WHAT IS HARM TO COMPETITION?
EXCLUSIONARY PRACTICES
AND ANTICOMPETITIVE EFFECT
Eleanor M. Fox*
I. INTRODUCTION
Antitrust, or competition law, is said to be comprised of two types of
offenses—exploitative and exclusionary. The paradigmatic exploitative
offense is a cartel, which raises prices to buyers and ultimately to consumers.
The paradigmatic exclusionary offense is a boycott to enforce a
cartel. The cartelmembersmust keep at bay outsiders who would destroy
their enterprise. This means that such a boycott is also exploitative—a
use of exclusion to achieve exploitation.
A question that bedevils antitrust is: Does antitrust address anything
more? Is there only one type of practice that is anticompetitive: that which
is exploitative? Does antitrust exist only to keep firms from artificially
reducing market output and raising price, as captured in the triangles
and rectangles of the familiar economists’ diagrams?1 Or is there an
* Eleanor M. Fox is Walter J. Derenberg Professor of Trade Regulation at New York
University School of Law. The author thanks Jonathan Baker, Margaret Bloom, John
Fingleton, Harry First, Jonathan Jacobson, Timothy Muris, and Robert Pitofsky for their
helpful comments, and Tara Koslov for excellent editorial suggestions. She thanks, also,
participants at workshops at Loyola Law School-Chicago and Max Planck Institute for
helpful comments, questions, and dialogue; in particular, Joseph Bauer, Paul Brietzke,
Peter Carstensen, Josef Drexl, Ulrich Ehricke, Andrew Gavil, David Gerber, Ulrich
Immenga, Robert Lande, James Langenfeld, Christopher Leslie, and Spencer Weber Waller.
Not all agree with the views I express. I am grateful, also, for the support of the
Filomen D’Agostino and Max E. Greenberg Research Fund of New York University School
of Law.
1 For simplicity, I use “price-raising” to include maintaining prices at a level higher
than they would otherwise be. “Output-limiting” likewise includes maintaining artificially
low output.
Even exploitation may not be a sufficient basis for a single-firm violation. U.S. antitrust
law does not proscribe single-firm exploitative pricing. It rejects an excessive pricing
violation in order not to interfere with the risk-reward system that encourages each firm
to strive to be the best, and also for administrative reasons. The question in this article is
whether an exploitation scenario is a necessary condition for a violation.
371
[Vol. 70 Antitrust Law Journal 372
exclusionary-practices violation, apart from aggregate consumer (or
total) wealth loss?2
At the heart of this dilemma is a question of meaning. What is an
“anticompetitive” practice? Different understandings of “anticompetitive”
in different jurisdictions may lead to different outcomes in the
analysis of mergers and dominant firm conduct that may be exclusionary
but do not necessarily change the shapes of the triangles and rectangles,
at least not in knowable ways.
This article describes alternative touchstones used by jurists and jurisdictions
to conceptualize a practice or transaction as anticompetitive.
One is the microeconomic model popularly used in the United States
today, which counsels no antitrust intervention unless the transaction is
likely to diminish aggregate consumer or total wealth (thus, the critical
importance of the welfare triangle to show output limitation). According
to this methodology, there is no “exclusionary” violation; the violation
is exploitation. The second methodology begins on a larger canvas. The
analyst looks at the market structure and dynamics, and asks whether the
practice interferes with and degrades the market mechanism. Freedom
of trade (and competition and innovation) without artificial market
obstruction is presumed to be in the public interest, especially the public’s
economic interest.3 Barriers must be justified. By this metric, significant unjustified exclusionary practices are anticompetitive and should
be prohibited.
A description of frameworks would not be complete without acknowledging
a third. Some nations expand the concept of harm to competition
to include harm to the competitive dynamic among small and middlesized
firms. This approach tends to protect small firms from efficient
competition, such as sustainable low-price competition, and therefore
is protectionist. Nonetheless, I mention the third framework for two
I do not distinguish between decreases in aggregate consumer welfare and decreases
in total (producer plus consumer) welfare. In a jurisdiction that takes a total welfare
approach, consumer loss may be offset by producer gain. In that case, consumer exploitation
is still a necessary condition for a violation, but it is not a sufficient condition. Both
tests look only to the outcome of a particular conduct or transaction and prescribe no
enforcement without negative aggregate wealth effects. The question this article poses is
whether and to what extent antitrust does more.
3 See generally E.M. Graham & J.D. Richardson, Issue Overview, at 3 et seq., in Global
Competition Policy (E.M. Graham & J.D. Richardson eds., 1997); see also Giuliano
Amato, Introduction and ch. 3, in Antitrust and the Bounds of Power: The Dilemma
of Liberal Democracy in the History of the Market (1997).
The larger canvas as starting point also provides a home for theorists who stress the
“freedom” value of free trade, such as the Ordoliberals of the German Freiburg school. See
David J. Gerber, Law and Competition in Twentieth Century Europe: Protecting
Prometheus ch. 7 (1998); Amato, supra, at 40–43.
2
2002] What Is Harm to Competition? 373
reasons. First, it describes a part of some nations’ definition of harm to
competition. Competition and “unfair” competition are not distinguished.
Second, the third possibility stands as a cautionary story to
jurisdictions that adopt the larger-canvas model: enforcement of the law
under a “protection of the market” paradigm can spill over into protection
of competitors, and jurisdictions that would abhor (or even just
disfavor) that result must at least give attentive regard to defendants’
stories that their conduct helps the market work better and therefore
should not be proscribed.
Part II of this article is about U.S. law: how the law came to adopt the
output paradigm, and how, nonetheless, in this author’s view, there
is some discomfort among American jurists and policy makers in not
reprehending significantly exclusionary and unjustified conduct by dominant
firms. I analyze the Microsoft case as an example. Part III of this
article treats European Community law, which begins analysis on the
larger canvas (and currently may be under some pressure to retrench).
The European Union is at a crossroads as to whether it will move to the
dominant U.S. paradigm or will, as an alternative, take more seriously
firms’ proof that their “competition-distorting” conduct helps the market
work more effectively. Part IV places on the map the framework that
protects small (often indigenous) firms from the windstorms of large
(often leveraged) efficient competitors. Part V restates on two charts the
choices for conceptions of “harm to competition.” The first chart is
descriptive. It recognizes all three conceptions of harm to competition—
output limitation, dynamic harm to the market process, and protecting
rivalry among small and middle-sized firms. The second chart is normative.
It takes the view of antitrust minimalists or political libertarians
(fear of antitrust intervention, not of private power) and acknowledges
only two possibilities: reprehending conduct that limits output, and protecting
competitors from competition. In a brief conclusion, the article
reflects on the significance of divergent conceptions of harm to competition
for antitrust in globalized markets.
Some might assert that the real debate regarding the first two perspectives
is a debate only about proof of output limitation, not whether
output limitation is the touchstone of competitive harm. When, however,
the standard required for proof of output limitation is so low that a
court may condemn conduct even though reduced output is a mere
remote possibility—as often occurs in exclusionary conduct cases—one
must suspect that the ground for prohibition is something other than
output limitation.
Debate over the concept of competitive harm can be disguised as a
debate over proof. A jurisdiction’s assignment of the burden of
[Vol. 70 Antitrust Law Journal 374
justification to the defendant often appears to reflect the court’s understanding
that the conduct proved by the plaintiff is anticompetitive,
rather than the court’s division of the functional task of proving output
limitation. If, upon the plaintiff’s satisfying its prima facie case, one can
infer a reasonable likelihood of output limitation, either in view of the
facts of the particular case or as a result of economic experience with
similar facts, then the problem is about proof. But if the plaintiff can
make a prima facie case by proving facts that do not support such an
inference, the problem is about concept.4
II. THE UNITED STATES
This section reviews the evolution of U.S. antitrust law. It includes
older—and overruled—U.S. case law because, inmy view, while in earlier
times policy makers and jurists failed to appreciate the possible negative
effect of aggressive enforcement of the law on consumer well-being, the
earlier U.S. antitrust law contained “truths” about antitrust that still
resonate around the world. The trouble with pre-1980s U.S. antitrust
was not necessarily that it cared about abuses of power unlinked to
reductions of aggregate wealth or output, but that it offered no limiting
principle that would restrain enforcement that harmed consumers. U.S.
antitrust of the 1980s and forward cured that problem, not with a tailored
limiting principle,5 but with a bold new model that, like the Washington
Consensus, is especially beneficent to the well-endowed and the mobile.6
See, as to the debate regarding proof of probable output restraint, Timothy J. Muris,
The FTC and the Law of Monopolization (Muris I ), 67 Antitrust L.J. 693 (2000); David A.
Balto & Ernest A. Nagata, Proof of Competitive Effects in Monopolization Cases: A Response to
Professor Muris, 68 Antitrust L.J. 309 (2000); Timothy J. Muris, Anticompetitive Effects in
Monopolization Cases: Reply (Muris II ), 68 Antitrust L.J. 325 (2000).
4
Post-Chicago economics addresses the question: When do the facts prove probable
output restraint? By relaxing theoretical assumptions about the robustness with which
markets work and giving greater attention to actual behavior and context, a number of
distinguished economists are offering evidence of probable or possible price rises in areas
in which robust-market assumptions reveal no concerns. See, e.g., Jonathan B. Baker,
Mavericks, Mergers, and Exclusion: Proving Coordinated Competitive Effects Under the Antitrust
Laws, 77 N.Y.U. L. Rev. 135 (2002); Jay Pil Choi & Sang-Seung Yi, Vertical Foreclosure with
the Choice of Input Specifications, 31 Rand J. Econ. 717 (2000); Thomas G. Krattenmaker
& Steven C. Salop, Anticompetitive Exclusion: Raising Rivals’ Costs to Achieve Power over Price,
96 Yale L.J. 209 (1986); Barry Nalebuff, Competition Against Bundles (Yale School
of Management Working Paper #7 (2000); Michael Whinston, Tying, Foreclosure, and Exclusion,
80 Am. Econ. Rev. 837 (1990).
5 For example, antitrust illegality for exclusionary conduct might be trumped by a defense
that the conduct was a means of responding to the market or of offering buyers a product
or service they would not otherwise obtain; thus, that enforcement condemning the
conduct would be inefficient. See also infra text following note 58.
6 The Washington Consensus is the understanding that deregulation, privatization, and
in general economic liberalization and reliance on free markets is the right prescription
2002] What Is Harm to Competition? 375
In the United States, I observe a de facto but unacknowledged builtin
steam valve—lip service to the output limitation standard but creativity
in its use, as developed below. In the context of exclusionary restraints,
the steam valve allows protection against unjustified but not necessarily
output-limiting exclusions, in the name of output limitation. In Europe
no hidden steamvalve has been necessary because the European competition
system turns at least as much on preserving competitive structure
and open market values as on prohibiting conduct because it has exploitative
outcomes.
A. A Brief History of Antitrust and Exclusionary
Practices Under U.S. Law
In the United States twenty-five years ago and for many years prior,
“anticompetitive” or “lessening competition” was a wide term that connoted
harm to themarket processes through, among other things, depriving
powerless market actors of a fair right to compete. Typical statements
appeared in the famous Standard Stations case,7 involving Standard Oil’s
one-year exclusive contracts with 16 percent of gas stations in the western
United States, against a background of similar contracts of its six leading
competitors who together accounted for 40 percent of gas stations in
the area: “Standard’s use of the contracts creates just such a potential
clog on competition as it was the purpose of § 3 [of the Clayton Act] to
remove wherever, were it to become actual, it would impede a substantial
amount of competitive activity.”8 The practice, said the Court, improperly
“excludes suppliers from access to the outlets controlled [by the dealers].”
9 The rule became known as the rule of “quantitative substantiality.”
If competitors were blocked from substantial competitive activity or foreclosed
from a substantial percentage of the market, the practice was
illegal.
Tying clauses were condemned even more readily than exclusive dealing
contracts. The railroads in the American West sold tracts of land on
the condition that the buyers ship their goods on the seller’s railroad.
The Supreme Court held the contracts illegal because: “So far as the
Railroad was concerned its purpose obviously was to fence out competitors,
to stifle competition. While this may have been exceedingly benefi-
for economies worldwide. See, as to the Washington Consensus and its effects, Joseph E.
Stiglitz, Globalization and its Discontents 20 (2002).
