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Saturday, June 07, 2003 :::

Antitrust News: Doctors Win One in the Ninth

Yesterday the U.S. Court of Appeals for the Ninth Circuit gave the nation�s doctors some good news on the antitrust front. While hardly an unconditional validation that physicians enjoy the same individual rights as any other citizen, the three-judge panel�s unanimous ruling in International Healthcare Management v. Hawaii Coalition for Health nevertheless makes a good-faith effort to put some limits on the ability of government-supported HMOs to force doctors to act against their will.

The case arises from a 1997 contract negotiation between Blue Cross/Blue Shield and physicians in Hawaii. That year, the Hawaii Medical Association and several independent physician groups formed a �consortium� with the Hawaii Coalition for Health, a consumer group composed principally of physicians. This consortium basically reviewed the Blue Cross contract proposal and issues recommendations, which individual physicians were completely free to accept or reject in deciding whether to sign the Blue Cross proposal.

International Healthcare Management, another provider network and competitor with Blue Cross, entered the market in 1998 and began offering contracts to physicians. The consortium once again provided a review and advisory role. The consortium also entered discussions with IHM about certain elements of their proposal, although apparently not about actual reimbursement levels. In any case, in June 1998, the consortium sent out an �alert� to its members, notifying them of ongoing problems with the IHM proposal. In the aftermath of this �alert,� several hundred physicians still agreed to join IHM�s network, though apparently not enough. IHM ceased its recruiting efforts and sued the various participants in the consortium for violating the Sherman Act.

The trial judge found no evidence to support IHM�s Sherman Act claims, and granted the consortium�s request for summary judgment in their favor. On appeal to the Ninth Circuit, IHM argued �that the district court erroneously held that it is lawful for physician associations to negotiate with health plans on behalf of their competing physician members.� This is a very broad claim, encompassing not just negotiations over prices, but essentially any discussion among �competing� physicians. In recent FTC and Justice Department cases, the government has actually pursued a similar goal, although they usually hide that fact by concurrently (and often falsely) alleging price-fixing. Here, IHM argued price-fixing could be inferred from the consortium�s activities. Thankfully, the Ninth Circuit found that inference was not a substitute for evidence, and that none of the alleged consortium activities came close to violating the Sherman Act. Even the �alert� that was issued contained no specific information regarding price terms, and in fact the alert came after Hawaii�s state insurance commissioner urged physicians to delay considering the IHM contract until certain non-price issues could be cleared up. Thus, the Ninth Circuit, in an opinion authored by Circuit Judge Pamela Ann Rymer, affirmed the lower court�s summary judgment, finding no reversible error.

The heart of the Ninth Circuit�s opinion deals with the scope of the �per se rule,� the doctrine under which a particular class of activity is illegal under the antitrust laws regardless of context. In physician cases, HMOs and government antitrust enforcers have sought to impose a very wide definition of �per se,� to the point, as noted above, where the mere act of communication among competing physicians is sufficient to justify an antitrust charge. It is, for all intents and purposes, a slipper slope argument: If competing doctors have a legal right to talk to one another about HMO contract terms, they will inevitable conspire to �fix prices� and harm consumers.

The Ninth Circuit wisely chose not to adopt this all-encompassing view of �per se.� Instead they maintained what is supposed to be the correct judicial standard; namely, that �[p]er se categories are not to be expanded indiscriminately to new factual situations.� The consortium members correctly claimed �that it was entitled to express its opinions and to share information about health care plans, whether or not its opinions carried weight and regardless of market effects.� The per se rule only extends to overt acts of price-fixing, not mere discussions among �competing� individuals. Nor did the appellate court accept IHM�s assertion that patient welfare would be harmed by permitting physicians to exchange thoughts on proposed contracts: �Disseminating information that fosters rational business decisions is pro-competitive.�

In short, this case was a total vindication of the Hawaii physicians� position, although the scope of the ruling did not break much new ground in terms of expanding protection of individual rights. The Ninth Circuit simply prevented HMOs from further eroding what little protections currently remain. Nevertheless, this decision should be greeted warmly, because it provides a useful tool in refuting the federal government�s own claims in favor of expanding the �per se� rule to effectively silence physicians who attempt to speak with one another about managed care contracts. This also demonstrates why it is essential to get physician antitrust prosecutions out of the unilateral control of the FTC and DOJ and into the courts, because independent judges tend to hold antitrust prosecutors to at least minimal standards of rationality.

