Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Antitrust Division, high-tech firms can cooperate to promote innovation: Deputy AAG Hesse, (Jan 23, 2014)

By John W. Arden, J.D., LL.M.

Although interactions between the Department of Justice Antitrust Division and the nation’s high-technology companies are often perceived as adversarial, there are significant opportunities for cooperation that promote innovation and procompetitive outcomes, according to Renata B. Hesse, Deputy Assistant Attorney General for Criminal and Civil Operations at the Antitrust Division.

In an address delivered yesterday to the Conference on Competition and IP Policy in High-Technology Industries in Stanford, California, the Antitrust Division official said that preventing harm to innovation is a decisive factor in the Antitrust Division’s merger and non-merger enforcement activities.

“While competitive prices are—and will remain—a key objective, the division fully appreciates the importance of innovation,” Hesse observed. “Innovation can dramatically improve consumer welfare by motivating the introduction of extraordinary new products, including some that meet demands that consumers didn’t even anticipate. In fact, research shows that innovation has historically drives a significant share of economic growth and improvements in consumer welfare in the United States.”

In recent years, the Antitrust Division has repeatedly alleged that mergers involving high-technology companies likely would harm competition by reducing innovation, she said. The government often finds compelling evidence that pre-merger competition between merging firms was an important driver of innovation.

“During the United States’ recent challenge to the consummated merger of Bazaarvoice and PowerReviews, for example, the division offered significant evidence on this point at trial,” Hesse said. “One exhibit was an internal document in which company executives wrote about how Bazaarvoice and PowerReviews had ‘pushed each other to innovate in ways that help[ed] consumers and retailers.’” Evidence of this sort is a red-flag for antitrust enforcers.

Merger reviews in the high-tech sector require fact-intensive analysis. There have been some cases in which the division has found that a proposed combination has the potential to increase competition. In 2010, the Antitrust Division concluded that the combination of the back-end search advertising business of Microsoft and Yahoo! would create significant scale economies. “The joint venture, the Division said, would enable Microsoft and Yahoo! to compete more aggressively with Google, and thereby enable ‘more rapid innovation of potential news search-related products.’”

She recommended the 141-page opinion in Bazaarvoice to technology companies and their counsel, as well as “those who question the applicability of the antitrust laws in the high-tech space.” In light of evidence of significant barriers to entry in the ratings and review platforms market, Judge Orrick rejected the idea that tech companies can defend an anticompetitive merger simply by pointing to the existence of well-funded technology companies in adjacent markets, Hesse noted. The Bazaarvoice decision is a reminder that even small transactions may violate the antitrust laws.

Turning to non-merger enforcement, the official stated that high-tech firms with market power must not be allowed to stifle innovation and technological progress. Like other companies, high-tech firms should review the effectiveness of their antitrust compliance programs.

In addition to antitrust enforcement, the Antitrust Division is interested in providing guidance to the business community and serving as an advocate for competition. “Many of the division’s advocacy efforts have focused on the complex interface between antitrust law and intellectual property rights,” she said. “It is now widely recognized that intellectual property rights and antitrust enforcement are not antithetical—rather they work together to encourage innovation, competition, and economic growth.”

The Antitrust Division is currently working directly with Standard Setting Organizations and their members to encourage the adoption of clear, pro-competitive policies that can help avoid expensive litigation. The Division has made efforts to better understand the affects of patent assertion entities (PAEs or “patent trolls”) and to determine “where to draw a line between effective monetization of patent rights and activities that are harmful.”

In conclusion, Hesse recommended that technology companies “reach out to our staff.” Executives contemplating an activity that might raise antitrust issues should talk it through with their antitrust lawyers and consider a business review letter. Those having strong views about how a regulatory activity may impact competition should “give us a call.” And those subject to an Antitrust Division investigation should “engage with us proactively and constructively.”

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