Antitrust Implications of Amazon’s Purported New Delivery Service

Amazon-Shopping-in-KenyaBy Gardner Reed

Amazon’s recent acquisition of Whole Foods has renewed the debate surrounding the proper role of antitrust regulation. The traditional approach to antitrust law aims to protect consumers by keeping prices down and quality up. The Whole Foods acquisition, along with the growing dominance of large tech firms such as Google, has helped popularize a new approach to antitrust: “hipster antitrust.” Hipster antitrust widens the objectives of traditional antitrust regulation, not only protecting consumers through fostering competition, but also using antitrust enforcement to attack problems such as economic inequality and environmental degradation. While the Federal Trade Commission promptly approved the Whole Foods acquisition, recent reports that Amazon is developing a delivery service to rival FedEX and UPS may raise a new round of competitive questions and continue the debate surrounding the proper role of antitrust regulation.

To begin, it is important to understand why Amazon’s acquisition of Whole Foods was not an antitrust violation. First, Amazon itself only sells a small amount of groceries and Whole Foods only accounts for two percent of the American grocery market. Second, the grocery market contains far larger and more entrenched competitors, such as Walmart with a twenty percent market share and Kroger with a seven percent share. Third, antitrust regulators, applying the traditional approach to antitrust, believe that fostering competition is the best way to promote low prices and high quality. Because this merger accounted for only a small share of the grocery market, consumers were left with plenty of competitive alternatives whether or not it led to lower prices or higher quality services.

However, recent reports indicate that Amazon is planning to launch a new delivery service similar to FedEX and UPS. According to Bloomberg, project “Seller Flex” began a trial run on the West Coast in 2017 with an expansion planned for 2018. The purpose of the system is to decrease the crowding in Amazon’s warehouses and increase the number of products available through two-day delivery. Under this new system, Amazon will directly oversee the pickup and delivery of packages from the warehouses of third-party merchants who market their items on Amazon.com. Traditionally, when delivering to end consumers, merchants had the choice to ship their products directly through Amazon or to use third-party carriers such as FedEX and UPS. Amazon may still elect to use FedEX and UPS to make deliveries, but merchants will no longer be able to make the decision on their own. Amazon expects that its increased control of the shipping process will allow it to save money through volume discounts, avoiding congestion, and increasing its flexibility.

By drawing comparisons with Amazon’s acquisition of Whole Foods it is possible to identify potential competitive concerns implicated by the new delivery system. The key difference is the amount of competitive power Amazon wields in each market. In the grocery market, Amazon is not an antitrust risk because it is a small player with only a two percent market share, which gives it essentially no ability to affect its competitors’ businesses or the market as a whole. In the e-commerce market, however, Amazon provides an essential platform and acts as a gateway for businesses to reach consumers across the United States. In the past, merchants could participate on Amazon’s platform, but retained the option to select their preference of delivery service. By requiring the use of its own delivery service, however, Amazon will be depriving its merchants of choice. Given Amazon’s power in the e-commerce market, merchants have limited alternatives to Amazon’s platform and thus may have no other realistic option outside of using Amazon’s in-house delivery service. This lack of competition in delivery methods could potentially raise end prices for consumers.

Ultimately, it is too early to predict the competitive effects of Amazon’s delivery service, but different schools of antitrust may reach different conclusions. Consistent with its track record, it is likely that Amazon will do everything in its power to lower prices and offer a better service by integrating delivery into its e-commerce platform. Under these circumstances, a traditional antitrust review would not likely find a problem. A review under “hipster antitrust”, however, may find a problem regardless of the cost or quality outcome. As part of a larger policy matter, such as protecting small businesses, Amazon’s acquisition of more power and the reduction of choice for its merchants may simply be unacceptable. Regardless of the outcome, Amazon’s continued expansion of its operations has all but guaranteed that it will remain a focus of antitrust discussions for the foreseeable future.

Sharing Is Not Always Easy – An Analysis of Sharing Data Between the Public and Private Sectors

Picture1By Isaac Prevost

Traffic data plays an important role for public agencies concerned with traffic management and infrastructure. We’re seeing private companies collect more and more of this data, occasionally resulting in partnerships between governments and those private companies. However, whether these partnerships will stave off an increased interest in regulatory requirements of private data disclosure remains to be seen.

Federal, state, and local governments collect significant traffic data about traffic patterns and use of roadway system. The collection methods used by governmental entities range from interconnected sensors along the road to government employees manually tallying vehicle occupancies. This information is then used to analyze infrastructure needs, improve public transportation routes, and provide real-time traffic information to the public. In recent years however, there has also been a substantial uptick in the amount of traffic data collected by private companies. This is occurring with the prevalence of ride-sharing companies, increasingly-automated cars, and mapping applications such as Google Maps.

