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Technological Innovation and the Law

September 15, 2014
Earlier this summer, I paid a visit to the Jefferson Memorial and read an 1816 quote inscribed in the structure that said, “I am not an advocate for frequent changes in laws and constitutions, but laws and institutions must go hand in hand with the progress of the human mind.”  During my internship at the Federal Trade Commission, I experienced firsthand some of the challenges faced by society in balancing technology and the law.  From patent enforcement to privacy protection, the law and technology continue to be intertwined, dependent on each other, and at times at odds with each other.

By Matthew Colligan, W’16

Many believe that in the current social media, data-driven landscape, the law cannot keep up with technology, and the bridge between the two will perpetually widen.

The Federal Trade Commission is responsible for protecting consumers against deceptive and anti-competitive business practices. The Bureau of Competition, where I interned, reviews mergers and acquisitions and enforces antitrust law.  Many of the mergers reviewed by the FTC feature companies with high-tech, patented products that have only recently been made available to the public.  Without a full understanding of the industries and products involved and a lack of historical market data, it is difficult to predict how the proposed deals will impact consumers.

In addition to the FTC, which is an independent agency with congressional oversight, the Department of Justice, an executive branch agency, has anti-trust enforcement authority.  When companies wish to merge, if the merger meets certain transaction and company size requirements specified by the Hart-Scott-Rodino Act, the companies must file with both the FTC and the Department of Justice.  The FTC and DOJ then decide who will review the case based on which agency has more experience with cases involving the industry in question.  In cases dealing with new technology and industries, however, neither side might have relevant experience, and the investigation might be delayed as the two agencies debate who is best suited for the case.

When reviewing proposed mergers and acquisitions, the FTC considers horizontal and vertical concerns.  Horizontal concerns generally emerge when the two parties are competitors, and greater market share after the merger will cause the new company to have greater control over prices.  Vertical concerns arise when a merger may enable and incentivize the combined company to block other potential market participants from using the company’s technology or resources.  When reviewing horizontal merger proposals, the FTC evaluates what synergistic effects the merger might have.  The combined company may be better suited to refine, market, and efficiently produce the new product, resulting in benefits to consumers.  However, the merger might also reduce competition and greatly increase market share of the new company, which is a concern since new high-tech products are often difficult and expensive to produce.  For vertical mergers, the FTC considers how the merger might affect access to new technology.  For example, if a company is acquired by one of its customers, the combined company may no longer wish to offer products to competitors of the acquiring company.

 In order to determine the consumer impact of a merger without historical industry data, the FTC reviews a wide range of documents submitted by the two companies, conducts calls with current and potential consumers and competitors, and conducts depositions with executives of each company to determine their motives for merging and whether they participated in any anti-competitive practices prior to the proposed merger.  During my internship, I had the opportunity to review thousands of business documents, including CEO presentations and financial forecasts, in an attempt to gain insight into the dynamics of new industries.  I also participated in calls with pioneers of the technology in question and drafted reports for use by attorneys and economists.  The research I and my colleagues conducted helped determine the potential value to consumers, both quantitative and qualitative, of new products and services.  We could then compare our findings to the value of the proposed merger to help determine if the companies believed the deal would reduce competition.  For example, if our research led us to believe that company A’s technology is worth much less than company B proposed to pay for it, then company B might be paying extra to create a less competitive market.  Depositions with company executives can help solidify theories about the companies’ motivations behind the proposed merger.

In addition to placing a value on new technology, the FTC conducts research to help determine whether existing companies are capable of or plan on creating competitive products to the technology in question.  Through document review and interviews with companies in similar industries, the FTC can gain insight into whether existing companies have the resources, incentives, and knowledge necessary to become competitive in the new industry.  If many companies are capable and have plans to produce competitive products, the proposed merger is less likely to give the combined company control over prices.  If many companies have the resources to produce competitive products but are unable to because one of the merging parties has patents on necessary technology, then the FTC must balance the desire to keep a competitive landscape with the importance of intellectual property protection.

 In addition to the Bureau of Competition, the Bureau of Consumer Protection must keep up with rapidly changing technology. From creating privacy guidelines for smart phone apps to testing claims about the biological effects of new health products, the FTC continuously strives to understand how technology will affect consumers and formulate the best plans to protect them.

 While there are clearly a number of obstacles faced in regulating businesses in a continuously advancing society, the FTC tirelessly works to prevent the gap between technology and the law from expanding beyond society’s control when it comes to consumer protection.   Interning at the FTC has proved to be a valuable experience for learning more about the intersection of government and business and has exposed me to the mutual dependence, rather than exclusivity, of innovation and regulation.

 

The views expressed in this post are those of the author and do not express the views of the Federal Trade Commission.

