Archive for the ‘Economic Analysis’ Category
Thursday, August 12th, 2010
Tim Muris, former chairman U.S. Federal Trade Commission and current advisor to IBM, wrote an op-ed in the Wall Street Journal suggesting the antitrust authorities should be very careful of competitor-driven complaints.
Competition agencies ideally help consumers by ensuring open, competitive markets while eschewing actions that impede innovation and competition. But the accelerating pace of technological development makes their task more difficult. Today’s technology behemoth risks becoming tomorrow’s dinosaur, and competitors sometimes plead for government intervention to obtain what they fail to achieve in the market. As a former head of a competition agency, I offer five principles to guide competition policy toward successful innovators.
- Be wary of competitor complaints – “Competitor complaints are driving recent EU investigations into companies that include Qualcomm, Google, Oracle and IBM. Competitors can provide valuable information about marketplace realities, but they have every incentive to misuse the government to obtain an advantage that is otherwise unattainable.”
- There are no shortcuts. “Having encouraged firms to succeed, we should not use that success to presume violations of competition law or to force the firm to justify its actions.”
- Don’t define markets too narrowly “When something is truly innovative it often becomes the clear leader or creates a whole new product category, at least until someone else develops the next breakthrough…In technology, the relevant competition is often from other systems.”
- Don’t create disincentives for innovation-” Complaining competitors often want innovators to be forced to share the source of their success, regardless of intellectual property rights…The recently announced EU investigation of IBM risks creating this disincentive.”
- Consider your remedy early and often – “Even important cases, such as the American government’s against Microsoft, can be bedeviled at the remedial stage.”
The full article is available on the WSJ site (subscription required).
Posted in Compulsory Licensing, Due Process, EC Investigation of IBM Mainframe Tying, Economic Analysis, IBM, Innovation and IP, Uncategorized, mainframe market, tying | No Comments »
Sunday, February 28th, 2010
As part of a chronicle of articles in Competition Policy International, Daniel Crane of University of Michigan wrote an article that looked at the FTC’s use of its Section 5 powers in the case against Intel. The article argues that:
The Federal Trade Commission’s (“FTC’s”) unprecedented enforcement action against Intel raises profound issues concerning the scope of the FTC’s powers to give a construction to Section 5 of the FTC Act that goes beyond the substantive reach of the Sherman Act. While I have urged the FTC to assert such independence from the Sherman Act,this is the wrong case to make a break. Indeed, if anything,Intelposes a risk of seriously setting back the development of an independent Section 5 power by provoking a hostile appellate court to rebuke the FTC’s effort and cabin the FTC’s powers in future matters better suited to an independent Section 5.
The essential flaw in the Commission’s assertion of an independent Section 5 inIntelis that there is little or no connection between the Commission’s comparative institutional advantages over Article III courts and this case. The Commission should not make a break for Section 5 independence until it finds a case in which it can explain what facts about that particular case—and not about antitrust cases in general—justify judicial deference. Otherwise, the Commission runs the risk that courts will interpret its plea for deference as a request to be excused from the rule of law. There is a very real risk that courts will viewIntelas an effort to achieve carte blanche permission for the Commission to run an antitrust program divorced from the strictures of the Sherman Act. Courts are unlikely to react sympathetically to such a perceived request.
The full article is available at Competition Policy International [subscription required].
Posted in Analysis, CPU Market Competition, Compiler Design, Compulsory Licensing, Discounting and Rebates, Economic Analysis, FTC Case Against Intel, FTC Section 5, GPU Market Competition, Innovation and IP, Intel, US FTC | No Comments »
Sunday, February 28th, 2010
As part of a chronicle of articles in Competition Policy International, Kent Bernard wrote an interesting analysis of the different legal theories used by the European Commission and the FTC in their individual cases against Intel. The article looks at some of the unforeseen problems that may be created by the differing legal theories:
Unlike in the Commission proceeding, the FTC Complaint and, especially, the statements issued by two Commissioners, acknowledges there is a new legal approach being taken (albeit alongside some traditional allegations). And, completing the analytical circle, that new U.S. approach seems to adopt a view of Section 5 of the FTC Act that is borrowed in large parts from the Commission Article 82 cases (while resolutely claiming that this approach is what the drafters of the U.S. statute some 96 years ago intended all along).