So, just how are public transportation agencies utilizing these new sources of data? Waze, a GPS navigation software owned by Google, launched the Connected Citizens Program in 2014 that shares traffic and road information with public entities for free. Agencies that partner with them participate in a two-way exchange of traffic data, giving Waze information on road closures and incidents. This private data supplements the government’s data, providing better information on functions such as the timing of traffic signals or the dispatch of emergency vehicles.

An alternative example of these partnerships can be found between Strava Metro and public agencies, where the agency pays for access to the data. Strava, a popular application for runners and cyclists, gives the public entities access to the their users’ running and cycling routes.  The Oregon Department of Transportation pays $20,000 per year for access to the data. Information from Strava Metro was a factor in the decision to restrict cars from Portland’s Tilikum Crossing bridge. These types of collaborations are just a small sample of how private data is increasingly being used in public planning.

However, even though the voluntary sharing of private data with public entities has become more common, it has not happened without its hurdles. While governments may be eager to use the data that companies like Waze or Strava are willing to share or sell, tensions have arisen when a company like Uber is reluctant to turn over data or withholds certain customer information. A partnership between Uber and the City of Boston in 2015 resulted in underwhelming results because Uber only disclosed the zip codes for the start and end location of an Uber user’s ride. A city official explained that the location information was not specific enough to be useful for urban planning.

Instead of pursuing partnerships, some cities have required data information from ridesharing companies in exchange for their license to operate in the area. In January 2017, the New York City Taxi and Limousine Commission requested all passenger pick-up and drop-off information from ride-sharing companies such as Uber and Lyft. Uber publicly objected to the proposal, citing the privacy of their drivers, but the Commission kept the requirement. The City expressed interest in the value of Uber’s data for traffic planning and analysis, as well as a tool for preventing drivers from working beyond their permitted total of work.

Possibly in an effort to appease regulators, Uber launched Uber Movement this year, which aggregates and anonymizes Uber’s ride data to show the traffic flows of various cities. In their FAQs section, Uber Movement states that the launch of the site was partially due to feedback from government agencies that “aggregated data will inform decisions about how to adapt existing infrastructure and invest in future solutions to make our cities more efficient.” One of their pilot reports tracked how a metro shutdown in Washington D.C. affected travel times in the city. The New York Times labeled this website “an olive branch to local governments.”

Uber Movement formally launched in August. As it gains more and more data on various cities, it could provide an interesting case study: what amount and type of private traffic data are governmental entities hoping to access? Will the availability of this data stave off further local and state regulations? Partnerships between governments and private companies are becoming more and more common, but the success or failure of Uber Movement may provide some insight into what lies ahead for these types of partnerships.

 

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Online Education and Federal Funding: When Is a Class Actually a Correspondence Course?

Picture1By Brittany Taylor

On September 21st, 2017, the Inspector General for the Department of Education released an audit of Western Governors University (WGU), a non-profit, primarily online university that has been using technology to further higher education for twenty years. The Inspector General’s findings indicated that WGU does not provide the “regular and substantive contact” between students and teachers required by The Higher Education Act, making its classes what are called “correspondence courses,” which are ineligible for federal funding. Moreover, the inspector general has recommended that WGU repay all funding received over the last several years, which would total over $712 million. Western Governors University contests these findings vehemently, and supporters of the school have come out of the woodwork to praise the WGU’s unique educational model as well as the above average outcomes its students enjoy.

Online education has been a rapidly changing and growing field, both in high schools and on college campuses. The Higher Education Act, enacted in 1965, has not been updated to account for technological changes in education technology. It also applies outdated rules to modern programs, despite making other updates during reauthorization periods. In the case of WGU, students who (1) watch lectures digitally (sometimes in real time), (2) complete the same assignments as students in a brick-and-mortar classroom, and (3) communicate with professors by phone, email, and assignment feedback, have been found ineligible for federal funding under the same rules that made mail-in correspondence courses of the 1960’s ineligible. Specifically, these types of contacts were not considered “regular and substantive” enough to meet Title IV requirements to receive federal funding for the school. However, the Department of Education has not issued guidelines to assist schools in meeting the “regular and substantive contact” with teachers requirement, according to Jamie Merisotis, director of the Lumina Foundation, leaving institutions like WGU to use their best judgement in attempting to meet it.

One response to these findings is a movement to update the language in the Higher Education Act to better adapt and account for current technology and research regarding what types of education are effective. A house bill has been proposed to help update the statutory and regulatory framework behind online learning. The Advancing Competency-Based Education Act of 2017, HR 2589, is currently receiving bipartisan support and will, if passed, update the Higher Education Act of 1965 language to be more accommodating of modern technology and educational models like WGU’s.

