Scott Wallsten:
Hi, and welcome back to the Technology Policy Institute’s podcast, Two Think Minimum. Today is Wednesday, April 28th, and I’m TPI President and Senior Fellow Scott Wallsten. I’m joined today by my co-hosts, TPI President Emeritus and Senior Fellow Tom Lenard and Senior Fellow Sarah Oh.
It’s been a big year for antitrust with possible major implications for the future structure of the economy. There’s no sign that this action will slow anytime soon. Given all that, we’re delighted to have crack Politico antitrust reporter and Leah Nylen with us today to hash it all out. Leah has recently finished her first year at Politico after eight years before that at MLex, and she’s also worked for Bloomberg and Congressional Quarterly. Leah, thank you so much for joining us.
Leah Nylen:
Thanks for having me.
Scott Wallsten:
Let’s start with the recent 9-0 Supreme Court ruling on whether the FTC is allowed to seek restitution. Why don’t we first get us up to speed about what the case was and what the court decided?
Leah Nylen:
Yeah, sure. So, the Supreme Court decided, as you said, 9-0 last week that the FTC, under Section 13(b) of the FTC Act does not have the authority to seek equitable monetary relief. So, that includes both restitution for consumers and also disgorgement of ill-gotten profits from companies that violate the law. The FTC had used this provision in the law for the last 40 years to seek restitution or disgorgement from companies in federal court under the argument that they were allowed to seek an injunction, and equitable monetary relief, they argued, was part of the things that a court award in an injunction. The Supreme Court said that’s not the case, that the statute just says injunction. They just mean injunction. So, the FTC now cannot seek restitution or disgorgement under 13(b). They do have some other provisions under the FTC Act that would let them seek restitution or disgorgement, but those processes are a little bit more difficult. It requires them to use their administrative court as opposed to going to federal court, and it just takes longer.
So, the FTC has asked Congress to sort of rectify this. There was already a hearing yesterday before the House Energy and Commerce Committee in which the FTC’s acting Chair, Rebecca Kelly Slaughter, pressed them to update the law because she said there are twenty-four pending cases that this is going to impact. Some of those are sort of straight up fraud cases, like people who, you know, fraudulently offered consumers were going to get credit reporting services or IT help and then just like overcharge them. Some of them are a little bit more complicated cases, and there are in fact, three antitrust cases within this group in which the FTC had been seeking disgorgement, and now they’re not going to be able to.
Tom Lenard:
Given that this is a practice that’s been going on for 40 years, was is it a surprise that the Supreme Court ruled 9-0 that this was not a valid exercise of their authority?
Leah Nylen:
Well, the FTC argued that really the Supreme Court is sort of revising laws. As I said, this has been the way it has been for 40 years. There was something like eight circuit courts, appeals courts, who had reinforced their jurisdiction here, but this has been a recent question. There was another case before the Supreme Court. I think it was last term. It might’ve been two terms ago about the SEC’s ability to seek disgorgement and the way the SEC’s disgorgement powers are written in statute is very similar to how the FTC’s were written, which is sort of how this ended up coming up through the courts to begin with. As you maybe know, the Supreme Court right now is very much focused on the statutory text. So they said, you know, when they said injunction, they meant in junction. If they meant something else, Congress needs to change it.
Tom Lenard:
Well, when it’s a 9-0 decision, there’s not very much uncertainty about the legal status of it anymore, but it seems to be equal certainty on the other side that the FTC should have such authority. Does that have implications for what the Congress is likely to do now?
Leah Nylen:
Yeah, it was pretty interesting because as I said, there was this hearing yesterday in House Energy and Commerce. The week before there had been a hearing in the Senate Commerce Committee, it happened right before the Supreme Court released its decision. So, they talked about the decision, but they didn’t have the actual… what had been decided yet.
And it seems pretty much everyone agrees that the FTC should be able to reimburse consumers when they’ve been harmed. These aren’t cases where it’s unclear if companies have broken the law, like there’s already a trial and it’s been decided by the court that these companies have broken the law, and so this is just sort of making sure that consumers are made whole. There was some discussion yesterday at this hearing about whether they should put in a statute of limitations so that the FTC could, for example, only seek restitution for maybe something like five years or discouragement for five years, as opposed to sort of an open-ended fix. You know, the FTC said they were certainly open to that. They seem much more interested in just making sure that this is [inaudible] and quickly, because as they said, there are twenty-four pending cases that are sort of in limbo right now.
Tom Lenard:
Do you think that Congress is likely to solve this problem just on a standalone basis, or that it will just get wrapped up in the whole antitrust?