::: posted by Skip Oliva at 2:55 PM | link | donate |

The Executive Branch: Continuing the Monopoly

On his last day in office, the director of the Office of Management and Budget capitulated on one of his priority items, ending the government's monopoly on government printing jobs:

The Government Printing Office will continue its century-old monopoly on federal agencies� printing jobs, under an agreement the Bush administration announced Friday. The agreement ends outgoing Office of Management and Budget Director Mitch Daniels� year-long quest to let agencies avoid using the printing office as their middle man.

Daniels agreed to let the printing office keep its monopoly. He even agreed to curtail or eliminate current executive branch printing operations that do some of agencies� printing work in-house. In return, GPO chief Bruce James agreed to set up a Web-based ordering system that will let government buyers deal directly with private printers, which will negotiate discounted overarching agreements with the printing office. The system is modeled after the General Services Administration�s supply schedules. The printing office will collect a 3 percent rebate from printers to fund the cost of the system.

�It gives agencies more freedom and flexibility in selecting printers,� James said.

To be fair, Daniels didn't exactly surrender. There were legal questions as to whether the Executive Branch could unilaterally end the GPO printing monopoly without congressional authorization. But yesterday's decision is still a let-down if you ran a Kinko's in D.C. and were looking to steal some of the GPO's business from the Interior Department.

Maybe if the Supreme Court rules the Postal Service can be sued under the antitrust laws, we can go after the GPO next. Heck, I'm a consumer of government documents, and I certainly feel injured by this monopoly...

::: posted by Skip Oliva at 1:30 PM | link | donate |

The Economy: It Takes Money to Create Money

Unemployment figures are at a nine-year high of 6.1%. A major reason for this: companies aren't making enough money:

Richard Yamarone, economist with Argus Research Corp., said the financial markets are mistaken to see signs of recovery in yesterday's report, which showed a marked downtrend in hiring that he expects to continue for the rest of the year.

"Businesses cannot spend what they don't have," he said. "Anemic economic growth will not be sufficient enough to provide the necessary gains in corporate profitability, which are needed to fuel greater business investment and new hiring."

This should come as shock to Capitol Hill legislators, who respond to bad economic news by calling for the government to further reduce corporate profitability by, just to name a few examples, extending government unemployment benefits, threatening U.S. companies that lower their tax burden by incorporating abroad, and creating new government entitlements such as prescription drug benefits. All that money comes from somewhere, and it's usually businesses, since they're the ones generating the wealth in the first place.

::: posted by Skip Oliva at 1:23 PM | link | donate |

Antitrust News: Raining on Seattle's Newspapers

The Seattle Post-Intelligencer reports on, er, the Seattle Post-Intelligencer:

The U.S. Justice Department has entered the fray between Seattle's two daily newspapers, acknowledging yesterday that it is investigating whether the unwinding of their joint operating agreement would violate antitrust laws.

The federal agency, which approved the original agreement between The Seattle Times and the Seattle Post-Intelligencer more than 20 years ago, will "look at all relevant evidence," said a Justice Department spokeswoman, Christine Jacobs.

The Justice Department has already started gathering information about the situation. Rowland Thompson, executive director of Allied Daily Newspapers of Washington, a trade group whose members include both Seattle papers, said Justice Department attorney Maurice Stucke contacted him Thursday. Stucke and another federal attorney, Carol Bell, are leading the investigation, a Justice Department staff member in Washington, D.C., said.

"He's doing a full community background check, as far as I can tell, about what public sentiment is and how people view the two papers, and if there are community groups that have a position on it," Thompson said.

Under the joint operating agreement, or JOA, The Times handles printing, advertising, production and circulation for the P-I, in exchange for a larger percentage of the papers' joint profits. The JOA, originally intended to keep the P-I from failing, began in 1983 and was revised in 1999.

The Seattle Times Co. moved in late April to end the JOA after what it said were three years of financial losses at The Times.

The P-I, owned by The Hearst Corp., had filed suit the day before, claiming that The Times has no right to end the agreement because its losses were the result of extraordinary circumstances and didn't demonstrate that the JOA is untenable. An end to the agreement could lead to the P-I's closure. A hearing is set for July 18.

One of the more disturbing trends in federal antitrust regulation is the government's efforts to interfere with private disputes that can easily be managed through the civil courts. We've already seen this with Rambus, a corporation that was hauled before the FTC after a federal appellate court cleared the technology company in its private dispute with industry competitors. Like the Rambus case, there is no benefit to federal antitrust intervention in this dispute between the Seattle newspapers. Indeed, it will simply increase the costs of all parties involved, meaning taxpayers will see their money squandered, while the two newspapers are forced to deplete their financial resources accommodating nosy Antitrust Division attorneys.

