Optimizing private antitrust enforcement

Vanderbilt Law Review

Volumn 63, Issue 3, 2010, Pages 675-723

  Crane, Daniel A ^a  

^a UNIVERSITY OF MICHIGAN LAW SCHOOL   (United States)

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EID: 78650843743     PISSN: 00422533     EISSN: None     Source Type: Journal    
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References (258)

1. See Daniel A. Crane, Technocracy and Antitrust, 86 TEX. L. REV. 1159,1179 (2008).
2. In the current system, the possibilities for injunctive relief are slim. Only about eighteen private antitrust cases go to trial every year in the federal system, out of about 800 cases that reach a final disposition. See Daniel A. Crane, Antitrust Antifederalism, 96 CAL. L. REV. 1, 35 n.188 (2008). Even assuming that half of these cases succeed at trial, that is only about nine cases a year which would even be candidates for permanent injunctive relief. of course, it is possible that the parties would enter into a settlement agreement calling for the entry of a stipulated injunction, but such settlements are exceedingly rare in private cases.
3. See AM. ANTITRUST INST., PRIVATE ENFORCEMENT: ADDING TO THE COMPLEXITY? (2009) [hereinafter "AAI REPORT"].
4. Commission of the European Communities, White Paper on Damages Actions for Breach of the EC Antitrust Rules, COM (2008) 165 final (Apr. 2, 2008) [hereinafter "EU White Paper"].
5. See infra text accompanying notes 108-122.
6. See AAI REPORT, supra note 3.
7. See, e.g., Am. Soc'y of Mech. Eng'rs, Inc. v. Hydrolevel Corp., 456 U.S. 556, 572 n.10 (1982) ("Congress created the treble-damages remedy . . . precisely for the purpose of encouraging private challenges to antitrust violations. These private suits provide a significant supplement to the limited resources available to the Department of Justice for enforcing the antitrust laws and deterring violations."
8. (citing Reiter v. Sonotone Corp., 442 U.S. 330, 344 (1979)));
9. Tex. Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 636 (1981) (referring to deterrence as "one of the important purposes of the treble-damages action under §4 of the Clayton Act");
10. Pfizer, Inc. v. Gov't of India, 434 U.S. 308, 314 (1978) (stating that "§ 4 [of the Clayton Act] has two purposes: to deter violators and deprive them of 'the fruits of their illegality,' " and "to compensate victims of antitrust violations for their injuries." (citations omitted)); 111.
11. Brick Co. v. Illinois, 431 U.S. 720, 746 (1977) (asserting that compensation and deterrence are the twin goals of §4 of the Clayton Act);
12. see also Phillip Areeda, Antitrust Violations Without Damage Recoveries, 89 HARV. L. REV. 1127, 1127 (1976) (stating that two purposes of private antitrust enforcement are compensation and deterrence).
13. The framers of the Sherman Act justified the treble-damages remedy as necessary to achieve compensation for injured victims of the trusts. Robert H. Lande, Wealth Transfers as the Original and Primary Concern of Antitrust: The Efficiency Interpretation Challenged, 50 HASTINGS L.J. 871, 911-35 (1999).
14. EU White Paper, supra note 4, at 3.
15. Id. Interestingly, the white paper listed deterrence as a merely secondary goal for private enforcement. Id. In the United States, the situation is arguably the opposite. See William H. Page, The Scope of Liability for Antitrust Violations, 37 STAN. L. REV. 1445, 1452 (1985) (arguing that the Supreme Court has elevated deterrence over compensation as a value for private antitrust enforcement).
16. To be more precise, antitrust scholars generally speak about "static efficiency and dynamic efficiency." See, e.g., J. Gregory Sidak & David J. Teece, Dynamic Competition in Antitrust Law, 5 J. COMPETITION L. & ECON. 581, 600 (2009). The loss of one or other of those forms of efficiency due to anticompetitive injury is what I call static or dynamic injury.
17. See generally HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY: THE LAW of COMPETITION AND ITS PRACTICE 19-20 (3d ed. 2005).
18. See generally Herbert Hovenkamp, Restraints on Innovation, 29 CARDOZO L. REV. 247 (2007).
19. Herbert Hovenkamp, Antitrust's Protected Classes, 88 MICH. L. REV. 1, 30 (1989).
20. KENNETH G. ELZINGA & WILLIAM BREIT, THE ANTITRUST PENALTIES: A STUDY IN LAW AND ECONOMICS 6-7 (1976);
21. William M. Landes, Optimal Sanctions for Antitrust Violations, 50 U. CHI. L. REV. 652, 653 (1983).
22. Hovenkamp, supra note 14, at 9-11.
23. To the extent that would-be monopolists expend resources trying to effectuate wealth transfers, such expenditures may be inefficient. RICHARD A. POSNER, ANTITRUST LAW 13 (2d ed. 2001). However, private enforcers do not sue to recover such wasted expenditures.
24. See Hovenkamp, supra note 14, at 36;
25. Landes, supra note 15, at 675-76.
26. Chattanooga Foundry & Pipe Works v. City of Atlanta, 203 U.S. 390, 396, 399 (1906) (holding that damages in overcharge cases are the "difference between the price paid and the market or fair price").
27. 15 U.S.C. §15(a) (2006).
28. See generally Robert H. Lande, Are Antitrust "Treble"Damages Really Single Damages?, 54 OHIO ST. L.J. 115 (1993).
29. On the other hand, public enforcers typically seek penalties, not damages, and do not have to establish standing to sue or make their case on behalf of any particular class of purchasers. Rather, they can focus on the overall social harm of the conduct and pursue remedies designed to deter and prevent such conduct in the future.
