Course No.: 9200 710 801
Course ID:  17261
Tu 6:30-9:30 p.m.
Room W-215
Professor Jay Dratler, Jr.
Room 231D (IP Alcove)
(330) 972-7972
Copyright © 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2008   Jay Dratler, Jr.  
For permission, see CMI.

Why Antitrust Matters in Cyberspace: A Brief Essay

Students often ask why a unit on antitrust and competition policy appears in a course on Cyberlaw.  "Isn't antitrust a matter of general commercial and economic policy, with little special relevance to the peculiar problems of cyberspace?"  The question is a good one, and answering it requires some discussion.

The path to an answer begins with another question: why is the Internet important?  As we have seen, the Internet is without precedent in its openness, universality, flexibility, versatility, and (above all) efficiency as a medium of communication.  These advantages promise to make it, in relatively short order, a dominant form of communication, if not in general at least for particular applications.

If demonstration were necessary, two events from 2003 demonstrate this promise. First, in that year the recording industry began to suffer such losses of traditional music sales—due in part to uncompensated communication of songs over the Internet (principally by unauthorized peer-to-peer transmission)—that it took the extraordinary step of suing its customers individually for copyright infringement and related torts.  Second, Howard Dean, a Democratic candidate for President of the United States, surprised his political rivals and the entire political establishment by collecting unprecedented aggregations of campaign contributions, in the form of small individual donations, over the Internet.  If nothing else, these events, which took both affected persons and observers by surprise, showed the Internet's potential to dominate the fields of communication for musical entertainment and collecting campaign contributions.

One might still ask "so what"?  In their heyday, broadcast radio and television (then largely dominated by three commercial networks, ABC, CBS, and NBC) were just as predominant, weren't they?

Possibly, but there was and is a significant difference between broadcast media, both today and in their heyday, and the Internet today.  As both the Red Lion and Pacifica Courts hinted, and as we will explore in more detail in this unit, the broadcast media were, in effect, creatures of the government that existed at its sufferance.

Early in the history of broadcast media, the federal government took the position, both in theory and in practice, that it owns the airwaves lock, stock and barrel.  Private entities can broadcast under temporary licenses, but they have no vested rights to renewal of any license, no matter how long they have used it and no matter how much they have invested in its exploitation.  These rules still exist today.  See 47 U.S.C. §§ 153(33) (defining "radio communication" broadly enough to include television), 301, 303-304, 307, especially § 304 (requiring waiver of any claim to vested rights as condition of receiving broadcast license).

Under these legal rules, the federal government had and still has considerable power to regulate broadcast stations.  It exercised this power in promulgating the "fairness doctrine" discussed in Red Lion and the admonitory letter with regard to relicensing in Pacifica.  The government also has used its power as licensor to promulgate so-called "cross-ownership" rules, limiting the number of media outlets (including but not limited to broadcast media) that any single entity or affiliated group can own.  See 47 C.F.R. 73.3555.  See also, 47 C.F.R. 73.3556 (rule limiting duplicative programming on commonly owned or operated stations).

The federal government thus has regulated broadcasting both with regard to the substance of programming and with regard to the concentration of economic power.  While the regulation of substance has generally waned (for example, the FCC's "fairness doctrine" has been repealed), the FCC's regulation of the concentration of economic power remains in force.

In contrast, the Internet is virtually unregulated.  There is no need, whether technologically or legally, for anyone to get a "license" to "broadcast" or otherwise communicate over the Internet.  Indeed, the very distributed structure of the Internet is designed to allow anyone to connect (and to participate fully in the Internet's power as a medium of communication) at any geographic point and with relatively little capital investment.  See, e.g., Jay Dratler, Jr., Licensing of Intellectual Property § 1.02[2] (Law Journal Press, 2000, updated semiannually); Jay Dratler, Jr., Intellectual Property Law: Commercial, Creative, and Industrial Property § 9.01[7][a] (Law Journal Press, 1991, updated semiannually) (discussing structure and technical operation of Internet in context of Domain Name System).  No government grant or license whatsoever is required.

As a corollary of this point, no government grant or license is required to purchase other operators of the Internet, whether providers of content or infrastructure.  Nothing, therefore, would prevent a single person or entity, in theory, from buying, leasing or (openly or secretly) controlling most of all of the major providers of content on the Internet, or most or all of the Internet's infrastructure.  For example, no special law (such as the cross-ownership rules for other media) prevents a Rupert Murdoch, Bill Gates, or other tycoon from buying up, openly or secretly, the entire Internet backbone (besides the small and largely hidden portion controlled by the United States government for military and other federael government purposes.)  The only thing that stands in the way of such a result is the antitrust laws.

The importance of this contrast is impossible to overemphasize.  The broadcast radio and television that dominated twentieth-century communications were licensed, regulated, and therefore controlled by the federal government.  The Internet and its backbone, let alone its chief content providers, are not.

