William E. Kovacic: An Antitrust Tribute
Liber Amicorum – Volume II
RETHINKING U.S. ANTITRUST POLICY AND ADMINISTRATION: JOINING THE
REST OF THE WORLD IN THE 21ST CENTURY
Donald I. Baker* and John DeQ. Briggs**
Introduction
Today, more than 100 countries have functioning competition laws and associated
enforcement machinery. Virtually all of these countries have created or substantially amended
their competition law statutes, regulations and/or enforcement systems since the onset of the
21st-century. Such countries include Argentina, Brazil, Canada, the People's Republic of China,
India, Japan, Mexico, Korea, South Africa, Pakistan, Taiwan, and all 27 E.U. Member States
(ranging from Malta and Estonia to Germany and the U.K.). Competition policy, and its general
importance to the well-being of a national economy, has been more and more recognized by
executive and legislative branches of governments around the world. Most governments have
responded by giving attention to the content and form of their competition laws and coming up
with administrative or other procedures for managing this element of national policy. In
virtually every case, this has been done with attention to the international nature of much of
antitrust.
Despite the reality that the U.S. has the longest and most substantial history of antitrust
enforcement, none of these 100+ countries has embraced much of the American antitrust model
or machinery. Indeed, the American approach to private litigation, incarceration of cartel
participants, and opt-out class actions -- and the related multi-polar enforcement procedures -have not been accepted in the international marketplace of ideas. The main exception is that the
U.S. economics-centric “competitive effects” approach to merger analysis has gradually been
embraced around the world, 1 rather than the “abuse of dominance” approach to mergers
originally favored in Europe in its 1989 Merger Regulation.
* Mr. Baker is the founding partner of the law firm Baker & Miller in Washington, DC. After nine years on the
Antitrust Division staff, he was appointed by President Gerald Ford as Assistant Attorney General in charge of the
Antitrust Division of the United States Department of Justice and served in that position during 1976-77. He is also
currently an adjunct Professor at The George Washington University Law School where, along with Mr. Briggs, he
teaches a course in International Competition Law.
** Mr. Briggs is the Managing Partner of the Washington, DC office of Axinn, Veltrop & Harkrider. He is a former
Chair of the Section of Antitrust Law of the American Bar Association (1995-96). He is also an adjunct Professor at
1 William E. Kovacic: An Antitrust Tribute
Liber Amicorum – Volume II
What this reveals is that the United States is the only meaningful exception to an ongoing
global rethinking of competition law, policy and their administration. While competition law
concerns and institutions have become stronger and politically more important nearly
everywhere else around the world, the U.S. experience is much the opposite. Fueled largely by a
handful of somewhat recent Supreme Court decisions, and notable for the absence of any
apparent legislative (or senior executive) interest or will, antitrust law has gradually become
narrower and politically less important in the United States than in the E.U. and many other
foreign countries. This seems to be a passively deliberate choice.2 All of this strikes us as
remarkable. In just a few decades, antitrust and competition law has gone from being an
essentially American idea to being a globally accepted idea of somewhat vague and varied
content, but modernized and adapted to the present circumstances in different countries all
around the world -- but not here.
Whether the core idea of competition enforced by law can actually be made to work in
fair, efficient, and rational ways in diverse legal and cultural environments involves both
political and economic dimensions. The legal rules and enforcement decisions must be
economically rational in order for antitrust to enhance competitiveness and entrepreneurial
efficiency. Yet the process is not likely to be sustained politically over time unless it can be: (i)
explained to politicians and educated citizens in terms they can understand and (ii) administered
in fairly transparent and rational ways. As a matter of long term political necessity, we must
avoid having antitrust doctrines and decisions descend into some intellectual black hole that can
only be comprehended by a guild of legal and economic aficionados.
Our goal is to refocus the institutional lens in order to imagine, and eventually help to
create, a system of U.S. antitrust law and enforcement that is fair, clear, economically rational,
and internationally accepted, while still being capable of generating sufficient public support to
The George Washington University Law School where, along with Mr. Baker, he teaches a course in International
Competition Law.
1
As Professor Calkins recently pointed out in his luncheon remarks at the 2013 Section of Antitrust Law spring
meeting, nearly all of the Merger Guidelines issued by the competition agencies around the world use the following
terms, among others: SSNIP, HHI, Unilateral Effects, Coordinated Effects, Maverick, and “Timely, likely and
sufficient.” These concepts, used in defining markets and measuring competitive effects and efficiencies, reflect the
type of Chicago School-flavored merger analysis that has become standard in the United States.
2
Contrast our passivity with the situation in the U.K., where both Labour and Conservative-led Governments have
enacted sweeping changes in both substantive law and institutional arrangements. Thus, the Competition Act of
1998 and the Enterprise Act of 2002 brought the U.K. more into line with the European system of antitrust
enforcement, while creating a new Competition Appeals Tribunal to review decisions by the competition agencies
and the sectoral regulators. In addition, the Enterprise Act introduced criminal liability for certain cartel offenses
and authorized disqualification of implicated individuals from serving as directors of public companies. Currently,
U.K. Government has adopted the Enterprise and Regulatory Reform Act of 2013, which merges its two antitrust
agencies into a new Competition and Markets Authority, to be effective in 2014.
2 William E. Kovacic: An Antitrust Tribute
Liber Amicorum – Volume II
be politically viable over the longer run. This essay represents but our first step in suggesting
how U.S. antirust and competition policy and administration might best be changed.
I.