7 Standard Oil Co. of Cal. v. United States, 337 U.S. 293 (1949).
8 Id. at 314.
9 Id. at 298.
[Vol. 70 Antitrust Law Journal 376
cial to its business, it is the very type of thing the Sherman Act
condemns.”10
As for mergers under Section 7 of the Clayton Act, the Court condemned
Consolidated Foods’ acquisition of Gentry (producer of dehydrated
onions and garlic) because it gave Consolidated Foods, which
had enforced reciprocal dealing in the past, “the advantage of a mixed
threat and lure of reciprocal buying”; thus the merger gave it “the power
to foreclose competition from a substantial share of the markets.”11 The
Court said:
We hold at the outset that the “reciprocity” made possible by such an
acquisition is one of the congeries of anticompetitive practices at which
the antitrust laws are aimed. The practice results in “an irrelevant and
alien factor,” . . . intruding into the choice among competing products,
creating at least “a priority on the business at equal prices.” 1 2
In Fashion Originator’s Guild of America v. FTC, 13 the Court prohibited
a pervasive combination of makers and sellers of designs, designer fabrics,
and designer garments, which was intended to prevent the designs
from falling into the hands of “pirates” (style copiers). Defendants used
boycotts and threats to boycott, as well as other strong-arm tactics, against
any enterprise that “pirated” designs or sold copied designs. The FTC
did not find that the combination raised prices, limited production, or
degraded quality in the market; but FOGA got no benefit from this fact.
The Court said: “[A]ction falling into these three categories does not
exhaust the types of conduct banned by the Sherman and Clayton Acts.”14
The evil was that the combination exercised coercive control and power
to exclude. It was equivalent to a private government.
Why did the U.S. Supreme Court of the 1940s, ’50s and ’60s (from
1953 forward, the Warren Court) attempt to safeguard markets from
exclusionary practices, even without proof that the conduct harmed
consumers? As any close reader of the large body of Supreme Court
cases will know, it was not because the shift of market share to dominant
firms could cause prices to rise and that the law was precautionary in this
respect. It was because antitrust law was a mechanism to preserve the
competitive functioning of the market, to minimize privilege and power,
Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 8 (1958).
FTC v. Consolidated Foods Corp., 380 U.S. 592, 593 (1965) (quoting from the FTC’s
administrative opinion).
12 Id. at 594.
13 312 U.S. 457 (1941).
14 Id. at 466. Output would not have been limited if the discounters did not need to
sell copied designs.
10
11
2002] What Is Harm to Competition? 377
and to safeguard competition on the basis of merit. The law sought to
promote openness, opportunity, and freedom from coercion by firms
with power.15 At mid-century and in the two decades thereafter, it was
not generally believed, or was not a worry, that conscious regard for
openness and opportunity might handicap efficient businesses, hurt
American consumers, and hold back American firms in the (yet to be)
global economy. Rather, openness and protection against power were
equated with market efficiency.
But much of the Warren Court jurisprudence has long since been
overruled.16 Beginning particularly in 1980–81, there emerged a new
paradigm for American antitrust: a rule of non-intervention in the
absence of conduct that is likely to reduce consumer surplus. Loss of
competitive opportunity on themerits is no longer deemed “anticompetitive”
underU.S. law. Law against “mere” exclusionary harms is denigrated
as law that protects inefficient competitors and harms consumers17 (even
though this is not necessarily the case).18
How did the narrow U.S. perspective win the competition for the
“market”; i.e., the competition to be the U.S. antitrust paradigm? And
what are the implications of this view for a world in which most nations
still reserve a place at the center of antitrust for exclusionary and coercive
practices by firms with power?
B. One View of Chicago
By the end of the 1970s, the U.S. antitrust laws were robust—to many
observers, too robust. They prohibited many “normal” business transactions;
they had over-expanded, in favor of helping the underdog and
dispersing power. The same critique was leveled against other bodies of
U.S. law, such as civil rights law—there was too much law and it handicapped
American business. The 1980s ushered in an era of conservatism,
under the leadership of President Ronald Reagan. The Reagan Administration
set about to cut back the law that regulated business.
See Eleanor M. Fox, The Modernization of Antitrust—A New Equilibrium, 66 Cornell L.
Rev. 1140 (1981).
16 Fashion Originators’ Guild, 312 U.S. 457 (decided before the Warren era), has not been
overruled. Because the case concerns a combination of competitors not to compete, it
gets the benefit of the per se rule.
17 See Department of Justice (DOJ) Press Release, Statement by Assistant Attorney General
Charles A. James on the EU’s Decision Regarding the GE/Honeywell Acquisition ( July
3, 2001), available at http://www.usdoj.gov/atr/public/press releases/2001/8510.htm.
18 For example, a rule of law might, without inefficiency, ban monopolists’ restraints
that fence out competition on the merits and are not efficiency-justified.
15
[Vol. 70 Antitrust Law Journal 378
But how to cut back the antitrust laws without a repealer vote of
Congress (which would not succeed)? How far, and by what rhetoric
and what concept? There was a concept that nicely fit the mission—
a concept that would minimize antitrust as far as possible while still
acknowledging the existence of the antitrust statutes. The solution was
a rule of non-intervention unlessmarket conduct was provably inefficient,
and “inefficient” was to be given the following narrowest-possible meaning:
the conduct must confer market power that would be used to limit
output of the product or service, and the conduct must not be justifiable
as an attempt to serve the market. This was the approach associated with
the Chicago School. Cartels would, naturally, be the one clear target of
the law. Even this target was a concession to the existence of the antitrust
statutes. The most libertarian wing of the Chicago School would have
preferred no antitrust law at all, unless it prohibited only government
interference with the freedom of business. Adherents believed that cartels
would self-destruct faster than government intervention could catch
them. And the most conservative wing of Chicago School believed that
competitor collaboration was usually reasonably necessary to sustain a
healthy and productive economy.19
In the new era, cartels, and little else, would be prohibited. In particular,
it was explained that practices that had been regarded as exclusionary
and foreclosing were probably neither, at least not in any sense meaningful
to competition. First, efficient firms would find a way to maneuver
around exclusionary restraints. Second, even if a practice tended to
exclude rivals from access to inputs or outlets, the practice was probably
efficient and was seldom output-limiting. Thus, Assistant Attorney General
Baxter, in engineering the AT&T break-up (which efficiently freed
the AT&T long distance function from regulation), was unconcerned
by the continued freedom of Western Electric (the hardware subsidiary)
to be the exclusive supplier to AT&T and the new Baby Bells of their
hardware needs; themarket would work.20 Complaints about the foreclosing
effects of exclusive dealing were regarded as simply the cries of
competitors who wanted the government to protect them from
competition. 21
See, e.g., John S. McGee, In Defense of Industrial Concentration (1971). Indeed,
the word “cartel” was barely known to U.S. antitrust jurisprudence until 1981. Before 1981,
price fixing was called just that; and it was one important part but not the sole core of
antitrust law.
20 See United States v. AT&T, Competitive Impact Statement, 47 Fed. Reg. 7170, 7178–79
(Feb. 17, 1982).
21 There was more than a germ of truth to the criticisms. Antitrust of the 1960s had so
over-expanded in favor of the underdog that the law tended to protect inefficient competitors.
Antitrust plaintiffs sometimes won lawsuits waged against competition itself, and in
19
2002] What Is Harm to Competition? 379
The 1980s victory of the Chicago School was more a victory of economic
libertarianism and political conservatism than of maximization
of a microeconomic welfare function. “Consumer welfare” was the label
given for the raison d’eˆtre of the new regime. Consumer welfare calculated
as aggregate consumer surplus was a limiting principle on antitrust
enforcement;22 it stood for the admonition that the law must not be
invoked unless a challenged practice by a particular firm decreased
aggregate consumer welfare. (Given the presumption of business efficiency, it seldom did.)
In its own right, however, a consumer welfare paradigm is not necessarily
a rule of non-intervention. “Consumer welfare” and “output limitation”
became words that anchored the conversation of antitrust; they
became necessary to the antitrust discourse. Eventually they took on an
elasticity. Thus, Judge Diane Wood was able to proclaim in Toys “R” Us
that when the popular toy retailer pressured the big toy makers to shift
the supply of the most coveted toys from no-frills warehouse clubs to
the popular retailer alone, Toys “R” Us had effected an output limitation
to the warehouse clubs,23 even while Justice Antonin Scalia could proclaim
that a producer’s cutoff of a well-performing discount distributor
did no antitrust harm at all because “just cutting off a discounter” does
not provide a price signal around which producers can cartelize, and
without a cartel there could not have been an output limitation. 24
By the end of the 20th century there was thus a considerable range
for maneuver by enforcers and jurists in claiming that exclusionary concountless
private cases, defendants settled for significant sums of money because it was
the better part of wisdom in view of the risks. The critics of antitrust—those who would have
voted against any antitrust law—capitalized on this phenomenon to push the pendulum well
beyond a proportional response to the law’s overbreadth.
22 See Eleanor M. Fox & Lawrence A. Sullivan, Antitrust—Retrospective and Prospective: Where
Are We Coming From? Where Are We Going?, 62 N.Y.U. L. Rev. 936 (1987); Eleanor M. Fox,
Chairman Miller, The Federal Trade Commission, Economics and Rashomon, 50 L. & Contemp.
Probs., Autumn 1987, at 33; see also Robert Bork, The Antitrust Paradox: A Policy
at War with Itself ch. 6 (1978) (consumer welfare stands for the sum of consumer
and producer surplus; antitrust must limit itself to conduct that limits output, thus decreasing
the sum). “Consumer welfare” was a sweeter pill than a transparent attack on antitrust.
23 Toys “R” Us, Inc. v. FTC, 221 F.3d 928, 936 (7th Cir. 2000) (vertical aspect). Toys “R”
Us provided a full line of toys, helped to pioneer “hot” toys, and priced low, but its prices
were not as low as the no-display warehouse clubs. One might see the shift in business
pattern as efficiently and permissibly keeping the Toys “R” Us price higher than the
warehouse price so that Toys “R” Us could continue its merchandising services. See also
United States v. Visa U.S.A. Inc., 163 F. Supp. 2d 322, 342 (S.D.N.Y. 2001) (MasterCard/
Visa’s policy of exclusivity with banks “limited the output” of American Express)
(appeal pending).
24 Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 726–27 (1988) (manufacturer’s
cut-off of discounter pursuant to agreement with higher priced retailer).
[Vol. 70 Antitrust Law Journal 380
duct did or did not meet the test of harming consumer welfare and
therefore did or did not deserve to be called “anticompetitive.” At one
end of the spectrum stood the U.S. Federal Trade Commission under
the leadership of Robert Pitofsky during the Clinton administration.
Serious market exclusions, especially coercive exclusions, concerned the
FTC. A paradigmatic case was the proceeding against Intel, the dominant
supplier of the microprocessing chip that is the nervous system of most
personal computers. When sued by certain of its customers for infringing
their intellectual property, Intel had cut them off from the flow of
technical information they needed to incorporate the Intel chip into
their hardware. The FTC prevailed upon Intel to cease and desist from
discriminatory cutoffs.25 Also typical was the FTC proceeding and order
against Toys “R” Us, noted above, which enjoined the retailer from
coercing toy makers to limit their patronage of the warehouse clubs, as
well as FTC decrees in telecommunications and media mergers and
alliances, which imposed obligations to give nondiscriminatory market
access to competitors.26
At the other end of the spectrum were the antitrust minimalists, who
would withhold antitrust intervention in the absence of credible proof
that conduct would increase market power, raise price, and limit output,
and those, somewhat less minimal, who would challenge, also, conduct
that reasonably threatened either to maintain or create artificially low
output.27 The following section explores the minimalist perspective in
greater detail, using the writings of one prominent antitrust scholar as
an example.
C. Wrong on the Law, Wrong on the Facts,
Wrong on Policy
Timothy Muris, while a professor at George Mason University School
of Law and before his appointment in 2001 as Chairman of the Federal
Trade Commission, wrote an article entitled, “The FTC and the Law of
See Intel Corp., FTC Docket No. 9288 (consent order to cease and desist, Aug. 3,
1999), summarized at Trade Reg. Rep. (CCH) [Transfer Binder 1997–2001] ¶ 24,575. But
compare Intergraph Corp. v. Intel Corp., 195 F.3d 1346 (Fed. Cir. 1999). See infra note 31.
26 Toys “R” Us, Inc., FTC Docket No. 9278 (cease and desist order), summarized at Trade
Reg. Rep. (CCH) [Transfer Binder 1997–2001] ¶ 24,516, aff’d, 221 F.3d 928 (7th Cir.
2000); America Online, Inc. and Time Warner, Inc., FTC Docket No. C-3989, (consent
order to cease and desist, Apr. 17, 2001), summarized at Trade Reg. Rep. (CCH) [Transfer
Binder 1997–2001] ¶ 24,835; Time Warner, Inc., FTC Docket No. C-3709 (consent order
to cease and desist, Feb. 3, 1997), summarized at Trade Reg. Rep. (CCH) [Transfer Binder
1993–1997] ¶ 24,104; see also Byron E. Fox & Eleanor M. Fox, Mergers That Impair Market
Access, in Corporate Acquisitions and Mergers ch. 11 (2002).
