Konstantinos Stylianou ‘What can the first blockchain antitrust case teach us about the crypto-economy?’

This note, available here, describes the first ever blockchain antitrust case. In December 2018, UnitedCorp, a diversified technology company, sued Bitmain, the largest Bitcoin mining pool, in the first blockchain dispute with a focus on antitrust (United American Corp. v. Bitmain, Inc. Complaint). The case, pending before the District Court for the Southern District of Florida, is at its core a familiar collusion claim. The facts and allegations are as follows. UnitedCorp offers a number of blockchain solutions. These include BlockNum, which allows the execution of blockchain transactions using regular phone numbers; and BlockchainDome, a cryptocurrency mining system that uses the heat generated from the mining process to heat greenhouses for agricultural purposes. Both technologies rely on a cryptocurrency called Bitcoin Cash, one of the hundreds of publicly available (permissionless) cryptocurrencies. As with other cryptocurrencies, Bitcoin Cash’s whitepaper and protocols set out its rules and governance. In November 2018, protocol developers disagreed on how to update Bitcoin Cash’s protocols. This resulted…

Thibault Schrepel ‘Collusion by Blockchain and Smart Contracts’ 33 Harvard Journal of Law Technology (forthcoming, 2019)

This article, available here, introduces the first taxonomy of collusion on the blockchain. It explores the functioning, robustness and limits of such collusive practices, and highlights how companies may use smart contracts and sophisticated algorithms to collude in the blockchain environment.   An introductory section describes blockchain technology and its potential uses. A blockchain is an open and distributed ledger recording all sorts of transactions between users. Consensus mechanisms are used to make sure that information and transactions are recorded on the blockchain. This, in turn, means that data and records on the blockchain cannot be easily modified, which in turn breeds trust. Blockchains assign three different roles to their users. Blockchain users may read the information on the blockchain, propose new transactions and validate the blocks. On public (“permissionless”) blockchain, all users can read and propose new entries into the blockchain. Block validation is restricted to some users only, following a consensus mechanism. On private (“permissioned”) blockchains, all three actions can…

The Blockchain (R)evolution and the Role of Antitrust

This piece, available here, explores a number of (EU) antitrust issues that may arise in the context of blockchains. It is structured as follows: The paper starts by explaining what the blockchain is and what it can do. The blockchain is a technology that uses a software protocol based on cryptography to keep exchanges secure. It allows anybody in the chain to see all transactions on it, removes the need for trusted intermediaries keeping a transaction ledger, and ensures that the transaction ledger is immutable and very hard to tamper with. Blockchains can be divided into open and permissioned networks. Open (i.e. public) networks are accessible to anyone, so that the database is truly public information. This is the case of the blockchains underlying Bitcoin and Ethereum. Permissioned (i.e. private) networks make access conditional upon authorisation by the owner or owners of the network. An example of a permissioned network is Corda, a distributed ledger platform designed specifically for financial institutions to…

Sebastian Louven and David Saive ‘Antitrust by Design – The Prohibition of Anti-Competitive Coordination and the Consensus Mechanism of the Blockchain’ ZRI Working Paper

This paper, available here , argues that important competition concerns arise from the use of consensus mechanisms in blockchains. Under such mechanisms, new information is only added to the database if the majority of network participants, the ‘nodes’, agree to do so. This requires coordination between the various network participants, which raises questions regarding whether and to what extent this voting behaviour is anticompetitive. The paper also discusses what type of measures may be adopted to ensure that a blockchain complains with competition law by design. It is structured as follows: Its second section provides the legal background for concerns about the functioning of consensus mechanisms. Information may be exchanged between competitors in a blockchain that would otherwise have remained undisclosed to the participating companies or the public. In some cases, public disclosure or selective disclosure of certain information may have procompetitive effects, e.g. when information is aggregated and contributes to greater price transparency so that customers can make more informed decisions, thus…

Cyril Ritter ‘Antitrust in two-sided markets: looking at the U.S. Supreme Court’s Amex case from an EU perspective’ Journal of European Competition Law & Practice (2019, forthcoming)

As reviewed in last week’s email/posts, the U.S. Supreme Court recently found that American Express’s ‘anti-steering’ rules did not violate U.S. antitrust law (in a decision reviewed here). In its judgment, the Supreme Court addressed a variety of topics essential to antitrust analysis – market definition, two-sided markets, harm through price effects and output effects, cross-market efficiencies and ancillary restraints – in ways which are at odds with the European approach. This paper, available here, seeks to compare the EU and US approaches in this respect.   It is structured as follows: Section three contains a comparison of the AmEx majority and dissenting opinions. In the interest of clarity, I will review it here, instead of following the paper’s structure. In Ohio v American Express, the majority held that only one market should be defined in two-sided transaction markets. Because there is a single relevant market, cognisable harm must refer to net harm across merchants and cardholders. Even demonstrating that the benefits…

