Over-the-top: let’s not kill the goose that laid the golden egg

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The European Commission would like to see a more digital Europe and more telecoms network investment, but the term “level playing field” sends mixed messages.  For some it means more regulation of internet services, potentially killing demand for enhanced networks — and thereby killing the goose that laid the golden egg.

Some telecoms network operators have argued that over-the-top services have undermined service revenues, jeopardised investment and play by unfair rules.  Other operators see it differently, welcoming increased demand for network access.  For example, the chief executive of UK mobile operator EE has said the growth of mobile-messaging services like WhatsApp isn’t a threat as the sector’s growth is driven by data-hungry consumers.

Put simply, is demand good or bad, and should we regulate more or less in response to competition from over-the-top services?

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The White House Chimes In On Occupational Licensing

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Consumers may reasonably expect that their doctors and teachers are appropriately licensed. But do they expect the same for their florists? Apparently that is the case in Louisiana, which requires budding flower shop owners to pay $125 in fees and pass a written exam before obtaining a license. This is just one example of the huge growth in occupational licensing since the 1950’s. Now, more than one-quarter of U.S. workers require some government licensing to do their jobs.

Assessing the consequences of this growth in occupational licensing on the economy is the purpose of a recent White House report. The report notes that licensing is valuable in certain fields to protect public health and maintain service quality, but overly burdensome licensing (and its inconsistent regulation across states) can hinder economic growth and innovation. Workers face tougher barriers to earning higher wage jobs or moving across states to best utilize their skills. The requirements they need to meet to be licensed may not even be germane to their occupation.

Entrepreneurs and consumers also suffer from the consequences of inefficient licensing.  Entrepreneurs are hindered in developing solutions—for example, websites offering legal services may be illegal if they are seen to offer “legal advice” instead of “legal information”.   Immigrants who may want to set up their own businesses in services like nail care may be prohibited from doing so by state regulations mandating certain levels of general education. Consumers, on the other hand, almost always pay higher prices to use services requiring strict licensing requirements. The report cites quantitative studies showing that more restrictive state-level licensing of nurse practitioners raised the price of certain medical exams by 3 to 16 percent.MORE »

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Finger on the Trigger: The FCC Needs to Get Spectrum Auction Rules Right

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The FCC is set to vote on the final rules for the upcoming 600 MHz incentive spectrum auction tomorrow, in accordance with the goals of the National Broadband Plan that were reiterated by Congress. Chairman Wheeler and the rest of the FCC’s commissioners are about to take a very important step to free up valuable low-band spectrum, a necessary input for the provision of wireless broadband coverage.  As the FCC has repeatedly said, this auction is a “once-in-a-generation” opportunity to feed the fast-growing demand for high-quality spectrum.

Given that these auctions are rare, the 600 MHz incentive auction presents the FCC with a unique opportunity to foster competition and innovation in wireless markets.  As the FCC’s decision to block the T-Mobile-AT&T merger and the FCC’s most recent “Mobile Wireless Competition Report” illustrate, the mobile broadband marketplace faces key competitive challenges.  The two biggest network providers, AT&T and Verizon, command nearly 70% of the industry profits and control nearly three-fourths of the high-quality, low-band spectrum.  To his credit, the FCC Chairman acknowledges these issues.  In a 2014 blog post on the 600 Mhz spectrum auction, Chairman Wheeler stated:

Today, however, two national carriers control the vast majority of that low-band spectrum.  This disparity makes it difficult for rural consumers to have access to the competition and choice that would be available if more wireless competitors also had access to low-band spectrum.  It also creates challenges for consumers in urban environments who sometimes have difficulty using their mobile phones at home or in their offices.

This is why the Commission has proposed creating a 30 MHz block of “reserve spectrum”, eligible only to non-dominant carriers.  According to the Chairman, the point of the reserve is to prevent the dominant carriers from sweeping the auction and to maintain a “vibrant and competitive” auction.MORE »

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Time to Stick a Fork in These Android Competition Complaints

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Here we go again.  Another Android antitrust drumbeat.  In April, the European Commission announced a formal investigation into Google’s Android operating system.  This is not the first time antitrust allegations have been leveled at Android.

Let’s take a short trip back in time.  In early 2014, a flurry of media reports emerged accusing Google of anticompetitive conduct surrounding its Android licensing arrangements.  The reports cited industry insiders and experts who had “examined” contractual arrangements that surfaced through an unrelated court proceeding between Google and Oracle on intellectual property claims.  Much of that early reporting was fueled by a detailed blog post and paper by longtime anti-Google “consultant” Ben Edelman which accused Google of leveraging its monopoly power through secret nefarious contractual arrangements with device manufacturers (most of which actually had nothing to do with the Android operating system itself).  Unfortunately, much of the reporting (and much of Edelman’s analysis) turned out to be misleading or just plain wrong. Industry followers, open source experts and academics followed on to poke skyscraper-sized holes in the initial reporting.  (I had my own take.)

