The Antitrust Exhaustion Problem: How Is Martin Shkreli Still Price-Gouging Sick People?

How the political desire to fight monopolies is slamming into government bureaucracies in New York, and elsewhere.

Hi,

Welcome to BIG, a newsletter about the politics of monopoly and finance. If you’d like to sign up, you can do so here. Or just read on…

Today’s issue is about how popular anger at big corporations is impacting the political system.

First, I’d like your help. On Monday, I’ll be testifying before the New York Senate on a bill to strengthen New York’s antitrust laws. The hearing will stream at 10am for those interested in watching. It’s a serious effort; the main sponsor of the bill is Senator Michael Gianaris, and he’s one of the key leaders who blocked New York from giving Amazon a subsidy for its HQ2 contest.

If you’re a New Yorker and want to offer a comment about monopolies, send it to me either by responding to this newsletter or by putting it in the comments. Make sure to include what town/city you live in. I’ll put some of your comments in my written testimony.

And now…

Political Exhaustion and Monopolies

When I talk to policymakers about how to address corporate power, I usually get a very basic political question. Do people really care about monopolies and corporate power? What they mean by that question is whether they will have political support if they choose to invest some of their own effort or energy into a battle over a corporate power problem, or, conversely, whether there will be a cost if they don’t.

In a democracy, the people really do matter, and so whether the people care about monopolies is an important question. Polling suggests that they do. 71% of Americans think big corporations have too much power over their families and communities, while 88% believe that big corporations have too much power over politicians. And yet, while some politicians do use the corporate power frame - Trump certainly has, as have some politicians like Elizabeth Warren - it isn’t nearly as common as it has been throughout most of American history. If the professionals, aka politicians, aren’t talking about it, well, that's a data point contradicting the polling.

It should matter to people, of course. Corporate power is the sort of tectonic plates of politics, always there, underpinning social problems from inequality to corruption to the social resilience in the face of natural disasters and pandemics. No one likes airline baggage fees, or our inability to produce enough equipment to address the pandemic. Market power doesn’t get nearly the attention one would expect based on the reality that corporations structure nearly everything we buy, sell, and trade, and most of us work for corporations. Some think that the lack of attention is because the media won’t touch it, but that’s not entirely true. CNN and MSNBC are largely uninterested, but plenty of outlets, everyone from the New York Times to Fox News, do discuss agribusiness, Wall Street, big tech, and so forth.

Last month, I asked Dave Dayen whether ordinary people care about monopolies and corporate power. Dayen would know, because for his new book Monopolized, he traveled around the country gathering stories on the abuses people are experiencing at the hands of large corporations. “People know that something is terribly wrong,” he told me. “They might not be able to articulate it using technocratic antitrust jargon, like no one mentioned the Herfindahl–Hirschman Index in terms of market share, but they understand the system is rigged.”

I think that’s right. I also have an alternative explanation that based on some private polling, that suggests another reason for the lack of perceived political salience around the topic - exhaustion and cynicism. Americans believe that corporate power is a problem, a big one in fact. They just don’t necessarily believe it is a political problem, nor do they think the government can or will address it. To exaggerate slightly, asking the government to do something about the banks and titans that organize their lives is like asking the government to make it rain tomorrow. You might need the water, but there are some things politics can’t do.

This isn’t a completely unreasonable view. Why should Americans see addressing corporate power as part of politics? Not a single Wall Street executive went to jail for the financial crisis. Clearly the CARES Act back in March structured a deeply unstable reaction to the coronavirus shutdown by funneling cheap capital to large corporations while not doing enough for everyone else. Yet we hear little about it as a political topic.

Even when political leaders do act, it doesn’t seem to matter. The Wall Street Journal just published a story on how California’s new law to force ride sharing companies to treat their drivers as employees has backfired; small businesses and artists are now having regulatory trouble, while Uber and Lyft have simply refused to obey the law and funded a $180 million initiative campaign to repeal it. During the investigation over Cambridge Analytica and whether Facebook violated its consent decree with the Federal Trade Commission, FTC Commissioner Rohit Chopra said, “FTC orders are not suggestions.” But it does seem as if, for the powerful, laws and rules are suggestions.

