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When is a prediction not worth relying upon? For purposes of analyzing mergers under the Clayton Antitrust Act, a recent decision in favor of the Justice Department indicates that predictions are worth less — perhaps are even worthless — when they are contradicted by the actual facts of the marketplace. The government’s successful legal challenge a couple of weeks ago to the merger of two Internet start-ups ironically shows that the force of predictive judgments remains powerful, even when courts could employ reality as a basis for accurate comparison.
Some background. A 2013 DisCo post authored by the undersigned contrasted “future markets,” where the contours of products and entry do not yet exist and cannot reliably be predicted, with “nascent markets,” in which those features indeed exist but only in their infancy. My thesis was that antitrust enforcement in the latter is preferable because looking back at nascent markets once they have a chance to develop gives the government a more accurate basis on which to assess the actual impact of mergers and concentration than rank projections in which policymakers have no comparative expertise.
The case used to illustrate this theme was United States v. Bazaarvoice, Inc., in which the Justice Department sued to unwind a 2012 merger, already completed, between two firms in what it called the online ratings and reviews platform market. I concluded that
by challenging the merger post-consummation, DOJ has avoided basing its enforcement decisions on predictions of future markets and instead the case should rise or fall on the accuracy of its ex post analysis of actual competitive effects.
That’s not at all what happened, though.
Continue reading Is Bazaarvoice Bizarre?
The French have views that strike Americans as strange on lots of issues, like Middle East terrorists, mistresses, Web censorship and now trademark rip-offs. So it was a big relief when, after last month’s French decisions for Louis Vitton and Hermes against eBay, the U.S. courts disagreed. It’s Up to You, Tiffany, to Keep the Counterfeiters Away [Law Blog-WSJ.com]. (The French apparently never got the memo that the Internet is a borderless network where national law can’t be effectively applied.) Seems that Tiffany’s high-priced lawyers argued that there was so much counterfeit merchandise sold on eBay that the company somehow had a legal obligation to police its auctions.
Well, that’s backwards. Intellectual property owners already can demand “notice and takedown” of infringing materials; the same thing is undoubtedly true of eBay. All that Vuitton, Hermes or Tiffany’s had to do was monitor auction and sales listings and notify eBay when they found fake items. Well, it’s much easier just to shift blame — and money — to someone else than take responsibility. All this case was about was moving financial responsibility for the cost of running a business (jewelry) from the retailer to the “deep pockets” dot.com company. That’s shameful.
In fact, U.S. District Judge Richard J. Sullivan in New York ruled that eBay and affiliates can’t be held liable for trademark infringement “based solely on their generalized knowledge that trademark infringement might be occurring on their Web sites.” The judge reasoned that when Tiffany notified eBay of suspected counterfeit goods, eBay “immediately removed those listings.” That’s the correct decision and strikes the appropriate balance between IP holders and Web sites, IMHO.
Here’s another technology for which the adoption rate may be a decade longer than folks think — "cloud computing," like Google Apps. Google’s Right, but Cloud Computing’s Timeline Isn’t So Clear [Coop’s Corner]. Superb idea, but there are bandwidth, security, availability and reliability issues to be addressed before CIOs will adopt this model for the enterprise market. Already, however, it appears that the threat of this future, server-based computing architecture can be felt in today’s services and technologies.
The recent history of antitrust — from Microsoft to PeopleSoft to Whole Foods — is one in which the conventional wisdom of how to define the “market” affected by mergers and other transactions is not infrequently dead wrong. Today’s big deal is Yahoo! establishing a test advertising outsourcing deal with Google. Many observers, including Microsoft’s General Counsel, have already opined that such a deal would be DOA, as it would add to the dominant firm in the “search advertising market.”
But is that really what’s going on here? I am not so sure. Search is only important as a vehicle by which web sites and portals aggregate users to sell to advertisers. It is also free to non-enterprise users. So a cogent argument can be made that Internet search is irrelevant except as an advertising tool and that Internet advertising is NOT the relevant market for this deal, because online advertising already is or shortly will be competitive with (in other words, a substitute for) traditional media advertising like radio, newspapers and magazines. And to limit Internet advertising to “search advertising,” but ignore the fact that it is AOL, Microsoft and Yahoo! who collectively have a significant advantage in non-search Internet advertising — which seems to account for a majority of all Internet advertising — on first blush suffers from that same old market defintion problem.
In fact, here’s what the Wall Street Journal had to say this morning:
Major brand advertisers are gearing up to move big chunks of money from traditional ads including TV commercials and glossy magazine spreads to online outlets such as video-sharing services and Web sites for women. Although online ads garnered only an estimated 7% of total U.S. advertising dollars last year, Internet companies believe the percentage will increase sharply as Americans ratchet up their daily use of the Web and advertisers gain confidence in the medium.
As an antitrust lawyer, that tells me the data to establish that Internet ads are a subset of a broader advertising market — one in which, almost by definition, Google is not a “dominant” or even large player — may be there. Now it’s up to the advocates, economists and enforcement officials to figure out the answer.
Disclaimer — I have provided analysis to stock brokers and market research analysts on the Microsoft-Yahoo! fight, but am not currently working as a lawyer for any party to or company interested in the potential transaction.
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January 28th, 2014 | 
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