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I just finished watching the FTC webcast announcing the Intel settlement and did a quick read over the agreement itself. Some quick high-level reactions:

  1. The tone of the press conference was triumphant, of course. Leibowitz claimed that the FTC got 22 out of 26 of the remedies proposed in the complaint and that Intel, which had previously criticized the proposed remedies as unprecedented, was suddenly making the remedies “precedented.” Further study required here, but it’s far too glib to count victory based on 22 out of 26. Many of the proposed remedies contained suggestive, open-ended language which, if interpreted reasonably expansively, would have gone far beyond this settlement.
  2. To my ear, there was a big change in emphasis from the theory of the complaint. The complaint was predominantly about Intel’s exclusivity and rebating practices with customer with some deception theories thrown in to make it sound like a proper FTC case. The settlement is much more about intellectual property restrictions that prevent AMD and Via from outsourcing manufacturing when they become capacity constrained.
  3. Section 5 of the FTC Act: Leibowitz made a special point of reiterating his view that Section 5 is “a penumbra around the Sherman Act.” I happen to agree with that view, but it’s an open question whether this settlement really advances this view. It’s notable that the FTC has brought several Section 5 cases in the last few years and hasn’t chosen to litigate any of them all the way. Not saying it’s a bad decision, just pointing out that the status of Section 5 remains open after this settlement.
  4. Predatory design: This is an aspect of the settlement that I really can’t stomach. It makes me nervous to think that the FTC is going to have an open-ended right to decide that Intel’s design changes are predatory because they do not provide “any actual benefit” to the product. Benefits, like beauty, are often in the eye of the beholder.

More to follow.

On the campaign trail, Barack Obama made an issue of the ostensibly lax state of antitrust enforcement during the Bush administration. Christine Varney’s first public act as head of the Antitrust Division was to withdraw the Bush Antitrust Division’s unilateral
monopolization report and announce that trustbusting against dominant firms was back on the agenda.  Expectations were high for an antitrust revival.  The antitrust world waited for the first shoe to drop in Washington.

So far, the shoe hasn’t dropped.  For all of the sound and fury, things have been relatively tame at the Antitrust Division.  At least from the outsider perspective, things look like business as usual: anti-cartel enforcement, consent decrees on controversial mergers.

Things have been a little different at the FTC, with the filing of the Intel case.  But it’s hard to put that one on the Obama administration, since the complaint was authorized by three commissioners appointed in previous administrations.  And, in any case, the FTC is supposed to be a politically independent commission (thanks to Humphrey’s Executor).

Last November, the St. Petersburg Times interviewed me for their service, which follows up on politicians’ campaign promises.  They wanted to know whether Obama had lived up to his campaign promise to reinvigorate antitrust enforcement.  At that time, I was cautious, telling them: “We haven’t seen the filing of any big cases, but that could be because it takes time to develop those cases, and they’re still working on them.”

I’m now ready to abandon my earlier caution and declare that there is some apparent dissonance between Obama’s campaign rhetoric and the reality on the ground at DOJ.  Mind you, I’m not criticizing for now: just observing.

Assuming I’m right about the dissonance, what’s the story?  My leading contender — one that is the subject of a forthcoming essay in the Antitrust Law Journal — is that antitrust enforcement is almost always put on the back burner during major economic crises.  Although I have little inside information about decision-making inside the beltway, I have some reason to believe that the White House has put the brakes on the Antitrust Division because of the economic circumstances.  (If any readers of this blog have contrary knowledge, I would be happy to stand corrected).

It also may be that I’m jumping the gun and the DOJ has a slew of big cases waiting in the wings.  They are certainly conducting some big investigations that could lead to Microsoftesque cases.  One of the downsides of blogging about something not happening is that it could happen the next day.  (One of the nice things about a blog is that your prior statement can then be updated the next day).

But this last possibility raises a different and quite subtle issue: how do we measure the real effectiveness or vigor of antitrust enforcement, when its chief function is deterrence?  In a world of perfect deterrence, there would be no antitrust cases filed.  This is a paradox of law enforcement.  The Bush Administration collected record fines in cartel cases, but that might be nothing more than evidence of an explosion of cartel behavior because of a perception that enforcement would be lax.  Perhaps the current mildness out of the Antitrust Division is merely the consequence of the President and AAG having threatened large companies with severe sanctions for misbehaving with the consequence that the ostensible offenders retreated from their worst practices to wait out the current administration.  If so, the dissonance between rhetoric and practice is merely the sound of deterrent success.

I don’t pretend to have firm answers to the questions I posed.  These sorts of questions are best analyzed with the benefit of hindsight after the close of the relevant events rather than midstream.  So let’s see how the story develops.

Whoa There, Big Fellows!

Dan Crane —  21 April 2010

The DoJ/FTC revised merger guidelines, released as a draft for public comment yesterday, have me scratching my head. I need to spend more time with them before I come to any strong views, but the obvious issue-spotter is the elimination of market definition as a necessary step in the analysis.

So we all know that market definition is sometimes or often a formalistic and technical step that ends up bearing little relation to the analysis that follows. I’m happy to be persuaded that we should abandon it as a necessary prerequisite in all kinds of antitrust cases.

Problem is, the official dogma from the courts is still that defining a relevant market is a “necessary prerequisite” to finding liability under the Clayton Act. See Judge Walker in Oracle, for example, quoting the Supreme Court in duPont. So if I were grading the draft Guidelines as an exam, I would put a big X through the statement on the FTC website that “market definition is not an end itself or a necessary starting point of merger analysis, but instead a tool that is useful to the extent it illuminates the merger?s likely competitive effects.”

