Competition

There’s been much press coverage of the travails of the AmLaw 100 — America’s largest law firms. Clients are aggressively pushing back against ever-increasing hourly rates and significant inefficiencies. Storied firms have been foldingmerging and laying off staff and even attorneys at unprecedented levels. Electronic discovery specialists and legal outsourcing are compressing margins for the litigation work that historically fueled big firm profits. Non-traditional legal providers are hardly faring better. Clearspire, a much-heralded pioneer of the virtual law firm concept, closed shop in June.

Yet at the same time — and perhaps as a consequence — the market for legal startups is booming. VentureBeat commented that the profession’s ongoing transition is “fueling innovation throughout the entire industry.” In 2009, just 15 legal services startups were listed on AngelList. There are now more than 400 startups and almost 1,000 investors. A whopping $458 million was invested into legal startups last year, a remarkable increase from the $66 million that went into the space in 2012. Legal entrepreneurs are focused on two different objectives: helping lawyers do their work better, faster and cheaper, and making the law more accessible, sometimes eliminating the need for lawyers altogether.

Law

It is the second, consumer-facing portion of this trend that portends a fundamental change in the legal market. By giving both individual and corporate consumers the resources to do it yourself, today’s crop of disruptive legal startups is laying the groundwork for an era in which software tools, social sharing and document comparison-assembly programs are positioned to replace attorneys’ stock in trade, namely reuse of contracts and other legal “forms.”

A century ago the bar protected itself with arcane Latin phrases and obscure judicial reporters. Two decades ago, it used the expense of private legal research databases like LexisNexis, an information barrier that is increasingly archaic in today’s era of Web-enabled courts and Google Scholar. With the present challenge to the largest traditional domain of legal practice — creation, revision and execution of legally binding documents — technology is breaking down walls that made have legal U.S. services unaffordable, and thus essentially unavailable, to many except the wealthy those at the opposite end of the economic spectrum who qualify for free and pro bono legal services.

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Back in March, I blogged about a slate of competition accusations that had been leveled at the Android mobile operating system.  Although I am not going to rehash my initial arguments here, I wanted to point readers to a recent paper by Dr. Torsten Körber, which analyzes the same claims and comes to similar conclusions (including noting that both the US FTC and Korean antitrust regulators examined the Android ecosystem as part of their antitrust reviews of Google’s practices and found no cause for concern).

Given that this is a blog, and not an academic journal, I’m not going to analyze Körber’s entire paper (although I recommend it to anyone interested in a deep dive on these issues), but instead point out a few interesting takeaways from it on the nature of competition in the mobile ecosystem.  Specifically, I will focus on how the mobile market is different than the PC market, as much of the current high-tech antitrust thinking and analysis is influenced by prior landmark antitrust cases, not least of which being the Microsoft cases.

1) The mobile market turns over much faster than the PC market

In the mobile world, turnover of devices is much faster.  Although it varies by country and manufacturer, it is very common for consumers to replace their smartphones every year, or every other year.  Compare this to the PC world, where — as Körber points out — Windows XP still has nearly a 30 percent share, and it was released in 2001!

So, what does this mean for antitrust/competition analysis?  It means that market power is more difficult to come by and market share is more ethereal than in the PC market, as consumers are continually faced with inflection points where they reevaluate their choice of handset and mobile OS.  Whereas if the average consumer replaces his or her computer once or twice a decade, then market power is more permanent and market share changes are much slower.  This partially explains the ephemeral nature of the leading smartphone and mobile OS makers over the decade, which is illustrated by this quote from comScore market research highlighted in the paper:

“In 2005, the market was dominated by Palm, Symbian and BlackBerry. However, by the following year all three had ceded control to Microsoft as the new market share leader. 2008‐2010 saw BlackBerry stage a comeback to assume the #1 position before eventually giving way to the upstart Android platform in 2011”.

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Yesterday, it was reported that Community, which had been canceled by NBC in May, was just picked up for a sixth season (at least) by Yahoo.

The creation and distribution of original programming by new entrants is a growing phenomenon.  Traditional over-the-air broadcast television is no longer the sole source of episodic programming.  As DisCo has previously noted, shows like House of Cards and Alpha House have risen to fame on web-based services like Netflix and Amazon, entirely in the absence of network backing.  Just as record labels are no longer the sole gatekeepers to music production, it is increasingly clear that television networks are no longer the gatekeeper to serialized video content.

Increased competition and disintermediation in the market for video content is unmistakably a good thing for consumers, who have more options for entertainment than ever before, and for creators and entrepreneurs, who can produce programming without needing permission or funding from existing gatekeepers.  This allows for more risk-taking and creative choices, without having to worry about what incumbents find desirable.