Leah Nylen:
That was the other question. The Democrats said that they really do sort of want to push this through pretty quickly just to a straight fix, but the Republicans had said, you know, we are talking about changing antitrust law. We are talking about making some changes to the FTC. Why don’t we wrap this into that? Again, the FTC had said, you know, we would like this done as quickly as possible. We have pending cases that are now sort of in limbo. So, we think that you should sort of hold off on that, debate that more, and just do this right now. So, it will be sort of interesting to see whether they do end up doing that. Senator Maria Cantwell, who was the Chair of Senate Commerce Committee said that she wants to do this as a standalone pretty quickly. So, it will be interesting to see where sort of the Senate Republicans come down on that.
Scott Wallsten:
It does seem like if the ruling holds in the sense that that becomes the way the FTC has to operate, it’s also going to affect the kinds of cases that are brought. I mean, it’s got to be a big incentive for some people, organizations, to bring cases if they’re going to get some restitution out of it. If they’re not going to get anything out of it, why bother?
Leah Nylen:
Yeah, that’s true. I mean, they had generally been going to federal court because as I said, it’s a lot easier than going through the administrative process. The administrative process, you have to have an administrative trial, it takes about a year, and then they appeal it to the FTC. The FTC Commissioners themselves rule as the first level of appeal review. Then it goes to a federal appeals court for a second level of review. So, I mean, that process makes a case take three, maybe four years. Whereas if they just go into federal court, especially in some of these cases that are pretty straightforward, you know, like a tech scam, a Nigerian Prince scam, something like that, there’s no real need, the FTC argues, to wait four years to decide that that is wrong, which is why they sort of have been bringing these injunctions, or these cases for injunctions in federal court.
And I mean, the AMG case itself did take three to four years, but that was because the person who owned the company, apparently a former NASCAR driver, had hired some pretty high-powered lawyers to contest it. Interestingly enough, he wasn’t necessarily contesting the conviction part, just the restitution part, because he was ordered to repay consumers $1.2 billion.
Tom Lenard:
I guess the reason to bring a case, even if you can’t get restitution, is to get the injunction.
Leah Nylen:
Yeah.
Scott Wallsten:
But it might affect, you know, housing prices in Florida. If you don’t have to protect your assets by moving there anymore.
Scott Wallsten:
But it also seems to, I guess, again, depending on what Congress does it have implications for narratives people on different sides have about antitrust. I mean, one is that antitrust has been too lax and our Supreme Court is saying actually it’s been too strict, or at least the punishments have been too strict. Although, you could still say that what was legally too strict was practically not strict enough, and also then people who tend to be often on the other side of the issue saying that we shouldn’t regulate various activities, particularly right now it’s related to big tech, because these are antitrust issues and it should be seen in an antitrust perspective, and even though this is just on one aspect of it, and a lot of the big tech issues are not about anything that would be involved in restitution, does this have any material impact on either of those arguments, do you think?
Leah Nylen:
I think it does a little bit. I mean, so the FTC going into court to seek disgorgement in antitrust cases has been a little bit controversial in and of itself. The first time they did that was a couple of years ago in the Cephalon case. They ended up getting, I believe, $1.2 billion in discouragement from Cephalon, which they use to reimburse consumers who had overpaid for the drug.
And in the interim, there had been a lot of questions about whether they should be bringing some of these cases [inaudible] where they could get discouragement, or whether they should be bringing them in the Part III process, that’s their admin court. The advantage of the admin court is it does take longer as I mentioned, but the FTC gets to write the decision. So, if you’re talking about an expert agency, which the FTC is, and case like this, or a lot of the cases like this involved reverse payments or pay for delay cases, which the Supreme Court had said in the Actavis decision a couple of years ago that they could violate the antitrust laws, but they sort of left it completely up to all of the lower courts to decide when these reverse payments were problematic.
So, some of the commissioners had really felt that they should have been bringing those in the admin court, which would have given the FTC the ability to write these decisions about when pay for delay settlements are problematic, instead of bringing them in federal court and sort of rolling the dice, as it were, with a judge who might not know that much about antitrust, might not know anything about pharmaceuticals, and sort of has to learn that all on the fly.
I mean, one of the things that you see debated right now in this entire antitrust reform thing is whether the FTC’s Part III process is good at all. I mean, you have some Republicans like Josh Hawley and Mike Lee who have been advocating for getting rid of our two-agency structure in antitrust altogether, putting everything within the Justice Department, and just leaving the FTC to do the consumer protection half of its of its jurisdiction. I don’t think that’s going to happen, especially after the Trump administration, in which there were a lot of concerns about sort of politization of antitrust at the Justice Department.
