The Refinement of U.S. Antitrust Law in a Global Environment
presentation by
Stuart M. Chemtob
Wilson, Sonsini, Goodrich & Rosati
at
International Conference on
Global Standard v. National Standards in Competition Law
Center for Competition Law
Seoul National University School of Law
March 30. 2015
It is a pleasure to be here today on the occasion of this international seminar in honor
of Professor Kwon Oh Seung. I am honored to be the only speaker from the United States on
this important occasion, and will therefore try to contribute to this seminar by providing an
American perspective. The theme of this conference – in recognition of the important
contributions of Professor Kwon – is whether we are better off with global antitrust
standards or national antitrust standards, and I will comment on that topic in my
presentation today.
The U.S. antitrust agencies – the Department of Justice and the Federal Trade
Commission – have been active advocates of the American approach to competition law
when interacting with other competition authorities. Some of the essential characteristics of
the American approach include (1) consumer welfare oriented, (2) protection of competition
rather than individual competitors, (3) general disregard for non-competition factors in
enforcement decisions, (4) focus on deterring hard-core cartel conduct through active
enforcement based on a per se illegal approach and tough penalties, (5) use of Rule of Reason
analysis for virtually all other conduct, with a focus on remedial measures rather than
deterrent penalties, (6) concern with harm to inter-brand competition rather than intrabrand competition, (7) importance of defining relevant markets; (8) a preference for
structural rather than behavioral remedies for anticompetitive mergers, (9) a relatively
cautious approach to intervention against unilateral conduct and (10) reliance on due
process rights of investigated parties to assist in reaching the correct decisions. The U.S.
antitrust agencies have not been shy in commending the merits of this approach both
bilaterally and in multilateral fora.
It might therefore be surprising to hear that the United States has not been an ardent
supporter of the adoption of global standards for competition laws. To the contrary, the U.S.
antitrust agencies have been particularly wary of proposals to include substantive antitrust
standards in multilateral instruments developed by WTO, UNCTAD or WIPO or even in U.S.
bilateral or plurilateral free trade agreements.
On the other hand, the United States has been a strong proponent of establishing
global standards for antitrust enforcement procedures. In particular, the United States has
sought to ensure that all competition agencies adopt rules on procedural fairness that will
allow subjects of investigations to have effective opportunities to make arguments and
submit evidence in their defense, convinced that reasoned arguments based on a full
evidentiary record will lead to well-founded enforcement decisions. The Korea-U.S. Free
Trade Agreement (KORUS Agreement) was the first U.S. free trade agreement with robust
provisions addressing procedural fairness in competition law enforcement, and that
agreement set a baseline for future U.S. free trade agreements. The U.S. proposals for the
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competition chapter of the Trans-Pacific Partnership (TPP) agreement seek to take those
procedural fairness obligations even further, with the hope that adoption of these provisions
in the TPP will form the basis for a global standard on transparency and due process in the
enforcement of competition laws.
The reticence of the U.S. enforcement agencies to support global substantive antitrust
standards stems from a variety of concerns. The United States believes that multilateral
institutions seeking to adopt rules on substantive antitrust standards would be required to
accept the lowest common denominator in order to reach agreement. The fear is that such a
result would lead to a watering-down of antitrust standards applied in the United States, a
result that it believes would be to the detriment of American consumers and the relatively
laissez-faire market approach of the U.S. economy. There is also concern that lowestcommon-denominator standards might act to ratify practices by some competition agencies
that are not firmly rooted in economic analysis and that might therefore harm global
competition and the global trading system. .
Therefore, I believe that the United States would best be described, at least currently,
as a supporter of national competition standards over global standards.
What is at the core of U.S. concerns about global substantive antitrust standards is a
kind of humility. Now “humility” is not a word that is often associated with the United States.
But the humility that I am referring to stems from the recognition that our current
understanding of the workings of the market and what may or not be procompetitive or
anticompetitive may not be completely correct. This recognition comes, ironically, from the
experience gained from the long history of antitrust law the United States.
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This year marks the 125th anniversary of the Sherman Antitrust Act, making the U.S.
antitrust statute one of the oldest in the world. That longevity has brought with it a
tremendous amount of experience and learning in applying antitrust laws to various types of
conduct. That experience has come from a system where there are two different federal
antitrust agencies, with largely overlapping jurisdictions but different enforcement
procedures. In addition, there has been a robust – some might say too robust – history of
private antitrust litigation, spurred by the availability of treble damages and class actions in
the United States. The heavy reliance on the federal courts as the final arbiters of
enforcement decisions and private complaints has resulted in a tremendous amount of
court-led antitrust common law. And the transparency afforded by the large body of court
decisions has allowed for a healthy debate among judges, lawyers, academics and
economists regarding the wisdom of particular decisions as well as overall approaches to
antitrust analysis.
