US should reconsider 'essential facilities,' predatory pricing, judge says

29 April 2019 7:26pm

26 April 2019. By Leah Nylen.

US antitrust enforcers may have been too quick to discard ideas about predatory pricing and essential facilities, especially in connection with big technology companies, a US appeals court judge and antitrust expert said.

“There may be a role for the essential facilities doctrine in the digital broadband market. The same thing is true … with regard to predatory pricing.… There are signs that it does happen and really inflicts serious negative consequences on people,” said Chief Judge Diane Wood of the US Court of Appeals for the Seventh Circuit in Chicago. “Maybe there was some wisdom in those ideas that we have been too quick to throw out the window.”

Wood served as a lawyer with the US Department of Justice’s antitrust division before she joined the bench, and has authored several key appeals court decisions on antitrust. During the Obama administration, she was considered a potential nominee to the US Supreme Court.

An essential facility refers as a system or technology so vital that rivals can’t effectively compete without access to it. The US’s top court held in 1985 that in limited circumstances, a company can be required to do business with its competitors. The essential facilities doctrine is rarely invoked in the US.

“We may not have fully appreciated what the competitive challenges of these large internet-based companies were,” said Wood, mentioning Google and Amazon specifically.  “Other countries, I will point out, do think there is still some role for [essential facilities]. They are concerned about the exclusion of competitors through this sort of facility. Perhaps we ought to take another look at it.”

Wood said she was aware of the criticism of the essential facilities doctrine, that it encourages “forced sharing” and could limit investment in innovation. But “never is too strong a word,” she said.

“Recognition of an anticompetitive practice sometimes precedes rather than follows the rigorous economic explanation for why that practice is something that ought to be controlled,” Wood said. “I think the essential facilities idea is one of those things, perhaps predatory pricing is one as well. It’s got to be done carefully, surgically, not with a meat cleaver.”

She also rejected the idea that that essential facility or predatory pricing theories should be discounted because they help rivals, noting the oft-repeated phrase from the Supreme Court’s 1962 Brown Shoe opinion that the antitrust laws were enacted for “the protection of competition, not competitors.”

“There isn’t going to be any competition if there are no competitors,” she said.

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