Of course, only a couple of contestable merger cases get tried in the courts a year and the second request threat gives the agencies effective power to stop mergers that they might not be able to block in court, so maybe we shouldn’t worry too much if the Guidelines don’t track the law. But do we want the agencies to lose the habit of thinking in relevant market terms? As long as the law requires it, I should think that the agencies should make themselves go through the exercise. Otherwise, they are going to develop intellectual laziness on market definition over time. Or, they will develop cases for internal assessment based on other theories and then have to scramble to invent relevant market theories of the case if it heads to litigation.

Maybe the agencies think that a guidelines revision that downplays market definition will lead the courts to downplay it as well. That strikes me as possible, but a gamble. More likely, the revised Guidelines will result in more Oracle-PeopleSofts, where the agencies lose the case on market definition. But, with spring in the air here in Michigan, I’m feeling optimistic and susceptible to persuasion.

Someone persuade me I’m wrong.

Let Sleeping Dogs…

Dan Crane —  27 October 2009

I feel no great urgency to revise the Guidelines.  True enough, they’re more of an analytical thought experiment than an accurate description of how merger review takes place in the agencies, but who’s really fooled?  Perhaps some business people think that the Guidelines are a computer program waiting for the introduction of the relevant data to spit out the answer, but most sophisticated executives contemplating a merger will understand that the Guidelines are just a beginning point for conversation.

Could the beginning point be clearer or conform more closely to agency practice?  Sure, but that doesn’t mean that revision of the Guidelines is justified.  With hindsight, the First Amendment could be a little better worded, but no one wants to tinker with it now–who knows what would result?  I’m sufficiently satisfied with current merger practice in the agencies that I don’t care that much what’s in the Guidelines and I am worried about the unpredictable results that could obtain if we started tinkering.  Let sleeping dogs . . .

But if we are going to revise, then my pet issue is the asymmetrical treatment of the probabilities on anticompetitive effects and offsetting efficiencies–a point on which Joe Simons and I are planning a fuller analysis.  The Guidelines seem to suggest that if the probability of anticompetitive effects of magnitude 100 is 50% and the probability of offsetting efficiencies of magnitude 100 is 50%, then the merger should be challenged, since a greater quantum of proof is required for efficiencies than for anticompetitive effects.  This makes no sense to me–everything else being equal, efficiencies that would be passed on to consumers and market power increases should be given equal weight and not assigned separate probability standards.

craneDaniel Crane is a Professor of Law at Cardozo Law School (soon to be at University of Michigan Law School).

Bundled discounts have been one of the hottest monopolization topics of the last decade. Much of the trouble began with the Third Circuit’s en banc decision in LePage’s v. 3M, which reversed an earlier 2-1 panel decision which in turn had overturned a plaintiff’s jury verdict largely based on 3M’s bundled discounts. After the Solicitor General’s amicus curiae brief asked the Supreme Court to deny cert on the grounds that there wasn’t sufficient scholarship on bundled discounts, there was a flurry of legal and economic scholarship, the overwhelming majority of which was highly critical of LePage’s.

Over the past five years or so, it seemed that a consensus was emerging that some sort of discount reallocation or attribution test should be used as a screen in bundled discounting cases. There are various formulations of the test, but in general it requires the plaintiff to show that defendant priced the competitive product below cost after the discounts on the non-competitive product are reallocated to the competitive market. Versions of that test have been adopted by a variety of commentators, agencies, and courts, including the DOJ in its Section 2 report, the Antitrust Modernization Commission, the Areeda-Hovenkamp treatise, and the Ninth Circuit’s PeaceHealth decision. I have been—and continue to be—a staunch defender of some formulation of that test.

Just when I thought we were close to reaching a strong majority position on bundled discounts, along comes a significant new article by Einer Elhauge (to be published this coming December in the Harvard Law Review) challenging the entire basis of the theory. Einer argues that bundled discounts manifest anticompetitive “power effects” if the unbundled price for the linking product exceeds the but-for price level (i.e., the price the defendant would charge in the absence of the bundle) and that such bundles should be treated as tie-ins.

Einer’s article is sure to attract lots of attention and give courts and perhaps the agencies pause in adopting the until-now consensus position on bundled discounts. Although I profoundly disagree with much of Einer’s analysis, it is a provocative and important article. Josh Wright and I are planning a full response at a later date. For the moment, let me just preview one responsive angle. Continue Reading…

Daniel Crane is a Professor of Law at Cardozo Law School (soon to be at University of Michigan Law School).

I must confess that my basic reaction to the Section 2 report was disappointment.  It’s not that I find much fault with the report itself–a few quibbles yes, but generally I find it quite satisfactory–but that after all of the time and effort put into the joint hearings by the FTC, the FTC wasn’t able to join the report.  Moreover, the shrill dissenting statement by three commissioners will probably prevent the report from playing influencing judicial decisions or legislation.

That’s a real pity.  Many staff members at both agencies and many outsiders (myself included) put a lot of work into the hearings and the report.  Contrary to the suggestion in the dissenting statement, I saw no evidence that the hearings were stacked against more interventionist perspectives on Section 2.  That certainly was not the case at the bundled discount hearings at which I testified.  To the contrary, my general impression was that the hearings were constructive and made substantial progress toward agreement on some basic principles.  Certainly, they lacked the rancor that characterized the release of the report.

Continue Reading…