27 See Part C infra; Muris II, supra note 4.
25
2002] What Is Harm to Competition? 381
Monopolization.”28 The article critiqued the Pitofsky FTC’s initiatives in
monopolization cases. Setting the stage, Muris stated that antitrust concern
about competitors’ cartels is sound and laudable, but that single
firms, even monopolists, only rarely harm competition. The FTC, he
said, “proposes to alter what many believe to be the basis for [singlefirm] liability. . . . The agency appears to believe that in monopolization
cases government proof of anticompetitive effect is unnecessary.”29
Muris helpfully stated precisely what he meant by “anticompetitive
effect” and “harm to competition,” phrases that he used interchangeably
with one another and with “harm to consumers.” Exclusionary behavior,
to qualify as anticompetitive, must be, he said:
“reasonably . . . capable of making a significant contribution to creating
or maintaining monopoly power.” . . . Monopoly power is a concept
that requires analysis of competitive effect. In both law and economics,
such power is defined as the ability to raise price and restrict output
in an industry. . . . [I]ndirect evidence . . . [such as market share and
entry conditions,] is merely a proxy for actual proof of anticompetitive
effects—namely, the ability to raise price and restrict output.3 0
Muris proceeded to argue that the Pitofsky FTC, by not putting itself
to the burden of proving that challenged conduct significantly contributed
to creating, maintaining, or enhancing monopoly power, was wrong
on the law and wrong on policy, and that in the Intel case it was also
wrong on the facts, for a dominant firm’s termination of a pre-existing
collaboration in a network industry is not output-limiting.31
I focus here particularly on the wrong-on-the-law argument, for in this
section of his article Muris essentially argues that the Supreme Court
has adopted his definition of “anticompetitive.” If he is correct, there
Muris I, supra note 4.
Id. at 694.
30 Id. at 696–97 (footnotes omitted) (quoting 3 Phillip E. Areeda & Herbert
Hovenkamp, Antitrust Law ¶ 650c, at 69 (rev. ed. 1996). See Bork, supra note 22, at
123 (“Antitrust must content itself with the identification of attempts to restrict output
and let all other decisions, right or wrong, be made by the millions of private decision
centers that make up the American economy.”).
31 Muris I, supra note 4, at 716 et seq. But see Balto & Nagata, supra note 4. Intel’s cutoff
of Intergraph from the know-how it needed to incorporate Intel’s chip was coercive
and discriminatory—factors on which the FTC relied. Moreover, the cut-off set back
Intergraph’s attempts to invent around the Intel chip and thus become a competitor of
Intel. However, the cut-off by Intel apparently was not intended to discipline Intergraph
as a potential challenger (in contra-distinction to Microsoft’s strategies to “cut the air off”
28
29
from Netscape in marketing its browser, see Part II.D infra), but was probably an act of
hostility to and intimidation of Intergraph because Intergraph had sued Intel for patent
infringement and because Intel wanted to coerce Intergraph to license its innovations to
Intel. See Intergraph Corp. v. Intel Corp., 195 F.3d 1346 (Fed. Cir. 1999).
[Vol. 70 Antitrust Law Journal 382
is no exclusionary offense as such; there is only an exploitative offense,
although exploitation can sometimes be enabled by market exclusions.
Muris correctly states that the modern U.S. antitrust cases seem to
read “unfairness” out of Section 2 of the Sherman Act, and they signal
that the Supreme Court would probably jettison “fairness” even in cases
brought under Section 5 of the Federal Trade Commission Act (the
statutory basis of the Intel proceedings), even though Section 5 expressly
prohibits “unfair methods of competition.” In the last decade the
Supreme Court has said that antitrust cases must be based on market
harm, not unfair exclusion, and not even malicious exclusion. 32 Moreover,
some modern cases support Muris’s view of market harm (i.e.,
the conduct must limit output or maintain artificially limited output).
Indeed, in its most recent antitrust decision, California Dental Association
v. FTC, 33 the Supreme Court refused to draw any inference of market
harm from the California dentists’ trade association’s rule against advertising
“reasonable prices,” “low fees,” “10% discount for seniors,” etc.,
because (in its view) the rule might not have been output-limiting.
Advertisements of the sort prohibited could be puffery. Puffery can
make patients skeptical of dentists and depress demand, the Court said.
Therefore (said the Court) the dental association rules could have been
output-increasing.
In fact, under law that mandates a serious application of the output
standard and places on the plaintiff the burden of proof, many of the
old staples of antitrust jurisprudence would shift to the bin of bad law.
The full impact of Muris’s perspective is revealed by his treatment of
the U.S. antitrust classic, Lorain Journal. 34 Lorain Journal, the only daily
newspaper in an Ohio town in 1950, considered itself threatened by the
opening of the only nearby radio station, WEOL. Lorain Journal refused
to accept ads from its advertising customers (the small businesses in
Lorain) if they placed any ads with WEOL. The local advertisers needed
to advertise in Lorain Journal, and few could be expected to stray. The
Supreme Court easily found a violation of the Sherman Act and enjoined
Lorain Journal’s conduct, even thoughWEOL had not been snuffed out.
Professor Muris states that Lorain Journal has “recently been questioned.”
The radio station apparently remained profitable and was never
in danger of bankruptcy.35 The market for the placement of local ads
was never artificially limited. The fact that Lorain Journal “can reasonably
See, e.g., Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209
(1993); NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998).
33 526 U.S. 756 (1999).
34 342 U.S. 143 (1951).
35 Muris I, supra note 4, at 715.
32
2002] What Is Harm to Competition? 383
be questioned undercuts the FTC’s attempt” to rely on case law to avoid
proof of consumer harm, Muris writes. “These criticisms [of Lorain
Journal and other cases on the basis that they condemned exclusionary
acts that did not turn out to limit output], at a minimum, reveal that
there is serious question whether allegedly exclusionary practices, such
as RRC [raising rivals’ costs], are in fact exclusionary [meaning, anticompetitively
so].”36
A review of the cases analyzed by Professor Muris reveals that there is
virtually no single-firm exclusionary practices case not involving governmentimposed protections that would pass his test for proof of output
limitation. That, of course, is what the reader was led to expect in the
first paragraphs of his article when Muris declared that anticompetitive
single-firm exclusionary conduct was indeed “rare.”37
A number of contemporary cases on exclusionary practices tend to
be noncommittal if not obfuscatory in their usage of “anticompetitive.”38
Yet others openly aver that the antitrust laws protect competition, not
efficiency, and that the absence of consumer harm is no obstacle to a
judgment for the plaintiff.39
Id.
Id. at 693.
38 See, e.g., Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451 (1992)
(refusal to dismiss independent service operators’ (ISOs’) claim that Kodak illegally tied
repair parts and aftermarket service to imaging machine sales because the ISOs had
introduced credible evidence that Kodak could and did exploit buyers of repair services
in the aftermarket; but see dictum id. at n.29); Aspen Skiing Co. v. Aspen Highlands Skiing
Corp., 472 U.S. 585 (1985) (monopolist’s unjustif ied exclusion of competitor by refusal
to deal held illegal); Conwood Co. v. United States Tobacco Co., 2002-1 Trade Cas. (CCH)
¶ 73,675 (6th Cir. 2002) (dominant snuff manufacturer illegally excluded competitor by
dirty tricks; although new products were introduced and output increased, plaintiff proved
that output would have increased more in the absence of defendant’s bad behavior).
39 See Fishman v. Estate of Wirtz, 807 F.2d 530 (7th Cir. 1986). The case concerned a
competition to purchase the Chicago Bulls, a professional basketball team. Illinois Basketball,
Inc. (IBI) (with Marvin Fishman) had won a bid for the Chicago Bulls, but the bid
was lost when a consortium of defendants, who controlled the only stadium in town,
refused to lease the arena to IBI because members of their group wanted to buy (and
eventually bought) the Bulls for themselves. Sued for Sherman Act violations, defendants
argued that the Bulls and the stadium were natural monopolies, and that consumers—
the fans—would face a monopolist owner of the team in any event, and were indifferent
as to who managed the Bulls. The conduct, said defendants, involved only substitution of
one monopolist for another; therefore, there could be no harm to competition.
A panel of the appellate court, by Judge Cudahy, held for plaintiffs: the antitrust laws
protect competition and the competition process, not results. It was no defense that
consumers were not hurt. Thus:
[Defendants] assert that “the antitrust laws do not apply where there is no
consumer interest to protect.” . . . The dissent makes the same argument about
consumer effect: “Antitrust law condemns results harmful to consumers. . . .”
We agree that the enhancement of consumer welfare is an important policy—
probably the paramount policy—informing the antitrust laws. . . . Some Supreme
36
37
[Vol. 70 Antitrust Law Journal 384
Microsoft fits the category of noncommittal if not obfuscatory analysis
of exclusionary acts. In the district court, Judge Thomas Penfield Jackson
was torn between the two conceptions of exclusionary restraints (i.e.,
with and without a price rise), and the Court of Appeals for the D.C.
Circuit, struggling successfully for consensus, used conflicting premises
for determining when an exclusionary restraint is anticompetitive. 40
I turn to the Microsoft case in some detail. While it is sui generis in many
respects, it is typical in its ambivalence regarding seriously exclusionary
practices that may not have output effects.
D. Microsoft, American Antitrust, and the New Economy
If proof of output limitation is a necessary condition to a successful
antitrust case, can there ever be a single-firm violation in the new economy?
In the new economy, the major competition takes the form of
innovation competition, and it is nearly impossible to prove the counterfactual
of what technologies, if any, would have succeeded had they not
been stunted by exclusionary practices. Moreover, in the new economy,
where often there are network effects, the competition may be for the
market, not in the market; one firm might replace another. This article
asserts that the findings of violations in Microsoft are consistent not with
output theory—unless in a most attenuated way—but with a theory of
defense of the market against significant, unjustified distortions. We do
not and could not know whether Microsoft’s exclusionary contracts and
threats made consumers worse off in terms of price or innovation. The
court preferred to leave the future course of the market not to Microsoft
but to the more impersonal forces of competition.
By now we know the story well. Microsoft was the dominant firm
in the market of Intel-compatible personal computer (PC) operating
systems. Microsoft Windows occupied 95 percent of the market. It
enjoyed (and enjoys) the benefits of network effects; it is the standard
operating system for PC software applications. Applications makers who
Court cases indicate that effect on ultimate consumers is, in an appropriate
context, a significant consideration in analyzing a business practice to see whether
there has been an antitrust violation. . . . The antitrust laws are concerned with
the competitive process, and their application does not depend in each particular
case upon the ultimate demonstrable consumer effect. A healthy and unimpaired
competitive process is presumed to be in the consumer interest.
Id. at 563. Judge Easterbrook wrote a long, vigorous dissent, disagreeing on law, economics,
and policy; arguing that ownership of complements by a single group—the defendants—
made the preclusion of competition [not his words] good for consumers; and calling all
unjustified exclusionary acts that do not result in specific harm to consumers just torts.
40 United States v. Microsoft Corp., 87 F. Supp. 2d 30 (D.D.C. 2000), rev’d in part, aff’d
in part, 253 F.3d 34 (D.C. Cir.), cert. denied, 122 S. Ct. 350 (2001).
2002] What Is Harm to Competition? 385
write forWindows realize the benefits of the built-in widespread audience
through the huge installed base. If they write for any other operating
system, they face a high risk of insufficient sales.
Microsoft, the operating system monopolist, perceived a threat from
middleware—platformsoftware, which, if successfully designed and commercialized,
could interoperate with multiple PC operating system platforms.
Applications makers might then write their applications to the
middleware, and the distinctive qualities of Microsoft Windows would
become entirely unimportant. This development would have “commoditized”
Windows. Microsoft was alarmed.
The threat to Microsoft came from two main sources—Netscape,
through its browser, Navigator, and Sun Microsystems, which had developed
the Java language with the intent to make it a cross-platform
language. Perhaps being paranoid, as it claims it was, Microsoft believed
that Netscape and Java were on the brink of developing and commercializing
the feared middleware innovation. (In fact they were probably far
from the brink.) Themiddleware innovation depended on, among other
things, Netscape’s Navigator’s achieving a critical mass of operating
system users, and Java’s cross-platform development. Microsoft set about
to remove the threat.
Microsoft developed its own browser, Internet Explorer (IE), and
bundled its browser with its operating system. Through various contracts
with PC original equipment manufacturers (OEMs), Internet service
providers, Internet software vendors, and others, and through threats
and deceptions, it closed off the most efficient channels for Netscape
to disseminate its browser and it sabotaged the development of crossplatform
Java.
In the district court, Judge Jackson declared that the browser/operating
system package was a tie-in illegal per se under Section 1 of the
Sherman Act.He dismissed the exclusionary contracts claims on grounds
that Section 1 requires total exclusion41 and Netscape was not totally
Microsoft, 87 F. Supp. 2d at 53–54 (validity of the holding that illegality requires total
exclusion is subject to doubt).
