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Is Antitrust The Right Framework For Net Neutrality?

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This Washington Bytes Chat examines the question of whether antitrust is the proper forum in which to address net neutrality disputes. And if not, what is the proper forum? Joining us for the Chat were Sally Hubbard, a writer for the Capitol Forum and former assistant attorney general in the antitrust bureau of the New York Attorney General; Daniel Lyons, associate professor at Boston College Law School; Geoffrey Manne, founder and Executive Director of the International Center for Law and Economics; and Hal Singer, senior fellow at the George Washington Institute of Public Policy. The transcript has been lightly edited for readability.

Hal Singer: Welcome everyone. You ready for the duel, Professor Lyons?

Daniel Lyons: I see that your choice of weapons is words. A risky course. Professors use a lot of words. Usually not well.

Singer: In The Master Switch, Tim Wu spoke of antitrust’s “price fixation”—the shorter version is that absent a price hike associated with the challenged conduct, there is no cognizable antitrust injury. The reason I bring this up is that in every video discrimination case in which I have testified—e.g., Tennis Channel v MASN or GSN v Cablevision—there was no price effect. Let’s assume that the harm from discrimination on the Internet won’t manifest itself in the form of a price effect. Doesn’t that mean there is zero protection of net neutrality offenses under the antitrust laws?

Geoff Manne: Well, of course, that isn’t the law. It may be an observable correlation looking back at decided cases, but it isn’t actually a requirement in the law.

Lyons: The touchstone of a rule of reason case is harm to competition. Price hikes can be evidence of that--and because it's an easy one to identify, it's one that often arises--but there are other ways to show harm.

Manne: It may simply reflect the reality that in vertical/foreclosure cases, the arguments often aren’t that good. But in such cases we wouldn’t expect to see anticompetitive harm in the form of price effects.

Singer: Let's assume the harm manifests itself in the form of a loss in innovation in future periods. So if you had a client (say, who owned a website) would you feel comfortable advising it to pursue a discrimination claim against an ISP under the antitrust laws with only that harm to go on?

Sally Hubbard: The bigger problem is it takes too much time and money to bring an antitrust case, and relief comes too late. In addition to the issue Hal raises about not being able to show a price effect.

Singer: Why did Congress create a separate set of protections in the Cable Act (section 616) if it believed that independent networks could get relief from discrimination by vertically integrated cable operators under the antitrust laws?

Manne: Lobbying?

Lyons: I agree with Sally that the cost of enforcement is one drawback to an ex-post mechanism like antitrust. But that should we weighed against the cost to innovation of an ex-ante system like the net neutrality rules. And enforcement costs can be compensated to some extent in the damages award.

Manne: Properly functioning antitrust laws act as a deterrent. You don’t need to win every hypothetical case for it to prevent anticompetitive harm. And “winning” by deterring conduct in the first place is exceptionally inexpensive and quick for a would-be plaintiff.

Hubbard: It is not an effective deterrent if the perpetrator can gain enough competitive advantage in the short term to make it worth it. One of the worst examples of this Intel’s foreclosure of AMD. The EU fine came eight years after the conduct and AMD had already lost ground.

Lyons: Much of the problem in the Intel-AMD case (and I should disclose that I was briefly on Intel's team) stemmed from the mechanics of modern litigation. It is costly and time-consuming to pursue litigation in federal court.

Singer: But this is a huge practical problem of antitrust litigation. If you want to tell independent websites your alternative to an ex-ante ban is antitrust, and if the relief only comes in five years from an antitrust court, then they will never go along with that compromise.

Manne: As always, it’s a matter of error costs.

Singer: So absent a price hike, absent an output effect, the likelihood of an independent edge provider's prevailing in antitrust court is, what, five percent? And even if you do win, your win would come in several years. Is that how we are going to bring about a net neutrality compromise?

Manne: Of course there are costs to litigation, and in that space there can conceivably be harm perpetrated. But that has to be weighed against the costs imposed by over-enforcement (and over-deterrence, for that matter) and the benefits of proper deterrence, which don’t impose litigation costs.

Lyons: But if the problem is that antitrust litigation takes too long, then the solution seems to me to be finding a way to streamline the litigation.

Singer: Bingo, which is why I am peddling a new forum, outside of antitrust. It would respect Geoff's concerns for over-regulation, and Sally’s concerns for expedited relief.

