ANTITRUST LAW
Barbara Van Schewick
Spring 2017
Antitrust statutes do not apply to “state action”
3 tiers of state action immunity:
Top of three branches of government in each state (governor, state legislature, state supreme court) è per se immune
State agencies and municipalities è immune if “clearly authorized” by one of (i)
General regulatory authority usu. sufficient
May not apply when the agency / municipality acts as a commercial participant rather than a regulator
Private persons è immune if (1) “clearly authorized” and (2) actively supervised by the state (incl. (i) or (ii)
Effectively requires evidence that some disinterested state or municipal official exercised substantive control over the terms of the relevant restraint
Substantive approval by the state cannot come after the fact (after the restraint is imposed on the market)
Petitioning immunity
Clearly applies when petitioning by defendant allegedly led a disinterested public lawmaker to impose an anticompetitive restraint
Derivative of state action immunity
Immunity lost if petitioning exceeds prevailing standards for providing input to the political process
Does NOT apply when actor coerces government into legislating by introducing an anticompetitive restraint into the market
Exemptions
Implied exemptions
Rare: exemption “implied only if necessary to make the [non-antitrust statute] work, and even then only to the minimum extent necessary.” Silver v. NYSE, (U.S. 1963)
E.g. Credit Suisse Securities v. Billing (U.S. 2007): federal securities law precludes antitrust law when the two are clearly incompatible
E.g. Filed rate doctrine = a party may not collect damages (in antitrust or otherwise) based on an overcharge that reflected a rate filed with and approved by a federal regulator
Explicit exemptions
Congress has enacted statutory exemptions, incl:
Baseball
Charitable
Medical resident matching program
Farming and fishing cooperatives
Professional review bodies taking action based on the quality of a physician’s care
Stateregulated insurance exemptions
McCarran-Ferguson Act: Intended to allow insurers to collectively agree on insurance prices and terms, subject to state monitoring
3 requirements must be met:
The practice involves the business of insurance
The practice is regulated by state laws
The practice does not constitute a boycott
Labor exemptions
Statutory exemptions for ordinary labor union activities by employees and their unions
Otherwise, these would be horizontal boycotts and price-fixing agreements
“Nonstatutory” (implied) exemptions for agreements between unions and employers (to the extent necessary for collective bargaining)
Remedies and Enforcement
Criminal
Criminal prosecution can be brought by DOJ for violating the Sherman Act
Punishment: a fine of ≤ $100M or imprisonment of ≤ 10 years, or both
General U.S. criminal law allows for an alternative fine of 2x defendant's pecuniary gain or victims' pecuniary loss
Requires mens rea: either…
Anticompetitive intent, or
Knowledge that anticompetitive effects were probable and in fact ensued
Civil
Damages are available, including treble damages
Has led to development of doctrine erring on the side of NOT finding liability, for fear of imposing crushing damages
Are treble damages excessive?
Probably not, since:
Ps usu. cannot collect pre-suit / prejudgment interest
Ps have trouble proving harm when the anticompetitive overcharge caused them not to buy the product (that is, the DWL triangle usually cannot be collected)
Ps typically cannot recover damages for the harmful umbrella effect of an overcharge increasing the prices of rivals or substitutes
Governments can bring claims for damages
For their own injury
States can also bring an action in “parens patriae” on behalf of its citizens (rare)
Injunctive relief is available
Claims can be brought by everyone: DOJ, FTC, private suits
Easier in government cases; proof of violation usu. sufficient
Private plaintiffs have to also satisfy normal injunction requirements
To prevent or undo anticompetitive effects
Cannot be punitive…
…but can be aimed at denying the defendant the fruits of its antitrust violations (e.g. disgorgement)
B. Why Protect Competition?
The easiest way to understand why we protect competition is to compare a perfectly competitive market with a monopoly market
The perfectly competitive market
Key characteristics:
Many buyers and sellers, all are price takers
Perfect and complete information to all buyers and sellers
No barriers to entry
How is price set in a competitive market?
Assumption: actors are rational maximizers of self-interest
Producers: maximize profit
Consumers: maximize utility (a measure of satisfaction)
Interaction of independent decisions by consumers and producers
reements are less likely to be related to a productive business relationship, whereas businesses in vertical relation are more likely to have a legitimate reason to collaborate
E. Analyzing the Costs and Benefits of Antitrust Rules
How do we decide between different antitrust rules, e.g. whether to allow defenses, shift things from per se to RoR, etc.?
Three considerations:
Error costs:
False positives
= condemned but not actually harmful
Why do we care?
The activity might actually be socially beneficial
Overdeterrence
False negatives
= failure to condemn harmful behavior
Why do we care?
Allows socially harmful activity to persist
Underdeterrence
Decision costs
E.g. experts, detailed industry studies, etc.
Other factors
E.g. notice to defendants, predictability, consistency
Weighing these considerations
Error costs
Decision costs
Other factors
FP
FN
a) Defense: no market power
Reduced, but only cartels w/o market power
Higher
High
Less certainty
b) Defense: agreement had no effect
Reduced, but only ineffective cartels
Higher
High
Less certainty
c) Shift per se restraints with procompetitive benefits to RoR
Reduced, leading to substantial societal benefits
?
High
Less certainty
Compare: the defenses of no market power and agreement had no effect vs. shifting per se restraints with procompetitive benefits to RoR
For the defenses…
The benefit of reducing false positives is probably small…
We are saving individuals who tried to collude, who wanted to act badly but failed to do so (e.g. out of incompetence)
And the costs of the defense are significant
On the other hand, for the shifting of per se restraints with procompetitive benefits to RoR…
The costs of doing this is significant
But now, the benefit of reducing false positives is likely substantial