30. See Robert H. Lande, Wealth Transfers as the Original and Primary Concern of Antitrust: The Efficiency Interpretation Challenged, 50 HASTINGS L.J. 871, 911-35 (1999) (arguing, based on legislative history, that Congress intended the Sherman Act to prevent wealth transfers from consumers to producers).
31. See, e.g., Del. Valley Surgical Supply, Inc. v. Johnson & Johnson, 523 F.3d 1116 (9th Cir. 2008);
32. Se. Mo. Hosp. v. C.R. Bard, Inc., 2009-1 Trade Cas. (CCH) 76, 461 (E.D. Mo. 2008);
33. Natchitoches Parish Hosp. Serv. Diet. v. Tyco Int'l, 247 F.R.D. 253 (D. Mass. 2008).
34. See Robert G. Harris & Lawrence A. Sullivan, Passing on the Monopoly Overcharge: A Comprehensive Policy Analysis, 128 U. PA. L. REV. 269, 276 (1979) ("[I]n a multiple-level chain of distribution, passing on monopoly overcharges is not the exception: it is the rule.").
35. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 103 n.5 (1998) (recognizing the principle of damnum absque injuria- harm without legal injury).
36. Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481 (1968).
37. Ill. Brick Co. v. Illinois, 431 U.S. 720 (1977). It bears noting that the Illinois Brick and Hanover Shoe rules only apply in federal lawsuits.
38. In California v. ARC America Corp., 490 U.S. 93 (1989), the Supreme Court held that federal antitrust law does not preempt state antitrust laws that allow indirect purchaser suits. A number of states have allowed such indirect purchaser suits.
39. The congressionally appointed Antitrust Modernization Commission recently made a recommendation for legislative reforms that would overrule both Hannover Shoe and Illinois Brick and allow for removal of state cases to federal court and consolidation of all damages claims as to a particular violation. ANTITRUST MODERNIZATION COMM'N, REPORT AND RECOMMENDATIONS ch. 2 (2007), available at http://govinfo.library.unt.edu/amc/report-recommendation/chapter2.pdf. The court would then make a determination of what the total monopoly overcharge was, treble the overcharge, and allocate the damages pot to the different plaintiffs based on the proportion of their individual injuries to the total.
40. See Richard A. Posner, Oligopoly and the Antitrust Laws: A Suggested Approach, 21 STAN. L. REV. 1562, 1590 (1969) (arguing that "[t]he class action, save for large institutional purchasers, is a delusion. There is no feasible method of locating and reimbursing the consumer who several years ago may have paid too much for a toothbrush ....").
41. See Christopher R. Leslie, The Need to Study Coupon Settlements in Class Action Litigation, 18 GEO. J. LEGAL ETHICS 1395, 1396-97 (2005) (reporting redemption rate of 26.3 percent).
42. See A. Mitchell Polinsky & Daniel L. Rubinfeld, A Damage-Revelation Model of Coupon Remedies, 23 J.L. ECON. & ORG. 653, 653 (2007). Polinsky and Rubinfeld summarize the literature critical of coupon settlements, but argue that coupons may be socially efficient if they are designed as an alternative to cash and make the defendant bear costs that better reflect the harms they have caused. This may be a strong deterrence argument, but it does little for the compensation goal.
43. Class Action Fairness Act, Pub. L. 109-2, 119 Stat. 4 (2005).
44. See Edward Cavanagh, Antitrust Remedies Revisited, 84 OR. L. REV. 147, 214 (2005).
45. Robert H. Lande & Joshua P. Davis, Benefits from Private Antitrust Enforcement: An Analysis of Forty Cases, 42 U.S.F. L. REV. 879 (2008).
46. Id. at 880.
47. Id. at 891.
48. Id. at 899.
49. See supra notes 26-38 and accompanying text.
50. Some states permit indirect purchaser suits under their own antitrust laws. See supra text accompanying notes 28-29.
51. Lande & Davis, supra note 35, at 911-12, tbls.7a-c.
52. Id. at 879.
53. Robert H. Lande & Joshua P. Davis, Benefits from Antitrust Private Antitrust Enforcement: Forty Individual Case Studies 19 (Am. Antitrust Inst., 2008), available at http://ssrn.com/abstract=1105523 (providing further detail on the Augmenin case).
54. In re Remeron End-Payor Antitrust Litig., Nos. Civ. 02-2007 FSH, Civ. 04-5126 FSH, 2005 WL 2230314, at *1, *6 (D.N.J. Sept. 13, 2005).
55. Id. at*25.
56. Id. at*19.
57. Id.
58. Lande & Davis, supra note 43, at 77.
59. Id.
60. Id. at 84.
61. Id. at 84-86.
62. California Public Utilities Commission, Natural Gas and California, http://www.cpuc. ca.gov/puc/Energy/gas/natgasandca.htm (last visited Feb. 11, 2010).
63. See generally Associated Gen. Contractors v. Carpenters, 459 U.S. 519 (1983).
64. See generally Roger D. Blair & William H. Page, " Speculative" Antitrust Damages, 70 WASH. L. REV. 423 (1995) (suggesting methods of proving non-speculative damages).