::: posted by Skip Oliva at 1:18 PM | link | donate |

Rights and Reason: Bush Calls for Innovation in Medicare

President Bush made the following statement about Medicare during his weekly presidential radio address:

"Today, doctors routinely treat their patients with prescription drugs, preventive care and groundbreaking medical devices � but Medicare coverage has not kept pace with these changes. Our goal is to give seniors the best, most innovative care.

"This will require a strong, up-to-date Medicare system that relies on innovation and competition, not bureaucratic rules and regulations," he said.

Hmmm. Replace the word "Medicare" with "medical" and we would have license to bring the free market back to health care. If President Bush really wants "innovation and competition" and "bureaucratic rules and regulations," he would do just that.

It's amazing though that the people of the land of the free and the home of the brave are so afraid of their freedom that they would never demand the immediate abolition of government boondoggles like Medicare as a simple matter of principle. That's the power of altruism though--if you belive that need is a claim on the life of another, you will never be open to the manifest defects that the practical application of altruism produces.

::: posted by Nicholas Provenzo at 11:53 AM | link | donate |

Friday, June 06, 2003 :::

Antitrust News: Comcast's refusal to air rivals ads criticized

This from USA Today:

A U.S. congressman has asked the Justice Department to examine whether cable giant Comcast's refusal to air some DSL advertisements by rival Qwest Communications is anti-competitive.

Rep. Rick Boucher, D-Va., spurred by Qwest's complaints, wrote in a May 19 letter to the agency's antitrust unit that ''Comcast's discriminatory advertising practices should be closely examined and . . . disallowed.'' Boucher, a veteran on telecom policy, said in an interview that the consumer impact ''can be very real if this practice becomes more pervasive.'' He has not heard from Justice, which did not comment.

For months, Qwest has complained to Comcast, the No. 1 cable operator, that it unfairly restricts or refuses ads. They vie for broadband customers in many markets.

Comcast says it runs DSL ads that are pitched as part of a bundle of communications services. It doesn't accept DSL-only ads.

Three other big cable operators, Cox, Charter and Adelphia, say the decision to run rival ads is made case by case. Cable operators have long refused DSL ads, arguing that the First Amendment protects that right -- and that phone companies can reach customers via local TV, radio and billboards. Critics warn antitrust concerns might come into play as cable firms consolidate.

How totaly obnoxious. I've drafted the follwing letter to Rep. Boucher:

Dear Rep. Boucher:

I read with interest USA Today�s coverage of your letter to the Department of Justice calling for an antitrust investigation of Comcast Corporation for refusing to air DSL advertisements by rival Qwest Communications.

There is a certain degree of irony in your call for antitrust investigation of Comcast. I doubt you feel obligated to use your campaign apparatus to communicate the views of your political opponents, yet you seem to have no compunction in demanding Comcast use its assets to communicate the message of its business rivals. It would seem you believe that you have the right to un-coerced control of the organization you have built, but not Comcast.

Our organization has closely monitored the antitrust enforcement efforts of the Department of Justice and Federal Trade Commission for over five years. We have observed first hand antitrust law�s use in attacking great firms, such as Microsoft, for attempting to improve its products, and simple individuals, like Ms. Marcia Brauchler, a Colorado woman earning less than $30,000 a year, but who was accused of being a monopolist by FTC antitrust enforcers because she allegedly violated its shifting mandates as she helped physicians negotiate their contracts with health plans. As long as antitrust law denies the rights of a businessman to complete control of his work and property, it is a law open to wholesale abuse.

Your position on the Comcast case ought to have been that Comcast has every right to control its communication network, and is under no obligation to service the parasitical needs of its business rivals. Yet by your letter, you have turned a simple business question into a political question. I challenge you to reconcile your position with the principle of individual rights. Every individual has a right to pursue his own self-interest in the market. To claim otherwise is to say that we are a nation of surfs obligated to serve the whims of our neighbors. I would hope your vision of America is more profound than that.

Respectfully Submitted,

Nicholas Provenzo

What are the odds of Boucher reconciling his position with the principle of individual rights? Probably a lot better if he received a host of letters like mine.

::: posted by Nicholas Provenzo at 7:15 PM | link | donate |

Antitrust News: A Merger is Cleared

From the Associated Press:

ScanSoft Inc.'s $132 million acquisition of SpeechWorks International Inc. received antitrust clearance from the U.S. Justice Department, the company said Friday.

Shares of both companies rose on the news.