 

 

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RESOURCE SPOTLIGHT:

  • <h3>National Center for Education Statistics</h3><p><strong><img width="400" height="80" alt="" src="/live/image/gid/4/width/400/height/80/479_nces.rev.1407787656.jpg" class="lw_image lw_image479 lw_align_right" data-max-w="400" data-max-h="80"/>The National Center for Education Statistics (NCES) is the primary federal entity for collecting and analyzing data related to education in the U.S. and other nations.</strong> NCES is located within the U.S. Department of Education and the Institute of Education Sciences. NCES has an extensive Statistical Standards Program that consults and advises on methodological and statistical aspects involved in the design, collection, and analysis of data collections in the Center. To learn more about the NCES, <a href="http://nces.ed.gov/about/" target="_blank">click here</a>.</p><p> Quick link to NCES Data Tools: <a href="http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4" target="_blank">http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4</a></p><p> Quick link to Quick Tables and Figures: <a href="http://nces.ed.gov/quicktables/" target="_blank">http://nces.ed.gov/quicktables/</a></p><p> Quick link to NCES Fast Facts (Note: The primary purpose of the Fast Facts website is to provide users with concise information on a range of educational issues, from early childhood to adult learning.): <a href="http://nces.ed.gov/fastfacts/" target="_blank">http://nces.ed.gov/fastfacts/#</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
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  • <h3>Congressional Budget Office</h3><p><img width="180" height="180" alt="" src="/live/image/gid/4/width/180/height/180/380_cbo-logo.rev.1406822035.jpg" class="lw_image lw_image380 lw_align_right" data-max-w="180" data-max-h="180"/>Since its founding in 1974, the Congressional Budget Office (CBO) has produced independent analyses of budgetary and economic issues to support the Congressional budget process.</p><p> The agency is strictly nonpartisan and conducts objective, impartial analysis, which is evident in each of the dozens of reports and hundreds of cost estimates that its economists and policy analysts produce each year. CBO does not make policy recommendations, and each report and cost estimate discloses the agency’s assumptions and methodologies. <strong>CBO provides budgetary and economic information in a variety of ways and at various points in the legislative process.</strong> Products include baseline budget projections and economic forecasts, analysis of the President’s budget, cost estimates, analysis of federal mandates, working papers, and more.</p><p> Quick link to Products page: <a href="http://www.cbo.gov/about/our-products" target="_blank">http://www.cbo.gov/about/our-products</a></p><p> Quick link to Topics: <a href="http://www.cbo.gov/topics" target="_blank">http://www.cbo.gov/topics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
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  • <h3>Federal Reserve Economic Data (FRED®)</h3><p><strong><img width="180" height="79" alt="" src="/live/image/gid/4/width/180/height/79/481_fred-logo.rev.1407788243.jpg" class="lw_image lw_image481 lw_align_right" data-max-w="222" data-max-h="97"/>An online database consisting of more than 72,000 economic data time series from 54 national, international, public, and private sources.</strong> FRED®, created and maintained by Research Department at the Federal Reserve Bank of St. Louis, goes far beyond simply providing data: It combines data with a powerful mix of tools that help the user understand, interact with, display, and disseminate the data.</p><p> Quick link to data page: <a href="http://research.stlouisfed.org/fred2/tags/series" target="_blank">http://research.stlouisfed.org/fred2/tags/series</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>HUD State of the Cities Data Systems</h3><p><strong><img width="200" height="200" alt="" src="/live/image/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg" class="lw_image lw_image482 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 3x" data-max-w="612" data-max-h="613"/>The SOCDS provides data for individual Metropolitan Areas, Central Cities, and Suburbs.</strong> It is a portal for non-national data made available through a number of outside institutions (e.g. Census, BLS, FBI and others).</p><p> Quick link: <a href="http://www.huduser.org/portal/datasets/socds.html" target="_blank">http://www.huduser.org/portal/datasets/socds.html</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>NOAA National Climatic Data Center</h3><p><img width="200" height="198" alt="" src="/live/image/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg" class="lw_image lw_image483 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 3x" data-max-w="954" data-max-h="945"/>NOAA’s National Climatic Data Center (NCDC) is responsible for preserving, monitoring, assessing, and providing public access to the Nation’s treasure of <strong>climate and historical weather data and information</strong>.</p><p> Quick link to home page: <a href="http://www.ncdc.noaa.gov/" target="_blank">http://www.ncdc.noaa.gov/</a></p><p> Quick link to NCDC’s climate and weather datasets, products, and various web pages and resources: <a href="http://www.ncdc.noaa.gov/data-access/quick-links" target="_blank">http://www.ncdc.noaa.gov/data-access/quick-links</a></p><p> Quick link to Text & Map Search: <a href="http://www.ncdc.noaa.gov/cdo-web/" target="_blank">http://www.ncdc.noaa.gov/cdo-web/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>USDA Nutrition Assistance Data</h3><p><img width="180" height="124" alt="" src="/live/image/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg" class="lw_image lw_image485 lw_align_right" srcset="/live/image/scale/2x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 2x, /live/image/scale/3x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 3x" data-max-w="1233" data-max-h="850"/>Data and research regarding the following <strong>USDA Nutrition Assistance</strong> programs are available through this site:</p><ul><li>Supplemental Nutrition Assistance Program (SNAP) </li><li>Food Distribution Programs </li><li>School Meals </li><li>Women, Infants and Children </li></ul><p> Quick link: <a href="http://www.fns.usda.gov/data-and-statistics" target="_blank">http://www.fns.usda.gov/data-and-statistics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>