United States: Raised Stakes: DOJ Remarks Highlight "Incentives Of Innovators" And A Fact-Based Approach To Antitrust Enforcement

Last Updated: March 27 2018
Article by Claire M. Maddox and Bonnie Lau

Innovation is "a key feature in the discussion of antitrust enforcement," and "the stakes could not be greater in deciding whether . . . [to] enforce antitrust laws to promote innovation," according to Deputy Assistant Attorney General Roger Alford of the US Department of Justice (DOJ) Antitrust Division in remarks delivered on February 23, 2018.1 Presenting at Kings College in London, Alford emphasized that as the DOJ "[has] learned time and again in antitrust law, there are significant adverse repercussions from an approach that discourages rather than incentivizes innovations."2

Alford's remarks provide insight regarding the Antitrust Division's views on the intersection between innovation and competition and the importance of evidence-based analysis—particularly with respect to merger reviews, the digital marketplace, and the role of incentives to innovate—as well as on pricing algorithms in the context of analyzing an alleged Section 1 violation. Underscoring the increased focus on such issues in the antitrust world, several of these themes also are a focus of a recent report by the Canadian Competition Bureau on the intersection between "big data," innovation, and competition.

Protecting "incentives of innovators" and the need for a fact-based approach

Speaking to merger reviews, Alford noted that while the Horizontal Merger Guidelines provide a framework for assessing a merger's impact on innovation, "[t]here is no one-size-fits-all approach."3 The Antitrust Division instead considers factual and economic evidence, exploring questions such as whether "pre-merger, the parties can produce better, faster or different solutions in response to a rival's innovation," whether "innovative efforts are largely duplicative," and whether "innovations quickly swing market share to the innovator . . . [or are] rapidly duplicated by others in the industry."4 Alford advised that a fact-based investigation is required to address these inquiries, as well as to assess the role of intellectual property.5 He cautioned, as an example, that "patent counts can be misleading, as short-run differences that may signal an important advantage in one industry are irrelevant to another industry."6 Moreover, he noted, "it can sometimes be difficult to associate patents with a particular business segment, let alone a particular product line."7 An investigation focused on the facts aims to reduce the risk of "ask[ing] the wrong questions or reach[ing] the wrong conclusions."8

As to the digital marketplace, Alford rejected the notion that "the lessons . . . learned over the past several decades about the role of antitrust enforcement in protecting and respecting innovation do not apply."9 To the contrary, he noted, "there is a strong case to be made that years of consistent application of antitrust law, with innovation as a key concern, fueled the growth of digital companies in the first place."10 Alford again eschewed "one-size-fits-all solutions" in favor of fact-based investigations when assessing the digital marketplace.11 This approach, he stated, explains why the term "Big Data" is not used by the Antitrust Division, which views the term "as ill-defined and vague, and too blunt to capture the nuances of the modern information-based marketplace."12

The case-by-case, fact-based approach to analyzing digital markets further aims to address concerns over the "genuine risk of reaching the wrong conclusion" that would arise were the Antitrust Division to follow "a one-size-fits-all approach that presumes anticompetitive effects simply because of the nature of the industry."13 As Alford explained: "When a major antitrust agency rushes to judgment in challenging a digital market competitor, one can be confident that other agencies will follow in its footsteps. The price of a poor enforcement decision is not borne only by the companies under investigation, it is also borne by consumers, who suffer when incentives to innovate are diminished."14

Protecting "incentives of innovators" and "promoting innovation" are also factors the DOJ considers in deciding whether to pursue an enforcement action.15 Recalling separate remarks by Makan Delrahim, Assistant Attorney General for the DOJ Antitrust Division, Alford cited "diminish[ed] incentives to innovate" as one harm that can result when patent licensing rates are depressed due to "collusion among implementers of technological standards."16 Indeed, Delrahim has discussed his concern that the DOJ "[has] strayed too far in the direction of accommodating the concerns of technology licensees who participate in standard setting bodies, very likely at the risk of undermining incentives for the creation of new and innovative technologies."17 In cases such as where collusion depresses patent licensing rates, Alford advised, "enforcing the antitrust laws protects not only consumers but also the incentives of innovators."18