THE AMERICAN SYSTEM IS MARKED BY A STATIC FORMAL
STRUCTURE THAT IS UNCOMFORTABLY DIFFERENT FROM THE
REST OF THE WORLD
The U.S. system has gathered layers of encrustation over many decades. Its historic
legacy leaves the U.S. with an antitrust system full of century-old ideas that have become
politically entrenched and largely immune from rigorous inquiry, let alone change. Thus, among
other things, we have: (a) two federal agencies rather than one as a source of increased legal
uncertainty for both private parties and government actors; (b) no federal preemption of State
enforcement (no “one stop shopping”), another source of increased legal uncertainty; (c)
mandatory treble damages (along with joint and severable liability and no contribution) in all
private cases (based on an original 1890 presumption that the government did not have the will
or resources to enforce the Sherman Act); (d) almost no government Section 2 monopolization
prosecutions; (e) a very deferential approach to cartels and restraints sponsored or encouraged by
the state and local governments in our federation; (f) exceptionally strong criminal
investigational tools that have been almost entirely abandoned by the Department of Justice
(“DOJ”) has in favor of an extremely efficient money-gathering leniency/amnesty program; and
(g) a no-longer-enforced price discrimination prohibition. Some of these developments are
probably wrong, others are probably right – but there is no serious public debate over their
wisdom one way or another.
Our basic law dates from 1890 as amplified in 1914. The U.S. statutory rules are broad
and vague. Generalist U.S. judges on the Supreme Court and the lower courts have created a vast
body of law that Congress has seldom sought to displace (except for some statutory exemptions
that politically-powerful constituencies have occasionally been able to obtain). Congress has
essentially created a federal common law system of antitrust enforcement. The U.S. system
established by Congress (and the states going their separate way unbound by federal law) is thus
unique, because it just sails on to be discussed by antitrust aficionados, but few others.
The U.S. system essentially differs from the modern systems of competition law and
enforcement that other countries have established where: (i) the antitrust codes tend to be
considerably more detailed, (ii) competition law enforcement is by administrative agencies that
can investigate and decide cases and impose penalties, (iii) initial judicial oversight is often
entrusted to a specialized tribunal, and (iv) criminal antitrust enforcement against individual
conspirators is much-discussed but still relatively unusual, even in the minority of countries
where statutory antitrust crimes exist. Meanwhile, private litigation of competition law questions
before ordinary national courts (including even some variations of collective redress) is slowly
3 William E. Kovacic: An Antitrust Tribute
Liber Amicorum – Volume II
growing but is still limited to a few jurisdictions, while being non-existent or only occasional in
most others. Where it is developing, the private litigation processes are carefully and
conscientiously designed to bear little resemblance to the American system – indeed to be selfconsciously unlike the American litigation system, which in many respects is disrespected
throughout the world.
Also, the political processes by which U.S. antitrust laws have been created differs
considerably from what has happened in a majority of other countries where the government has
generally offered legislation after considerable study or at the behest of the international funding
organizations. Our history is highly episodic: what laws we have are mostly the result of a few
serious outbreaks of populism directed against those who seemed powerful and above the law at
that point in time. The Sherman Act was generated by a sense of angry frustration with Standard
Oil and the large new enterprises that seemed to be increasingly dominating more ordinary
Americans lives. The Clayton Act flowed from the lively Theodore Roosevelt-Woodrow Wilson
debates over how to organize industries in a context of a political sense that “we haven’t done
enough yet.” And the major reforms of the 1970s (i.e., Sherman Act felonies and pre-merger
notification) were in meaningful part a populist response to public frustration over inflation and
the rise of OPEC. As an interesting illustration, the critical felony amendment was introduced,
without any prior committee hearings having been held, during final House of Representatives
floor discussion of a technical piece of legislation on antitrust procedures in late 1974.
So the U.S. history is one of bottom-up pressure from the political perception that
“something has to be done” in response to some highly visible public concern of the moment,
rather than being the product of thought, study or deliberation by any branch of government,
whether a congressional committee, an internal government study group, or a committee of
experts. This is in stark contrast to the way that most other antitrust regimes were created over
time within other major jurisdictions around the world.
Thus we have the same three U.S. statutes and two enforcement agencies that Congress
created before World War I. Since then, the only serious substantive expansion was the CellarKefauver Act of 1950, extending Section 7 of the Clayton Act to cover mergers as well as stock
acquisitions of competitors. However, during the sixty three busy years since 1950, the U.S.
antitrust priorities and administrative processes have changed enormously, but with relatively
little practical input (as opposed to political noise) from the Congress, as we shall mention
further in Part VI below.
II.
THE DOJ HAS ESSENTIALLY ABANDONED LITIGATION AS AN
OFFENSIVE WEAPON.
By enacting broad Delphic statutes, Congress had created a common law system of
antitrust in 1890 and 1914; and for a very long time it was DOJ’s Antitrust Division that was the
4 William E. Kovacic: An Antitrust Tribute
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principal source of cases that generated new judge-made law giving definition to the prohibitions
against cartels, other restrictive agreements, monopolies and mergers. Standard Oil (in 1911),3
Chicago Board of Trade (in 1918),4 Socony-Vacuum (in 1940),5 Alcoa (in 1944),6 White Motor
(in 1963),7 Philadelphia National Bank (in 1963)8 and Grinnell (in 1966)9 were all familiar
landmarks created by DOJ litigation and appeals. Indeed, in almost every Supreme Court Term
in the 1960s and 1970s, the DOJ had at least one of its cases pending in the Court. The
Expediting Act of 1904 (which was repealed in 1974) allowed direct appeals from District Court
decisions in civil antitrust cases brought by the DOJ.
Since 1980 everything has changed. The last DOJ appeal to the Supreme Court (done by
AAG D. Baker) was in 1977 in the criminal case U.S. v. US Gypsum.10 And the only DOJ
antitrust civil case decided by the Supreme Court since Professional Engineers (in 1978)11 was
the regrettably successful appeal by the defendants in Southern Motor Carriers (in 1983).12
The reasons for this reversal seem to be several-fold: (1) before 1977, mergers were
frequently consummated before they could be challenged—and so the Government ended up
having to litigate many consummated mergers, or abandon the field; (2) the Government has
gone to a plea bargain system of cartel enforcement relying on amnesty applications; (3) the
Expediting Act of 1904, which allowed direct appeals to the Supreme Court from District Court
decisions in DOJ civil antitrust cases, was repealed in 1974, in order to reduce burdens on the
Court; and (4) vertical restraints and monopoly cases have been largely abandoned as fields of
interest at DOJ. The relatively few civil cases brought by DOJ have been settled or abandoned
before they could reach the Supreme Court (the unique case of Microsoft was settled by a brand
new, more conservative, administration that inherited a government victory in the Court of
3
Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911).
