Antitrust law isn’t built to help small companies grow faster

Antitrust law isn’t built to help small companies grow faster
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America is waking up to the problems of concentration and lax antitrust enforcement. As a former government enforcer and a long-time practitioner that has primarily represented consumer interests, this would ordinarily make me happy. However, this new realization lacks the nuance of decades of study into what does and what does not benefit consumers. Without this nuance, the movement is easily taken in by those seeking an opportunity to subvert antitrust laws for their own benefit. One of the worst examples I’ve found is in Xceligent’s antitrust counterclaim against CoStar.

CoStar and Xceligent are both in the business of providing commercial real estate information, especially sales and listings information. CoStar sued Xceligent late last year after Xceligent was caught in an alleged industrial-scale theft and reselling of CoStar’s content.

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This case made the national news earlier this year after it was revealed that the raid that uncovered Xceligent’s alleged content theft in the Philippines was occurring in the same facility where Backpage.com facilitated prostitution and child sex trafficking. Xceligent’s lawyers had the unenviable task of trying to justify the alleged data theft, and settled on an antitrust counterclaim. The main point of Xceligent’s counterclaim is that CoStar is restricting consumers from sharing data by protecting that data once it lands on one of CoStar’s services. Xceligent believes that has the effect of monopolizing commercial real estate information.

 

Let’s ignore the merits of this argument for a minute and address what happens if this kind of policy becomes the law of the land. There is a theoretical problem in time travel called the bootstrap paradox. An example of this paradox is this: a fan of Beethoven goes back in time and asks him how he could have possibly thought of the brilliant Fifth Symphony. Beethoven doesn’t know what he is talking about, so the time traveler pulls a copy of the Fifth from his pocket and shows it to Beethoven. Beethoven falls in love with the piece and takes it, throwing the time traveler out of his house. So, who wrote Beethoven’s Fifth? 

Antitrust policy, if pushed too far, would create a similar paradox in business. CoStar worked very hard and spent hundreds of millions if not billions of dollars to build its database of real estate information. If a rival can simply take that information at zero cost, claiming that keeping this information protected under intellectual property laws is an unfair advantage, then what motivation is there to build the database in the first place? Who will invest in building an asset that can then be freely taken by rivals? 

It is not the job of antitrust law to make the lives of small companies easier. The goal is instead to make bad actions to obtain or maintain monopoly power impossible. You find the words obtain and maintain in case after case because they have important and specific meanings. For example, obtaining monopoly power through bad actions is unlawful, but earning high market shares through better products is encouraged. Likewise, maintaining monopoly power through keeping competitors out is unlawful, but doing your best to put out a more attractive product — even when you are a dominant company — is laudable.

Neither of these problems are at issue here. Xceligent is like the young boy who got caught with his hand in the cookie jar and blames the person who made such delicious cookies. Unfortunately, Xceligent, in this case, is attempting to hijack antitrust policy to get away with it 

This counterclaim fails not just because it is a stretch of the law, but because it perverts the purposes of the antitrust laws. If this was accepted policy, then there would be no motivation to compete vigorously by investing in intellectual property. Companies would instead be motivated to wait for a strong competitor to undertake the risk and expense of developing an attractive product and then copy their intellectual property at little to no cost. 

Allowing Xceligent’s antitrust claims would be like creating a race where all the participants were tied together with a strong rubber band — the farther a racer gets ahead the stronger she will get pulled back. This would not be an enjoyable race for anyone, and it’s even worse as competition policy.

David Balto is an antitrust attorney based in Washington, D.C.. He previously served as policy director at the Federal Trade Commission and as an attorney in the Justice Department's Antitrust Division. He is an expert in antitrust, consumer protection, financial services, intellectual property and healthcare competition.