FairSearch, an organization funded by Google’s competitors aimed at bringing regulatory scrutiny on the Mountain View company, used the Edelman claims as the basis for a complaint it filed in April 2013 with the European Commission — shortly after the original round of media coverage — claiming that Google’s below-cost distribution of Android (read: free, open source) was predatory pricing that made it difficult for Google’s competitors to compete.  It also claimed that Google’s practice of offering its suite of mobile applications in a package instead of a la carte (via so called MADA agreements) foreclosed competition in mobile platforms and applications.

In short, the claims were laughable.  The open source community cried foul, pointing out the dangerous implications such a precedent would set given that all open source software is available for free.  Furthermore, commenters noted the irony of a group funded by proprietary software companies attacking the free distribution of open source software as “predatory.”  Others pointed out that the MADA agreements are standard operating procedure for companies trying to build user friendly products and ensure that customers have an expected suite of services available to them “out of the box.”  At best, I thought, these claims were a sideshow.  A PR stunt orchestrated to keep Google’s PR and legal teams fighting on multiple fronts and that they would fade quickly.

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The Battle Over FDA’s E-Labeling: The Paper Industry’s Attempt to Prevent Sensible Safety Notice

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We know the familiar story.  New forms of competition arise and the incumbents rebel.  The free market usually permits consumer choice to govern and the marketplace decides which products will prevail.  But incumbents try to use regulation to prevent new products and competition.

The latest example is the almost decade long effort by some parts of the paper industry to prevent the Food and Drug Administration (FDA) from bringing drug notices into the 21st century.  Most are familiar with drug safety disclaimers to consumers, written in incredibly small font (perhaps the font size is promoted by opticians?) that consumers simply discard.  Well, there are similar, much more important notices to healthcare providers which provide even greater detail about safety and drug administration.  This information includes potential warnings and drug interactions, each of which are critical pieces of information for the healthcare provider. Known as “prescribing information,” these notices are incredibly long – they look like old-fashioned road maps and also are printed in incredibly small font.

Since 2007, the FDA has valiantly attempted to take the radical, death-defying step of actually permitting these notices to be made available electronically.  In particular, the FDA has sought to permit “e-labeling” – allowing drug manufacturers to provide information electronically.  This week, the FDA closed public comments on a proposed rule focusing on moving nearly all prescribing information online.

The advantages of e-labeling are obvious to anyone who has entered the 21st century.  E-labeling will reduce costs and is far more likely to be accessible to busy professionals.  E-labeling will be more current than old-fashioned paper notices and can be updated easily.  As the FDA observed:

FDA is taking this action so that the most current prescribing information for distributed prescription drugs will be available and readily accessible to health care professionals at the time of clinical decisionmaking and dispensing.

So why has it taken the FDA nearly a decade to finish a sensible, consumer-driven rule?  The paper industry.  In the United States, there are a number of paper printing companies that specialize in manufacturing drug labeling paper forms.  With the FDA proposing a rule that may diminish pharmaceutical companies’ demand for paper and printing services, it is unsurprising that they are strongly fighting against e-labeling.

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Competition Authorities and Regulators Should not Worry too much about Data as a Barrier to Entry into Digital Markets

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Data is often presented as the lifeblood of our digital economy (please see here why it should not be referred to as the ‘oil’ of the 21st century). Data is everywhere and is collected by Internet companies as well as more traditional businesses like banks. Data has been used by industries for years – think about grocery store reward cards – but advances in the speed of data analysis and the quantity of data available today brought new attention to its use. Of course, data analytics and processing help companies to better understand their customers, providing them with services and products tailored to their needs and preferences.

At the same time, it has been suggested that the possession and accumulation of big data ought to result in more rigorous competition law enforcement. But this argument fails to take into account the low barriers to entry in this market and the disruptive nature of Internet businesses that quickly allow a startup to topple even the most entrenched incumbents. One also needs to remember that the existence of barriers to entry does not in itself mean that competition authorities need to intervene. Competition law is concerned with anticompetitive conduct causing consumer harm. Hence, a competition law analysis of barriers to entry only becomes relevant in merger cases and in determining whether a given company is dominant in a relevant market. Traditional barriers to entry include for example exceptionally large capital investments into a sophisticated distribution network, economies of scale and even the need for large marketing investments (for a discussion of these traditional barriers to entry see the CJEU’s judgment in United Brands v Commission).

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Big Stills, Small Jugs, and Stupid Laws: Florida Growler Fight is a Microcosm of U.S. Anti-Consumer Beer Regulation

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We have been a little boozy here at DisCo.  A couple of years ago myself and my colleague Matt Schruers had a mini blog symposium of sorts where we used alcoholic anecdotes to illustrate larger policy points about the nature of competition and innovation.  Last week, fellow DisCo writer Ryan Heath used a Belgian beer example to illustrate the success of crowd funding.  In this post, I turn to U.S. beer regulation and market structure as an illustrative example of a phenomenon that has plagued the tech world: out-dated regulation that artificially props up legacy middlemen and harms innovative competitors.

Against that backdrop, let’s turn our attention to a fight brewing in Florida between craft brewers and beer distributors (and the major beer brands) in the state legislature.  At the end of last week, a Florida Senate Committee approved a bill that would allow craft brewers to sell 64oz growlers to their consumers.  Presumably, the bill will soon be voted on by the full Senate.  Similar legislation is also winding its way through the Florida House.  According to the Sarasota Herald-Tribune, the bills “could make it easier for grocery stores to sell hard liquor and brew pubs to sell more of their products.”