Perhaps more important to an appreciation of the narrow or schizophrenic law on
exclusionary practices, Judge Jackson, in a 1998 decision, dismissed the states’ claim that
Microsoft’s use of its monopoly power in operating systems to gain advantages not on the
merits in the browser market violated § 2. Judge Jackson held that there is no “mere
leveraging” violation. Applications (the browser) and the operating system are complements,
and buyers will pay only so much for the package; there is only one available
monopoly profit. Therefore, mere leveraging can only hurt competitors but cannot hurt
consumers. United States v. Microsoft Corp., 1998-2 Trade Cas. (CCH) ¶ 72,261 (D.D.C.
1998).
41
[Vol. 70 Antitrust Law Journal 386
excluded; it had other avenues to reach users. He held that Microsoft
attempted to monopolize the browser market. He held numerous acts
and agreements by Microsoft violative of Section 2 of the Sherman Act
as part of a monopoly maintenance violation; but even those acts and
agreements he deemed not sufficiently exclusionary to violate Section 1.
Famously, he ordered that Microsoft be broken in two.
The Court of Appeals for the D.C. Circuit sat en banc. Per curiam,
the court reversed and remanded the tie-in violation, 42 reversed the
finding that Microsoft had attempted to monopolize the browser market
on grounds that the plaintiffs had not proved a browser market and had
not proved barriers to entry into browser making, and it dismissed the
attempt claim; it reversed the break-up remedy; and it remanded the
tying claim and the question of appropriate remedy. The court upheld
most, but not all, of the monopoly maintenance claims, testing in each
instance whether the plaintiffs had proved a prima facie case that the
act was anticompetitive, whether Microsoft had offered a procompetitive
or efficiency justification, and, if so, whether the plaintiffs had satisfied
their burden to show a net anticompetitive effect.43
What did the court mean by “anticompetitive,” and did the court use
that word consistently? Of particular importance to this inquiry is the
court’s finding that the plaintiffs had proved no browser market. Therefore,
the anticompetitive quality of a restraint could not be based on a
price rise44 (or technology decline) in browsers.
Most of the violations found by the court of appeals involved acts of
one of two kinds: (1) those that foreclosed Netscape, the only significant
browser competitor, from efficient access to a critical mass of users (the
critical mass being necessary to shift applications makers away from
Microsoft’s operating system to the middleware); and (2) threats to
challengers to stop developing the technologies that might have caused
the feared paradigm shift to a middleware platform to which applications
could be written that would work on any operating system, thus commoditizing
Windows. The two most cost-effective methods of distributing
browser software were pre-installation by OEMs, such as Compaq, and
packaging the browser with Internet access software distributed by
Microsoft, 253 F.3d at 92–95. According to the court, the underlying facts involving
platform software and functionalities were too complex, and the packaging of applications
with operating system software too likely to respond to consumers’ needs, to merit a per
se rule. Id.
43 Id. at 58–78.
44 Again, “price rise” includes maintenance of an artificially high price.
42
2002] What Is Harm to Competition? 387
Internet access providers (IAPs), such as America Online (AOL). Microsoft
targeted and sabotaged both lines of distribution.
The appellate court concluded that each of several sets of conduct
was illegal. In each instance, the court asked whether the plaintiffs had
made a prima facie case of anticompetitive exclusionary conduct, and
if so whether Microsoft had proved out-weighing procompetitive effects.
The focus here is on the nature of the exclusionary conduct that was
found to be sufficient for the prima facie case. Was this exclusionary
conduct anticompetitive in a consumer-harm sense, or was it “merely”
a significant foreclosure and not justified as a form of vigorous
competition?
In general, it is clear from the court’s description of each set of
exclusionary acts, as distinct from certain of its generalizations such as
quoted below, that output limitation and the resulting consumer harm
(including harm from stifling competitors’ innovation) was not a necessary
condition for characterization of conduct as anticompetitive. In fact
the court did not find that Microsoft’s conduct had the actual or probable
effect of increasing or maintaining its operating system monopoly.
The court seemed at first to be adopting the definition of anticompetitive
effect offered by Professor Muris. It said:
Whether any particular act of a monopolist is exclusionary [meaning
anticompetitively so], rather than merely a form of vigorous competition,
can be difficult to discern: the means of illicit exclusion, like the
means of legitimate competition, are myriad. The challenge for an
antitrust court lies in stating a general rule for distinguishing between
exclusionary acts, which reduce social welfare, and competitive acts,
which increase it.4 5
The court proceeded to analyze and characterize each incident, to
determine whether plaintiffs had established their prima facie case and
if so whether Microsoft had rebutted it. At this point the court shifted
to a loose analysis wherein foreclosure became the touchstone for “anticompetitive.”
Foreclosure of unspecified dimensions fromone important
route of access to the browser market (although plaintiffs had failed to
prove a browser market) was accepted as “anticompetitive” and thus
sufficient for the governments’ prima facie case.46
Regarding Microsoft’s licenses to OEMs, such as Compaq, which prohibited
the OEMs from removing desktop icons and Start menu entries
Microsoft, 253 F.3d at 59.
Ironically, just such proof is not sufficient to make a prima facie case if the charge
is “mere” leveraging. See Judge Jackson’s decision dismissing the leveraging claim, discussed
45
46
[Vol. 70 Antitrust Law Journal 388
from Windows, the court said that the provision “prevents many OEMs
from pre-installing a rival browser and, therefore, protects Microsoft’s
monopoly from the competition that middleware might otherwise present.
Therefore, we conclude that the license restriction at issue is
anticompetitive.”47
As to the provision that prohibitedOEMs from modifying the sequence
of screens that appear when the computer is turned on (boot sequence),
the court said that this provision prevented OEMs from altering the boot
sequence to promote Internet access providers, many of which used
Navigator. “Because this prohibition has a substantial effect in protecting
Microsoft’s market power, and does so through a means other than
competition on the merits, it is anticompetitive.”48
As to the restriction that OEMs could not cause any interface but
Windows to launch automatically, the court said: “this type of license
restriction, like the first two restrictions, is anticompetitive: Microsoft
reduced rival browsers’ usage share not by improving its own product
but, rather, by preventing OEMs from taking actions that could increase
rivals’ share of usage.”49 (Microsoft successfully justified this restriction,
however, by proving that it was necessary to prevent undermining the
essence of its copyright.)
As to Microsoft’s commingling the code of its own browser (IE) with
its operating system code and excluding IE from the Windows’ Add/
Remove function, the court had a similar assessment: “Because Microsoft’s
conduct, through something other than competition on themerits,
has the effect of significantly reducing usage of rivals’ products and
supra at note 41. A link between the exclusion and increase in market power is necessary;
but as discussed below, see infra text accompanying note 57, that link was never proved.
47 Microsoft, 253 F.3d at 61.
Because plaintiffs had failed to prove a browser market, Microsoft’s exclusion of
Netscape’s browser from the efficient channels of distribution was not relevant to any
claim of monopolizing a browser market. It was relevant only because Netscape needed
critical-mass use of its browser if it was to have any chance to develop middleware, which,
if successfully commercialized, could have eroded Microsoft’s monopoly power in the
operating system market. Therefore, the degree of Netscape’s foreclosure from browser
distribution channels has a different, and lesser, meaning than in a case in which browsers
are the market. Even 100% foreclosure of Netscape from channels of browser distribution,
let alone 100% foreclosure from channels that Microsoft had the power to clog, was not
a sufficient condition for Microsoft to gain or protect power in the operating system
market. The middleware innovation still would have been necessary.
As to the significance of foreclosure in analyzing competitive harm, see Jonathan M.
Jacobson, Exclusive Dealing, “Foreclosure,” and Consumer Harm, 70Antitrust L.J. 311 (2002).
48 Microsoft, 253 F.3d at 61–62.
49 Id.
2002] What Is Harm to Competition? 389
hence protecting its own operating system monopoly, it is
anticompetitive . . . .”50
As to Microsoft’s partially exclusive contracts with Internet access providers,
which include service providers and online services such as AOL,
the court found that the IAP contracts closed off a substantial percentage
(no number stated) of the available opportunities for browser distribution
and was therefore prima facie anticompetitive.51 A similar finding
was made regarding the Internet software vendors (ISVs), although no
foreclosed share (of the browser non-market) was specified and the ISV
channel was much less efficient than the IAP channel.
As to Microsoft’s agreements with major ISVs requiring them to promote
Microsoft’s version of the Java language exclusively, which undermined
the Netscape/Sun enterprise to diffuse Sun-standard Java along
with Netscape’s Navigator, the court said: “Because Microsoft’s agreements
foreclosed a substantial portion of the field for [Java] distribution
and because, in so doing, they protected Microsoft’s monopoly from
a middleware threat, they are anticompetitive.”52 Moreover, Microsoft
deceived Java developers, who believed that the language as used by
Microsoft would operate across platforms. This conduct “served to protect
its monopoly of the operating system in a manner not attributable
either to the superiority of the operating system or to the acumen of its
makers, and therefore was anticompetitive.”53
Finally, the threats to Intel, pressuring it to stop supporting crossplatform
Java, were also found anticompetitively exclusionary.54
On the other hand, low pricing (giving away IE “free” by bundling it
with the operating system) was simply “offering a customer an attractive
deal[;] . . . the hallmark of competition.”55 Also, developing a product
(a high-performance Java), even though it was developed to be incompatible
with rivals, was not a violation. 56 The appellate court effectively held
that the creation of an incompatible product is not anticompetitive,
regardless of exclusionary intent and effect, because it is creation.
Critically, the court acknowledged there was no finding that, but for
Microsoft’s conduct, “[Netscape’s] Navigator and Java would have
Id. at 65.
Id. at 67–71.
52 Id. at 76.
53 Id. at 77.
54 Id. at 77–78.
55 Id. at 68. The plaintiffs had not appealed this ruling to the court of appeals.
56 Id. at 75 (reversing district court).
50
51
[Vol. 70 Antitrust Law Journal 390
developed into serious enough cross-platform threats to erode the applications
barrier to entry [into the market for PC operating systems]” and
thus constrain Microsoft’s power.57 The court held that such a finding
was not necessary, at least in a government enforcement action. Navigator
and Java were nascent threats to Microsoft. The court said it was enough
that Microsoft’s exclusionary conduct, at the time it was undertaken,
reasonably appeared capable of making a significant contribution to maintaining
Microsoft’s monopoly power; but no finding was made that this
was so. Thus, the link between the exclusionary conduct and possible
output limitation was never forged.
How, then, can we generalize the D.C. Circuit’s usage of “anticompetitive”?
The conduct was all exclusionary, not exploitative (althoughMicrosoft,
paranoid as it said it was, may have thought that it was protecting its
monopoly). The critical ingredient in the court’s characterization of
each conduct set was the quality of the conduct: Did the conduct serve
the market or merely exclude? Was it “competition on the merits” or
exclusion for the sake of exclusion?
It was perhaps a misnomer for the court to say, at numerous points,
“this conduct had a substantial effect in protecting Microsoft’s market
power”—for, finally, we are told that the court did not know, and that
it is fine to be agnostic about this unproved proposition. Indeed, if
Microsoft had proffered compelling evidence (it thinks it did) that
Netscape and Java were not real middleware threats and, therefore, that
Microsoft’s conduct could have had no effect in maintaining its market
power in the operating system market, it appears that the court would
have dismissed the proffer as not relevant.
We might thus interpret the Microsoft holding as follows: Conduct that
intentionally, significantly, and without business justification excludes a
potential competitor from outlets (even though not in the relevant market),
where access to those outlets is a necessary though not sufficient
condition to waging a challenge to amonopolist and fear of the challenge
prompts the conduct, is “anticompetitive.”
At first blush, the court’s articulated principles may seem to adopt
Professor Muris’s test, with differences relating to the level of required
proof that the exclusion caused or probably would cause maintenance
of too-low a level of output of operating system software.58 However, a
Id. at 79.
But perhaps the dispute on causation is no quibble. See discussion of Intel, supra text
accompanying note 25, text following note 30, and note 31. If Intel had cut off Intergraph’s
supply of information because it feared that Intergraph would develop a competing
technology, but there was no proof that Intergraph was likely to have succeeded or that
57
58
2002] What Is Harm to Competition? 391
reading of the court’s treatment of each set of exclusionary practices
suggests that unreasonable and unjustified exclusionary conduct by a
dominant firm is anticompetitive59 and, if sufficiently exclusionary, it is
illegal unless justified by pro-competitive, pro-efficiency offsets; except
that low pricing and product design change are always presumed procompetitive
even if they have significant exclusionary effects.
I do not claim that the Microsoft test (or my interpretation of it) is the
test for exclusionary practices under U.S. law. Rather, I claim that it is
one test in fact applied by courts to conduct that significantly forecloses
competition on the merits and is not efficiency justified. When this test
is applied, it may be dressed up with a story of probable lower output
and higher prices.60
To say that courts are applying a truncated rule that allows us to infer
output limitation does not satisfy the inquiry, for if there is no good
reason to predict output limitation in the particular case or like cases,
the “inference” is a legal presumption, not a factual inference. The
conclusion of harm must therefore be based on another notion. For
example, it may be based on the assumption or perception that markets
are more likely to reward merit if they are not clogged by substantial
unjustified exclusions. Moreover, although we may not know the direction
in which “open” competition will take us, we may prefer to let the
chances of competition—rather than the strategies of the dominant
firm—take us there.
