NNSquad - Network Neutrality Squad
[ NNSquad ] Net Neutrality and Antitrust, etc.
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From: David Farber <dave@farber.net>
To: "ip" <ip@v2.listbox.com>
Subject: [IP] re-distribution of op-ed on Net Neutrality -- a reaction and
a reply from one of the authors
Date: Fri, 9 May 2008 15:23:10 -0400
From: John S. Quarterman <jsq@quarterman.org>
To: David Farber
Cc: John S. Quarterman
Subject: Re: re-distribution of op-ed on Net Neutrality -- it
is still appropriate
Dave, for IP:
I admire Dave Farber; he's been instrumental in many good things for
computing and the Internet.
But as far as I know, he's not a lawyer.
( INDEED I AM NOT A LAWYER AND SO I ASKED PROF. YOO, ON THE FACULTY
OF PENN LAW AND
ONE OF THE AUTHORS OF THE EDITORIAL, TO REPLY TO THIS NOT -- IN
PARTICULAR PROF. CHERRY'S COMMENTS. DAVE FARBER)
His co-author and both of his contributors are law professors,
so I'd be interested in hearing them address Prof. Barbara Cherry's
reservations about antitrust and net neutrality. She used to work
for the FCC and has examined the history of common, statutory, and
administrative law in the U.S., as well as the way Internet provision
has been wrenched out of one legal regime into another by the FCC,
and how the FCC has also stripped broadband of its common carriage
status.
http://riskman.typepad.com/peerflow/2007/10/net-neutrality-.html
While antitrust might go through the FTC rather than the FCC, the
FTC currently seems as tightly bound to the "market failure" doctrine
as the FCC, so I'm not sure that's an improvement, especially
considering
that neither FTC nor FCC has done anything to stop the recent spate of
mergers of communications companies that has exacerbated the problem.
How do those who say that we shouldn't regulate because we don't know
what will happen and antitrust will catch problems if they occur, take
into account that antitrust doesn't automatically apply to or address
problems in the new legal regime into which broadband has been thrust?
- -jsq
Begin forwarded message:
From: "Christopher S. Yoo" <csyoo@law.upenn.edu>
Date: May 9, 2008 2:51:40 PM EDT
To: "David Farber" <dave@farber.net>
Cc: "Faulhaber, Gerald" <faulhabe@wharton.upenn.edu>
Dave Farber forwarded me a recent e-mail asking for a lawyer's reaction
to Barbara Cherry's recent presentation and paper questioning whether
antitrust law can protect against the harms envisioned by network
neutrality proponents. As the only lawyer among the co-authors of the
op-ed that Dave, Michael Katz, Gerry Faulhaber, and I worked up for the
Washington Post, I am happy to offer a few thoughts. (Those interested
in a different take on the relationship between network neutrality and
antitrust law may want to look here: http://ssrn.com/abstract=992837.)
Barbara's work is based on a theory advanced by Neil Averitt and Robert
Lande that would place consumer choice at the center of antitrust
policy. As Averitt and Lande explicitly recognize, their theory would
represent a fairly significant break (they would call it a paradigm
shift) away from current antitrust law, which focuses on maximizing
economic (and particularly consumer) welfare.
Interestingly, antitrust law once was quite friendly toward the consumer
choice perspective that Barbara favors. (I review these developments in
vol. 94 of the Georgetown Law Journal at pages 1885-87,
http://ssrn.com/abstract=825669.) Early cases like FTC v. Brown Shoe
(1966) and Times-Picayune Publishing v. United States (1953) invalidated
exclusive dealing and tying contracts (which are among the types of
antitrust practices most similar to network nonneutrality) because they
infringed on unfettered consumer choice.
Over time, however, the Supreme Court and antitrust scholars began to
recognize that some restrictions on consumer choice can actually benefit
consumers. For example, boutiques survive by using exclusivity over
certain goods to target a subset of overall consumers that place a
particularly high value on those goods. They survive despite having
lower sales volumes and at times higher costs by charging a premium for
those goods and by providing higher levels of service. On other
occasions, exclusivity arrangements can establish how value will be
divided between manufacturers and dealers so that both can focus on
maximizing the size of the pie rather than on how to divvy it up. On
still other occasions, exclusivity arrangements help both parties guard
against opportunistic behavior. Still other efficiencies are
technological. All of this became orthodox doctrine in the Supreme
Court's 1977 Sylvania decision and has been followed in Supreme Court
decisions ever since. The focus is not on consumer choice as an
absolute value, but rather on overall consumer welfare. In other words,
consumers benefit most from a mix of boutiques and department stores.
