Federal Regulators Still Have Trouble Handling Vertical Mergers, Varney Says

Intellectual property “is not something that the regulators understand,” Varney said. “It is not something that as yet has been demonstrated to be clearly articulable [in] legal theories upon which mergers can be evaluated and conduct can be prosecuted.” Horizontal market power abuses are “not that difficult to apprehend or prosecute,” Varney said. “Straight abuse of monopoly, straight foreclosure, straight maintenance of monopoly, that’s not horribly hard to do, although it sometimes takes a little bit of time to understand what the markets are."

Vertical mergers present many more difficulties, Varney said. “It is very difficult to find a vertical acquisition, in my view, that can be successfully blocked in court.” The only vertical merger that may be blocked, she said, is where both companies have a monopoly in their respective markets “and they need to be fairly tightly integrated,” she said. “I would be concerned about bringing a vertical case absent those two conditions because I would be concerned about setting the law back."

Whether Comcast-NBCU will be harmful to competition “remains to be seen,” Varney said. “We are very concerned about the ability of content producers to get the kind of carriage that makes continued content production viable from independent sources."

Timothy Wu, professor of law at Columbia University, asked if federal antitrust policy should evolve to deal differently with companies that are what he called “super monopolies” with control over multiple markets. “Are we concerned when a monopolist begins integrating into adjacent markets?” he asked. “There are a lot of major Internet companies that control multiple markets and seem interested in the conquest of still more markets. The question is do we need a new way to think about this? Is it different than our traditional conception of a single market monopolist?”

A panel Sunday focused on the future of Internet governance, especially in light of the recent battle in Congress over the Stop Online Piracy Act (SOPA). “The old rules just won’t work here,” said Kathryn Brown, senior vice president at Verizon. “We need a new public policy framework for the 21st century Internet. I agree that we need to forge policies that incorporate, encourage and award a collaborative, participatory ethos in how we move forward."

"Democracies tend to be representative or else they're mobs,” Brown said. “Crowds are good for stopping things. See SOPA. Crowds are very good at forging change. See Egypt. Crowds as they exist, are not so good at governance. See Egypt. … What do we do about piracy and IP rights on the Internet.” There has to be some way of giving stakeholders a “heightened sense of legitimacy if multi-stakeholders processes are to work,” she said.

Strengthening the existing representative global stakeholder organizations like the Information Technology Advisory Group or the various standard-setting organizations is important, Brown said. “We need to collectively urge our own governments to give appropriate weight of the output of these organizations,” she said. “We have processes. Let’s use them.” Also important is reaching consensus on where and how government can exercise legitimate oversight of the Internet, she said. “My hope would be if there were collective agreement … stakeholders would be less inclined to use the regulatory process to gain advantage for their own … business case or their own political point of view and that we would have a way to work it out collectively, leaving government the final arbiter as to whether there is harm to the consumer or competition.”

"The bureaucratic modality of command and control simply will not work in a third industrial revolution,” said Marc Cooper, director of research at the Consumer Federation of America: “We need a more dynamic form of regulation. … What we will have to do is drive the challenge of finding the right balance between shared governance and individual freedom that allows the revolution to thrive. … This conversation is all about legitimacy. Legitimacy is a perception. Creating legitimacy is an art, not a science.”

Cooper compared the situation faced by the Internet to what the founding fathers faced during the Constitutional Convention, when it became clear that the Articles of Confederation weren’t working. “Simply put, we'll have to find the balance that the founding fathers discovered on their second try,” he said.

"I've seen how policymakers can make a positive environment for technology and innovation and I've seen how we can do harm,” said Sen. Mark Udall, D-Colo., in a Sunday keynote. Udall said he understands why the Internet sector is upset with Congress because of its focus on SOPA and the PROTECT IP Act. “You may be tempted to dismiss Congress as more of a hindrance than a help, but I think that would be a lost opportunity,” he said. “Washington is relevant to your industry. Despite popular opinion, Congress can craft policies to help the technology sector grow and become the engine of our economy.”

Udall said he understands many are frustrated with Congress as a whole. “The last year Congress has looked less like the world’s greatest democratic institution and more like kids squabbling in the backseat on a long car trip. The difference is so far that my kids eventually grew out of that behavior."

In a keynote Monday, Barry Diller, chairman of both Expedia and IAC, said his great fear is that concerns over privacy will lead to harmful regulation. “What I am terribly afraid of here is that now that the Internet is really getting to certainly a much greater ability to take data and break it down and use the data to serve a person in a better way than they have been served before. … I don’t want to see that crimped,” Diller said. “I don’t think that the dangers of the invasion of privacy issues are big enough to prevent what I think is going to be … just wonderful computative processes that are generally good for people.”