Remedies for exclusionary conduct should protect and preserve the competitive process

Antitrust Law Journal

Volumn 76, Issue 1, 2009, Pages 65-78

  Werden, Gregory J ^a  

^a United States Department of Justice   (United States)

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EID: 70350176470     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (125)

1. Lawrence A. Sullivan, Handbook of the Law of Antitrust 146 (1977).
2. United States v. United Shoe Mach. Corp., 391 U. S. 244, 251 (1968).
3. See United States v. Microsoft Corp., 253 F.3d 34, 106 (D. C. Cir. 2001) (en banc) (reserving remedies that roll back monopoly power to cases in which "a significant causal connection between the [unlawful] conduct and ⋯ maintenance of the [monopoly] power" has been shown
4. (quoting 3 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 653b, at 91-92 (rev. ed. 1996)))
5. Section 2 cases are likely to fall within this third category. Many are filed so quickly after the onset of the unlawful conduct that it could not have had a lasting impact on the market. Moreover, courts have found Section 2 liability in recent years only for monopoly maintenance, which does not require a finding that the unlawful conduct significandy slowed the erosion of the defendant's monopoly power.
6. See Microsoft, 253 F.3d at 79.
7. United Shoe Machinery, 391 U. S. at 250. In all Section 2 cases, victims of the unlawful conduct might be awarded damages. Although the Sherman Act authorizes criminal prosecution and, as amended, provides for substantial fines, the consistent exercise of prosecutorial discretion confines criminal enforcement to hard-core cartel activity.
8. Standard Oil Co. v. FTC, 340 U. S. 231, 248 (1951).
9. Nat'l Soc'y of Prof'l Eng'rs v. United States, 435 U. S. 679, 688, 693-94 (1978).
10. Id. at 695.
11. NCAA v. Bd. of Regents of the Univ. of Okla., 468 U. S. 85, 104 (1984).
12. Id. at 104 n. 27
13. (quoting N. Pac. Ry. Co. v. United States, 356 U. S. 1, 4 (1958)).
14. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U. S. 398, 407 (2004).
15. Spectrum Sports, Inc. v. McQuillan, 506 U. S. 447, 458 (1993).
16. See also Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1338 (7th Cir. 1986) (Easterbrook, J.) ("Competition is a ruthless process. A firm that reduces cost and expands sales injures rivals-sometimes fatally.... These injuries to rivals are byproducts of vigorous competition, and the antitrust laws are not balm for rivals' wounds. The antitrust laws are for the benefit of competition, not competitors.").
17. See Trinko, 540 U. S. at 407;
18. Spectrum Sports, 506 U. S. at 456;
19. United States v. Microsoft Corp., 253 F.3d 34, 58 (D. C. Cir. 2001) (en banc).
20. United States v. Grinnell Corp., 384 U. S. 563, 570-71 (1966).
21. The Supreme Court employed this description most recently in Trinko. 540 U. S. at 407.
22. Andrew I. Gavil, Exclusionary Distribution Strategies by Dominant Firms: Striking a Better Balance, 72 Antitrust L. J. 3, 14 (2004).
23. See, e.g, Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1062 (8th Cir. 2000) ;
24. Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518, 522 (5th Cir. 1999) ;
25. see also Microsoft, 253 F.3d at 58-59 (setting out a multi-step analysis for the application of Section 2 in which one step is the defendant's opportunity to offer a "procompetitive justification" for its allegedly exclusionary conduct in the form of "a nonpretextual claim that its conduct is indeed a form of competition on the merits because it involves, for example, greater efficiency or enhanced consumer appeal").
26. Olympia Equip. Leasing Co. v. W. Union Tel. Co., 797 F.2d 370, 375 (7th Cir. 1986) (Posner, J.) (quoting Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 544 (9th Cir. 1983)).
27. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U. S. 585, 605 (1985) (footnote omitted) (quoting Robert H. Bork, The Antitrust Paradox 138 (1978)).
28. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705, 2724 (2007) ;
29. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U. S. 209, 224 (1993) ;
30. Atl. Richfield Co. v. USA Petroleum Co., 495 U. S. 328, 338 (1990) ;
31. Cargill, Inc. v. Monfort of Colo., Inc., 479 U. S. 104, 110 (1986).
32. Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 394 (7th Cir. 1984).
