How are disruptive technologies impacting competition and what are regulators doing in response? In the latest episode of Winston & Strawn's limited podcast series, Women in Antitrust, Partner and Host Diana Leiden is joined by Partners Sofia Arguello and Susannah Torpey to discuss how companies-from tech giants to fashion labels-are using blockchain and Web3.0 technologies and its effect on competition within their respective industries.
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Audio Transcript
Diana Leiden: Welcome to Winston's Women in Antitrust, a limited podcast series, tapping into the minds of the wonderful women partners here at Winston & Strawn practicing antitrust law. I'm your host, Diana Leiden, a partner in Winston's Los Angeles office focusing on antitrust and intellectual property litigation. In today's episode, we'll dive into what's new in the tech sector with Susannah Torpey and Sofia Arguello. I'll start by introducing our guests.
Susannah is a partner in Winston's New York office and co-chair of our Technology Antitrust Group. She represents both plaintiffs and defendants in disputes relating to the convergence of antitrust, intellectual property, and technology issues. Susannah has been repeatedly recognized as a "SuperLawyer," "Top Woman Attorney," and as a "Star" in Antitrust and Litigation, and we're happy to have her here. Welcome, Susannah.
Susannah Torpey: Thanks, Diana, happy to chat.
Diana Leiden: And Sofia Arguello is also a partner in Winston's New York office. She focuses her practice on civil antitrust litigation, international cartel investigations, and white-collar defense. Sofia represents clients across industries, including in the luxury retail sector. She's been listed in Best Lawyers: Ones to Watch in America and recognized as a New York Metro Rising Star for antitrust litigation for many years running. Welcome, Sofia.
Sofia Arguello: Thanks, Diana. Thank you for having me.
Diana Leiden: We are glad to have you both here. This is a very exciting time in the tech space, with emerging blockchain-backed technologies like crypto, NFTs, and Web3.0 getting a lot of attention. Susannah, I'll start with you. How is blockchain changing competition, and what does this mean for incumbent tech companies?
Susannah Torpey: Blockchain is definitely changing competition. The decentralized nature of blockchain and the availability of digital payments unlinked to specific platforms will increasingly enable consumers to own-and even profit directly from-their own data. This shift is already disrupting markets and could eventually put pressure on the data consumption monetization models of large tech companies.
At the same time, access to competitors' users on the same public blockchains are also changing the way companies compete for customers, suppliers, and even investors, which is intensifying competition and shifting users and liquidity across competitors faster than ever before.
Diana Leiden: What are tech giants doing to keep their edge in the midst of this disruption?
Susannah Torpey: Companies that have profited by controlling the rules to their own web 2.0 platform ecosystems have been racing to create and control their own 3.0 metaverses and the payment rules associated with them. But others are investing in cross-platform technologies that would allow users to own and transport their own digital assets-like skins or gaming accessories-across ecosystems, which consumers may prefer as they grow accustomed to more flexibility and more seamless competition across platforms. Obviously, if you can pay for products outside of a particular platform, the platform creator will no longer be able to take a cut of that sale in the initial transaction. This could lead to more price competition across ecosystems and new monetization models.
But regardless of what the future may hold, some tech giants have been taking steps now for years to try to extend their market power into new digital markets by buying up companies making products-like headsets, for example-that can be used as access points to new ecosystems. They've also been buying up nascent competitors creating new products that could one day grow into worthy adversaries.
But it isn't as easy as it used to be to buy control of new markets, and some are hitting roadblocks as a result of a substantial shift in government enforcement.
Diana Leiden: And what are you seeing in terms of government enforcement in this space? And can you give us an example?
Susannah Torpey: Sure. Prior administrations, including even the Obama administration, have been heavily criticized by our current antitrust enforcers for taking a "wait and see" approach that advocated waiting (sometimes for years before taking any action) to see how new tech developed and if anticompetitive effects would ultimately show up in the form of market concentration and higher prices for consumers.
This administration is instead focused on stopping potential violations in their incipiency. A great example of this is the FTC's recent lawsuit to block Meta from buying Within, which has a very popular virtual reality fitness app called Supernatural. The acquisition wouldn't give Meta a dominant share of virtual reality apps or even VR fitness apps. Instead, the FTC is trying to block the acquisition based on the argument that it would decrease Meta's incentive to compete with Supernatural on the merits by removing a key nascent competitor from the market.
As the legislative history of the Clayton Act states, this is an effort to catch the weed in the seed.
Diana Leiden: There has been a lot of talk on the Hill about passing new legislation to curb the power of incumbent tech giants, but is there any real antitrust risk for smaller companies creating new products and applications based on emerging technologies? We're applying antitrust laws that have been on the books for more than a century now. Can they even address these emerging technologies?
Susannah Torpey: One of the main challenges for in-house counsel in this environment is that tech is outpacing the law. But just as in the Microsoft case where we had similar debates about whether the law should be amended, the novelty of the technology is no defense to antitrust claims.