ScanSoft shares traded at $6.16, up 26 cents, or 4 percent, Friday morning on the Nasdaq Stock Market.

SpeechWorks shares traded at $5.17, up 25 cents, or 5 percent, Friday morning on the Nasdaq.

ScanSoft said the deal must still be approved by shareholders of both companies, who will vote at special meetings after the registration statement filing with the Securities and Exchange Commission.

The acquisition has already received unanimous approval from both companies' boards, and ScanSoft said it expects the deal to close sometime in August.

ScanSoft, based in Peabody, Mass., makes software that scans paper documents and turns them into digital computer files. Its acquisition of SpeechWorks, which makes speech recognition and text-to-speech programs, will add to SpeechWorks line of voice-related programs.

ScanSoft had to pay a $125,000 "filing fee" with the Justice Department in order to obtain consideration and clearance for their acquisition of SpeechWorks. That's in addition to the thousands of dollars in legal costs and man-hours spent actually preparing and filing the forms. All so the government could say they weren't violating the law.

::: posted by Skip Oliva at 1:48 PM | link | donate |

The Culture: A Victory for Hootie

Sportsblogger Dan Lewis points out an interesting secondary effect of the deposing of Howell Raines:

With the resignation of Howell Raines from the NY Times, and with the Masters having come and gone, I'm willing to bet that Augusta has weathered the firestorm. Perhaps we'll get to see if the controvery was a real one, or a newsroom/editorial-driven one.

I don't have much to add on the topic of Raines' resignation, although I would note that if I were a tabloid editor, my headline this morning would have read "HOWELL'S 'RAINE' OF ERROR ENDS," or something to that effect. It seems only fitting.

::: posted by Skip Oliva at 1:40 PM | link | donate |

Antitrust News: Blumenthal Takes on the ACC

The complaint in University of Connecticut v. University of Miami is now available online. Just as I predicted last night on the radio, Connecticut Attorney General Richard Blumenthal has brought an antitrust-related claim to stop the "Shalala Three" from defecting to the ACC. Most of the complaint, to be fair, is your garden variety tort claims, but one count argues UConn was injured by the defendants' violation of Connecticut's "unfair competition" law. Of course, that claim is wholly unrelated to the rest of the claim, much of which appears to present triable questions of fact and law.

::: posted by Skip Oliva at 1:06 PM | link | donate |

Sports Law: Let the Lawsuits Commence

Just hours after I warned of the litigation train-wreck, five Big East Conference schools sued the University of Miami and Boston College to prevent them from joining the ACC. The Associated Press reports:

The lawsuit, filed in state Superior Court in Hartford, Conn., says Miami and Boston College professed loyalty to their conference while concocting a "deliberate scheme to destroy the Big East and abscond with the collective value of all that has been invested and created in the Big East."

Big East schools went ahead with millions of dollars in renovations and upgrades under the assumption they would be part of a healthy conference for years to come, the lawsuit contends.

The lawsuit was filed by Pittsburgh, Connecticut, West Virginia, Virginia Tech and Rutgers against the ACC, Miami and Boston College. Syracuse is part of the potential ACC expansion but was not included in the lawsuit because plaintiffs said they found no evidence the school made promises to stay in the Big East.

The ACC did not immediately return phone messages seeking comment.

The five Big East schools are suing for financial damages and want an injunction to prevent Miami and Boston College from leaving.

I suspect if this lawsuit proceeds, it will have to be removed to federal court, since it's unlikely a Connecticut state court can sustain jurisdiction over all the parties. Technicalities aside, the suit itself marks the beginning of what could be a protracted litigation war for control of college football. This is what happens when you abandon capitalist principle for altruist ideals.

::: posted by Skip Oliva at 10:11 AM | link | donate |

Rights & Reason: The Cult of Amateurism

During my national radio appearance on Steve Czaban's show last night, Steve and I discussed the antitrust implications of the Atlantic Coast Conference's expansion via the acquisition of three Big East Conference teams. For years, the debate in college football has been over creating a single playoff tournament to replace the myriad of bowl games and bowl alliances. As I explained last night, and in today's Initium, you'll never see a genuine playoff unless you take two wretched concepts out of play: amateurism and antitrust.

::: posted by Skip Oliva at 8:04 AM | link | donate |

Thursday, June 05, 2003 :::

Antitrust News: The Vitamin Wars Continue

From the Justice Department's Antitrust Division:

A federal grand jury in Dallas today indicted the former president of DuCoa, L.P., based in Highland, Illinois, with participating in a nationwide conspiracy to fix prices, rig bids and allocate customers in the choline chloride industry, the Department of Justice announced.