In a broader sense, both antitrust law and antitrust scholars now
recognize that competition in which each product is available from each
retail distributor and competition between large, vertically integrated
enterprises represent alternative ways to organize an industry. A good
illustration of this is the evolution of antitrust policy with respect
to long distance telephone service. We broke up AT&T in 1984 in order
to make sure that every person could choose their own long distance
service. In contrast, mobile services do not allow consumers to choose
their own long distance provider. Instead, they must use the one that
the mobile provider has chosen. And yet no one would suggest that
either mobile phone service or long distance service is not highly
competitive. There are many other examples as well.
Thus, modern antitrust law recognizes that consumer choice represents
just one way to make consumers happy. Sometimes consumers benefit more
from giving up choice in order to pay cheaper prices or to obtain goods
that they like better. All of these considerations are integrated into
the consumer welfare paradigm embodied in current antitrust law.
Adopting Averitt and Lande's approach, as Barbara proposes, would
require dialing back thirty years of Supreme Court precedent.
Barbara's interpretation of network neutrality as part of a broader
movement away from industry specific regulation and a reversal of the
shift from common law to statutory law to administrative law is also
quite novel. As an initial matter, I am not sure I agree with some
aspects of Barbara's characterization of the regulatory history. She
claims that recent FCC decisions stripped broadband of common carriage
status. While that is true for DSL, cable modem and wireless broadband
services were never subject to common carrier regulation. Thus
antitrust law's inadequacies in dealing with cable modem and wireless
broadband services cannot properly be characterized as the result of the
withdrawal of industry specific regulation. In addition, she suggests
that previous deregulation of the transportation industry did not
involve the removal of common carrier status. It is my understanding
that railroad, bus, and airline deregulation did actually remove most
(of not all) of the major common carrier requirements.
On a more fundamental level, Barbara's reading of the regulatory history
diverges from the conventional justifications for regulation, which
traditionally relies on the premise that telecommunications networks are
natural monopolies. As technology makes competition possible, it is
natural for regulation to pull back.
There is no question that both regulation and antitrust law may have to
adjust in response to these developments. For example, the advent of
competition may give regulators a larger role with respect to consumer
protection. In addition, certain antitrust doctrines (such as the filed
rate doctrine) may need some adjustment, although the fact that
broadband is not tariffed automatically makes that adjustment. This
challenge seems quite manageable. Indeed, the Antitrust Modernization
Commission chartered by Congress and chaired by FTC Chair Deborah
Majoras recently undertook a comprehensive review of the antitrust laws
to determine whether they needed to be adjusted to deal with the new
global, high-tech economy. The Commission found that there was no need
to establish separate rules for high tech industries and concluded that
no major statutory changes were necessary. The Commission instead
suggested more evolutionary changes, such as greater clarity regarding
the legal standards to be applied by courts and enforcement authorities
and a more refined assessment of market dynamics.
Thus the pullback of regulation is part of the natural evolution wrought
by improvements in technology that are opening increasing portions of
the economy to competition. On the one hand, the withdrawal of
regulation creates greater scope for antitrust jurisdiction, as the
responsibility for overseeing areas previously supervised by agencies
shifts to antitrust courts. On the other hand, greater competition also
generally goes hand in hand with a reduction in antitrust intervention.
Indeed, the benefits in the telecommunications industry are legion.
Telephone prices have never been cheaper, and cable and wireless has
begun to offer telephone service in direct competition with local
telephone companies. Telcos and satellite broadcasters have begun to
compete with cable in multichannel television. The deployment of
broadband is in the process of bringing services that previously did not
compete with one another into direct competition.
Thus many of the issues that Barbara views as problems result from the
novel point of view she is advancing. Many (if not all) of what she
sees as problems seem quite natural from the standpoint of conventional
antitrust law. This is not meant as a criticism. It is Barbara's
mission as a legal scholar to question the conventional wisdom and to
propose new ways of looking at the law, and this article represents a
nice example of such an effort. What is less clear is whether the
problems that she identifies can properly be regarded as a sweeping
indictment of antitrust law's ability to address the problems implicated
by the network neutrality debate. Many of the perceived inadequacies of
antitrust law stem more from her disagreement with economic approach
that lies at the heart of modern antitrust law than with any inability
of antitrust to be able to address the problems that arise in the New
Economy.
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