While this article will discuss the allegations and analyses of the European and the U.S. cases, our focus will be on what appears at first blush to be an odd convergence of legal theory across the Atlantic Ocean. Our question is not simply whether the point at which both systems seems to be aiming is a “correct” one. What concerns us is whether if both sides approach, but do not reach their goals, they will make things far worse rather than better.
The full article is available from Competition Policy International [subscription required]
Posted in Analysis, CPU Market Competition, Compiler Design, Compulsory Licensing, Discounting and Rebates, EC Case Against Intel, Economic Analysis, European Commission, FTC Case Against Intel, GPU Market Competition, Innovation and IP, Intel, US FTC | No Comments »
Thursday, January 7th, 2010
During the month of January 2010, the Antitrust & Competition Policy Blog held a Blog symposium on Section 5 of the FTC Act. As part of the blog symposium, Josh Wright wrote an essay arguing that the FTC is using Section 5 of the Federal Trade Commission Act to evade Section 2 monopolization law, and that is not a legitimate use of Section 5.
Wright suggests that the arguments provided by Commissioner Rosch and the other Commissioners for using Section 5 “fail to justify use of the Commission’s Section 5 authority in the Intel matter. Further, these arguments provide only a thin veil for what appears to be the more likely reason that the Commission is choosing to exercise its Section 5 authority against Intel – to evade the strict requirements of proof of competitive harm embedded into Section 2 of the Sherman Act.” He goes on to say:
“…Whatever one thinks about the competitive merits of Intel’s underlying conduct, the Commission’s use of Section 5 should be seen for what it is: an attempt to evade requirements to demonstrate consumer harm under Section 2 that exist to protect consumers from the social costs of false positives. Such an approach is bound to harm competition and consumers in the long run because it gives the Commission the option to apply its “watered down” standard to whatever business conduct it views as potentially problematic. This approach is a recipe for Type I error and should be rejected by fans of consumer-welfare based antitrust policy.”
The full article is available at Antitrust & Competition Policy Blog.
Posted in Analysis, CPU Market Competition, Discounting and Rebates, Economic Analysis, FTC Case Against Intel, FTC Section 5, GPU Market Competition, Innovation and IP, Intel, US FTC | No Comments »
Thursday, December 31st, 2009
Intel’s response to the Complaint filed the Federal Trade Commission questioned the Complaint’s resemblance to reality and argued that the Commission’s proposed remedies were both Draconian and completely unwarranted. Intel argued that:
The Complaint paints a pictue of competition for microprocessors and graphics products that bears little resemblance to reality. Competition in these sectors has been robust during the period covered by the Complaint, producing greater consumer benefits than any other sector of the economy.
Decreasing Prices and Expanding Output. According to the Complaint, Intel’s alleged
conduct raised the prices of microprocessors (also known as “CPUs”) and the products containing them. In reality, during the period covered by the Complaint, according to U.S. Bureau of Labor Statistics data, microprocessor prices, adjusted for quality, declined at an annual rate of 42%. This rate of decline was greater than that of any of the 1,200 other products that the Bureau tracks, including any other high-technology product…
Dramatic Increases in Innovation. The Complaint alleges that Intel’s conduct has stifled innovation. But the period covered by the Complaint has been characterized by rapid innovation that has increased the functionality and performance of microprocessors and the platforms into which they are incorporated…
Intel went on to question the FTC’s proposed remedies:
In its quest to micromanage Intel’s business and dictate market conditions, the Commission goes so far as to propose that Intel should be forced to license its patents “upon such terms and conditions as the Commission may order.” The Commission proposes to create a scheme under which the Government, and not the market, would decide who can use Intel’s inventions. Under the rules the Commission proposes, the inventions created by Intel’s engineers and paid for by Intel’s shareholders would be available to Intel’s competitors merely upon a majority vote of the Commissioners – even if those inventions were protected by patents and other forms of intellectual property. For example, the Complaint asserts that Intel has a duty use for which Nvidia bargained. In so doing, the Complaint seeks to displace the voluntarily negotiated exchange of value under an agreement between Nvidia and Intel with a Government decree that is more to Nvidia’s and the Commissioners’ liking.
The Complaint also threatens to rewrite other aspects of Intel’s intellectual property license agreements by extending their duration or by rescinding carefully negotiated provisions regarding changes in control of the licensees. The Complaint does not and cannot challenge the lawfulness of these provisions, but nevertheless seek to strip Intel of intellectual propert rights earned by Intel over many years of dedicated research and enormous investment. The only evident reason is the Commissioners’ desire to alter marketplace outcomes to their own liking and to the detriment of competition and consumers.