4
Chicago Board of Trade v. United States, 246 U.S. 231 (1918).
5
United States v. Socony-Vacuum Oil Co., Inc., 310 U.S. 150 (1940).
6
United States v. Alcoa, 148 F.2d 416 (2d Cir. 1945).
7
White Motor Co. v. United States, 372 U.S. 253 (1963).
8
United States v. Philadelphia National Bank, 374 U.S. 321 (1963).
9
United States v. Grinnell Corp., 384 U.S. 563 (1966).
10
United States v. United States Gypsum Co., 438 U.S. 422 (1978).
11
National Soc. of Professional Engineers v. United States., 435 U.S. 679 (1978).
12
Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48 (1985). (D. Baker, who filed the
initial Government complaint in 1977, still thinks that this is one of the worst Supreme Court antitrust decisions in
the 20th Century!)
5 William E. Kovacic: An Antitrust Tribute
Liber Amicorum – Volume II
Appeals which would seemingly have justified substantial structural relief under traditional
monopolization precedents).
Merger enforcement has largely become a negotiated administrative process carried out
prior to consummation. Thus, the parties will tend to offer various “fix it” proposals to deal with
the concerns of the Government investigators (at either FTC or DOJ), while the Government
lawyers will use the serious weapons given them by HSR Act of 1976 to extract more
concessions than the companies would generally prefer to give up. In most cases, this is
wrapped up in a “fix-it first” undertaking which the agency accepts or in a consent decree which
must be approved by a District Court in the case of DOJ (the courts have almost never set aside a
DOJ-negotiated consent decree). Government decisions not to challenge a merger at all are
generally not explained (the way they are in Brussels and increasingly elsewhere) and thus the
merger enforcement process has a considerable degree of mystery known mainly to practitioners
of it, and sometimes only to the regulators.
Meanwhile, cartel enforcement in the United States has become driven by (i) leniency
programs (sometimes involving international cartels with a very limited factual nexus with the
United States), and (ii) money, with annual fines attributable to international cartels (usually not
involving American companies) now approaching or exceeding $1 billion, mostly collected from
Asian companies. The Antitrust Division now rarely uses grand juries to take testimony or as an
investigative vehicle; its resources are used mainly to manage and administer the leniency
program and to manage the resulting flood of plea negotiations, informations, and guilty pleas.
The overwhelming majority of companies caught in the huge overlapping spiders’ webs
of amnesty and "amnesty plus" applications are foreign companies which eventually agree to
plead guilty and pay substantial agreed fines, which are then routinely imposed by a federal
judge. The three countries whose companies have been most prosecuted are, in this order: Japan;
South Korea and Taiwan. By contrast, no Chinese and Russian companies have ever been
investigated or indicted, at least so far as the public record reveals, suggesting the existence of
some built-in geopolitical biases.
III.
THE EVOLUTION TO A LARGELY NEW SYSTEM OF ADMINISTRATIVE
ENFORCEMENT HAS LIMITED THE ROLE OF U.S. TRIAL COURTS AND
JURIES
Anecdotal evidence strongly suggests that American antitrust lawyers and their economic
consultants are paid substantial sums of money by foreign and domestic clients to address the
following three major areas of antitrust and competition law in United States today: mergers and
acquisitions; cartel investigations; and private treble damage class action cases, often direct
follow-on litigation arising out of the disclosure of a cartel investigation in this country or
6 William E. Kovacic: An Antitrust Tribute
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abroad. These three areas of antitrust and competition law probably comprise something on the
order of 75% of all the dollars expended in connection with U.S. antitrust law.
The balance is probably expended in connection with single firm conduct (including
Robinson-Patman Act issues), counseling, and the less frequent private treble damage or
injunction actions that are not following in the wake of a government cartel investigation. To be
sure, there has been a palpable increase in the number of competition cases involving the
settlement of pharmaceutical patents, and the enforcement of so-called Standard Essential
Patents ("SEPs"), but this does not substantially affect the broader reality that the three areas
mentioned form the core of American antitrust law, and it is a core that does not much involve
trial courts or juries in most cases.
A. Mergers, Acquisitions and Joint Ventures
There has not been a Supreme Court review of a Clayton Act Section 7 merger case
decision during the working life of most living antitrust lawyers who are below normal
retirement age.13 Courts of appeals have also played an extremely minor role in the development
of merger law or policy in the last 30-plus years. A few district courts have had a decisive
influence but only with respect to those tiny numbers of cases that actually end up with a
preliminary injunction hearing in court, where the decisions have gone both ways largely based
on the individual judge’s instincts, perception of the facts and the expert testimony. It is probably
not wrong to observe that, today, the European courts have a greater role in merger matters
administered by the European Commission than US courts do in cases administered by the FTC
or DOJ, although it cannot be denied that the reality of judicial “overhang” can have a strong
influence on both the reviewing agency and the parties to any particular transaction in their
negotiations about a particular transaction.
Nonetheless, the final outcomes of nearly all close merger cases are determined by one or
the other agency in negotiation with parties to the transaction. The likelihood of actual litigation
will nearly always prevent a deal from going forward as designed and hence in nearly all cases
the agencies have very large power to extract real or apparent "remedies," thus allowing a
transaction to close; concomitantly, the agencies also have the power, by declining to agree to
remedies, to prevent a transaction altogether. None of these cases involve meaningful judicial
attention or engagement.
13
Putting to one side the Supreme Court's decision last term in FTC v. Phoebe Putney Health System Inc., 133 S. Ct.
1003 (2013) (a "state action" case arising in a merger setting, but not involving substantive merger standards),the
last decided merger cases were in 1975: U.S. v. Citizens & Southern National Bank, 422 U.S. 86 and U.S. v.
American Building Maintenance Ind., 422 U.S. 271.
