Antitrust in 60 seconds: antitrust and freedom of design

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In recent years, the role of antitrust in the design of products and services has become increasingly important, particularly in the technology sector. Freedom of design in a market economy is essential to promote innovation and economic growth. Businesses invest in innovation and improve the design of their products and services so that consumers benefit. Likewise, companies increase their profits and the economy grows. While federal antitrust laws do not explicitly refer to design freedom, U.S. courts and antitrust agencies have confirmed that antitrust law enforcement does not govern design and redesign choices. Restrictions on production and pricing are undoubtedly at the heart of antitrust enforcement, but it is important to understand why technology choices to redesign products and services are not treated in the same way from the point of view. antitrust view. In fact, U.S. courts and antitrust agencies have understood that sanctioning freedom of design in innovation-intensive industries such as the tech sector could have a negative impact on consumer welfare and economic growth.

introduction

The freedom to design companies as part of their innovation strategies does not generally violate US antitrust standards. Although antitrust standards do not explicitly refer to this freedom of design or the freedom to innovate, the limits of the application of antitrust laws in this specific area have been delineated by US courts and antitrust agencies.

Competition in innovation-intensive industries such as technology largely depends on designing, redesigning and deploying new products and services that consumers value. Often, these innovations disrupt markets, create winners and losers, and grant short-term monopoly profits to risk takers. These consequences generally act as incentives to invest in innovation. Competitors will often recognize these disruptive innovations and try to pretend that the innovators are engaging in anti-competitive practices. However, courts and policymakers have generally concluded that innovators and incentives for innovation should not be restricted by antitrust enforcement, as the primary effect would be to protect companies that would prefer to continue using old technologies. .

The development of antitrust principles by courts and antitrust agencies has recognized the importance of preserving these incentives to innovate. As will be analyzed below, this is the reason why corporate freedom of design is generally not condemned by the application of antitrust laws.

Federal antitrust laws

The “consumer welfare standard Applied to antitrust law enforcement in the United States promotes innovation and decisions to innovate, as it is understood that this improves benefits for consumers and the economy in general. The design or redesign of products as part of companies’ innovation strategies is considered pro-consumer.

we federal antitrust laws, especially the Sherman Law and Clayton Law, mainly focus on monopolization and trade restrictions. Federal antitrust laws do not mention the freedom to design in the same way as innovation. But over time, courts have set certain limits on whether competitors can use antitrust standards to attack companies’ design choices, clearly prioritizing the benefits of design freedom over short-term implications. in the market for the deployment of new models in the market.

Position of the American courts

US courts have analyzed the role of design freedom in innovation-intensive industries from an antitrust perspective on several occasions.

In 1979, in California Computer Products v IBM, Circuit 9 clarified the importance of preserving a company’s rights to freedom of design in a case involving processors and disk products. California Computer Products (CalComp), the complainant, attempted to allege that IBM’s introduction of new processors and disk products as well as IBM’s marketing strategies, including price reductions on existing disk products , violated Sections 1 and 2 of the Sherman Act, as it prevented CalComp from competing with IBM for the sale of disk products.

Circuit 9 made it clear that IBM:

“Had the right to rethink its products to make them more attractive to buyers […] There was no duty to help CalComp or other peripheral equipment manufacturers survive or grow. […] The reasonableness of IBM’s conduct in this regard was not a jury issue. “

The 1983 Kodak Case is another good example of how American courts perceive the relationship between freedom of design and antitrust laws. Kodak released a new camera design, the Pocket Instamatic, which only worked with Kodak’s own sealed cartridges. So, if a consumer wanted to use Kodak’s new cameras, they would also have to buy their cartridges during the time these innovations were protected by patents. Kodak’s competitors felt that the launch of Kodak’s new film-related camera was intended to exclude competitors using older technology from the market and deserved an antitrust condemnation. However, the 9th Circuit Court made it clear that Kodak:

“Had the right to rethink its products to make them more attractive to buyers, whether due to lower manufacturing costs and prices or improved performance.” Antitrust laws did not require Kodak to “restrict[] its product development in order to facilitate the sales of competing products. ”

Finally, the 9th Circuit confirmed that design changes should not generally be sanctioned by the antitrust standards of the Allied orthopedics Case of 2010. The case concerned the launch of a new technology where the plaintiff attempted to prevent the deployment of this innovation on the basis of section 2 of the Sherman Act, alleging that the new technology had harmed those involved. in the old existing technology.

The Court was adamant about the deployment of new technologies based on product redesign:

“As a rule, the courts are rightly very skeptical of claims that competition has been harmed by a dominant firm’s product design changes.

The FTC’s Position

The United States Federal Trade Commission (FTC) already had the opportunity to express its views on antitrust and freedom to design in 2013. As part of the FTC’s two-year investigation into Google Search, the FTC analyzed the role of antitrust product design and determined that restricting and sanctioning product design decisions could harm consumers. In the FTC investigation closing statement, the agency said:

Product design is an important dimension of competition and condemning legitimate product improvements can harm consumers. Reasonable minds may differ as to how best to design a search results page and how best to allocate space between organic links, paid ads, and other features. And reasonable search algorithms may differ as to how best to rank for a given website. Challenging Google’s product design decisions in this case would force the Commission – or a court – to question a company’s product design decisions when plausible pro-competitive justifications have been presented and those justifications are supported by lots of evidence.

In addition, the FTC acknowledged that some of the design changes constituted an improvement in quality not necessarily related to the anti-competitive exclusion of competitors.

Conclusion

The US antitrust framework applied as part of the Consumer Welfare Standard encourages innovation for the benefit of consumers and economic growth. As part of this equation, courts and antitrust agencies have understood that freedom of design is essential to fostering innovation.

Particularly in innovation-intensive industries, failure to respect freedom of design and the use of antitrust laws to sanction the deployment of new products and services could have significant negative implications for economic growth. Antitrust is not intended to protect competitors over an innovative product or service that disrupts an existing market; antitrust authorities understand that promoting innovation should not be sacrificed at the expense of preserving old technologies used by market players.

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