Manne: For sure, the obvious answer is not ex-ante rules that make illegal conduct that actually imposes no harm.

Hubbard: It’s not feasible for a startup to take several years and hundreds of thousands of dollars to challenge an ISP. I think ex ante rules are correct. And I know antitrust does not provide timely relief and is not feasible because of the expense.

Singer: I'm with Geoff and Dan that ex ante rules are not correct.

Manne: But let’s step back. What are the harms that need fixing, whether it costs hundreds of thousands of dollars or not?

Hubbard: Foreclosure of competition.

Singer: The harm from discrimination manifests itself in the form of lost innovation. If you believe that the best innovation comes from independents, then that is a harm we should care about. I can imagine the government bringing an antitrust case about innovation harm (e.g., US v Microsoft), but I can't imagine a private litigant bringing such a case in antitrust court.

Manne: I agree with Hal re the nature of the harm. If that happens, and it outweighs procompetitive benefits, the government should be able to make out a case. But it should require actual evidence of harm. And we can’t assume that mere ability, or even actual foreclosure without consideration of countervailing benefits, should lead to liability. But this doesn’t have to depend on private litigation.

Singer: What are your thoughts about creating a new forum that could move faster and that would let go of some of the evidentiary criteria required in an antitrust court (e.g., monopoly power)?

Manne: Well, the devil is in the details and all that. You still haven’t established any need for such expedited adjudication.

Singer: Of course I have. Antitrust moves too slowly to protect innovation among edge providers. The FCC's existing forum, which adjudicates discrimination complaints before an administrative law judge, could be modified to accommodate complaints in the Internet space. Is that a non-starter in your view? And if so, why?

Lyons: A forum that works faster would be good. And I might even be willing to vest that function in the FCC, as an industry-specific antitrust tribunal. But I would presumptively require that the forum apply the same black-letter law that governs the rest of the economy.

Manne: Or Part 3 adjudication at the FTC.

Hubbard: How do you make it move quickly when an ISP has the incentive to fight over every little thing? The Bloomberg channel neighborhood case was ridiculous.

Singer: I am sympathetic to that concern, Sally. The speed at which the ALJ adjudicates program carriage complaints is not ideal. Add in the endless appeals that there is practically no relief to independents, even when they win. See, e.g., Tennis Channel and GSN.

Manne: How would zero rating be handled?

Singer: Under my proposal, any zero rating plan is presumptively not in violation of the non-discrimination principles. All plans would be tolerated from the get go. But an independent edge provider who felt it was discriminated against by an ISP’s zero rating plan with a rival edge provider would have the right (and a forum) to reverse that presumption.

Manne: Could any foreclosed edge provider use this special tribunal?

Singer: Yes. If we imported the evidentiary standard from section 616, we'd make the independent prove (1) disparate treatment, (2) it was similarly situated, (3) it was harmed by the disparate treatment, and (4) no offsetting efficiency justifications. Could you live with that?

Lyons: This sounds a bit like the McDonnell-Douglas burden-shifting standard that we use in race discrimination cases. Plaintiff makes out a prima facie case of discrimination, and if so, the burden shifts to the defendant to prove a nondiscriminatory rationale. If it offers a non-discriminatory rationale, the burden shifts back to the plaintiff to show actual evidence of discrimination.

Hubbard: I once had a web startup, and I worry about startups. No startup has the time or money to take on an ISP, even if it’s in a special tribunal, where the ISP can throw all the best lawyers at the startup and argue over every tiny detail. I also used to be a plaintiff’s lawyer in race-discrimination cases, funny enough. And that process was a nightmare and not worth it for plaintiffs, I concluded (before leaving that field altogether).

Manne: So Hal, how does your proposal differ from FTC/DOJ/AG enforcement in Article III courts under antitrust laws?

Singer: I'm not sure private litigants can use that venue to initiate a discrimination complaint. Aren't those initiated instead by the government? If so, that means the independent must lobby a bureaucrat to launch a case, and I want this process to be as apolitical as possible.

Manne: I could agree with the forum as long as “harm” is something akin to what would pass for harm under antitrust laws — i.e., actual harm to competition/consumers and not just “I wish it were cheaper."

