Antitrust Issues Raised by the Emerging Global Internet Economy (Part II)

By David S. Evans[*]

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II.  The Economics and Technology of Web-Based Businesses

A.  The Economics of Multi-sided Platforms

Many of the key businesses that have arisen on the web are what economists call “multi-sided platforms.”[30]  A multi-sided platform provides goods or services to two or more distinct groups of customers who need each other in some way and who rely on the platform to intermediate transactions between them.[31]  Multi-sided platforms usually lower transactions costs and thereby facilitate value-creating exchanges.  They tend to arise when there is some value available from getting multiple sides together but transactions costs or other obstacles stand in the way.  eBay, for example, drastically lowered the cost of exchange between buyers and sellers of second-hand goods.

Multi-sided platforms usually perform each of three interrelated core functions to some degree.[32]  First, they serve as matchmakers to facilitate exchange by making it easier for members of each group to find each other.  That can be for love (matchmaker.com) or money (eBay).  Second, they build communities (or audiences) because this makes it more likely that members of a group will find a suitable match.  Facebook provides value in part because people are more likely to find people they want to meet and because advertisers can reach a large audience. The value of the platform grows as the audience grows.  Third, they provide shared resources and reduce the cost of providing services to multiple groups of customers. This is an especially important characteristic of software platforms discussed below.

One key feature of multi-sided platforms is the presence of the “indirect network effects” mentioned earlier.[33]  That means that the value that a customer on one side realizes from the platform increases with the number of customers on the other side.  Consumers looking to buy something value a search engine more if it provides advertisements that are more relevant to their search, while companies value advertising on a search engine higher if they are more likely to reach potential consumers.

Another key feature is that multi-sided platforms must cater to multiple, distinct customer groups simultaneously.  To establish a two-sided platform, for example, the founders must solve a chicken-and-egg problem: customers on Side A will not participate without customers on Side B, but customers on Side B will not participate without customers on Side A.  YouTube had to pursue people who want to post videos, people who want to watch videos, and advertisers who want to reach these viewers.  These features make the profit-maximizing calculus for a multi-sided platform more intricate than for a traditional business.  A firm operating one of these platforms must consider the demands of all sides, the interrelationships between these demands, the costs directly attributable to each side, and the costs of running the platform.

Further complicating this calculus is the fact that the profit-maximizing prices for multi-sided platforms can result in users on one side getting a price that is less than the incremental cost incurred by a customer on that side, and even less than zero.[34]  The side that is “needed more” or that is “harder to get” may receive a price break; conversely, the side that gets the most value out of access to members of the other side likely bears more of the cost.[35]  As an empirical matter, many multi-sided platforms make their money from one side and make access to the platform available to another side for a price that does not cover the cost of provision.[36]  Facebook, for example, is free to users and makes money by selling advertising.[37]

There are several major classes of industries in which most if not all of the businesses are based on multi-sided platforms.  These include advertising-supported media including newspapers, magazines, radio, television; payments including credit and debit cards; exchanges including auction houses, commodity exchanges and financial exchanges; and dating and matchmaking such as singles bars and matchmaking services.  Another major class consists of industries that have software platforms as their underlying technology.[38]  These include computer operating systems, mobile telephones, personal digital assistants, and video game consoles.[39]  They also include many web-based businesses.

Antitrust Issues Raised by the Emerging Global Internet Economy

By David S. Evans[*]

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[Editor's Note: This week, we are pleased to present Part I of Professor Evan's Essay on antitrust issues in the global internet economy.  Part II of this Essay will appear next week.]

Introduction

Web-based businesses are increasingly the subject of antitrust concerns. Plaintiffs in the United States have sued eBay for tying its online payments service to its transaction service.[1]  Multiple jurisdictions in the European Community have claimed that Apple has violated the competition laws by limiting the ability of its music player to play music from competing music stores and limiting the ability of competing music players to play music purchased from its music stores.[2]  During 2007, although the U.S. Federal Trade Commission decided not to block Google’s acquisition of DoubleClick after a lengthy investigation, it expressed its intent to “closely watch these markets” involved in online advertising.[3]

Of course, competition policymakers have not just discovered the web.  In 1998, shortly after the start of the commercial internet three years earlier, the U.S. Department of Justice and various states filed an antitrust case against Microsoft for engaging in various practices related to web browsers.[4]  The European Commission started an investigation of Microsoft’s practices related to media players that stream music over the internet in 2001.[5]  However, the Microsoft cases mainly involved the use of the company’s market power in personal computers to influence competition in web-based markets that threatened it.  The matters involving Apple, Google, and eBay concern market power in web-based products and services themselves.