Choline chloride, commonly known as vitamin B4, which is sold by manufacturers and resellers to customers in the animal nutrition industry, is administered to animals to ensure their proper growth and development.

According to the indictment filed today in U. S. District Court in Dallas, Daniel T. Rose of Highland, Illinois, agreed with his co-conspirators to suppress and eliminate competition in the choline chloride market in the United States from approximately August 1997 through September 29, 1998.

"This is the eighth prosecution involving choline chloride and the 30th case arising from the long running vitamins investigation being conducted by the Division's Dallas Field Office," said R. Hewitt Pate, Acting Assistant Attorney General in charge of the Antitrust Division.

Rose is charged with participating in meetings and conversations with his co-conspirators to discuss the prices and volume of choline chloride, agreeing to set choline chloride prices, agreeing to allocate choline chloride customers and rigging bids for contracts to supply choline chloride.

Rose is charged with violating Section One of the Sherman Act, which carries a maximum penalty of three years in prison and a fine of $350,000. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either of those amounts is greater than the statutory maximum fine.

By coincidence, Attorney General John Ashcroft testified before the House Judiciary Committee today, where he asked for additional powers to fight terrorist organizations. For example, he wants the ability to hold terrorist suspects indefinitely, something which is unlikely to win Ashcroft any new friends in the civil liberties crowd. And given the DOJ's propensity to squander taxpayer funds on things like stopping "price fixing" in the vitamin industry and punishing Martha Stewart for having a conversation with her stockbroker, it's becoming more apparent that Ashcroft's opponents have taken the ethical and moral high ground. The Justice Department simply has no core principles when it comes to individual rights and civil liberties. This is not a partisan problem�the Democrats were just as unprincipled when they ran the DOJ under Janet Reno. And indeed, it's not even completely the DOJ's fault. Congress keeps expanding the range of federal "crimes" to combat every minor interest group complaint. The result is a DOJ that's faced with too many laws to enforce and not enough resources. The result is selective prosecution of easy (or popular) targets, which is hardly anyone's idea of equal justice under law.

::: posted by Skip Oliva at 3:00 PM | link | donate |

CAC News: Radio Appearance

Tonight I'll be appearing on the nationally syndicated "Steve Czaban Show" on Fox Sports Radio just after 9:20 p.m. I'll be discussing antitrust issues in sports, notably a recent federal appeals court ruling reaffirming baseball's antitrust exemption.

::: posted by Skip Oliva at 2:49 PM | link | donate |

Wednesday, June 04, 2003 :::

Rights & Reason: Hating Martha Stewart

Reuters reports that a federal grand jury has submitted a nine-count inditment of Martha Stewart.

Martha Stewart was charged with securities fraud and obstruction of justice on Wednesday, stemming from her sale of shares of ImClone Systems Inc., a biotechnology company run by a close friend.

The charges, which could carry penalties of up to 10 years in jail, marked a stunning blow to Stewart. A former stockbroker, Stewart built a catering company into a media and design empire and became a household name while courting a celebrity lifestyle.

Stewart, who has said she is innocent of any wrongdoing, was also indicted on charges of making false statements.

One has to wonder if Martha Stewart could ever get a fair shake after the negative portrayal of her rise and commercial success in NBC's recently made for TV movie of her life. Martha Stewart is a cultural icon. As someone who shows us how to make our homes more beautiful, she is easy prey for those who despise what for Martha is an almost natural grace. There is a culture in America today that says it is impossible for someone to honestly achieve business success, and Martha Stewart is no exception. By definition, she has to be wicked. Even if the charges against her prove true, insider trading is one of those nebulous crimes that lacks a victim. Just how does one quarantine information so as not to violate the anti-insider trading provisions of the law? It's simply impossible.

CEO's and other company officials can be barred from unloading stock by contract. But to quarantine information as such--it can't be done. Yet that's not going to stop the anti-Martha attack. And at the end of the day, if Martha Stewart goes down, it will be out of simple envy of her success.

::: posted by Nicholas Provenzo at 1:56 PM | link | donate |

Tuesday, June 03, 2003 :::

Antitrust News: CAC Argues Denying Free Market Rights of Doctors Hurts Medicine

Today the Center for the Advancement of Capitalism (CAC) filed public comments on the Federal Trade Commission's (FTC) consent order in its case against Anesthesia Service Medical Group, Inc. (ASMG), and Grossmont Anesthesia Services Medical Group, Inc. (GAS), two medical groups which provide professional anesthesia services in San Diego County, California. The FTC charges ASMG and GAS with collectively negotiating on behalf of physicians in violation of the FTC Act with Grossmont Hospital, a La Mesa, California, hospital that extends staff privileges to ASMG and GAS members. The FTC considers any physician collective bargaining to be illegal despite the lack of congressional or constitutional authorization for such a position.

