U.S. District Judge Denise Cote recently ruled that Apple colluded with five major U.S. publishers to drive up the prices of e-books. Many free-market-oriented commentators have written about the problems with the ruling.
Mark Hendrickson puts it this way on Forbes, "The gist of the case is this: At the time Apple entered the e-book market, Amazon held a 90% share of the market and sold e-books for $9.99. After Apple entered the e-book market, Amazon's market share fell, as did prices of e-books." In light of the court's finding that Apple "played a central role in facilitating and executing" the conspiracy to raise E-book prices, the Wall Street Journal editors sarcastically opined, "the Justice Department's bizarre legal theory … helps explain why the average price of "trade" e-books fell to $7.34 from $7.97 over the next two years."
However, one aspect of the case-the involvement of 33 states led by the Texas Office of Attorney General (OAG)-has gone largely unnoticed. But it is worth examining why state attorneys general need to be involved in a case prosecuted by the Justice Department involving not just interstate but international commerce.
In our paper, Protecting Innovation: The Role of Attorneys General in Antitrust Enforcement, my coauthor Josiah Neeley and I examine what business, if any, state AG's have getting involved in these cases:
While we see a clear role for the states in enforcing antitrust law in local commerce, it is much more difficult to discern a role for the states in transactions that are in many cases not only national, but international. Instead, the involvement of the states in these markets is more likely to lead to an expansive regulatory regime that inhibits-rather than enhances-competition and innovation. This is particularly true in the case of e-commerce.
Our findings "suggest that increased state involvement in antitrust enforcement could have significant negative consequences for competition and innovation. This danger is particularly acute in high-technology markets, where [the challenges of] antitrust enforcement … are exacerbated by state involvement in antitrust."
We conclude that Texas and other states should not be involved in antitrust enforcement involving interstate and high technology markets; instead, states should focus on intrastate, i.e., local, business activities.
In Texas, this will require action by the Texas Legislature. Both state and federal law allow the Texas attorney general to bring antitrust enforcement in these cases as parens patriae ("parent of the country") on behalf of state residents that have allegedly been harmed. Another way of looking at this is that the attorney general can file a class action lawsuit on behalf of consumers. The Texas OAG has taken advantage of this not only in the Apple lawsuit, but in investigations and enforcement actions against Google, Bank of America, Bristol-Myers Squibb Co. and others.
Yet consumers can already file antitrust lawsuits themselves-they don't need the help, and the attorney general and the federal government have the authority to directly enforce antitrust law against companies over which they have jurisdiction.
Texas can't do much to stop the federal government from pursuing lawsuits that stifle innovation and harm competition, but we can take steps to help limit the damage.The Legislature should take away the ability of the OAG to file parens patriae lawsuits and to enforce antirtrust laws in cases involving interstate and international commerce."