I do think there still remain a lot of questions about how useful the FTC’s Part III process is, and how often the FTC should be using that, whether it should be using that more, whether they need to streamline it, and sort of things along those lines.
Scott Wallsten:
How does that debate happen? Is that more of an administrative process debate or legislative at all? What’s the forum for that debate?
Leah Nylen:
I mean, you do see a little bit of this happening in Congress. As I said, you know, Mike Lee and Josh Hawley have been advocating for getting rid of getting rid of the FTC. I don’t think that’s going to happen, but you do also see things, like there’s been a lot of discussion about the Smarter act, right?
This is the Standard Mergers and Acquisitions, I don’t remember what the other letters stand for, but it has to do with the fact that the FTC and the DOJ have different sort of burdens of proof when they bring cases in federal court over mergers. They want to sort of harmonize it so that, you know, if we do have these two agencies, at least they have to prove the same thing. That legislation has actually passed through the House several times. The FTC has generally opposed it because they’re the one who has the easier standard as it were, but I wouldn’t be surprised if they might be able to accept it if they were getting some other things in one of these legislative packages.
Scott Wallsten:
It’s always funny to see antitrust enforcers, making sure that they face no competition on who makes a decision.
Tom Lenard:
I think one of the reasons it’s unlikely to happen is that there’s the committee structure in Congress.
Leah Nylen:
Oh, that’s definitely true.
Tom Lenard:
One of the committees would lose a fair amount of jurisdiction, the Commerce Committee.
Leah Nylen:
This is why I’ve always thought, notice that both Josh Hawley and Mike Lee are people from the Judiciary Committee, so they should be the ones at the DOJ who have all the antitrust authority. You don’t really see people like Roger Wicker over there on the Commerce Committee saying, “Oh yeah, no, I don’t really want authority over this anymore.”
Scott Wallsten:
Of course, as we know, Josh Hawley is a stickler for process and tradition, right? On to something sort of gossip adjacent.
Leah Nylen:
My favorite!
Scott Wallsten:
Yes, Biden World. So far, President Biden has not named an AAG for antitrust or a permanent Chair of the FTC, and we shouldn’t play like the guessing game because, you know, if you named them all this afternoon, then we might be wrong tomorrow and you never want to…
Tom Lenard:
I think we should play the guessing game.
Scott Wallsten:
Well, you can make guesses and then you can be the one who’s wrong.
Tom Lenard:
I want Leah to make guesses.
Scott Wallsten:
Well, what I want to know though, is what do you think this play indicates? If anything, I mean maybe to be fair, you know, there’s some other things going on. A pandemic, for example. You know, if this is something we care about doesn’t mean it’s really the most important thing, but, does it indicate, you know, debates about the real direction that they want to take antitrust?
Leah Nylen:
I think there’s a little bit of that. I will say, you know, the pandemic is definitely a part of the delay here. I mean, if you talk to folks in the administration they say, you know, the number one priority for the Biden team coming in was getting the pandemic under control, getting the vaccine rollout, and then once that was under control, they were moving to the second part of the agenda, which is the “Build Back Better,” as it were.
And you know, what to do about antitrust, what to do about economic policy, is definitely more of the second half than the pandemic vaccine part. So, that I think is why we’ve seen a little bit of delay. I mean, in the Obama administration, they had named their FTC Chair and their Assistant Attorney General for Antitrust by, I want to say mid-February, early March, and here we are now at the end of April, and we still don’t have either of those.
I think the other question is definitely what direction they want to move in here, and you’ve sort of seen throughout the naming of appointees, a little bit of an internecine war, I would call it, within the democratic party between, what I would say are the more progressive half and sort of the more, maybe the more moderate half.
And antitrust is an area that the progressives really, really care about; I think to an extent that may have surprised the Biden people. You know, towards, I want to say, I don’t remember when exactly, but I think it was around February when there was starting to be some names floated of potentials for Assistant Attorney General for Antitrust, and a bunch of the names that were coming out were former Obama administration officials. There was like a huge cry among the progressives about how this was like really unacceptable. It was, I think a little bit surprising. You had a lot of people weighing in, a lot of people that you might not even expect to. I mean, the guy who played the Hulk, like had an opinion about who should be the Assistant Attorney General for Antitrust, and I was like, that’s not something I expected.
Scott Wallsten:
That’s true, but you don’t want to make him mad.
