OECD 2007 Conference on
Topics in Competition Policy
Sanctions and Remedies in Abuse of
Dominance Cases
Theodore A. Gebhard, J.D., Ph.D.
U.S. Federal Trade Commission
Bureau of Competition
Washington, D.C. U.S.A.
The views expressed are those of the speaker and not
necessarily those of the Federal Trade Commission or
any other agency or person
Budapest, Hungary
April 2007
Sanctions and Remedies in Abuse of
Dominance Cases
• Goals of remedies and sanctions in abuse of
dominance matters:
o
Restoration of competition.
o
Deterrence.
o
Compensation.
o
Punishment.
2
Sanctions and Remedies in Abuse of
Dominance Cases
• Restoration of Competition/Deterrence.
o
Forward looking.
• Compensation/Punishment.
o
Backward looking.
3
Sanctions and Remedies in Abuse of
Dominance Cases
• Types of Abuse of Dominance Cases.
o
Unlawful acquisition of dominant position.
o
Unlawful maintenance of dominant position.
• Crafting an appropriate remedy or sanction requires
careful consideration of the theory of competitive
harm.
• Should never bring an abuse of dominance case if a
workable and practical remedy is not available.
4
Sanctions and Remedies in Abuse of
Dominance Cases
• Objective: Match the remedy or sanction with the
unlawful act in order to achieve the desired goal.
o
o
o
“Abuse” = an exclusionary act.
 Focus is on conduct.
Neither market power nor bigness, absent
exclusionary conduct, is bad.
What constitutes “competition on the merits”
remains controversial and may differ across
jurisdictions.
5
Sanctions and Remedies in Abuse of
Dominance Cases
• Terminology:
o
Remedies v. Sanctions.
o
Behavioral v. Structural.
o
Largely artificial/often much overlap.
6
Sanctions and Remedies in Abuse of Dominance
Cases
• Remedial Options:
o
o
Injunctions (“negative” injunctions, e.g., cease and
desist orders).
Civil fines (note: USFTC does not have authority
except in non-compliance situations; USDOJ does
have authority, but elects not to seek).
o
Damages.
o
Restitution.
7
Sanctions and Remedies in Abuse of
Dominance Cases
• Remedial Options (cont.)
o
o
o
o
Disgorgement.
Other equitable relief (“positive” injunctions, e.g.,
requiring the sharing of intellectual property with
competitors; setting royalty rates).
Divestiture (horizontal, vertical, partial, e.g., sale of
some intellectual property).
Criminal fines or imprisonment.
8
Sanctions and Remedies in Abuse of
Dominance Cases
• Factors to consider:
o
o
o
Severity of the exclusionary act (proportionality).
Intent of the dominant firm (e.g., general intent v.
specific intent; repeat offender?).
Certainty of the harm to economic welfare (Type 2
error).
9
Sanctions and Remedies in Abuse of
Dominance Cases
• Factors to consider (cont.)
o
o
o
Distribution of the harm from the exclusionary act
(difficulty in identifying harmed parties).
Degree to which the “abuse” has succeeded prior
to discovery and litigation (actual amount of harm).
Administrability (very important – will return to this
issue).
10
Sanctions and Remedies in Abuse of
Dominance Cases
• Factors to consider (cont.)
o
Effect of the remedy on future behavior.

Actual litigant.

Other firms (sui generis situation?).
11
Sanctions and Remedies in Abuse of
Dominance Cases
• Factors to consider (cont.)
o
Goal of the remedy.
 Restoration of competition:
– Stop the act but otherwise leave the
market as is?
» Injunctions (cease and desist
orders).
» Civil fines (paid to whom? e.g.,
competition authority or
treasury?).
12
Sanctions and Remedies in Abuse of
Dominance Cases
• Factors to consider (cont.)
o
Goal of the remedy.

Restoration of competition.
–
Restore pre-act state of the world?
»
»
Divestiture (costs and benefits –
e.g., lose scale economies,
inefficient unscrambling of eggs,
hardship on local communities).
Disgorgement (paid to whom?).
13
Sanctions and Remedies in Abuse of
Dominance Cases
• Factors to consider (cont.)
o
Goal of the remedy.

Deterrence:
–
–
Severe enough to deter? (ability to detect? –
expected value = cost X probability of
detection)
Risk of over-deterrence? (possibly chill procompetitive conduct?)
14
Sanctions and Remedies in Abuse of
Dominance cases
• Factors to consider (cont.)
o
Goal of the remedy.
 Compensation:
– Who? (direct purchasers v. indirect
purchasers; ability of intermediaries to
“pass on”)
– How?
» Damages (competitors’ lost
profits?).
» Restitution (consumers? indirect
purchasers?).
15
Sanctions and Remedies in Abuse of
Dominance Cases
• Factors to consider (cont.)
o
Goal of the remedy.