Over the course of the past 125 years we have seen an evolution in antitrust thinking
by the courts and by the U.S. enforcement agencies. We have learned that our understanding
of markets and of the role that competition laws should play in maintaining competitive
markets is not perfect. We have also seen that markets and business practices don’t stay the
same, that new markets emerge, and that the nature of competition can change. For example,
forty years ago few if any people would have understood the notions of two-sided markets
or platform competition that are at the core of market competition in the Internet Age.
Therefore, we have come to understand over these 125 years that, at least for the United
States, the application of our antitrust laws must be allowed to change and evolve, and that
we must continuously question and refine our approaches in light of new experience and
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new insights. The adoption of rigid international competition standards is not seen as
compatible with the American experience.
Take price-fixing for example. Pricing-fixing is one of the few categories of conduct
that is subject to a rigid, per se unlawful, rule in the United States. Some may be surprised to
learn that for the first 80 plus years of the Sherman Act, price-fixing and other hard core
antitrust violations were viewed as minor crimes – misdemeanors – subject to minimal
penalties for both corporations and individuals. It was not until 1974, after the need for
greater deterrence of cartel conduct was recognized, that antitrust crimes were elevated to
the level of a serious offense – a felony. Corporate fines were increased significantly to $1
million (and later to the current maximum of $100 million) and maximum criminal
sentences for individuals were increased to 3 years, and subsequently to 10 years. Since
then, tough enforcement and severe penalties against hard-core cartel conduct has been one
of the hallmarks of U.S. antitrust enforcement.
But evolution does not always go in a straight line, or always lead to a better solution
than what came before. There have been many examples of American antitrust law
approaches that have proved to be evolutionary false starts, to be superseded by other, more
appropriate approaches. One good example is the development of thinking in the United
States regarding non-price vertical restrictions. In 1963, the U.S. Supreme Court in the White
Motor case reversed a lower court’s decision to treat a truck manufacturer’s territorial and
customer restrictions on its dealers as per se unlawful. The Supreme Court concluded that it
knew too little about the actual impact of these practices to determine whether they should
be categorized as per se violations, and therefore instructed the lower court to apply a rule of
reason analysis to the case. But only four years later, in a case involving vertical restrictions
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imposed by a bicycle manufacturer, Schwinn, on sales by its distributors outside of their
assigned territories or to unfranchised retailers, the Supreme Court ruled that such
restrictions were per se unlawful. That decision caused confusion and inconsistent
approaches by various lower courts. A decade later, in 1977, the Supreme Court issued its
landmark decision in GTE Sylvania, overruling the per se rule it had adopted in the Schwinn
decision. The Supreme Court recognized that restrictive arrangements between
manufacturers and their distributors can be procompetitive if they foster competition
between horizontal competitors, and therefore held that vertical non-price restrictions
should be analyzed under the Rule of Reason.
This new approach to vertical restrictions was fairly quickly extended into the realm
of intellectual property licensing, where relationships between licensors and licensees are
generally vertical in nature. And this new understanding led to a reevaluation of the proper
relationship between intellectual property rights and competition law, which had
traditionally been viewed as a hostile one. Now IP rights were understood to complement
the goals of the antitrust laws by encouraging technological competition that can breakdown oligopolistic market structures and lead to enhanced competition and new products to
the benefits of consumers and the economy as a whole.
And although it took another 30 years, the Supreme Court in its 2007 Leegin
decision ultimately used the same basic reasoning from its 1977 GTE Sylvania decision to
overturn 100 years of precedent treating vertical minimum resale price maintenance
agreements as per se unlawful.
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Imagine how the development of U.S. antitrust law might have been different had the
Schwinn per se unlawful approach to vertical non-price restrictions been adopted into
binding global rules.
My point is that over time, based on accumulated experience, the United States has
learned much about the workings of the market and how to use antitrust law in a more
effective manner to safeguard competition, and has had the flexibility to be able to refine its
approaches to accommodate that new learning.
The refinement of U.S. antitrust principles and enforcement approaches continues to
this day. I will highlight a few examples.
