Competition Corner by Alden Abbott - Damn the Economics, Full Speed Ahead!
Issue #9
Originally Posted September 22, 2022
Summer Ends, and Prospects for Biden Antitrust Enforcers Are Cloudy – But They Are Charging Ahead Full Throttle
As we move into fall, the antitrust conference season begins in full swing. An Administration typically announces major new antitrust initiatives in the fall and spring, and this year is no exception. Indeed, last week, at a Fordham Law School conference (see below), senior Administration officials announced plans for expanding the accepted scope of antitrust enforcement.
But apart from making aggressive enforcement statements that draw headlines, will the neo-Brandeisians in the Biden Administration actually notch enforcement successes? The prospects are cloudy, to say the least. This year the Justice Department (DOJ) lost some cartel cases in court (what was the last time that happened?), and on September 19 a federal judge (in a sealed opinion) rejected DOJ’s attempt to enjoin United Health’s $13.8 billion bid for Change Healthcare. The Federal Trade Commission (FTC) recently lost two merger challenges before its in-house administrative law judge, and it faces a challenge to its administrative enforcement processes before the Supreme Court (the Axon case, to be argued in November). (And by the way, the European Commission, despite its recent Google victory, has faced some obstacles itself, effectively losing two abuse of dominance cases this year (the Intel and Qualcomm matters) before the European General Court.)
So are the U.S. antitrust agencies chastened and going back to basics? Far from it. They enthusiastically are announcing plans to charge ahead, asserting theories of antitrust violations that have not been taken seriously for decades, if ever. Whether this turns out to be wise enforcement policy remains to be seen, but color me highly skeptical. Now let’s take a quick look at some of the big enforcement policy ideas that are being floated.
Damn the Economics, Full Speed Ahead!
Admiral Farragut’s order “Damn the torpedoes, full speed ahead!” was key to the Union Navy’s August 1864 victory in the Battle of Mobile Bay, a decisive Civil War clash. Perhaps influenced by this American hero’s display of risk-taking, the two federal antitrust agency heads, DOJ’s Assistant Attorney General (AAG) Jonathan Kanter and the FTC’s Chair Lina Khan, took a “Damn the economics, full speed ahead” attitude in remarks at the September 16 session of Fordham Law School’s 49th Annual Conference on International Antitrust Law and Policy. Special Assistant to the President Tim Wu emphasized the “all of government” approach to competition policy adopted by the Biden Administration.
In his remarks, AAG Kanter seemed to be endorsing a “monopoly broth” argument in decrying the current “whack a mole” approach to monopolization cases. The intent may be to lessen the burden of proof of anticompetitive effects, or to bring together a string of actions taken jointly as evidence of a Section 2 violation. In taking such an approach, however, there is a serious risk that efficiency-seeking actions may be mistaken for exclusionary tactics and incorrectly included in the broth. (Notably, the DC Circuit’s 2001 Microsoft opinion avoided the monopoly broth problem by separately discussing specific company actions and weighing them on their individual merits, not as part of a general course of conduct.) Kanter also recommended going beyond “our horizontal and vertical framework” in merger assessment, despite the fact that vertical mergers (involving complements) are far less likely to be anticompetitive than horizontal mergers (involving substitutes). Finally, and perhaps most problematically, Kanter endorsed the American Innovation and Choice Online Act (AICOA), citing the protection it would afford “would be competitors” (but what about consumers?). In so doing, the AAG ignored the fact that AICOA would prohibit welfare-enhancing business conduct and could be harmfully construed to ban mere harm to rivals (see, for example, Stanford Professor Doug Melamed’s trenchant critique).
