Antitrust and Unfair Competition Law

Competition: SPRING 2023, Vol 33, No. 1


By Lin W. Kahn, David C. Kiernan, Alyxandra Vernon, Maya Baumer1

Today, a loud chorus is calling for antitrust reform for digital markets and technology companies. The refrains are familiar: "big is bad"; "break them up"; "walled garden"; "killer acquisitions"; "platform self-preferencing." Critics decry what they view as the current antitrust framework’s inordinate focus on price or output impacts as determining whether competition has been harmed. They argue that this standard fails to capture the nonprice effects of exclusionary conduct and mergers in digital markets, including harm to innovation, barriers to entry, and invasion of privacy. Prompted by such criticism, the California Legislature authorized the California Law Revision Commission2 to study "[w]hether the law should be revised in the context of technology companies so that analysis of antitrust injury in that setting reflects competitive benefits such as innovation and permitting the personal freedom of individuals to start their own business and not solely whether such monopolies act to raise prices."3

This article focuses on one part of the debate: the role that innovation plays in today’s antitrust jurisprudence. There is little dispute that protecting innovation is a central goal of the current antitrust laws. Despite this consensus, some argue that the law gives only "lip service" to this goal.4 Below, we briefly describe the call for reform, then examine the role of innovation in the case law and enforcement actions, and finally analyze whether the antitrust statutes should be revised to provide ex ante rules for digital markets to account for harm to innovation.

As we show, courts and government regulators do more than give perfunctory attention to harm to innovation. Promoting innovation is often a key consideration in the analysis, especially in government enforcement actions. When antitrust challenges involving innovation harm fail, it is not because courts and regulators ignore impacts on innovation but because the factfinder found that the challenger failed to prove an anticompetitive impact or that countervailing procompetitive benefits outweighed such impact. The analysis in these cases shows that the existing Rule of Reason framework that has long been a hallmark of antitrust law protects innovation benefits. The process is also ongoing, as recent enforcement activity in digital markets has focused on alleged harms to innovation. These cases are working their way through the courts and their resolution will contribute to the further development of the standards in this area. The case-by-case, non-sector specific framework the courts will apply in these cases allows the law to adapt to changing circumstances, evolving economic theory, and accumulated experience. Dismantling this approach and imposing new ex ante rules at this juncture for technology companies is unnecessary and would risk harming the vigorous competition the antitrust laws were enacted to protect.

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