The Competition and Antitrust Law Enforcement Reform Act (CALERA), recently introduced in the U.S. Senate, exhibits a remarkable willingness to cast aside decades of evidentiary standards that courts have developed to uphold the rule of law by precluding factually and economically ungrounded applications of antitrust law. Without those safeguards, antitrust enforcement is prone to be driven by a combination of prosecutorial and judicial fiat. That would place at risk the free play of competitive forces that the antitrust laws are designed to protect.
Antitrust law inherently lends itself to the risk of erroneous interpretations of ambiguous evidence. Outside clear cases of interfirm collusion, virtually all conduct that might appear anti-competitive might just as easily be proven, after significant factual inquiry, to be pro-competitive. This fundamental risk of a false diagnosis has guided antitrust case law and regulatory policy since at least the Supreme Court’s landmark Continental Television v. GTE Sylvania decision in 1977 and arguably earlier. Judicial and regulatory efforts to mitigate this ambiguity, while preserving the deterrent power of the antitrust laws, have resulted in the evidentiary requirements that are targeted by the proposed bill.
Proponents of the legislative “reforms” might argue that modern antitrust case law’s careful avoidance of enforcement error yields excessive caution. To relieve regulators and courts from having to do their homework before disrupting a targeted business and its employees, shareholders, customers and suppliers, the proposed bill empowers plaintiffs to allege and courts to “find” anti-competitive conduct without having to be bound to the reasonably objective metrics upon which courts and regulators have relied for decades. That runs the risk of substituting rhetoric and intuition for fact and analysis as the guiding principles of antitrust enforcement and adjudication.
This dismissal of even a rudimentary commitment to rule-of-law principles is illustrated by two dramatic departures from existing case law in the proposed bill. Each constitutes a largely unrestrained “blank check” for regulatory and judicial overreach.
Blank Check #1
The bill includes a broad prohibition on “exclusionary” conduct, which is defined to include any conduct that “materially disadvantages 1 or more actual or potential competitors” and “presents an appreciable risk of harming competition.” That amorphous language arguably enables litigants to target a firm that offers consumers lower prices but “disadvantages” less efficient competitors that cannot match that price.
In fact, the proposed legislation specifically facilitates this litigation strategy by relieving predatory pricing claims from having to show that pricing is below cost or likely to result ultimately in profits for the defendant. While the bill permits a defendant to escape liability by showing sufficiently countervailing “procompetitive benefits,” the onus rests on the defendant to show otherwise. This burden-shifting strategy encourages lagging firms to shift competition from the marketplace to the courthouse.
Blank Check #2
The bill then removes another evidentiary safeguard by relieving plaintiffs from always having to define a relevant market. Rather, it may be sufficient to show that the contested practice gives rise to an “appreciable risk of harming competition … based on the totality of the circumstances.” It is hard to miss the high degree of subjectivity in this standard.
This ambiguous threshold runs counter to antitrust principles that require a credible showing of market power in virtually all cases except horizontal collusion. Those principles make perfect sense. Market power is the gateway concept that enables courts to distinguish between claims that plausibly target alleged harms to competition and those that do not. Without a well-defined market, it is difficult to know whether a particular practice reflects market power or market competition. Removing the market power requirement can remove any meaningful grounds on which a defendant could avoid a nuisance lawsuit or contest or appeal a conclusory allegation or finding of anticompetitive conduct.
Anti-Market Antitrust
The bill’s transparently outcome-driven approach is likely to give rise to a cloud of liability that penalizes businesses that benefit consumers through price and quality combinations that competitors cannot replicate. This obviously runs directly counter to the purpose of the antitrust laws. Certainly, winners can and sometimes do entrench themselves through potentially anticompetitive practices that should be closely scrutinized. However, the proposed legislation seems to reflect a presumption that successful businesses usually win by employing illegitimate tactics, rather than simply being the most efficient firm in the market. Under that assumption, competition law becomes a tool for redoing, rather than enabling, competitive outcomes.
While this populist approach may be popular, it is neither economically sound nor consistent with a market-driven economy in which resources are mostly allocated through pricing mechanisms and government intervention is the exception, not the rule. It would appear that some legislators would like to reverse that presumption. Far from being a victory for consumers, that outcome would constitute a resounding loss.