The competing test is Professor Muris’s test; and that is the one that
commands greater support in U.S. law today. Indeed, American adherence
to the output test, and the fear that any other test is rudderless
and will quickly spill over into protection of inefficient competitors at
the expense of consumers, formed the platform for the U.S. antitrust
enforcers’ challenge to the European Commission after its prohibition
of the General Electric Company’s acquisition of Honeywell. 61 European
jurisprudence does not reflect this fear.
no other firms posed a similar or greater threat, the case would have been quite similar
to Microsoft, but Professor Muris’s test presumably would not have supported an inference
of causation of consumer harm.
59 One might wish to add: as long as the target is a possible potential competitor of the
defendant, the defendant was worried about its threat, and the exclusion made the threat
more remote. This interpretation, however, puts more weight on intent and perception,
as distinguished from probable effect, than contemporary courts normally allow.
Moreover, if the innovation competition was for the market—that is, competition to
be the new monopolist—even successful competition would not change output levels.
This was Judge Easterbrook’s point in Fishman v. Estate of Wirtz, discussed supra note 39.
60 See supra cases cited in notes 26 and 38.
61 See infra note 83 and text thereafter.
[Vol. 70 Antitrust Law Journal 392
III. THE EUROPEAN UNION
A. Introduction
The European Union’s treatment of exclusionary practices is sympathetic
with the one theme of the 1960s–1970s’ American jurisprudence
that had a lasting resonance. That is: Competition laws protect the
competitive structure and dynamic of the market.62 They protect openness
of and access to markets, and the right of market actors not to be
fenced out by dominant firm strategies that are not based on competitive
merits.63 Protection of this competition process is believed likely to preserve
incentives to compete and to serve both consumers and efficient
market actors. Thus, Competition Commissioner Mario Monti writes:
[E]nshrined in the Treaty . . . [is] “an open market economy with free
competition.” Since its adoption more than 40 years ago, the Treaty
acknowledges the fundamental role of the market and of competition
in guaranteeing consumer welfare, encouraging the optimal allocation
of resources and granting to economic agents the appropriate incentives
to pursue productive efficiency, quality and innovation.
Personally I believe that this principle of an open market economy
does not imply an attitude of unconditional faith with respect to the
operation of market mechanisms. On the contrary, it requires a serious
commitment—as well as self-restraint—by public powers, aimed at preserving
those mechanisms.6 4
The Treaty establishing the European Communities (Treaty of Rome,
1957) contained, from the start, two antitrust articles: Article 85 (now
See Doris Hildebrand, The European School in EC Competition Law, 25 World Competition
L. & Econ. Rev. 3, 7 (2002).
63 See supra Part II.A. The EC law is sympathetic with cases such as United States v. United
Shoe Machinery Co., 110 F. Supp. 295 (D. Mass. 1953) (Wyzanski, J.), aff’d per curiam, 347
U.S. 521 (1954). It is not sympathetic with Brown Shoe, Vons, or Albrecht, which protected
competitors and other market actors at the expense of consumers. Brown Shoe Co. v.
United States, 370 U.S. 294 (1962); United States v. Von’s Grocery Co., 384 U.S. 270
62
(1966); Albrecht v. Herald Co., 390 U.S. 145 (1968), overruled by State Oil Co. v. Khan,
522 U.S. 3 (1997).
64 Mario Monti, European Competition Policy for the 21st Century, in International Antitrust
Law & Policy, 2000 Fordham Corp. L. Inst. ch. 15 at 257 (Barry Hawk ed., 2001).
Other competition commissioners have taken a more eclectic view of the basis for the
open market principle. Thus, Commissioner Monti’s predecessor, Karel Van Miert, wrote:
The aims of the European Commission’s competition policy are economic, political
and social. The policy is concerned not only with promoting efficient production
but also achieving the aims of the European treaties. . . . To this must be
added the need to safeguard a pluralistic democracy, which could not survive a
strong concentration of economic power.
Frontier-Free Europe, May 5, 1993 (quoted in Per Jebsen & Robert Stevens, Assumptions,
Goals, and Dominant Undertakings: The Regulation of Competition Under Article 86 of the Euro-
2002] What Is Harm to Competition? 393
81) and Article 86 (now 82). Article (ex) 86, which prohibits abuse of
dominance, was intended to regulate the behavior of dominant firms
so that they would not take undue advantage of other market players,
including buyers, sellers, and competitors. Indeed, the Treaty itself, in
Article 3(1)(g), requires “a system ensuring that competition in the
internal market is not distorted”—a mandate that is held to condemn
unjustified exclusionary practices because they are exclusionary and thus
distort the normal functioning of the market on competitive merits.
B. Abuse of Dominance
In the European Union, under Article 82, dominant firms have special
responsibilities. The origin of this duty lies in the fact that, at the time
the original six states (France, Germany, Italy, Belgium, the Netherlands,
and Luxembourg) formed the European Communities, statism pervaded
the states’ economies. State-owned enterprises controlled the mostly
national markets. The duty, however, never was limited to state-owned
enterprises, and is well embedded as a general principle into the law.
As the Court of Justice said in Michelin v. Commission, the dominant firm
“has a special responsibility not to allow its conduct to impair undistorted
competition on the common market.”65 Moreover, it is clear from the
wording of Article 82 that it was intended to regulate the conduct of
dominant firms, to prevent them from unfairly using their power, not
merely to prevent them from expanding or protecting their power.66
Exclusionary contracts and practices are a major form of abuse of
dominance under the Treaty of Rome. In Hoffmann-La Roche, 67 Roche,
the dominant vitamin maker, decided to increase its manufacturing
capacity. To hedge its risks, it procured an agreement with its competitor
Merck whereby Merck agreed to buy fromRoche its vitamins needs above
its own manufacturing capacity; in turn, Roche gave Merck a favorable
price. The Court of Justice held the underlying contracts illegal because
they “are designed to deprive the purchaser of or restrict his possible
choices of sources of supply and to deny other producers access to
the market.”68
pean Union, 64 Antitrust L.J. 443, 450 (1996)); see also Jebsen & Stevens, supra, at
443–51, 458–61.
65 Case 322/81, [1983] E.C.R. 3461, ¶ 57.
66 See Rene´ Joliet, Monopolisation and Abuse of a Dominant Position (1970);
Jebsen & Stevens, supra note 64; Amato, supra note 3, ch. 5.
67 Case 85/76, [1979] E.C.R. 461.
68 Id. ¶ 90.
[Vol. 70 Antitrust Law Journal 394
Recent cases continue the theme. In Tetra Pak, 69 Tetra Pak was the
dominant firm in the manufacture of aseptic cartons for packaging milk
and juice, and the machines that make them. Some contracts required
customers to buy non-aseptic machines and cartons also from Tetra Pak
(tying contracts), and some required exclusive dealing. The Court of
First Instance held that the contracts were illegal. The Court of Justice
affirmed. Tetra Pak’s dominant position in the related aseptic market
“gave Tetra Pak freedom of conduct compared with other economic
operators on the non-aseptic market, such as to impose on it a special
responsibility under art. 86 tomaintain genuine undistorted competition
on those markets.”70 As the Court of First Instance said:
The Court of Justice has in particular ruled that, where an undertaking
in a dominant position directly or indirectly ties its customers by an
exclusive supply obligation, that constitutes an abuse since it deprives
the customer of the ability to choose his sources of supply and denies
other producers access to the market.7 1
Me´tropole Te´le´vision (M6) v. Commission (Me´tropole) 72 illustrates precisely
how the Treaty takes a broadmarket-access approach to “harm to competition”
under Article 81(1), and requires a separate consideration of
justifications for exemption under Article 81(3). (The enterprise may
prove in justification that its conduct improves production, distribution
or technological progress and gives consumers a fair share of benefits.)
Recall that, if an agreement does not restrict or distort competition, it
is entitled to a negative clearance; but if it does restrict or distort competition,
to be valid, the agreement must be exempted. Exemptions are of
limited duration and they customarily impose conditions on the parties.
Case T-83/91, [1994] E.C.R. II-755 (Ct. First Instance), aff’d, C-333/94P, [1996] E.C.R.
I-5951 (Nov. 14, 1996). The Court of Justice substantially adopted the Court of First
Instance’s judgment and reasoning.
70 Id., Court of First Instance judgment, [1995] E.C.R. II-762, ¶ 122. See also British
Airways (Virgin), Case IV/D2/34.780, Commission decision of July 14, 1999, O.J. (L 30)
(Feb. 4, 2000) 1, prohibiting loyalty rebates because such schemes foreclose the market
and thus foreclose access by competitors of the dominant firm. Therefore, they are anticompetitive.
A U.S. court took the opposite position in Virgin Atlantic Airways Ltd. v. British
Airways PLC, 257 F.3d 256 (2d Cir. 2001), viewing the loyalty rebates as price competition
even if they delayed and deterred market entry, and declaring that plaintiff had not
alleged or presented facts sufficient to support a claim of predatory pricing.
71 Tetra Pak, supra note 70, ¶ 137. Tetra Pak, supra, and Michelin, supra note 65, are cited
as “settled case-law” in Tetra Laval BV v. Commission, Case T-502 (Ct. First Instance Oct.
25, 2002), available at http://curia.eu.int.jurisp., ¶ 157 (annulling Commission prohibition
for, inter alia, lack of proof that the merged firm would exercise its leverage, e.g., by tying,
bundling, forcing, or loyalty rebates).
72 Case T-112/99, [2001] E.C.R. II-2459.
69
2002] What Is Harm to Competition? 395
In Me´tropole, six major producers of television programming created
a partnership, Television par Satellite (TPS). The partnership agreement
gave TPS a ten-year exclusive right to broadcast the four general-interest
channels produced by the partners, and a right of priority on the specialinterest
channels that the partners produced. The EuropeanCommission
granted an exemption for various clauses, including the exclusivity clause
and the right of priority, cutting back their duration to three years. The
partnership sought to annul the decision granting the exemption on
grounds that any negative effects were outbalanced by positive effects;
therefore the joint venture did not harm competition and all of the
clauses were entitled to a negative clearance. TPS cited, among other
things, the fact that two new entrants—Canal Satellite and AB Sat—were
launched on the TV satellite market without need to broadcast the
channels promised exclusively to TPS.
The Court of First Instance rejected TPS’s argument. It said:
The applicants submit that, in reaching its conclusion in the contested
decision that the exclusivity clause and the clause relating to
the special-interest channels constitute restrictions of competition
within the meaning of Article 85(1) of the Treaty, the Commission
relied on incorrect assessments and misapplied that provision. * * *
6 4 It is in fact manifest that, as only TPS is authorised to transmit the
general-interest channels owing to the exclusive rights which it enjoys,
the competitors of TPS are denied access to the programmes which
are considered attractive by numerous French television viewers.
***
6 6 In the light of the foregoing, the applicants have not showed that
the Commission relied on erroneous assessments in concluding that
the exclusivity clause restricted competition within the meaning of
Article 85(1) of the Treaty.7 3
47
The principle by which the European Court condemns exclusionary
practices by dominant firms, unless justified, is often phrased as a dynamic
one: the right of market actors to enjoy access to the market on the
merits. It is a principle of freedom of non-dominant firms to trade
without artificial obstacles constructed by dominant firms, and carries
an assumption that preserving this freedom is important to the legitimacy
of the competition process and is likely to inure to the benefit of all
market players, competitors and consumers.
The difference of focal point in the EU and the United States has the
potential to produce different outcomes in the pending cases against
73
Id.
[Vol. 70 Antitrust Law Journal 396
Microsoft, especially regarding the issues of bundling and duty to disclose
technical information to facilitate interoperability. In the U.S. Microsoft
case, the bundling issue arose under the rubric of tying. Judge Jackson
held that Microsoft’s conduct in tying its browser to its operating system
was illegal per se. The appellate court reversed this holding, noting that
packaging applications with platform software might serve consumer
welfare, and it remanded the claim to the district court under a rule of
reason. 74 The U.S. Department of Justice withdrew the claim rather than
retry it,75 possibly because it did not wish to win. No claim was made,
nor could it have been under current interpretations of U.S. law, that,
simply because Microsoft was a monopolist controlling an industry standard,
it had a general duty under Section 2 of the Sherman Act to
disclose sufficient proprietary information to facilitate interoperability
of applications software with Microsoft’s operating system. Indeed, we
will recall, the appellate court held that even purposeful creation of
incompatibilities through product design (i.e. the Java language, which
Microsoft altered for Windows to defeat Sun Microsystems’ plans for a
cross-platform language) does not run afoul of Section 2 because it falls
into the prophylactically-protected category of innovation. 76
Meanwhile, the European Commission filed its own statement of objections
and opened proceedings against Microsoft. In the statement of
objections, the Commission charged that Microsoft had abused its duty
to facilitate interoperability by (as reported in the press) “withholding
technical information that rivals needed to allow their software to run
smoothly with Microsoft’s industry-standard Windows operating system”
and that it “had illegally bundled its media-playing software with Windows
to undermine competition in the fast-growing new market for online
music and video software.”77 On both points, unless the conduct is justified, EC law may support the finding of an abuse of dominance because
One must distinguish the conduct by which Microsoft purposely and unjustifiedly
commingled browser code with operating system code so that the browser could not be
removed without degrading the system. This was one of the several illegal acts. See supra
text accompanying note 42.
