Below, we have provided the full transcript of the interview with Michael Carrier, Distinguished Professor of Law at Rutgers Law School, recorded on September 20, 2021.
This interview was done as part of the Antitrust Brainstorming Board created by CPI with the support of the CCIA.
Thank you, Prof. Carrier, for sharing your time for this interview with CPI.
A video of the complete interview is available HERE.
Do you think the current antitrust framework works for consumers?
Michael CARRIER:
Consumer welfare is today’s Rorschach Test in antitrust law. Those who think that antitrust is going well, tend to like the consumer welfare approach. Those who sometimes have problems with how antitrust is being applied, have problems with the consumer welfare approach. But I think there is room for a third option, and that option is that antitrust is not working well for consumers today, but the consumer welfare test is not the reason why. Consumer welfare offers all sorts of benefits. Now, to be sure it’s not the clearest test in the world to apply. It’s been interpreted in different ways since it was introduced in the last century, but consumer welfare is helpful for putting the focus on economics, for putting the focus on what is good for consumers, and so there’s a lot to be said for the approach.
Now, the approach has not worked well, but that I’d say is a problem that as Doug Malamed and Nicolas Petit have said is more practical than conceptual. So they point to the Microsoft case for innovation, the Adobe case for labor, and say that consumer welfare can consider all of these things, things other than price, it’s just that it’s really hard to show them. So that’s where I come out. That antitrust is not working, but it’s not because of the consumer welfare approach, and the final reason is that it’s because of what a lot of courts have done to make it nearly impossible for plaintiffs by being so focused on false positives for the past 50 years, even when antitrust today is far different than it was in the 1970s for taking approaches like the Amex court did in making up stuff on two-sided markets and how you show vertical restraints being anti-competitive. The Trinko case making it impossible, basically, for refusal to deal cases. I’d say we look at the courts for a lot of the problem and we look at the implementation of the consumer welfare approach.
Do you believe the vertical merger guidelines need to be changed?
CARRIER:
We sit here at an interesting time in that the FTC by a three-two vote, just voted to withdraw the recent guidelines. The concerning thing about that is that what is now left is the 1984 guidelines, which don’t exactly reflect the state of the world in vertical merger enforcement. But maybe going forward, there is hope. For example, Commissioner Slaughter and her statement talked about how vertical and horizontal mergers are not completely separate things. Maybe together with DOJ, they could come up with an integrated approach that would treat vertical and horizontal mergers in the world that doesn’t always fit into such neat boxes.
Do you approve of the shift from competition towards regulation?
CARRIER:
I’m a fan of antitrust. I think that even though antitrust is being applied too strictly by courts today, there’s a lot to be said for antitrust. It envisions a nuanced, fact specific approach. You can delve into the industry, and you can look at it on a case-by-case basis. Sometimes when we see broad scale regulation, we see maybe less protection for innovation, too much protection for incumbents. Maybe some regulation and could work, but I would hesitate before applying that to replace antitrust law.
How would you ensure antitrust is enforced vigorously if no changes are made to the current antitrust system?
CARRIER:
Again, I would get back to the error cost framework. It’s important to think about how erroneous decisions could affect companies and consumer, but it’s been so one-sided for the past half century that this initial concern with false positives, which might’ve made sense in 1975, doesn’t make as much sense today when courts for the past 50 years have made it more and more difficult for plaintiffs. Without the law, I would just say, “Let’s not focus so obsessively on false positives, false negatives matter too. Markets. Don’t always correct false negatives.” I think that’s important to keep in mind.
I also would consider, and this seems to be quite bipartisan these days, giving more resources to the antitrust agencies. They’re taking on really big cases, bet your company cases on, for example, the big tech front and these companies are sparing no expense in defending the cases. It’s only appropriate that the agencies on the other side have just as many resources to hire important and influential experts and put together the best case that they can.
What are your thoughts regarding start-up acquisitions?
CARRIER:
One concern here is that it seems like a lot of these acquisitions of startups fall below the radar so the agencies don’t always see them in real time. We need to be careful here. Startup acquisitions oftentimes are part of innovation, it’s an exit strategy for these small companies, and so we don’t want to dissuade it completely. We also have to make sure that we’re not applying 20/20 hindsight after the fact that it’s really clear that a startup is incredibly successful. At the time, maybe it’s a little less clear.
Nonetheless, we can think about applying different frameworks to that. In the past, I’ve looked at innovation markets frameworks. In an innovative market, you have two companies that are not on the market yet, but they have perhaps the two products that are closest to the market. Think of two pharmaceutical companies with drugs in phase three of FDA review. I’ve said there that the concern with mergers like that is that the merged company would have a lessened ability and incentive to bring that second product to the market. I think the same thing is true here. Some of these acquisitions are done not for innovation, but rather just to keep the rival out of the market. Some have said that we don’t only have to look at Section 7 of the Clayton Act, we can look at Section 2 of the Sherman Act as well.
