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Although not always front page news, International Trade Commission (“ITC”) decisions can have major impacts on trade policy and antitrust law. Scott Kieff, a former ITC Commissioner, recently published a thoughtful analysis of Certain Carbon and Alloy Steel Products — a potentially important ITC investigation that implicates the intersection of these two policy areas. Scott was on the ITC when the investigation was initiated in 2016, but left in 2017 before the decision was finally issued in March of this year.

Perhaps most important, the case highlights an uncomfortable truth:

Sometimes (often?) Congress writes really bad laws and promotes really bad policies, but administrative agencies can do more harm to the integrity of our legal system by abusing their authority in an effort to override those bad policies.

In this case, that “uncomfortable truth” plays out in the context of the ITC majority’s effort to override Section 337 of the Tariff Act of 1930 by limiting the ability of the ITC to investigate alleged violations of the Act rooted in antitrust.

While we’re all for limiting the ability of competitors to use antitrust claims in order to impede competition (as one of us has noted: “Erecting barriers to entry and raising rivals’ costs through regulation are time-honored American political traditions”), it is inappropriate to make an end-run around valid and unambiguous legislation in order to do so — no matter how desirable the end result. (As the other of us has noted: “Attempts to [effect preferred policies] through any means possible are rational actions at an individual level, but writ large they may undermine the legal fabric of our system and should be resisted.”)

Brief background

Under Section 337, the ITC is empowered to, among other things, remedy

Unfair methods of competition and unfair acts in the importation of articles… into the United States… the threat or effect of which is to destroy or substantially injure an industry in the United States… or to restrain or monopolize trade and commerce in the United States.

In Certain Carbon and Alloy Steel Products, the ITC undertook an investigation — at the behest of U.S. Steel Corporation — into alleged violations of Section 337 by the Chinese steel industry. The complaint was based upon a number of claims, including allegations of price fixing.

As ALJ Lord succinctly summarizes in her Initial Determination:

For many years, the United States steel industry has complained of unfair trade practices by manufacturers of Chinese steel. While such practices have resulted in the imposition of high tariffs on certain Chinese steel products, U.S. Steel seeks additional remedies. The complaint by U.S. Steel in this case attempts to use section 337 of the Tariff Act of 1930 to block all Chinese carbon and alloy steel from coming into the United States. One of the grounds that U.S. Steel relies on is the allegation that the Chinese steel industry violates U.S. antitrust laws.

The ALJ dismissed the antitrust claims (alleging violations of the Sherman Act), however, concluding that they failed to allege antitrust injury as required by US courts deciding Sherman Act cases brought by private parties under the Clayton Act’s remedial provisions:

Under federal antitrust law, it is firmly established that a private complainant must show antitrust standing [by demonstrating antitrust injury]. U.S. Steel has not alleged that it has antitrust standing or the facts necessary to establish antitrust standing and erroneously contends it need not have antitrust standing to allege the unfair trade practice of restraining trade….

In its decision earlier this year, a majority of ITC commissioners agreed, and upheld the ALJ’s Initial Determination.

In comments filed with the ITC following the ALJ’s Initial Determination, we argued that the ALJ erred in her analysis:

Because antitrust injury is not an express requirement imposed by Congress, because ITC processes differ substantially from those of Article III courts, and because Section 337 is designed to serve different aims than private antitrust litigation, the Commission should reinstate the price fixing claims and allow the case to proceed.

Unfortunately, in upholding the Initial Determination, the Commission compounded this error, and also failed to properly understand the goals of the Tariff Act, and, by extension, its own role as arbiter of “unfair” trade practices.

A tale of two statutes

The case appears to turn on an arcane issue of adjudicative process in antitrust claims brought under the antitrust laws in federal court, on the one hand, versus antitrust claims brought under the Section 337 of the Tariff Act at the ITC, on the other. But it is actually about much more: the very purposes and structures of those laws.

The ALJ notes that

[The Chinese steel manufacturers contend that] under antitrust law as currently applied in federal courts, it has become very difficult for a private party like U.S. Steel to bring an antitrust suit against its competitors. Steel accepts this but says the law under section 337 should be different than in federal courts.