65. See William J. Baumol & Janusz A. Ordover, Use of Antitrust to Subvert Competition, 28 J.L. & ECON. 247 (1985);
66. Daniel A. Crane, The Paradox of Predatory Pricing, 91 CORNELL L. REV. 1, 5-32 (2005);
67. Frank H. Easterbook, The Limits of Antitrust, 63 TEX. L. REV. 1 (1984);
68. R. Preston McAfee & Nicholas V. Vakkur, The Strategic Abuse of the Antitrust Laws, 2 J. STRATEGIC MGMT. EDUC 37, 37-38 (2005);
69. Edward A. Snyder & Thomas E. Kauper, Misuse of the Antitrust Laws: The Competitor Plaintiff, 90 MICH. L. REV. 551 (1991).
70. See Crane, supra note 2, at 40-43.
71. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
72. See generally Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977).
73. See generally Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993).
74. Swift & Co. v. United States, 196 U.S. 375 (1905).
75. Leegin Creative Leather Pros., Inc. v. PSKS, Inc., 551 U.S. 877, 906 (2007)
76. (citing Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 338 (1990)). Whether the "competition, not competitors" maxim applies with equal force in the European Union has been the subject of much discussion.
77. See Damien Gerardin, The Perils of Antitrust Proliferation: The Globalization of Antitrust and the Risks of Overregulation of Competitive Behavior, 10 CHI. J. INT'L L. 189, 207 (2009). Nonetheless, the European Commission seems to have come around to a consumer welfare orientation. DG Competition Discussion Paper on the Application of Article 82 to Exclusionary Abuses 4, Dec. 2005, available at http://ec.europa.eu/competition/antitrust/ art82/discpaper2005.pdf. It would thus be anomalous even in the European Union to justify the expense, burden, and systemic effects of private antitrust litigation if all it did was compensate aggrieved competitors.
78. See Hovenkamp, supra note 13, at 253 (stating that "today no one doubts [Robert M. Solow's] basic conclusion that innovation and technological progress very likely contribute much more to economic growth than policy pressures that drive investment and output toward the competitive level");
79. Michael E. Porter, Competition and Antitrust: A Productivity-Based Approach, in UNIQUE VALUE: COMPETITION BASED ON INNOVATION: CREATING UNIQUE VALUE FOR ANTITRUST, THE ECONOMY, EDUCATION AND BEYOND 154, 156-57 (Charles D. Weller ed., 2004).
80. JOSEPH SCHUMPETER, CAPITALISM, SOCIALISM, AND DEMOCRACY 84-85 (1942).
81. See Harold Demsetz, How Many Cheers for Antitrust's 100 Years?, 30 ECON INQUIRY 207 (1992);
82. Michael L. Katz & Howard A. Shelanski, Mergers and Innovation, 74 ANTITRUST L.J. 1, 3 (2007) ("In the light of the potential tension between competition and innovation, and in the light of the uncertainty that innovation creates for predictions about competitive effects of mergers and future conditions in relevant markets, a growing body of commentary has questioned the relationship of antitrust law to innovation.").
83. Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in THE RATE AND DIRECTION of INVENTIVE ACTIVITY: ECONOMIC AND SOCIAL FACTORS 609, 619-22 (Richard Nelson ed., 1962).
84. See generally Jonathan B. Baker, Beyond Schumpeter vs. Arrow: How Antitrust Fosters Innovation, 74 ANTITRUST L.J. 575 (2007).
85. See, e.g., Thomas O. Barnett, Maximizing Welfare Through Technological Innovation, 15 GEO. MASON L. REV. 1191, 1194 2008) (arguing that "dynamic efficiency- particularly leapfrog dynamic efficiency- accounts for the lion's share of efficiency/welfare gains").
86. See supra text accompanying note 54.
87. Hovenkamp, supra note 13, at 257.
88. But see Margaret Jane Radin, Compensation and Commensurability, 43 DUKE L.J. 56, 57 (1993) (arguing for an alternative view of compensation form of redress based on "affirming public respect for the existence of rights and public recognition of the transgressor's fault with regard to disrespecting rights").
89. See Hovenkamp, supra note 13, at 257-59.
90. Id. at 257.
91. Id. at 258-59.
92. Kloth v. Microsoft, 444 F.3d 312, 324 (4th Cir. 2006) (quoting In re Microsoft, 127 F. Supp. 2d 702, 711 (2001)).
93. Id.
94. See supra text accompanying notes 21-22.
95. For example, in the case of Microsoft the most likely victims of the suppression of innovation are users of Linux or other operating systems who would have seen the development of a more innovative operating system market in the but-for world.
96. See, e.g., POSNER, supra note 17, at 266 (arguing that compensation should be a "subsidiary" goal to deterrence);
97. Page, supra note 10, at 1451 (arguing that "the deterrent function must predominate").
98. See generally Gary S. Becker, Crime and Punishment: An Economic Approach, 76 J. POL. ECON. 169 (1968). As Bill Landes has explained, "[t]he optimal penalty should equal the net harm to persons other than the offender, adjusted upward if the probability of apprehension and conviction is less than one."
99. William M. Landes, Optimal Sanctions for Antitrust Violations, 50 U. CHI. L. REV. 652, 678 (1983).
100. See, e.g., John C. Coffee, Jr., Reforming the Securities Class Action: An Essay on Deterrence and Its Implementation, 106 COLUM. L. REV. 1534, 1535-36 (2006) ("As presently constituted, securities class actions produce wealth transfers among shareholders that neither compensate nor deter.").
101. Some commentators have questioned whether treble damages are adequate to achieve optimal deterrence. See, e.g., Robert H. Lande, Five Myths About Antitrust Damages, 40 U.S.F. L. REV. 651 (2006). However, most commentators seem to assume, without discussion, that the prospect of antitrust damages is successfully conveyed to the firm, even if the exact size of the multiplier should be higher.