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The French have a wonderful saying, la plus ça change, plus c’est la même chose, which roughly translates to “the more things change, the more they remain the same.” That’s an apt description of current, high-profile wrangling in the United States about music licensing under federal copyright law. Despite all the jarring changes to the recording industry over the past decade — remember Tower Records? — it’s the same issues and (mostly) the same players as always, arguing over a Rube Goldberg-like system of arcane complexity.

Tomorrow the House of Representatives (specifically the Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet) will hold a second round of hearings on music licensing. This inquiry coincides with a recent announcement by the Justice Department that it will review — and solicit public feedback on — the 73-year-old antitrust decrees that govern ASCAP and BMI, two groups which act as licensing clearinghouses for a range of outlets that use music, including radio stations, websites and even restaurants and doctors’ offices. As the New York Times has observed, “billions of dollars in royalties are at stake, and the lobbying fight that is very likely to unfold would pit Silicon Valley giants like Pandora and Google against music companies and songwriter groups.” MORE »

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Amazon entered the smartphone scene in a major way today with its much hyped Fire Phone.  Although technology reviewers are furiously picking over the products new specs, such as its 3D screen, 13 megapixel camera and the dynamic perspective technology, I wanted to step back and examine how the tech embedded in this phone can accelerate the disruptive innovation already taking place in the tech ecosystem as we speak.  One particular feature of the phone deserving attention is the Firefly technology, which allows users to use their phone’s camera and microphone to directly identify objects, products, movies or songs in the real world and take actions based on that recognition.

I will take a more detailed look on what Amazon’s entry means for competition in the smartphone world in a follow up post, but without further ado, here are some disruptive aspects of the new Amazon smartphone:

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As the England football team prepares for the 2014 football World Cup in Brazil there is much agonising over whether the structure of English football is what is needed to win the World Cup for the first time since 1966. At Project DisCo we are keen followers of the beautiful game (although our allegiance shall remain secret) both with regard to how the game is played but also how it is organised and paid for.

The United Kingdom is home to one of the most dynamic Internet, communications and media markets in the world. Whether we rely on the work of the Boston Consulting Group who proclaimed the UK top of the world’s ‘e-intensity’ index or Ofcom’s, the UK communications and media regulator, homegrown analysis, things are looking pretty good for consumers. There is choice, availability and price competition; mostly, that is.

The English Premier League competition has existed since 1992. In that period the quality of football (soccer for any North American readers), and associated infrastructure such as stadia, has improved considerably. In the same period we have also seen considerable improvements in the UK communications infrastructure, a blossoming of services and a considerable decline in prices. That is what competition does.

While there is robust competition in the market for communications and Internet services there is a corresponding lack of competition in the market for pay TV, which is driven by premium sports content, or more precisely Premier League football. One method of measuring the amount of competition in a market is the Herfindahl-Hirschman Index (HHI), with a score of 1000 indicating a competitive market and over 2500 being unusually highly concentrated. The 2012 report of the UK Competition Commission, “Movies on pay TV market investigation – A report on the supply and acquisition of subscription pay-TV movie rights and services,”shows that the HHI score for the UK pay-TV market was 5000 in May 2012. The report goes on to note that “Sky’s market share has been persistently above 60%”.

Such concentration often leads to a situation in which the consumer pays more.

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There’s a famous old political adage — “where you stand is where sit” (also known as Miles’ Law) — meaning basically that government policy positions are dictated more by agency imperative and institutional memory than objective consideration of the public interest. A related concept is “regulatory capture,” where administrative agencies over time become defenders of the status quo and pursue objectives more for regulated firms as their constituency than consumers. Capture theory is closely related to the “rent-seeking” and “political failure” theories developed by the public choice school of economics. Or as Harold Demsetz put it well in his influential 1968 article, Why Regulate Utilities?, “in utility industries, regulation has often been sought because of the inconvenience of competition.”

That’s no longer limited to electricity companies and other public utilities these days. With the advent of rapid, low-cost entry into previously sheltered markets, powered by technology and the sharing economy, today’s incumbent industries are taking regulatory capture and politics as rent seeking to new heights. At DisCo we’ve written extensively about Uber, Lyft, Airbnb, Tesla and many other disruptive new start-ups that are facing a backlash from established industries (taxis, hotels and auto dealers, respectively) which use consumer protection as a Trojan Horse to disguise preventing or delaying competition on price, features and service. Politicians in locales as diverse as New York, New Jersey, San Antonio and Seattle (believe it or not!) have, wittingly it seems, gone along so far.

