Let's Have New Section 2 Hearings!

Commissioner Rosch has offered a defense of the withdraw of the Section 2 Report.  This is an important step and the Commissioner, who readers know I’ve criticized from time to time here, should be credited for laying out his specific objections to the Report.  The objections are, in short, that the Report:

1. Was “too ambitious” because it “not only purported to summarize the case law, but went on to assert what the law should be”  and thereby “significantly overstated the level of consensus regarding the proper framework for analyzing single-firm conduct”
2. The Report set forth safe harbors that, in Commissioner Rosch’s view, had “that had little, if any, basis in Supreme Court precedent” (Rosch points to the Report’s treatment of unconditional refusals to deal as an example)
3. The Report over-emphasized the risk and significance of Type I error relative to Type II error — which led it to the disproportionality test which Rosch criticizes as inconsistent with rule of reason balancing
4. The hearing themselves “were not representative of the views of all Section 2 stakeholders, despite the efforts of both agencies to assemble balanced witness panels” and “consumer interests were not fairly represented.”  Business was also underrepresented in terms of actual business executives rather than their lawyers.  Further, Rosch noted that 28% of the witnesses were from defense firms (though I wonder how many of those have had jobs at antitrust agencies as enforcers as well and gave testimony reflecting their own experiences rather than representing the views of clients)
5. The Report, Rosch argues, “suggested that the Merger Guidelines’ SSNIP test (and hence critical loss analysis) is the only appropriate way to define the relevant market in a Section 2 case” which Rosch is mistaken because of dangers of the Cellophane Fallacy in monopoly maintenance cases and the possibility of proving market definition through direct evidence.  Rosch faults the Report for acknowledging the direct evidence approach but giving it too little role and for failing to discuss the practical indicia approach of Brown Shoe.
6. The Report handled each type of single firm conduct on a stand alone basis, which the Commissioner finds some merit in, but does not discuss how to handle cases involving allegations of multiple forms of conduct in “monopoly broth” situations
7. The Report did not adequately discuss how intent might be taken into account in Section 2 cases other than a suggestions by panelists that such evidence is unreliable
8. The Report fails to distinguish between Section 1 and Section 2 single firm conduct cases

The Commissioner concludes that:

In sum, the withdrawal of the DOJ’s unilateral conduct report was a welcome development: while the Report’s demise may not have any direct effect on the FTC, the agencies’ approaches toward Section 2 enforcement now appear to be in closer alignment than they have been in some time. And while important substantive and procedural differences remain, the withdrawal of the Report may also bring the U.S. agencies and the European Commission in closer alignment on unilateral conduct issues.

In my view, none of these reasons independently or collectively justify the withdraw of the Report, much less the vitriolic fashion in which it was done, for example, describing the Report as one that “At almost every turn, the Department would place a thumb on the scales in favor of firms with monopoly or near-monopoly power and against other equally significant stakeholders.”

I’ll save more specific critiques of some of these objections for later.  I note for now that it is natural for readers to view a document summarizing the entire corpus of monopolization law, and 2 years of panels with over a hundred witnesses and weeks worth of testimony — even a 250 page document — as incomplete or imperfect in some way.  In fact, I also have plenty of quibbles with the Report.  I’ve written about some of these with respect to exclusive dealing and loyalty discounts.  I suspect my quibbles are different than Commissioner Rosch’s.    But make no mistake that these are small disagreements relative to the size of the endeavor and the potential value generated for consumers by producing certainty in an area of law that desperately needs it.  But I do not believe that these imperfections justify withdraw of a document that, to its credit, goes to great lengths to summarize the views of the antitrust community on both what the law is and should be.

As I see it, if the Commissioner would like a more in depth discussion on the role of intent, distinguishing between Section 1 and Section 2 in single firm cases and whether such differences should exist as a matter of policy, how to handle cases with monopoly broth allegations, or if Brown Shoe and direct evidence should have a role in market definition — by all means, let’s have the discussion.  If what is needed is a more rigorous discussion of error cost analysis and Type I and Type II errors in antitrust analysis, and based on recent pronouncements from both agencies I agree that discussion clearly needs to take place center stage, then let’s have that discussion too.  And while the Commissioner is fond of quoting the Justice Breyer’s line that “antitrust law cannot, and should not, precisely replicate economists’ (sometimes conflicting) views”, I’m fairly confident that he would agree that a rigorous examination of the facts on the ground in the form of reliable empirical evidence on single firm conduct should play a central role in that discussion as well.  As to the more serious allegations that the panels were unbalanced or too defendant friendly, those are easy to fix.  Let’s have new hearings with panels that come closer to the balance the Commission is looking for by including consumer groups and business representatives.

All four Commissioners have noted that some parts of the current Report have merit while taking issue with some specifics.  AAG Varney has also recognized in her own speech repudiating the Report “provides a comprehensive evaluation of the history of single-firm enforcement and careful consideration of the risks and benefits of particular enforcement strategies.”  All must agree that somewhere in the record of the two years of hearings that there is some potentially valuable information.  What must not be done is to do nothing and simply rely on the existing approach that gave rise to the need for hearings in the first place — I do not recall any objections from just about any antitrust constituency prior to the hearings with respect to their potential value.  And simply put, and with all due respect to AAG Varney’s view that we can simply plow ahead by committing to acting ” in furtherance of the principles embodied” in cases like Lorain Journal, Aspen Ski and Conwood, that is no answer to the problems facing monopolization enforcement.

Here’s my solution: Let’s have new Section 2 hearings.

I’ve not read a single objection to the Report that could not be solved by supplementing the existing record with additional hearings on some of these issues or, if the current FTC/DOJ is feeling ambitious, let’s just re-do the whole thing.  Invite old panelists and new ones that help solve the perceived balance problems.  Add these omitted agenda items to the list and lets get together and have a serious discussion of them, what the law is, what the law should be, and the existing economic and empirical knowledge that can be brought to bear on finding consensus areas for improving our approach to monopolization.

If we’re really interested in getting this right, and I hope we are interested in a rigorous approach to answering these questions rather than the alternative ideological approach, lets have the hearings.

What do you say, Commissioner?