Abstract
During 2013–2014, the Antitrust Division of the U.S. Department of Justice brought a wide range of matters to successful conclusions. The three matters that are discussed below demonstrate the diverse set of issues that the division examines every year.
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Notes
The literature commonly distinguishes between legacy carriers and low cost carries (LCCs), which typically include airlines such as Southwest, Jet Blue, Frontier Airlines, Virgin American, Spirit Airlines, Republic Airways, and Sun Country Air.
Complaint paragraph 34 (p. 13).
Comments of the U.S. Dep’t of Justice, Notice of Petition for Waiver of the Terms of the Order Limiting Scheduled Operations at LaGuardia Airport, Fed’l Aviation Admin., FAA-2010-0109, March 24, 2010 at A-2 (finding an “economically significant impact from the presence of an LCC on nonstop route-level prices, ranging from 21 to 27 % average price decreases and a 68–118 % median increase in number of passengers depending on the data examined”).
E.g., Brueckner et al. (2013) (finding that addition of nonstop LCC service reduces fares by 12–33 % while entry of nonstop legacy service reduces fares by approximately 4 %; similarly, the presence of LCC connecting service lowers fares by as much as 12 %, while additional legacy connecting service lowers fares by typically less than 3 %).
Complaint paragraphs 71–73 (p. 27).
Specifically, this is a screen shot from ITA Software’s Airfare Matrix, taken on August 12, 2013, for travel departing on August 13 and returning August 14 from Miami to Cincinnati. “Multiple Airlines” refers to a route where a passenger uses different airlines for their departing and returning flights. Such routings are relatively unpopular and make up an insignificant portion of air travel in the United States.
An interesting side note on this issue relates to the methodology that was used by Northwest and Delta to defend their claims. The “QSI methodology” compares forecasted demand for the merged carrier under predicted post-merger schedules to that under no-merger schedules to generate estimates of consumer benefit. In retrospect, it can be shown that this methodology is inadequate for merger evaluation, in part because there is no reliable way to predict post-merger schedules. Actual post-merger schedules were significantly different from what was predicted.
Virgin America has announced its interest in beginning service from Dallas’s Love Field to major business destinations throughout the country. Press Release, Virgin America, “Virgin America Plans Dallas Expansion: Airline wants to bring more business-friendly, low-fare flight competition to Dallas with new flights from Love Field,” available at http://www.virginamerica.com/press-release/2014/virgin-america-plans-dallas-expansion.html.
USDOT Origin & Destination Survey. Percentage changes in average fare and number of passengers are calculated using data from the first full quarter after entry by Southwest and, as a baseline, data from four quarters before that entry. To determine annual consumer savings, the number of passengers who flew on each route for each of the four quarters following Southwest’s entry is multiplied by the dollar amount of the corresponding year-to-year fare change for that quarter. The annual amount is the sum of the four quarters for all of the routes. Finally, the national airline ticket price is calculated using DOT data, available at http://www.rita.dot.gov/bts/airfares/national/table.
USDOT Origin & Destination Survey, CY 2012.
Annual seats calculations are based on the number of divested daily slots at each airport and the average number of seats on the aircraft that the slot acquirers typically use.
The HSR Act has various thresholds that govern which transactions need to be filed. These thresholds are indexed to change over time, but in 2012 a transaction priced between about $68M and $273M also had to involve parties of a minimum size; the two merging parties in this case were below that minimum size. However, as this case demonstrates, just because a transaction does not need to be filed in advance does not immunize it against a challenge and, ultimately the possibility of being reversed.
Bazaarvoice and PowerReviews both offered sophisticated PRR platforms with enhanced features, such as moderation, analytics, and syndication of comments. It is worth noting that the enhanced features involve very different forms of production than basic software functionality. For example, moderation involves staffing a service to review comments and make sure they are appropriate before they appear on the client’s web site. And syndication requires establishing a network to allow manufacturers to share, or ‘syndicate,’ product ratings and reviews onto their retailers’ web sites.
For example, the evidence suggested that, as a result of price competition between the two firms, manufacturers and retailers obtained substantial discounts. (Complaint, paragraph 42–46.) Additionally, the competition led to new features and improved functionality. (Complaint, paragraph 50–54.)
Arguably, a firm like Google could have cost advantages in marketing or in developing a reputation to the extent that a new product benefits from the reputation that the firm has already established in other products, but there would still be costs that are specific to each new product and, in particular, to the services that are associated with a new product.
Opinion, paragraphs 142 and 222.
Horizontal Merger Guidelines, Section 5.1.