102. See FEDERAL COURT MANAGEMENT STATISTICS (2001), available at http://www.uscourts.gov/cgi-bin/cmsd2001.pi.
103. See FEDERAL COURT MANAGEMENT STATISTICS (2007), available at http://www. uscourts.gov/cgi-bin/cmsd2007.pl.
104. See FED. R. CIV. P. 26(b)(2) 2006 advisory committee's note (describing increased burdens from electronic discovery).
105. The Georgetown study found that the average time for the termination of all cases was 24.9 months, with a median of 16.6 months. See Steven C. Salop & Lawrence J. White, Economic Analysis of Private Antitrust Litigation, 74 GEO. L.J. 1001, 1009 (1986). For comparative purposes, the median length of federal civil cases at the time of the Georgetown study was about nine months.
106. Id.
107. ADMINISTRATIVE ofFICE of THE U.S. COURTS, JUDICIAL BUSINESS of THE U.S. COURTS tbls.S-11amp; C-2 (2007), available at http://www.uscourts.gov/ judbus2007/contents.html.To put the antitrust numbers in perspective, it may be useful to consider the ratio between three-year old cases and new filings for other classes of private lawsuits. The following are some other categories of cases by (1) new filings, (2) three-year old cases, and (3) ratio between (1) and (2): breach of contract: 33,939; 1,358, 25:1; civil rights: 31,756, 2,077, 15:1; environmental: 767, 214, 4:1; labor: 18,674, 532, 35:1; RICO: 653, 122, 5:1. Antitrust, with fewer than three new filings per three-year-old case shows a significantly greater disposition toward lengthy cases than other common categories of business litigation.
108. Id. at tbl.B-4.
109. FED. R. APP. P. 41(d)(2).
110. LePage's Inc. v. 3M, 324 F.3d 141, 144 (3d Cir. 2003), cert, denied, 542 U.S. 953 (2004).
111. Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768, 772, 775 (6th Cir. 2002), cert, denied, 537 U.S. 1148 (2003).
112. See Anne T. Coughlan & Ronald M. Schmidt, Executive Compensation, Management Turnover, and Firm Performance: An Empirical Investigation, 7 J. ACCT. & ECON. 43, 52 tbl.1 (1985) (documenting an average CEO turnover of 12.7 percent for all firms listed in Forbes compensation survey from 1978-1980);
113. Jerold B. Warner, Ross L. Watts & Karen H. Wruck, Stock Prices and Top Management Changes, 20 J. FIN. ECON. 461, 461 tbl.1 (1988) (calculating average annualized rate of 11.5 percent for arrivals or departures by top management including CEO, chairman, or president positions based on Wall street Journal reports from 1963-1978).
114. Kathleen A. Farrell & David A. Whidbee, Impact of Firm Performance Expectations on CEO Turnover and Replacement Decisions, 36 J. ACCT. & ECON. 165,173 tbl.1 (2003) (recording a 9 percent turnover rate from 1986-1997);
115. Steven N. Kaplan & Bernadette A. Minton, How Has CEO Turnover Changed? Increasingly Performance Sensitive Boards and Increasingly Uneasy CEOs 2 (Nat'l Bureau of Econ. Research, Working Paper No. 12465, 2006) (reporting that in the period 1998-2005, CEO turnover increased to 16.5 percent, implying an average CEO tenure of just over six years).
116. Kaplan & Minton, supra note 91, at 2.
117. R.M. Bushman, R.J. Indjejikian & A. Smith, Compensation Contracts in Hierarchical Organizations: Determinants of Incentive Pay for Business Unit Managers (Univ. of Chi. Working Paper, 1994) (reporting 3.7 year average tenure for division managers).
118. See Christopher R. Leslie, Antitrust Amnesty, Game Theory, and Cartel Stability, 31 J. CORP. L. 453, 459-60 (2006).
119. Things may be different in price-fixing cases, where a single rogue manager may collude with someone outside the firm. For other reasons discussed below, private damages actions have a more plausible deterrent effect when they are follow-ons to criminal prosecutions. See infra text accompanying note 106.
120. LePage's Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003).
121. See Philip E. Strahan, Securities Class Actions, Corporate Governance and Managerial Agency Problems 22 (June 1998), available at http:// papers.ssrn.com/abstract=104356 (reporting that filing of a securities class action lawsuit by investors increased probability of CEO turnover from 9.8 percent to 23.4 percent).
122. Kenneth D. Garbade et al, Market Reaction to the Filing of Antitrust Suits: An Aggregate and Cross-Sectional Analysis, 64 REV. ECON. & STAT. 686, 686-71 (1982).
123. John M. Bizjak & Jeffrey L. Coles, The Effect of Private Antitrust Litigation on the Stock-Market Valuation of the Firm, 85 J. AM. ECON. REV. 436, 437 (1995). The average share loss upon the filing of a private lawsuit is about $4 million.
124. See Crane, supra note 55, at 13 (defendants may presume that an antitrust lawsuit will be more expensive than a potential entrant);
125. Frank H. Easterbook, The Limits of Antitrust, 63 TEX. L. REV. 1, 34 (1984) (the asymmetrical structure of incentives in antitrust litigation imposes greater costs on defendants).
126. See Philip G. Berger & Eli Ofek, Diversification's Effect on Firm Value, 37 J. FIN. ECON. 39, 40 (1995) (discussing "misalignment between central and divisional managers");
127. Flora Guidry et al, Earnings-Based Bonus Plans and Earnings Management by Business Unit Managers, 26 J. ACCT. & ECON. 113, 139-40 (1999) (divisional managers seek to maximize short-term profitability of business units rather than that of international conglomerate);
128. Hyun-Han Shin & René Stulz, Are Internal Capital Markets Efficient, 113 Q.J. ECON. 531, 533 (1998) (divisional managers can create deadweight costs through rent-seeking and internal politics).