Meanwhile, WGU is awaiting the Department of Education determination regarding these findings. It is entirely possible for the Department of Education to decline to act upon the results of the audit, effectively punting the question to some later date. Even if the audit is not acted upon, though, the findings send a chill through innovative education models that rely upon government funding.

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Patent Venue Distances itself Further from the Eastern District of Texas

LA-2017-09-21-Cray-WEBPAGE By Derk Westermeyer

In the month prior to the Supreme Court’s decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, nearly one-third of all patent suits filed were filed in the Eastern District of Texas. One month after the Supreme Court’s decision, the number of patent suits filed in the Eastern District of Texas dropped by 50 percent. This trend looks to continue after the Federal Circuit’s opinion in its In Re: Cray Inc.

In TC Heartland, the Supreme Court breathed life back into the patent venue statute, 28 U.S.C. § 1400(b). Prior to TC Heartland, patent suits could be brought in any district where an infringing act occurred. For a major company, this is virtually any district in the United States. As such, many non-practicing entities chose to bring patent suits in the Eastern District of Texas. After TC Heartland, the Supreme Court required patents suits to follow the patent venue statute. As such, patent suits can only “be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” While the Supreme Court brought back this statute with its decision in TC Heartland, it did not specify what constituted a “regular and established place of business.” However, in its In Re: Cray Inc. decision, the Federal Circuit answered this question by setting forth a three-part test.

The three-part test requires the court to find: (1) a physical place in the district, (2) the physical place is a regular and established place of business, and (3) the physical place belongs to the defendant.

A “physical place” is any place in the district that is dedicated to business that is not virtual. A brick-and-mortar store or a distribution center are typical examples of “physical places” that are dedicated to business.  In contrast, a customer being able to access a business’s website in the district alone would not meet the standard.

A place of business is considered “regular and established” when business is conducted in a steady, uniform, and orderly manner, and when the location is settled certainly or fixed permanently. The Federal Circuit suggested that a semiannual trade show would not be a regular and established business, while a store that had been operating continuously for five years would meet the requirement.

The final requirement stresses that the business must exert some control over the physical location through some means, such as a lease.  Thus, an employee working from a home office would not satisfy the third requirement unless the home office is the company’s principal place of business. Venue would thus not be proper if any part of this test is not met.

The Federal Circuit’s decision effectively shuts down the Eastern District of Texas’s grip on patent litigation. With the focus of this interpretation of the statute on the defendant’s business, it seems that only major retailers can be exposed to patent suit in the Eastern District of Texas.

EU Antitrust Policy: Favoring Innovation over the Googles’ of the World

Picture1By Amela Zukic

As many of us have heard, the European Commission recently slapped Google with a 2.7-billon dollar antitrust fine for allegedly favoring its own comparison-shopping service, an illegal practice in the EU. Google now has 90 days to cease this practice or it could face a fine of up to 5% of the average daily worldwide turnover of its parent company, Alphabet. While many in the U.S. may reject this decision, the EU’s ruling reflects its underlying goal of fostering innovation and should not be quickly dismissed. Continue reading “EU Antitrust Policy: Favoring Innovation over the Googles’ of the World”

Spotify Proposes $43 Million Settlement Class Action Lawsuit for Unlawful Distribution of Copyrighted Music

Picture1By: Adam Roberts

Popular music streaming service Spotify has agreed to pay $43.45 million to settle a class action lawsuit brought by a collection of songwriters and music copyright holders.  The class plaintiffs allege that Spotify unlawfully distributed their music to consumers without paying what are known as ‘mechanical royalties.’  Mechanical royalties are the payments made to a songwriter which gives one the legal right to reproduce a piece of music.  Under Section 115 of the Copyright Act, services like Spotify must pay mechanical royalties for all songs streamed on their web service.  Although the class action has reached a proposed resolution, there may still be legal issues in seeking court approval of the settlement.  Continue reading “Spotify Proposes $43 Million Settlement Class Action Lawsuit for Unlawful Distribution of Copyrighted Music”

Texting Too Far

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By Ari Robbins

On Friday, June 16th, a Massachusetts Juvenile Court Judge found twenty-year old Michelle Carter guilty of the involuntary manslaughter of Conrad Roy III. Carter was found guilty of recklessly causing Roy III’s death. However, when eighteen-year old Roy III took his own life in 2014, he was alone. Roy closed himself in his truck in a Walmart parking lot and allowed a generator to fill his truck cab with carbon monoxide until he died. When he killed himself, Roy hadn’t spoken to Carter in person for over a year. The two maintained a close relationship entirely through text and e-mail. Continue reading “Texting Too Far”

Regulatory Landscape Remains Unclear for Mobile Health App Developers

8585047526_37a5bed3ff_bBy Mariko Kageyama

The digital health field has been growing exponentially and is now expanding rapidly into emerging markets. As a result, mobile health apps, or “mHealth apps,” have exploded in popularity. If you search for “health” on online app stores such as Apple’s App Store or Google Play, you will have no problem finding countless apps with various health-related purposes. One survey reports that nearly 260,000 mHealth apps were available worldwide by 2016.