Incentives to innovate also play a role in determining remedies for unlawful conduct, particularly the harm to such incentives that can result from "forced data sharing." 19 As Alford explained, "[w]hether the asset is data or intellectual property or another type of property, [the DOJ] need[s] to be skeptical of the notion that companies have an overarching duty to deal with their competitors."20

On the matter of pricing algorithms in the context of analyzing an alleged Section 1 violation, Alford specifically acknowledged "recent concerns that have been expressed in the antitrust community about the potential for easier or more effective collusion."21 He emphasized, however, the importance of evidence of unlawful conduct:

Where firms agree to set their pricing algorithms to coordinate on price, this is a traditional Section 1 violation. . . . But in the absence of evidence of concerted action, we cannot presume the simple use of pricing algorithms is an antitrust violation. Any approach that bypasses proof of concerted action risks false prosecution of potentially pro-competitive pricing decisions.22

Here again, Alford noted the concern that "[m]isplaced enforcement efforts have the potential to discourage innovation and deter efficiency-enhancing pricing."23

Alford concluded his remarks by reiterating the "particularly acute" need for an evidence-based approach in enforcement activities where the DOJ's "goal is to protect innovation."24 The risk of proceeding otherwise, he noted, would be to substitute the DOJ's judgements for "the functioning of the market."25

Contemporaneous DOJ remarks on innovation, enforcement and standard setting

Alford's February 23 remarks echo the recent remarks by Delrahim, referenced above, regarding innovation and antitrust enforcement activities in the context of standard setting. Speaking on February 21, 2018, at the College of Europe in Brussels, Delrahim reiterated his concern over the impact that accommodating technology licensees may have on incentives to innovate.26 According to Delrahim, the competing interests of innovators and implementers are "best resolved through free market competition and bargaining," particularly "when standard setting bodies respect the intellectual property rights of technology innovators, including the very important right to exclude."27 To that end, Delrahim expressed the view that where "a patent holder violates its commitments to a standard setting organization, remedies under contract law, rather than antitrust remedies, are more appropriate to address licensees' concerns."28

Delrahim's February 21 remarks echo prior remarks on topic in November 2017, where he discussed what he views as the "asymmetry" between innovators and implementers in the context of standard setting.29 According to Delrahim, an often-overlooked but serious risk is the "hold-out" problem, where "implementers threaten to under-invest in the implementation of a standard, or threaten not to take a license at all, until their royalty demands are met."30 As he explained:

It is important to recognize that innovators make an investment before they know whether that investment will ever pay off. If the implementers hold out, the innovator has no recourse, even if the innovation is successful. In contrast, the implementer has some buffer against the risk of hold-up because at least some of its investments occur after royalty rates for new technology could have been determined. Because this asymmetry exists, under-investment by the innovator should be of greater concern than under-investment by the implementer.31

Delrahim advised that his "priority as Assistant Attorney General is to help foster debate toward a more symmetric balance between the seemingly dueling policy concerns between intellectual property and antitrust law."32 Addressing the asymmetry, he concluded, would "ensure that there are maximum incentives to innovate, and equally proper incentives to implement."33

Canadian Competition Bureau's final report focuses on similar themes

Several of the themes expressed in Alford's February 23 remarks also appear in a February 19, 2018, final report published by the Canadian Competition Bureau (CCB), "Big data and innovation: key themes for competition policy in Canada."34 The report follows the CCB's review of competition law enforcement and "big data,"35 a term that the CCB acknowledges "lacks a single consensus definition." 36 At the outset, the CCB expresses its view that among the "[g]uiding analytical principles" is that "proper enforcement must strike the right balance between taking steps to prevent behaviour that truly harms competition and over-enforcement that chills innovation and dynamic competition."37 For example, the CCB notes that "mandating a duty to deal can potentially chill incentives to innovate and should therefore be pursued only in exceptional circumstances in big data cases as in non-big data cases."38