And as the ALJ further notes, this highlights the differences between the two regimes:

The dispute between U.S. Steel and the Chinese steel industry shows the conflict between section 337, which is intended to protect American industry from unfair competition, and U.S. antitrust laws, which are intended to promote competition for the benefit of consumers, even if such competition harms competitors.

Nevertheless, the ALJ (and the Commission) holds that antitrust laws must be applied in the same way in federal court as under Section 337 at the ITC.

It is this conclusion that is in error.

Judging from his article, it’s clear that Kieff agrees and would have dissented from the Commission’s decision. As he writes:

Unlike the focus in Section 16 of the Clayton Act on harm to the plaintiff, the provisions in the ITC’s statute — Section 337 — explicitly require the ITC to deal directly with harms to the industry or the market (rather than to the particular plaintiff)…. Where the statute protects the market rather than the individual complainant, the antitrust injury doctrine’s own internal logic does not compel the imposition of a burden to show harm to the particular private actor bringing the complaint. (Emphasis added)

Somewhat similar to the antitrust laws, the overall purpose of Section 337 focuses on broader, competitive harm — injury to “an industry in the United States” — not specific competitors. But unlike the Clayton Act, the Tariff Act does not accomplish this by providing a remedy for private parties alleging injury to themselves as a proxy for this broader, competitive harm.

As Kieff writes:

One stark difference between the two statutory regimes relates to the explicit goals that the statutes state for themselves…. [T]he Clayton Act explicitly states it is to remedy harm to only the plaintiff itself. This difference has particular significance for [the Commission’s decision in Certain Carbon and Alloy Steel Products] because the Supreme Court’s source of the private antitrust injury doctrine, its decision in Brunswick, explicitly tied the doctrine to this particular goal.

More particularly, much of the Court’s discussion in Brunswick focuses on the role the [antitrust injury] doctrine plays in mitigating the risk of unjustly enriching the plaintiff with damages awards beyond the amount of the particular antitrust harm that plaintiff actually suffered. The doctrine makes sense in the context of the Clayton Act proceedings in federal court because it keeps the cause of action focused on that statute’s stated goal of protecting a particular litigant only in so far as that party itself is a proxy for the harm to the market.

By contrast, since the goal of the ITC’s statute is to remedy for harm to the industry or to trade and commerce… there is no need to closely tie such broader harms to the market to the precise amounts of harms suffered by the particular complainant. (Emphasis and paragraph breaks added)

The mechanism by which the Clayton Act works is decidedly to remedy injury to competitors (including with treble damages). But because its larger goal is the promotion of competition, it cabins that remedy in order to ensure that it functions as an appropriate proxy for broader harms, and not simply a tool by which competitors may bludgeon each other. As Kieff writes:

The remedy provisions of the Clayton Act benefit much more than just the private plaintiff. They are designed to benefit the public, echoing the view that the private plaintiff is serving, indirectly, as a proxy for the market as a whole.

The larger purpose of Section 337 is somewhat different, and its remedial mechanism is decidedly different:

By contrast, the provisions in Section 337[] are much more direct in that they protect against injury to the industry or to trade and commerce more broadly. Harm to the particular complainant is essentially only relevant in so far as it shows harm to the industry or to trade and commerce more broadly. In turn, the remedies the ITC’s statute provides are more modest and direct in stopping any such broader harm that is determined to exist through a complete investigation.

The distinction between antitrust laws and trade laws is firmly established in the case law. And, in particular, trade laws not only focus on effects on industry rather than consumers or competition, per se, but they also contemplate a different kind of economic injury:

The “injury to industry” causation standard… focuses explicitly upon conditions in the U.S. industry…. In effect, Congress has made a judgment that causally related injury to the domestic industry may be severe enough to justify relief from less than fair value imports even if from another viewpoint the economy could be said to be better served by providing no relief. (Emphasis added)

Importantly, under Section 337 such harms to industry would ultimately have to be shown before a remedy would be imposed. In other words, demonstration of injury to competition is a constituent part of a case under Section 337. By contrast, such a demonstration is brought into an action under the antitrust laws by the antitrust injury doctrine as a function of establishing that the plaintiff has standing to sue as a proxy for broader harm to the market.