The full response can be downloaded from the FTC website.
Posted in CPU Market Competition, Compiler Design, Compulsory Licensing, Discounting and Rebates, Economic Analysis, FTC Case Against Intel, FTC Section 5, GPU Market Competition, Innovation and IP, Intel, Legal Filing, Netbook Market, US FTC | No Comments »
Tuesday, December 1st, 2009
Damien Geradin, the Director of the Global Competition Law Center at the College of Europe, writes that the European Commission’s decision against Intel proved neither foreclosure of the market to competitors nor any consumer harm (often considered prerequisites to any successful antitrust case). Geradin argues that:
A prima facie review of this Decision suggests that it contains a number of flaws that raise serious questions about its compatibility with EC competition law in particular and sound antitrust policy in general. These flaws include the facts that the Decision: (i) arguably relies in substance on a per se prohibition of conditional rebates recognized by the formalistic case-law of the Community courts, notwithstanding that the Commission had clearly indicated in various important policy documents, including its Guidance Paper on Article 82 EC, its intention to move away from this approach for an effects- based analysis; (ii) states, contrary to sound policy, that it need not conduct an “as efficient competitor” test, but conducts a misguided one anyway; (iii) insufficiently supports its speculative theory that the OEMs’ purchasing policy was influenced by their understanding of Intel’s alleged intention to reduce or eliminate their rebates should they buy x86 CPUs from AMD; (iv) fails to demonstrate its allegation that Intel’s rebates would harm competition and consumers; and (v) conducts an excessively restrictive analysis of the efficiencies created by Intel’s rebates.
A broader question that must be kept in mind when reading the Commission Decision is whether antitrust intervention was needed in a market characterized by increasing output, decreasing prices and sustained innovation. These characteristics alone should raise serious doubt about claims of anti-competitive foreclosure and consumer harm. They also question the Commission’s wisdom of investing large enforcement resources in what turned to be a long and protracted investigation.
The full paper can be downloaded here.
Posted in Analysis, CPU Market Competition, Discounting and Rebates, EC Case Against Intel, Economic Analysis, European Commission, Innovation and IP, Intel | No Comments »
Monday, September 21st, 2009
The Intel Corporation responded publicly to the publication of the European Commission’s non-confidential version of the decision against the company with a white paper on September 21, 2009. The white paper argues:
On May 13, 2009, the European Commission (“Commission”), announced its finding that Intel had violated Article 82 of the EC Treaty (“Decision”). Intel is convinced that the Commission, which serves as investigator, prosecutor and decision maker in European Community (“EC”) proceedings of this type, reached indefensible conclusions in its Decision – conclusions that are wrong as a matter of fact, law, economics, and elementary fairness. The Decision punishes innovation, risk-taking and strong price competition, and rewards failure. It seeks to take market competition out of the capable hands of the buyers and sellers that participate at every level of this market, and place it in the hands of European government regulators.
Most importantly, it essentially ignores the remarkable achievements that competition has produced in the microprocessor market over the past decade: dramatically lower prices, significantly greater output of product, and exponentially improved performance. It seeks to impose an artificial parity between Intel and its main competitor, AMD, in a market that, over and over again, has shown that it knows how to reward accomplishment, whether by Intel or AMD, and to punish failure, again regardless of which market participant failed.
Intel has exercised its right to appeal the Commission‟s Decision to an independent tribunal, the Court of First Instance of the European Community. The purpose of this paper is to address the accusations levelled at Intel in the redacted version of the EC‟s Decision which was recently made public. In doing so, we are hampered by the fact that much of the evidence Intel would like to rely on – documents and testimony of employees of AMD and the Original Equipment Manufacturers (“OEMs”) – remains subject to confidentiality protection and cannot be cited publicly. While the Commission has obtained waivers from the OEMs to make public much of the evidence it cited in the Decision, Intel is not in a position to insist that the OEMs waive confidentiality more broadly, to allow Intel to cite evidence that places the materials the Commission cited into context, proves that the accusations the Commission makes are unsupportable, and demonstrates that the market is highly competitive. As a result, at this juncture Intel‟s response to the Commission Decision must be general in nature.