Singer: But harm to competition would be exceedingly hard to prove. The harm manifests in the form of lost innovation in future periods. If you impose that requirement, we're right back into antitrust hell.

Lyons: But if you can't make an argument that the defendant's action harms competition, where’s the problem?

Singer: Oh the complainant could argue that, but requiring proof of harm to competition is too rigid of an evidentiary burden.

Manne: Too rigid for what?

Hubbard: Unfortunately I have to sign off but I would just like to iterate that spending five years and hundreds of thousands of dollars on an antitrust suit is so impractical as to be almost no recourse at all.

Manne: Assuming you need actual, direct recourse to ensure competitive markets. But you don’t know that to be the case.

Singer: If you make a website prove a loss in innovation, they'll never succeed, and they won't use the forum. I want to make the evidentiary criteria sufficiently reasonable such that we actually get some deterrence out of the new forum.

Hubbard: I do know how vertically integrated firms act in other contexts - they foreclose competition when they have the incentive and the ability. Goodbye!

Manne: Do we have to come back to talking about your boring tribunal pipe dream Hal, or can we debate the bomb Sally just left?

Lyons: I suppose if we’re vesting venue in an agency, the agency could receive a complaint and bear the burden of investigating itself. But you’d have to have faith in the agency as gatekeeper, to screen out cases that would impose investigation costs on likely meritless cases. That’s where the federal court system falls down.

Singer: Last issue, just to make Geoff's head explode, and too bad Sally can’t be here to defend me. If we were to create a new forum, could we open it up to claims of discrimination against edge intermediaries such as Google or Facebook or Amazon? I worry that if this forum is only available for claims against ISPs, then a significant harm to innovation (discrimination by intermediaries) goes unnoticed. I also worry about asymmetric regulation. Take the privacy example. Google understood that the rules governing ISPs would be unique, and thus could lobby for the most aggressive regulations possible. If Google thought that it would be subject to the same set of rules, whether for privacy or non-discrimination protections, it wouldn’t lobby for the maximal regulations of a rival.

Manne: Well, not granting to begin with that the forum is a good idea, at least not without importing antitrust law as Dan suggests, I would say that that’s a terrible idea — and it helps to suggest why the whole thing may be a bad idea. You’re already treating certain actors differently without justification. So now you want to create special liability risk for a certain class of online intermediaries, as well. But where do you draw the line? And how can you justify doing so there, wherever it is?

Singer: I simply am asking why an independent telemedicine provider can get relief in this forum vis-a-vis an ISP but a local search provider cannot get relief vis-a-vis an edge provider. Why make ISPs the only targets of discrimination complaints?

Manne: Why not any antitrust plaintiff, though? (There is a long tradition of people recommending creation of specialist antitrust tribunals). I agree that asymmetry is a problem, but I wouldn’t “fix” it by making the problem worse. It has to be considered a cost of the institutional structure you want to create. And if it’s a big enough one, it might mean that your suggestion isn’t worth pursuing.

Lyons: I tend to agree that the forum’s jurisdiction would have to be broader than just ISPs. It'd have to somehow be tailored to the Internet ecosystem as a whole, to avoid regulatory asymmetry.

Singer: Yay, I got Dan to agree with me!

Manne: Why? Is the Internet really that special?

Singer: The purpose of net neutrality protections is to spur and protect innovation at the edge of the network. Edge providers can be foreclosed by both ISPs and dominant intermediaries.

Manne: Plus, if you’re doing this at the FCC, you’d need a new statute. So what makes you think that will be drafted appropriately?

Lyons: As an academic, I can wish away public choice complications when designing an ideal scheme.

Manne: Ha! Never a good idea, even for an academic.

Lyons: Well, the less flip response is that potential complications in execution shouldn’t deter introduction of the idea. I wouldn't proceed piecemeal, Hal.

Singer: I think the FCC could launch a new forum today to police ISPs on a complaint-driven process pursuant to section 706. But yes, Geoff, a long-term solution is a new source of legislative authority.

Manne: Hmm. Why not? If the complications are endemic and outweigh the benefits, seems to me they should absolutely deter the idea. Or not the idea, which Hal has already introduced, but the attempt to execute on it. As a practical matter, I’d say any such compromise is stuck with the imperfect status quo of FCC authority over ISPs but not edge intermediaries. If that is a non-starter, then the idea is a bust. And let’s not forget that Sec 706 “authority” could be rolled back, as well.