Currently, in Florida, it is unlawful for breweries to sell half-gallon size growlers — a staple product for craft brewers seen as the “industry standard” — to consumers.  This is because Florida, like all other states (except for Washington), utilizes a “three-tiered” alcohol distribution structure where (1) wholesalers are required to sell to (2) distributors who then sell to (3) retailers.

Florida has an exception to the three-tiered system, however: A law pre-dating the rise of craft breweries, which was designed to allow beer giant Anheuser-Busch to sell beer directly to consumers in the days when they owned the Busch Gardens theme parks, allowed craft brewers to pour pints and sell cans on their premises (thus avoiding beer distributors).  Under the complex and capricious Florida beer laws, craft breweries were able to sell quarts and gallon jugs of beer, just not the popular half-gallon size.  When legislation last year looked poised to fix this curious 96 ounce exception, it was derailed by language added at the behest of beer distributors.  The new language required, among other things, craft brewers to sell their wares to distributors who would then sell it back to them (at a healthy markup, of course) before they would be able to sell them to brewery visitors!  With their typically smaller profit margins, craft brewers — who often face a daunting journey just to turn a profit — saw this unnecessary layer of costs as a threat to their businesses.  In fact, “holding the growler hostage” was merely a strategy of “Big Beer” to attack the craft brewers’ right to sell directly to consumers.  (They said so themselves.)  The craft brewers — in good disruptive innovator fashion — turned to Indiegogo to fund their lobbying efforts against big beer.

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Online Competition Thriving Since the Closure of the FTC’s Google Investigation

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Today, the Wall Street Journal published an article after getting its hands on a confidential FTC memo from the now settled U.S. antitrust investigation of Google.  The document, an internal memo by the FTC’s Bureau of Competition recommending that that the Commission proceed with an antitrust case against Google for a variety of allegedly anticompetitive actions, was mistakenly released in response to a FOIA request.  The Journal also reports that the FTC’s Bureau of Economics disagreed with the Bureau of Competition, recommending that the agency not proceed with charges — a recommendation the agency ultimately followed.  Also, and perhaps most interestingly, the Bureau of Competition’s recommendation advised against proceeding with the most high-profile accusation, search bias, which is now the focus of the European Commission’s competition investigation.  As most DisCo readers probably remember, the FTC eventually voted to close its investigation of Google (and dismissed the search bias accusations outright) after the company addressed several of the practices outlined in the Bureau of Competition’s memo.

Although the WSJ article is certainly an interesting read, the fact remains that there are many checks and balances within the FTC and — with the benefit of hindsight — it is pretty clear that the Commission’s decision not to proceed on the charges of “search bias” was the right call.

Let’s look at what has happened in the marketplace since the FTC settlement.

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Copyright and Competition Intersect on Two Coasts

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On two sides of the country yesterday two branches of the federal government engaged in legal processes likely to affect competition in the music industry.

As DisCo previewed, yesterday the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights considered the competitive challenges in the music publishing industry, and the effects on competition, innovation, and consumers.  Witnesses from across the music ecosystem discussed the continued need for the consent decrees.  Several urged that the consent decrees be strengthened with additional transparency safeguards, while others claimed they may no longer be necessary (at least in theory if you ignore all transaction costs and have a perfect marketplace).  Over the last year alone, four federal courts have found evidence that the same publisher behaviors that gave rise to the consent decrees in the first place still continue today, suggesting that the consent decrees remain necessary to curtail anticompetitive behaviors.

Just as the Senate hearing ended in D.C., jury deliberations in the Blurred Lines case (which we covered when Robin Thicke initiated the litigation by filing for a declaratory judgment) resumed in California, ultimately ending in a judgment against Robin Thicke and Pharrell Williams, for millions in actual damages plus profits.  Several observers have said that is “horrific” and “really dangerous”, as well as “a bad result” that is “bad for pop music” and “could make songwriting and recording a minefield for every artist”.

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Transparency at the Intersection of Music Licensing and Antitrust

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At a hearing on Capitol Hill tomorrow, a Senate subcommittee will hear different perspectives on the degree to which competing music publishers should be permitted to coordinate licensing activities through performing rights organizations (“PROs”), such as ASCAP.  Music publishers have expressed a desire for fewer antitrust constraints on their coordinated behavior, while users and distributors of music will call for greater transparency in the music marketplace.

The hearing occurs during an ongoing Justice Department review of the consent decrees that govern PROs.[FN1] Music publishers and PROs are presently subject to oversight to the extent that PROs coordinate behavior among publishers who ostensibly should compete with one another.  Competitor coordination usually violates antitrust law, but because collective licensing also helps reduce the high transaction costs in music licensing, exceptions have been made for PROs.  A PRO can offer a single performance rights license to a user or distributor for all the works controlled by multiple publishers – one-stop shopping for a huge number of works.  But because one entity is nevertheless coordinating business transactions for a large group of companies that should be competing, antitrust oversight remains necessary.

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