Punishment.
–
Civil fines.
–
Criminal fines or imprisonment.
»
Due process concerns.
»
Burden of proof.
16
Sanctions and Remedies in Abuse of
Dominance Cases
• Factors to consider (cont.)
o
Likelihood of Private litigation

Supplements government actions, may rely
on prior government cases.

Treble damages.
–
Over-deterrence? stimulant for
frivolous litigation?
17
Sanctions and Remedies in Abuse of
Dominance Cases
• Practical and Policy Issues for an Enforcement
Agency.
o Competition Authority should have the power to
settle cases short of litigation.
 Scarce enforcement resources: Absent
power to settle cases means that the agency
must bear litigation costs and risks.

Settlement: Necessarily a compromise.
Remedy may be less than what agency
originally contemplated.

Important to avoid reputation of being too
willing to settle.
18
Sanctions and Remedies in Abuse of
Dominance Cases
• Practical and Policy Issues for an Enforcement
Agency.
o
Administrability of Remedy or Sanction.

“Negative” injunctions:
–
May be relatively easy to design.
–
Focus on the “exclusionary” act.
–
Likely requires ongoing monitoring.
19
Sanctions and Remedies in Abuse of
Dominance Cases
• Practical and Policy Issues for an Enforcement
Agency.
o
Administrability of Remedy or Sanction (cont.)

“Positive” injunctions:
– Usually more difficult to design than
“negative” injunctions.
» Risk of unintended
consequences.
– Almost always requires ongoing
monitoring.
» Issue of what constitutes a
violation.
20
Sanctions and Remedies in Abuse of
Dominance Cases
• Practical and Policy Issues for an Enforcement
Agency.
o
Administrability of Remedy or Sanction (cont.)
 Monetary Fines:
– Fairly easy to administer
– May adequately deter future bad
behavior.
– Do not restore lost competition.
– Usually difficult to determine “optimal”
amount.
– Requires plan for who gets the money?
21
Sanctions and Remedies in Abuse of
Dominance Cases
• Practical and Policy Issues for an Enforcement
Agency.
o
Administrability of Remedy or Sanction (cont.)

Damages, Disgorgement, and Restitution:
–
–
–
–
May be difficult to calculate.
»
Amount due only to “abuse” v. competition on
the merits.
May be difficult to identify individual victims and
amount of harm each incurred.
»
Competitors; direct purchasers, indirect
purchasers.
Risk of multiple recovery.
If agency collects, must set up distribution program.
22
Sanctions and Remedies in Abuse of
Dominance Cases
• Practical and Policy Issues for an Enforcement
Agency.
o
Administrability of Remedy or Sanction (cont.)

Divestiture:
–
May be easy or difficult to design: Horizontal;
Vertical; Partial.
–
Minimizes agency ongoing monitoring.
–
May lose efficiencies or may be disruptive to local
communities.
–
–
Must find “right” buyers.
Market may self-correct by the time divestiture is
complete (e.g., innovation).
23
USFTC Case Examples:
o
U.S. Supreme Court:

USFTC has wide discretion in its choice of
remedy.

USFTC has a special competence in
formulating remedies to deal with problems
in the general sphere of competitive
practices.

USFTC has ‘wide latitude for judgment’ in
fashioning a remedial order.
–
But, the order must bear a reasonable
relationship to the unlawful practices
that the USFTC has found.
24
USFTC Case Examples:
EXAMPLE 1
In The Matter of Rambus, Inc.
25
USFTC Case Examples:
• Basic Facts:
o
Participation in a standard setting organization
(SSO)
o
Rambus and others met over several years to
select and adopt various technical standards for
DRAMs (dynamic random access memory).

DRAMs are widely used in personal
computers, servers, printers, and cameras.
26
USFTC Case Examples (cont):
• USFTC staff allegations:
o SSO had a policy not to adopt a technical
standard if it were subject to royalty payments
and an alternative standard existed that was not
subject to royalty payments.
o
o
Otherwise, the SSO would seek a “reasonable
and non-discriminatory” (RAND) royalty from the
patent holder.
SSO had a policy requiring members to disclose
any patents (or pending patents) that they have
which could implicate a prospective technical
standard under discussion.
27
USFTC Case Examples:
o
In ex ante world:
 SSO members considered a number of
incipient technologies as viable
alternatives.

SSO ultimately selected several technical
standards for which Rambus was pursuing
intellectual property rights.

Rambus did not disclose its patents or
patent applications.
28
USFTC Case Examples:
o
In ex post world:
 DRAM industry adopted standards that
implicated Rambus patents.