Singer: I could live with the forum initially handling discrimination complaints against ISPs only. It would de-politicize the process—recall that Wheeler's understanding of case-by-case was to visit his office and kiss the ring—and end the need for Title II. If the greater threat to innovation occurs at the edges, however, the forum could one day be expanded to accommodate complaints against dominant edge intermediaries.

Manne: I come back to the point I made a few times: Where is the justification for any special treatment in the first place? And to put it into a more realistic context, where is the justification for something like this over the 2010 rules? If you leave out interconnection and paid priority, and just focus on blocking/discrimination, I’m all for case-by-case enforcement (even originating before an ALJ at the FCC) and importation of antitrust standards. If that’s what you’re proposing, then I’m in.

Lyons: I tend to think that antitrust should govern these claims, just as they do throughout the rest of the economy. If the problem with antitrust is enforcement costs, then reform should focus on ways to minimize those costs. I haven't heard a suggestion today that the substance of antitrust law is flawed--just its execution.

Singer: The 2010 rules were closer to my ideal. There, the FCC made any paid priority deal presumptively in violation of the non-discrimination rules. I would flip the presumption and allow independent edge providers the chance to reverse the presumption before a neutral fact finder.

Manne: What do you feel we need to have beyond the 2010 rules, Hal, to get where you want to be (leaving aside the edge intermediary issue)?

Singer: Recall the DC Circuit got tripped up over the legal authority to set the presumption against paid priority. If the presumption were reversed, you'd get around at least that criticism.

Manne: Well, that was my point. I was using 2010 rules as a shorthand for “2010 rules that would survive judicial scrutiny.” And a return to no independent authority under Sec 706, of course.

Singer: Urgh. If you don't allow me to ground these new rules in 706, then what is the source of authority? Or would you require Congress to issue new authority to empower the FCC to operate this forum?

Manne: I wasn’t trying to justify your new rules; I was trying to describe a better regime!

Lyons: I think clear permission from Congress is usually preferable to trying to tease a jurisdictional hook out of the existing statute. Yes, Congress is slow. But I don't see the real-world cases suggesting that it's imperative to get any fix done now, as opposed to putting in the time to do it right.

Manne: Yeah. Sec 706 independent authority is way too dangerous to leave lying around.

Singer: Could you tolerate as an interim solution a forum to adjudicate discrimination complaints at the FCC, grounded in section 706--as a replacement to the 2015 ex-ante prohibitions--that would be replaced by a new source of authority as soon as Congress could offer one?

Lyons: Probably not, both because Geoff is right about Section 706 misuse, and because any interim regime would be limited to ISPs and therefore the asymmetry problem would remain (unless you're interpreting 706 to justify extending jurisdiction to the entire Internet ecosystem).

Singer: I don't get the 706 misuse line given the complaint-driven process. How does a regulator abuse his or her discretion here? She's not capable of launching a complaint, and she doesn’t have decision-making authority over the outcome of the case.

Manne: How is this being done? By agency rulemaking?

Singer: No, it would be done along the lines as the section 616 complaints brought by independent cable networks against vertically integrated cable operators. The FCC staff would have no role, except perhaps as a gatekeeper (as the enforcement bureau does now for program carriage complaints). But the ultimate decider would be an ALJ or some independent factfinder.

Manne: So you still need legislation. If said legislation were coupled with clear statement from Congress that Sec 706 isn’t an independent grant of authority, and that ISPs aren’t subject to Title II, I’d take it. Unless I could get those without the new tribunal.

Lyons: I mean more broadly, endorsing Section 706 as a hook for this interim plan allows the FCC to then rely on Section 706 for other adventures. I can't get around the fact that I think Congress didn't intend 706 to be a source of regulatory authority--even if I am sympathetic to the specific reason the FCC wants to rely on it in any one case.

Manne: The 706 issue isn’t in enforcement in this tribunal, but it would remain giving power to the next FCC to do much mischief. What Dan said.

Singer: Ah, good point. Sounds like there might be a consensus, though we know Sally’s objections to ex-post enforcement. Let's end it there. I really appreciate your time. Beers on me the next time you're in Washington!

Lyons: Great conversation. Thanks!

Manne: Indeed. Thanks!