I’m reminded of this exhaustion problem because I spent several days this week preparing testimony for the New York Senate. In researching how New York Attorney General Leticia James has wielded her power to investigate monopolists under New York’s antitrust laws, I learned that James is suing Martin Shkreli, the jailed hedge fund villain who bought an off patent medication needed by AIDS patients called Daraprim in 2015 and raised prices from $13.50 to $750 a pill, up 4000%. At first I though, oh that’s cool, good for James for bringing the suit.

Then I though, wait, what?!? We *still* haven’t taken care of this situation after five years of publicity and legal actions?!? Shkreli is literally conducting a monopolization scheme to price gouge sick people, and doing so from jail. Shkreli’s scheme essentially a form of a threat, pay me or you die. This should be easiest imaginable social problem to solve. And yet we haven’t.

The FDA has allowed a new generic on the market, but it likely hasn’t reordered the market. I tried to find the list price of Daraprim, but of course, there are no public prices in our health care system; prices are now protected by trade secrets law (which is yet another set of bullshit barriers to competition we’ll have to tackle). There’s at least one report that Daraprim is still at $750 a pill.

The whole situation is insane. Why should we have to do a weird bank shot of introducing generic competition into a market, instead of simply bringing a case that there’s excessive pricing going on? One could argue the case law is bad, but I don’t think that’s it. Law in complex areas is often just what the experts say it is, and the experts have been saying either that monopolies are not a problem, or that price-gouging might be a problem but it isn’t an antitrust problem, or some other nonsense excuse.

There is in fact an endless parade of experts musing on whether anything can be done about these social problems through democratic politics. To take one example, here’s an example of yet another antitrust conference where experts ask each other if they can actually *do* anything about monopoly power. Most antitrust professors, for instance, simply ignore the idea that we have a massive soul-crushing monopoly crisis. So do a good number of judges. In my corner of the world, there’s a symbiosis between antitrust experts and judges. In ruling for Qualcomm’s monopoly, the ninth circuit appeals panel of three judges cited antitrust “research” that was in fact written by antitrust professors funded by Qualcomm. Monopoly law has been subverted by judges who ignore statute, experts who ignore contradictory views, and who both help each other ignore reality. The public, meanwhile, is confused and exhausted.

All of which is to say that the public is confused and frustrated for a very good reason. While there’s a lot of fretting about Trump one way or the other, he’s more a distraction from how sick and twisted the entire elite legal establishment has become in accepting the right of a jailed sociopath to harm AIDS patients for money.

Process Trolling and Congressional Exhaustion

It’s not just voters who are exhausted by the lack of institutional path to change. Members of Congress are frustrated as well. One of the problems with the otherwise remarkable (so far) House Antitrust Committee investigation is that the subcommittee did not issue subpoenas to the large technology firms for documents. There are strategic reasons they should have done so, but looking at precedent on investigations and subpoenas shows why there’s reluctance. A friend of mine calls being blocked in Congress ‘process trolling,’ where doing anything, even something incredibly obvious like sending a letter, requires sign-offs from an endless number of people on the right committees, each of whom might have their own requests in turn for what is in the letter. Here’s an example of how process trolling works.

In 2015, the Senate Permanent Subcommittee on Investigations began an investigation into Backpage.com, the $500 million website known to be a hub for prostitution services, a Craiglist for sex work. The site wasn’t just fostering illegal sex work, but child sex trafficking; 73% of all child trafficking reports that the National Center for Missing and Exploited Children received from the general public involved Backpage. But just doing the investigation to find out whether Backpage had knowledge of what was going on its website was a massive 20 month slog.

Contrast that with how investigations happen today. The report issued by the Senate subcommittee is here. I want to go over the timeline, and remember, there’s only two years until a new Congressional election, so the maximum amount of time for an investigation is two years.

• In April 15, 2015, the subcommittee made its first request for information to Backpage. The corporation refused to comply.

• In July, the subcommittee issued a subpoena.

• In August, Backpage sent a letter saying it wouldn’t send any documents. Backpage employees refused to testify, saying they had the Constitutional right not to incriminate themselves.

• In October, the subcommittee withdrew its original subpoena and issued a more targeted one. Once again, Backpage refused to comply, arguing it had a “first amendment right” not to answer the subpoena because it was a publisher.