Given that the literal meaning of the Sherman Act was basically dead on arrival-as it pretty much would have banned all contracts-our common law system is flexible enough to reach new tech, no matter how disruptive it might be.
I think the biggest challenge for in-house counsel working with new tech like blockchain, though, is a technological challenge rather than a legal one. Blockchain applications can be coded very differently and raise different antitrust risks depending on how they're set up. And because many of these applications, like DAOs or NFTs, have protocols that are automated and may even rely on approvals from anonymous third parties, they can be harder to change or even dismantle once they're set in motion. This means that even the smallest start-ups need to make sure they design their products from the start in a way that won't violate the antitrust laws.
These markets are moving fast, and even today's small companies could be a target by the government or private plaintiffs before they know it, which carries the risk, of course, of treble damages or injunctions shutting down their products and draining their investments. While the big companies like Meta have the funds to respond to these challenges, the failure to mitigate antitrust risks up front can wipe smaller companies out completely.
Diana Leiden: What should in-house counsel-or founders in companies without in house counsel-do to mitigate their antitrust risks?
Susannah Torpey: The main takeaway for in-house counsel and founders is that you need to get antitrust counsel working with tech developers early on to make sure you're mitigating antitrust risks from the start.
Typically, products like DAOs or NFTs using smart contracts will have a white paper to explain how the code is supposed to work. That should be the latest time to also do an antitrust audit of your product.
Diana Leiden: The shift to Web3.0 has not just changed the way tech companies do business but has also been changing the way retailers and fashion brands do business.
Sofia, I'd like to turn now to you. Can you tell us what changes you're seeing in the fashion industry?
Sofia Arguello: The fashion industry is certainly not staying behind. We're seeing fashion and luxury brands embracing digital technology: (1) with some high-end brands selling digital versions of branded fashion items at prices many times over their physical counterparts; (2) with some luxury brands teaming up with gaming companies to create their own video games, offering skins that allow consumers to dress up game characters in their clothing; (3) and other fashion companies are creating virtual events and branded experiences on various metaverse platforms.
Among other things, all of this is changing the shopping experience. There's a whole new concept of metaverse shopping, with fashion brands holding runway shows and parties in the metaverse. A number of traditional retail companies have also been investing in creating their own immersive shopping experiences where you can pick up, look at, or interact with real physical products you can then buy and have delivered. And others are creating new digital counterparts that you can buy instead of, or in addition to, physical products. This is all enabling fashion companies to not only connect with more people, as Susannah mentioned earlier, but to operate without some of the limitations placed upon them in the real world, for example, the need to limit distribution to maintain the image of exclusivity, as many high-end luxury brands tend to do.
Diana Leiden: That's really interesting, Sofia. What are some of the competition implications of the fashion industry's big investment in new tech, gaming, and the metaverse?
Sofia Arguello: Like we've seen in the real world when companies start to get involved in different lines of business-with Amazon probably being the most obvious example-it starts to blur the lines between who is a competitor or a business partner. The same is happening in the virtual world as we see more and more crossover, with fashion companies partnering with gaming companies, for example.
What we're likely to see soon is today's joint ventures turn into competitor disputes in the future as tech, gaming, and fashion go more and more head-to-head into competition. These types of spillover effects need to be taken seriously and prepared for today.
Diana Leiden: Are there any litigation trends brewing in the world of FashionTech? What types of disputes are on the horizon?
Sofia Arguello: While litigations arising out of fashion-related NFTs have, to date, been mostly trademark related, with some alleging violations of federal securities laws, we expect that other claims will follow.
We've often see litigation progressing in such a manner in the real world, starting with issues such as IP and evolving into other unfair competition practices, including antitrust claims-usually through counter-claims. And there's no reason to expect these battles which we've long see in the real-world not start spilling over into the virtual world
To answer your question about disputes on the horizon, we may see tying claims relating to the bundling of virtual and physical products start popping up soon.
Diana Leiden: Thank you both for this interesting discussion. Susannah, do you want to wrap up with a few key takeaways?
Susannah Torpey: Tech markets are moving faster than ever before, and investments can be wiped out completely by being pennywise-pound foolish in this area. Even a couple of hours of advice upfront about your design concept could wind up saving your business. For example, I've had a company realize in a few quick conversations that how they were setting up a DAO could have been challenged as criminal price-fixing if they didn't make changes to how they were setting up their business. So, folks should give us a call! We absolutely love helping companies with these issues.
Diana Leiden: Thank you to Susannah Torpey and Sofia Arguello for joining our third episode of Winston's Women in Antitrust Series and for giving folks in the tech and fashion sectors a lot to think about! Please be sure to subscribe to Winston's Competition Corner blog for antitrust updates delivered straight to your inbox. And stay tuned for our next episode, focused on the financial sector, coming soon. Thanks for listening!
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