75 The plaintiff states followed suit.
76 Microsoft, 253 F.3d at 75. See United States v. Microsoft Corp., 147 F.3d 935, 949–50
(D.C. Cir. 1998); see also Independent Serv. Orgs. Antitrust Litig., 203 F.3d 1322 (Fed.
Cir. 2000), cert. denied, 121 S. Ct. 1077 (2001); compare Image Technical Servs., Inc. v.
Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997), cert. denied, 523 U.S. 1094 (1998).
77 See Steve Lohr with Paul Meller, Microsoft Move May Hasten Settlement of European
Cases, N.Y. Times, Nov. 28, 2001, at C1 (settlement was in fact not hastened); European
Commission Press Release IP/01/1232, Commission Initiates Additional Proceedings
Against Microsoft, Aug. 30, 2001, available at http://europa.eu.int/rapid/. . .=gt&doc=IP/
01/1232 0 AGED&lg=EN&display=.
74
2002] What Is Harm to Competition? 397
of the foreclosures and the violation of the principle of openness,78 while
U.S. law supports the freedom of Microsoft’s action. 79
C. Mergers
Mergers, too, may be price-raising, exclusionary, or both. The European
Merger Regulation apparently imports the spirit of Article 82 case
law intomerger jurisprudence in cases of threatened exclusionary effects.
When a merger “creates or strengthens a dominant position as a result
of which effective competition would be significantly impeded,” the
merger runs afoul of the Merger Regulation. 80 When a merger creates
a market structure that offers leveraging opportunities likely to inflate
the share of a dominant or near-dominant firm by empowering the firm
to preempt significant opportunities of competitors, the merger may be
seen as creating or strengthening a dominant position, i.e., creating a
situation that facilitates abuse of dominance. De Havilland, 81 Boeing/
McDonnell Douglas, 82 and GE/Honeywell83 are all examples of this principle.
Such a merger may sometimes, in addition, be seen as price-raising. GE’s
proposed acquisition of Honeywell was seen as both.
1. The Saga of GE/Honeywell
General Electric Company is the world’s largest producer of large and
small jet engines for commercial and military aircraft. It and a 50-50
joint venture with SNECMA supply more than half of all engines for
large commercial jets. The engine market is concentrated, with Pratt &
Whitney and Rolls-Royce being GE’s principal competitors. GE CommerSee supra text accompanying and following note 66; Eleanor M. Fox, Monopolization
and Dominance in the United States and the European Community—Efficiency, Opportunity, and
Fairness, 61 Notre Dame L. Rev. 981, 1014–15 (1986) (description of U.S./EC clash in
the IBM case).
78
See supra text accompanying note 76. Noting the possibility that the Commission might
take a different tack in the European Microsoft case, Charles James, U.S. Assistant Attorney
General for Antitrust, “issued a veiled warning to the European Commission” against use
of legal arguments that U.S. courts have rejected. Global Competition Review Briefing,
May 20, 2002, available at http://www.global-competition.com/headlnes/archive/2002/
apr may/hdln mnu.htm.
80 Council Regulation 4064/89, 1989 O.J. (L 395) 1, corrected version, O.J. (L 257) 14,
amended, Council Regulation 1310/97, 1997 O.J. (L 180) 1, corrected version, 1998 O.J.
(L 40) 17, effective March 1, 1998. The Merger Regulation is printed in G. Bermann, R.
Goebel, W. Davey & E. Fox, European Union Law, Selected Documents (2002), as
Competition Doc. No. 7, p. 531, and is available on the Web site for the Competition
Directorate at http://europa.eu.int/comm/competition/mergers/legislation/.
81 Commission decision of Oct. 2, 1991, [1992] 4 C.M.L.R. M2.
82 Commission decision of July 30, 1997, 1997 O.J. (L 336) 16.
83 Commission decision of July 3, 2001, Case COMP/M2220, not yet reported; appeal
pending, available at http://www.europa.eu.int/comm/competition/mergers/cases/deci
sions/m2220 en.pdf.
79
[Vol. 70 Antitrust Law Journal 398
cial Aviation Services (GECAS) is one of the world’s largest aircraftleasing
companies and one of the largest buyers of planes. It buys about
10 percent of aircraft, it and a sister corporation finance the purchase
of airplanes, and it is an important launch customer for airplanes. Once
an aircraft manufacturer chooses to incorporate a particular supplier’s
engine and other elements, it normally prefers to continue purchasing
the same brand because of efficiencies, such as acquired knowledge and
training, as well as replaceability across a fleet. GECAS had in the past
exercised its power to cause aircraft makers to incorporate GE engines.84
Honeywell International is a leading firm in the production of avionics
including navigating equipment, certain nonavionic products, engines
for corporate jets, and engine starters.
GE and Honeywell agreed to merge, in what would have been the
largest industrial merger in history. They filed their merger notifications
with the U.S. authorities, who cleared the deal after requiring a spinoff
of competitively overlapping engine assets.85 The parties also made
premerger filings with the European Commission, among other
jurisdictions.
The European Commission expressed several concerns. First, the
merged firm, having a large line of complementary products, would
probably engage in product bundling. It was likely to lower the price of
the bundle, while charging high prices for parts of the bundle offered
separately. The competitors would be unable to lower the prices of their
products to the same extent and would eventually abandon the market
or market segment, at which time themerged firm would be in a position
to raise its prices. Second, GECAS would use its buying and launching
platform leverage to cause aircraft makers to shift their business to
Honeywell as well as to GE products, causing a significant shift of business
to GE, a weakening of the deserted competitors, and their eventual exit
from the market or market segment.
On July 3, 2001, the European Commission blocked the merger. The
Commission declared:
The combination of the two companies’ activities would have resulted
in the creation of dominant positions in the markets for the supply of
avionics, non-avionics and corporate jet engines, as well as [in] the
strengthening of GE’s existing dominant positions in jet engines for
Id. ¶¶ 132 & 452.
DOJ Press Release, Justice Department Requires Divestitures in Merger Between General
Electric and Honeywell (May 2, 2001), available at http://www.usdoj.gov/atr/public/
press releases/2001/8140.htm.
84
85
2002] What Is Harm to Competition? 399
large commercial and large regional jets. The dominance would have
been created or strengthened as a result of horizontal overlaps in some
markets as well as through the extension of GE’s financial power and
vertical integration to Honeywell activities and of the combination of
their respective complementary products. Such integration would
enable the merged entity to leverage the respective market power of
the two companies into the products of one another. This would have
the effect of foreclosing competitors, thereby eliminating competition
in these markets, ultimately affecting adversely product quality, service
and consumers’ prices.8 6
A typical passage of the decision, quoted below, explains how the
transaction was expected to confer dominance on Honeywell as a seller
of supplier-furnished equipment (SFE) through functional integration.
Namely, GE was expected to make strategic use of its position as a launch
platform, financer, and significant purchaser of aircraft, in a context
in which airframe manufacturers were indifferent towards component
selection and had an efficiency incentive to gravitate towards the use of
single brand avionics and non-avionics for most of their fleet.
Following the proposed merger, Honeywell will immediately benefit
from GE Capital’s ability to secure the exclusive selection of its SFE
products on new platforms. By leveraging its financial power and
vertical integration on the launch of new platforms (for example,
through financing and/or through orders placed by GECAS), the
merged entity will be able to promote the selection of Honeywell’s
SFE products, thereby denying competitors the possibility to place
their products on such new platforms. That would delay the cash
inception of Honeywell’s competitors and deprive them of the necessary
return to fund future investments and innovation. Honeywell’s
products will, in particular, benefit from GECAS’s role as a significant
purchaser of aircraft. Post-merger, GECAS will extend its GE-only
policy to Honeywell products to the detriment of competitors such
as Collins, Thales and Hamilton Sundstrand and ultimately of customers.
Indeed, given the relative indifference of airlines towards
component selection, the benefits of a non-GE offer for airframe
manufacturers would become less significant than the benefits they
could achieve in the form of additional aircraft purchase[s] by
GECAS. . . .
3 4 6 Accordingly, GE’s strategic use of GECAS’s market access and GE
Capital’s financial strength to favour Honeywell’s products will position
Honeywell as the dominant supplier on the markets for SFE
avionics and non-avionics products where it already enjoys leading
positions.
3 4 7 The effect on rival avionics and non-avionics manufacturers will be
to deprive them of the future revenue streams generated by the
344
European Commission Press Release IP/01/939, The Commission Prohibits GE’s
Acquisition of Honeywell ( July 3, 2001), available at http://europa.eu.int/rapid/start/
cgi/guesten.ksh?p action.gettxt=gt&doc=IP/01/939\0\AGED&lg=EN&display=.
86
[Vol. 70 Antitrust Law Journal 400
sales of the original equipment and spare parts. Future revenues
are needed to fund development expenditures for future products,
foster innovation and allow for a potential leapfrogging effect. By
being progressively marginalised as a result of the integration of
Honeywell into GE, Honeywell’s competitors will be deprived of a
vital source of revenue and see their ability to invest for the future
and develop the next generation of aircraft systems eventually eliminated.
3 4 8 Indeed, given the fact that Honeywell’s avionics and non-avionics
competitors are unable to reproduce GE’s financial strength and
vertical integration to any appreciable degree . . . , their limited size
and financial strength would probably lead to a reduction of their
competitive strength in those markets where the extension of GE’s
business practices to Honeywell’s products would reduce seriously
their chances to win future competitions.8 7
As noted, the Commission also predicted foreclosure of competitors
though GE’s sale of product bundles at low and sometimes subsidized
prices, the competitors’ consequent withdrawal from market segments,
and GE’s eventual elevation of prices.88
U.S. Assistant Attorney General Charles James greeted the decision
with disapprobation. He said that Europe prohibited the merger because
it “would have been procompetitive and beneficial to consumers,” and
that the Commission “apparently concluded that a more diversified, and
thus more competitive GE, could somehow disadvantage other market
participants.”89 Other U.S. antitrust officials elaborated on an argument
that because GE’s engines and Honeywell’s avionics were complements
(aircraft makers need both), the merger would be price-lowering and
procompetitive,90 and that the Commission was protecting the competitors
of Honeywell and GE rather than protecting competition. 91
GE/Honeywell, Commission Decision, supra note 83.
Id. ¶¶ 350–411.
89 Mergers and Acquisitions: Antitrust Division Chief Reacts to EU Decision to Prohibit GE/
Honeywell Deal, 81 Antitrust & Trade Reg. Rep. (BNA) 15 ( July 6, 2001).
90 This argument depends on both GE and Honeywell being dominant firms in their
markets—a factual circumstance that the U.S. officials believed did not exist. See infra
note 91.
91 See, e.g., William J. Kolasky, Conglomerate Mergers and Range Effects: It’s a Long Way
from Chicago to Brussels, Address Before George Mason University Symposium (Nov.
9, 2001), available at http://www.usdoj.gov/atr/public/speeches/9536.htm.; Timothy J.
Muris, Merger Enforcement in a World of Multiple Arbiters, Address Before Brookings
Institution Roundtable on Trade and Investment Policy (Dec. 21, 2001), available at http://
www.ftc.gov/speeches/muris/brookings.pdf. For a different point of view, see Go¨tz Drauz,
Unbundling GE/Honeywell: The Assessment of Conglomerate Mergers Under EC Competition Law,
in International Antitrust Law & Policy, 2001 Fordham Corp. L. Inst. ch. 9 at 183
(Barry Hawk ed., 2002); Eleanor M. Fox, U.S. and European Merger Policy—Fault Lines
87
88
2002] What Is Harm to Competition? 401
Although the U.S. antitrust authorities championed the merger as
efficient, GE had never argued to the European Commission that the
merger was efficient; merely that, because it was only conglomerate, it
could not harm competition. The Commission saw the merger as driven
by GE’s expectations to use its leverage (as it had done with GE products)
to make Honeywell dominant. Based on different inferences from the
facts, the two agencies drew different conclusions. The U.S. Department
of Justice inferred that prices would go down and stay down. The European
Commission inferred both that use of leverage would shift share
to the merged firm and confer dominance, and that, after a period of
low pricing of bundles, prices would rise. What was anticompetitive to
the European Commission was procompetitive to the U.S. Department
of Justice.92
Thereafter, in Tetra Laval BV v. Commission,93 the Court of First Instance
annulled a Commission decision prohibiting a conglomerate merger.