Finally, it should be noted, as ITC Commissioner Broadbent points out in her dissent from the Commission’s majority opinion, that U.S. Steel alleged in its complaint a violation of the Sherman Act, not the Clayton Act. Although its ability to enforce the Sherman Act arises from the remedial provisions of the Clayton Act, the substantive analysis of its claims is a Sherman Act matter. And the Sherman Act does not contain any explicit antitrust injury requirement. This is a crucial distinction because, as Commissioner Broadbent notes (quoting the Federal Circuit’s Tianrui case):

The “antitrust injury” standing requirement stems, not from the substantive antitrust statutes like the Sherman Act, but rather from the Supreme Court’s interpretation of the injury elements that must be proven under sections 4 and 16 of the Clayton Act.

* * *

Absent [] express Congressional limitation, restricting the Commission’s consideration of unfair methods of competition and unfair acts in international trade “would be inconsistent with the congressional purpose of protecting domestic commerce from unfair competition in importation….”

* * *

Where, as here, no such express limitation in the Sherman Act has been shown, I find no legal justification for imposing the insurmountable hurdle of demonstrating antitrust injury upon a typical U.S. company that is grappling with imports that benefit from the international unfair methods of competition that have been alleged in this case.

Section 337 is not a stand-in for other federal laws, even where it protects against similar conduct, and its aims diverge in important ways from those of other federal laws. It is, in other words, a trade protection provision, first and foremost, not an antitrust law, patent law, or even precisely a consumer protection statute.

The ITC hamstrings Itself

Kieff lays out a number of compelling points in his paper, including an argument that the ITC was statutorily designed as a convenient forum with broad powers in order to enable trade harms to be remedied without resort to expensive and protracted litigation in federal district court.

But, perhaps even more important, he points to a contradiction in the ITC’s decision that is directly related to its statutory design.

Under the Tariff Act, the Commission is entitled to self-initiate a Section 337 investigation identical to the one in Certain Alloy and Carbon Steel Products. And, as in this case, private parties are also entitled to file complaints with the Commission that can serve as the trigger for an investigation. In both instances, the ITC itself decides whether there is sufficient basis for proceeding, and, although an investigation unfolds much like litigation in federal court, it is, in fact, an investigation (and decision) undertaken by the ITC itself.

Although the Commission is statutorily mandated to initiate an investigation once a complaint is properly filed, this is subject to a provision requiring the Commission to “examine the complaint for sufficiency and compliance with the applicable sections of this Chapter.” Thus, the Commission conducts a preliminary investigation to determine if the complaint provides a sound basis for institution of an investigation, not unlike an assessment of standing and evaluation of the sufficiency of a complaint in federal court — all of which happens before an official investigation is initiated.

Yet despite the fact that, before an investigation begins, the ITC either 1) decides for itself that there is sufficient basis to initiate its own action, or else 2) evaluates the sufficiency of a private complaint to determine if the Commission should initiate an action, the logic of the decision in Certain Alloy and Carbon Steel Products would apply different standards in each case. Writes Kieff:

There appears to be broad consensus that the ITC can self-initiate an antitrust case under Section 337 and in such a proceeding would not be required to apply the antitrust injury doctrine to itself or to anyone else…. [I]t seems odd to make [this] legal distinction… After all, if it turned out there really were harm to a domestic industry or trade and commerce in this case, it would be strange for the ITC to have to dismiss this action and deprive itself of the benefit of the advance work and ongoing work of the private party [just because it was brought to the ITC’s attention by a private party complaint], only to either sit idle or expend the resources to — flying solo that time — reinitiate and proceed to completion.

Odd indeed, because, in the end, what is instituted is an investigation undertaken by the ITC — whether it originates from a private party or from its own initiative. The role of a complaining party before the ITC is quite distinct from that of a plaintiff in an Article III court.

