Antitrust and Congress

Thom Lambert —  22 September 2010

Last Thursday and Friday, I attended a conference at Case Western Law School on the Roberts Court’s business law decisions. I presented a paper on the Court’s antitrust decisions. (The paper, described here, is now available on SSRN.) Adam Pritchard, Matt Bodie, and Brian Fitzpatrick presented papers considering the Court’s treatment of, respectively, securities law, labor and employment law, and pleading standards.

My presentation happened to follow Adam’s, and the contrast was pretty striking. Adam explained that the Roberts Court does not appear all that interested in the substance of the securities laws or the policy implications of its securities holdings. Rather, Adam contended, the justices’ focus in the securities law decisions has been on methods of statutory interpretation and the relationship of the judiciary to the administrative state — with little concern at all for the securities-specific results that will follow from adopting one particular interpretation over another. In antitrust, by contrast, the Court has been concerned almost exclusively with results and policy implications, and it has paid almost no attention to the antitrust statutes themselves or to congressional intent. (The dissent in Leegin asserted a congressional intent argument, but mainly as an afterthought, and the majority brushed it off.)

The reason for this difference in approaches is pretty apparent. The securities laws are long and detailed and have been supplemented with gobs of regulations. They prescribe rules that purport to specify, ex ante, what is and is not allowed. The antitrust laws, by contrast, are short, employ vague and undefined terms (e.g., the Sherman Act fails to define such key terms as “monopolize” or “restraint of trade” … though it does helpfully define “person”?!), and posit standards whose precise contours are fleshed out ex post, as courts evaluate conduct that has already occurred. There are no antitrust textualists. Indeed, because the Sherman Act prohibits every “contract … in restraint of trade” and because every executory contract restrains trade (i.e., the promisor restrains himself from any trades inconsistent with the promised performance), a textualist approach would generate absurdity by prohibiting all executory contracts. The Court therefore can’t ignore outcomes and policy disputes and focus solely on statutory interpretation in resolving antitrust matters. It must grapple with the policy questions. And it has almost always done so, consistently interpreting the Sherman Act as an implicit delegation of authority to craft a quasi-common law of competition, a common law that evolves as our understanding of the competitive effects of business practices grows. (I’m not suggesting, of course, that the Court has always gotten the policy questions right; merely that it has consistently and explicitly grappled with policy in deciding antitrust matters.)

This raises questions about Congress’s role in the antitrust enterprise. During my Case presentation, one discussant contrasted the “interpretivist” approach of the Roberts Court’s securities cases with the more free-wheeling, “policy-focused” approach in the antitrust cases and asked, in essence (albeit more artfully), where the Court gets off usurping all these policy questions for itself.  The obvious answer, of course, is that it has no choice; the antitrust statutes are just too short and vague to support a textualist approach and really must be read as an implicit delegation to craft a quasi-common law of competition.  The implication of the discussant’s comment, though, was that Congress should play a more active role in determining the contours of antitrust prohibitions and that the Court (and courts generally) should afford greater deference to its policy judgments.

I’d have to disagree.   First, Congress lacks the knowledge to specify ex ante how most business practices should be evaluated from a competitive standpoint.  That implies that a standards approach, rather than a rules approach, will be optimal for antitrust.  Any standards approach, though, will require antitrust tribunals to make on-the-spot policy judgments, evaluating challenged conduct in light of time- and space-specific factors — and in light of ever-evolving economic insights — of which Congress simply cannot be aware at the time it promulgates the law.  The law already follows this “Hayekian” approach; appropriately, I believe. 

Second, greater congressional intervention in antitrust would likely benefit groups of competitors (small businesses, etc.) at the expense of consumers.  The former are discrete and insular, are easily organized, and consistently do well in the political process.  Widely dispersed consumers, by contrast, have no effective lobby in Congress.  This situation encourages rules that provide concentrated benefits to the politically adept (small businesses), while diffusing their costs broadly among consumers.  The small business groups, recipients of concentrated benefits, have both the incentive and the means to seek rules that favor them; individual consumers, among whom the costs of those rules are diffused (so that each consumer is harmed just a little bit), lack the incentive to invest heavily in opposing the rules.  Given this concentrated benefits/diffused costs dynamic, greater legislative involvement in particular antitrust matters would likely result in rules that concentrate their benefits on small businesses and spread their costs on consumers throughout the economy, even when the total (dispersed) costs of the rules exceed their total (concentrated) benefits.  When Congress has crafted more targeted, precise antitrust prohibitions, they’ve usually hurt consumers and helped small businesses (see, e.g., the Robinson-Patman Act).  Indeed, there’s good reason to believe that the Sherman Act itself was initially protectionist in design, though the Court corrected that problem by putting a pro-consumer gloss on the statute’s broad prohibitions.

Putting aside whether Congress should intervene more in antitrust matters, what if it does do so?  Members of the current Congress, for example, have introduced bills and held hearings on legislative repeals of Leegin and Twombly.  What if those (or similar) bills are enacted? 

Josh and his co-author, Judd Stone, provide an excellent answer to this question in their recent article on American Needle.  They observe that the justices grappled during oral argument with the most appropriate means of weeding out meritless antitrust claims based on “agreements” among entities whose combination would not seem to harm consumers by reducing the centers of economic decisionmaking in a market. Ultimately, the Court decided it could cut back on the scope of Copperweld‘s intraenterprise immunity doctrine because it had an alternative screening mechanism: Twombly‘s requirement that plaintiffs allege a “plausible” conspiracy.  Josh and Judd contend that a legislative repeal of Twombly would lead courts to make other doctrinal adjustments in an attempt to provide means for screening out meritless lawsuits.  They explain:

Antitrust has seen this pattern play out before … . [T]he massive proliferation of private actions … inspired much of the error-cost protections not only ensconced in the consumer harm requirements of Section 2 but narrowing Section 2’s scope altogether. … [Repealing Twombly] is a strategic maneuver that will favor plaintiffs in only the very shortest of temporal horizons — before the antitrust ‘‘system’’ of rules reacts accordingly.

I think that’s right.  The courts have long been the guardians of the antitrust enterprise.  Since the late-1970s, they have done an admirable job of crafting a rational, coherent common law of competition.  (Again, I’m not saying the system is perfect — see, e.g., the quasi-per se rule against tying — but it’s generally pretty sensible.)  The courts are also well-aware that they have access to numerous safety valves that can eliminate meritless claims.  A legislative repeal of Leegin, for instance, would undoubtedly reinvigorate Colgate, Monsanto, and Business Electronics, which created hurdles to (meritless) RPM claims by making it difficult to plead and prove a vertical “agreement” to maintain resale prices. 

In the end, greater congressional involvement in crafting antitrust rules would probably have negative effects on consumer welfare and would likely lead courts to create or strengthen various screening mechanisms to avoid unwarranted liability.  Such a judicial response would simply add complexity to an already complicated body of law.  Let’s hope Congress stays its hand and lets the courts continue to serve as the guardians of competition law.

Thom Lambert

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I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.