Chair Khan’s presentation, which called for a far-reaching “course correction” in American antitrust, was even more bold and alarming. She announced plans for a new FTC Act Section 5 “unfair methods of competition” (UMC) policy statement centered on bringing “standalone” cases not reachable under the antitrust laws – cases that would not consider any potential efficiencies and would not be subject to the rule of reason. Such an approach amounts to an admission that economic analysis will not play a serious role in future FTC UMC assessments (a posture that likely will cause FTC filings to be viewed skeptically by federal judges). In noting the imminent release of new joint DOJ-FTC merger guidelines, Khan intimated that they would be animated by an anti-merger philosophy. She cited “[l]awmakers’ skepticism of mergers” and congressional rejection “of economic debits and credits” in merger law. Khan thus asserted that prior agency merger guidance had departed from the law. I doubt, however, that many courts will be swayed by this “economics free” anti-merger revisionism.
Tim Wu’s remarks closing the Fordham conference had a “big picture” orientation. In an interview with Professor Bill Kovacic, Wu briefly described the Biden Administration’s “whole of government” approach, embodied in the President’s July 2021 Executive Order on Promoting Competition in the American Economy. While the Order’s notion of breaking down existing barriers to competition across the American economy is eminently sound, many of those barriers are caused by government restrictions (not business practices) that are not even alluded to in the Order. Moreover, the Order in many respects seeks to reregulate industries, misdiagnosing many phenomena as business abuses, when they actually represent efficient free market practices (as explained by Professors Howard Beales and Mark Jamison in a September 12 Mercatus Center webinar which I moderated). In reality, then, the Order on net may prove harmful, rather than beneficial, to competition.
What is one to make of the enforcement officials’ bold interventionist screeds? What seems to be missing in their presentations is a dose of humility and pragmatism, and a lack of appreciation for consumer welfare (scarcely mentioned in the agency heads’ presentations). It is passing strange to see agencies that are having problems winning cases under conventional legal theories floating novel far-reaching initiatives that lack a sound economics foundation. It is also amazing to observe the downplaying of consumer welfare by agency heads, given that, since 1979 (in Reiter v. Sonotone), the Supreme Court has described antitrust as a ”consumer welfare prescription”. Unless there is a fundamental change in the makeup of the federal judiciary (and, in particular, the Supreme Court) in the very near future, the new unconventional theories are likely to fail, and fail badly, when tested in court.
Bringing new sorts of cases to test enforcement boundaries is, of course, an entirely defensible role for U.S. antitrust leadership. But can the same thing be said for bringing “non-boundary” cases based on theories that would have been deemed far beyond the pale by both Republican and Democratic officials just a few years ago? Buckle up – it looks as if we are going to find out.
Recent Article Recap
FTC Antitrust-Enforcement Authority Challenged in Supreme Court Case | National Review
www.nationalreview.com • Share
US should look to Europe before changing online marketing rules | The Hill
Conservatives Should Be Skeptical of Big Tech Antitrust Agendas | The National Interest
Potential Rulemaking on Commercial Surveillance and Data Security: The FTC Must Use Cost-Benefit Analysis | Truth on the Market
US Semiconductor Companies Up 2-0 Against the European Commission | RealClearPolicy
www.realclearpolicy.com • Share
The FTC's Pre-Acquisition Review Requirement for All Meta Deals: Hyper-Regulatory, Anti-Free Market, Anti-Rule of Law, and Anti-Consumer | Truth on the Market
Upcoming Events
2022 Fall Conference – Center for Intellectual Property x Innovation Policy
On September 22, I will be speaking on the final panel of the day with Jay Ezrielev, Aurélien Portuese, and Christopher Yoo, moderated by Alexander Raskovich. See below for a brief description of the panel.
IP & Antitrust
With the pending implementation of the Digital Markets Act (DMA) in the EU, the regulatory tools of interoperability, data sharing, and product design control have moved to the forefront of the debate in both antitrust and IP. Following the EU’s lead, the U.S. Congress is poised to pass similar legislation, which will have a wide-ranging impact on both innovation incentives and fundamental IP rights.
Now more than ever, policy discussions are needed on the wisdom of having the government as the gatekeeper to digital markets and whether innovation can flourish under such as top-heavy, regulatory approach.