Adventures in Antitrust: Evaluating the Probability of Regulatory Action Related to Adobe’s Acquisition of Figma

By: Cooper Cuene

Since early this year, both public and private markets have endured a considerable slowdown as interest rates rose and the economy slowed. Despite this turbulence, one super-sized acquisition has demonstrated that not all companies are deterred from making big moves in the current market. In September, Adobe announced a plan to acquire Figma, a fast-growing tech company known for its cloud-based collaborative graphic design software. At a staggering $20 billion, the deal is set to break the record for the largest acquisition of a private tech startup, making Figma’s founder a billionaire in the process. That is, of course, assuming the deal goes through. 

That assumption looms large. Because Figma is Adobe’s largest competitor in the market for cloud-based design software, news of the acquisition immediately triggered antitrust concerns. The unease was palpable throughout Figma’s user base, many of whom had been disappointed by Adobe’s mishandling of other design tools acquired in the past. However, while many observers have opined that FTC intervention is forthcoming, regulatory agencies are yet to take any meaningful action to block the acquisition. 

The legality of corporate acquisitions, such as this one, is governed by section 7 of the Clayton Act. The act forbids one company from acquiring another when the result would be the creation of a monopoly. The act’s language is expansive, stating that “[n]o person . . . shall acquire, directly or indirectly, the whole or any part of the stock or other share capital . . . where . . . the effect of such acquisition may be substantially to lessen competition, or tend to create a monopoly.” 15 USC §18. 

Naturally, such broad language has led to the development of expansive case law defining when the results of an acquisition will “lessen competition” or “tend to create a monopoly.” The Supreme Court has not ruled on the interpretation of these provisions since the 1960s. In the 1963 decision U.S. v. Philadelphia Nat. Bank, the Supreme Court ruled that any acquisition that results in a “significant increase” in market concentration would be viewed as “presumptively illegal.” 

Over the years, the circuit courts have refined these broad principles. In addition to the standards set forth by the Supreme Court, many circuits have adopted a forward-looking analysis of the merger’s effects. For example, the Seventh Circuit noted in its 1986 decision Hospital Corp. of America v. F.T.C. that all that is required to show the formation of a monopoly is that “the merger create[s] an appreciable danger of such [monopolistic] consequences in the future.” This principle has continued to be applied to more recent cases. For example, when the Ninth Circuit granted an injunction to stop the acquisition of a seafood processing company in the 2016 case Boardman v. Pacific Seafood Group, the court noted that “a prima facie case [under section 7] can be established simply by showing a high market share would result from the proposed merger.” 

Alternatively, we can consider the FTC’s own guidelines used to determine whether the agency will take action on a merger or acquisition. According to Section 1 of those guidelines, the “unifying theme” is the idea that mergers should not be permitted to “create, enhance, or entrench market power or to facilitate its exercise.” To this end, the guidelines state that important types of evidence to consider include: whether the firms are, or absent the merger are likely to become, head-to-head competitors; the sizes of the merging parties’ market shares; and direct historical comparisons to the potential merger. In addition to these considerations, the guidelines also consider the principle that the acquisition of one company by another should not serve to “diminish innovation.” 

Drawing from both the applicable case law and the guidance published by the regulatory agencies, it seems overwhelmingly likely that Adobe will face antitrust action in its attempted acquisition. Adobe and Figma are the two largest competitors with the market for collaborative graphic design tools, a market which is projected to near $17.7 billion globally by 2027. If the acquisition were to be completed, combining Figma and Adobe’s pre-existing suite of graphic design tools would lead Adobe to possess a market share of nearly 70%. 

The probability of FTC action is only increased by the fact that Figma and Adobe are direct head-to-head competitors. Figma’s website speaks for itself: it has an entire page dedicated to directly comparing its product to Adobe XD. By acquiring its largest competitor, Adobe could have the freedom to raise prices for all of its graphic design products. Speculation is already widespread that Figma’s free tier will be eliminated soon after a merger is completed. Finally, as mentioned previously, Adobe has a history of acquiring innovative graphic design upstarts before eventually allowing the products to stagnate and die. A direct historical comparison can be found in Adobe’s own acquisition of Macromedia and their well-loved design software, Firework, which stopped receiving development support soon after the acquisition completed. Between price hikes, direct competition, and Adobe’s acquisition track record, the likelihood of FTC action to block this deal is nearly certain. 

Judicial precedent, FTC guidelines, and the circumstances of the acquisition support the conclusion that the FTC will take action to block the Adobe and Figma merger. The timing of the FTC suit and its exact allegations remain to be seen, but in all likelihood, the only question remaining is not if, but when.  

