Welcome to The Corner. In this issue, we share Open Markets’ proposal for simple, traditional “bright-line” rules to guide antitrust enforcement. And we highlight a speech by a prominent judge who spoke of America’s monopoly problem and proposed using long-neglected antitrust tools to address Google and Facebook.

Open Markets Details Bright-Line Anti-Monopoly Rules for 21st Century Political Economy

The Open Markets Institute last week detailed an approach to “regulating competition and structuring markets that is true to the original American vision for an open and democratic society.” Instead of the vague, highly subjective, and easily-manipulated standards in place since the 1980s, Open Markets proposed the restoration of the simple, “bright-line” approach to anti-monopoly law and policy that defined effective competition philosophy for the first two centuries of our nation.

The Open Markets approach rests on five key principles:

1) Treat corporations in sectors that are natural monopolies or that have strong network effects in much the same way that we treat public utilities.

2) Set clear limits on market share for mergers.

3) Clearly and sharply limit the behaviors, practices, and licenses of corporations that control 25 percent or more of any national, regional, or local product market.

4) Make durable monopoly illegal.

5) Protect workers, professionals, small businesses, and all other powerless actors from anti-monopoly investigations and prosecutions.

You can read the full post here.

Open Markets Defends Private Anti-Monopoly Enforcement in Medical Monopolization Case

Last Thursday, Open Markets filed an amicus brief arguing that health care providers should be able to sue a medical supply manufacturer for illegally excluding rivals and overcharging customers. The issue in this case centers on a 1977 Supreme Court decision called Illinois Brick Co. v. Illinois which held that, in general, only entities that buy a good or service directly from an antitrust violator can sue that violator for damages.

The judge at the district court level applied the Illinois Brick rule to hold that health care providers that were charged monopoly rates for syringes and catheters couldn’t sue medical supply manufacturer Becton, Dickinson & Co. (Becton), because Becton dealt directly with distributors and group purchasing organizations (GPOs), not providers. Those distributors and GPOs, the plaintiffs alleged, had participated in Becton’s campaign to exclude competing manufacturers of medical supplies, and hence were co-conspirators. In its brief filed before the Seventh Circuit Court of Appeals in Chicago, Open Markets argued that the district court misapplied the Illinois Brick rule and that the providers, as the first purchasers outside of the antitrust conspiracy, have the right to recover damages under Seventh Circuit precedent.

You can read the brief here and a Twitter thread explaining Illinois Brick and the amicus brief here.

Key Judge Warns of Political Danger of Monopoly, Calls for Revival of Antitrust Tools

An influential federal appellate judge last week expressed great concern about the growing power of tech platforms, including Google and Facebook, and said that anti-monopoly enforcers and courts may have been “too hasty” in abandoning two key traditional tools of antitrust law – the essential facilities doctrine and predatory pricing law.

“When it comes to exclusionary practices” by monopolists, “we may have thrown the baby out with the bathwater,” Chief Judge Diane Wood of the U.S. Court of Appeals for the Seventh Circuit said in a speech at Loyola University on Friday.

Wood, who was appointed to the court by President Clinton, is a widely respected scholar of antitrust law.  Wood also served in the Antitrust Division of the Justice Department, in the 1990s.

The essential facilities doctrine is designed to prevent a monopolist from abusing its control over a service or product so important that competitors need access to it in order to compete. It dates back to a 1912 Supreme Court decision, United States v. Terminal Railroad Association, which ordered the railroads that controlled the only bridges over the Mississippi River in St. Louis to grant access to their rivals on non-discriminatory terms.

The essential facilities doctrine could have a huge effect if applied to platform monopolists like Google or Amazon, which control access to many online markets today. But the doctrine has effectively become a dead letter. The Supreme Court, in the 2004 decision Verizon v. Trinko, criticized the economic rationale of refusal to deal claims (including essential facility claims) and undercut their viability in court. The opinion was authored by Justice Antonin Scalia and joined by Justices Stephen Breyer and Ruth Bader Ginsburg.

Wood last week sharply criticized the Trinko decision for saying “bottleneck monopolies are dead” at “exactly the wrong moment to say that.” At the time of the decision, she said, “We hadn’t yet seen the growth of Google-Alphabet and Facebook and all these other giant things …. We may not have fully appreciated what the competitive challenges of these large, internet-based companies were.”

Predatory pricing law, meanwhile, aims to prevent companies from pricing a product or service below its average cost of production in order to drive existing competitors from the market and deter the entry of new companies. Four Supreme Court decisions since 1986 have made it very difficult to successfully sue large corporations for predatory pricing on the assumption that it was, in the words of the Court, “rarely tried, and even more rarely successful.”

In her speech, however, Wood said that reasoning was mistaken. “There are times that it does happen, times where it really inflicts serious negative consequences on people in the market,” she said.

Wood’s speech was the most important statement in many years on anti-monopoly law and policy by a sitting judge. It marks an important advance in the debate on how to adapt existing antitrust tools to contemporary conditions and suggests some judges may be open to revising existing antitrust doctrines.

Wood’s speech was also important because of the larger concern she expressed about the political consequences of monopolization, or as she put it, concentrating “money and political power in a small number of hands.” America, Wood said, has become “a ‘one dollar, one vote’ system now as opposed to a ‘one person, one vote’ system.”

Wood concluded by saying, “Our forebears were right to recognize” that the distribution of power “is essential not just in economic markets but for political stability.”

“We should get back to work to find ways to implement that insight.”