33. Town of Concord v. Boston Edison Co., 915 F.2d 17, 21 (1st Cir. 1990) (Breyer, C. J.).
34. See Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d 478, 486 (1st Cir. 1988) (Breyer, J.) ("'Anticompetitive' ⋯ has a special meaning. It refers not to actions that merely injure individual competitors, but rather to actions that harm the competitive process.").
35. United States v. Microsoft Corp., 253 F.3d 34, 58 (D. C. Cir. 2001) (en banc).
36. Two other circuits adopted the analysis in Microsoft. See Morris Commc'ns Corp. v. PGA Tour, Inc., 364 F. Sd 1288, 1294 (11th Cir. 2004) ("In order for a practice to be exclusionary, 'it must harm the competitive process and thereby harm consumers.'"
37. (quoting Microsoft, 253 F.3d at 58)) ;
38. Dickson v. Microsoft Corp., 309 F.3d 193, 206 (4th Cir. 2002) ("To have an 'anticompetitive effect,' conduct 'must harm the competitive process and thereby harm consumers.'"
39. (quoting Microsoft, 253 F.3d at 58)).
40. See Int'l Salt Co. v. United States, 332 U. S. 392, 400-01 (1947).
41. United States v. Grinnell Corp., 384 U. S. 563, 579-80 (1966).
42. International Salt, 332 U. S. at 400.
43. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S. 100, 132 (1969)
44. (quoting NLRB v. Express Pub. Co., 312 U. S. 426, 435 (1941)).
45. The equity jurisdiction of federal courts "is an authority to administer in equity suits the principles of the system of judicial remedies which had been devised and was being administered by the English Court of Chancery" in 1789. Grupo Mexicano de Desarrollo, S. A. v. Alliance Bond Fund, Inc., 527 U. S. 308, 318 (1999)
46. (quoting Atlas Life Ins. Co. v. W. I. Southern, Inc., 306 U. S. 563, 568 (1939)).
47. National Soc'y of Prof'l Eng'rs v. United States, 435 U. S. 679, 697 (1978).
48. United States v. U. S. Gypsum Co., 340 U. S. 76, 88-89 (1950) (footnote omitted).
49. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540. U. S. 398, 415-16 (2004).
50. Zenith, 395 U. S. at 133.
51. United States v. E. I. du Pont de Nemours & Co., 366 U. S. 316, 326 (1961).
52. See also Int'l Salt Co. v. United States, 332 U. S. 392, 401 (1947) ("the end to be served is not punishment of past transgression") ;
53. Hartford-Empire Co. v. United States, 323 U. S. 386, 409 (1945) (A court "may not impose penalties in the guise of preventing future violations.") (footnote omitted).
54. United States v. Borden Co., 347 U. S. 514, 519 (1954). Victims of Sherman Act violations can collect damages even if the court issues no injunction.
55. Richard A. Epstein, Antitrust Consent Decrees in Theory and Practice 115 (2007).
56. United States v. W. T. Grant Co., 345 U. S. 629, 633 (1953).
57. See also United States v. Or. State Med. Soc'y, 343 U. S. 326, 333 (1952) ("The sole function of an action for injunction is to forestall future violations.").
58. "Conduct remedies may be unavailing" in technology driven industries. "By the time a court can assess liability, firms, products, and the marketplace are likely to have changed dramatically." United States v. Microsoft Corp., 253 F.3d 34, 49 (D. C. Cir. 2001) (en banc).
59. United States v. Crescent Amusement Co., 323 U. S. 173, 186 (1944).
60. Howard A. Shelanski & J. Gregory Sidak, Antitrust Divestiture in Network Industries, 68 U. Chi. L. Rev. 1, 56 (2001).
61. Cf. 3 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 653c, at 147 (3d ed. 2008) ("If monopoly power is substantial and likely to be durable, if the possible forms of anticompetitive conduct are varied and difficult to predict, then drafting an effective remedy regulating conduct alone is likely to fail.").
62. Sullivan, supra note 1, at 148.
63. See Microsoft, 253 F.3d at 80 ("Absent some measure of confidence that there has been an actual loss to competition that needs to be restored, wisdom counsels against adopting radical structural relief.") ;
64. Jerrold G. Van Cise, Limitations upon Divestiture, 19 Geo. Wash. L. Rev. 147, 148 (1950) ("by reason of its drastic consequences [structural relief] should be most sparingly utilized").