Leah Nylen:
Yeah. So, I mean, I think that definitely took them back, and the other thing I will mention, you know, I did report this in a story a couple weeks ago was, you know, the sort of favorite for the Assistant Attorney General for Antitrust had long been Terrell McSweeney. She is a former FTC Commissioner. She had also worked at the Justice Department before she went over to the FTC, and she is a long time Biden aide. So, you know, she, she sort of fit all of the boxes of what they were looking for, but she has represented some third-parties in the Justice Department’s case against Google, and that raised some ethical, ethics concerns, and so after sort of that came up, she pulled herself from consideration, which sort of, I think sent the White House a little bit back to square one in determining what they want to do.
Because a lot of these agencies, if you’ve noticed, they don’t generally just name one person, they tend to try and sort of name their entire slate at once, and so I really think that when we get this, we’re going to get the AAG for Antitrust. We’re going to get the FTC Chair. We’re probably also maybe going to get the names of some of the deputies at the antitrust division. So, I think once Terrell was sort of out of consideration, they sort of had to rejigger a lot of things and thinking about how they want to approach this.
Scott Wallsten:
So when they had to rethink it, does that indicate, do you think that it wasn’t something that as you call it, the moderate group cared that much about, and they’re willing to just go with whatever generated less controversy, or is it something that someone else someone had to give in on something else for it to get, you know, were there any trade-offs,
Leah Nylen:
That’s sort of interesting. You know, I tend to be… I’m a reporter, so I’m a little bit cynical and tended to think that they named Tim Wu and Lina Khan first to sort of give the progressive folks a little bit of a bone so that they can then name slightly more moderate folks for AAG for Antirust and FTC chair. We’ll see. I mean, the top name that you hear a lot for FTC Chair is Karl Racine. He’s the DC Attorney General, you know, so he has a lot of consumer protection experience, which oftentimes the FTC Chair doesn’t. So that, that’s definitely pretty interesting. He’s also been very outspoken on big tech issues. He was one of the first attorney generals to bring a suit against Facebook for the Cambridge Analytica data breach, and he has been involved in both the multi-state coalitions that have brought antitrust suits against Google and against Facebook. So, he has both sort of the consumer protection and the antitrust chops. The biggest question there is whether he he’ll take it, right? You know, if DC were to get statehood, he would be in a good position to run for, you know, I guess it would no longer be Mayor. It would be Governor or Senator. Yeah.
Tom Lenard:
So isn’t there also a more tech, I mean, I’m not a lawyer, so I don’t know all the rules, but the more technical issue that many of the people, maybe Terrell McSweeney among them, people who are at big law firms that have represented parties, either Google, Facebook, or other parties involved might have to recuse themselves?
Leah Nylen:
Oh yeah. That is definitely the biggest problem with the AAG for Antitrust right now, you know, the progressives have made it very clear that they don’t want folks who have represented the big tech companies. They don’t want sort of a return to the past where, you know, you might be allowed to go in government for that and you’d be recused for two years, but, you know, then you would be allowed to sort of make decisions on that. The problem is though, now that we have this ethics opinion that says that if you have represented any of the opponents of particularly Google, also, maybe Apple because you know, the Justice Department has an ongoing antitrust investigation into Apple that would represent a potential conflict that you would have to get waived by the Attorney General or the White House in order to take a position. If you can’t have anyone who has represented big tech and you can’t have anybody who’s represented companies who’ve complained about big tech, the pool of potential candidates is now suddenly very small.
Tom Lenard:
So I mean, you know, the two top candidates for quite a while on PredictIt for the Assistant Attorney General’s slot have been Jon Sallet and Jonathan Kanter, the only ones really who’ve been out of outside of single digits. And Jonathan Kanter, I gather has represented a lot of companies on the other side from Google. John Sallet, of course, has worked for the Colorado Attorney General against Google.
I don’t know if that’s an ethical issue, but I mean, are either of those issues going to be difficult issues to deal with or…
Leah Nylen:
Yeah, I mean, so either of them, the way it’s been described to me as either of them would require a waiver. It’s seen as slightly less problematic to grant a waiver for somebody who has represented a state, I’ve been told. Because in that case, you’re representing a separate sovereign, they’re sort of coordinating with the Justice Department, but, you know, they’re allowed to bring their own case. He was not… it’s viewed as Jonathan Sallet was, you know, in the room on these discussions representing Colorado, but he wasn’t advocating for a particular client.
Whereas with, in the case with Jonathan Kanter and previously Terrell McSweeney, they were in the room representing one particular client. They wanted a particular outcome and that’s viewed as more potentially problematic, not necessarily disqualifying. There have been some cases in the past where someone who has represented particular company in a case has been given a waiver to continue working on that case on behalf of the agency.