ANTI-MONOPOLY RISING:

• The House Judiciary Committee unanimously passed four bills to address pharmaceutical prices. The bills include measures to address pay-for-delay agreements, where branded drug companies pay generic drug companies not to introduce generic versions of drugs, as well as measures to study competition in the drug supply chain. Republican members voting for the bills included Ranking Member Doug Collins, R-Ga., and Wisconsin Republican Jim Sensenbrenner. 

• Democratic presidential candidate John Hickenlooper announced last week his plan “to strengthen national anti-trust policies to ensure space for small business growth.” Hickenlooper, a former Colorado governor, wrote in a Medium post that as President he “would push for a ‘post-Chicago School’ approach to antitrust, appointing enforcers who appreciate the need to encourage competition, nominating judges who are committed to the original aims of the antitrust laws, and supporting legislation and administrative actions that encourage competition.”

• The House of Representatives, in its 2020 funding bill for the legislative branch, appropriated $6 million to re-establish the Office of Technology Assessment (OTA). A restored OTA would be designed to provide Congress with nonpartisan, expert assistance to educate members and staff on scientific and technological issues.
  (Read Open Markets’ call for Congress to bring back the OTA in November here.)

• The Federal Trade Commission sued Surescripts, a health information company, for allegedly abusing its monopolies over electronic prescribing markets. FTC Bureau of Competition Director Bruce Hoffman said, “For the past decade, Surescripts has used a series of anticompetitive contracts throughout the e-prescribing industry to eliminate competition and keep out competitors.”

• Daniel Therrien, the Privacy Commissioner of Canada, released his findings into Facebook’s mishandling of user data in the Cambridge Analytica scandal, noting that Facebook is “refus[ing] to act responsibly” by resisting calls to change its practices. Therrien said that he would seek a court order to compel Facebook to “correct its privacy practices,” adding, “It is untenable that organizations are allowed to reject my office’s legal findings as mere opinions. Facebook should not get to decide what Canadian privacy law does or does not require.”

• Missouri Senator Josh Hawley, speaking to St. Louis Public Radio, said he’s “taking a harder edge” against Facebook, Google, and Twitter “[b]ecause they’re doing incredibly creepy things, they’re being dishonest about it, and it’s hurting Missouri families … These companies are the biggest, most powerful companies in the world – maybe in the history of the world – because they collect more personal, private, confidential information on us than anybody ever.”

WHAT WE’VE BEEN UP TO:

• Sandeep Vaheesan, in an op-ed for the Financial Times’ Alphaville section, called on the Trump administration to block T-Mobile’s pending acquisition of Sprint. Vaheesan explains, “Along with protecting consumers from higher prices, workers from lower wages, and citizens from concentrated private power, strong policy against corporate mergers channels business strategy toward publicly valuable ends. Saying no to mega-mergers forces corporate executives to improve their operations and products instead of engaging in a zero-sum swapping of businesses.”

• Sandeep Vaheesan published a post on the OnLabor blog titled “The Bogus Justification for Worker Non-Compete Clauses.” Taking on employers’ stated justification that non-competes protect their investment in workers, Vaheesan argues, “The case for non-competes rests on flawed—and false—assumptions.”

• Claire Kelloway explained in Talk Poverty how the Trump administration’s new pork inspection rule is “actually the final step in a drawn-out food safety debate that’s spanned four administrations.” The ultimate result: more dangerous conditions for workers and more dangerous food for Americans.

• Claire Kelloway also spoke on The Farm Report podcast about Open Market’s recent Food & Power policy brief, outlining issues of consolidation along the food chain as well as solutions for restoring fair agricultural markets. “When you look around agriculture,” Kelloway said, “the basic idea that people can receive a fair price for their products that’s determined through open market competition is really disappearing.”

• Barry Lynn spoke last week at the Arnold and Mabel Beckman Center of the National Academies of Sciences and Engineering at the University of California, Irvine for its “Economic Transition in the Anthropocene” conference. The conference discussed “today’s political-economy and its role in shaping the Anthropocene and our future.”

• Matt Stoller and Sarah Miller criticized the Federal Trade Commission in response to news that the agency would likely fine Facebook $3 billion to $5 billion for mishandling users’ data and other privacy violations. Stoller told The New York Times, “This would be a joke of a fine — a two-weeks-of-revenue, parking-ticket-level penalty for destroying democracy.” Recode quoted Miller saying that the FTC’s “continuous passivity is now positively affecting Facebook’s bottom line … Congress must consider moving resources from the FTC to state Attorneys General, who are demonstrating a willingness to act and serve the public interest.”

VITAL STAT: >65%

Uber’s ride-hailing market share in the North American, European, Latin American, and Australian/New Zealand markets, according to its own amended IPO prospectus filed with the Securities and Exchange Commission last week.

WHAT WE’RE READING:

• “These Ads Think They Know You” (The New York Times – The Privacy Project, Stuart A. Thompson): How companies target online advertising at you as well as where their data on you comes from.

• “Medicare for All and the Myth of Free Markets” (The American Conservative, Jonathan Tepper): Why monopolies throughout the healthcare system, from hospitals to insurers and pharmaceutical makers and distributors, wield enormous power and why Medicare-for-All proposals need to tackle them.  Another component of improving the country’s healthcare system? Medicare Prices for All.

• “15 Months of Fresh Hell Inside Facebook” (Wired, Nicholas Thompson and Fred Vogelstein): A detailed chronicle of the internal dysfunction and dissent that defined Facebook’s 2018.

Written by Barry Lynn and Matt Buck.

Edited by Barry Lynn, Sandeep Vaheesan, Katherine Dill, Stella Roque, Claire Kelloway, and Matt Buck.