In trade these days, it always comes down to China

We are hesitant to offer justifications for Congress’ decision to grant the ITC a sweeping administrative authority to prohibit the “unfair” importation of articles into the US, but there could be good reasons that Congress enacted the Tariff Act as a protectionist statute.

In a recent Law360 article, Kieff noted that analyzing anticompetitive behavior in the trade context is more complicated than in the domestic context. To take the current example: By limiting the complainant’s ability to initiate an ITC action based on a claim that foreign competitors are conspiring to keep prices artificially low, the ITC majority decision may be short-sighted insofar as keeping prices low might actually be part of a larger industrial and military policy for the Chinese government:

The overlooked problem is that, as the ITC petitioners claim, the Chinese government is using its control over many Chinese steel producers to accomplish full-spectrum coordination on both price and quantity. Mere allegations of course would have to be proven; but it’s not hard to imagine that such coordination could afford the Chinese government effective surveillance and control over  almost the entire worldwide supply chain for steel products.

This access would help the Chinese government run significant intelligence operations…. China is allegedly gaining immense access to practically every bid and ask up and down the supply chain across the global steel market in general, and our domestic market in particular. That much real-time visibility across steel markets can in turn give visibility into defense, critical infrastructure and finance.

Thus, by taking it upon itself to artificially narrow its scope of authority, the ITC could be undermining a valid congressional concern: that trade distortions not be used as a way to allow a foreign government to gain a more pervasive advantage over diplomatic and military operations.

No one seriously doubts that China is, at the very least, a supportive partner to much of its industry in a way that gives that industry some potential advantage over competitors operating in countries that receive relatively less assistance from national governments.

In certain industries — notably semiconductors and patent-intensive industries more broadly — the Chinese government regularly imposes onerous conditions (including mandatory IP licensing and joint ventures with Chinese firms, invasive audits, and obligatory software and hardware “backdoors”) on foreign tech companies doing business in China. It has long been an open secret that these efforts, ostensibly undertaken for the sake of national security, are actually aimed at protecting or bolstering China’s domestic industry.

And China could certainly leverage these partnerships to obtain information on a significant share of important industries and their participants throughout the world. After all, we are well familiar with this business model: cheap or highly subsidized access to a desired good or service in exchange for user data is the basic description of modern tech platform companies.

Only Congress can fix Congress

Stepping back from the ITC context, a key inquiry when examining antitrust through a trade lens is the extent to which countries will use antitrust as a non-tariff barrier to restrain trade. It is certainly the case that a sort of “mutually assured destruction” can arise where every country chooses to enforce its own ambiguously worded competition statute in a way that can favor its domestic producers to the detriment of importers. In the face of that concern, the impetus to try to apply procedural constraints on open-ended competition laws operating in the trade context is understandable.

And as a general matter, it also makes sense to be concerned when producers like U.S. Steel try to use our domestic antitrust laws to disadvantage Chinese competitors or keep them out of the market entirely.

But in this instance the analysis is more complicated. Like it or not, what amounts to injury in the international trade context, even with respect to anticompetitive conduct, is different than what’s contemplated under the antitrust laws. When the Tariff Act of 1922 was passed (which later became Section 337) the Senate Finance Committee Report that accompanied it described the scope of its unfair methods of competition authority as “broad enough to prevent every type and form of unfair practice” involving international trade. At the same time, Congress pretty clearly gave the ITC the discretion to proceed on a much less-constrained basis than that on which Article III courts operate.

If these are problems, Congress needs to fix them, not the ITC acting sua sponte.

Moreover, as Kieff’s paper (and our own comments in the Certain Alloy and Carbon Steel Products investigation) make clear, there are also a number of relevant, practical distinctions between enforcement of the antitrust laws in a federal court in a case brought by a private plaintiff and an investigation of alleged anticompetitive conduct by the ITC under Section 337. Every one of these cuts against importing an antitrust injury requirement from federal court into ITC adjudication.