129. See generally Daniel A. Crane, Rules Versus Standards in Antitrust Adjudication, 64 WASH. & LEE L. REV. 49 (2007) (antitrust is moving away from ex ante rules toward ex post multifactor standards, shifting judgments from judges to fact-finders and administrative agencies).
130. See Michael K. Block & Jonathan S. Feinstein, The Spillover Effect of Antitrust Enforcement, 68 REV. ECON. & STAT. 122,122 (1986) (observing that antitrust deterrence is most effective when targeted at other firms in the same industry as the violator).
131. The government does not criminally prosecute any antitrust offenses except for hardcore cartel behavior. Kathryn K. Dyer & Garrett M. Liskey, Antitrust Violations, 45 AM. CRIM. L. REV. 195, 223-24 (2008) (discussing aggressive prosecution of international cartels).
132. See Donald C. Klawiter, Corporate Leniency in the Age of International Cartels: The American Experience, 14 ANTITRUST 13 (2000).
133. The firm is collaterally estopped to deny that it engaged in price-fixing. 15 U.S.C. § 16(a) (2006). It can still contest the standing of the class of purchasers and the amount of their damages.
134. Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub. L. No. 108-237, § 213(a), 118 Stat. 666 (2004) (codified in scattered sections of 15 U.S.C. and accompanying notes).
135. See EU White Paper, supra note 4, at 3.
136. Id.
137. See Posner, supra note 30, at 1590.
138. EU White Paper, supra note 4, at 3.
139. Id. at 4.
140. Id. at 8.
141. Id.
142. International Competition Network Annual Conference, Moscow (May 2007), Report of the Cartels Working Group, Interaction of Public and Private Enforcement in Cartel Case, at 12.
143. Id.
144. EU White Paper, supra note 4, at 7.
145. Id.
146. See Richard A. Nagareda, Aggregate Litigation Across the Atlantic and the Future of American Exceptionalism, 62 VAND. L. REV. 1, 2-3 (2009) (discussing European alternatives to U.S.-style class actions and concluding that "U.S.-style class actions are likely to remain exceptional from a trans-Atlantic perspective").
147. EU White Paper, supra note 4, at 4.
148. Id.
149. International Competition Network Annual Conference, supra note 115, at 4.
150. EU White Paper, supra note 4, at 5.
151. On this score, the EU position does not differ from the U.S. position. See Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (holding that, to survive the pleading stage, a complaint must possess allegations "plausibly suggesting" an antitrust violation).
152. EU White Paper, supra note 4, at 5.
153. See Barak D. Richman & Christopher R. Murray, Rebuilding Illinois Brick: A Functionalist Approach to the Indirect Purchaser Rule, 81 S. CAL. L. REV. 69, 90 (2007).
154. 111. Brick Co. v. Illinois, 431 U.S. 720, 744-47 (1977).
155. Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 492-94 (1968).
156. But see supra note 28 and accompanying text (noting that state antitrust law is not preempted from allowing indirect purchaser suits and that some states have allowed such suits). Further, the congressionally-appointed Antitrust Modernization Commission recently made a recommendation for legislative reforms that would overrule both Hannover Shoe and Illinois Brick and allow for removal of state cases to federal court and consolidation of all damages claims as to a particular violation.
157. ANTITRUST MODERNIZATION COMM'N, REPORT AND RECOMMENDATIONS 265-78 (2007), available at http://govinfo.library.unt.edu/amc/report -recommendation/amc- final-report.pdf. The court would then make a determination of what the total monopoly overcharge was, treble the overcharge, and allocate the damages pot to the different plaintiffs based on the proportion of their individual injuries to the total.
158. Id. at 270-78.
159. 15 U.S.C. § 15 (2006).
160. See FED. R. CIV. P. 26.
161. Nat'l Soc'y of Profi Eng'rs v. United States, 435 U.S. 679, 695 (1978)
162. (quoting Standard Oil Co. v. FTC, 340 U.S. 231, 248 (1951)).
163. See ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF 347 (Free Press 1993) (1978) (observing that the "proliferation of regulatory and licensing authorities at every level of government" has allowed governmental officials to "control and qualify the would-be competitor's access to the marketplace").
164. See generally Michael L. Katz & Carl Shapiro, Network Externalities, Competition, and Compatibility, 75 AM. ECON. REV. 424, 424 (1985) (cataloging instances where a product's utility depends on the number of "network" users of the same product and explaining that the "central feature of the market that determines the scope of the relevant network is whether the products of different firms may be used together");
165. Howard A. Shelanski & J. Gregory Sidak, Antitrust Divestiture in Network Industries, 68 U. CHI. L. REV. 1, 6-15 (2001) (detailing two methods of understanding such continued periods of market dominance-network effects and "Schumpeterian" Rivalry).
166. See Harold Demsetz, Why Regulate Utilities?, 11 J.L. & ECON. 55, 57 (1968) (critiquing the natural monopoly theory by noting that rival bidders may still compete in market negotiations, but implying that after contractual negotiations, only the winning bidder will remain-a distinction between "competition for the field" and "competition within the field").
167. See United States v. Microsoft, 253 F.3d 34, 49-50 (D.C. Cir. 2001) (noting Microsoft's argument that the operating system market is the type of dynamic, technological, innovationbased market consuming academic debate over monopoly doctrine, but declining to determine the validity of such a label).