"This case is a classic so-called "price fixing" case," say Nicholas Provenzo, CAC Chairman. "The FTC�s myopic fixation on prices derives from its self-proclaimed mission to protect �consumers� from harm. By emphasizing consumer interests over all others, the Commission has subscribed to the belief that demand, not supply, drives the marketplace, and that a consumer�s every wish must be fulfilled as a matter of right."

"When those wishes cannot be fulfilled on terms of the consumer�s choosing, the FTC axiomatically concludes that it must be the fault of some producer engaging in �unfair� competition," says Provenzo. "The case against ASMG and GAS derives from this flawed premise, and if carried to its logical conclusion, the FTC�s thinking will result in the destruction of the medical profession."

"By attacking the basic rights of physicians to negotiate in their self-interest and treating the services physicians provide their patients as if they were an unquestioned right, the FTC is weakening the basic means of supplying physicians to the marketplace," says CAC Senior Fellow Sean Oliva. "If physicians are unable to profit in the market, they will simply withdraw their services, leaving hospitals without competent staff and patients without adequate care. While Grossmont Hospital may avoid a short-term rise in the costs of obtaining anesthesiologists by running to the FTC to punish ASMG and GAS, the Commission�s intervention will further erode the ability of physicians to pursue their economic self-interest, thus removing a key incentive in retaining and expanding the supply of available physicians."

A copy of the CAC comment letter in PDF format can be downloaded at: http://www.capitalismcenter.org/Campaigns/Antitrust/CAC_Comments_San_Diego.pdf

::: posted by Nicholas Provenzo at 7:07 PM | link | donate |

Antitrust News: Waiting for Mountain

Apparently it takes the Justice Department more than three months to read a 49-page comment letter. I discuss my plight over comments made in the Mountain Health Care antitrust settlement in today's Initium.

::: posted by Skip Oliva at 4:06 PM | link | donate |

Antitrust News: If not the FCC, then the DOJ and FTC

It seems some members of Congress are not happy with yesterdays FCC re-regulation vote, and many of them are Republicans. According to Reuters:

A bipartisan group of U.S. senators opposed to television networks expanding their reach expressed confidence they had the votes to roll back a rule adopted by communications regulators on Monday.

The group said it was pressing ahead with legislation to retain limits keeping a network from owning stations that together reach more than 35 percent of the national audience.

The three Republican members of the Federal Communications Commission voted earlier on Monday against their two Democrat colleagues to raise the limit to 45 percent as part of a wider easing of decades-old media ownership rules.

But Sen. Trent Lott of Mississippi told a news conference there was no partisanship in Senate opposition to the new cap.

"A lot of Republicans, in fact, probably most of the Republicans in Congress, would not agree with this decision," said Lott, the former Republican leader of the Senate.

The Senate Commerce Committee has scheduled a hearing for Wednesday on media ownership where all five FCC commissioners are due to testify.

[. . .] Meanwhile, two key members of the Senate Judiciary Committee expressed "serious reservations" about the FCC decision and said future media mergers should get close scrutiny from antitrust regulators at the Justice Department and Federal Trade Commission.

Sens. Mike DeWine, a Republican from Ohio, and Herb Kohl, Democrat of Wisconsin, issued a joint statement saying the agencies should "stand guard to prevent deals which will substantially injure competition in these industries that are so vital in providing the news and information relied upon by millions of Americans."

DeWine and Kohl are the chairman and ranking Democrat on the panel's antitrust subcommittee, and they said they plan to hold a hearing on the FCC rule changes "to examine its implications for competition."

DeWine and Kohl would do better to hold a hearing to examine the implication of antitrust upon individual rights. Just why is it that a businessman can't own a "concentration" of media outlets? It's clear in this case that the free market demands consolidation and efficiency, but congressional leaders seem to think the free market has it wrong. Since when did the judgment of a handful of political leaders replace the judgement of millions of investors, businessmen, and consumers? The honest answer is the second it was held that one person's need for goods and services became a mortgage on the life of another.

A businessman works for his own sake, and if he sees an opportunity to make money by consolidating his business with others, he takes it, because not to is wasteful. That said, a businessman can't outlaw his competitors, nor can he outlaw substitutes to his products and services. How come then the actions of a businessman are conflated with those of a despot, while the actions of antitrust regulators are perceived as promoting freedom?

