The Antitrust of Internet Platforms and Open-Source Innovation Part II: Enforcing Speeding Laws on Innovation Racetracks

Following up on my last post, I noted that as a factual matter, the new economy had an antitrust vulnerability because of the fact patterns created by platform innovation including platform companies “enlisting” platform partners for innovation, colliding business models of platform and partners, and the need of the platform to adjust the level of openness or otherwise control its platform to meet the needs of developing a business model, leading to disputes with its partners and others who want access.

The question for this post is whether underlying these fact patterns are legitimate antitrust worries or whether rules are being applied in situations not relevant to the concern behind the rules.

The short answer is that from all appearances, there is the potential for serious misapplication of the antitrust laws.  New economy innovation is a different model of innovation, and old antitrust doctrine clashes with the heart of the process that is driving new economy innovation.  This innovation is something that antitrust needs to acknowledge: in fact, just because a platform opens itself up, does not mean it should be forced to stay open or have its openness regulated.

There is too much potential for the platform to be branded as anti-competitive as it innovates.  In antitrust the characters are usually a stagnant monopolist crushing an upstart innovator to protect market-share, but platform innovation tends to involve issues that arise between innovators.  This is not the old concern of an entrenched monopolist trying to quash an innovator.  Therefore, the question should be whether the platform is doing what it is doing in order to innovate.  If so, such moves do not harm competition, and antitrust should not become a weapon against innovation — barrel pointed back at itself, instead of against an actual target.  This does not mean that the new economy is immune from antitrust, but instead that there needs to be a recognition that there are common fact patterns that superficially look like antitrust issues, but instead may be the very opposite.

It is said that antitrust laws are flexible enough that they can fit new and modern economic situations. While largely true, there is something fundamentally different in today’s internet industries. Antitrust issues arise from entanglement of competitors, and internet platforms raise potential entanglement issues earlier and more often by orders of magnitude than any other industry in the past. The innovation inherently is powered by the openness of the platform, even before the platform and its business model have been fully fleshed out, while innovation in other contexts typically takes place in a closed room in secret.

Take Twitter for example. It took a fundamentally open approach to hacking together a platform, allowing its users to develop its power through innovation on some fundamental issues. However, at a certain point with more information about potential use cases and revenue opportunities, the innovative platform needs to pivot to build a sustainable business by adjusting its openness.  It should be able to pivot without having to look over its shoulder at the partners who may be hurt, just as a closed innovation system innovating as a single actor would be able to pivot in order to build out a fully functioning and durable platform.  Similarly, Facebook should be able to figure out a revenue model, and Google should be able to enter new business areas even over the screams of existing businesses that claim they are disadvantaged because of reliance on Google as a traffic driver.

Fundamentally, the ability for platforms to pivot is about sustaining the innovation by creating something durable. However, antitrust doctrine was developed in industries where the intent and results of rolling back openness was to squelch competition and innovation. Applying that doctrine today, if antitrust forces the platform to be cautious about pivoting because of potential competitive issues, the result may be that innovative platforms are also gun-shy on how open to make the platforms from the beginning. The resulting circumspection would hamper innovation.

The potential misapplication of antitrust rules to new economy platform innovation is like having a traffic cop applying city driving speeding laws on a NASCAR racetrack. It both misses the spirit of the rules, and it unnecessarily slows down a great race.

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