First, the extent of the complementarity between IP rights and competition policy
goals is now being re-evaluated by the courts and enforcement agencies. In its 2013
decision in Federal Trade Commission v. Activis, the Supreme Court held that so-called
reverse payments by branded pharmaceutical companies to would-be generic entrants in
return for the generic companies dropping their challenge to the validity of the relevant
patent and a delay in their entry could be anticompetitive. This could be so even though
entry would still be allowed to take place before the patent expired. The Supreme Court did
not accept the Federal Trade Commission’s arguments that these reverse payment practices
should be viewed as presumptively unlawful, but also refused to say that they were
presumptively lawful. The Supreme Court ruled instead that reverse payment agreements
should be analyzed under the rule of reason, and that an analysis of the strength of the
patents is not necessarily required.
And just last month, the Department of Justice issued a favorable Business Review
Letter regarding the IEEE’s proposed revisions to its patent policy for standard-essential
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patents that were geared to pushing royalty rates lower. The IEEE is a standards-setting
organization that developed the Wi-Fi standard. Although the IEEE policy change could be
viewed as an agreement among licensees with significant buying power to reduce the
royalties they would pay patent holders, the Department of Justice discounted concerns that
such an agreement among licensees could have anticompetitive effects on innovation
incentives that would reduce R&D and ultimately harm consumers.
A second recent example of fine-tuning relates to the extraterritorial reach of U.S.
antitrust laws. We are now seeing U.S. courts reconsidering whether U.S. antitrust law is
reaching too far into foreign conduct that is better handled by the competition laws of other
countries. The most notable recent development is a series of decisions in the private
litigation brought by Motorola Mobility against AU Optronics and other Taiwan LCD
producers to recover damages incurred as a result of price-fixing of LCDs purchased by
Motorola’s overseas subsidiaries. Motorola’s foreign subsidiaries incorporated the LCDs into
mobile phones and then shipped them to Motorola in the United States for resale. Motorola
brought action in the United States claiming it suffered antitrust damages from the pricefixing that occurred on sales to its foreign subsidiaries.
In a March 2014 opinion affirming the dismissal of this aspect of the complaint by the
lower court, the Seventh Circuit Court of Appeals, in an opinion written by Judge Posner – an
eminent jurist – held that these sales did not meet the “direct, substantial and reasonably
foreseeable effects” prerequisite set out by the Foreign Trade Antitrust Improvements Act
(FTAIA) for the application of U.S. antitrust law to foreign conduct. Judge Posner held that
sales to a foreign intermediary for assembly into a finished product that was then sold into
the United States did not have a “direct” effect on U.S domestic or import commerce. The
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implications of this holding were so significant that the U.S. Department of Justice, fearing
that this holding might undermine its ability to criminally prosecute foreign cartel
participants, asked the court to rehear the case and reconsider its decision.
The Seventh Circuit agreed to do so, and vacated its March 2014 decision. In January
2015, Judge Posner issued a new amended opinion upholding the lower court’s dismissal of
the damages complaint but on much narrower grounds that did not directly affect the DOJ’s
criminal enforcement program. The court pointed to another requirement of the FTAIA that
the direct, substantial and reasonably foreseeable effects of the challenged foreign conduct
on U.S. domestic or import commerce must “give rise to” a claim in the United States. The
Seventh Circuit held that when foreign subsidiaries of a U.S. parent company such as
Motorola are injured by anticompetitive conduct outside the United States, the U.S. parent, as
an indirect purchaser, cannot meet the “gives rise to” requirement and therefore cannot
recover damages under U.S. antitrust law. Instead, the foreign subsidiaries must seek relief
under the competition laws of the countries where they suffered harm. This narrower ruling,
which was not based on whether the conduct had sufficiently “direct” effects on U.S.
domestic commerce, eliminated any possible adverse effect on DOJ’s criminal enforcement
program. This ruling continued the trend by U.S. courts to limit the availability of treble
damages actions for conduct taking place outside of the United States and to give some
deference to international comity concerns. Motorola has filed an appeal with the U.S.
Supreme Court, and if the Supreme Court agrees to hear the case, it will be interesting to see
whether the Court decides to address the still open question of what constitutes a “direct”
effect on U.S. domestic or import commerce.
