Antitrust expert Daniel Sokol, associate professor at the University of Florida Levin College of Law, discusses his recent paper on FRAND in China and the merger case that he loves to teach his students: Staples/Office Depot. As an interesting aside, Professor Sokol also shares his knowledge of the dining preferences of alligators near the University of Florida.
TAP: What brought you to your current position as associate professor at the University of Florida Levin College of Law?
DANIEL SOKOL: The University of Florida has a strong group of scholars interested in antitrust and broader issues of competition. Our law school includes Bill Page, Jeff Harrison and Wentong Zheng and myself. In the economics department I have equally wonderful colleagues Roger Blair and David Sappington. It is a wonderful thing to have a community of people with similar interests that allows us to bounce ideas off each other. David and I organized a cartel conference last spring (I presented a paper on Mergers & Acquisitions and detection of wrongdoing). I wrote an article with Wentong. I also have written two articles (see here and here) and edited a book with Roger. Bill and Jeff have written book chapters for me in my various book projects. We have a yearly endowed antitrust lecture that allows us to invite top people in antitrust law and economics – Dennis Carlton, Joe Harrington, Herb Hovenkamp, Bill Kovacic, and Howard Shelanski thus far. Also, it helps that winters are mild. If only we could get a decent Italian restaurant!
TAP: What first sparked your interest in antitrust research?
SOKOL: When I was in law school, the Microsoft saga was unfolding. I was in Randy Picker’s first antitrust class at the University of Chicago Law School. He did a spectacular job explaining the issues and developing my interest in the field. When I was in law practice, I was involved in a number of antitrust matters and some of the broader issues I worked on became the basis for my early scholarly interests, particularly those relating to institutional design issues in international antitrust.
TAP: One of your most recent papers discusses antitrust-related FRAND issues in China. Give us a brief overview of why you chose this topic and what you discovered.
SOKOL: FRAND licensing is a complex issue with high stakes that fundamentally impacts the business models of a number of large companies. Depending on how the law ultimately emerges, certain companies face existential problems. FRAND issues in China are a bit different than what one encounters in the United States. We note in the paper that antitrust FRAND issues in China are clouded with significant uncertainty. This uncertainty is due to a number of different factors. The Chinese government wants to promote indigenous innovation in China. The Party in the Eleventh Five-Year Plan has stated that it wants to promote indigenous innovation to become a technology leader by 2020 and replace foreign infrastructure with domestic infrastructure. This context explains in part the Chinese approach to FRAND. In application, patentees have much more leverage in China than in Western antitrust regimes because of the threat of government pressure. This threat has become quite significant in some situations such as merger remedies by the Monopoly Bureau of the Ministry of Commerce (MOFCOM) or pricing enforcement by the National Development and Reform Commission (NDRC). In some situations these threats are not based on competition concerns. FRAND becomes, in this Chinese context, a possible tool of rate regulation. We argue that China’s FRAND policy must be set in a way that does not merely provide compensation to a patent holder for the investment already made but also to provide incentive for the patent holder to invest in research and development going forward. The use of industrial policy in China regarding antitrust and FRAND has a number of potential negative consequences for innovation in China, insufficient incentives may lead to a problem of “reverse hold-up” that would chill investment standards. For this reason, a FRAND policy focused on short-term industrial policy needs would be short-sighted.
TAP: You are the co-editor of a book series on global competition law and economics. What has been your most interesting takeaway on this issue?
SOKOL: Antitrust has become global. As a consequence, there are different approaches across jurisdictions to a number of issues. Let’s take the area of mergers. Merger control is one of the most important functions of antitrust/competition law. It is pre-merger review to correct for potential anti-competitive behavior through either unilateral or coordinated effects. Mergers tend to be high stakes and part of the very nature of what might make a merger attractive from a competition perspective, such as efficiencies, might have negative repercussions with regard to non-competition economic interests such as employment, loss of a national champion or other non-economic political factors such as diversity of choices.
Government shapes merger control regime in two fundamental ways. The first is the extent to which non-competition economic factors may be considered by the antitrust merger system and what remains outside the purview of antitrust (such as sector regulation). The second is the set of assumptions within competition economics that shape both merger control rules and outcomes. What exactly is and should be the criteria and outcomes for state intervention used in merger control remain an open question around the world across both sets of questions. In the book series we are able to have a number of law and economics professors from different jurisdictions address these and other issues from various perspectives.
TAP: You’ve taught comparative antitrust law at the Pontifica Universidad Católica de Chile (The Pontifical Catholic University of Chile) as a visiting professor. How does Chile’s antitrust law compare to that of the U.S.?
SOKOL: Since I taught at PUC there has been increased convergence as Chile has introduced leniency for cartel offenses. Overall, Chile has a well-functioning antitrust system with a specialized competition tribunal that has direct appeal to the Chilean Supreme Court. The Tribunal is made up of three lawyers and two economists. The quality of antitrust personnel at the Tribunal and the FNE (antitrust authority) is quite high and the leadership of both organizations is quite good. In many ways, the Chileans are at the cutting edge of enforcement for a small jurisdiction globally. They are very conversant in the latest developments in the academic literature as well as policy developments in Europe and the United States. The practitioner community is very strong and rivals that of Brazil for best in Latin America. This is quite an accomplishment given Chile’s small size.
TAP: You served as an editor for the upcoming 2014 Oxford Handbook of International Antitrust Economics. Give us a teaser.
SOKOL: This handbook has been a labor of love. It is not easy to get 45 chapters into production and to get academics to focus on deadlines. The good news is that the book (actually now two volumes) will be out in 2014. We have some of the very best people in the world writing about various issues in antitrust economics on a range of topics. My sense is that with more papers increasingly uploaded onto the web, this may be the last time we will see a serious and comprehensive handbook that provides one stop shopping. I think that the handbook will greatly benefit professors, policymakers, practitioners and students. I am also happy to report that a number of TAP scholars are involved in the book.
TAP: What is one of your favorite topics to teach your students and why?
SOKOL: The Staples/Office Depot merger case remains one of my very favorite cases. There is a lot to discuss in terms of the market definition, the use of econometrics, natural experiments, how to litigate in front of a non-expert judge and the use of a field trip to educate the judge about office supercenters. Who could not love a case in which the government gambled that a field trip might help get the judge on their side?
TAP: Fun Question – Should TAP readers ever visit Gainesville, Florida, (home of University of Florida) what city attraction do you most recommend?
SOKOL: A block from the law school is Lake Alice. There is a particular spot on the lake that I take visitors, which is just across the street from the UF pre-school. It is a spot where the alligators sunbathe. Our gators are probably around 8-10 feet from snout to tail. They typically do not attack adults although they have been known to go after small dogs. Unlike the James Bond movie To Live and Let Die, our alligators actually prefer fried chicken to raw chicken – adaptive preferences based on the fact that UF’s fraternity row is by the alligators and that fraternity members regularly feed them the fried stuff.