The internet economy is likely to raise antitrust concerns—and possible demands for regulation—for years to come. Global gargantuan firms have emerged, which will likely attract scrutiny by competition authorities and by policymakers concerned with competition issues.  The companies mentioned above, for example, have shares in putative antitrust markets that rival those held by Microsoft.[6]  Apple has more than a 70 percent share of paid music downloads in the European Union,[7] Google has more than an 80 percent share of search queries in Europe,[8] and eBay has more than a 90 percent share of auction site page views in France, Germany, Italy, Spain, and the UK.[9]

Administrative Note: Finals

The Colloquy is taking a brief respite for finals.  We will return next week with the first part of a two part piece by David S. Evans entitled Antitrust Issues Raised by the Emerging Global Internet Economy.

What Twombly and Mead Have in Common

By Amy J. Wildermuth[*]

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Introduction

The Supreme Court’s recent opinion in Bell Atlantic Corp. v. Twombly[1] has already had enormous implications for pleading requirements under the Federal Rules of Civil Procedure. As of early April 2008—less than a year after it was issued—Twombly had been cited in almost 5,000 cases.[2]  It also was an immediate—and continuing—source of much academic debate.[3]

I cannot help but notice a distinct parallel between Twombly and another opinion authored by Justice Souter, United States v. Mead.[4]  At first blush, these cases have little in common outside of their author: One was an antitrust dispute about what factual evidence must exist and be pled to defeat a Rule 12 motion on an alleged “parallel conduct” violation of Section 1 of the Sherman Act; the other was an administrative law case about the deference owed to agencies’ statutory interpretations that are not subjected to Administrative Procedure Act (APA) required process.  What brings this odd couple together?

The most obvious shared trait is that the Court appears to have fundamentally altered procedural law in both decisions.  That alone, however, does not mean much.  Changing the law, even significantly, is the Court’s prerogative.  The common denominator instead is the confusion one is left with after parsing both Twombly and Mead. It is one thing to know that the law has changed when the change—the new order, the new rule, the new way of operating—is clear.  But these opinions offer no straightforward answers. Rather, on key issues in both cases, the court offers a similar formula of circular directions: it begins with a fairly clear description of the general legal test to apply, but then proceeds to detail exceptions or additions that have the potential to swallow the general rule.

These two cases are different, however, in one important way: the Court’s ability to correct the confusion its decisions engender.  Even if the Court were interested in revisiting the question of the proper deference to afford agency interpretations, it would need to wait for a good vehicle to address the many uncertainties Mead has generated.  The confusion with respect to Twombly, however, can disappear quickly.  Acting under its powers to revise the Federal Rules of Civil Procedure, the Court could revise either Rule 8[5] or Rule 9[6] and thus immediately end the speculation regarding what Twombly means.

 

Sprint/United Management Co. V. Mendehlson: The Supreme Court Appears to Have Punted on the Admissibility of “Me Too” Evidence of Discrimination. But Did It?

By Mitchell H. Rubinstein[*]

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Introduction and Background

Employment discrimination continues to infect many employers.[1]  However, finding the source of the infection has never been easy.[2]  This Essay discusses the use of “me too” evidence where parties, usually plaintiffs, seek to buttress their case by pointing to other employees who assert that they were infected by the same disease of discrimination. Even before the Supreme Court’s first decision discussing this critically important issue, Sprint/United Management Co. v. Mendelsohn,[3] the use of “me too” evidence was controversial.[4]  It is important to analyze this case because employment discrimination cases often turn on whether the plaintiff has been able to come up with an appropriate “comparator” who was treated differently than he or she was.[5]