A Big Dent to the Beetle

bugBy Denise Kim

Once often ranked among the most dependable car brands, Volkswagen is now struggling to stay competitive following the fallout from its most recent scandal that has already led to the resignation of Volkswagen’s CEO Martin Winterkorn.

On September 18, 2015, the Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to Volkswagen alleging that Volkswagen and Audi diesel cars from 2009-2015 contain software that circumvents EPA emissions standards for certain air pollutants. Additionally, California issued a separate In-Use Compliance letter through the California Air Resources Board (CARB) with similar allegations. The scandal has affected the following VW cars: Jetta, Golf, Beetle and Passat models. Additionally, reports indicate that Volkswagen subsidiaries Audi and Skoda also installed deceptive software. Continue reading

Artificial Nature: Will the astounding become common?

leafBy Robin Hammond

From artificial leaves to digital rodent brains, computer scientists are successfully implementing processes from the natural world. Does the Alice ruling on software patentability provide a glimpse into how these technologies will be treated in the future? In 15 years, will computer-implemented natural processes be patent-ineligible?

The utilization of natural processes in computing is astounding. Recently, researchers in Melbourne developed a solar-power device that is close to simulating photosynthesis. The Energy and Environmental Science journal published these details in an article; in the article, researchers claim “This simple and adaptable system addresses key criteria for the large-scale deployment of an artificial photosynthesis device” to “provide a cheap, clean and renewable source of hydrogen as the ultimately sustainable fuel.” In August, news broke that IBM had created a digital equivalent of a small rodent’s brain, a type of chip with neuro-synaptic architecture, called TrueNorth. Both the chips and subsequent software recreate a brain’s neurons and synapses. The TrueNorth chip is another leap forward for computing through ‘deep learning’. Deep learning operates in two stages: “First, companies … must train a neural network to perform a particular task. If they want to automatically identify cat photos, for instance, they must feed the neural net lots and lots of cat photos. Then, once the model is trained, another neural network must actually execute the task. You provide a photo and the system tells you whether it includes a cat. The TrueNorth, as it exists today, aims to facilitate that second stage.”

It has taken many years, but the courts are finally addressing the realities of software patentability. In Alice, the Supreme Court did an about-face in terms of the validity of business-method and software patents. No longer are ideas or processes patentable because a computer executes them. While the opinion did not itself mention software, it has heralded in a new age of hostility at the U.S. Patent and Trademark Office toward business-method and software patents, with many courts overturning patents under the new standard of Alice.

In 15 years, will natural processes that are merely implemented by computers be novel enough to qualify for patents? Or will the two-step inquiry applied in Alice be similarly interpreted once these processes become commonplace? The analysis under Alice begins with the question: does the invention consist in significant part of a patent-ineligible concept—for example, a law of nature, natural phenomenon or abstract idea? If so, the invention is patent-eligible only if the remaining parts of the invention have an “inventive concept”—one or more elements that ensure a patent on the invention amounts in practice “to significantly more than a patent upon the ineligible concept itself. In Alice, the patents at issue were for computerized escrow. The court decided that the abstract idea of escrow was patent-ineligible and performing escrow on a computer was not sufficient to provide an inventive concept: “A mere instruction to implemen[t an abstract idea] on … a computer … cannot impart patent eligibility.”

Does the shift in the patentability of software patents in Alice foretell the future of the patentability of artificial nature? One could foresee a future where the idea of brain functioning (arguably a natural phenomenon) is in itself not patentable, and the mere implementation of specific neuro-synaptic architecture by a computer would not rise to the level of inventive concept. Or will future courts embrace Judge Rader’s broad interpretation of the applicability of §101? Where natural laws are restricted to “universal constants created, if at all, only by God, Vishnu, or Allah”; “even gravity is not a natural law“; and the slightest bit of labor mixed with nature is property under Lockean reasoning.

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“Oxygen OS” and the Future of the OnePlus Two

Screen shot 2015-08-03 at 8.07.20 PMBy Yayi Ding

On July 27th, 2015, Chinese smartphone manufacturer OnePlus unveiled its second-generation smartphone, the “OnePlus Two.” This was a highly anticipated launch, because OnePlus’ first device, the OnePlus One, took the smartphone industry by storm just over a year ago. The OnePlus One offered the kind of high-end specs found in today’s elite smartphones, but for just a fraction of the price. Consequently, OnePlus has sold over 1 million OnePlus One smartphones thus far – no small feat for a new start-up based out of southern China. But, due to a series of behind-the-scenes legal issues, the OnePlus Two will not offer the popular operating system found in its predecessor, Cyanogen OS, but instead will feature OnePlus’ own operating system: Oxygen OS. This difference may be critical to the OnePlus Two’s future success. Continue reading