So, the best example I have was there was a case that the FTC did against Intel back in the early, I want to say early 2000s, and O’Melveny and Myers was the law firm, Jonathan Sallet in particular, and O’Melveny and Myers represented Intel. Rich Parker was a lawyer who had also represented Intel, and then he was going inside to the FTC to be the Director of the Bureau of Competition, and he was granted a waiver to still help represent the FTC in that case. So, it’s not unheard of to grant waivers, but you can certainly bet that people like Google and Apple are not going to be happy with the prospect of there being a waiver granted to somebody who has advocated strongly against them.
Scott Wallsten:
So, Amy Klobuchar has a book out.
Leah Nylen:
Yes, I read it!
Scott Wallsten:
Well good, because I haven’t read it yet because it came out yesterday, huh?
Leah Nylen:
They gave me an advanced copy. So…
Scott Wallsten:
So, you read it before the 27th. I saw you had written a bit about it in Politico already. Tell us what you think.
Leah Nylen:
The first half of it is sort of a brief history of the United States’ sort of views towards monopoly. It definitely, it starts with the Boston Tea Party and goes straight through like the Granger movements and the beginnings of the Progressive Era in the early 1900s, the big breakups of Standard Oil and such.
And then sort of second half she spends talking about sort of where we are currently, what she thinks needs to happen now. That part was the one I found more interesting. I am somewhat familiar with the history of antitrust in the US, but you know, it was actually a pretty good read. So, even if you don’t feel like reading, you could probably skip the first 200 pages if you didn’t want to read the history part, but it was still interesting.
Scott Wallsten:
Oh, good. Then I’m two-thirds done.
Leah Nylen:
You know, I do follow Amy Klobuchar around quite a bit. So, I had heard a lot of her talking points before, but she still had, you know, quite a lot of interesting things to say. Over the past, you know, she really talked a little bit about how the Chicago School sort of antitrust thinking, this focus on consumer welfare, prices, has really led to a significant consolidation in a lot of markets. She really did a lot of work there, you know, listing the number of companies that make cat food. There are only four. I did not know that there are only two major makers of caskets now.
And you know, they’re, they’re obviously some more famous ones. Like there’s only two major providers of online travel, Expedia and Orbitz. We only now have three major telecom providers, but, you know, then she sort of goes into what she thinks should happen, and she divided it into three sections: Congress, the Biden administration, and you.
So Congress, she thinks, you know, needs to adopt an antitrust overhaul, and she had a lot of specific ideas about that. A lot of them she has already introduced, so not a lot new there. The Biden administration, she was pushing for them to pretty much name aggressive enforcers and put a lot of resources and focus on competition across the economy writ large. That was something that the Obama administration didn’t pay a lot of attention to sort of in the recovery from the financial crash, and a lot of folks, it seems Amy Klobuchar in particular, think that that was a little bit of a mistake, not focusing on how some of those policies were going to impact consolidation within industries. And the last one was you. You know, a lot of the things were like pay attention to the news and write your Senator.
She also advocated for not using the word antitrust anymore. She said antitrust, like nobody knows what it means. We don’t talk about companies as trusts anymore. So, we should call it competition policy. I think that’s a little bit of a harder sell. It’s not going to fit as well in my business cards. It’s a little bit ingrained now to talk about antitrust that way.
Scott Wallsten:
It’s too bad she didn’t just remind people that antitrust is one word. That would have been a huge contribution.
Leah Nylen:
I know! No hyphen! My biggest contribution at Politico has, I think been harassing everyone into realizing that antirust is one word, no hyphen.
Scott Wallsten:
In the book, does she go beyond talking about concentration to saying that she thought it actually hurt consumers?
Leah Nylen:
Yeah. You know, she does in a couple areas talk about how she thinks it has harmed people. She did spend a little bit of time talking about Amazon and the need for reforming predatory pricing law in the context of the online world, which, this is one of my particular areas I love to think about and read about. So, I was happy to see that in there. You know, there’s been some, and this is one of the things, you know, she named dropped Lina Khan in there. The book obviously was written before she was nominated for the FTC, but Lina Khan and her antitrust, or sorry, her Amazon paradox gets a shout out in there, thinking about how the big tech giants really have been able to price some of their products below cost, and whether that is good for the economy, given that, you know, right now the law of the land, because of the Supreme Court, is that the recoupment period is only two years.
You know, we’ve seen some instances, right, you know, like Amazon ended up putting a lot of booksellers out of business and now it’s 10 years later opening up some storefronts. The recoupment period on that is maybe not two years. Maybe it’s more like 10. So, she thinks that we need to rethink that a little bit.
Scott Wallsten:
What do you think of her argument? That because there are, I mean, obviously this is a complicated debate because one person’s predatory pricing is another person’s “Hey, that thing’s a lot cheaper. That’s great!”