Sainsbury v MasterCard, Asda et al. v MasterCard and Sainsbury v Visa [2018] EWCA 1536 (Civ)

This is a UK judgment by the Court of Appeal concerning the correct approach to payment cards’ interchange fees. The decision was issued on appeal from three different lower court judgments that focused on whether the setting of default multilateral interchange fees (“MIFs”) within the MasterCard and Visa payment card systems amounted to an anticompetitive collusive practice. It is important to begin by describing the factual background of all these cases. Unlike American Express, or the card system at stake in the US Supreme Court judgment discussed above, MasterCard and Visa are four-party card schemes. Such schemes work as follows: a merchant accepts certain credit and debit cards pursuant to an agreement with an “Acquirer”, i.e. a bank or financial institution belonging to the MasterCard or VISA scheme. The card will have been issued by another bank belonging to the scheme (the ‘Issuer’). The Acquirer will charge a fee to the Merchant for the services it provided in respect of a…

Dennis Carlton ‘The Anticompetitive Effects of Vertical Most-Favored-Nation Restraints and the Error of Amex’ (2019) Columbia Business Law Review 88

Ohio v American Express involved the use of what are called “no steering” restraints, in which a retailer is not allowed to use a variety of tactics to steer a consumer away from using an American Express (“Amex”) card and towards using another payment mechanism, such as money or competing payment cards. The reason why a merchant might want to do this is because the cost that the merchant incurs when a customer uses an Amex card can be higher than when the customer uses another credit card, debit card or cash. Although not challenged in the case, the Amex contractual rules also prevent a retailer from imposing a surcharge on customers who use an Amex card to reflect the higher merchant cost. The contractual clause at stake in this case was a type of vertical most-favoured-nation (‘MFN’) restraint, i.e. a restraint in which one supplier tells a retailer that the retailer cannot set the retail price of its product…

Joshua Wright and John Yun ‘Burdens and Balancing in Multisided Markets: The First Principles Approach of Ohio v. American Express’ (2019) Review of Industrial Organization

This article, available here, argues, contrary to the arguments made in the piece above, that the Supreme Court decided the Ohio v American Express case correctly. Multisided platforms have distinct and critical features that set them apart from single-sided markets. Any prima facie antitrust assessment of competitive harm must incorporate the impact on consumers in all sides of a market regardless of market definition, and output effects should be the primary emphasis of any such competitive effects analysis. The paper is structured as follows: Section 2 identifies two broad schools of thought on market definition and competitive effects for multisided platforms. There is a divide among antitrust practitioners, courts, and economists regarding how multisided platforms should be assessed in antitrust investigations. A first school advocates for a separate effects and markets’ approach. Because users on different sides of a platform have different economic interests, it is inappropriate to view platform competition as being for a single-product offered at a single (i.e., net,…

Erik Hovenkamp ‘Platform Antitrust’ Journal of Corporation Law (forthcoming),

This paper argues that the recent Supreme Court decision in American Express v Ohio is misguided. It is available here. Platform competition creates challenges for antitrust, but does not warrant the upheaval of the antitrust laws that the Supreme Court’s majority opinion prescribed. Instead, the traditional rule-of-reason approach is much better suited to deal with such cases. The paper is structured as follows: The paper begins by providing an overview of the distinctive features of platforms and platform competition, as reflected in the platform economics’ literature. There is no universally accepted definition of a two-sided platform, since multi-sidedness is a matter of degree. The economic literature identifies various types of platforms, such as: (a) transaction platforms, i.e. platforms that provide instrumental value by facilitating transactions between the two sides of a market; and (b) media platforms, where the two-sides of a platform comprise consumers of content and advertisers. It is sufficient here to describe a two-sided platform as a firm that (a)…

Jonathan Baker and Fiona Scott Morton on ‘Antitrust Enforcement against Platform MFNs’ (2018) Yale Law Journal 127 2176

 . This paper, available here, argues for more vigorous antitrust enforcement against Most Favoured Nation (MFN) provisions in the platform context. A MFN clause requires providers to refrain from offering their products or services at lower prices on other platforms. During the past two decades, antitrust enforcement against MFN provisions has grown, particularly in Europe. In contrast, there have been almost no enforcement actions against platform MFNs in the United States. The authors make a number of proposals to reverse this trend. The article is structured as follows: Part I shows how platform MFNs can harm competition and consumers, despite their potential competitive benefits. The authors’ draw on the economics’ literature on the effects of MFNs generally, and platform MFNs in particular. Simple MFNs commit sellers not to discount selectively, which assures covered buyers that they will be charged the lowest price offered by the seller. At first blush, one might expect this provision to lead to lower prices for covered buyers….