Antitrust & Competition Policy Blog

Governance, Issuance Restrictions, And Competition In Payment Card Networks

Posted by D. Daniel Sokol

A new NBER working paper, Governance, Issuance Restrictions, and Competition In Payment Card Networks, by Robert S. Pindyck of MIT's Sloan School of Management takes on the antitrust payment network debate.

ABSTRACT: I discuss the antitrust suit brought by the U.S. Department of Justice against Visa and MasterCard in 1998.  Banks that issue Visa cards are free to also issue MasterCard cards, and vice versa, and many banks issue the cards of both networks.  However, both Visa and MasterCard had rules prohibiting member banks from also issuing the cards of other networks, in particular American Express and Discover.  In addition, most banks are members of both the Visa and MasterCard networks, so governance is to some extent shared.  The DOJ claimed that restrictions on issuance and shared governance were anticompetitive and should be prohibited.  Visa and MasterCard argued that these practices were procompetitive.  The case raised important questions:  Given that many banks issue both Visa and MasterCard, and that most merchants that accept one also accept the other, do the two networks really compete, and if so, how? And do Visa and/or MasterCard have market power, if so, in what market, and how is it exercised?

Argentina and Competition Policy

Posted by D. Daniel Sokol

As reported by the Global Competition Review and sister publication Latin Lawyer, the current administration in Argentina has proposed to include "macro-economic" factors in antitrust analysis.  This is code for an approach that would include political economy considerations into antitrust analysis and move Argentina away from an economics based consumer welfare approach.  This would be a terrible development as it would lead to greater unpredictability and false prosecutions based on a political agenda.

On the topic of Argetine antitrust, there is an upcoming conference worth attending.

SEMINARIO
“CONDICIONAMIENTOS A LAS CONCENTRACIONES ECONÓMICAS”
Martes 17 de Julio de 2007

Programa

8:30 - 9:00 Acreditación. Universidad Austral, Garay 125, 4° piso, Aula 400.

9:00 - 10.45 Panel 1: Conveniencia de establecer parámetros generales en materia de condicionamientos a las concentraciones económicas.

Panelistas:
- Luis Barry, PAGBAM
- Mauricio Butera, vocal de la CNDC.
- Bernardo Cassagne, Estudio Beccar Varela
- Germán Coloma, Universidad del CEMA
- Humberto Guardia Mendonça, vocal de la CNDC
- Santiago Urbiztondo, FIEL
Moderador: Julián Peña, Allende & Brea

10:45 - 11:15 Café.

11:15 - 13:00 Panel 2: Efectos suspensivos o resolutorios de los condicionamientos a las operaciones de concentración económica.

Panelistas:
- Miguel del Pino, Marval, O’Farrell & Mairal
- Marcelo den Toom, M&M Bomchil
- Ismael Malis, ex Presidente de la CNDC
- Graciela Medina, Presidenta de la Cámara de Apelaciones en lo Civil y Comercial Federal
- Julián Peña, Allende & Brea.
- Diego Povolo, vocal de la CNDC
Moderador: Humberto Guardia Mendonça, vocal de la CNDC

Informes e inscripción: Contactarse con Julián Peña (4318-9907, jp@allendebrea.com.ar) o Humberto Guardia Mendonça (4349-4097, hmendo@mecon.gov.ar). Cupos limitados.

Chambers Individual Antitrust Lawyers Rankings: Who Are Among the Best of the Best?

Posted by D. Daniel Sokol

Following up on last week's post, Chambers has released its individual lawyer rankings in antitrust for the United States.  The DC listing is here.  The NY listing is here.  Congrats to all the lawyers who made the rankings. 