However, one important OEM, Dell, which the Decision says was coerced by fear of Intel “punishment” to buy exclusively from Intel, has confirmed publicly that it always considered itself entirely free to choose to buy from AMD, without fear of reprisal or punishment. The record before the Commission contains sworn testimony of Dell executives that contradicts this essential premise of the Commission‟s case. The Decision nevertheless disregarded this evidence and instead relied on the speculation of a single lower level employee, who was not a decision maker and not even at Dell for much of the relevant period.
Dell‟s affirmation of its freedom to choose its suppliers, which undercuts the central premise of the Commission‟s case, serves as a caution that the Commission‟s one-sided depiction of the evidence will not withstand scrutiny. In this paper, we address the evidence that is publicly available and does not require the Commission‟s dispensation, or a breach of the confidentiality of a third party‟s information.
The Decision alleges that Intel implemented a strategy to foreclose AMD by engaging in two specific forms of anti-competitive conduct: (i) granting rebates1 to five original equipment manufacturers (“OEMs”) on condition that they purchase all, or almost all, of their x86 CPU requirements from Intel, and granting rebates to the German retailer, Media-Saturn- Holding GmbH (“MSH”), on condition that it only sold computers containing Intel‟s x86 CPUs; and (ii) imposing so-called “naked restrictions” upon three OEMs, by making payments to them to halt or delay the launch of, or limit the sales channels for, specific products containing AMD‟s x86 CPUs. These findings are not only factually wrong but also reflect a view of competition policy that would thwart the vigorous competition that sound antitrust policy should foster.
The full white paper can be downloaded here.
Posted in Analysis, CPU Market Competition, Discounting and Rebates, Due Process, EC Case Against Intel, Economic Analysis, European Commission, Innovation and IP, Intel, protectionism | No Comments »
Wednesday, May 13th, 2009
On Monday, the US Department of Justice’s lead antitrust enforcer announced a new direction for her agency. In a speech before the
Center for American Progress,
Christine Varney, assistant attorney general for antitrust, said “as antitrust enforcers we cannot sit on the sidelines any longer.”
According to the
San Jose Mercury News, the speech is a troubling sign for technology industry titans, particularly Intel:
“In the past, the antitrust division was a leader in enforcement efforts in technology industries, and I believe we will take this mantle again,” she said.
The policy shift could have broad implications for dominant companies as well as their smaller competitors. Google and Intel already face antitrust inquiries, and those could accelerate… Antitrust lawyers said Varney’s speech could have almost immediate ramifications for Intel, which is widely expected to be slapped with a record-setting fine Wednesday from the European Commission in excess of $1 billion for anticompetitive practices, including illegal rebates and paying retailers not to sell PCs with chips from competitor AMD.”
The San Jose Mercury News and the antitrust cheerleaders quoted in the story might be getting ahead of themselves, however.
While it is clear that AAG Varney plans to be vigilant enforcer of America’s antitrust laws, she did not suggest walking away from American antitrust law. Over and over again, she returned to her “back to basics” mission: “consumer welfare.” And through this lens, the competitive accusations against leading technology firms often look much less substantive.
Let’s take a look at Intel, for example. The European Commission is reportedly going to charge the chip manufacturer with illegally distorting competition on Wednesday, but it is NOT clear that American regulators will have any interest in picking up where the Commission leaves off. In fact, the concept of “welfare” has never seemed to be at the core of the case. As the
BBC notes:
“…whether or not Intel has broken the rules, the issues are by no means clear-cut. Over the years since the complaint was first made, the price of personal computers and the computer chips that go in them has fallen enormously. It can be argued that Intel has tried to squeeze its rival out of the market, but this does not necessarily mean consumers have suffered, as prices for computers and micro-chips have continued to fall across Europe.”
The reality is that there is no evidence of consumer harm or a lack of competition in this market.
- Innovation is Thriving - Both AMD and Intel have been delivering powerful innovations for decades and virtually no one is complaining about a lack of innovation in the sector. This Gizmodo piece highlights some of AMD’s greatest achievements, while noting that Intel has jumped out in front again in recent years.
- Despite Technological Hurdles, Computing Power Continues to Increase Exponentially In Line with Moore’s Law - The microprocessor industry continues to deliver more processing power every year at nearly the same rate, despite predictions to the contrary.