• In early November, the subcommittee overruled Backpage’s objections and ordered the CEO to appear on November 20th. The CEO refused to show, citing business travel obligations.

• In February of 2016, the subcommittee sent a resolution to the Homeland Security and Governmental Affairs Committee authorizing and directing Senate Legal Counsel to bring a civil action.

• On March 17, the Senate—by a vote of 96-0—adopted the resolution.

• On March 29, the subcommittee filed to enforce its subpoena before the DC District court.

• On April 26, Backpage filed its reponse in court. It has now been more than a year since the subcommittee first asked for documents.

• On August 5, the court ruled in favor of the subcommittee. Backpage appealed, and asked for a six week delay for its appeal into September. The corporation begins to produce some non-privileged documents.

• The court grants Backpage an extension to October 10, and then another extension for Backpage to produce documents to November 18. We are now past the election. Backpage produces documents into December.

The subcommittee eventually got documents from Backpage, receiving roughly a million pages from between September and December, but subcommittee staff were never satisfied that Backpage had produced all the relevant documents. The report came out in early January of 2017, right before a new set of Senators were sworn in, and with no time to pass legislation.

Think about that. It took eleven months to get from a Senate request for documents to a Senate vote to enforce a subpoena, and then another seven months until courts compelled document production. Senators and their staff had just two months to write a report with that information. And all of this for a site that everyone knew was guilty of facilitating child sex trafficking; it’s very much like Shkreli’s price-gouging from jail. They were not investigating nuns.

There is a reason for the scorched earth defense. Just as large pharmaceutical companies have to protect Shkreli so they can do what he does in perhaps less tacky ways, Google was helping to finance Backpage, in anticipation that legislation designed to stop Backpage’s sex trafficking would hinder Google’s business. So Google sought to block all avenues as aggressive as possible, doing so by financing nonprofit groups like the Center for Democracy and Technology, the Electronic Frontier Foundation, the American Library Association, the Competitive Enterprise Institute, and a host of scholars, all of whom supported Backpage.com in various legal or political proceedings.

Ultimately, Congress proved victorious, passing a law to enable state criminal action and civil action against Backpage.com for facilitating child sex trafficking and sex work. I’m not speaking to the merits of the policy outcome, but to the process involved, because it is the process that exhausts policymakers, just as it does voters.

This exhausting process is not how Congress traditionally operated. When I was writing my book, I interviewed a Congressional investigator, Curtis Prins, who worked for Wright Patman in the 1960s and 1970s. He told me he flew around the country looking for financial scams with a stack of blank subpoenas signed by the Chairman, but never had to use one. “No one would dare deny me documents,” he told me. The number of investigations organizations by the Banking Committee in those decades is simply remarkable, as were the impacts of those reports. One of those investigations, for instance, helped lead to the break-up of roughly 90 banking conglomerates in the 1970s. Prins was also the first investigator to look into a little scandal in the Watergate hotel.

It has been a long time since Congress really had the capacity and will to investigate such scandals, but they are starting to stir once again. And given the obstacles they are facing, the House and Senate will in all likelihood eventually make it much easier to issue and enforce subpoenas, and even more aggressively, they could take from the Supreme Court the authority to write the rules of civil procedure on Congressional subpoenas, so that judges have to act promptly. If they don’t, members will exhaust themselves against a brick wall of highly paid defense lawyers and the antitrust professors who love them.

The Response of a Democracy

In 1934, New Deal tax lawyer Robert Jackson was investigating billionaire Andrew Mellon’s industrial empire in Pittsburgh as part of a case against Mellon for tax fraud. There’s a chapter in my book Goliath on how the trial to discredit ‘the old order’ was a pivotal part of the reordering of American politics. Jackson’s view of the problem is something we might recognize today in dealing with large technology platforms or any big corporation.

“Today there is only one force in the world big enough to cope with the Mellons in Pittsburgh,” Jackson wrote. “That is the Federal government and I sometimes doubt whether it, bound by a myriad of technicalities and limitations, can effectively . . . restore economic freedom.” That lack of faith, that fear, is what policymakers and voters feel when thinking about corporate power. It’s just too big and scary and complicated.