“Lock-in” effect occurred (significant sunk
costs invested into the adoption of the
standards).
Rambus disclosed its patents and
demanded royalties.
29
USFTC Case Examples (cont):
• USFTC found that:
o
o
Rambus’s failure to comply with the SSO’s
patent
disclosure policy was an “exclusionary act,”
and
The exclusionary act caused unlawful
monopolization of relevant technology markets.
30
USFTC Case Examples (cont):
• Remedy:
o
Commission ruled that Rambus must:
 Not make misrepresentations or omissions
to standard-setting organizations.
(“negative” injunction).

License its relevant DRAM technology at
maximum allowable royalty rates. (0.5%
for certain technologies; 0.25 for others)
(”positive injunction).
31
USFTC Case Examples (cont):

Refrain from collecting or attempting to
collect more than the maximum allowable
royalty rates.
(“negative” injunction).

Employ a Commission-approved
compliance officer to ensure that
Rambus’s patents and patent applications
are disclosed to industry standard-setting
bodies in which it participates.
(“positive” injunction).
32
USFTC Case Examples (cont):
o
The Commission’s Rambus opinion made clear
that:

“Having found liability, we want a remedy
strong enough to restore ongoing
competition and thereby to inspire
confidence in the standard-setting
process. At the same time, we do not want
to impose an unnecessarily restrictive
remedy that could undermine the
attainment of pro-competitive goals.”
33
USFTC Case Examples
EXAMPLE 2
FTC v. Mylan Lab, Inc. (1999)
34
USFTC Case Examples
• Basic Facts:
o
Second largest drug manufacturer in the U.S.
o
Leading producer and seller of two popular
anti-anxiety drugs.
o
Entered into exclusive supply contracts with
the only suppliers of an essential input.
35
USFTC Case Examples (cont):
• Allegations:
o
Exclusive supply contracts were an
“exclusionary” act.
o
Foreclosed competition in the relevant market.
o
Caused unlawful monopolization.
36
USFTC Case Examples (cont):
• Remedy:
•
USFTC went to federal court, sought, and
obtained:
o
o
o
Termination of unlawful exclusive agreements.
Injunction against future unlawful exclusive
agreements.
Disgorgement of ill-gotten monopoly profits.

Mylan agreed to pay $147 million to a special
fund.
37
USFTC Case Examples (cont):
• USFTC Policy Statement Regarding Disgorgement and
Restitution: Available at
http://www.ftc.gov/os/2003/07/disgorgementfrn.htm.
o
Three key factors/questions:

Clear violation?

Reasonable basis for calculation of remedy?

Value added by the USFTC’s monetary
remedy?
38
USFTC Consumer Protection Example
EXAMPLE 3
FTC v. Skybiz.com,
Inc. (2005)
39
USFTC Consumer Protection Example
• Redress Defined:
Payment of money to consumers to
compensate them for economic injury
arising out of unfair and deceptive acts or
practices in commerce.
40
USFTC Consumer Protection Example
• Basic Facts:
• Skybiz.com was an Internet-based operation that
promoted a work-at-home business opportunity
with claims of quick riches.
• The cost to join the SkyBiz program was $125,
ostensibly used to buy an “e-Commerce Web
Pak.” Participants were urged to invest in more
than one Unit to maximize their earning potential.
• Victims of the Skybiz scheme did not get-richquick. There were thousands of victims in more
than 200 countries.
41
USFTC Consumer Protection Example
• The FTC alleged that:
o
The company’s claims that consumers who
invested in SkyBiz would make substantial
income were false;
o
The company failed to disclose that most people
in pyramid schemes lose money is deceptive;
o
SkyBiz was actually an illegal pyramid scheme.
42
USFTC Consumer Protection Example
• Remedy
o
The FTC went to federal court seeking injunctive and other
relief including restitution.
o
The court granted preliminary relief, including an asset
freeze and appointment of a receiver.
o
Ultimately, the Skybiz defendants entered into an agreement
with the FTC agreeing to pay $20 million in settlement.
o
Each consumer will receive a distribution equal to the
amount of their SkyBiz purchase, minus any commissions
they received under the program. All eligible claimants will
receive their portion of the Redress Fund via a stored-value
MasterCard.
43
USDOJ Case Example
EXAMPLE 4
United States v. Dentsply
International (2005)
44
USDOJ Case Example
• Basic Facts:
o
Dominant seller of artificial teeth
 Approximately 80% of the relevant U.S.
market.
o
Company distributed teeth through dealers.
o
Strictly enforced a policy of not using dealers that
carried competitors’ teeth.
45
USDOJ Case Example
• USDOJ Allegations:
o
Restrictive distribution practices excluded
competitors and maintained dominant position.
o
No colorable efficiency justifications for the
practices.
• After trial and appeals, U.S. court found for the
government.
46
USDOJ Case Example
• Remedy
o
Dentsply was prohibited from entering into an
exclusive distribution agreement with any dealer.
o
Prohibited from retaliating against any dealer that
carried competitors’ teeth.
o
Dentsply must certify annually its compliance
with the order.
47