Leah Nylen:
Yeah, no, I did think it’s interesting. One of the things that she argued is, you know, this has really come out of the Chicago School, right? You know, it is cheaper. That’s theoretically better for consumers, right. You know, they’re paying less money, but the thing you don’t know that you’re losing is you might be losing out in some type of innovation that could have been created by another company that doesn’t have the ability to price below cost. Her suggestion, I think her legislative solution was changing it. I believe changing the recoupment period, and making it just so that it’s a little bit easier to prove if somebody is pricing below costs, so then you should be able to bring a suit.
And that would certainly be interesting. I think, you know, you see it in some industries now in high-tech where you have the big guys, Google, Amazon, Apple, moving into areas where, because they have so much profits in other areas they can afford to price below costs in ways that smaller players cannot. Even if those smaller players might have some more interesting innovations in the space. You know, it’s awesome that we have all these choices, but if the smaller players all go out of business, those choices go away.
Tom Lenard:
Of course, those smaller players just be less efficient, it’s kind of hypothetical to suggest that they’d be more innovative. Maybe, maybe not.
Leah Nylen:
That’s true. I think a little bit sometimes of the Sonos case, you know, Sonos is suing Google for patent infringement, and there are some antitrust aspects to their argument. I asked them, you know, when they filed that suit, did you think about filing a predatory pricing case? And they said, yeah, we thought about it, and we realized we would never win.
Scott Wallsten:
What about… nobody said predatory pricing, but it’s related. With Apple’s AirTags, the thing that’s going to compete with Tile. So Tile immediately complained, what do you make of that? I mean, it’s got everything, you know, Apple’s using a new technology in there. So, it’s innovation. It might be a lot better. Tile immediately complained. So what, like, how do we think about that?
Leah Nylen:
I find that one really interesting. So, Tile uses Bluetooth technology to, you know, find your keys. Apple’s new AirTags are using… Oh geez, they told me what it is, but it’s a different type of…
Scott Wallsten:
Ultra-wideband… something or other
Leah Nylen:
It’s essentially some kind of like radio.
Scott Wallsten:
That’s why we’re the Tech Policy Institute because we know it’s Ultra-wideband something or other.
Leah Nylen:
Yeah, UWC chips. The interesting thing though is that Tile has has that technology to use the UWC stuff, but Apple won’t let them use the UWC chip to offer it on the iPhone. This is sort of the case. Apple also does this with the NFC chip. That’s what allows for contactless payments. They don’t want to allow other companies to use the NFC chip portion of the phones right now, the only contactless payment you can use on that iPhone is Apple Pay, and that is part of the European Commission’s investigation into Apple, not just the app store stuff. So, fair warning. It’s Wednesday, the 28th. The S.O. might come out later this week, this section of our discussion may end up being obsolete pretty quickly, but I’m actually pretty interested in that aspect of the European Commission’s investigation, whether they will find that it’s unfair or violates competition laws for Apple to not allow other companies to use specific aspects of the technology within the phone.
That’s Tile’s main argument. They say, you know, Apple, isn’t letting us compete on the same level. They’re not allowing us access to the other features of the phone. So, they are putting us at a disadvantage where we’re never going to win because we’re not allowed to use the same technology that Apple is letting itself use. So, even though they already have these UWC capable Tiles, they can’t use them for the iPhone.
Scott Wallsten:
So, let’s say that Tile is right. Should Apple have to let everyone else use their technology?
Leah Nylen:
I don’t know. It’s a question, right? That’s why it’s sort of interesting. This is like where it’s not quite clear whether it’s antitrust or not, right? Like, and why the Europeans are going with a slightly more regulatory approach. They’re saying that once you get to a certain size and you are sort of gatekeeping the market, maybe you should have more responsibilities, and maybe you should have to give people access to it so that they can sort of innovate at the same rate. I guess in the US, we would call this the Aspen skiing argument, right? The central facility
Scott Wallsten:
But that approach is a definitely more European way of thinking about it, but also, you know, to make it even more convoluted. I mean, moving away from this a little bit in that same, maybe it’s not the same case, but it’s also in Europe, you know, the group in Germany, a group of advertisers and media companies are upset with Google for the privacy.
Leah Nylen:
You mean Apple on the iOS platform?
Scott Wallsten:
I’m sorry. Yes, exactly, and so, you know, they’re bringing an antitrust case too, which would be contrary to what many policymakers think are consumer preferences, which may or may not be true, but these various policy desires are not all consistent with each other.
