisitions as well as passing stronger regulations over it the social media giant. The essay had an enormous effect; Politico called breaking up Facebook a “litmus test” for 2020 presidential candidates. Much of the momentum leading major criticism against Facebook has came from Open Markets work from over a year ago, including in The Guardian and The Daily Beast.

With Facebook’s punishment for violating a 2011 consent decree with the Federal Trade Commission over its user privacy practices coming out soon, and with the publication of Chris Hughes’ op-ed, newspapers and television news programs turned to Open Markets staff. This included an op-ed for The Guardian, by Sarah Miller and Matt Stoller and an op-ed for CNN Business by Sally Hubbard. Miller also spoke on Fox Business News Monday, and on CBC Radio, and Stoller was interviewed on CTV News in Canada. Open Markets also commented in articles in The Verge,Fortune, Bloomberg, and The Washington Post’s “The Technology 202” newsletter.

In Apple v. Pepper, Supreme Court Deals Surprising Blow to “Bottleneck Monopolies”

In a 5-4 decision Monday, the Supreme Court ruled that iPhone users could bring a class action lawsuit against Apple alleging that it monopolized the sale of apps. In his surprising majority opinion for the Court, Justice Brett Kavanaugh, joined by the four more liberal Justices, reaffirmed antitrust law’s longstanding purpose of protecting the producer of a good or service from the power of monopolies. This was in sharp contrast to most recent practice, in which enforcers and the judiciary have focused largely on harms to consumers.

The issue before the Court was whether a 1977 precedent, Illinois Brick Co. v. Illinois, allowed iPhone users to bring an antitrust lawsuit for damages for the high cost of apps. Illinois Brick holds that only the “direct purchasers” of a product or service from a monopolist can sue that monopolist. Apple requires app developers to sell iPhone apps on its App Store, pay it a 30 percent commission on sales, and set a price ending in $0.99. Apple argued that because app developers set the exact price for their apps, iPhone users actually purchase apps directly from the developers.

Kavanaugh rejected Apple’s argument and held that Apple is the real seller of the apps. In addition, the majority stated that the plain language of the Clayton Act, which allows “any person” injured by an antitrust violation to recover treble damages, resolved the question in favor of the plaintiffs. In contrast, the dissent paid little heed to the plain text of the statute.

Just as importantly, Kavanaugh recognized that a powerful retailer like Apple wields power not only over app users but over app developers as well. In his decision, he focused closely on the danger of monopsony power, which describes when a corporation’s control over a market is sufficient to enable it to exercise power over the sellers of goods or services, in ways that allow it to drive down prices or extract other benefits.

One of Congress’s main goals in enacting the Sherman Act in 1890 was to address the effects of monopoly on the people who produce and sell goods and services, including work. Since the embrace of the “Consumer Welfare” philosophy of antitrust in the early 1980s, however, both enforcers and judges have tended to focus on cases involving short-term consumer harm while neglecting harms to producers.

The Open Markets Institute has led the call for antitrust enforcers to address the effects of monopsony, beginning with this feature article in Harper’s in July 2006. Open Markets also raised this issue in its amicus brief in Apple v. Pepper. Apple protested that the iPhone users’ lawsuit would be unfair since it could be sued twice for its power over app retailing; by app developers and by users. In its brief, Open Markets argued that those lawsuits would actually be different cases: “Just as a monopolist can be separately sued by competitors (for lost profits) and consumers (for overcharges), a firm that is both a monopsonist and a monopolist can be separately sued by sellers (for underpayments) and buyers (for overpayments).”

The majority on Monday agreed. “Multiple suits are not atypical,” Kavanaugh says, “when the intermediary in a distribution chain is a bottleneck monopolist or monopsonist (or both) between the manufacturer on the one end and the consumer on the other end.” (Though “bottleneck” is not uncommon in antitrust law, the Open Markets Institute was the only party or amicus curiae to include the term in its brief.) Kavanaugh continued on to explain that these would be “fundamentally different theories of harm.”

Monday’s decision contrasted sharply with the Supreme Court’s decision in last June’s Ohio v. American Express. There, a five-justice conservative majority (with Justice Anthony Kennedy instead of Kavanaugh) ruled on the legality of American Express’ contractual restrictions, preventing merchants who accept American Express cards from encouraging customers to use other cards with lower fees. Because credit card companies bring together two distinct but related groups, merchants and cardholders, the Supreme Court held that merchants challenging American Express’ contractual restrictions must show that the harms to merchants outweighed any benefits that such restrictions might bring to some cardholders.