65. Sherman Act 2 decrees mandating patent licensing have tended to permit the charging of "reasonable royalties." See, e.g., United States v. Nat'l Lead Co., 332 U. S. 319, 349-50 & n. 9 (1947) (collecting cases). Such decrees, however, can be highly problematic. Setting a royalty enmeshes the court in complex matters. Paying a royalty increases the licensee's marginal cost and hence its price. Protecting the licensor's rights also may entail reporting obligations that facilitate anticompetitive coordination between the licensor and licensee. The first two of these points, and others, were made in Brief for the United States at 55-56, 63-78
66. United States v. Nat'l Lead Co., 332 U. S. 319 (1947) (No. 46-89).
67. United States v. Am. Cyanamid Co., Final Judgment § V, 1964 Trade Cas. (CCH) ¶ 71, 166, at 79, 631 (S. D. N. Y. Aug. 4, 1964). In is infeasible to examine the facts of this case, or those of other cases cited herein, and to formulate an alternative remedial scheme. On the other hand, many of the examples of inappropriate remedial provisions cited in this essay were part of a long list of provisions and could have been omitted without undermining the remedial scheme.
68. Such conduct should be found to be exclusionary only if it would make no economic sense to the defendant absent a tendency to eliminate competition. See Gregory J. Werden, Identifying Exclusionary Conduct under Section 2: The "No Economic Sense" Test, 73 Antitrust L. J. 413 (2006) ;
69. Gregory J. Werden, The "No Economic Sense" Test for Exclusionary Conduct, 31 J. Corp. L. 293 (2006).
70. United States v. Ekco Prods. Co., Final Judgment § VII (B), 1957 Trade Cas. (CCH) ¶ 68, 768, at 73, 128 (N. D. Cal. July 1, 1957).
71. For other doubtful prohibitions, see United States v. A. B. Dick Co., Final Judgment § VII, 1948-49 Trade Cas. (CCH) ¶ 62, 233, at 62, 361 (N. D. Ohio Mar. 25, 1948) (requiring the defendant to close its "branch offices" and not open new offices) ;
72. United States v. Solvay Process Co., Final Judgment § III, 1944-45 Trade Cas. (CCH) ¶ 57, 229, at 57, 314 (D. Kan. Mar. 14, 1944) (prohibiting the defendant from constructing a soda ash (sodium carbonate) manufacturing facility in Kansas except with court approval) ;
73. United States v. Harry F. Sterne, Final Judgment § IV (f), 1952-53 Trade Cas. (CCH) ¶ 67, 319, at 67, 763 (E. D. Pa. July 16, 1952) (prohibiting "[p]urchasing or offering to purchase live fish at unreasonably high prices").
74. This is true even when the purpose of the remedy is to extirpate or roll back the defendant's monopoly power. After whatever restructuring is appropriate to achieve that objective, the defendant and successor companies should be permitted and encouraged to compete aggressively on the merits.
75. United States v. Allied Chem. & Dye Corp., Final Judgment § V.2, 1940-43 Trade Cas. (CCH) ¶ 56, 133, at 528 (S. D. N. Y. May 29, 1941).
76. United States v. Gen. Motors Corp., Final Judgment § VI, 1965 Trade Cas. (CCH) ¶ 71, 624, at 81, 807 (E. D. Mich. Dec. 31, 1965). Divestiture in this case was a backstop to be used in the event that the conduct remedies failed to achieve the desired objective, but the court normally should decide whether divestiture is appropriate before issuing its remedial order.
77. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U. S. 398, 407-08 (2004).
78. See Hartford-Empire Co. v. United States, 323 U. S. 386, 410 (1945) (a "decree must not be 'so vague as to put the whole conduct of the defendant's business at the peril of a summons for contempt'" or "enjoin 'all possible breaches of the law'"
79. (quoting Swift & Co. v. United States, 196 U. S. 375, 396 (1905)) ;
80. see also Int'l Salt Co. v. United States, 332 U. S. 392, 400 (1947) ("[I]t is desirable, in the interests of the court and of both litigants, that the decree be as specific as possible, not only in the core of its relief, but in its outward limits so that parties may know their dudes and unintended contempts may not occur.") ;
81. Sullivan, supra note 1, at 147-48 (conduct remedies incorporating "judgmental concepts" present "severe" problems.).
82. United States v. Sonoco Prods. Co., Final Judgment § V, 1970 Trade Cas. (CCH) ¶ 73, 008, at 87, 955 (E. D. S. G. Jan. 22, 1970).