For example, the Facebook acquisitions of WhatsApp and Instagram have gotten a lot of attention. Go back to the documents at the time and maybe you could piece together a story that these acquisitions were not done for innovation. For example, some of the documents say things like Instagram could be very disruptive, that Facebook was vulnerable in mobile, that Facebook wanted to neutralize a potential competitor, that Facebook was going to go in into destroy mode if they could not get Instagram. You look at all of these and you say, “You know what? This acquisition was not about innovation or putting out a better product. It was done solely just to harm a rival.” That could be a Section 2 case, even if it doesn’t satisfy of the requirements of Section 7.
Is break-up the best solution for the digital economy and for consumers?
CARRIER:
I would hesitate before entering into the realm of a general breakup of big tech companies. Yes, these companies are big, but a lot of that reason for their bigness stems from advantages for consumers, network effects, economies of scale. We all benefit when we’re on a network that is so large that we have access to anything that we want. When we break up a company like that, there’s no assurance that consumers will be the beneficiary of that. More limited breakups or divestitures happen all the time. A divestiture is something that is supposed to happen in many cases where you’re not challenging the merger more aggressively, but I would hesitate before breaking up these companies.
How do you see the role of the FTC and the DOJ in ensuring competition works for consumers?
CARRIER:
I think that having two agencies offers a real benefit. The DOJ tends to swing a little more with the political wins, the FTC has traditionally been more bipartisan. Hopefully, FTC can continue that, and you see that each agency can bring something different to the table. Take the FTC for example. The FTC has focused on the pharmaceutical industry and we all, as consumers, are the beneficiary. Go back to the late 1990’s there was this concerning development in which brand name drug companies paid generics to settle patent litigation and stay off the market. The FTC was the first one that figured that out. They started bringing cases, and they kept bringing cases at a time that it really looked very dark. Between 2005 and 2012, courts adopted what was known as the Scope of the Patent Test, which basically means if you have a patent, you can do whatever you want. If you settle by paying a generic to stay off the market and the patent hasn’t expired yet, then it’s automatically fine.
That is not appropriate, especially because a lot of these patents are no good. They’re not on the active ingredient. They’re on a secondary nature of innovation. A lot of these patents are overturned when they get a full briefing in the courts. The FTC kept up the fight, kept up the fight, and won in the Actavis decision in 2013 in the Supreme Court and then it brought its own case against Impax and it issued a five-nothing completely bipartisan ruling written by Republican Commissioner Phillips that was recently upheld by the fifth circuit that offers a really nuanced approach as to how Actavis should be applied. Of course, brand and generic companies will continue attacking Actavis and continue saying that the problem is solved and there’s nothing to do here. There’s still work to be done, but let’s just pause and applaud the FTC for the amazing work they’ve done on pay for delay.
With the DOJ, we’ve had some ups and downs. And I would say that the four years of the Trump administration under Makan Delhrahim saw a lot of downs in the area of what’s known as patent holdup. In a standard setting organization, it’s possible for a patent holder to gain power as a result of having its patent incorporated into the standard. Makan Delrahim said that patent holdup is not a concern, it’s not an antitrust issue, a patent gives you an absolute right to exclude, it gives you an injunction, and he basically threw away at least 15 years of bipartisan thinking in the FTC and DOJ on these issues. I’m hopeful that we can come back to some sort of normalcy on this issue, but that’s one example of how the DOJ could go off the deep end with one particular issue. At the end of the day, I think the agencies work well together, but it’s always worth paying attention to.
How would you reconcile competition and competitiveness? Should antitrust reforms take into account the potential impact on proposed changes vis-à-vis China?
CARRIER:
Oftentimes, competition can consider competitiveness. Antitrust wants competitive markets and in many cases it’s able to reach that result. Again, antitrust is not being applied as aggressively as it should in terms of how the courts are thinking about these issues, but typically competitiveness would be considered. In terms of thinking about China, I would hesitate before accepting arguments that antitrust should not be enforced because of the effect on US companies that would disadvantage them versus China. That argument has no logical stopping point. You could say in any particular case that we shouldn’t apply antitrust because that would hurt us in relation to China. Once you’ve done that, you’ve thrown antitrust out the window. I would really not accept that argument.
Any final comments you would like to make?
CARRIER:
I think it’s an exciting time for antitrust, and I know that my students really love the material, love reading about antitrust in the front pages of the newspapers every day, and it’s really a critical time for antitrust. A lot of people all across the political spectrum are pushing for changes, but the changes that we implement could make a big difference. Some changes are more aggressive than others, and I would say let’s think really carefully about how we can bring antitrust back into balance without upsetting the entire system, because I think some serious changes need to be made, but at its core, I still think antitrust works.
