Table of Contents

Consumer Welfare in EU Competition Law: What is It (Not) About?

Victoria Daskalova, TILEC, Tilburg Law School

The Affordable Care Act Efficiencies Defense in Section 7 Cases: FTC v. St. Luke's and Antitrust Unicorns

Kent Bernard, Fordham University School of Law

Patent Licensing in Vertically Disaggregated Industries: The Royalty Allocation Neutrality Principle

Anne Layne-Farrar, Charles River Associates, Northwestern University
Gerard Llobet, Centre for Monetary and Financial Studies (CEMFI)
Jorge Padilla, Compass Lexecon

Market Definition, Market Power

Louis Kaplow, Harvard Law School, National Bureau of Economic Research (NBER)

Ex-Ante and Ex-Post Control of Buyer Power

Stefan Thomas, Eberhard-Karls-University - Faculty of Law

Endogenous Deterrence Costs

Alex Parkinson, Boies, Schiller, and Flexner LLP

Should Reverse Payment Patent Settlements Be Prohibited Per Se?

Jorge Padilla, Compass Lexecon
Valerie Meunier, Compass Lexecon


"Consumer Welfare in EU Competition Law: What is It (Not) About?" Free Download
TILEC Discussion Paper No. 2015-011


More than a decade after the proclamation of consumer welfare as a goal of EU competition law, a fundamental question remains unanswered: namely, what is the content of the EU consumer welfare standard? What types of benefits and harms count respectively as welfare and as harm? Whose harm and whose benefit is included in the definition? Few answers have been available to these crucial, from a legal perspective, questions.

The goal of this article is to explore the meaning of consumer welfare in terms of these questions. In particular, considering the assumption that the notion of consumer welfare in EU competition law is borrowed from economics, the article will attempt to verify to what extent consumer welfare coincides with the notion of consumer surplus in economics. The focus is therefore on 1) whether consumer can be taken to mean the final consumer or the intermediary purchaser and 2) whether the notion of harm refers primarily to price effects. Part I of the paper focuses on the definition of consumer welfare in antitrust law and in economics. Part II considers the definitions of consumer welfare in the Commission’s soft law and argues that a finding of an end user surplus cannot be supported. Part III turns to the jurisprudence of the European Courts and argues that support for end-user surplus cannot be found in the Court’s case law. The paper concludes that although we do not find support for an end-user surplus standard in the Court’s jurisprudence, the change in language in the 2012 Post Danmark ruling leaves us wondering as to whether and in what direction the Court’s approach might change.

"The Affordable Care Act Efficiencies Defense in Section 7 Cases: FTC v. St. Luke's and Antitrust Unicorns" Free Download
CPI Antitrust Chronicle, April 2015 (2)

KENT BERNARD, Fordham University School of Law

in an earlier article commenting on the District Court decision in the FTC vs. St. Luke’s litigation, I pointed out that the court recognized that the acquisition of Saltzer by St. Luke’s was intended to, and would have had the effect of, improving patient outcomes. The court still blocked the acquisition, however, because it found that there might have been other ways to achieve those improved outcomes and that since St. Luke’s had not proven that the acquisition path was the only viable one, it had not chosen the least restrictive alternative. Therefore, St. Luke’s had not rebutted the government’s prima facie case based on the market share of the proposed merged entity.

The Court of Appeals affirmed, stating that while the parties and the court believed that the merger was intended—and indeed would have led to — better patient outcomes, the District Court had correctly found that the huge market share of the post-merger entity created a substantial risk of anticompetitive price increases and that the offered efficiencies were not an adequate defense.

Two rather provocative issues for health care mergers come out of the decisions in this case: (1) The policies and intent of the Affordable Care Act seem to have no effect on the antitrust analysis to be applied in these cases: and (2) High post-merger market shares/HHIs create a presumption of harm that cannot be rebutted except by the nearly impossible task of proving a negative (that there is no less restrictive way to achieve the better patient outcomes). The prima facie case has become close to irrebuttable.

"Patent Licensing in Vertically Disaggregated Industries: The Royalty Allocation Neutrality Principle" Free Download
COMMUNICATIONS & STRATEGIES, no. 95, 3rd quarter 2014, p. 61

ANNE LAYNE-FARRAR, Charles River Associates, Northwestern University
GERARD LLOBET, Centre for Monetary and Financial Studies (CEMFI)
JORGE PADILLA, Compass Lexecon

This paper investigates patent licensing in vertically disaggregated industries, where patent holders may license to upstream producers only, downstream producers only, or to both upstream and downstream producers. We consider whether consumer welfare will be greater if the patent holder's ability to license multiple parties along a production chain is restricted. We also analyse whether a policy that restricts licensing to upstream manufacturers constitutes appropriate public policy. These questions have significant policy implications. Under the legal doctrine of first sale, or patent exhaustion, a patent holder's ability to license multiple parties along a production chain is restricted. How and when such restrictions should be applied is a controversial issue, as evidenced by the US Supreme Court's granting certiorari in the Quanta case. Some commentators have even argued that refusing to license to upstream component manufacturers may constitute an abuse of dominance and thus infringe the competition laws. We find that under ideal circumstances how royalty rates are split along the production chain has no real consequence for social welfare. Even when we depart from ideal conditions, however, we still find no economic justification for restrictions of the patent holders' ability to license multiple parties or to license to downstream producers only.