Until CAC's representatives are able to give testimony at one of these such hearings, you will never hear these basic, elementary questions asked of members of Congress.

::: posted by Nicholas Provenzo at 10:53 AM | link | donate |

Tax Policy: Universal Service Charges

The Washington Times has an excellent report today on the Universal Service charge, an omnipresent yet little-noticed sales tax on long-distance telephone calls and other telecommunications services. Just about everyone pays a Universal Service charge of some kind, often just a few dollars per month. But what is this charge for? The Times explains:

It covers the high cost of making it possible for Americans to reach out and touch someone from mountains, swamps and other remote areas. It subsidizes phone bills for poor people and technology at schools and libraries.

Technically, Universal Service charges are paid by telecommunications companies, but most of them pass the cost along to their customers via the monthly fee. But the current system is weakening, according to the Times, because people are simply using less long-distance service (the e-mail effect) and newer services, such as cable modems, aren't liable for the charges. The FCC is expected to review the Universal Service rules next year, and it may allow companies to assess their customers a flat fee regardless of actual services used.

That would be egalitarianism on top of egalitarianism. The Universal Service program already punishes individuals living in high-population areas to subsidize those who live in low-population areas. A flat fee would simply make the things more regressive by forcing people who make fewer calls a month to subsidize those who make more. Of course, the entire program should be abolished, but given the number of congressmen who come from rural states, that's unlikely to happen anytime soon.

::: posted by Skip Oliva at 10:23 AM | link | donate |

Rights & Reason: The FCC, Continued

There's a fairly lively debate on the FCC re-regulation scheme at Arthur Silber's blog. Among my favorite pro-regulation arguments is this gem:

There is a finite, shared medium available for broadcasting, like the oceans for instance in shipping. Who owns the oceans? The first people to set anchor in a 4 mile by 4 mile square tract of water? No, it's considered "commons".

The ocean has no owner because it falls outside the political jurisdiction of nation-states. Thus, while one could claim a 4 mile-by-4 mile part of the Atlantic, there would be no government to enforce property rights, opening the pseudo-owner's claim up to piracy or other rival claims. That doesn't mean, however, that property rights could not be established over parcels of water just as they are over land.

But more to the commenter's point, broadcast spectrum is not a "shared" medium by any means. Without the existence of broadcasters to develop the medium, the spectrum is nothing more than hypothetical frequencies which lack form. It is property owners who make broadcasting possible via the spectrum, not "the people" through arbitrary regulation. The fact that the spectrum was not initially privatized�i.e. that spectrum is licensed through the FCC�is due to the coincidental rise of the regulatory state as radio and television technology was invented. The spectrum could have easily been parceled out free of further government obligation, just as the entire Western frontier of America was at one time.

::: posted by Skip Oliva at 10:12 AM | link | donate |

Monday, June 02, 2003 :::

Rights & Reason: The FCC Re-Regulates

The Federal Communications Commission finally voted on what I call their �re-regulation� package tinkering with existing media ownership rules. I�ve never been all that interested in this story despite the fact I deal with antitrust and competition law for a living. There are really only three things one needs to know about the FCC�s action: (1) the FCC had a statutory obligation to review the ownership rules in addition to several recent court decisions faulting the Commission�s regulation-writing process; (2) the actual changes won�t make a substantial difference in the ownership of any sector of the media; and (3) the only group that will enjoy substantial benefits from today�s action are antitrust lawyers (and policy analysts like myself, ironically) who will bottom-feed off the few new mergers that will occur.

Other then that, the faux-populist storm that came through Washington in anticipation of today�s announcement was a grand waste of time and bureaucrats. Still, you have to be somewhat impressed with the fact 520,000 public comments were filed with the FCC on this issue. Coming from someone who currently maintains the longest FTC streak for sole comment letters filed, I can say the political muscle behind the �Stop Big Media� campaign is not something to be casually dismissed. It would be nice, however, if some of these folks would actually pay attention to how antitrust laws are applied in the real world rather than hide behind fanciful anti-concepts of �media diversity� and the like.

Indeed, the fact that so many nominally libertarian and conservative groups lobbied against loosening the ownership rules is a testament to the cognitive dissonance that�s rampant inside the Beltway. For example, consider this ominous statement from this morning�s FCC announcement:

The FCC strongly affirmed its core value of limiting broadcast ownership to promote viewpoint diversity. The FCC stated that �the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public.� The FCC said multiple independent media owners are needed to ensure a robust exchange of news, information, and ideas among Americans.

