Remarks of Commissioner Thomas B. Leary

B2B Electronic Marketplace Workshop
June 30, 2000

It is a great privilege for me to have the opportunity to kick off the final policy-oriented panel. The title of this panel is Competition Policy Implications for B2B Electronic Marketplaces. I am particularly happy to be here because most of the panelists are people that I have known for years, in some cases a great many years. Some of them I have not seen in a long time, so it is a matter of personal privilege as well.

I am here to listen and learn, just like each of you. I do not have any ideas about B2B marketplaces that are set in concrete, but I do have some going-in assumptions that I would like to share with you.

I believe that we are in an age of revolution, but I do not think that revolutions are unique in this century. We have seen many revolutions of sweeping kind in the last 100 years. Perhaps you have been watching the wonderful television program on PBS called The 1900 House. It's a documentary about a family in London who are living as people lived in the year 1900 in a house that was built around 1900. My parents grew up in that era, and my own childhood is a lot closer to the year 1900 than it is to the year 2000. But, as I watch the program, it seems as alien as life on another planet. One hundred years ago was pre-radio, pre-television, pre-electronic appliances, pre-road transportation. The fact that that world is so alien to me can only mean that there were immense, dramatic changes that occurred in the beginning of the 19^th Century, as well as the end of the 19^th Century.

All of those changes have had dramatic impact on our lives, and yet the antitrust laws survived. Its an interesting coincidence that the year 1900 is roughly halfway between the passage of the Sherman Act and the passage of the FTC and Clayton Acts. Those statutes have also survived each of the dramatic changes since 1900.

Over the years the statutes have been interpreted in a more nuanced and sophisticated way. I believe that those changes in interpretation have been driven not so much by technological change as by increasing economic sophistication and increasing appreciation of the way the system really works. To me, that is one of the most dramatic changes that we have seen, particularly over the last 30 years.

The economic learning takes a little while to filter from the academic community into the world of law journals, policy makers, judges, and counselors. It requires some translation to make these rather arcane mathematically-difficult economic concepts accessible to the people who must apply them. As an example of that lag time, consider Bob Bork's treatise on antitrust law published in 1978. It is probably the most influential book on antitrust ever published, but the ideas in the book were not new. The ideas had been kicking around in the academic community for 10 or 15 years, but it was not until the book was published that those ideas became accessible to the world that we deal with -- the world of lawyers, policy makers, judges, counselors, clients and so on. It seems to me that one of the principal challenges is for the economics of this new technology -- if it is out there -- to be written in a way that is accessible to people who sit in positions like mine and yours.

What are we going to do? I think the issues in the B2B area are the same kinds of issues that we have dealt with in joint venture analysis for as long as I have been practicing law. These issues include -- and this list is not exhaustive - questions of market power, the size of the venture, the scope of the venture.

For instance, if you have a venture that arguably has market power, then that could mean that the venture will be treated as an "essential facility." If so, then you have issues of access and of due process before you kick someone out. You have issues of ancillary restraints. These are issues that we deal with all the time.

Similarly, there may be issues of signaling. When you have real time transaction information, there may be private signals that go along with that real time information. You also have issues of so-called spillover effects. We used to call them contamination effects when I first started practicing law. And, to the extent your B2B venture is not just like a stock exchange but actually involves joint purchasing, you may have monopsony issues. I don't think we know enough about monopsony issues, but I think it is something that may be increasingly important going down the road.

Finally, you have issues of least restrictive alternatives. I say finally, because in a structured rule of reason analysis, this question typically comes at the end of the analysis. But as a counselor, I always thought it was most useful to address this issue at the beginning, to learn what is it that the client really wants to accomplish and what is the least restrictive way that it can be done. Why? Because if you are really trying to do something new, there are going to be winners and there are going to be losers. When there are losers resulting from any kind of venture, whether it be high-tech or low-tech, there is a potential for litigation.

Because the issues are familiar, B2B counseling may not be all that hard - particularly if it suits your client's purposes to walk well away from the cliff edge. It is only when you get closer to the cliff edge - and there may be valid and good business reasons for it - that you may have to consider some of this more nuanced stuff that we may not really understand yet.

Finally, perhaps because I have lived through many promised technical changes that did not materialize, I am agnostic on how dramatic any particular change, like B2B marketplaces, is going to be. When I was a teenager during World War II, learned articles told us that we were going to have a helicopter in every garage after the war. There was going to be no such thing as traffic congestion because air space is three dimensional. Everybody was expected to get into their little personal helicopters to go to Wall Street or wherever they were headed. Obviously, that is one of those things that just never came about.

I could cite many more, but an awful lot of things that people think are going to turn the world upside down do not. And, there have been an awful lot of unexpected things that have, in fact, turned the world upside down. Nonetheless, our antitrust laws and basic modes of analysis have survived.

So as I consider B2B marketplaces, I am not skeptical but agnostic. I don't know whether "technology" is going to correct competitive abnormalities in the B2B world in a much shorter time frame than we see in other markets. I don't know. Pointing in the other direction, I don't know about the so-called network effects phenomena that others have talked about. I don't know whether there is anything new there either. Again, I am agnostic. I need to learn more about it.

My sense is that the really difficult issues going down the road may not be in the B2B area, but rather in the business to consumer, or "B2C", area. Some of the myriad issues arise at the very interesting intersection of competition law and consumer protection law.

But having said that, I do not want everybody to get up and leave saying that nothing important is going to happen. I do not mean to say that. All I am saying to you is that it may turn out to be that the B2B world that we live in and the competitive implications of it are more familiar than they are strange.