FTC Building

This is where what antitrust lawyers dub competition advocacy comes into play. Most antitrust policy in the U.S. is made in federal court as a result of merger, monopolization and horizontal collusion prosecutions launched by the Department of Justice (DOJ) and the Federal Trade Commission (FTC). But due to our federal-state system and a judge-made doctrine allowing states to exempt some markets from competition despite federal antitrust demands (government action, and private conduct to obtain such action, is challengeable in only relative narrow circumstances), much of the battle takes place in the legislative and regulatory arenas. Accordingly, competition advocacy is the primary tool available to antitrust enforcers in the U.S. to oppose state and local regulations favoring established firms over start-ups and parochially sheltering in-state companies from out-of-state competitors. The result is that for three decades the federal antitrust agencies have engaged in affirmative outreach to state and local legislators and regulators in the form of comments, letters and occasional lawsuits that seek to drive home the basic truths that competition outperforms regulation and the law should not pick winners and losers when it comes to evolving markets. (State attorneys general also undertake competition advocacy, principally through amicus briefs, as well.) MORE »

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The Wall Street Journal published a story today on Facebook requesting that the European Commission, not individual domestic competition regulators, review its recent transaction to acquire WhatsApp.  The announcement came as a surprise as the acquisition already sailed through U.S. approval and, as the WSJ points out, the EC “wasn’t expected to review the deal because the acquisition is unlikely to materially boost Facebook’s revenues.”

Although Facebook’s request might seem strange on the surface, it follows on the footsteps of political pressure from European wireless companies to oppose the deal.  Given that these companies are powerful political forces in their respective states, fighting for merger approval in many individual countries against politically powerful local incumbents doesn’t seem like a great proposition.

As the WSJ notes:

European telecom executives have nevertheless railed against what they describe as the assault by so-called over-the-top companies that they believe are competing unfairly against traditional phone companies. At a conference in Brussels last month, some lambasted the EU antitrust agency’s perceived lack of interest in the WhatsApp merger.

It’s pretty clear why telcos are opposing this transaction.  Combining WhatsApp, which has “been hugely disruptive to the [telco’s] traditional text messaging business,” with a well-heeled market leader with a huge user base promises to make the new combination a stronger competitor for the telcos.  Therefore, it is not surprising that the telcos are pushing back: consumers saved $33 billion in texting fees in 2013 alone thanks to WhatsApp and similar messaging applications.  The problem for telcos: that savings came out of their pockets.  The other problem for the telcos: the very purpose of the European Commission’s competition policy is consumer welfare, not incumbent revenue protection.

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What sounds like a surreal Monty Python joke is actually a serious question facing Internet users and companies following the ruling yesterday by the Court of Justice of the European Union, Europe’s highest court.

In the ruling by the full court against Google the court has decided that Google must remove from its index information relating to Mr Costeja Gonzalez. The trick here though is that this information is entirely legitimate according to Spanish law and the newspaper that published the story in 1998 is not publishing a correction. Copies of that story will remain on file in libraries.

Google will, however, need to remove links to the story from its index. This is equivalent to telling libraries that they can keep a copy of the newspaper on file, but that librarians must not tell anyone how to find it. Indeed, it may well be that the search systems of all libraries in the European Union will need to delete links upon request as well. And this to publications in the bowels of the building. This may create even more headlines.

The digital world has provided the general public, and specialists such as researchers and historians, the ability to find information quickly and cheaply, and to compare different sources. This is the essence of a plural, democratic society. This ruling will likely mean that the elite, those with access to well resourced libraries with well stocked back copies of newspapers, journals and books, will continue to be able to dig up information: legally available information. If they can find it in the library. The rest of us won’t, in the European Union at least.

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Today CCIA launched ConsumerTVChoice.net, a new site to promote competition and choice in the TV set-top box marketplace, and to encourage consumer advocacy around this issue.

While CCIA has supported Congress’s renewal of STELA, which expires at the end of the year, CCIA has denounced attempts by some lawmakers to add anticompetitive provisions into STELA that would undermine the FCC’s statutory consumer protection mandates regarding open standards for electronic boxes that can access both your cable programming and online video.

This issue is consistent with CCIA’s mission at its founding more than 40 years ago – to raise awareness when incumbent companies try to snuff out competition and innovation.  From fighting for the ability of third party developers to write independent software for IBM mainframes, to championing the right of consumers to plug non-AT&T devices into their wall jacks, battles CCIA has supported have been critical to the thriving tech industry we have today.  The mainframe battle paved the way for the entire software industry and rise of Silicon Valley.  The third party device issue resolution resulted in innovations like the first cordless phones, answering machines, fax machines, computer modems and game consoles.

While it’s impossible to fully predict what further innovations could result from consumers having more freedom to watch content on the device of their choice, it is clear that Big Cable is resisting change even while more efficient methods of accessing TV and other content are emerging.  The hope in launching this website is to help consumers understand that ability to choose is at risk in Congress right now so they can make their views known before it’s too late.  Consumers will be the losers if dominant businesses can legislate challengers out of the game.

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