Horizontal Merger Guidelines, Section 9.
Opinion, paragraph 228.
Opinion, paragraphs 235–236.
Opinion, paragraphs 185–208.
Opinion, paragraphs 241–248.
Note that PowerReviews did not have as robust syndication network but had a set of retailers that suggested that it could get there.
Opinion, paragraphs 253–254.
Opinion, paragraphs 256–259.
Complaint, paragraph 28.
Complaint, paragraph 29.
Opinion, paragraph 268–273.
For examples see Opinion, paragraphs 36–39 and 42–43.
Although, it probably should be noted that self-supply is being adopted less frequently over time and that this trend would affect beliefs about the likelihood that any future customer would make that choice.
For example, Bazaarvoice might have decided that the chances of losing a few more customers to self-supply was worth the payoff from a general price increase if it thought enough customers really only had PowerReviews as an option. Or, Bazaarvoice might have decided to eliminate the lower-priced PowerReviews product altogether if it expected most customers would migrate to the Bazaarvoice option.
Opinion, paragraph 174.
Opinion, paragraph 164.
Opinion, paragraph 175.
The IR500 was used in the regular course of business by the merging firms. (Opinion, paragraphs 150–152.)
Note, however that the network effects in syndication arrangements suggest that retailer market shares may also reflect competitive significance among manufacturers.
Opinion, paragraphs 157–159.
For example, the Institute of Electrical and Electronics Engineers (IEEE) developed the 802.11 Wi-Fi standards, among others. Hundreds of collaborative standard-setting groups operate worldwide, with diverse organizational structures and rules. We will simply refer to these as SSOs.
That may seem to be implied by the name “standard-essential patent” but we’ll make the assumption rather than deal with some of the conflicts of opinion that can develop, for example, when an SSO relies on members’ declaring which of their patents are SEPs.
Specific requirements vary. For example, some organizations have tried to require royalty-free licensing as compensation for inclusion in the standard. However, RAND requirements, or the related FRAND requirement that adds “fair” to the list of adjectives, continue to be the most common solution to the problem.
E.g., Apple Inc. versus Motorola, Inc., 757 F.3d 1286 (Fed. Cir. 2014); Microsoft Corp. versus Motorola, Inc., No. C10-1823JLR, 2013 WL 2111217 (Apr. 25, 2013); In re Innovatio IP Ventures, LLP Patent Litig., No. 11 C 9308, 2013 WL 5593609 (N.D. Ill. Oct. 3, 2013).
See, for example, Renata Hesse, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Six “Small” Proposals for SSOs Before Lunch, Remarks as Prepared for the ITU-T Patent Roundtable (Oct. 10, 2012), available at http://www.justice.gov/atr/public/speeches/287855.pdf.
Other issues that have also been clarified in this process include the closing of a potentially significant loophole by ensuring that licensing commitments transfer to subsequent owners of an SEP.
By committing to license on RAND terms, an SEP owner acknowledges that compensation through licensing revenues for uses that implement the standard is sufficient in most cases. Under the 2006 eBay standard, it has been difficult for patent holders in the United States to get injunctive relief for the infringement of patents that are subject to such commitments. Courts generally have found that money damages were adequate to remedy the infringement and that patent holders were unable to prove they would be irreparably harmed in the absence of injunctive relief. See, e.g., Apple, Inc. versus Motorola, Inc., 2014 U.S. App. LEXIS 7757 (2014).
U.S. Dep’t of Justice and U.S. Patent and Trademark Office, Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments, at 5 (Jan. 8, 2013).
This conceptual framework is arguably seen in the hypothetical negotiation employed by U.S. courts where a patent holder seeks as damages for infringement an award of “a reasonable royalty” (see Georgia-Pacific Corp. versus U.S. Plywood-Champion Papers Inc., 446 F.2d 295 (1971), for a set of factors that are commonly used to implement the ex ante negotiation). However, as noted by District Court Judge James L. Robart in Microsoft Corp. versus Motorola, Inc., 2013 U.S. Dist. LEXIS 161762 (2013), the factors that were used in the Georgia Pacific case may need to be modified to fit the special circumstances of an SSO. For example, one factor would allow the patent holder to discriminate against its competitors downstream, which would clearly be at odds with the non-discriminatory component of a RAND pledge.
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Mehta, A., Nevo, A., Richard, O. et al. The Year in Review: Economics at the Antitrust Division 2013–2014. Rev Ind Organ 45, 379–397 (2014). https://doi.org/10.1007/s11151-014-9442-z
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DOI: https://doi.org/10.1007/s11151-014-9442-z