Over-prescription Is Bad Medicine: the Case Against a Knee-jerk Revision of Antitrust Injury

• Publication year: 2023
• Author: By Beatriz Mejia, Dee Bansal, Alexander J. Kasner

OVER-PRESCRIPTION IS BAD MEDICINE: THE CASE AGAINST A KNEE-JERK REVISION OF ANTITRUST INJURY

By Beatriz Mejia, Dee Bansal, Alexander J. Kasner¹

I. INTRODUCTION

The California Law Revision Commission seeks to evaluate whether California's laws should be revised to include a statutory analog akin to Section 2 of the Sherman Act.² They should not. More regulation is unnecessary and even counterproductive, introducing uncertainty into California competition law. There are plenty of tools under California law already available to police potentially bad behavior by monopolists. For example, California's Unfair Competition Law provides a remedy for consumers to seek redress for acts unlawful under Section 2 of the Sherman Act. Indeed, the California Supreme Court has made clear that the "unfair" act or practice prong of the UCL covers "conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws business its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition."³ Adding an additional provision to California's law to cover what is already actionable creates unnecessary confusion, duplicate liability, and the potential for gamesmanship.

But should California revise its law to add such a provision, it should be careful to both guard against a myopic understanding of antitrust injury and creating liability that only applies to one industry or type of business. Specifically, it should decline to revise the law to create a different "analysis of antitrust injury" in the context of "technology companies" that explicitly credits "competitive benefits such as innovation" and the "personal freedom of individuals to start their own businesses."⁴

There are several issues with such an approach. As an initial matter, it would create an "exception" that would swallow the rule: Nearly every modern company is a technology company.⁵ Defining by statute a class of technology companies that is subject to a different conception of antitrust injury would create uncertainty, be largely unpredictable, and likely prove unenforceable.⁶

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Moreover, technology companies are not static and will continue to evolve. Trying to tailor the antitrust laws to the current state of technology will require repeated revisions as technology evolves, making the antitrust laws subject to antiquation. Technology companies do not require a new vocabulary. The antitrust laws are already written to allow for adaptation to new ways of competition, emerging technologies and industries. Certainly, the sparse language of the Sherman Act, which California follows, leaves substantial interpretative power to the courts, and allows for the evaluation of how antitrust law applies in new contexts. Modern technology is just the latest area in which we must endeavor to assess competitive harm.

Further, whether by intention or accident, expressly crediting the individual freedom to start businesses as a priority when assessing antitrust injury would appear to depart from the long-established focus on consumers, rather than competitors. By emphasizing values such as individuals' "personal freedom" to start competing businesses, the proposal shifts the focus of California competition law from consumers to competitors, and to an overly generalized notion of fairness. Yet there is little reason to depart from the bedrock consumer welfare standard because that standard already promotes the necessary conditions for healthy competition.

To be sure, the most obvious and identifiable competitive harm is increased prices to consumers. But price fluctuations are not the only cognizable harm under the Sherman Act and California law. Increased innovation, for instance, is already credited in antitrust injury jurisprudence, along with quality of service, consumer choice, and output.⁷As a result, antitrust law has already effectively addressed anticompetitive questions that recur in the technology industry: harms to innovation; harms to suppliers (including in labor markets); and anticompetitive conduct involving products sold for zero monetary price. Moreover, recent cases out of the U.S. Court of Appeals for the Ninth Circuit and Northern District of California demonstrate how federal law's approach to technology companies can accurately assess antitrust injury without resorting to novel frameworks.

Creating statutory duplication and industry-specific carve outs misreads the tools available under current antitrust law and creates problems where none exist. Instead, there is far more promise in continuing to refine the application of the existing antitrust laws to the challenges of new industries such as technology markets and digital platforms.