But New Dealers did tame the old order. In the late 1930s, Antitrust Division head Thurman Arnold - who was hired by Jackson - systemically restructured American industry, with 1,375 complaints in 40 different industries. Executives would come into Arnold’s office and just sign consent decrees, because after five years of bitter political battles, businessmen finally understood it was just easier to obey the law. If they didn’t, Arnold would threaten them with handcuffs. Beyond Arnold’s antitrust crusade, New Dealers erected a range of public agencies, they broke up Boeing, Alcoa, and Citibank, and they moved wealth from the northeast to the south and west through a host of regulatory choices, and rebuilt American prosperity and democracy.

Today I think we are seeing the initial signs of institutional reordering. There is for instance, New York state. What Senator Gianaris is trying to do is move away from the existing bad case law for the Sherman Act, and create what is called an ‘Abuse of Dominance’ standard in New York. Without going into too much detail, the goal is to make a bunch of conduct currently unreachable because of bad judge-written precedent into something enforcers can touch. An abuse of dominance standard, for instance, could, dependent on how it is written, make it much easier for enforcers to stop pricing goods below cost to gain market share, to address predatory surveillance, or to deal with conflicts of interest in app stores.

State action is one sign of a reordering; states passed antitrust statutes before the Federal government passed the Sherman Act in 1890, with Kansas and Texas going first. Monopoly rules are not just handled at one level of government, but at many levels, often with the institutions at cross-purposes. In this case, it’s the New York legislature acting, but here are a number of examples of government institutions around the world struggling to channel populist frustration into law, or to block that frustration entirely.

On Tuesday, the U.S. Senate Judiciary Committee is holding a hearing on consolidation in advertising titled “Stacking the Tech: Has Google Harmed Competition in Online Advertising”? Later this month, it’s likely that the Antitrust Subcommittee in the House comes out with a report making recommendations for changes to antitrust laws, and the Department of Justice and perhaps states will file an antitrust suit against Google. The Federal Trade Commission has been investigating Facebook, deposing Mark Zuckerberg a few weeks ago. And parts of government one might not expect - like the Customs and Border Control - are acting. CBP has proposed a rule to make is more difficult for Amazon to avoid customs duties from China.

There’s also a global story. Last year, I wrote up how the Australian competition authority was getting serious about addressing Google and Facebook. The Australian Competition & Consumer Commission has now put forward a draft bill to force Google and Facebook to pay its news media, causing Facebook to threaten to shut down the sharing of news entirely on its social networks. Meanwhile, even as the FTC investigates the FTC and the DOJ investigates Google, the United States Trade Representative is lobbying against Australia’s law as a trade barrier. France adopted a similar law to Australia, and Google is just refusing to pay.

The national security and law enforcement world also has deep relationships with large technology firms. Amazon just put Keith Alexander, the former head of the National Security Agency, on their board of directors. Last month, big tech firm executives met with the “FBI’s foreign influence task force, the Justice Department’s national security division, the Office of the Director of National Intelligence and the Cybersecurity and Infrastructure Security Agency” to discuss election protection. There are already battles in the national security realm over the importance of tech monopolies; Ellen Lord, the antitrust chief for the Pentagon, sought to help Qualcomm beat the monopolization case the FTC brought against it. Google, Facebook, and Amazon are already lining up their military and intelligence friends to help ward off break-ups.

And yet, there is hope. Congress isn’t set up to do thorough and timely corporate investigations, the courts aren’t either, and most government institutions have little experience with doing effective regulation. But… so what? What I’m describing is the process of institutions learning to govern again, throwing off the creaky rust. The Antitrust Subcommittee was able to put CEOs on the witness stand despite all the process trolling involved. The institutions are beginning to stir. They will get there. It’s already happening.

In the meantime, Martin Shkreli gets to smirk.

Thanks for reading. Send me tips, stories I’ve missed, or comment by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller

P.S. I’m peripherally involved with a group called the Progressive Talent Pipeline that helps get interested people into offices on Capitol Hill or in policymaking positions in the Federal government. One of my formative professional experiences learning about corporate power was working in Congress, so obviously I think it’s a fun/maddening experience. Anyway, if you’re reading this newsletter, you probably have some of the right instincts to do good things in government. The Progressive Talent Pipeline is taking applications now, you can learn more here: http://progressivetalentpipeline.org/