7 William E. Kovacic: An Antitrust Tribute
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In the unusual case where no agreement is reached, the FTC or DOJ will have to seek a
preliminary injunction from a District Judge. These decisions have gone both ways, but a
transaction is normally consummated, abandoned or settled on the basis of the District judge’s
decision without further appeal. The last time a government merger case was even considered by
a Court of Appeals was over five years ago-when the D.C. Circuit reversed a District Court
decision denying the F.T.C. a preliminary injunction in its challenge to the Whole Foods-Wild
Oats merger.14
Merger control policy is thus almost entirely administrative, with very occasional
exceptions at the margin.
B. Cartels
In this area, as in M&A, the dominant role of the DOJ is to administer a program, in this
case the leniency/amnesty program, and to negotiate the guilty pleas and the sentencing and
fining of those caught in the webs normally spun by the original amnesty applicant and followon applicants.
The overwhelming majority of cartel investigations and pleas have involved foreign
corporations engaged in international cartels.15 The individuals who are "carved out" from
corporate guilty pleas are often non-resident foreign executives, many of whom are willing to
come to the United States, plead guilty and go quietly to jail for an agreed period of time. Such
agreements are routinely implemented by a federal judge. This implementation of a plea bargain
is, as a practical matter, the main connection of the federal judiciary with the criminal antitrust
justice system as it pertains to corporations, and even most individuals. We have been
frequently told about foreign executives being paid a special "bonus" by their foreign employer
(over and above their normal salary) in return for agreeing to serve time in a U.S. jail and thereby
facilitate the corporation’s own settlement with the Government. However, unlike corporations,
individuals have sometimes chosen to go to trial, where their success rate in gaining an acquittal
by juries has been notable and might even approach 50%.
Some foreign companies that have pleaded guilty and paid enormous U.S. fines have
been involved in foreign cartels involving foreign sales of component parts that are incorporated
into finished goods, some of which are imported into United States. The huge DOJ Japanese
14
F.T.C v. Whole Foods Market, Inc., 548 F.3rd 1028 (D.C. Cir. 2008)
15
Of the 100 corporate defendants, as of 12/21/2012, who have ever paid U.S. antitrust fines of $10 million or more,
82 of them are foreign corporations engaged in what DOJ categorizes as “international” conspiracies, and 6 more are
U.S. subsidiaries of foreign companies. DOJ Antitrust Division, Sherman Act Violations Yielding a Corporate Fine
of $10 Million or More (12/21/2012), http://www.justice.gov/atr/public/criminal/sherman10.pdf.
8 William E. Kovacic: An Antitrust Tribute
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Auto Parts investigation is a classic example that has generated enormous corporate fines.16 The
DOJ has been quite aggressive in asserting extraterritorial jurisdiction over these companies and
their foreign executives, and so far the Federal courts have sustained that jurisdiction in the rare
cases where it has actually been challenged. It is rarely challenged since the companies and their
executives seek “cooperation points” under the Sentencing Guidelines and are in fact given such
consideration, thus lessening the [still enormous] corporate fine by some measure, while also
gaining “carve-out” protection from criminal enforcement for some senior executives.
The DOJ will not accept any guilty plea that does not involve an agreement with respect
to the: (a) size of the fine to be imposed on the company and (b) identity of the individual
employees who will be "carved out" of any plea arrangement for possible indictment and
prosecution. In other words, any company wishing judicial determination of the fine to be
imposed must contest all allegations, go to trial, lose, and thus at last be in front of a federal
judge regarding sentencing. This has happened just once in recent decades (in AU Optronics,
mentioned below). While the Justice Department has issued detailed Department-wide
guidelines about when any Non-prosecution Agreements (NPAs) and Deferred Prosecution
Agreements (DPAs) are appropriate, the Antitrust Division has stated that it will not follow those
DOJ Guidelines in the case of criminal antitrust matters. The DOJ has pursued high profile civil
actions against hard core domestic cartel activities in selected industries (books and banking),
while pursuing criminal actions against purely foreign cartels where the conduct, so far as the
public record appears, seems to have much less domestic nexus or U.S. consumer impact than
the conduct in the cases that are pursued civilly.
Insofar as the corporate defendant is concerned, the acceptance of the guilty plea and the
entry of an order subjecting the company to the agreed fine is normally the only connection that
the judiciary ever has with a criminal antitrust corporate defendant. Corporate defendants almost
never go to trial and in the unusual circumstance where they do, they almost never win. The
recent AU Optronics case17 is a partial exception to this, but apparently the main reason why the
case went to trial was so that the defendant could get the Court (rather than DOJ) to decide the
sentencing.18
16
A of this writing, the DOJ has received guilty pleas from twenty companies, who collectively have agreed to pay
criminal fines of $1.168 billion. http://www.justice.gov/atr/public/criminal/sherman10.html Twenty one executives
have agreed to plead guilty and serve collectively two hundred forty four months in prison. Cf.,
http://www.justice.gov/atr/public/criminal/264101.html
17
United States v. AU Optronics Corp., No. CR-09-0110 (N.D. Cal. Mar. 10, 2012).
18
We understand the DOJ wanted a fine in the area of $1 billion. Thus, a post-trial fine of $500 million, which
equaled the largest U.S. antitrust fine ever imposed, was still a comparative success for the defendant vis-à-vis
having a fine determined by a plea bargain with the DOJ.
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Meanwhile, the level of sentences that DOJ has been able to obtain on plea bargains with
defendant individuals has increased dramatically in recent years. However, more individual
criminal defendants will choose to go to trial rather than accept the jail sentence that the DOJ has
insisted on in the plea bargaining process and these trials are not so predictable as those for
corporate defendants. Juries plainly are more reluctant to send individuals to jail than to fine
public companies.
In none of these cases is there much of a role for the courts, and even less often any role
for petit juries.