168. See generally Crane, supra note 2, at 31-32 (detailing how "[m]ost antitrust litigation remains a search for the elusive 'bad act' " and examining how this practice impacts the monopolization offense from a theoretical standpoint).
169. See Thomas A. Piraino, Jr., A Proposed Antitrust Approach to Collaborations Among Competitors, 86 IOWA L. REV. 1137, 1187-88 (2001) (discussing situations where joint ventures create both efficiencies and market power).
170. I am assuming that at least $50 of the lower production costs are passed onto consumers, which together with the $100 increase in consumer welfare from the technological innovation makes consumers at least break even.
171. See HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE: PRINCIPLE AND EXECUTION 148-49 (2005) (explaining steps in rule of reason analysis, including a final stage where procompetitve effects may be balanced against anticompetitive effects).
172. See, e.g., United States v. Visa U.S.A., Inc., 344 F.3d 229, 243 (2d Cir. 2003) (affirming trial court determination that anticompetitive effects of credit card system's exclusionary rule outweighed its procompetitive effect).
173. See Steven Semeraro, Credit Card Interchange Fees: Three Decades of Antitrust Uncertainty, 14 GEO. MASON L. REV. 941, 941-42 (2007) (explaining that in 2005 numerous private antitrust cases "were consolidated before the Judicial Panel on Multi-District Litigation" where "potential damages [have been] said to exceed the annual pre-tax profit of the entire U.S. banking industry").
174. Benjamin Klein et ai, Competition in Two-Sided Markets: The Antitrust Economics of Payment Card Interchange Fees, 73 ANTITRUST L.J. 571, 571 (2006).
175. Visa's and MasterCard's "honor all cards" policy required merchants that accepted Visa and MasterCard credit cards to honor their debit cards as well. Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 101 (2d Cir. 2005).
176. Klein et al, supra note 142, at 572.
177. Id.
178. Id. at 572-74.
179. Dennis W. Carlton & Alan S. Frankel, Transaction Costs, Externalities, and "TwoSided" Payment Markets, 2005 COLUM. BUS. L. REV. 617, 629, 637.
180. 2 ALFRED E. KAHN, THE ECONOMICS OF REGULATION: PRINCIPLES AND INSTITUTIONS 325-26 (Mass. Inst, of Tech. 1988) (1971). Justice Breyer articulated a similar point of view, explaining the various justifications and subsequent critiques for regulating the marketplace, including the "existence of a 'natural monopoly.' "
181. STEPHEN BREYER, REGULATION AND ITS REFORM 15-35 (1982).
182. In Herbert Hovenkamp's words, antitrust is a "residual regulator" whose only "purpose is to promote competition to the extent that market choices have not been preempted by some alternative regulatory enterprise." HOVENKAMP, supra note 139, at 13.
183. See, e.g., Arsberry v. Illinois, 244 F.3d 558, 562 (7th Cir. 1991) (referring to rate-setting as "a task [courts] are inherently unsuited to perform competently");
184. In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 906 F.2d 432, 445 (9th Cir. 1990) ("The federal courts generally are unsuited to act as rate-setting commissions.");
185. Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 294 (2d Cir. 1979) (rejecting "judicial oversight of pricing policies [that] would place the courts in a role akin to that of a public regulatory commission").
186. Tying involves the seller of a monopoly product requiring the buyer to purchase a second product as well.
187. Exclusive dealing involves contractual commitment to exclusivity in either buying or selling.
188. Market share rebates are earned when a buyer makes specified percentages of its purchases from the seller.
189. Bundled discounts are given in return for the buyer's agreement to make minimum amounts of purchases in separate product categories.
190. There are various forms of loyalty clauses, all of which provide for one contractual party to do business with the other to the exclusion of other potential parties. For example, the buyer may commit to give its business to the seller so long as the seller matches the best price offered by other sellers.
191. Volume discounts are given when a buyer reaches a certain level of purchases, either units or dollars.
192. See Benjamin Klein, Exclusive Dealing as Competition for Distribution "On the Merits," 12 GEO. MASON L. REV. 119, 122 (2003) (explaining how exclusive dealing "will force existing [non-exclusive] competitors and potential new entrants to operate at a cost disadvantage" and may prevent their entry "until sufficient distribution becomes available").
193. See generally id. at 137-60 (detailing the efficiencies of exclusive dealing, such as counteracting distributor "free-riding" and assisting manufacturers in contracting for distributor promotion).
194. See, e.g., Masimo Corp. v. Tyco Health Care Group, L.P., No. CV 02-4770 MRP, 2006 WL 1236666, at *15 (CD. Cal Mar. 22, 2006) (upholding jury verdict against defendant based on foreclosure effects of various contractual practices but declining to grant a permanent injunction because the market had changed considerably in the interim).
195. These observations are not new. In 1966, Everette MacIntyre, an FTC Commissioner, wrote an article bemoaning the duration, expense, and damages orientation of private antitrust litigation and calling for a much greater focus on the possibility of injunctive remedies. Everette Maclntyre, Antitrust Injunctions: A Flexible Private Remedy, 1966 DUKE L.J. 22. As noted earlier, the duration of private damages litigation has substantially increased over the intervening years.
196. See supra notes 80-89and accompanying text.
197. This is assuming that there is an antitrust problem at all.
198. These are essentially the facts of Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039 (8th Cir. 2000).
199. RESTATEMENT (SECOND) OF CONTRACTS § 188 (1981).
200. Griffin Toronjo Pivateau, Putting the Blue Pencil Down: An Argument for Specificity in Noncompete Agreements, 86 NEB. L. REV. 672, 682-89 (2008).
