can the rule of reason be made more reasonable? presentation.pdf · • pnb (1963) • schwinn...
TRANSCRIPT
Federal Trade Commission
Presentation by Andrew I. Gavil
Director, Office of Policy Planning
American Antitrust Institute 6th Annual Private Antitrust Enforcement Conference
December 4, 2012 National Press Club, Washington D.C.
Can the Rule of Reason be Made More Reasonable?
Federal Trade Commission
• Not the views of the Federal Trade Commission or any Commissioner
• A very abbreviated view of my own views: – See Moving Beyond Caricature and
Characterization: The Modern Rule of Reason in Practice, 85 S. Cal. L. Rev. 733 (2012)
Disclaimers
Federal Trade Commission
• The Rule of Reason (“ROR”) is no longer unfocused and unstructured – time to end the caricatures – Today’s standards are structured and demanding – Few plaintiffs prevail; lowest modern level of private cases – But costs of implementation may adversely influence the
settlement choices of both plaintiffs and defendants • Reconstitute Abbreviated Analysis as Designed
– We don’t always need metes-and-bounds proof of every adverse effect and efficiency to resolve cases
– Today’s Priority: Reduce incidence of error and costs • Restore missing component of decision theory
Thesis
Federal Trade Commission
Vote for Your Favorite Rule of Reason Adjective of Denigration
• Unstructured? • Uncertain? • Full blown? • Full-scale? • Formless? • Shapeless? • Kitchen sink?
4
Mythical ROR “Creature”
Is myth > reality today?
5
A Generation of Change: From Per Se Rules & Low Burdens to the “Rules” of Reason
Antitrust in 1975 • Dr. Miles (1911) • Socony-Vacuum (1940) • Northern Pac. Rwy (1958) • Klors (1959) • Tampa Electric (1961) • Brown Shoe (1962) • PNB (1963) • Schwinn (1967) • Albrecht (1968) • Topco (1972)
Antitrust in 2012 • General Dynamics
– Lower Court decisions • Sylvania/Khan/Leegin • BMI/NCAA/Dagher/Am.
Needle • Matsushita/Twombly • Aspen/Kodak • Brooke Group/
Weyerhaeuser • Trinko/Credit Suisse
The Reality: Today’s Structured, “First Principles”
Rule of Reason Anticompetitive Effect Nature of Effect
Collusive? Exclusionary?
Nature of Evidence Actual effects? Obvious effects? Inferential Effects?
Efficiencies Cognizable?
Eliminates illegitimate claims, as in NSPE & Polygram
Conduct-specific? Causation
Likely to counteract incentive to raise price? Consumer welfare standard
6
Two Ways Plaintiffs Can Shift their Burden of Production
Inference/Presumption • Conclusive Presumption
– Per Se
• Rebuttable Presumption Based on Sound Economic Prediction
• Rebuttable Presumption based on showing of Market Power to Infer Effect – Single & Double Inference
Actual Effects • Evidence of actual
anticompetitive effects – Price – Output – Quality – Innovation incentives
• NOT about “inference” – HINT: Basis for critique of
“actual effects” version of quick look
Incidence of Error
Economic Information
Initially, predominant effect of increased information is reduction of false positives.
False Positives
(Over-deterrence)
False Negatives
(Under-deterrence)
Later, predominant effect of increased information may
be increase in false negatives.
Decision Theory & the Evolution of Antitrust Law 1975-2012
8
Cost of Administration Can there be diminishing returns from > information and increase in cost?
Optimal Rule?
Federal Trade Commission
Still Need ROR Simplification?
• Easy cases need to be easier to decide – True for both weak and strong cases
• Plaintiffs can still impose significant costs on defendants despite weak cases
• Defendants still choose trench warfare to wear down plaintiffs with meritorious cases
9
Federal Trade Commission
Resolving the Tension Between the “Actual Effects” and “Inherently Suspect” Versions of the “Quick Look”
Revisiting Abbreviated Analysis
An Intellectual History of Modern Abbreviated Analysis
1978 NSPE
1981 Areeda
1984 NCAA & U.S. Brief
1988 Mass Bd
1999 CDA
1986 IFD
2005 Polygram
Sometimes the rule of reason can be applied “in the twinkling of an
eye.”
Market power a “surrogate” for anticompetitive
effects.
No “elaborate industry analysis” needed.