Open Markets, in its brief in the American Express case, argued strongly against the idea of combining two separate markets – in this case, between credit card corporations and cardholders and between credit card corporations and merchants – into a single market. But in that decision, the Supreme Court made it even easier for enforcers and courts to ignore the ways that buyer power can harm the people who actually make products and do work.

Lower courts will now decide the plaintiffs’ substantive allegations in Apple v. Pepper, litigation that will likely take many more years. In the meantime, the implications for other platforms are clear. Dominant platforms that claim to simply bring producers and buyers together cannot immunize themselves from consumer antitrust suits by delegating certain pricing decisions to sellers. Economist Hal Singer pointed out the similarities between Apple and Amazon, which charges merchants fees to use its platform, while still having third-party merchants set the exact retail price for their goods on Amazon’s platform. “Amazon can’t be cheering this decision.”

News coverage of Apple v. Pepper relied heavily on Director of Enforcement Strategy Sally Hubbard and Open Markets Legal Director Sandeep Vaheesan. Vaheesan discussed the case with The New York Times, CNN, CNBC, and The Hill. Hubbard spoke with Bloomberg Law and wrote an op-ed for CNN arguing that though Apple v. Pepper was “a small step toward addressing Big Tech’s monopoly problems, … it will at least give consumers the right to stand up and be heard in court — and it may even inspire US antitrust enforcers to finally take action.” The Los Angeles Times also quoted Supreme Court advocate Deepak Gupta, who worked with Open Markets on its amicus brief in the case.

ANTI-MONOPOLY RISING:

• Last week, Washington state outlawed noncompete clauses in employment contracts for employees making less than $100,000 per year and independent contractors making less than $250,000 per year. It also established other legal presumptions that discourage the use of noncompetes including prohibiting them for laid off employees unless the employer pays the employee and making them presumptively illegal if they are longer than 18 months.

• Housing Banking Committee Chairwoman Maxine Waters, D-Calif., sent a letter to the heads of the Federal Reserve and Federal Deposit Insurance Corporation, “urg[ing their] agencies to provide a high degree of scrutiny,” including holding more than two hearings, in regard to the pending merger between BB&T and SunTrust banks.

• Sens. Richard Blumenthal, D-Conn., and Josh Hawley, R-Mo., sent a letter to the Federal Trade Commission calling on it to “act swiftly to conclude its investigation of Facebook, and to move to compel sweeping changes to end the social network’s pattern of misuse and abuse of personal data.”

• In a separate letter to Facebook CEO Mark Zuckerberg, Hawley condemned his announced move to emphasize privacy. Hawley wrote, “To be blunt, I fear that your new platform’s aim is to capture and subvert the privacy revolution that threatens your business model and claim an empty public relations victory. You claim your goal is to limit Facebook’s window into users’ lives, but your future profits demand that you expand that window.”

• Rep. Alexandria Ocasio-Cortez, D-N.Y., said that she supports Massachusetts Sen. Elizabeth Warren’s plan to break up large platform monopolists, telling Politico, “Facebook as a basic communications platform while also selling ads and also being a surveillance platform, I think those functions should be broken up, but how that gets levied and how that gets approached is what we need to take a fine-tooth comb at.”

• In Iowa, presidential candidate and Sen. Bernie Sanders, I-V.T.,called for revitalizing rural communities, in part, by using antitrust laws. He said that if President Theodore Roosevelt were alive in 2019, “I think I know what he would be saying to these huge agribusiness corporations… He would say we are going to break them up. And working together, that is exactly what we are going to do.

• The Hill reported that half of all Fortune 500 CEOs think that Facebook “has grown so large and influential that it needs additional regulation.”

• The Competition Commission of India has opened a full investigation into whether Google abused its dominance over its Android mobile operating system to the detriment of rivals or potential competitors, Reuters reported.

• Sen. Marco Rubio, R-Fla., released a report Wednesday on business investment and at one point criticized “shareholder primacy theory,” or the idea that corporations’ sole purpose is to provide short-term gains to shareholders, for “tilt[ing] business decision-making towards returning money quickly and predictably to investors rather than building long-term corporate capabilities, reduc[ing] investment in research and innovation, and undervalu[ing] American workers’ contribution to production.”

WHAT WE’VE BEEN UP TO:

• Sally Hubbard and Sandeep Vaheesan argued in a detailed op-ed for USA Today that noncompete clauses “lock victims of harassment into abusive environments.” The Federal Trade Commission is currently considering the Open Markets Institute’s petition to ban noncompetes from employment contracts. Given that one 2017 study found that women who were sexually harassed are 6.5 times more likely to change their jobs than women who were not, Hubbard and Vaheesan write, “the costs of inaction are too high.”