C. Private Actions
Private actions by antitrust victims have been part of the U.S. antitrust scene since the
very beginning when Congress, in passing the Sherman Act, borrowed an idea from the English
Statute of Monopolies of 1623. Thus plaintiffs were given the automatic right to recover treble
damages and their litigation costs, if successful, in order to encourage them to act as “private
attorneys general.” These rights were further amplified in the Clayton Act, which (i) allowed
plaintiffs to use findings in Government cases as prima facie evidence of a violation, (ii)
provided for tolling of the 4-year statute of limitations during the pendency of a Government
investigation, and (iii) created broad equitable remedies for private antitrust plaintiffs.
These special incentives for private antitrust enforcement were further strengthened by
the U.S. use of plaintiff-favoring litigation procedures not used in other countries’ judicial
processes. These included: (i) the “American cost rule”, which prevents a successful defendant
from recovering its litigation costs; (ii) broad discovery rules which help plaintiffs to prepare
more marginal cases for trial (or settlement) while also increasing defendants’ unrecoverable
litigation costs; (iii) opt-out class actions; (iv) use of entirely contingent fees, and (v) the
imposition of joint and several liability on defendants without any right of contribution from one
defendant to another.
The creation of opt-out class actions (something not dreamed of in 1890) came about in
1966 and has brought about an entirely ubiquitous and predictable scenario. Companies in an
industry receive a government subpoena (or a “dawn raid” in Europe) in connection with a cartel
investigation; then some publicly-traded corporate recipient is required to report this fact in an
SEC or other public filing; and immediately numerous class-action lawsuits follow by lawyers
anxious to obtain the lead when the numerous cases are consolidated in one court. Everybody
connected with this entire process is familiar with what happens next: (1) enormous wrangling
breaks out among the numerous plaintiffs' law firms that have filed these complaints for the
privilege of being designated by a District Judge as lead or co-lead counsel for one or more
putative classes of plaintiffs; (2) the defendants' and plaintiffs' counsel then wrangle for months
over a discovery schedule for class certification determination and so on; (3) 12-18 months later,
10 William E. Kovacic: An Antitrust Tribute
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plaintiffs file a motion seeking class certification, which is lengthily opposed, with elaborate
economic expert reports filed by each side; and (4) the court, with or without benefit of an
evidentiary hearing, issues a decision certifying or not certifying a class as to each putative class.
At this point, the case is basically over. The plaintiffs whose class is certified proceed to
an advantageous settlement and an even more advantageous award of attorneys’ fees,19 while the
plaintiffs whose class is not certified proceed to a minimal or nominal settlement, or perhaps to
abandonment of the case with no settlement at all. The role of the courts in these circumstances
is to approve the settlements and the award of attorneys’ fees. Regardless of how the class
certification motion is decided, most cases never get to a jury trial.
In short, the fact that so many private antitrust class actions are follow-on actions in the
wake of leniency applications and indictments or guilty pleas has resulted in a minimal judicial
role in which the courts main participation is to (a) decide whether or not class certification is
warranted, (b) rule on substantive motions for summary judgment (or to dismiss the complaint)
and (c) loosely supervise a settlement that has been arrived at based on the Judge’s rulings on
class certification and other motions. In large class actions, the settlements are for all practical
purposes compelled given the combination of joint and several liability, coupled with the
judicially crafted rule against contribution among antitrust defendants--which makes private
antitrust litigation wholly different from virtually all other private tort-based actions in this
country and elsewhere in the world.
The net result is that private antitrust litigation is much more important and attractive in
the U.S. than anywhere else in the world. Notwithstanding what we have said above about the
limited role of courts, District Judges do play critical role because private cases involve
extensive motion practice (motions to dismiss, summary judgment motions, and/or class
certification motions), and their rulings on such motions generate numerous opportunities for
appellate judges to generate broader precedents. Thus new law is being made all the time, but
seldom on the basis of a fully tried case that has been decided by a judge or jury.
19
Dissenting in a 1996 Second Circuit class certification appeal, Circuit Judge Dennis G. Jacobs called class
certification a "brutally coercive" means of forcing a settlement where a huge class is involved. In re VISA
Check/MasterMoney Antitrust Litigation, 280 F.3d 124. "Even a defendant who is innocent and holy may rationally
choose" to settle “rather than run the risk of ruinous liability.” Id. at 148.
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IV.
DUAL ENFORCEMENT: WHY MULTIPLE ADMINISTRATORS?
The U.S. is the marvel of the world in terms of multiplicity of government antitrust
enforcers. Not only do we have a dual enforcement system by the FTC and DOJ, there are a
variety of sectorial regulators that sometimes enjoy veto power on “public interest” or antitrust
grounds at the federal level.20 Meanwhile, over the past three decades or so, the State attorneys
general have largely abandoned any interest in local cartels in favor of pursuing high visibility
international targets such as Intel and Microsoft; challenging high-profile transactions (such as
the recent USAir-American Airlines merger); or joining with the private class action bar to
pursue the financial rewards of the wave of follow-on private litigation generated by
international leniency programs.
The original rationale for the dual-agency federal system was to create two differently
organized agencies with complementary roles—with FTC more oriented toward rule-making and
guidance, while DOJ would continue with its case-specific civil and criminal “law enforcement”
role before the Federal Courts. However, over time, the two agencies’ roles tended to
converge—especially in the merger enforcement area that became so central from the 1960s
onward. Since then, dual enforcement has been sustained by concerns about political timidity or
favoritism resulting from (i) the White House meddling with the DOJ enforcement, and (ii)
Congressional meddling at the FTC.
The net result of the dual regime is significantly increased legal uncertainty (and resulting
private sector costs) when no single agency can speak or act with a single voice. In addition,
there are periodic unseemly fights between the FTC and the DOJ over merger "turf", and the odd
spectacle of FTC and DOJ personnel sometimes having divergent "competition foreign policies"
based on limited coordination between them. Meanwhile, transactions “cleared” at the federal
level, often after massive reviews, are still open to challenge (i) by the individual states, or (ii) by
private parties. The whole scene must often be puzzling or confusing to foreign governments
and their competition agencies, which may not know with whom they should be coordinating on
a merger investigation until well into the process. Of course, the same ex ante uncertainty is also
costly to the prospective merger partners, who face the practical reality of trying to develop “fix
it first” remedies without knowing for sure which “fixer” they are going to have to appeal to.