In examining the significance of Sprint, it is also important to be aware of the general evidentiary environment that governs federal court litigation. Under Rule 401 of the Federal Rules of Evidence (FRE), there is a low threshold for the admissibility of evidence: the evidence in question has to “only slightly affect[] the trier’s assessment of the probability of the matter to be proved.”[6]  Additionally, as the Seventh Circuit explicitly stated, Rule 403 “tilts in favor of admissibility.”[7]  Because the search for truth is imperiled by the exclusion of what would otherwise be relevant evidence, courts are required to exclude evidence under 403 only “sparingly.”[8] Thus, under this standard, courts are required to give the evidence its maximum reasonable probative force and its minimum reasonable prejudicial value.[9]

Another significant evidentiary doctrine is that the law of evidence distinguishes between the admissibility of evidence and the weight that such evidence is too be afforded.[10]  Stated somewhat differently, anecdotal evidence need not be dispositive to be relevant and therefore admissible.[11]

It is also clear that the context of the “me too” evidence will also matter. This is because context almost always matters when interpreting witness statements.[12]  Therefore, it may not even be possible for the Court to ultimately lay down a specific rule applicable to all cases.[13]  One thing that is clear, however, is that these general evidentiary principles tend to support the introduction of evidence.  But these principles only provide a rough framework for analyzing whether “me too” evidence should be admissible.

There are several easy categories of “me too” cases.  Those categories include attempts to prove the presence of a culture or atmosphere of discrimination,[14] attempts to establish the existence of a hostile work environment,[15] and attempts to show a pattern or practice of discrimination[16] where the “me too” evidence concerns the same decisionmaker as the plaintiff.[17]  However, the answer to the question of whether such evidence can be admitted where, as in Sprint, different supervisors are involved is not easy.

Though scholars have characterized the Sprint decision as a “judicial punt” because of its remand on procedural grounds,[18] this Essay asserts that Sprint will turn out to be significant to the developing employment discrimination jurisprudence.  This is principally because of dicta in Justice Thomas’ unanimous opinion, which implicitly approves of the use of such evidence. While it may be difficult to precisely define the line between admissible and inadmissible “me too” evidence, it is clear that the Court rejected any type of rule that would flatly prohibit the introduction of “me too” evidence simply because the putative witnesses did not share the same supervisor as the plaintiff.

This Essay asserts that the use of “me too” evidence is likely to significantly increase as a result of the notoriety of the Sprint decision and the increasing importance of comparative-type evidence to employment discrimination litigation.[19]  Part I of this Essay discusses the state of affairs involving “me too” cases leading up to the Sprint decision.  Part II then discusses the Sprint decision itself and explains why the Supreme Court decision is significant.[20]  This Essay concludes by postulating how both employers and employees may try to make use of the Sprint decision in future employment discrimination litigation.

"Too Plain for Argument?" The Uncertain Congressional Power to Require Parties to Choose Presidential Nominees Through Direct and Equal Primaries

By Richard L. Hasen[*]

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Introduction

After the 2008 presidential election season concludes, no doubt there will be calls to change the presidential nomination system, especially on the Democratic Party side.  Already before the current season began, Congress explored legislation to prevent the “frontloading” of the primary process through the creation of a series of rotating regional primaries.[1]  The close contest for the Democratic Party nomination this winter and spring revealed additional issues beyond the timing question.  Critics have argued that the caucus system used in some states is unfair and poorly administered,[2]  that the unequal weighting of votes for purposes of delegate selection violates democratic principles,[3]  and that the fate of the Democratic Party presidential nomination should not turn on the votes of unelected “superdelegates.”[4]

It is certainly possible that the parties themselves will change their nomination rules in response to these criticisms, as the parties have done in the past.  But in the event the parties cannot agree on changes, Congress may consider legislation imposing changes to make the nomination rules comply more with the typical “one person, one vote” norms applicable to general elections.  At the extreme, Congress might require presidential nominations to occur through state-by-state direct primaries conducted under one person, one vote principles.  Here, I explore the question whether Congress has the power to impose such primaries on the parties and the states if the parties, states, or both object. I do not consider the wisdom of such legislation.

As I explain, the main argument that parties can advance against Congressional (or for that matter, state) imposition of a direct presidential primary is that it violates the First Amendment associational rights of political parties to determine their method for choosing their standard bearers.[5]  This argument would appear to have much force given recent Supreme Court cases recognizing the parties’ rights to overrule the states on the open or closed nature of political primaries.  On the other hand, the Court has also accepted as “too plain for argument” a governmental power to require parties to use direct primaries to choose their nominees to assure fairness of the process.[6] So resolution of the question is uncertain.

