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.

Listen to the full Women in Antitrust series
here.

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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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