• Matt Stoller and Sarah Miller wrote an article for BuzzFeed about a key factor that “often goes overlooked” behind the country’s merger wave: “Executives and bankers are paid a lot of money when they sell firms, regardless of whether it’s a good idea.” These “golden parachutes,” Stoller and Miller show, enrich executives, attorneys, economists, and bankers at the expense of workers and customers. Two ways to address this “normalized corruption:” pass a law making mergers involving golden parachutes more difficult and “tax deal flow payments that go to investment bankers, lawyers, and associated actors like expert witnesses.”

• Matt Stoller argued in an essay for the ProMarket blog that post-New Deal thinkers like Richard Hofstadter, John Kenneth Galbraith, and Aaron Director, shrunk “politics to exclude corporate power.” That led to today, where leaders “could no longer tell the difference between a healthy open market and concentrated financial power, and just assumed American capitalism meant radical inequality.”

• Sandeep Vaheesan wrote in The Trouble that the Green New Deal “should champion democratic cooperation in electricity.” Vaheesan proposes establishing federal cooperative charters to communities and giving them money to purchase investor-owned utilities so long as they phase out the use of fossil fuels. Restructuring energy markets this way “would help put the United States on a path to clean power controlled not by unaccountable and short-termist corporate and financial interests, but by all of us.”

• Matt Stoller went on the Ralph Nader Radio Hour to talk about corporate power and Facebook. He said, “The conventional wisdom that our government should work to generally battle against plutocratic forcers, that’s a part of our political tradition.”

• Barry Lynn, Sally Hubbard, Sandeep Vaheesan, and Matt Stoller gave talks and spoke on various panels at the University of Chicago’s Stigler Center for the Study of the Economy and the State this past week. Stoller discussed the history and future of concentrated economic power and democracy on Tuesday afternoon while later that evening, Vaheesan talked on a panel about the differences in American and European antitrust enforcement. On Wednesday, Lynn spoke on a panel on digital platforms’ consequences on political life. And on Thursday, Hubbard joined a panel discussion on the “economics of the news media,” where she called Facebook’s and Google’s advertising business models “incompatible” with free press and democracy.

• Matt Stoller was quoted by Axios in its coverage of how to regulate platform monopolists: “The question of how do you mass people and capital and these technologies together in ways that keep us free instead of imprison us is a question that I think we’ve had really going back to the founding of the country with the East India Company.

• Matt Stoller talked to NPR about Uber’s business model, saying, “They go into cities. They get a bunch of customers. And then they get those customers to lobby their city council to change the law.”

• In Bloomberg, Sally Hubbard discussed the increasingly entrenched power that large corporations have across multiple sectors, observing, “I just don’t see any challengers to the big companies we worry about in every sector. There’s not a lot of dynamism.”

• The Washington Post cited the Open Markets Institute’s recent policy paper on addressing agriculture monopolies to note that “[e]ach year since 1980, an average of almost 17,000 cattle ranchers have gone out of business.”

VITAL STAT: 0

Number of bank mergers rejected by the Federal Reserve from January 1, 2006 to December 31, 2017, according to a letter from Fed Chairman Jerome Powell to Massachusetts Sen. Elizabeth Warren. The Fed reviewed 3,819 applications in the period, with 503 withdrawn by the applicants before the Fed issued a final decision.

WHAT WE’RE READING:

• “In News Industry, a Stark Divide Between Haves and Have-Nots” (The Wall Street Journal, Keach Hagey, Lukas I. Alpert, and Yaryna Serkez): A deeply researched presentation on the disturbing decline of print newspapers, especially local ones.

• “Prices Paid to Hospitals by Private Health Plans Are High Relative to Medicare and Vary Widely: Findings from an Employer-Led Transparency Initiative” (RAND, Chapin White and Christopher Whaley): An insightful new study comparing what private insurers paid hospitals versus what Medicare paid hospitals in 25 states from 2015 to 2017. As The New York Times put it, “The disparity shows how competition has faltered in an opaque market where the costs of care are secret and hospital systems are increasingly consolidated, gaining outsize clout in price negotiations with employers, some experts say.”

• “How Big Tech Threatens Economic Liberty” (The American Conservative, Hal Singer): Why monopolies, especially Facebook, Google, and Amazon, are harmful to independent entrepreneurs and economic freedom.

• “Elizabeth Warren Has a Theory About Corporate Power” (TheAtlantic, Stacy Mitchell): How the Massachusetts senator’s tying together the fates of small businesses and workers against concentrated corporate power is “reviving” a Democratic tradition and is a “shorthand for Americans’ deep-rooted desire to govern ourselves.”

Written by Barry Lynn, Sandeep Vaheesan, and Matt Buck

Edited by Barry Lynn, Sandeep Vaheesan, and Matt Buck