Leah Nylen:
Yeah. That one I find really interesting because that one’s really like the intersection between privacy and antitrust, you know, for people who aren’t as way in the weeds on this. And so under iOS 14, it’s going to request every time you enter an app, if the app wants to track you across apps or across the web, it has to ask for permission. So, you have to affirmatively opt in before an app can track you. That is essentially going to destroy a lot of the way that people have done mobile advertising and Facebook in particular has been very vocal about how this is going to sort of really hamper their mobile advertising. Certainly, there are a lot of people, especially people who are focused on privacy who think this new innovation from Apple is great. You know, this is going to allow consumers to have much more control over where they are tracked across the web. It’s going to give people a much more private experience on smartphones. The problem that various other people have raised is this is sort of Apple unilaterally imposing these conditions, and they get to impose them in a way that benefits them the best, right?
So, Apple is getting rid of the way that people have traditionally tracked mobile advertising, but it’s not doing it for itself. It’s only other people. It can still, you know, sort of do what it wants and attract people how it can…
Scott Wallsten:
Well, that’s not been a big part of its business. So, maybe it doesn’t really matter.
Leah Nylen:
It’s not been a big part of its business, but it has actually been increasing a little bit. That was one of the interesting things as I’ve been going through all of these documents in the Apple-Epic things, it has gotten more into advertising over the past few years in particular. Now it makes a billion dollars in advertising within its own app store, by having, you know, apps pay them money to get promoted within the search results.
Tom Lenard:
Presumably it will make more in advertising with this new…
Leah Nylen:
Presumably it will make even more, you know, I think that’s why it’s pretty interesting. You know, if Apple didn’t control half of the smartphone market around the world, no one would care, right, if it wanted to do this. But it has so much power because it governs access to the something like, I’m going to have to go look at my notes, but I think it’s 1.2 billion people around the world who have an iPhone or an iPad. So, if you want access to those people, you have to play by Apple’s rules and it can change those rules at any point in time.
Scott Wallsten:
So this is, I mean, this is partly a technical question, but so when I’ve noticed that on my phone, it says you can allow them to track you, or it says, ask app not to track you. Does that mean that Apple is actually preventing it? Or are they just trying to shame other companies into not doing it? Are they actually allowing them to not track you? And if they are actually allowing them… I mean, sorry, if they’re actually preventing it, why doesn’t the app say that?
Leah Nylen:
I believe what they’re doing is shutting down the IDFA, which is the identification for advertisers, which is essentially this little piece of code that would tell that app where else you go. And to be honest, I don’t know why they titled it that way. Apple has first announced this change last year. I want to say in June, and then when there was such a huge outcry about how this was going to affect mobile advertising, they postponed it, and they’ve postponed it a couple of times to sort of essentially give the industry a little bit of time to come up with what’s going to be the solution now that can’t do it the way that they have done it for, you know, the past however many years, and now that it’s officially on as of last week, they’re still working out some of the kinks.
Tom Lenard:
So does that mean that the policy doesn’t apply to Apple itself so that the only people who will be able to do targeted advertising will be Apple, and the others, unless the consumer opts in, the others can’t do targeted advertising. They can still get advertisements, but there’ll will be less targeting.
Scott Wallsten:
On apps, not through the browser.
Leah Nylen:
So, this is just for apps. So, there would no longer be targeted advertising on apps that you would have a more broad…
Tom Lenard:
You get a lot more advertisements, but they’d be less targeted.
Leah Nylen:
Yeah, and so what people are saying is, you know, targeted ads are much more valuable than a generic ad. So, it’s essentially significantly reducing the value of all of the advertising within mobile apps on the iPhone.
Tom Lenard:
I do think that maybe, and I could be wrong on this, the empirical work in the past that suggested that if you can’t do targeted ads, you do more ads in general because you don’t know how to target them.
Scott Wallsten:
So, in principle, this could be an interesting experiment. I mean, depending on how easy it is to change your preferences, do people choose one thing and then decide they prefer it a different way?
Leah Nylen:
You know, because this change was like announced and sort of took place pretty quickly. There had been one study that found that, you know, when given this option, something like 83% of people are going to choose not to be tracked, but it will be interesting to see if, if people, you know, maybe choose not to be tracked when they’re first ask and then ended up turning it back on later if the app offers them something in exchange. You never know, right.
Tom Lenard:
Yeah. Well, I suspect probably people will think, well, it’s better not to give my information, but then they don’t think they’ll lose anything from making that choice, but they might. They might be bothered by more ads about things that they’re really not interested in so…
Scott Wallsten:
Before we finished, let me ask one more question about the book. That’s something I’m always curious about, and this is not a criticism of Senator Klobuchar at all, but you know, politicians never write their own books, and this is a pretty detailed book about a complicated field.