On the issue of algorithms, as Alford did in his February 23 remarks, the CCB recognized that "[a] prominent question in cartel law enforcement is whether the advent of computer algorithms that rely on big data should lead to a rethinking of competition law enforcement."39 Answering in the negative, the CCB emphasized the importance of evidence of unlawful conduct as well as factual analysis:

[I]rrespective of the use of big data or algorithms, an agreement among competitors is central to enforcement of the criminal provisions of the Act dealing with hardcore cartels. Conscious parallelism, where there is no evidence of an agreement, does not engage the cartel provisions nor should cartel law enforcement be changed to address such unilateral conduct. Even if big data may facilitate the formation of a cartel, the presence of data creates no presumptions and does not change what must be a case- and fact-specific analysis.40

In conclusion, the CCB noted that "[a]lthough big data may implicate somewhat specialized and less familiar tools and methods, the traditional framework of competition law enforcement can usefully continue to guide the Bureau's work." 41

The DOJ's activities and comments regarding the interplay between innovation and competition will be closely followed to see how and in what ways the administration may seek to pursue its policy goals in this area.

The positions and viewpoints relayed in this alert are those expressed by the government sources cited herein and do not reflect those of the author or of Dentons.


1. Roger Alford, Deputy Assistant Attorney General, US Dep't of Justice Antitrust Division, Remarks at King's College in London: Competition in a World of Innovation Arbitrage 1, 9 (Feb. 23, 2018) [hereinafter "Alford Remarks"], https://www.justice.gov/opa/speech/file/1038596/download

2. Id. at 9.

3. Id. at 4-5.

4. Id. at 5.

5. Id.

6. Id.

7. Alford Remarks 5.

8.  Id. at 5-6.

9. Id. at 6.

10. Id. at 6-7.

11. Id. at 7.

12. Id.

13. Alford Remarks 7.

14. Id.

15. Id. at 7-8.

16. Id. at 8.

17. Makan Delrahim, Assistant Attorney General , US Dep't of Justice Antitrust Division, Remarks at the College of Europe in Brussels: Good Times, Bad Times, Trust Will Take Us Far: Competition Enforcement and the Relationship Between Washington and Brussels 8 (Feb. 21, 2018) [hereinafter "Delrahim Remarks"], https://www.justice.gov/opa/speech/file/1036626/download.

18. Alford Remarks 8.

19. Id.

20. Id.

21. Id.

22. Id.

23. Id.

24. Alford Remarks 8.

25. Id. at 8-9.

26. Delrahim Remarks 8.

27. Id.

28. Id.

29. Makan Delrahim, Assistant Attorney General, US Dep't of Justice Antitrust Division, Remarks at the USC Gould School of Law's Center for Transnational Law and Business Conference: Take It to the Limit: Respecting Innovation Incentives in the Application of Antitrust Law 5 (Nov. 10, 2017), https://www.justice.gov/opa/speech/file/1010746/download.

30. Id. at 5.

31. Id. (footnote omitted). 

32. Id. at 6.

33. Id. at 14.

34. Canadian Competition Bureau, Big data and innovation: key themes for competition policy in Canada (Feb. 19, 2018) [hereinafter "CCB Final Report"], http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/CB-Report-BigData-Eng.pdf/$file/CB-Report-BigData-Eng.pdf

35. Id. at 4.

36. Canadian Competition Bureau, Big data and Innovation: Implications for Competition Policy in Canada 7 (2017), http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/Big-Data-e.pdf/$file/Big-Data-e.pdf. See also id. at 4 ("W]hile it is helpful to recognize certain attributes of big data, a universally applicable definition is not necessary to understand its implications for competition investigations. . . .").

37. CCB Final Report 4-5.

38. Id. at 9. 

39. Id.

40. Id. (emphasis omitted).

41. Id. at 14

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