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A third example of where American antitrust principles are undergoing some
refinement is in the area of relevant market definition. I mentioned at the beginning of my
talk that one of the characteristics of the American antitrust approach is the importance of
defining relevant markets. However, while the rest of the world has been embracing the
importance of defining relevant markets, the U.S. antitrust agencies in their 2010 Horizontal
Merger Guidelines moved in the opposite direction by suggesting that they need not identify
a particular relevant market if they can otherwise show that the merger has anticompetitive
effects. Of course, without defining a relevant market it is impossible to apply the HHI tests
set out in the Merger Guidelines. Thus, even one of the fundamental aspects of the American
antitrust approach is not immune from refinement based on new developments in economic
thinking.
My presentation so far has focused on the process of evolution of U.S. antitrust laws
and the perspective of the U.S. antitrust agencies that binding international antitrust
standards may not allow for sufficient flexibility to accommodate necessary readjustment of
U.S. antitrust policy as our learning and experience increase. This view is based in large part
on my 33 years working in the Antitrust Division of the Department of Justice. Over that
time I was deeply involved in promoting dialogue with the KFTC and other competition
agencies and in encouraging soft convergence of competition law and enforcement policies.
My position in the government led me to see antitrust issues from a broad, somewhat
theoretical perspective.
However, two years ago I moved to a private law firm, where I am now representing
companies that are doing business in global markets. I am now seeing competition law
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enforcement from a completely different angle, and it has led to some modifications in the
views and understandings I held while in the government.
From my new perspective, I have a deeper understanding of the problems faced by
companies operating globally in a world of inconsistent national competition law standards.
And I now have a greater appreciation of the desires of the business community for
consistent standards applied globally that will allow them to adjust their business practices
and have a reasonable degree of certainty that those practices will not be subject to
challenge regardless of the countries in which they are operating.
Some might argue that companies operating globally should simply adjust their
business practices to the laws of the particular country in which they are doing business.
However, in today’s globalized economy, things are not so simple. Companies are competing
in a global market based on global business models. In international commercial disputes,
parties will look for any advantage to strengthen their negotiating position, including
international legal forum shopping to find the most advantageous jurisdiction in which to
battle their opponents and litigate their dispute. Differences in the competition regimes of
different countries are exploited as part of this global battle. As a result, the jurisdiction with
the most interventionist or nationalistic antitrust enforcement policy becomes the driver of
what is and is not permissible for worldwide commercial relationships. We need only look
at the legal battle between Samsung and Apple to illustrate this point.
Thus from the perspective of at least the victims of this antitrust forum shopping,
there is a longing for global antitrust standards that would provide the kinds of legal
certainty and consistency that companies need in order to operate efficiently and profitably
in the global marketplace.
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I am not suggesting that there is no room for differences between the competition
laws of different jurisdictions. There are unique national market situations and structures
that might best be addressed by customized competition law provisions that differ between
nations. Korea’s experience with its chaebols may be one example where specialized rules
have been developed to address problems that arise from a unique market structure.
China’s Antimonopoly Law chapter dealing with the problem of local government
administrative monopolies is another example. I can also appreciate arguments that support
differing national competition standards on distribution practices in local markets, even if
those standards act to entrench inefficient market structures and business practices.
However, for markets and conduct where competition extends beyond national
boundaries and is based on global business models and global platforms, I see some
legitimacy to calls from international business circles for greater consistency in the
application of national competition laws to such practices. Industries that compete on the
basis of technological innovation or in technology markets, or Internet-based global
competition, may be relevant but my no means exclusive examples of this.
Conclusions
So how do we make progress toward achieving some consistency in competition law
enforcement in matters that involve competition on a global, rather than national, level?
From the U.S. perspective, the U.S. antitrust agencies are well aware of the problems that
arise from inconsistent or different competition law standards applicable to the same
conduct across national boundaries. To address these problems, they have placed their faith
and efforts in promoting soft convergence through bilateral dialogue and the work being
done in such multinational institutions as OECD and the International Competition Network.
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Although the soft convergence process is unlikely to solve the thorniest of problems in a
timely manner, we have seen some positive outcomes in terms of international consensus on
merger review procedures, cooperation on cartel enforcement and even on approaches to
predatory pricing.
I would like to see more coordination and cooperation between competition agencies
on investigations involving unilateral conduct or IP-related conduct where competition is at
a global level. The goal should be to try to reach common understandings on the global
competitive effects of such practices, and the need for and consequences of intervention by
one or more competition authorities. And, at a minimum, there should be agreement to
avoid conflicting decisions or remedies. Of course, this kind of coordination and cooperation
will not work for dealing with private antitrust lawsuits. For that aspect of competition law
enforcement, greater consideration by courts of principles of comity might help, as would
expansion of judicial exchanges.
Thank you again for this opportunity to present my views today.
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