20
The most elaborate of these regulatory/antitrust overlaps is in the bank merger area, where one of the three
banking supervisory agencies (the Federal Reserve Board, the Comptroller of the Currency or the Federal Deposit
Insurance Corporation) can (i) turn a merger down on antitrust or other grounds, or (ii) intervene in the antitrust case
brought by the DOJ against a merger which that regulator had approved. See Bank Merger Act Amendments of
1966, 12 USC Section 1528.
12 William E. Kovacic: An Antitrust Tribute
Liber Amicorum – Volume II
With the DOJ having quietly transformed itself into an administrative agency in the one
area where there is substantial overlap with the FTC (i.e., mergers), the case for separate
(sometimes competitive) enforcement agencies becomes weaker indeed. Consolidation of the
two is certainly one possibility, but reassignment of jurisdiction between them might be another.
All mergers might go to the FTC, while cartels would be the central focus for DOJ. Or, in a dual
enforcement system, there could be a publicly-disclosed allocation based in industry or markets
involved. Or perhaps we could borrow from the recent U.K. system—with DOJ (like OFT) as
the initial investigator and prosecutor, while the FTC would do the type of in-depth investigation
done by the U.K. Competition Commission on the merger (and monopoly) cases sent to it by the
OFT. (Such an alternative might provoke a few skeptically raised eyebrows, given that the U.K.
Government is now merging its two competition agencies.21)
V.
ANTI-MONOPOLY ENFORCEMENT HAS LARGELY GONE OFFSHORE TO BRUSSELS AND ELSEWHERE
The U.S., which had brought most of the world’s antimonopoly cases prior to 1980
(including the then-pending DOJ cases against IBM and AT&T) has since evolved into a much
more deferential system of monopoly/dominant firm regulation. Yet other countries prosecute
what the U.S. permits and the United States is the largest source of globally-dominant enterprises
being prosecuted overseas.
An important reality is that the United States and the rest of the world embrace legal
principles about monopoly that spring from different premises and experiences: the U.S. has a
history of antitrust in relation to aggressive, but often innovative monopolists (Alcoa, IBM,
AT&T, Microsoft, and Intel) while other countries generally have a history of state-created or
mandated monopolists engaged in preserving their turf. The U.S. worries about preserving
innovation, while others put greater weight on “fairness” in how the monopolist treats customers
and/or would-be competitors.
There is a nice historic irony here. One of the few things that bound together the beliefs
of George Washington/Alexander Hamilton and Thomas Jefferson/James Madison was a stated
hostility to monopolies.22 And the very foundation of the Sherman Act in 1890 sprang from
21
See the Enterprise and Regulatory Reform Act of 2013, discussed in Footnote 2.
22
Indeed, Thomas Jefferson even wanted an anti-monopoly provision in the Constitution. The founding fathers lived
in an age before capitalism, however, and aimed their hostility at monopolistic powers granted by government (just
as the English Parliament did when it enacted the Statute of Monopolies in 1623). They denounced “mercantilism,”
a colonialist economic theory that the prosperity of a nation depends upon its capital, and that a nation should
maximize foreign trade surplus. The founders were quite influenced by Adam Smith, who called monopoly the
“chief engine of mercantilism.” BETTINA BIEN GREAVES, FREE MARKET ECONOMICS: A READER 167 (2007).
13 William E. Kovacic: An Antitrust Tribute
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similar philosophical and economic concerns. Today, government bail outs of “too big to fail”
financial institutions is beginning to generate some renewed discussion in this area.
The limited role of §2 of the Sherman Act today seems to have been brought about by the
rise of the Chicago school of economics, greater confidence that monopolized markets are selfcorrecting, and by a few influential Supreme Court decisions since the 1990s in cases involving
private parties. No Government § 2 case has reached the Supreme Court since the DOJ’s victory
in U.S. v. Grinnell in 1966, although since 1990 DOJ and FTC have been frequently involved as
amici in support of the defendants’ efforts to “slim down” § 2.23
Section 2 is now generally confined to certain efforts to exclude actual and potential
competitors from a market, whereas elsewhere, the central antitrust role includes crossing the
clearly dominant enterprise to behave “fairly” vis-à-vis its competitors and customers.
Nonetheless, the cases of the modern era touching on monopoly—nearly all of which are
private cases--can fairly be categorized largely as follows, and they do not completely fit the
pattern above. Thus what one sees is some infrequent victories by private plaintiffs, while the
great majority of these expensive private cases are settled or dismissed on the basis of motions to
dismiss or for summary judgments. The cases that have made it to reported decisions roughly
fall in the following categories:
1.
Loyalty Discounts directed against specified smaller rivals: Intel24, Eaton25.
2.
Exclusive Dealing by a monopolist: Dentsply26, Toys ‘R’ Us27.
3.
Monopoly Broth/ Bad Acts by a Monopolist directed against specific smaller
rivals: U.S. Tobacco28, Litton v. Honeywell29.
23
See D. Baker, An Enduring Divide Across the Atlantic over Whether to Incarcerate Conspirators or When to
Restrain Abusive Monopolists, 5 Euro.Comp.J. 145, 179-181 (2009)
24
In the Matter of Intel Corp., A Corp., 9341, 2010 WL 4542454 (F.T.C. Nov. 2, 2010).
25
ZF Meritor, LLC v. Eaton Corporation, 696 F.3d 254 (3d Cir. 2012) (cert denied).
26
United States v. Dentsply Int’l, Inc., 399 F.3d 181 (3d Cir. 2005).
27
In the Matter of Toys "R" Us, Inc., 126 F.T.C. 695 (1998).
28
Conwood Co., L.P. v. U.S. Tobacco Co., 290 F.3d 768, 783 (6th Cir. 2002)
29
Litton Sys., Inc. v. Honeywell, Inc., 140 F.3d 1449 (Fed. Cir. 1998).
14 William E. Kovacic: An Antitrust Tribute
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4.
Predatory Pricing: Brooke Group30 (no successful predatory pricing cases since
then).