The FCC developed a �Diversity Index� in order to permit a more sophisticated analysis of viewpoint diversity in this proceeding. The index is �consumer-centric� in that it is built on data about how Americans use different media to obtain news. Importantly, this data also enabled the FCC to establish local broadcast ownership rules that recognize significant differences in media availability in small versus large markets. The objective is to ensure that citizens in all areas of the country have a diverse array of media outlets available to them.

Libertarians and conservatives will swallow an FCC �diversity index� while simultaneously expressing horror when the University of Michigan employs formulas to maintain a racist admissions program. Similarly, groups like the National Rifle Association favored greater restrictions on media ownership while serving as lead plaintiff against the McCain-Feingold campaign finance bill. Yet both campaign finance �reform� and media ownership restrictions arise from the same philosophy of government. It�s logically impossible to support the government censoring private acts of political speech while supporting efforts to maintain artificial barriers to entry for media ownership. The First Amendment is either an individual right or it�s not. You can�t have it both ways, or, more accurately, you can�t have it the right way only some of the time.

::: posted by Skip Oliva at 12:49 PM | link | donate |

FTC News: New Site, Same Mission

The Federal Trade Commission has a new website. The banner reads: "Federal Trade Commission - For the Consumer." By inference, I assume that means they're against producers.

::: posted by Skip Oliva at 11:53 AM | link | donate |

Antitrust News: The District v. CVS

Saturday�s Washington Post reported on the District of Columbia�s efforts to force drugstore giant CVS to finance their competitors:

District lawyers argue that consumers were put "at risk of substantial harm" after CVS Corp. last year bought a competing pharmacy in Northwest Washington and promptly closed it down, according to a lawsuit filed yesterday.

The city filed the suit in Superior Court, alleging that CVS violated D.C. antitrust regulations when it purchased an Anchor Pharmacy in the Palisades neighborhood in March 2002.

The Anchor store was at 4883 MacArthur Blvd. NW, a few doors from a CVS store. When CVS closed its acquisition, it left a sign directing customers to its other location.

In a seven-page filing, lawyers for the Office of the Corporation Counsel allege that consumers are at risk "because CVS Corporation can profitably choose to reduce service or increase prices."

The city has asked the court to direct CVS and Anchor companies to "provide monetary incentives sufficient to induce the opening of a competing retail pharmacy."

A CVS spokesman reacted with outrage.

"The suit is totally void of merit," Todd Andrews said.

"Anchor made its own decision to close because the location was not profitable. We purchased the assets after they approached us to purchase them. We are deeply disappointed that the District's legal office decided to take this action."

City attorneys believe differently. They contend that the Anchor Pharmacy was not a failing store and that CVS figured it would be easier to buy out its competitor than defeat it through competitive business practices.

"Defendants monopolized or attempted to monopolize trade or commerce," states the lawsuit, which also names Anchor Pharmacies Inc. of Westminster, Md., and the CVS store on MacArthur Boulevard as defendants.

Here at CAC, our first instinct is to look at a case like this as a government effort to violate the property rights of private businesses. Obviously that instinct is correct here, but there�s a more precise message one should derive from D.C.�s actions. My colleague Donald Luskin suggests we need to view antitrust as a �systematic tax� on businesses which harm productivity. The D.C. case against CVS demonstrates exactly what Luskin means. After all, the District isn�t seeking to stop or undo CVS�s acquisition�the government only seeks a tribute payment to a potential competitor. When the government appropriates private wealth for a �public� good�in this case the good is �competition��that�s a tax. And unlike traditional taxes, the antitrust tax is arbitrarily imposed.

More interestingly, the antitrust tax is often regressive in its application. Consider the worst-case scenario for CVS: They pay several thousand dollars to support a competing store. CVS is a $24 billion company with thousands of stores nationwide. The overall impact of a single antitrust judgment would be negligible in the long-run. In contrast, many recent antitrust cases I�ve dealt with involve far less wealthy defendants who receive far greater damage. For example, in one physician collective negotiating case the FTC pursued last year, one of the defendants�a management consultant for the doctors�reported that his business was off by almost one-third as a result of the antitrust settlement he was forced to sign. This consultant has nowhere near the financial impact on the economy that CVS does, yet he faced a far harsher penalty under the antitrust tax.

This is why the �small� antitrust cases matter a great deal to us at CAC. They don�t get the media attention that Microsoft or CVS gets, but they do far greater damage to America�s free-market system in the long haul.

::: posted by Skip Oliva at 11:35 AM | link | donate |

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