Sharfman on Billing

Posted by D. Daniel Sokol

Keith Sharfman of Rutgers-Newark Law School provides an interesting analysis of the implications of Billing on eCCP's website.  An early paragraph sums up Sharfman's take on the case's implications:

Credit Suisse has important implications for antitrust practice. The decision’s effect is to narrow the scope of antitrust law and to invite efforts by regulated industries to narrow it still further. The court’s “clearly incompatible” standard is new and (though it purports not to) seems to water down considerably the old “plain repugnancy” test of Gordon v. New York Stock Exchange, Inc. 422 U.S. 659, 682 (1975). Under the new incompatibility standard, there no longer has to be an actual conflict between antitrust and other federal law for antitrust implicitly not to apply. Even a mere regulatory overlap may now be sufficient to trigger antitrust immunity. (Recall that in Credit Suisse the Court assumed that both antitrust and the SEC disapproved of the tying and other practices in question, and yet the Court still considered the two bodies of law incompatible on account of the regulatory overlap.)

Monday Morning Wrap Up: More on Sony/BMG

Posted by D. Daniel Sokol

Whereas last week we discussed the implications of Sony/BMG in the EU, this week we report that in a 5-0 decision, the FTC has approved a final consent order in Sony/BMG .

Antitrust Panel at Law and Society Annual Conference

Posted by D. Daniel Sokol

For those attending the annual Law and Society conference later this month (with Berlin a step up from last year's Baltimore venue) there is an interesting antitrust panel-- Market Access, Intellectual Property Rights, and Competition Policy.  The  presentations include:

The New Economic Feudalism: The Expansive Use of Patent Licenses to Destroy Market Competition
Peter Carstensen (University of Wisconsin)

Identifying Norms of Competition in Intellectual Property Law
Shubha Ghosh (Southern Methodist University)

Distribution Restraints: The "Free Rider" Explanation
Marina Lao (Seton Hall University)

Essential Facilities, Infrastructure, and Open Access
Spencer W. Waller (Loyola University, Chicago), Brett Frischmann (Loyola University Chicago)

Ordover and Shaffer on Exclusionary Discounts

Posted by D. Daniel Sokol

Exclusion is one of the core issues of antitrust.   A new working paper by  Janusz Ordover of NYU and Greg Shaffer of the University of Rochester titled Exclusionary Discounts sheds some light on some of the complexities in this area.

ABSTRACT: We consider a two-period model with two sellers and one buyer in which the efficient outcome calls for the buyer to purchase one unit from each seller in each period. We show that when the buyer's valuations between periods are linked by switching costs and at least one seller is financially constrained, there are plausible conditions under which exclusion arises as the unique equilibrium outcome (the buyer buys both units from the same seller). The exclusionary equilibria are supported by price-quantity offers in which the excluding seller offers its second unit at a price that is below its marginal cost of production. In some cases, the price of this second unit is negative. Our findings contribute to the literatures on exclusive dealing, bundling, and loyalty rebates/payments.

Michael R. Baye Named New Director of FTC Bureau of Economics

Posted by D. Daniel Sokol

The FTC released a press release that Michael R. Baye of Indiana University will succeed Michael Sallinger as the Director of the FTC's Bureau of Economics.  The press release is here.

Is Antitrust/Competition Law or Industrial Organization Taught in Your Country?

[Back to the Top]

Posted by D. Daniel Sokol

I am surveying countries around the world that are not OECD members and not members of the EU to determine whether and at which universities are antitrust/competition law and/or industrial organization taught. 

Please respond to this post rather than email me directly with the following information:
Country
University (specify department- e.g., economics department or law department)
Course(s).

For example, an entry may look like the following:
Chile
Universidad Diego Portales - law school
Competition law, seminar in competition law and intellectual property

There is a delay to posts (we attract lots of spam) so postings are filtered every day.

Abusive Pricing in an IP Licensing Context: An EC Competition Law Analysis

Posted by D. Daniel Sokol

We have noted in a number of posts that there has been a large number of interesting scholarly works on IP-Antitrust interface issues.  The latest is by the eminent Damien Geradin of Howrey LLP and Tilburg University titled Abusive Pricing in an IP Licensing Context: An EC Competition Law Analysis.