5.
Tying/Bundling/Monopoly Leveraging to exclude rivals: Microsoft31, 3M32.
6.
Aftermarket Monopolies to exclude ISP’s:
Kodak 33 (many subsequent
challenges; but few if any plaintiff success stories; generated).
7.
Monopsony: Weyerhaeuser34 made it very difficult pursue such a theory. Indeed,
there have been no successful monopsony cases other than DOJ consent decrees
in the context of merger clearances.
8.
Intellectual Property and Market Power: Hatch-Waxman cases seem to present
the main arena where this issue has come up regularly, but it is now increasingly
coming up in the context of Standard Essential Patents, now known as SEP’s
(Google FTC decree 35 , and also FTC consent decree in the Robert Bosch/
Clevite36 transaction [“drive-by” consent decree regarding enforcement of SEPs in
context of unrelated merger transaction]). The matter of enforcement actions by
non-practicing entities (NPEs) (f/k/a “patent trolls”) is also gaining investigative
traction. In a very interesting way, US law, as envisaged at least by the FTC, is
slowly approaching in some ways the EC/EU view of IP, allowing for quasicompulsive licensing by holders of IPR.
9.
Price Squeezes, Essential Facilities, etc.: In the wake of Trinko37 and Linkline38
these causes of action seem largely to be non-existent, much like predatory
pricing as a practical matter.
30
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).
31
United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001).
32
LePage’s, Inc. et al. v. 3M Company, 324 F.3d 141 (3rd Cir. 2003).
33
Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992).
34
Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312 (2007).
35
In the Matter of Google Inc., A Corp., 102-3136, 2011 WL 1321658 (F.T.C. Mar. 30, 2011).
36
In the Matter of Robert Bosch GmbH, 2012 WL 5995560 (F.T.C.).
37
Verizon Comm’s Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004).
38
Pacific Bell Telephone Co. v. linkLine Communications, Inc., 555 U.S. 438 (2009).
15 William E. Kovacic: An Antitrust Tribute
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These results partly explain three separate aspects of American anti-monopoly law: (1)
negative convergence with virtually all other competition regimes including especially the EU,
China and Brazil—where government agencies regularly prosecute dominant firm conduct that
the U.S. generally accepts; (2) the importance of private litigation in creating numerous
precedents that, taken together, have greatly shrunk the areas of corporate concern with respect
to single firm conduct; and (3) the lack of interest or will on the part of Congress (or the Federal
antitrust agencies) in trying to fashion a broader national competition policy to deal with the
conduct of monopolists, including publicly owned monopolists.
It has been some years since (i) the Antitrust Division’s short-lived effort at the very end
of the Bush Administration in 2008 to establish Administration Policy as to single firm conduct39
and (ii) the retraction of that policy by the Obama Administration six months later.40 In 2009, the
newly-installed Obama team articulated a new and more expansive Section 2 policy grounded
mainly in exclusionary conduct and drawing on the principles of Aspen and Kodak, but has done
virtually nothing to bring practical enforcement into line with its words.
VI.
PRIVATE LITIGATION HAS BECOME THE PRINCIPAL SOURCE OF
NEW U.S. ANTITRUST LAW, WHILE CONGRESS HAS LARGELY
ABDICATED TO AN INCREASINGLY CONSERVATIVE SUPREME
COURT THE ROLE OF ANTITRUST LAWGIVER
Since 1950, the antitrust pendulum has swung in both directions at the Supreme Court,
without any meaningful or deliberate statutory or other response from Congress. For the first 20
or so years, the populist majority on the Court made antitrust rules broader and tighter, more
often than not in cases brought by the DOJ Antitrust Division. Per se prohibitions against tieins, resale price maintenance and other restraints were expanded. Merger rules became broad
and vague and almost always the courts favored the Government’s views about the
39
U.S. DEP'T OF JUSTICE, COMPETITION AND MONOPOLY: SINGLE-FIRM CONDUCT UNDER SECTION 2 OF THE
SHERMAN ACT (2008) (recommending a demonstration that the anticompetitive effects of dominant firms' conduct
be "disproportionately" greater than any pro-competitive benefits of firms’ actions for courts to consider a § 2 case),
available at www.usdoj.gov/atr/public/reports/236681.htm.
40
See Press Release, U.S. Dep’t of Justice, Justice Department Withdraws Report on Antitrust Monopoly Law (May
11, 2009), available at http://www.usdoj.gov/atr/public/press_releases/2009/245710.pdf; Christine A. Varney,
Assistant Attorney Gen., U.S. Dep’t of Justice, Vigorous Antitrust Enforcement in This Challenging Era, Remarks
as Prepared for the Center for American Progress 8 (May 11, 2009), available at
http://www.usdoj.gov/atr/public/speeches/245711.pdf (“The failing of [the disproportionately test] approach is that it
effectively straightjackets antitrust enforcers and courts from redressing monopolistic abuses, thereby allowing all
but the most bold and predatory conduct to go unpunished and undeterred.”).
16 William E. Kovacic: An Antitrust Tribute
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anticompetitive nature of a merger. And a number of FTC actions against price discrimination
were sustained on a nearly per se basis.
Beginning with President Nixon’s Supreme Court appointments in the early 1970s, the
judicial pendulum began to swing from populism toward a more centrist approach on antitrust
issues. And it has kept on swinging toward more conservative economic presumptions -- so that
by the second decade of the 21st Century we have the most conservative Court in almost a
century cutting back on antitrust rules and remedies. Thus, since 2007, the conservative majority
has overturned a 90+ year-old precedent that had made resale price fixing per se illegal41, and a
60 year-old precedent against price squeezes by a vertically integrated monopolist.42 The Court
has also: heightened the pleading standards substantially—making it easier for an antitrust
defendant to prevail on a motion to dismiss or a motion for summary judgment43; expanded the
implied exceptions to antitrust44; and limited the ability of antitrust class action counsel to certify
a class without regard to certain economic realities.45 In actual practice, modern antitrust
litigation is mostly concerned with motions, and discovery seeking evidence to use in a summary
judgment motion—rather than trials before juries.
