Senators Propose Clarification of Antitrust Law to Expressly Cover Algorithmic Collusion — AI: The Washington Report

1. Following up on a December 2023 hearing on algorithmic price-fixing and self-preferencing, Chair of the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights Amy Klobuchar (D-MN) introduced a bill entitled the Preventing Algorithmic Collusion Act.
2. Under the terms of this bill, a price-fixing agreement would be presumed “when direct competitors share competitively sensitive information through a pricing algorithm to raise prices.”
3. The growing legislative and regulatory focus on AI-related competition issues should be a wake-up call for firms utilizing AI tools. Key decision-makers in such firms should ensure that their business is not deploying algorithms to engage in a business practice that would otherwise be clearly illegal. 
    

Introduction: Algorithmic Anticompetitive Conduct under Senate Scrutiny

We previously covered a December 2023 hearing of the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights entitled “The New Invisible Hand? The Impact of Algorithms on Competition and Consumer Rights.” During the hearing, Chair Amy Klobuchar (D-MN) stated that “algorithms…have the potential to create or exacerbate competition problems.” The subcommittee’s senators discussed two anticompetitive practices that have been made more viable due to advances in AI.

• Algorithmic price-fixing: the deployment of algorithms to fix prices, either independently or in coordination with other firms.
• Algorithmic self-preferencing: a firm’s use of algorithms to preference their own offerings over those of competitors.

Klobuchar Bill Would Bar Algorithmic Price-Fixing

During the December 2023 hearing, Klobuchar asserted that Congress should enact “up-to-date” legislation that would explicitly bar these forms of collusive conduct made without express agreements among the participants. On January 30, 2024, Klobuchar introduced just such legislation, the Preventing Algorithmic Collusion Act. The introduction of this bill demonstrates the extent to which lawmakers are taking seriously the competition issues raised by the advancement of AI and already pending in the courts.

Currently, antitrust law requires that “proof of an explicit agreement to fix prices” is shown in order for conduct to constitute illegal price fixing. However, firms can now algorithmically coordinate prices, obviating the need for the creation of an explicit agreement. The proposed bill seeks to address this loophole.

Under the terms of this bill, a price-fixing agreement would be presumed “when direct competitors share competitively sensitive information through a pricing algorithm to raise prices.” While the bill text has not been released at the time of writing, the description of the bill sent to the Library of Congress suggests that enforcement would be delegated to the Federal Trade Commission (FTC or Commission) and the Department of Justice (DOJ).

To assist with enforcement of the bill, companies utilizing pricing algorithms would be mandated to disclose that fact, and regulators would be granted the right to audit pricing algorithms should they suspect that the algorithm harms consumers. Finally, companies would be barred from utilizing “competitively sensitive information from their direct competitors to inform or train a pricing algorithm.”

“Businesses are increasingly turning to algorithms to determine pricing for their products,” stated co-sponsor Senator Dick Durbin (D-IL) in his endorsement of the bill. “In a technology-based world, we need to prevent businesses from using these tools to reduce competition.”

Algorithmic price-fixing is not the only novel anticompetitive conduct Senator Klobuchar is seeking to prohibit. In the 117th Congress, Klobuchar introduced the American Innovation and Choice Online Act, a bill that would prohibit algorithmic self-preferencing, among other practices. Under the terms of the act, certain online platforms would be barred from preferencing their “products, services, or lines of business…over those of another business user on the covered platform in a manner that would materially harm competition.”

Even absent legislative reform, federal agencies are utilizing their enforcement powers under existing laws to attempt to regulate algorithmic collusion. In September 2023, the DOJ filed a civil antitrust suit alleging that a major protein processing firm had “violated Section 1 of the Sherman Act by collecting, integrating and distributing competitively sensitive information related to price, cost and output among competing meat processors.”

The DOJ has endorsed an interpretation of the Sherman Antitrust Act in which algorithmic price fixing is illegal. In a November 2023 statement of support to pending litigation regarding algorithmic price fixing, the DOJ asserted that “Section 1 [of the Sherman Antitrust Act] prohibits competitors from fixing prices by knowingly sharing their competitive information with, and then relying on pricing decisions from, a common human pricing agent who competitors know analyzes information from multiple competitors. The same prohibition applies where…the common pricing agent is a common software algorithm.”[1] DOJ urges the court to hold that such a use of an algorithm should be condemned as per se illegal.[2]

Conclusion: Focus on AI and Antitrust is a Wake-Up Call for Firms

It is a truism that the law takes time to catch up to technological developments. In 2024, an election year, few expect substantive legislation will pass. Yet proposed legislation and committee hearings are building blocks that are constituting the federal government’s response to AI (along with President Biden’s AI Executive Order about which we have written extensively). Moreover, federal enforcement agencies have already staked a claim to utilize their existing authority to bar such business practices.

In June 2023, the FTC published a business guidance post entitled “Generative AI Raises Competition Concerns.” In the article, the FTC warns that the Commission’s “Bureau of Competition, working closely with the Office of Technology, is focused on ensuring open and fair competition, including at key inflection points as technologies develop.” As a result, the FTC asserts that “it is especially important that firms not engage in unfair methods of competition or other antitrust violations to squash competition and undermine the potential” benefits of generative AI.

As a consequence of all this swirl, firms should assess whether they are vulnerable to accusations of engaging in such practices. More broadly, key decision makers in companies should ask themselves: is my firm using algorithms to engage in a business practice that would otherwise be clearly illegal?

FTC Chair Lina Khan has repeatedly asserted that there is “no AI exemption to the laws on the books.” Under this view, an illegal business practice does not cease to be illegal when a firm uses a new technology, such as AI, to conduct the practice. It is true that in some cases, Chair Khan’s statement regarding the absence of AI exemptions is more normative than descriptive. As discussed in this newsletter, AI may make the enforcement of laws, such as the Sherman Act’s prohibition on price-fixing, more difficult in certain cases.

However, proposals such as Klobuchar’s Preventing Algorithmic Collusion Act demonstrate that these gaps in the law are being looked at. And when those gaps are closed, through legislation, regulation, or litigation, there will be firms that will pay a steep price.

We will continue to monitor, analyze, and issue reports on these developments. Please feel free to contact us if you have questions as to current practices or how to proceed.

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