The case against the section 5 case against Intel, redux (cross-posted)

Geoffrey Manne —  8 January 2010

As Josh noted in cross-posting his comment on Section 5 and Intel, Antitrust & Competition Policy Blog is hosting a symposium on the role of FTC Act Section 5 in light of Intel.  Josh’s contribution at AC&P is available here, along with the other symposium participants.  I, too, have contributed a post, likewise cross-posted here.  At the end of my post (below) I also add a comment on Dan Crane’s post at AC&P–I tried to post it there but seem to have failed miserably.

The FTC should be ashamed

Seriously.  What interpretation of events is there other than that the FTC knew it could not prevail in a Section 2 case and decided to go in search of a back-up?  Commissioners Rosch and Leibowitz have been making noise about Section 5 for some time, and this seemed like the perfect opportunity to put it to the test—to make some new law that would favor the Commission in cases like this one where it “knows” there is injury but the Section 2 case law makes prevailing difficult nonetheless.  They have “found” their case, and Intel, its shareholders, consumers and competition generally will suffer mightily for their hubris.

Chairman Leibowitz’ defense of the use of Section 5 is, quite frankly, astonishingly disingenuous.  First is the implicit defense I mention above—“hey, we can’t win under settled law [I guess repudiating the Section 2 Report just wasn’t enough. Bummer.-ed.] so let’s make some new law.  We are doing good after all, and if the law stands in our way, we should find a way around.”  Commissioner Rosch has made similar noises in the past.  I find this degree of hubris to be appalling and dangerous.

Second is the remarkable claim that Section 2 is a problem only because courts have taken its teeth away only because of abusive private litigation process—and the FTC is not susceptible to those process problems, so an emasculated Section 2 should not constrain the FTC.  There is so much wrong with this.  Section 2 jurisprudence and a concern for error costs is about substantive error as well as procedural imbalance; I’d even say it is more about the former.  Read any Section 2 case and the entirety of the decision (Microsoft, for example) is about how, as a matter of substance, we can be sure we’re getting it right in assessing speculative harms.  Of course there is a background procedural element that tips or rights the scales, but the claim that this is entirely what Section 2 jurisprudence is about is ridiculous on its face.  For the FTC to claim that it should not be bound by the substantive, economically-sensible limits of antitrust that courts have developed in their jurisprudence is for the FTC to claim that it is simply above the law—and the economics.  And I would be interested in seeing any case-law precedent for the claim that Section 2 jurisprudence is all about reining in private litigation and not about getting the economics right.

We’ve seen this kind of hubris before—when antitrust enforcers have pursued tenuous and costly cases despite massive uncertainty and copious conflicting evidence:  IBM and Microsoft come to mind.  I still relish Larry Lessig’s admission that he “blew it on Microsoft” because he couldn’t anticipate the future—a future that Microsoft told him and the court was inevitable and coming quickly.  Now we have Commissioner Rosch’s essentially-unmoored reading of Section 5 to support another speculative case—this time one almost certain otherwise to fail under the current law.  It is a disaster in the making not only for Intel but for the economy generally if the Rosch/Leibowitz reading of and approach to Section 5 takes off.

___

My comment on Dan Crane’s post responds to his claim that there is, in fact, a role for Section 5 “independence” rooted in the FTC’s institutional comparative advantage in certain areas over that of private litigants.  Dan writes:

In my forthcoming white paper, I articulate principles–based in the Commission’s comparative institutional advantages–for when it should and should not declare Section 5 independence. To give just one example here, much of the case law on Section 5 suggests that the Commission may have prophylactic powers in cases of incipient conduct.

Perhaps this is because the Commission is better than the courts at predicting likely effects of emerging market forces. But such a justification cannot possibly serve in Intel, since the conduct at issue has been in play for over a decade.

In short, while I strongly support separating Section 5 from the Sherman Act, great care has to be taken to pick the right cases for making the arguments. Intel–a high-profile case with punitive and drastic proposed remedies entailing conduct paradigmatically covered by the Sherman Act–is the wrong case.

My response:

Dan:  I’m torn. I agree with your criticisms of Leibowitz’s and Rosch’s lame justifications for use of Section 5 in this case, but I disagree that there is really any strong justification for the public/private separation you advocate (I’ll await your article for more extensive comment . . . ). But you mention the possibility (for other cases, not here) that the FTC could be better than the courts at predicting emerging market forces. In the first place, I’m curious why you think that or what evidence you have to support the claim. But more important, even if true, why isn’t it perfectly applicable here? Who cares that the conduct has been going on for a decade? Today there are “emerging market forces” that may or may not have existed the last 10 years. By your own claim, the FTC may be better at anticipating these. Just because the conduct has been going on for 10 years does not mean that the market conditions have remained the same, and today is a new day with new emerging market forces. Thus, it seems to me, if you want to claim that the FTC’s alleged better ability to predict emerging market forces justifies use of Section 5, you are providing justification for this use of Section 5.

Geoffrey Manne

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2 responses to The case against the section 5 case against Intel, redux (cross-posted)

  1. 

    I couldn’t agree with you more, Geoff, especially with regards to your conclusion that the FTC seems to be acting here as though it is above the law. Also, I am very skeptical that the FTC has any magical powers of predicting likely effects of emerging market forces. In my experience, the folks at the FTC are debilitatingly insulated (isolated?) from the market and the forces that act thereon.

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