Climate Change Legislation in Context

By Hari M. Osofsky[*]

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Congress is finally taking climate change seriously, or at the very least is engaged in a flurry of activity regarding greenhouse gas emissions.   The Lieberman-Warner Climate Security Act made it out of the Senate Environment and Public Works Committee, and vigorous debates are taking place over the appropriate regulatory approach to climate change and energy.[1]  This Essay considers the context of that statutory conversation.  Namely, how does the possibility of U.S. legislative action fit within a broader picture of transnational climate change governance?

Professor Victor Flatt’s lead piece on climate change legislation in this colloquy provides a thoughtful analysis of the many pending federal climate change legislative proposals, including his assessment of what is “best.”  He provides a detailed description of the pending proposals, as well as a normative discussion of legislative goals and means of attaining them.  In the course of his analysis, he references both international negotiations and smaller scale regulation.  He indicates that U.S. legislation should be developed in a way that would be compatible with—but not wait for—possible future international agreements and also not block smaller-scale efforts.[2]

This Essay builds upon Professor Flatt's thoughtful analysis of the pending legislation by putting it in the broader context of developments regarding climate change.  In contrast to Professor Flatt’s emphasis on specific legislative proposals, this Essay provides a contextualized, normative analysis.  In particular, I focus on three main types of pressures on the legislation.  First, the legislation faces vertical pressures from “above” (international negotiations for the post-2012 regime) and “below” (state and local efforts).  Second, the legislation is influenced horizontally by activity in the other two branches of the U.S. government, namely climate change litigation and executive policy, as well as advocacy efforts by a range of nongovernmental actors.  Moreover, many interactions that ultimately influence legislation are simultaneously horizontal and vertical, such as when states and cities use federal courts to push executive branch agencies to regulate.[3]  Finally, and perhaps most importantly given the looming Presidential election, the shifting public awareness of climate change creates an impetus for Congress to take meaningful action or at least to appear to do so.

Together, these interactions imbue this legislation with significance beyond the specifics of its direct impacts.  Namely, the potential legislation forms part of a broader, complex regulatory map.  The viability and impact of legislative proposals depend on how a range of other people and entities behave, and in turn, the proposals influence their behavior.  In so doing, the legislation can serve in not only a norm-implementing role, but also norm-generating one.[4]  Through exploring the context of climate change legislation, this Essay thus argues for an integrated approach to transnational climate regulation.

Administrative Note: Spring Break and Updates

March 15^th–30^th is Spring Break for Northwestern University School of Law, and the Colloquy will take a brief respite during this period.  We would also like to announce a couple of quick updates.

First, Westlaw has recently made all Colloquy essays and posts available on its service, and this material should be available on Lexis in the near future. 

Second, we have made significant progress in our commitment to make content published by the Northwestern University Law Review easy and costless to access.  All of our past issues are now available through Hein Online.  Additionally, everything published by the Law Review since the fourth issue of our ninety-ninth volume is available for free as a PDF download through the past issues tab on our website.  As a result, anyone can easily locate Northwestern University Law Review content by using an internet search engine.  We will also continue our policy of permitting authors publishing with the Colloquy to post drafts of their forthcoming essays to SSRN, bepress, or similar web locations.

As always, thank you for visiting the Colloquy.

Administrative Note: New Editors

Spring is upon us again, and along with the rest of the Law Review, the Colloquy is in the process of transferring editorial control to the class of 2009.  Isaac Peterson, Melissa Whitehead, and Richard Kirkendall will be handing over control to three new editors:

Kristin Feeley, Senior Colloquy Editor, will be responsible for selection of the Colloquy's content and its overall production schedule. 

Jason Allen, Managing Colloquy Editor, will ensure that the editorial quality of all Colloquy pieces matches the quality of pieces found in the print Law Review. 

Brianne Straka, Executive Colloquy Editor, will handle Colloquy publication duties and act as the webmaster.

All submissions should be sent to Kristin, and all of the information in the Frequently Asked Questions still applies.  As always, the Colloquy focuses upon shorter essays on timely topics and we encourage your suggestions and submissions.