II. ANTITRUST INJURY IN THE CONTEXT OF TECHNOLOGY COMPANIES AND DIGITAL PLATFORMS

The current understanding of antitrust injury reflects a broad range of concerns—higher prices, of course, but also lower quality of products, fewer choices available to consumers, and decreased innovation. Technology companies and digital platforms consistently make these tradeoffs, and for good reason: App markets set minimum standards that balance consumer choice with quality of offerings, to guard against spam, harassment, and privacy violations. Digital companies may wish to favor long-term innovation, which may mean a short-term increase in consumer prices. And the multi-player nature of digital ecosystems may mean balancing the interests of multiple categories of consumer, complicating a price-focused assessment of consumer welfare.

Antitrust injury under California law "is analyzed under the same general framework as federal law."⁸And the latter has already adopted a workable standard for antitrust injury in the context of technology companies—a holistic approach to consumers, benefits, and harms that avoids unnecessary fixation on price fluctuations. California law should continue to reflect this flexible and adaptable approach, buttressed by the additional California-specific protections of Business and Professions Code sections 16600 and 17200 that provide further consumer protections.

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A. RECOMMITTING TO CONSUMERS WHEN ASSESSING ANTITRUST INJURY

A statute which redefines antitrust injury to focus on, among other aims, the promotion of small businesses, and only in the context of the technology industry, is a departure from the current consumer welfare approach. This is an unjustified departure—the proposed statute does nothing to address its implicit critiques of the consumer welfare standard or promote the interests of efficiency or innovation.

1. THE PROPOSAL'S DEVIATION FROM PLACING CONSUMERS AT THE CENTER

An antitrust claim requires an antitrust injury—the type of harm to competition that the antitrust laws were designed to prevent. Anticompetitive harm has long been understood to put consumers at the center: "reduction of competition does not invoke the Sherman Act until it harms consumer welfare."⁹Indeed, not every harm resulting from the sharp elbows of the marketplace is anticompetitive. The consumer welfare test is fundamentally inclusive, because consumer preferences are likewise varied. As a result, as far as federal antitrust law is concerned, the consumer-welfare standard is not limited to whether prices rise or outputs increase. It rather encompasses both "the maximization of wealth or consumer want satisfaction."¹⁰ Indeed, the pro-consumer standard is designed to promote efficiency and innovation, namely, the introduction of new products and services from companies big and small alike.

A statute that would define antitrust injury as conduct that restricts "the personal freedom of individuals to start their own businesses" is fundamentally more focused on competing businesses rather than consumers.¹¹ But this artificial leveling of the playing field credits businesses with no consideration of their merit or value to consumers. Indeed, some would argue that such a policy "is likely to protect higher cost or less innovative competitors, many of whom may be smaller."¹² And, such an approach would depart from the axiom that the purpose of the antitrust laws "is not to protect businesses from the working of the market; it is to protect the public from the failure of the market."¹³

2. SHIFTING FOCUS FROM THE CONSUMER WELFARE TO OTHER AIMS IS NO SOLUTION

Whether one agrees with the consumer welfare standard for assessing antitrust injury, the statutory carveout at issue does not solve for the critiques of the consumer welfare standard. At the outset, it is not clear why the statutory aim of, say, fostering new business is a goal in search of an antitrust aid.¹⁴ Instead, California could, for example, employ economic incentives to encourage new market entrants rather than dictating the contour of markets by statute.

Moreover, antitrust injury doctrine already considers potential restrictions on innovation. Therefore, adding such regulation serves no additional purpose and may, in fact, cause confusion as to which innovations to credit—those of new entrants or those of the incumbent firms. Certainly, consumers (not legislators) are best positioned to make that judgment.

Moreover, the consumer-focused standard works just as well for technology companies or innovative industries as it does for other sectors. While there may be an increasing concern that the technology industry is driven by a few Big Tech goliaths, as a recent White House Executive Order has noted, this is not a unique concern in the technology industry—the healthcare, financial services, and agriculture sectors likewise have large players.¹⁵ A statutory carveout for technology is not merited merely because some of its participants are particularly well known.¹⁶ Moreover, nowadays, it is hard to find any company that does not consider itself a technology company. Nor are such companies stagnant. In this context, it is hard to imagine the value of rigid...