FTC Mulls The Meaning Of Monopoly - InformationWeek

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10/31/2006
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FTC Mulls The Meaning Of Monopoly

The FTC is looking into how competition should be regulated in the digital age.

Can you tell a monopolist from a competitive business? That's what the Federal Trade Commission aims to find out in a series of hearings.

The FTC held a hearing Wednesday in Washington, D.C., on tying arrangements, which make the sale of one product conditional upon the sale of another. It's an issue that's particularly relevant to the high-tech industry, where tying is relatively common.

Apple Computer, for instance, is currently fighting an antitrust lawsuit relating to its iPod music player. Last year, a federal judge in California denied Apple's motion to dismiss the case. The plaintiff, Thomas Slattery, alleges that Apple's iTunes Music Store and its iPod represent unlawful tying and an illegal monopoly.

An Apple spokesperson wasn't immediately available for comment.

Product design-related tying issues will be among those discussed, says Patricia Schultheiss, an attorney with the FTC. However, she notes that the hearing is unlikely to focus on cases that are currently being litigated, such as the Apple case.

Tying is a tactic that has the potential to cut small companies out of the market. In comments left at the FTC Web site, Rich Kalich, president of medical device maker Vermed, described how his company lost its contract as the supplier of private-labeled EKG sensors to medical supply company Owens & Minor because its larger competitors, Tyco-Kendall and 3M, had made agreements "in which Owens and Minor receives benefit from selling only 3M and Kendall health-care supplies... "

Since June, the FTC has been holding periodic hearings to determine when the business practices, such as tying arrangements, of a single firm are anticompetitive under Section 2 of the Sherman Antitrust Act, which prohibits the misuse of monopoly power. The hearings are expected to continue through December.

Distinguishing between procompetitive and anticompetitive conduct has never been easy. And as time passes, the arguable merits of the government's antitrust enforcement efforts often change with shifts in the competitive landscape and political climate. The case against Microsoft and the breakup of AT&T in the 1980s, for example, each look very different today than when litigation began. Under current market conditions, the regulatory actions against those two companies might have been pursued differently--or not at all.

Also, antitrust laws written for a manufacturing era need to be rewritten for the information economy.

"It's a continuing evolution, as it always is," says Donald Russell, a partner at Robbins Russell Englert Orseck & Untereiner, who's scheduled to speak at the hearing on Wednesday.

The most important issue before the FTC, says Russell, is whether tying is inherently anticompetitive or whether tying arrangements should be evaluated using market analysis and evaluation before behavior is deemed to be anticompetitive.

At the opening of the FTC hearings in June, FTC Chairwoman Deborah Platt Majoras noted that interested parties have struggled for years to arrive at a test to evaluate the conduct of individual companies with regard to anticompetitive behavior.

As business has gone global over the past few decades, differing views have emerged about when and where competition should be moderated by regulation. Thanks to the rise of market economies abroad, the FTC now has over 100 counterparts around the globe, up from less than two dozen only 15 years go, according to Majoras. And in many of these markets, the rules of fair play differ.

"Different jurisdictions are all struggling to come up with a policy that makes sense," says Russell. "There are differences today, and hopefully over time those differences will become less prominent."

Lack of a bright line between appropriate and inappropriate competitive behavior doesn't help anyone. "Uncertainty in the law respecting single-firm conduct undoubtedly hurts consumer welfare," said James R. Eiszner, an attorney at Shook, Hardy & Bacon, in comments offered to the FTC. "Uncertainty creates situations where strong competitive firms may refrain from procompetitive activity for fear that their actions could later be challenged as monopolization. Uncertainty may also cause truly dominant firms to engage in anticompetitive conduct because they sense the antitrust enforcement agencies have no clear enforcement intentions.

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