This year should provide for many interesting issues. Our colloquy on climate change will be ongoing.  In addition, we hope for timely scholarship resulting from high-profile Supreme Court cases, such as Danforth v. Minnesota and Spring/United Management v. Mendelsohn, that will produce a discussion like our recent five-part series on Bowles v. Russell.  Finally, we are interested in broadening the scope of the Colloquy by publishing new perspectives, such as a comparative or critical race theory, and by reaching out to authors who may not typically publish in American legal journals, including scholars in other disciplines or legal scholars from other nations.

Thanks for reading, and stay tuned—we have big plans for the next year.

The Unavailability Requirement

By Aaron R. Petty[*]

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The Sixth Amendment provides that a criminal defendant is entitled to “be confronted by the witnesses against him.”[1]  But this right is not absolute.  Forfeiture by wrongdoing extinguishes a defendant’s Sixth Amendment right to confront witnesses if the defendant wrongfully causes or is complicit in the unavailability of a witness.  But when the Supreme Court reiterated its approval of this doctrine in Crawford v. Washington,[2] it left few clues suggesting how the doctrine should be applied. Instead, defining the doctrine’s contours was left to the lower courts.  In determining whether the witness is “unavailable” to testify, these courts have borrowed the “good faith” test traditionally used to establish whether a witness is unavailable for purposes of admitting prior testimony.[3]  In this Essay, I propose a more nuanced approach to unavailability.  In Part I, I review the two situations in which testimonial statements of an unavailable witness may be admitted at trial notwithstanding the Confrontation Clause: admission of prior testimony and forfeiture by wrongdoing.[4]  I then suggest, in Part II, that forfeiture by wrongdoing serves, in part, to remedy the wrongdoing of defendants who misbehave, whereas admission of prior testimony does not serve a remedial function.  As a result, I recommend in Part III that the standard for proving unavailability should not only be different in the two situations, but that it should be significantly lower in the context of forfeiture by wrongdoing.  I conclude that once the proper standard is applied, the concept of unavailability loses much of its utility.  Courts would do better to focus instead on relevant wrongdoing to determine when forfeiture occurs.

I.  Unavailability as a Constitutional Matter

Two situations prompt Sixth Amendment concern with the unavailability of prosecution witnesses: (1) admission of prior testimony and (2) forfeiture by wrongdoing. Admission of prior testimony may include, for example, deposition testimony or testimony from a preliminary hearing.  At common law, only death and extreme illness were sufficient to excuse live, in-court testimony of a witness.[5]  A witness is obviously unavailable in death, and physical incapacity is a close second.

Barber v. Page[6] is the cornerstone of modern unavailability jurisprudence.  In that case, the witness was incarcerated in another state.  The prosecution never requested the attendance of the witness, but instead of requiring live testimony, the trial court admitted prior testimony of the witness from a preliminary hearing.  The Supreme Court held that because the state did not make a good faith effort to secure the witness’s presence, the witness was not unavailable.  The introduction of the witness’s prior testimony therefore violated the Confrontation Clause.

Appreciating Mandatory Rules: A Reply to Critics

By Scott Dodson[*]

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It seems that few are pleased with the Court’s recent decision in Bowles v. Russell, in which the Court held the time limit for filing a notice of appeal to be jurisdictional and therefore not susceptible to the unique circumstances doctrine.[1]  As I wrote in my original Essay, I believe the Court disrupted prior precedent and missed a golden opportunity to develop, in a principled way, a framework for characterizing rules as jurisdictional or not[2] and I adhere to those views.

Three have responded to my Essay. Professor Perry Dane criticizes Bowles for failing to appreciate that jurisdictional rules—assuming the deadline to file a notice of appeal is in fact jurisdictional—need not lead inexorably to a rigid application.[3]  Mr. E. King Poor, Esq., defends Bowles as rightly decided and also as a good result.[4]  And, Professor Beth Burch criticizes Bowles for some of the same reasons I do, but she goes further to suggest that the Court (and I) failed to give sufficient recognition to the equity appeal of the case.[5]  It is appropriate for me to provide a brief reply to those who have joined me in this debate.

I.  A Reply to Professor Dane

I am sympathetic to Professor Dane’s argument that a jurisdictional rule need not necessarily be applied rigidly.[6]  I would go further, however, and explore—in a very preliminary way—three different strands that, while not necessarily entirely distinct from each other, capture different aspects of the role flexibility may play in jurisdictionality.