And from what you say, it was, whether or not one agrees with our conclusions, pretty well done. Who did this? How does a politician who clearly doesn’t have time to write a book, no less do all the research behind it, what’s the process? How does she do this? Is there a committee of people who like her, who are friends with her, and agree with her on antitrust, combined with a ghost writer? And I’m not saying these aren’t her ideas because they clearly are, you know, things that she agrees with, but just the process. How does something like this happen?
Tom Lenard:
Acknowledgements?
Leah Nylen:
I’m going to have to open up the book here and look. I did love, however, her dedication to her husband, who she said had a monopoly on her affections. That that was the one thing I did enjoy about this book is it was filled with sort of cheesy antitrust jokes, and I’m probably the only person who actually likes them.
Scott Wallsten:
Well, she knows her audience.
Leah Nylen:
But you know, in general, I think they generally have a ghost writer. Let me see if she actually says, who does the writing for them. You know, you might talk to the person, get a sense of what they’re looking for, and then write it. The one thing, I was pretty impressed with, you know, when they first sent it to me, I was like, “Holy smokes, it’s 600 and something pages.” It’s actually not, it’s only 355 because the last 300 pages are actually footnotes. It was pretty interesting that…
Scott Wallsten:
So, lawyers helped her write it.
Leah Nylen:
So yeah, definitely lawyers helped write this. Sorry, I found the acknowledgements. Oh, her husband helped her write it. He wrote nearly every EndNote. Yes, there are a lot of them and helped write in many of the detailed, legal portions of the text. Her husband, let me mention, is a law professor at the University of Baltimore and Georgetown
Tom Lenard:
On a related subject to Amy Klobuchar. How would you handicap the chances of antitrust legislation actually being enacted this session of Congress?
Leah Nylen:
That is… I started out in Washington at CQ. So, I tend to be a little bit cynical about anything ever happening legislatively. I think it’s definitely likely that we will see something happen if only it ends up being an increase in funding for the FTC and DOJ. There seems to be a really large bipartisan consensus that these agencies are severely underfunded. They’ve not kept pace with sort of the, the amount of money and staff they need to take on these sophisticated companies. I think definitely we’re going to see that. So we may just see a straight up funding bail, or you might see…
Tom Lenard:
And there’s no shortage of money, right? So…
Leah Nylen:
Well, one of the proposals has been to increase the fees on mergers. You know, they haven’t done that really in a long time. So, one of the things that they have been proposing is, you know, to vary the scale a little bit more. So for very small mergers, they’ve actually proposed, decreasing the filing fee. But for some of the biggest ones, you know, the billion dollar mergers, increasing the filing fees significantly, and the DOJ and the FTC already get half of their funding from filing fees anyway. So, that would definitely increase the amount of money that they can take in and possibly decrease the amount of money that the federal government has to give them separately. So, I think that will very definitely, probably happen.
The other stuff. It’s a big question. You know, Amy Klobuchar has released her big package. She has some Republican backing on parts of it. Mike Lee has said he doesn’t like it. He is the top Republican on the Senate Judiciary Antitrust Subcommittee. I didn’t expect him to, you know, he had been in charge of antitrust policy for the past several years, and he had never made any move really to change anything in antitrust. He has said now that he’s going to write his own bill and then sort of get together with Amy Klobuchar and see if they can come up with some kind of a bipartisan consensus, and that, I think, will be the most interesting one to watch because the House can probably get through some of the stuff that it wants. Some of the stuff it wants, I will note, that the House Judiciary Antitrust Report got voted out of committee two weeks ago, and there were a number of Democrats who voted for it, but said that they didn’t actually agree with it, and they would be submitting additional views. Those additional views haven’t been posted yet, but I think it will be interesting to see what some of the more moderate Democrats are willing to change and what they aren’t.
There were some pretty prominent folks like Zoe Lofgren who represents part of Silicon Valley. You said that she really didn’t like that report. So, when she’s senior enough, maybe to throw a little bit of a wrench in the process if she wanted to oppose a lot of the changes, that’s [inaudible] and the other progressives are coming up with. So, that will be fun to watch.
Scott Wallsten:
So, we’ve gone way over time and we really thank you for that because I know there’s no shortage of things you’ve got to be reporting on right now.
Leah Nylen:
Oh, I get to go back to reading expert disclosure, the expert testimony ahead of the Apple-Epic. They, they did all of the experts in written form and then they’re going to bring them on the stand for cross examination.
Scott Wallsten:
So, thank you very much.