83. For other inappropriately framed provisions, see United States v. True Temper Corp., Final Judgment § VII, 1961 Trade Cas. (CCH) ¶ 70, 090, at 78, 387-88 (N. D. 111. Aug. 1, 1961) (prohibiting "hindering" any competitor, customer, or end user) ;
84. United States v. W. Newspaper Union, Final Judgment § IX (F), 1952-53 Trade Cas. (CCH) ¶ 67, 557, at 68, 656 (S. D. N. Y. Aug. 18, 1953) (prohibiting "hindering" any person from competing).
85. United States v. Owens-Corning Fiberglas Corp., Final Judgment §X (3), 1948-49 Trade Cas. (CCH) ¶ 62, 442, at 63, 272 (N. D. Ohio June 23, 1949).
86. For similar provisions, see United States v. Am. Optical Co., Final Judgment § XVI, 1948-49 Trade Cas. (CCH) ¶ 62, 308, at 62, 732 (S. D. N. Y. Sept. 17, 1948) (prohibiting selling at "unreasonably low prices" with the purpose or effect of eliminating a competitor or preventing competition) ;
87. United States v. Century-West Publ'g Co., Decree § III (c), Eq. No. 30888 (N. D. Ill. Aug. 3, 1912) (prohibiting pricing "with the purpose or intent of injuring or destroying" competitors) ;
88. United States v. The Lima News, Final Judgment § V, 1965 Trade Cas. (CCH) ¶ 71, 609, at 81, 747 (N. D. Ohio Nov. 30, 1965) (prohibiting operating "at a loss for the purpose of eliminating a competing newspaper") ;
89. United States v. F. S. Bowser & Co., Final Decree § 2 (j), Eq. No. 117 (D. Ind. June 10, 1915) (prohibiting "acts of unfair competition the purpose or effect of which shall be to injure or destroy the business of any competitor") ; and cases cited infra note 52.
90. United States v. Safeway Stores, Inc., Final Judgment § V, 1957 Trade Cas. (CCH) ¶ 68, 871, at 73, 531 (N. D. Tex. Dec. 7, 1957).
91. For similarly pointless prohibitions, see United States v. Azteca Films, Inc., Final Judgment § IV (E), 1960 Trade Cas. (CCH) ¶ 69, 683, at 76, 696 (S. D. N. Y. Apr. 13, 1960) (prohibiting film distributor from "[g]ranting any unreasonable clearance") ;
92. United States v. Union Camp Corp., Final Judgment § IV, 1969 Trade Cas. (CCH) ¶ 72, 843, at 87, 106-07 (E. D. Va. July 1, 1969) (defendant prohibited from applying for, or enforcing, a patent if information comes to light indicating "without any reasonable doubt" that a court would hold the patent invalid or would have prevented the Patent Office from issuing the patent).
93. United States v. The Gamewell Co., Final Judgment §V (H), 1948-49 Trade Cas. (CCH) ¶ 62, 236, at 62, 375 (D. Mass Mar. 22, 1948).
94. For other inappropriate provisions, see United States v. Nat'l Cash Register Co., Final Decree § 2 (h), Eq. No. 6802 (S. D. Ohio Feb. 1, 1916) (prohibiting selling used equipment with "the dominant purpose of underselling a competitor and driving him from business") ;
95. United States v. Wallace & Tiernan Co., Final Judgment § VII, 1954 Trade Cas. (CCH) ¶ 67, 901, at 69, 907 (D. R. I. Nov. 15, 1954) (prohibiting "cutting prices ⋯ for the purpose of destroying a competitor") ; and cases cites supra note 50.
96. See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U. S. 209, 222 (1993) (holding that, to establish predatory pricing, a plaintiff must show "that the prices complained of are below an appropriate measure of its rival's costs").
97. See 2A Phillip E. Areeda et al., Antitrust Law ¶ 325a, at 8 (3d ed. 2007) ("[T]he purpose of antitrust is not to substitute for agency regulation but to make markets competitive and thus able to function without the need for ongoing supervision. ") ;
98. see also Brief for the United States at 40
99. United States v. United Shoe Mach. Corp., 391 U. S. 244 (1968) (No. 67-597) ("[I]t is desirable to avoid, if possible, continuingjudicial supervision of business activity conducted under an antitrust decree.") ;
100. Brief for the United States at 64
101. United States v. Nat'l Lead Co., 332 U. S. 319 (1947) (No. 46-89) ("judicial regulation of the future economics of the industry ⋯ is ⋯ incompatible with our system of free enterprise").