“Inherently suspect”?
“Obvious anticomp effect.”
No market power inquiry when (1) anticomp effects
ascertainable without “extensive market analysis” AND no
“countervailing competitive virtue.”
“Economic learning” and
the “experience of the market.”
Sometimes the rule of reason can be applied “in the twinkling of an
eye.”
Key Questions: What makes anticompetitive effect obvious? What is the significance of lack of any cognizable defense?
These were based on economic intuition and reasoning, not dependent on metes-and-bounds proof of competitive harm or virtue.
The Two Faces of the California Dental QL
“Actual Effects”
• CDA Foundation Language: – “The obvious anticompetitive
effect that triggers abbreviated analysis has not been shown.”
– More ambiguous than later argued?
– Must “obvious” = “actual”?
“Theore2cal Claim” • CDA Foundation Language:
– KEY is fn 12: “before a theoretical claim of anticompetitive effects can justify shifting to a defendant the burden to show empirical evidence of procompetitive effects, as quick-look analysis in effect requires, there must be some indication that the court making the decision has properly identified the theoretical basis for the anticompetitive effects and considered whether the effects actually are anticompetitive. Where, as here, the circumstances of the restriction are somewhat complex, assumption alone will not do.”
The FTC’s Response to Loss in California Dental
• Restore original meaning of quick look
• Push back against “actual effects” reading of CDA
• Legitimize reliance on economic reasoning + basic facts
• Key: Not all antitrust cases require rocket science
• Key FTC Cases: (reassertion of “inherently suspect”): – Polygram (D.C. Cir. 2005) – N. Tex. Specialty Physicians (5th
Cir. 2008) – RealComp II (6th Cir. 2011)
(reserving issue)
Is an “actual effects” quick look necessarily “quick”?
Envisioning Shifting Burdens Under Abbreviated ROR
Plaintiff’s Burden Defendant’s Burden
Theoretically Sound Theory of Probable Competitive Harm
Theoretically Sound Theory of
Cognizable Efficiency
Evidence/Proof Beyond Theory
Evidence/Proof Beyond Theory
Meaning of “Balancing”? • Plaintiff bears burden of PROOF • Defendant only bears burden of PRODUCTION • If “equipoise,” plaintiff loses • NOT about balancing “effects” • Focus on balancing evidence
Or
Issue: How does ∆ meet its b/production in response to
theoretical case of harm? Depend on
strength of Π’s case?
Revisiting CDA
Conven2onal Wisdom
• FTC failed to meet its burden of production – Quick look only available
with evidence of actual competitive harm
• So CDA did not have to support its assertions of efficiency
• Judgment for the Δ
Be;er Reading • FTC presented sound case for
theoretical harm • CDA articulated sound case
for theoretical virtue – Contrast NSPE, NCAA,
Polygram
• At that point, FTC could not continue to rely on theory… – Needed circumstantial or direct
proof of harm
• Judgment for the Δ
Additional Procedural Issues Formalis2c/Sequen2al vs. Holis2c
• Should court analyze evidence in “steps”? – Δ does not have to meet any
burden until Π meets its burden as to harm
• Should court look at allegations/evidence as a whole? – NSPE? BMI? NCAA?
Sliding Scale • Do all burdens shift
equally? – Might Δ have to respond with
proof beyond theory if Π’s theoretical case for harm is especially compelling?
– Might an especially weak argument for procompetitive virtues justify a burden shift for a comparatively weaker but still sound theoretical case of harm?
Federal Trade Commission
• As to Theory and Proof - Symmetry – Symmetrical Plausibility
• Harm and Efficiency – Symmetrical “Antitrust-ness” – Relationship to
Competition • For plaintiffs - antitrust injury • For defendants – “cognizable” defense
• As to Burdens – Asymmetry – Plaintiff has burden of proof – Defendant has burden of production
Core General Principles: Symmetry of Theory/Asymmetry of Burden
Federal Trade Commission
• Some Recent Private Cases: (continuing debate) – K-Dur (3d Cir. 2012) – Agnew v. NCAA (7th Cir. 2012) – In re Insurance Brokerage (3d Cir. 2010) – Deutscher Tennis Bund (3d Cir. 2010) – MLB Properties (2d Cir. 2010)
• State Enforcement – CA v. Safeway (9th Cir. 2011)
Non-FTC Efforts Have Yielded More Mixed Results