Again, one might ask, "so what?"  Is this situation any different than that which prevailed before the development of radio and television, when the dominant means of current communication (newspapers) was totally uncontrolled, as Red Lion suggests, under the influence, if not the command, of the First Amendment?  The answer is yes, but more for historical than legal reasons.  In the eighteenth and most of the nineteenth centuries, the newspapers that then were the dominant mode of current communication were largely local affairs.  They were owned, controlled and published atomistically in various cities and towns across the nation.  The great newspaper empires (such as William Randolph Hearst's) did not arise until near the end of the nineteenth century.  Indeed, the rise of the newspaper empires was, along with other agglomerations of industrial power, responsible for Congress' adoption of the Sherman Act in 1890.

Moreover, only a few decades later the next wave of communication technology—broadcast radio—arose to moderate and ultimately break the power of the great newspaper empires.  And that next wave, as we have seen, was largely controlled by the government so as to check its power.

Thus, the Internet's rise as a dominant medium of communication presents a situation unique in American history.  For the first time in the American experience, the coming wave of dominant communication technology enjoys a complete absence of regulation and no special protection against private control.  Unlike the broadcast media that dominated for much of the twentieth century, the Internet is unlicensed and completely unregulated.  Unlike the newspapers that dominated for the eighteenth and most of the nineteenth centuries—in an earlier and gentler age—the Internet and its infrastructure are subject to a modern regime of corporate mergers and acquisitions.  That regime makes it not only lawful, but customary, for economic power to become concentrated in fewer and fewer hands, often in secret or by transactions that, although publicly disclosed in theory, are so complex in practice that they might as well be secret.

We thus are operating under a unique regime in which the dominant communications medium (and the one that promises to be dominant for the foreseeable future) is entirely unregulated and entirely at the mercy of domination by private commercial forces acting in their own self-interest.  Insofar as the Internet is concerned, no special law or regulatory regime prevents one or more private actors, for private purposes, from "cornering" the "marketplace of ideas" that the First Amendment contemplates.

Nor does the First Amendment itself provide any escape from this regime.  For the First Amendment (as applied to the states through the Fourteenth) prohibits only restrictive state action, not private action.  True, its prohibitions can extend to actual or threatened use of the state's coercive power in pursuit of private ends.  But what if the means to those ends involves no invocation of governmental power, but simply the private purchase of control?  Then the First Amendment has nothing to say.

Thus, there is no law specially directed to preservation of good communication policy in the Internet age.   The only law that precludes control of the Internet's "marketplace of ideas" by a single actor, such as a Rupert Murdoch or a Bill Gates, is general in nature: the antitrust laws.

The antitrust laws, of course, were not designed specially for the purpose of protecting the "marketplace of ideas."  Rather, they were designed to protect economic markets in general against private control by insuring and promoting competition, rather than monopoly, as the "rule of trade."   See Northern Pacific Railroad Co. v. United States, 356 U.S. 1, 4, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958) ("The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade").

The goal of preserving competition in economic markets is not entirely congruent with the primary goal of communication policy: promoting variety and diversity in the "marketplace of ideas."  Yet the two goals are often complementary.  As we will see in this unit, competition—as distinguished from monopoly—generally produces lower prices, higher output, greater product variety, and more innovation.  From the standpoint of communication policy, the most important result is "product variety."  In a communication service market, "product variety" means variety and diversity of voices and viewpoints, which are consistent with, if not identical to, the goal of a robust "marketplace of ideas."  Indeed, the FCC, in adopting its cross-ownership rules referred to above, apparently made the same reasonable assumption: that diversity of ownership and control would produce a diversity of voices and thereby a diversity of views.

The connection is not inevitable.  Imagine, for example, an Internet owned 50% by Rupert Murdoch (the creator of the Fox News Network) and 50% by Bill Gates.  No doubt there would be robust commercial competition between the two halves of this hypothetical Internet.  Yet it is plausible to presume that, in such a regime, the viewpoint endorsing vigorous and relentless enforcement of the antitrust laws, for example, might not receive special emphasis.  Thus, antitrust law's support for vigorous competition in economic markets does not necessarily insure the robust marketplace of ideas that the First Amendment seeks to protect from government interference and that good communication policy demands.

Yet the use of antitrust or competition principles to protect the marketplace of ideas may well be better than the alternatives.  History suggests that the chief alternative is government regulation along the lines of the FCC's abandoned "fairness" doctrine or its old "diversity and localism" rules for broadcast licensure.  Both regimes sought to assure a robust marketplace of ideas at the cost of direct government interference in private communication markets.  Faced with a choice between the heavy hand of government intervention and neutral and well-established rules to preclude private interference with the competitive process—having healthy communication policy as a putative byproduct—the courts and the public might be excused in choosing the latter alternative, at least as an initial matter, unless and until it is shown not to work.  To the extent this choice is reasonable (and to the extent it remains the choice of Congress) the antitrust laws, as imperfect for that purpose as they are, may be the only thing that prevents an eager tycoon from "cornering" the market of ideas by controlling the Internet or its infrastructure.

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