The CFI accepted the proposition that a merger may enable a firm to
leverage its way into dominance.94 It identified uses of leverage that may
constitute an abuse of dominance: tying, bundling, forced sales, and
loyalty rebates. It observed, however, that effects of conglomerate mergers
are normally “neutral, or even beneficial” for competition; therefore
“the proof of anticompetitive conglomerate effects of such a merger calls
for a precise examination, supported by confincing evidence, of the
circumstances which allegedly produce those effects. . . .”95 The Commission
had not offered such proof. First, it had failed to consider that the
merged firm’s incentives to engage in any practice that constituted an
abuse of dominance were reduced or eliminated due to the illegality of
the practice, and that they would have been reduced or eliminated by the
commitments that the merger parties had offered to the Commission. 96
Second, since the merged firm could not be presumed to engage in
illegal practices, it was necessary to consider whether the firm would
have engaged in leveraging strategies that were not illegal, e.g., loyalty
rebates or low prices that were objectively justified; but the Commission
and Bridges: Mergers that Create Incentives for Exclusionary Practices, 10 Geo. Mason L. Rev.
(forthcoming 2002).
92 General Electric is seeking annulment of the decision in the Court of First Instance.
Questions of proof—as well as concept—are involved in the appeal. See infra text accompanying
notes 112–115.
93 Supra note 71.
94 Id. ¶¶ 146, 151.
95 Id. ¶¶ 155, 156.
96 Id. ¶¶ 159–161, 218.
[Vol. 70 Antitrust Law Journal 402
had offered no proof that this would be the case.97 Therefore the Commission
had failed to prove its leveraging case (and had failed as well to
prove its other allegations).
D. Modernization and Reform in the European Union
The above descriptions and analyses are based largely on judgments
of the European Court of Justice and decisions of the European Commission.
Some Court of Justice judgments on abuse of dominance are not
of recent origin. Just as U.S. law and practice has changed, the law and
practice of the European Community (EC) may change. Indeed several
changes are already in progress. This section examines certain traditional
baselines, and recent and expected changes.
Until the entry of the United Kingdom and Ireland into the European
Community in 1973, the law of the EC was derived from the civil law
system, not the common law, system. Not only were the original six
Member States civil law countries, but they included among them statist,
protectionist, and prescriptive traditions. Article 81 itself embeds a regulatory
mode of procedure by “catching” (making void in inception) all
agreements that “distort” competition in a broad sense, and providing
for exemption of such agreements that satisfy specified conditions—
essentially, agreements that enhance production or distribution while
allowing consumers a fair share of benefits. Accordingly, significantly
exclusionary, trade-restraining, and rivalry-limiting agreements (even
intrabrand) were void unless justified. Facing an unmanageable workload
of requests for individual exemptions, the Commission adopted a practice
of legislating prescriptive measures known as “block exemptions,”
which authorized particular kinds of agreements without the usual notification and individual exemption as long as the agreement contained
certain enumerated clauses (the white list) and did not contain other
enumerated clauses (the black list).
Within the last decade, two things have happened, partially in response
to criticism that the system was too rigid and out of tune with contemporary
economics, and partly in an effort to address a work overload.
Problems of lesser or local importance were diverting the Commission
from major, Community-wide competition problems, such as cartels.
First, at the level of the Competition Directorate and the Commission,
the Competition Directorate has spearheaded major reforms to simplify
and liberalize the block exemptions. The new-generation block exempId. ¶¶ 219, 308–309. The court did not question whether strategies that were objectively
justified could be anticompetitive.
97
2002] What Is Harm to Competition? 403
tions contain no mandated clauses and minimal prohibited clauses.
Moreover, they are more sensitive to the possibility that the prohibitory
regulations could impair efficiencies. For vertical agreements, a new
block exemption provides a safe harbor when not more than 30 percent
of the market is affected and no hard-core prohibitions are included;98
and no pre-exemption notification is required for individual exemptions.
99 In addition, a “modernisation” proposal, expected to be adopted
by the end of 2002, empowers Member States and their antitrust authorities
to grant individual exemptions from Article 81.100 By including the
Member States in the EC enforcement network, current economic thinking,
if not already adopted, is likely to make its way into the intellectual
discussion that influences enforcement.101
Second, at the level of the courts, there have been changes in jurisprudence
in selected areas. In Bronner v. Mediaprint, 102 the Court of Justice
circumscribed the essential facilities doctrine. The major newspaper in
Austria, with the only pervasive distribution system in the country, was
not required to give access to a small newspaper where the latter could
survive by its own devices, although at higher cost and lower circulation.
In NDC Health/IMS, 103 the Court of First Instance vacated an interim
order that gave a competitor access to IMS’s copyrighted zone design
for collecting sales data useful to the pharmaceutical companies; and,
pending decision on the merits, the CFI expressed skepticism regarding
plaintiff’s theory of defendant’s duty to license its intellectual property.
Perhaps most dramatically, in June and October 2002, the Court of First
Instance overturned three Commission decisions prohibiting mergers.
In two cases, the CFI found that the Commission had failed to accord
Commission Regulation No. 2790/1999 of 22 December 1999 on the Application of
Article 81(3) of the Treaty to Categories of Vertical Agreements and Concerted Practices,
98
1999 O.J. (L 336) 21, reprinted in Selected Documents, supra note 80, Competition Doc.
No. 4, p. 504. See Alexander Schaub, Vertical Restraints: Key Points and Issues Under the New
EC Block Exemption Regulation, in International Antitrust Law&Policy, 2000 Fordham
Corp. L. Inst. ch. 13 at 201 (Barry Hawk ed., 2001).
99 Council Regulation No. 1215/1999 of 10 June 1999 amending Regulation No. 19/
65/EEC and Council Regulation No. 1216/1999 of 10 June 1999 amending Regulation
No. 17, 1999 O.J. (L 148) 1, 5. See also Schaub, supra note 98. Amended Regulation 17 is
printed in Selected Documents, supra note 80, Competition Doc. No. 1, p. 474.
100 See Alexander Schaub, Continued Focus on Reform: Recent Developments in EC Competition
Policy, in International Antitrust Law & Policy ch. 2, 2001 Fordham Corp. L. Inst.
31 (Barry Hawk ed., 2002).
101 See id. for a description of the network.
102 Oscar Bronner GmbH & Co. KG v. Mediaprint Zeitungs und Zeitschriftenverlag
GmbH & Co., Case C-7/97, [1998] E.C.R. I-7791.
103 IMS Health Inc. v. Commission, Case T-184/01 R, [2001] E.C.R. II-2349, and, further
suspending proceedings for interim relief pending final judgment, order of CFI [2001]
E.C.R. II-3193.
[Vol. 70 Antitrust Law Journal 404
basic procedural rights to the parties. In all three, the CFI found that
the Commission had made serious and pervasive errors of economic
analysis and evidence; principally, the Commission had not proved what
it said it had proved.104
Finally, in the aftermath of GE/Honeywell, Competition Commissioner
Monti has stated that EC competition law is intended to protect consumers,
not competitors; he has refuted the charge that EC competition law
does otherwise.105 He has stated, also, that there is no efficiency
“offense”—meaning that transactions are not illegal because they are
efficient.106 As reported in the press, after ameeting with the Competition
Commissioner, the staff of the Competition Directorate reversed course
on an emerging recommendation to prohibit amerger between Carnival
cruise group and P&O Princess; the evidence of collective dominance
may not have withstood the scrutiny of the court.107
What do these developments suggest regarding the EC law on exclusionary
practices that are neither justified nor price-raising? One could
argue that the Community now accepts U.S. law and Chicago School
economic analysis; but this would be wrong.108 The European analysis
involves more microeconomics than it previously did. The Competition
Directorate analysts are likely to be more rigorous about their proof.
They are increasingly likely to credit efficiency aspects of conduct and
transactions. But EC law has not become economics, and the economics
incorporated into EC law is not solely Chicago School or even postChicago economics.109 New vertical guidelines for agreements involving
more than 30 percent of the market are still concerned about foreclosure
of market actors, as one of four independent negative effects of excluAirtours v. Commission, Case T-342/99 (Ct. First Instance June 6, 2002); Schneider
Electric SA v. Commission, Cases T-310/01 and T-7702 (Ct. First Instance Oct. 22, 2002);
Tetra Laval BV v. Commission, Case T-5/02 (Ct. First Instance Oct. 25, 2002). The cases are
available at http://curia.eu.int.jurisp. In Airtours and Schneider, the court found violations of
the parties’ rights of defense.
105 See also Commissioner Mario Monti, The Future for Competition Policy in the European
Union (Extracts), Address at Merchant Taylor’sHall, London ( July 9, 2001), available
at http://europa.eu.int/comm/competition/speeches/index 2001.html.
106 See Commissioner Mario Monti, Review of the EC Merger Regulation—Roadmap for
the Reform Project, Conference, British Chamber of Commerce, Brussels ( June 4, 2002),
available at http://europa.eu.int/comm/competition/speeches/index 2002.html.
104
See Francisco Guerrera & Tobias Buck, Brussels U-Turn on Carnival Merger May Signal
Policy Shift, Fin. Times, July 17, 2002, at 4.
108 See Statement of Commissioner Mario Monti, supra note 64; Hildebrand, supra note 62.
109 Post-Chicago economics, by relaxing classical assumptions, is more likely to find price
and output effects than is Chicago School economics. See supra note 4.
107
2002] What Is Harm to Competition? 405
sionary agreements (higher prices being an aspect of the others).110 As
one author recently commented, “If the supplier is dominant, exclusive
dealing is generally prohibited by Article 82 where it is capable of affecting
trade between EC Member States.”111 Article 82 still prohibits abuse
of dominance, not just its creation and maintenance. I find no reason
to believe that EC law will abandon its concern that dominant firms may
use their power to appropriate advantages for themselves at the expense
of competitors, nor to abandon its vision of harm to competition that
regards open markets, access on the merits, and safeguarding of the
market mechanism as mainstays of healthy competition.
The first point of the divergence of U.S. and EC law regards rigor of
proof of output limitation and price rise. Airtours augurs a period of
greater rigor in European analysis in proving what the Commission
purports to prove, including price rise. The second point is a question
of concept.
In abuse of dominance cases, so many of which have been vetted in
the Court of Justice, it is clear that “harm to competition” is a wider
concept than result-oriented output limitation. Use of dominant power
to procure significant advantages not on competitive merits, thereby
preempting competitors’ opportunities, is a harm to competition under
Article 82. The European Court would have had no difficulty condemningMicrosoft’s
purposeful exclusions of Netscape fromall efficient channels
of browser distribution, without concern as to whether there are
barriers to the browser market or whether browsers may be used in fixed
proportions to operating systems, yielding only one monopoly profit for
the package.
The future of European merger law is less clear, since only collective
dominance (a price-raising theory) has yet been vetted before the Court
of First Instance and the Court of Justice.112
Guidelines on Vertical Restraints, ¶ 107(1). The guidelines may be found at 2000
O.J. (C 291) 1, and on the Competition Directorate’s Web site, www.europa.eu.int/comm/
competition/antitrust/legislation/entente3 en.html#iii 1.
111 S.O. Spinks, Exclusive Dealing, Discrimination, and Discounts Under EC Competition Law,
67 Antitrust L.J. 641, 650 (2000). A more nuanced statement would be: Exclusive dealing
by a dominant firm is presumptively prohibited. The practice may be objectively justified;
i.e. as necessary or important for more efficient distribution, where consumers get a fair
share of the benefits.
112 See France v. Commission (Kali + Salz), Cases C-68/94, 30/95, [1998] E.C.R. I-1375.
This was the first European Court case to overturn a Commission decision that a merger
created collective dominance. The Court held that collective dominance is an admissible
theory in a proper case, but it annulled the decision for failure of proof.
110
[Vol. 70 Antitrust Law Journal 406
If the GE/Honeywell prohibition is defended only on the basis of a
predicted price-rise,113 then it, too, will give the courts little basis to
explore the ground of exclusionary but not necessarily exploitativemergers.
In a price-rise scenario, the exclusion would be inextricably linked
to exploitation. If, on the other hand, the ruling is defended independently
on the ground that GE would predictably use its leverage to
shift significant market share to Honeywell, conferring on Honeywell a
presumptively dominant market share, weakening incentives of competitors,
114 then the court will, for the first time, have the opportunity to
rule on whether significantly exclusionary mergers creating dominance,
unjustified by the merging parties,115 are anticompetitive under the
Merger Regulation.
IV. A DEVELOPMENT PERSPECTIVE
The United States, the European Union, and the many nations that
adopt their models, do not represent the entire world. What is “harm
to competition” in the rest of the world?
