Monday, September 08, 2008

DOJ Report on Monopoly Law Could Weaken Antitrust Enforcement: FTC Commissioners

This posting was written by John W. Arden.

A major report on monopolization under the antitrust law, issued today by the U.S. Department of Justice, could radically weaken enforcement of Section 2 of the Sherman Act, according to FTC Commissioners Pamela Jones Harbour, Jon Leibowitz, and J. Thomas Rosch.

The Department of Justice report (“Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act”) examined whether—and when—specific types of single-firm conduct may violate Section 2 of the Sherman Act by harming competition and consumer welfare. It drew extensively on a series of hearings conducted by the Department of Justice and Federal Trade Commission between June 2006 and May 2007, as well as incorporating commentary found in scholarly literature and court decisions, the DOJ stated.

Section 2 prohibits firms from illegally acquiring or maintaining a monopoly—that is, the ability to exclude competitors and profitably raise price significantly above competitive levels for a sustained period of time. Although possessing monopoly power is not unlawful, using an improper means to seek or maintain monopoly power is unlawful when it can harm competition and consumers, according to the Justice Department.

Among the observations in the report:

Enforcement of Section 2 has been, and should continue to be, a key component of antitrust enforcement.

Market share is an important factor in proving the existence of monopoly power. Firms maintaining a market share of more than two-thirds for a significant period of time will be presumed to possess market power, absent evidence to the contrary.

No single test for anticompetitive conduct works well in all cases.

Vague or overly-inclusive prohibitions against single-firm conduct are particularly likely to undermine economic growth and to harm consumers.

Section 2 prohibitions based on clear and objective criteria are likely to increase economic growth and benefit consumers.

The “historic hostility” of the law to the practice of tying is unjustified and the qualified rule of per se illegality should be abandoned.

Antitrust liability for mere unilateral, unconditional refusals to deal with rivals should not play a meaningful role in Section 2 enforcement because compelling access is likely to harm long-term competition and courts “are ill-suited to be market regulators.”

Exclusive dealing arrangements foreclosing less than 30 percent of existing customers or effective distribution should not be illegal.

Remedies for Section 2 violations should “re-establish the opportunity for competition without unnecessarily chilling competitive practices or undermining incentives to invest and innovate.”

The Department will continue to explore ways of strengthening cooperation with counterparts in foreign jurisdictions and to encourage convergence on enforcement policies in this area.

The 213-page report appears here on the Department of Justice website. A news release on the report appears here.

FTC Responses

Only hours after the release of the report, the FTC issued a statement that it “does not join or endorse” it. A joint statement by Commissioners Harbour, Leibowitz, and Rosch was highly critical of the DOJ’s findings, citing two “overarching concerns.”

The first concern is that the report “is chiefly concerned with firms that enjoy monopoly or near-monopoly power, and prescribes a legal regime that places these firms’ interests ahead of those of consumers.” The second concern is that the report “seriously overstates the level of legal, economic, and academic consensus regarding Section 2” and that “the testimony gathered during the hearings was not representative of the views of all Section 2 stakeholders.”

The Commissioners expressed misgivings that “voices representing the interests of consumers were not adequately heard” and that the report relied too heavily on economic theory in the application of antitrust law.

Furthermore, the Justice Department report consistently adopted standards for the finding of a violation that are tougher, sometimes much tougher, than existing standards under Section 2 case law, according to the three Commissioners. The Department’s “premises lead it to adopt law enforcement standards that would make it nearly impossible to prosecute a case under Section 2.”

The response asserted that the FTC “stands ready to fill any Sherman Act enforcement void that might be created if the Department actually implements the policy decisions expressed in its Reports.”

Chairman’s Statement

FTC Chairman William E. Kovacic did not join the statement issued by Commissioners Harbour, Leibowitz, and Rosch. In a separate statement, Commissioner Kovacic said that the Justice Department’s report would have benefited from a fuller examination of the history of modern doctrine and policy.

He had hoped for “a DOJ/FTC report on the unilateral conduct deliberations [that] would devote consideration effort to put modern developments in context—to examine how the U.S. antitrust system developed as it did, and to assess what that history means for the future of U.S. and global competition policy."

A news release on the Commissioners’ statements appears here on the FTC web site. The statement by Commissioners Harbour, Liebowitz, and Rosch appears here. Chairman Kovacic’s statement appears here.

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