201. See Crane, supra note 1, at 1216-20 (explaining that "generalist judges struggle to keep up with antitrust's economic density").
202. Proposals to give the FTC power to award damages have been unsuccessful. See Stephen Calkins, Civil Monetary Remedies Available to Federal Antitrust Enforcers, 40 U.S.F. L. REV. 567, 580 n.59 (2006) (describing a failed bill "expressly authorizing] the Commission to seek consumer redress after entry of a Commission cease and desist order"). Given the general view that civil antitrust claims entail a Seventh Amendment right to a civil jury, allowing the FTC to award compensatory damages for antitrust violations might be unconstitutional.
203. Crane, supra note 2, at 16-18.
204. About three quarters of private antitrust cases are involuntarily dismissed, almost a quarter settle, and just two percent are resolved through a trial. Id. at 35 n.188.
205. See Applied Med. Res. Corp. v. Ethicon, Inc., No. SACV031329JVSMLGX, 2006 WL 1381697, at *1 (C.D. Cal Apr. 27, 2006) (explaining Johnson & Johnson's purchase agreements with the Group Purchasing Organizations).
206. Id.
207. Id. at *3-4.
208. Id.
209. Id. at * 4.
210. U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS: PROMOTING INNOVATION AND COMPETITION l (2007), available at www.usdoj.gov/atr/public/hearings/ip/222655.pdf ("Over the past several decades, antitrust enforcers and the courts have come to recognize that intellectual property laws and antitrust laws share the same fundamental goals of enhancing consumer welfare and promoting innovation.").
211. Id. (noting apparent conflict between antitrust and intellectual property because of "intellectual property law's grant of exclusivity," which was seen as conflicting with "antitrust law's attack on monopoly power").
212. In Illinois Tool Works, Inc. v. Independent Ink, Inc., the Supreme Court finally brought to an end a long-standing presumption that patents and copyrights used in contractual tie-ins entailed market power. 547 U.S. 28 (2006).
213. See, e.g., Valley Drug Co. v. Geneva Pharm., Inc., 344 F.3d 1294, 1308 (11th Cir. 2003) (justifying permissive rule on patent settlements on ground that, given the threat of treble damages, more aggressive antitrust intervention would "impair the incentives for disclosure and innovation").
214. 3 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW: AN ANALYSIS OF ANTITRUST PRINCIPLES AND THEIR APPLICATION § 705b (rev. ed. 1996) (asserting "no administrable rule [governing predatory product design] could be fashioned that would not exact an unreasonably heavy toll").
215. For a court deeply divided on this issue, see C.R. Bard, Inc. v. M3 Systems, Inc., 157 F.3d 1340, 1370-72 (Fed. Cir. 1998).
216. E.g., In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d 1322, 1329 (10th Cir. 2000) ("Xerox's refusal to sell or license its copyrighted works was squarely within the rights granted by Congress to the copyright holder and did not constitute a violation of the antitrust laws.").
217. See Louis Kaplow, The Patent-Antitrust Intersection: A Reappraisal, 97 HARV. L. REV. 1813, 1817 (1984) (examining the implications of the patent-antitrust conflict).
218. The economic justifications for the BMI and ASCAP system are discussed in Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 6 (1979).
219. See Amended Final Judgment, United States v. ASCAP, 1950 Trade Cas. (CCH) ¶ 62,595 (S.D.N.Y. 1950) (explaining that the Justice Department filed its complaint on February 26, 1941);
220. Amended Final Judgment, United States v. Broadcast Music, Inc., 1966 Trade Cas. (CCH) ¶ 71,941 (S.D.N.Y. 1966), modified by 1996-1 Trade Cas. (CCH) ¶ 71,378 (S.D.N.Y. 1994) (explaining that the United States filed its complaint in 1964).
221. United States v. Broadcast Music, 426 F.3d 91, 95 (2d Cir. 2005).
222. See Ian Ayres & Eric Talley, Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate Cosean Trade, 104 YALE L.J. 1027, 1032 (1995) ("[S]how[ing] that liability rules possess an 'information-forcing' quality that property rules do not.");
223. Mark A. Lemley & Philip J. Weiser, Should Property or Liability Rules Govern Information?, 85 TEX. L. REV. 783, 785 (2007) (examining whether a property rule or a liability rule is more appropriate);
224. Robert P. Merges, Of Property Rules, Coase, and Intellectual Property, 94 COLUM. L. REV. 2655, 2655 (1994) ("In my view, property rules can do work effectively in many situations involving IPRs.");
225. Henry E. Smith, Intellectual Property as Property: Delineating Entitlements in Information, 116 YALE L.J. 1742, 1818-20 (2007) (examining when injunctions are appropriate in intellectual property cases);
226. Stewart E. Sterk, Property Rules, Liability Rules, and Uncertainty About Property Rights, 106 MICH. L. REV. 1285, 1319-33 (2008) (discussing the merits of injunctive relief).
227. Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 HARV. L. REV. 1089, 1092 (1972). Property rules entail the right to bar the trespasser and liability rules entail the right to make the trespasser pay a fee for its use.
228. Id.
229. In eBay, Inc. v. MercExchange, LLC, the Supreme Court rejected the Federal Circuit's presumption in favor of a permanent injunction when patent infringement has been proven. 547 U.S. 388, 391 (2006). However, in separate concurring opinions, the Justices displayed very different attitudes toward the frequency with which permanent injunctions should be granted.
230. Id. at 394-95.
231. explore these issues at greater length in Daniel A. Crane, Intellectual Liability, 88 TEX. L. REV. 253 (2009).
232. Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90 CAL. L. REV. 1889, 1893 (2002).
233. Justin Hurwitz, The Value of Patents in Industry Standards: Avoiding License Arbitrage with Voluntary Rules, 36 AIPLA Q.J. 1, 4 (2008) (noting that the "root of the [RAND commitment] problem lies in antitrust law").
234. See Daniel A. Crane, Patent Pools, RAND Commitments, and the Problematics of Price Discrimination, in WORKING WITHIN THE BOUNDARIES OF INTELLECTUAL PROPERTY LAW 5-6 (Harry First et al eds., forthcoming 2010).
235. See 2 HERBERT HOVENKAMP ET AL., IP AND ANTITRUST: AN ANALYSIS OF ANTITRUST PRINCIPLES AS APPLIED TO INTELLECTUAL PROPERTY LAW § 34.3 (2d ed. 2010) (examining the evolution of Supreme Court jurisprudence on patent pools);
236. Robert P. Merges, Institutions for Intellectual Property Transactions: The Case of Patent Pools, in EXPANDING THE BOUNDARIES OF INTELLECTUAL PROPERTY: INNOVATION POLICY FOR THE KNOWLEDGE SOCIETY 123, 123-65 (Rochelle Dreyfuss et al. eds., 2001) (explaining the history and importance of patent pools).
237. See, e.g., Brief for the United States at 64-69,
238. United States v. Nat'l Lead Co., 332 U.S. 319 (1947) (No. 89), 1947 WL 44396 (explaining that a liability-rule treatment would impose on the courts "an onerous and absorbing administrative burden").
239. See Daniel A. Crane, Bargaining in the Shadow of Rate-Setting Courts, 76 ANTITRUST L.J. 207, 208 (2009) (describing " 'jurisdiction retention' judgments," which do not necessarily involve a court in ever setting a rate" but create a "threat of rate setting").
240. Id. at 311-12.
241. The following consent decree language-from a rare case in which the district court actually did set a rate-is typical: Upon application for a license under the provisions of this Section, the defendant to whom application is made shall state the royalty which it deems reasonable for the patents to which the application pertains. If the parties are unable to agree upon a reasonable royalty, the defendant may apply to this Court for the determination of a reasonable royalty, giving notice thereof to the applicant and the Attorney General, and he shall make such application forthwith upon request of the applicant. In any such proceeding, the burden of proof shall be upon the defendant to whom application is made to establish by a fair preponderance of evidence, a reasonable royalty, and the Attorney General shall have the right to be heard thereon. United States v. Am. Optical Co., 95 F. Supp. 771, 772 (S.D.N.Y. 1950).
242. Crane, supra note 193, at 312.
243. Id. at 311.
244. Id. at 310.
245. A similar result occurs with respect to statutory copyright licenses. Copyright Royalty Judges, who have statutory jurisdiction to set copyright rates for compulsory licenses, have to exercise their powers relatively infrequently. More often, the parties bargain to a mutually agreeable solution in the shadow of the copyright judges. See Crane, supra note 187, at 295 ("[C]opyright judges (in various incarnations) have only had to set rates relatively infrequently.").
246. See supra notes 108-109 and accompanying text.
247. See Lande & Davis, supro note 35, at 893-98 (finding that "private enforcement is significantly more effective at deterring illegal behavior than DOJ criminal antitrust suits").
248. Crane, supra note 190, at 25.
249. Id.
250. Under the Standards Development Organization Advancement Act of 2004, Pub. L. No. 108-237, 118 Stat. 661 (2004), participants in standards development activities enjoyed limited antitrust immunities. Their activities within the scope of the standardization processes are subject to the rule of reason and not per se illegal and they may not be sued for treble damages, but only single damages. However, the statute does not expressly reach-and its legislative history suggests that it was not intended to reach-negotiations over patent licensing.
251. See 150 CONG. REC. H3657 (daily ed. June 2, 2004) (Congress "further encourages discussion among intellectual property rights owners and other interested standards participants regarding the terms under which relevant intellectual property rights would be made available for use in conjunction with the standard or proposed standard.").
252. The disdain that many foreign governments hold for private U.S. antitrust litigation was barely concealed in a series of amicus curiae briefs filed in the U.S. Supreme Court on behalf of a number of foreign governments arguing that foreign purchasers from international cartels should not be permitted to sue in U.S. courts, an issue decided as the foreign governments desired in F. Hoffmann-La Roche Ltd. v. Empagran SA, 542 U.S. 155 (2004).
253. See, e.g., Brief for the United Kingdom of Great Britain and Northern Ireland, Ireland, and the Kingdom of The Netherlands as Amici Curiae Supporting Petitioners at 13 (No. 03-724)
254. (quoting Smith Kline & French Labs Ltd. v. Bloch, [1983] 1 W.L.R. 730 (C.A. 1982) ("As a moth is drawn to the light, so is a litigant drawn to the United States. If he can only get his case into their courts, he stands to win a fortune."));
255. Brief of the Federal Republic of Germany and Belgium as Amici Curiae Supporting Petitioners at 11, 542 U.S. 155 (2004) (No. 03-724) (asserting that "controversial features of the U.S. legal system include extensive discovery, jury trials, class actions, contingent fees, and punitive damages.").
256. See supra notes 9-10, 111-112 and accompanying text.
257. See Crane, supra note 1, at 1159 ("The technocratic shift begun by the political elite could be furthered by a variety of reforms, including separating cartel enforcement from other antitrust enforcement, moving from adjudication to administration, and granting FTC normcreation powers.").
258. See supra notes 126-130 and accompanying text.