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It all sounds so very practical and efficient: businesses creating electronic marketplaces to trade goods and services. There’s only one problem. Such arrangements could also breed price fixing and collusion. The rapid proliferation of business-to-business, or B2B, Internet exchanges across virtually every major industry is presenting federal regulators at the Federal Trade Commission and Department of Justice with a delicate task. On one hand, regulators see the potential for antitrust mischief and an obligation to provide guidance so that new entrants don’t inadvertently run afoul of the law. At the same time, they recognize this is a new and rapidly changing way of doing business, one that holds the promise of great cost savings. To jump in too soon with inappropriate regulations could hinder more than help. FTC Commissioner Orson Swindle, a Republican, speaks strongly against the FTC stepping in with new rules at this point. “We must get this right; otherwise, we could do terrible harm,” he said recently. “I would suggest that right now, despite all the rhetoric, we are not knowledgeable enough to begin regulating. We must look before we leap.” Swindle’s comments were made to a standing-room-only crowd of 500 industry leaders and antitrust lawyers at an FTC workshop June 29-30. But Commissioner Sheila Anthony sounded more inclined toward intervention. “I can’t help but wonder if there might be a serpent in the garden of efficiencies. I’m referring, of course, to potential antitrust problems,” she said. “Monitoring B2Bs under the old rules presents new challenges to the FTC.” In recent weeks, both the FTC and Department of Justice have launched investigations into B2B Internet ventures. The FTC is looking into Covisint, the online exchange being formed by the General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Renault SA, and Nissan Motor Co. Meanwhile, the DOJ, at the behest of Sen. Paul Wellstone (D-Minn.), is checking out a B2B planned by six meatpacking firms. Justice has also been asked by travel agents to investigate an airline joint venture to sell tickets to travelers. Covington & Burling partner Mark Plotkin, who chairs the firm’s electronic commerce group, predicts that in the next six to nine months the FTC will release general B2B guidelines, tailored along the agency’s existing guidelines for competitive collaboration. To Plotkin, the move makes sense considering the “speed and lack of care” on the part of many companies when setting up B2Bs, as well as “the fact that so many people driving the train are new to the business.” In addition, says Plotkin, the FTC is well aware that the electronic medium itself tends to change the way people do business. “It can be a trap for unwary companies, especially companies that don’t closely police their executives,” he says. “Data flows very quickly, and people tend to be more careless about what kinds of activity they engage in on the Internet than in the physical world.” Analysts estimate that B2B transactions will soon make up more than half of all Internet commerce. By 2004, Forrester Research predicts, B2B sales will total $2.7 trillion. The Gartner Group puts the number at $7.29 trillion. Much of the promise of B2Bs lies in network effects, or the creation of economies of scale that occur with the proliferation of buyers. B2B marketplaces also offer easy access to information about price, quality, and availability of products, in some cases allowing participants – buyers and sellers alike – to see the volumes bought and prices paid by others. Most sites raise no antitrust concerns. For example, attendees at last month’s conference agreed that a B2B run by a neutral third party that allows buyers to pool their orders for office supplies poses little risk. The most heightened scrutiny, experts say, will be reserved for sites owned and operated by competitors who collectively account for more than 50 percent of an industry’s market share. In these circumstances, says Jonathan Baker, a professor of law at American University, anti-competitive activities might include exchanging information so firms can raise the prices of the goods they sell or creating a monopoly, where a single buyer or collection of firms acting as a single buyer could force a seller to accept a lower price than would be commanded in a competitive marketplace. There is also the question of punishing suppliers who don’t want to participate, or excluding those who do not have the means to participate in the online marketplace. Another possible problem is that firms that run the B2Bs could find a way to keep out certain rivals or new entrants. In addition, if the exchange is owned by the dominant players in an industry, it might be nearly impossible for competitor B2B sites to emerge. Any or all of these issues might be ripe for regulatory guidelines. “B2Bs seem to me to be about information exchange. That’s the source of the transaction savings, but can be the source of competitive problems as well,” says Baker, who participated in the June 30 panel on competition policy implications. “Information that is shared among rivals more rapidly than with sellers and buyers should be a red flag.” Baker should know. A former lawyer with both the DOJ and the FTC, he worked on a price signaling case that stands as an early example of how competitors could use a B2B-type arrangement to tamper with prices. Settled six years ago, the case, United States v. Airline Tariff Publishing Co., involved a joint venture by eight major airlines to electronically collect fare information. The DOJ alleged that the airlines used information unavailable to consumers as a way to float trial balloons on possible fare hikes and gauge their rivals’ responses. OLD WINE, NEW BOTTLES Many of the panelists at the workshop, especially those who represent industries entering the B2B marketplace, downplayed the notion that B2Bs are different enough to require new guidelines or regulations. Arnold & Porter partner William Baer, former director of the FTC’s Bureau of Competition, says most B2B risks can be “relatively easily managed, if you have firewalls to protect against information sharing and other key terms, and if there is fairly open access.” Baer makes an analogy to a shopping mall, where Nordstrom, Saks, and Bloomingdale’s might co-locate and share expenses for things like security without harming competition. To Baer, the antitrust issues posed by B2Bs are not novel in the sense that over the past 20 years, there has been a trend toward increased collaboration among competitors, especially in research and development and manufacturing. “What is new,” he says, “is that the B2B craze has infected just about everybody and every market. There has been a dramatic increase in the pace of collaborative activity. The concern from the antitrust perspective is that the government will overlook stuff because they are overwhelmed by the volume of transactions.” To Thomas Krattenmaker, a D.C.-based partner at Boston’s Mintz Levin Cohn Ferris Glovsky & Popeo, the only unique thing about B2Bs is that they transcend geopolitical boundaries and allow people from all around the world to simultaneously participate in a virtual marketplace. This poses jurisdictional questions, he says, “but in all other respects, we are applying law that is well-developed.” But Joel Mitnick, a partner at New York’s Brown & Wood, says it may not be quite so simple. “We need to be sophisticated here, to find the nuances and tweaks in which the new factual context requires a little bit more thought how antitrust law should apply,” he says. In many ways, he adds, “this is a continuation of the dialogue in the Microsoft suit, whether old antitrust laws for smokestack industries fit high-tech.” Rather than issue new guidelines, Mitnick urges the FTC and DOJ to use the pending automaker and airline investigations to send a message about B2Bs. “They have two live investigations with actual companies. They are building a record,” he says. “They will be saying something very loud when they do something about the sites or decline to do anything.” FTC Chairman Robert Pitofsky assured conference attendees that the agency at this point is most interested in gathering information. “This workshop is not an effort to seek out law enforcement targets,” he said. “We expect this workshop will provide insights into ways of fostering developments of new marketplaces and achieving their efficiencies in a manner consistent with maintaining competition.” Regardless of how federal regulators move forward, they should tread cautiously, agreed all the panelists at the workshop. “There is little law in this area,” noted Timothy Muris, a professor at George Mason University School of Law. “When the government sneezes, a lot of counselors get pneumonia. Whatever first step the government takes will have a profound impact.”

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