Some jurisdictions define “anticompetitive” yet more broadly than the
European Union and the United States. Some define “anticompetitive”
to embrace methods of competition that they perceive to be unfair. An
unfair competition component of competition policy may be anathema
to policy makers in mature market jurisdictions, especially Western jurisdictions,
because such a conception can protect competitors fromcompetition
itself and application of this point of view has (in the developed
world) no payoff except to the protected competitors.
In Indomaret, 116 the Indonesian competition commission enjoined a
large supermarket fromexpanding into venues of traditional small stores,
to protect against destruction of traditional local communities. The
Commission may have perceived that the social costs to the people as
citizens of the local communities were greater than the gains from low
prices and variety realized by the people in their role as consumers,
especially in this time of transition, social unrest, and recent memory
of riots.117
See, for support of the leveraging theory, Robert J. Reynolds & Janusz A. Ordover,
Archimedean Leveraging and the GE/Honeywell Transaction, 70 Antitrust L.J. 171 (2002).
114 Under EC law, a market share of 50% or more is deemed to create dominance,
unless respondents refute the inference. See AKZO Chemie BV v. Commission, Case C-62/
86, [1991] E.C.R. I-3359.
115 The merging firms have the burden to prove that the merger would create efficiencies
or serve other consumer interests. GE did not offer such proof.
116 P.T. Indomarco Prismatama, 03/KPPU-L-1/2000.
117 The Business Supervisory Commission (the KPPU) found that Indomaret “does not
observe the principle of balance in accordance with the principle of economic democracy
113
2002] What Is Harm to Competition? 407
In an illuminating essay presented at the Japan Fair Trade Commission’s
50th Anniversary Competition Symposium in December 1997, KyuUck Lee stated the case for a fairness component in competition law:118
Competition is the basic rule of the game in the economy. Nevertheless,
if the outcome of competition is to be accepted by the society at large,
the process of competition itself must not only be free but also conform
to a social norm, explicit or implicit. In other words, it must also be
fair. Otherwise, the freedom to compete loses its intrinsic value. Fair
competition must go in tandem with free competition. These two concepts
embody one and the same value. This may be the reason that
competition laws of several countries such as Korea and Japan clearly
specify ‘fair and free competition’ as their crown objective.
. . . I believe that the abstract notion of fairness rests, inter alia, on
equitable opportunities, impartial application of rules and redemption
of past undue losses. . . . Fairness, then, does not imply absolute libertarianism
but instead takes the form of socially redefined freedoms.
Viewed from this perspective, the polemic whether competition laws
should aim only at enhancing economic efficiency rather than at promoting
some social policy goals such as fairness may appear to be
irrelevant. After all, efficiency is intrinsically not a value-free concept.1 1 9
Drawing upon his Korean experience, Mr. Lee continued:
[I]n a developing economy where, incipiently, economic power is not
fairly distributed, competition policy must play the dual role of raising
the power, within reasonable bounds, of underprivileged economic
agents to become viable participants in the process of competition on
the one hand, and of establishing the rules of fair and free competition
on the other. If these two objectives are not met, unfettered competition
will simply help a handful of privileged big firms to monopolize domestic
markets that are usually protected through import restrictions. This
will then give rise to public dissatisfaction since the game itself has not
been played in a socially acceptable, fair manner.1 2 0
in promoting healthy competition between the interests of business enactors and public
interests,” and ordered it “to cease its expansion in traditional markets, in which it is
directly facing small-scale retailers, in the context of realizing balance in the competition
between large-scale, medium-scale and small-scale business enactors. . . .” Id., relief, ¶ 2.
118 Kyu-Uck Lee, A “Fairness” Interpretation of Competition Policy with Special Reference
to Korea’s Laws, in The Symposium in Commemoration of the 50th Anniversary of
the Founding of the Fair Trade Commission in Japan, Competition Policy for the
21st Century at 61 (KFTC 1997) (on file with author). Professor Lee was then president
of the Korea Institute for Industrial Economics & Trade and Chairman of the Competition
Advisory Board for the Korean Fair Trades.
119 Id. at 61–62.
120 Id. at 62. In Korea, according to Mr. Lee, a subcontracting act and a small business
act complement the competition law by bolstering the bargaining power of small and
medium-sized firms and protecting small firms from entry of large firms for a reasonable
time while they gained sufficient strength. Id. at 63.
[Vol. 70 Antitrust Law Journal 408
Mr. Lee concluded:
“[F]air and free” competition should be one and the same concept.
Without fairness, freedom alone may not achieve the desirable outcomes
expected from competition, especially in developing economies
where unfair elements can be exacerbated by competition. . . . Despite
the practical importance of fairness in competition policy, however, it
is all the more difficult to have a practical yet socially agreed upon
concept of fairness due to diverse individual value judgments. Competition
authorities must bear this in mind in implementing competition
laws. Similarly, the notion of competition itself differs in countries with
different social and cultural traditions and conditions. Therefore, it is
essential that competition authorities in various countries be able to
better understand each other’s stance and policy environment in searching
for the global rules of the economic game.1 2 1
Since 1997, when Korea faced a financial crisis, Korea undertookmajor
liberalizing economic reforms. It has reduced government intervention,
reinforced its market system, lowered tariffs, and exposed its firms to
domestic and international competition. Korea has apparently risen from
the category of developing countries to the category of developed countries.
Nonetheless, reflecting on the challenges facing developing countries,
Nam-Kee Lee, Chairman of the Korea Fair Trade Commission, has
observed that “developing countries cannot avoid concerns about the
competitiveness of domestic businesses. In this context, it would not be
well advised to suggest that developing countries adopt the same level
of competition policy as developed countries, when their markets are
not as mature and businesses not as competitive.”122
The Indonesian and Korean perspectives need not alter one’s preferred
definition of “anticompetitive.” We might continue to label rules
that protect firms from competition itself “anticompetitive” (as I do)
even if wemay appreciate their justice and even their long-term contribution
to efficiency in countries that must develop competition. Mr. Lee’s
comments remind us that definitions have cultural and normative content.
What is harm to competition is not pure, scientific, and absolute.
Id. at 64–65. Other formulations by developing countries include legislation against
restrictive business practices, such as outlined in the 1980 UNCTAD Code. The restricted
business practices enumerated therein are either exploitative or exclusionary of firms
without power. The code-like prohibition of categories of conduct, such as exclusive
dealing and tying, even tempered as it is by a reasonableness defense as a nod to the
developed countries, may be simpler and easier to administer in a world of scarce enforcement
resources. See Model Law on Competition, UNCTAD, TD/RBP/CONF. 5/7 (UN
2000). To many developing nations, restrictive business practices, now called anticompetitive
practices, are harms to competition.
122 Nam-Kee Lee, Korean Economic Development Policy Lessons—The Shift from Industrial
to Competition Policy, Keynote Speech at the Intergovernmental Group of Experts
on Competition Law and Policy (Fourth Session) of UNCTAD, July 3, 2002, available at
http://ftc.go.kr/data/hwp/200207.doc.
121
2002] What Is Harm to Competition? 409
V. HARMS TO COMPETITION—A GRAPHIC SUMMARY
We return, then, to the initial perspective defined largely by U.S. and
EU perceptions: there are two principal views as to whether serious,
unjustified exclusions by dominant firms may be “anticompetitive” even
if they have no negative output effects. The categories of harm from
exclusionary conduct may be depicted thus.
Table A
Harm to Competition Harm Only to Competitors
123
Limitation of output Blocking of competition Foreclosure of firms
on the merits; no without power by
apparent procompetitive efficient competition;
effects of the conduct thus, condemnation of
the conduct protects
competitors
Mostly cartels and For U.S., includes many Indomaret
government-privileged truncated-rule and
monopolies; post- burden-shifting cases Brown Shoe
Chicago School analysis where there is no reason (vertical aspects)
widens the range.123 to believe output will be
limited; e.g. Indiana Von’s Grocery
Federation of Dentists ;124
Microsoft.
For EU, includes many
cases of abuse of
dominance; e.g.
Hoffmann-La Roche, Tetra
Pak.
From the point of view of welfare economists trained to predict
whether particular conduct or transactions will increase or decrease
Few cases of price predation, including predation by fidelity rebates, could confidently
be placed within column 1. The conditions under which price predation will succeed in
increasing market power and limiting output are demanding, and consumers are likely
to gain from failed predation, at least if the target remains a viable player or the market
is realistically contestable. In theory, an alleged price predation case could come within
any of the three columns, depending on the facts. But because costs of error in condemning
low prices are high, U.S. courts generally perceive the problem of price predation along
lines of Table B, infra. They adopt a similar perspective for predation by product design.
See, regarding Microsoft, text supra following note 59. They are less concerned, however,
by unjustified foreclosing practices (which by definition do not have intrinsic pro-consumer
qualities); thus, the not insignificant number of U.S. exclusionary cases not involving price
or product design predation that fall within column 2.
124 FTC v. Indiana Fed’n of Dentists, 476 U.S. 447 (1986) (dentists’ combination to
withhold x-rays from insurers held illegal).
123
[Vol. 70 Antitrust Law Journal 410
aggregate consumer or total welfare, there is no column 2. Either conduct
harms consumers or its prohibition harms consumers. From the point of
view of policymakers who preferminimal antitrust intervention, column2
is so small and the danger of slippage into column 3 is so great that the
better part of wisdom is to ignore column 2 and to label as “protection
of competitors” enforcement against any conduct that does not qualify
for column 1.125 The categories of exclusionary conduct may then be
depicted thus.
Table B
Harm to Competition Harm to Competitors from Efficient (or
(Harm to Consumers) Even “Unfair”) Competition
12
Harm to competition means no more Enforcement protects competitors and
than: this transaction or conduct is harms consumers.
inefficient because it limits output and
raises prices.
Enforcement is justified only in case of
negative output effects.
As developed in this article, jurisdictions do not agree on which is the
wiser perspective, Table A or Table B. The contemporary case law of
the United States largely adopts the perspective of Table B, at least in
words if not in actions, ostensibly allowing enforcement only against
conduct within column 1 (on either table). Even within jurisdictions,
however, there is healthy disagreement. There may be “constructive
opacity” within jurisdictions that proclaim only to protect consumers
from bad outcomes (that is, there may be non-transparency as to whether
Thus, Robert Bork, when a jurist, said in Rothery Storage & Van Co. v. Atlas Van Lines,
Inc., 792 F.2d 210, 221 (D.C. Cir.), cert. denied, 479 U.S. 1033 (1987): “If it is clear that
Atlas and its agents by eliminating competition among themselves are not attempting to
restrict industry output, then their agreement must be designed to make the conduct of
their business more effective. No third possibility suggests itself.” Similarly, Professor Bork
said in The Antitrust Paradox: “Improper exclusion” is always deliberately predatory
and inefficient, which is rare, or the exclusion is the product of superior efficiency. “There
is no ‘intermediate case’ of exclusion . . . .” Bork, supra note 22, at 160; see also supra note 30.
While denial of the middle column of Table A may be thought to prevent the error of
protecting inefficiencies, this strategy also has costs of error. Combined with a general
policy of deregulation based on trust in business, not government, extreme or prophylactic
non-interventionism could tend to insulate inefficiencies of, and even deceptions by, large
merged firms and enhance their power to abuse competitors, consumers, stockholders,
and employees. See Kurt Eichenwald & Simon Romero, The Latest Corporate Scandal Is
125
Sudden, Vast and Simple, N.Y. Times, June 27, 2002, at A 1, detailing the widespread frauds
and in some cases ensuing failures of Enron, Tyco, Adelphia, Dynergy, Global Crossing,
and WorldCom.
2002] What Is Harm to Competition? 411
the case law turns on proof or principle) that operates as a safety value
to preserve a modicum of flexibility to catch exclusionary practices that
distort the market mechanism. 126
VI. CONCLUSION
Nations have the right to adopt their own lexicons and to choose
their own law. Nations’ choices are an internal matter unless and until
application of a rule has negative effects outside of the jurisdiction or
is so opaque or discriminatory as to harm foreign actors within the jurisdiction.
What are the implications of the conclusions of this article for global
antitrust? Can we ever effect a reasonably seamless world competition
system if we disagree on that most basic of questions, what is harm
to competition? Happily, yes.127 Healthy diversity tends to sharpen the
dialogue and facilitate adjustment and readjustment to whatever the
context demands—just as it has done and continues to do within both
the United States and the European Union.
See text accompanying notes 23–27. One may question whether opacity is ever constructive
and simply observe that it operates as a safety valve.
127 Nations might usefully anchor their most stable agreements, as may be done in
elucidating the competition principles suggested in the Doha Declaration. Declaration at
WTO Ministerial Meeting at Doha, Qatar (Nov. 14, 2001), ¶¶ 23–25 (anti-cartel; protransparency,
due process, and national treatment). Moreover, nations might agree to rules
of permissible and impermissible extraterritoriality, and to paths for dispute settlement in
the event of systems clashes.
126