"Market Definition, Market Power" Free Download
International Journal of Industrial Organization, Forthcoming

LOUIS KAPLOW, Harvard Law School, National Bureau of Economic Research (NBER)

Market definition and market power are central features of competition law and practice but pose serious challenges. On one hand, market definition suffers decisive logical infirmities that render it infeasible, unnecessary, and counterproductive, and the practice of stating market power requirements as market share threshold tests is incoherent as a matter of empirics and policy. On the other hand, market power is often probative of the desirability of liability, yet the typically assumed functional relationship is unexplored and often implausible. These latter deficiencies are addressed through a ground-up analysis of the channels by which market power can be relevant. It is important to explicitly and simultaneously consider both anti-competitive and pro-competitive explanations for challenged practices and to attend to the magnitudes of the social consequences of correct and mistaken imposition of liability in order to identify the various ways and senses in which market power bears on optimal decision-making.

"Ex-Ante and Ex-Post Control of Buyer Power" Free Download

STEFAN THOMAS, Eberhard-Karls-University - Faculty of Law

This paper considers the effects of buyer power under the antitrust laws. It focuses on EU antitrust law, namely Article 102 TFEU and the EU Merger Control Regulation, while taking into account the stance of US antitrust law. Recent investigations of several European antitrust authorities in the grocery sector have expressed concerns that concentration on the demand side can result in market foreclosure or anticompetitive exploitation of market participants. Also, in the US there is an ongoing debate about the anticompetitive and procompetitive effects of buyer power, which is inter alia reflected in the landmark decision of the US Supreme Court in Weyerhaeuser and in the merger control policies of the DOJ and the FTC. Against this background, the present paper starts with the definition of buyer power. It underscores the necessity to distinguish between single price monopsony on the one hand and individual bargaining power on the other hand, since the economic effects of these two types of buyer power deviate significantly. In subsequent steps, the paper analyses different theories of harm that can be raised with respect to buyer power. It discusses the effects of buyer power on allocative efficiency, dynamic efficiency as well as consumer welfare and draws conclusions from that for the enforcement of the antitrust laws.

"Endogenous Deterrence Costs" Free Download

ALEX PARKINSON, Boies, Schiller, and Flexner LLP

There is an optimal rate at which actors that indisputably break the law will be detected, prosecuted, and punished. Legal regimes optimize deterrence by calibrating three inputs: the probability of detection, the rate of prosecution, and the magnitude of punishment. Optimal-law-enforcement literature casts these three inputs as static, exogenously controlled variables, each of which is capable of being carefully manipulated — even titrated — independent of the others. This Article problematizes the singular hegemony of this traditional account. Contra extant optimal-law enforcement literature, the three foregoing deterrence inputs can (and often do) exert endogenous pressures on one another. To advance this thesis, I present a stylized account of endogenous deterrence regimes. These regimes principally manifest when legal regimes cycle the magnitude-of-punishment input for a violation of a given law into the probability-of-detection input for that same law. Texture is added to this stylized account by drawing on several examples of endogenous deterrence regimes in both private and public law. This Article’s second-order contention is that these endogenous deterrence regimes can generate considerable costs. Specifically, endogenous deterrence regimes produce systematic deterrence failures, exact an independent social-welfare loss, and allow unelected, unaccountable actors to inflict agency costs by altering legal regimes absent any oversight, “making law? and extracting rents in the process. While effects these are not inevitable — endogenous deterrence regimes can also be deployed as neat institutional-design features that yield considerable gains — they are likely in the status quo. Endogenous deterrence regimes are systematically more likely to prove costly merely by virtue of the fact that so little attention has been drawn to their existence and effects.

"Should Reverse Payment Patent Settlements Be Prohibited Per Se?" Free Download

JORGE PADILLA, Compass Lexecon
VALERIE MEUNIER, Compass Lexecon

Using the same competition test and counterfactual that has been used in the economic literature that is often cited to justify intervention against virtually all reverse payment patent settlements (RPPSs), we conclude that (1) RPPSs can benefit consumers and, therefore, it is wrong to presume that RPPSs are necessarily anticompetitive; (2) it is also incorrect to presume that RPPSs are by their very nature injurious to competition; (3) such a presumption is unjustified even for those involving reverse payments in excess of the originator’s expected litigation costs; (4) there is therefore no justification for treating RPPSs as per se illegal; (5) a case-by-case assessment of the effects on competition and consumer welfare of an RPPS that uses the expected date of entry as the standard of comparison in the counterfactual world, would necessarily require informed judgments as to (at a minimum) the strength of the patent at issue and the likelihood of patent infringement; (6) as a result, assessing RPPSs on a case by case basis using the expected date of entry standard for comparison is bound to lead to errors and reduce consumer welfare and, hence, cannot constitute an appropriate legal standard; and (7) RPPSs, even those involving reverse payments greater than the originator’s litigation costs, should be assessed under a rebuttable presumption of legality rule — i.e. they should be presumed legal unless there is direct evidence of a conspiracy to delay entry.


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Antitrust: Antitrust Law & Policy eJournal

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