What is so different from the earlier era is that private parties have been the sources of all
these antitrust-narrowing decisions since the 1980s. (The DOJ has brought no cases to the Court
and the FTC has brought only a handful of appeals involving its orders.) Individual private
parties tend to be less selective than government agencies in appealing cases and often seem to
have enjoyed less respect from the Court. Also, mostly during Republican Administrations, the
DOJ (or sometimes both DOJ and FTC) have appeared as amici supporting the defendants. This
almost never happened prior to 1980, when Government amicus briefs were less frequent and
normally supported plaintiffs’ efforts to expand the rules. The net result has been that the federal
antitrust agencies have sometimes been seen as aiders and abettors in the Court’s efforts to
narrow the then existing law, most especially regarding vertical restraints and monopolies.
Despite all this often controversial decision-making by the Supreme Court, those on the
losing side have generally been unable to muster sufficient support in the Congress to overturn a
major antitrust decision. This was true of the business lobbyists in the 1960s and 1970s, and it is
41
Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (overturning Dr. Miles Medical Co. v.
John D. Park & Sons Co., 220 U.S. 373 (1911)).
42
Pac. Bell Tel. Co. v. linkLine Commc'ns, Inc., 555 U.S. 438 (2009) (overturning United States v. Aluminum Co. of
America, 148 F.2d 416 (2d Cir. 1945)).
43
See Bell Atl. Corp. v. Twombly, 550 U.S. 544; Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S.
574 (1986).
44
See Credit Suisse Securities v. Billing, 551 U.S. 264 (2007).
45
See Comcast Corp. v. Behrend, et al., 133 S. Ct. 24 (2012).
17 William E. Kovacic: An Antitrust Tribute
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true of the more liberal groups today. Meanwhile, there are few interested centrists who give
antitrust and competition policy much thought other than perhaps as to various narrow-bore
issues of the moment.
The net result is that the United States is left with an odd patchwork of old statutes,
diverse judicial decisions from different eras, and periodic reliance on economic ideas that are
hard for ordinary mortals to understand. All this is occurring in the context of markets that are
becoming more global and increasing numbers of business enterprises finding themselves subject
to antitrust rules that differ as between the U.S., the EU and much of the rest of the world.
VII.
POLITICAL INACTION IS TODAY’S REGRETTABLE REALITY
Competition can be a very attractive political idea, especially when offered as an abstract
alternative to monopoly or collusive domination by a favored few enterprises. However, the
politics get much more complicated in practice. As economists promise, a truly competitive
market will normally bestow a lot of benefits on the consumers in the market via lower prices
and incentives to innovate—but the consumers who benefit are seldom actually conscious of
Adam Smith’s “invisible hand” as the source of their benefits.
Meanwhile, competitive markets can produce quite a range of disruptions and pain—as
new opportunities and ways brush aside long established enterprises and ways (as the longdominant Eastman Kodak knows so well). Intense economic disruption and pain can (and does)
generate rent-seeking anticompetitive legislative responses to competitive markets (as clearly
happened in the U.S. and elsewhere in the 1930s46). Moreover, even in normal times, lobbyists
for the status quo often can stall or defeat legislative proposals for significant change in the
Congress. This appears to be why serious changes in the antitrust statutes only have occurred
when some populist tidal wave swept aside the “politics as usual” process. The result, as we
noted at the outset, are statutes rushed through amid great excitement with little time for careful
study.
By contrast, other countries have generally adopted and then reformed their competition
laws and their administrative machinery in a much more orderly way. The rules were generally
adopted after seemingly careful study by ministers, legislators and committees of experts who
debated alternatives, articulated goals and fashioned implementing rules and procedures to
achieve them. These processes have had a top-down quality, and sometimes have sought to serve
46
Robinson-Patman Act (1936), 15 U.S.C. § 13 (passed at the behest of the grocery wholesalers); and Miller
Tydings Act, Pub. L. No. 314, 50 Stat. 693 (1937) (passed at the behest of the retail druggists) but repealed by the
Consumer Goods Pricing Act of 1975, Pub. L. No. 94-145, 89 Stat. 801 (1975), when it was one of several proantitrust and deregulation statutes passed in response to strong public concern about inflation.
18 William E. Kovacic: An Antitrust Tribute
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distinctively political goals going beyond economic efficiency or consumer welfare. This is
particularly well illustrated by what happened in post-war Europe, where the competition rules
reflected part of a broad desire to break down geographic barriers between EU Member States
and to avoid the kinds of monopolies that were deemed to have aided the rise of Hitler before
World II.
In 2004, some U.S. Congressional leaders decided that they wanted “to do something”
more deliberative, more along lines similar to what other nations have been doing. So they
created a statutory commission -- the Antitrust Modernization Commission – to review the
antitrust rules and institutions in broad terms and report back to the Congress by 2007.47 A
group of distinguished Commissioners were appointed by the White House and the majority and
minority leadership in the Congress. This group of experts hired a good staff, got a lot of
assistance from the FTC and DOJ, held numerous hearings, and then wrote a long report
essentially endorsing the status quo with a few tweaks.48
This has seemed to us to be an inadequate response to the entirely ad hoc situation that
we have allowed the legislators, enforcers and judges to create for us over the past century and a
quarter. We believe that there are some ordering principles and revised institutional
arrangements that would allow antitrust supporters to do a better job of explaining why
consumers and competitors should regard antitrust as a positive contribution to their welfare,
while creating a system which is less at odds with what so many foreign sovereigns have chosen
to create for themselves and their constituents. The task at hand is to develop and articulate such
principles.
47
Antitrust Modernization Commission Act of 2002, Pub. L. No. 107-273, §§ 11051-60, 116 Stat. 1856.
48
Antitrust Modernization Commission, Report and Recommendations (2007), available at
http://govinfo.library.unt.edu/amc/report_ recommendation/chapter2.pdf. See Charles Freed, The Antitrust
Modernization Commission: “If It Ain't Broke...”, ANTITRUST, Summer 2007, at 7. 19