102. United States v. Hartford-Empire Co., Final Judgment § 12 (A), Civ. No. 4426 (N. D. Ohio Oct. 31, 1945) ;
103. see also Note, Compulsory Patent Licensing by Antitrust Decree, 56 Yale L. J. 77 (1946) (extensively discussing the judgment).
104. For other doubtful provisions, see United States v. Am. Optical Co., Final Judgment § VII (C), 1966 Trade Cas. (CCH) ¶ 71, 781, at 82, 612-13 (E. D. Wisc. Jun. 28, 1966) (ordering closure of operations losing money) ;
105. United States v. IBM Corp., Final Judgment § X (3), 1956 Trade Cas. (CCH) ¶ 68, 245, at 71, 126 (S. D. N. Y. Jan. 25, 1956) (defendant prohibited from "[p]rescribing arbitrary, unreasonable, or unnecessary specifications for tabulating cards") ;
106. United States v. Grinnell Corp., Final Judgment §V (D), No. 2785 (D. R. I. July 11, 1967) (defendant prohibited from charging higher prices in areas where it was a monopolist than in areas in which it was not) ;
107. United States v. White Cap Co., Final Judgment § IV (G), 1948-49 Trade Cas. (CCH) ¶ 62, 268, at 62, 605 (N. D. Ill. Jun. 17, 1948) (prohibiting changing a product in a manner that created incompatibility with rival's complements unless doing so resulted in "more efficient operation").
108. Verizon Commc'ns Inc. v. Law Offices of Curds V. Trinko, LLP, 540 U. S. 398, 408 (2004).
109. Id. at 415 (quoting Phillip Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 Antitrust L. J. 841, 853 (1989)).
110. United States v. AT&T Co., 552 F. Supp. 131, 226-34 (D. D. C. 1982)
111. aff'd sub nom. Maryland v. United States, 460 U. S. 1001 (1983).
112. United States v. Western Elec. Co., 569 F. Supp. 1057, 1120 (D. D. C)
113. aff'd sub nom. California v. United States, 464 U. S. 1013 (1983).
114. See Peter W. Huber, Michael K. Kellogg & John Thorne, Federal Telecommunications Law 380 (2d ed. 1999) ;
115. see generally Michael K. Kellogg, John Thorne & Peter W. Huber, Federal Telecommunications Law 343-99 (1992) (detailing the history).
116. Pub. L. 104-104, Tide VI, § 601 (a), codified at 47 U. S. C. § 152 note. At the time of enactment, 49 line-of-business waivers were pending.
117. See Peter W. Huber, Michael K. Kellogg & John Thorne, The Telecommunications Act of 1996, at 43 (1996).
118. Richard A. Epstein, supra note 33, at 17, 52.
119. See also Note, supra note 55, at 81 ("a decree rapidly becomes inappropriate as new firms emerge, technological processes develop, and trade practices change").
120. Richard A. Posner, Antitrust Law 273 (2d ed. 2001).
121. The Microsoft decree had a term, of five years. United States v. Microsoft Corp., 231 F. Supp. 2d 144, 195 (D. D. C. 2002).
122. The Dentsply decree has a term of seven and a half years. United States v. Dentsply Int'l, Inc., Civ. No. 99-005, Final Judgment, § VIII (B) (D. Del. Apr. 26, 2006), available at http://www.usdoj.gov/atr/cases/f218200/218215. pdf (an incorrect termination provision appears in the version of the judgment reported at 2006-2 Trade Cas. (CCH) ¶ 75, 383).
123. Sigmund Timberg, Equitable Relief Under the Sherman Act, 1950 U. Ill. L. F. 629, 629. This article is a highly literate and richly detailed account by a Justice Department official responsible for crafting and enforcing Sherman Act judgments during a period of active enforcement.
124. See, e.g., id. at 658;
125. William E. Kovacic, Designing Antitrust Remedies for Dominant Firm Misconduct, 31 Conn. L. Rev. 1285, 1310-11 (1999).