Antitrust’s Big Break

Posted by: Theo Francis on May 11

Anyone who listened to Barack Obama’s presidential campaign can’t be terribly surprised that his Justice Department is breaking with the Bush Administration on antitrust doctrine.

Still, it’s worth noting the vehemence with which Christine A. Varney, Justice’s newly minted antitrust czar, repudiated her predecessors’ “Section 2” report, issued last September (and now bearing a virtual sticky-note linking to the current administration’s rejection of it).

It’s also worth beginning to think about the consequences that rejection will have, because they’re potentially far-reaching.

In a speech at the Center for American Progress Monday morning, Varney bluntly warned lawyers not to rely on the Bush report – period. “The report and its conclusions should not be used as guidance by courts, antitrust practitioners, and the business community,” she said in prepared remarks.

In announcing the policy change, the administration blamed the Bush doctrine for turning a blind eye to abuses and thus encouraging anti-competitive behavior, dampening competition and harming consumers, business and others through higher prices, reduced innovation and fewer services.

In short, instead of starting from the assumption that the government often gets it wrong when policing competition and the market should be left to its own devices, Varney sees a role for government antitrust enforcers to “separate the wheat from the chaff in identifying exclusionary and predatory acts.”

Most obviously, the about-face sets the stage for Justice to starting bringing cases under Section 2 of the Sherman anti-trust act, which centers on anti-competitive conduct of individual firms (as opposed to collusion by multiple firms). During George W. Bush’s eight years in office, Justice didn’t bring a single such case, in keeping with the philosophy articulated in last fall’s report. Moreover, in at least four pending circuit-court cases, the September report was being cited by a company defending against antitrust claims, David A. Balto, a Washington, D.C., antitrust attorney and former Clinton Administration policy director for competition at the FTC, said in a panel discussion after Varney’s speech.

At the same time, Varney’s move goes a long way to heal a rift with the Federal Trade Commission, which shares antitrust jurisdiction with Justice; three of the FTC’s members blasted last fall’s Section 2 report.

That rapprochement is more than symbolic, however. It’s also likely to give the FTC more room to maneuver – making it easier for the commission to bring more and tougher cases because it “doesn’t have to worry about being blindsided or stabbed in the back by the other enforcement agency in the executive branch,” says Albert A. Foer, president of the American Antitrust Institute, a Washington, D.C., nonprofit that advocates for consumers.

In addition, it’s likely to resume a convergence – underway until 2000 – of antitrust policy in U.S., Europe and Asia. Now, however, legal experts say there’s a significant difference.

While the U.S. once led the field, its virtual disappearance from much of the antitrust debate has allowed other governments to get the experience and confidence they need to strike out on their own. And they have. Look no farther than the Intel decision expected from European antitrust regulators as soon as this week.

Before, other countries “looked to the United States for leadership – that’s no longer the case,” Foer says. Now, “the rest of the world tends to follow the European model rather than the American model.”

Indeed, the FTC and Justice Department may well look to Europe for guidance now that it’s shifting away from Bush Administration policy, legal experts say. Certainly, in the Intel case, the FTC is likely to do that as it wraps up its investigation of the chipmaker, Balto says.

“Now that that [Bush administration] report’s been abandoned, the antitrust enforcement agencies are going to have to look elsewhere on how to look at dominant firm conduct,” Balto says. “Cases like the Intel case by the EU will be informative.”

So far, at least, Varney is pointing to “tried and true” U.S. precedents, not European opinions. Peter Swire, an Ohio State University law professor, notes that, when asked where businesses, consumers and lawyers should look for guidance, Varney pointed to long-established case law: the 1951 case Lorain Journal Co. v. United States, in which the Supreme Court said a monopoly newspaper couldn’t reject all ads from companies that advertised on a rival radio station; a 1985 decision in which the court said one Aspen ski resort could be blocked from ending a joint marketing campaign because the move harmed a rival and didn’t help consumers; and United States v. Microsoft, which the Bush Administration settled in September 2001, after a U.S. district-court judge said the company unfairly exploited its market dominance by bundling its Web browser with its operating system.

That may not be enough for long. Andrew Pincus, an antitrust attorney with Mayer Brown, warns that, sooner rather than later, administration officials should give companies “some understanding to what the rules of the road are.” The alternative, he said, is that they’ll spend large sums of money on legal advice that doesn’t help much.