ABSTRACT: In the last two decades, the reliance upon “licensing” strategies as a source of revenue for intellectual property (“IP”) rights holders has seen a dramatic increase. Put simply, in return for an adequate remuneration (typically a royalty, but there may be other forms of consideration), innovators (licensors) grant to other firms (licensees) the right to use their proprietary technology to manufacture products for sale in downstream markets. IP licensing strategies are not only pursued by organizations without manufacturing capabilities (e.g., university research centres). IP holders active in downstream product markets (hereafter, “vertically-integrated” firms) may be licensing their technologies to reap additional profits from their research and development (“R&D”) expenditures, but also to obtain access to other firms' technologies through cross-licensing agreements.

Licensing agreements typically benefit licensors and licensees. The licensee gains access to new technologies, which it will use to improve its manufacturing operations or embed in its products to increase their functionalities. The licensor accrues revenues from his initial R&D expenditures that can be invested in the development of new technologies, which will in turn lead to additional revenues, hence creating a virtuous circle of innovation. Licensing agreements are generally heavily negotiated between licensors and licensees, which in the vast majority of the cases reach mutually satisfactory agreements.

Yet, tensions may arise between licensors and licensees over the terms of their IP licensing deals. The diverging incentives of licensors (eager to obtain a fair level of compensation for the investments made in developing their IP) and licensees (eager to minimize the cost of acquiring proprietary technologies) may generate disputes over royalty levels and other forms of consideration. Such disputes are particularly likely to arise when licensing agreements have the potential to be worth hundreds of millions of Euros and small variations in terms and conditions can be financially significant for both parties. Potential licensees may also insist on obtaining a license on terms that are identical, or at least equivalent, to those obtained by licensees with which they compete. Licensors may, however, resist such requests insofar as differing licensing terms are justified by the particular circumstances of each specific agreement.

Additional tensions may arise when the IP in question is essential to a standard. Some have argued that once a proprietary technology has become part of a standard, its owners will be able to extract royalties in excess of those they could have charged before the adoption of such standard (the so-called “hold up” theory). Although, as will be seen, this theory has clear limitations it has contributed to the belief that royalty rates charged by IP holders are too high. Another claim that has been made is that in circumstances where a standard comprises essential IP held by numerous patent holders, the aggregation of the rates charged by such holders (even if individually reasonable) may lead to a royalty burden of a level such that the standard will be too costly to implement (the so-called “royalty stacking” theory). The proponents of such theories argue that some form of control should be placed on the royalties that can be charged by essential patent holders.

While differences of views between licensors and licensees are generally ironed out through negotiations, there will be situations where licensees may be tempted to rely on competition rules to seek redress against what they perceive as unfair licensing terms. Against this background, this paper explores the extent to which Article 82(a) and 82(c) of the EC Treaty, which respectively prohibit as abusive for dominant firms from “directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions” to their customers, and to “applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage”, can be relied on by licensees unhappy with the deals they have obtained from licensors. These issues are particularly important at a time where economic growth is increasingly dependent on innovation.

This paper is divided in five parts. Part II discusses the specific challenges raised by market definition and the assessment of dominance in high-technology markets with a specific focus on technology licensing. Part III discusses the application of Article 82(a) EC to licensing agreements. It explains the significant conceptual and practical difficulties of applying this provision of the Treaty in the field of technology licensing and argues that competition authorities should refrain from seeking to control prices or rates in dynamic industries. Part IV explores the issue of price / rate discrimination in IP licensing agreements. It argues that while non-vertically integrated licensors have no incentives to discriminate against their licensees, vertically-integrated firms have strong incentives to offer more favourable licensing terms to their downstream operations that to other downstream firms with which they compete. The case is made that the enforcement of Article 82 EC in this field should therefore focus on preventing vertically-integrated firms from raising their downstream rivals' costs through discriminatory licensing fees. Part V contains a short conclusion.