However, what mHealth app developers and consumers may not realize is that these new technologies are becoming the target of increasingly tight regulations by both federal and state laws in the United States.

At the federal level, mobile health apps may be scrutinized under the following federal agency laws:

  • Health Insurance Portability and Accountability Act (HIPAA) and HITECH Act – These acts regulate data privacy and security of health information. They are enforced by the U.S. Department of Health & Human Services’ Office for Civil Rights (OCR) and Office of the National Coordinator for Health Information Technology (ONC);
  • Food, Drug, and Cosmetic Act (FDCA) – This act allows the Food and Drug Administration (FDA) to regulate the safety and effectiveness of “medical devices;” and
  • Federal Trade Commission Act (FTC Act) – This act both creates the FTC and allows it to enforce and penalize deceptive or unfair business practices including false or misleading claims about apps’ performance.

Among these major agency players, the FDA has struggled the most with trying to adapt its existing regulatory framework to include and regulate mHealth apps.

For instance, the FDA can regulate “medical devices,” but what qualifies as a “medical device” under FDA law? According to its 2015 Guidanace, the FDA does not want to regulate every single smartphone app that tangentially relates to fitness or wellness. Instead, the FDA only wants to keep an eye on a small subset of apps called “mobile medical apps” that may pose moderate to high risks to a patient’s safety if the apps fail to work as intended. “Mobile medical apps” can either be those connected to existing medical devices already regulated by FDA, or those that “transform” mobile platforms into an FDA-regulated device.

The FDA explains that a mobile app “transforms” into a medical device when it uses attachments, display screens, or sensors, or when it uses a mobile platform’s built-in features such as light, vibrations, and camera to create functionalities similar to those of currently regulated devices. But the exact actions that constitute a “transformation” are not yet known and remain open to significant agency discretion.

Therefore, if you were to create a new mHealth app that “transforms” a mobile device, you may need to seek FDA approval for a specific medical device classification based on the level of safety risks it poses. The classes are ranked I, II, or III and any class of device can be subject to what is known as Premarket Notification 510(k).

In anticipation of ambiguities in this field, multiple federal agencies collaborated in 2016 to create the Mobile Health Apps Interactive Tool. What is unique about this user-friendly educational website is that it is clearly intended for IT developers, not healthcare professionals or general consumers.

State laws have also come into play. Earlier in 2017, the New York Attorney General settled with three mHealth app developers for state law violations over their misleading marketing and privacy practices. Those mHealth apps are: My Baby’s Beat–Prenatal Listener; Heart Rate Monitor & Pulse Tracker; and Cardiio-Heart Rate Monitor + 7 Minute Workout. As illustrated in the settlement documents, these apps do not look any more sophisticated than other similar apps, but the New York AG maintained that these cardiac rate monitors probably fall under FDA Class II medical devices. Such a classification means that these are higher risk devices than Class I and thus subject to greater regulatory controls. Although the investigation did not go further, these state cases show that mHealth app developers and manufacturers can be exposing themselves to large amounts of liability at the state level as well as the federal level.

Despite this heightened oversight, the current FDA Guidance is clearly nothing more than a temporary fix when much more is needed to address these issues in such a rapidly growing and changing field. Because Congress has a less-than-great track record of quickly enacting laws, the FDA and other relevant agencies should act swiftly to reevaluate these regulations in order to ensure consumer health and safety while simultaneously fostering innovation in this massively beneficial field.

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Developments in the Dispute About Nazi-Loot; Heirs No Longer in Limbauch-Limbo?

Berlín_KGM_güelfos_02By Sebastian R Stock

Germany will likely be forced to defend itself for the first time in a U.S. Court against claims relating to the theft of art by the Nazi party. The complicated issue of ownership and title to art looted by the Nazi regime is not new, but this case could have extensive implications to ongoing and future litigation in this area of law nonetheless. Continue reading “Developments in the Dispute About Nazi-Loot; Heirs No Longer in Limbauch-Limbo?”

Pink is the New (Vanta)black – The Story Behind the World’s First Open-Source Paint

Picture1By Seth Parent

A petty, back-and-forth social media feud between two artists has finally given the world more than just mindless entertainment and threatened lawsuits. In the latest recurrence of this feud, one of the artists has created the world’s first “open-source” paint product, demonstrating that open-source licensing schemes may have incredible value outside of the software industry.

So, what led to the creation of this entirely new way to buy, sell, and create paint? Continue reading “Pink is the New (Vanta)black – The Story Behind the World’s First Open-Source Paint”