- Microprocessor Prices Fell By Nearly 50% Per Year From 2000-2006 According to Bureau of Labor Statistics Reports and Intel has said the average price of its chips for personal computers has fallen 60% over the past decade.
- When AMD Innovates, It Gains Market Share. Throughout the years, when AMD has innovated and outpaced Intel the market has rewarded the company. Just before AMD’s launch of its Athlon 64 bit processors in September 2003, the company had 15.6 percent of the market. By Q4 2006, AMD had 25.3 percent of the market, a 61.6 percent jump in market share.
Whatever the European Commission decides in its investigation of Intel, the evidence does not seem to show any consumer harm in this market. This suggests that US authorities will still not be interested in pursuing it, and that competitors with a grudge but no facts to support consumer harm will continue forum shopping in the antitrust world.
Posted in AMDvIntel Private Litigation in Delaware, Blog, CPU Market Competition, Discounting and Rebates, EC Case Against Intel, Economic Analysis, European Commission, FTC Case Against Intel, Innovation and IP, Intel, Netbook Market, US DOJ, US FTC | No Comments »
Wednesday, May 13th, 2009
TechRadar surveys the American legal and technology landscape for reaction to the European Commission’s record-breaking fine against Intel:
…Professor Keith Hylton of Boston University agrees: “”The EC decision to impose the largest fine in its history on Intel sends a worrisome signal to dominant firms in the US. Punishing large firms for cutting prices provides a strong incentive for those firms to avoid price competition, and this hurts consumers in the long run.”
Ronald Cass, Chairman of the Centre for the Rule of Law chimes in with, “The EC’s use of huge fines against market-leading firms – fines calculated from a firm’s world-wide sales, not from harm to European consumers – discourages aggressive competition that benefits consumers. Consumer harm should be the concern for competition law, and here instead consumers saw sharp declines in cost and increases in product quality. Even Intel’s complaining rival, AMD, enjoyed historic success during the period it claims Intel’s actions foreclosed competition.”
Jonathan Zuck, President of the industry advocacy group the Association for Competitive Technology notes, “For the past 20 years, the microprocessor industry has delivered more innovation, more speed, more functionality, and lower prices. Over the past ten years, the average price of Intel’s PC microprocessors has dropped by 60 per cent. When the only one complaining about the competitive situation is AMD, it raises serious concerns about the efficacy of this action.”
The full article is available at TechRadar.
Posted in EC Case Against Intel, Economic Analysis, European Commission, Innovation and IP, Intel, International Trade, News Item | No Comments »
Tuesday, April 1st, 2008
The College of Europe’s Global Competition Law Center drafted a working paper on the issue of whether current norms for competition law proceedings violate the right to a fair trial. The article goes over the traditional arguments against the European Commission model for enforcement:
First, as so often stressed –and most recently by the OECD–, “combining the function of investigation and decision in a single institution” may have the effect to “dampen internal critique” within the institution and raise “concerns about the absence of checks and balances”2. Creating the proper decisional structure is indeed fundamental for the quality of decisions.
Second, from a strictly legal point of view, the combination of all powers within one institution raises the question of the compatibility of competition law proceedings led by the European Commission (“the Commission”) with the fundamental right to a fair trial as enshrined in Article 6 of the European Convention of Human Rights (“ECHR”)3.
The authors go on to say:
Traditionally, the view is taken that, it is sufficient for Commission decisions in antitrust cases to be subject to review by the Community courts and particularly by the Court of First Instance (“the CFI”), even if the Commission itself is not an “independent and impartial tribunal” under Article 6 ECHR. However, where fines of close to a billion € are imposed today on companies and where competition law is becoming more and more criminalised, it is questionable whether this view is still valid
…This paper will thus show that, given the rapid “criminalisation” of competition law proceedings, sanctions should in principle be imposed at first instance by an independent and impartial tribunal fulfilling all the conditions of Article 6 ECHR (part I). Or at the very least, these sanctions should be subject to full jurisdictional review by an independent and impartial tribunal in order to comply with Article 6 ECHR and to cure the defects of the administrative procedure (part II). It is doubtful however whether such a full jurisdictional review, as it is understood by the ECtHR, is available at Community-level in antitrust cases.
The full article can be downloaded from the College of Europe website.
Posted in Analysis, Due Process, EC Case Against Intel, Economic Analysis, Intel, US FTC | No Comments »