Instead, understandable as its motivation may be, the ITC majority’s approach in Certain Alloy and Carbon Steel Products requires disregarding Congressional intent, and that’s simply not a tenable interpretive approach for administrative agencies to take.

Protectionism is a terrible idea, but if that’s how Congress wrote the Tariff Act, the ITC is legally obligated to enforce the protectionist law it is given.

Like most libertarians I’m concerned about government abuse of power. Certainly the secrecy and seeming reach of the NSA’s information gathering programs is worrying. But we can’t and shouldn’t pretend like there are no countervailing concerns (as Gordon Crovitz points out). And we certainly shouldn’t allow the fervent ire of the most radical voices — those who view the issue solely from one side — to impel technology companies to take matters into their own hands. At least not yet.

Rather, the issue is inherently political. And while the political process is far from perfect, I’m almost as uncomfortable with the radical voices calling for corporations to “do something,” without evincing any nuanced understanding of the issues involved.

Frankly, I see this as of a piece with much of the privacy debate that points the finger at corporations for collecting data (and ignores the value of their collection of data) while identifying government use of the data they collect as the actual problem. Typically most of my cyber-libertarian friends are with me on this: If the problem is the government’s use of data, then attack that problem; don’t hamstring corporations and the benefits they confer on consumers for the sake of a problem that is not of their making and without regard to the enormous costs such a solution imposes.

Verizon, unlike just about every other technology company, seems to get this. In a recent speech, John Stratton, head of Verizon’s Enterprise Solutions unit, had this to say:

“This is not a question that will be answered by a telecom executive, this is not a question that will be answered by an IT executive. This is a question that must be answered by societies themselves.”

“I believe this is a bigger issue, and press releases and fizzy statements don’t get at the issue; it needs to be solved by society.

Stratton said that as a company, Verizon follows the law, and those laws are set by governments.

“The laws are not set by Verizon, they are set by the governments in which we operate. I think its important for us to recognise that we participate in debate, as citizens, but as a company I have obligations that I am going to follow.

I completely agree. There may be a problem, but before we deputize corporations in the service of even well-meaning activism, shouldn’t we address this as the political issue it is first?

I’ve been making a version of this point for a long time. As I said back in 2006:

I find it interesting that the “blame” for privacy incursions by the government is being laid at Google’s feet. Google isn’t doing the . . . incursioning, and we wouldn’t have to saddle Google with any costs of protection (perhaps even lessening functionality) if we just nipped the problem in the bud. Importantly, the implication here is that government should not have access to the information in question–a decision that sounds inherently political to me. I’m just a little surprised to hear anyone (other than me) saying that corporations should take it upon themselves to “fix” government policy by, in effect, destroying records.

But at the same time, it makes some sense to look to Google to ameliorate these costs. Google is, after all, responsive to market forces, and (once in a while) I’m sure markets respond to consumer preferences more quickly and effectively than politicians do. And if Google perceives that offering more protection for its customers can be more cheaply done by restraining the government than by curtailing its own practices, then Dan [Solove]’s suggestion that Google take the lead in lobbying for greater legislative protections of personal information may come to pass. Of course we’re still left with the problem of Google and not the politicians bearing the cost of their folly (if it is folly).

As I said then, there may be a role for tech companies to take the lead in lobbying for changes. And perhaps that’s what’s happening. But the impetus behind it — the implicit threats from civil liberties groups, the position that there can be no countervailing benefits from the government’s use of this data, the consistent view that corporations should be forced to deal with these political problems, and the predictable capitulation (and subsequent grandstanding, as Stratton calls it) by these companies is not the right way to go.

I applaud Verizon’s stance here. Perhaps as a society we should come out against some or all of the NSA’s programs. But ideological moralizing and corporate bludgeoning aren’t the way to get there.

Seth Weinberger and I have a new article up at SSRN injecting some IR theory into the debate over international antitrust law.   Abstract:

The article, written jointly by a law professor and political science professor, endeavors to explain why the United States is particularly resistant to various efforts at international harmonization of antitrust law. While others have wrangled with this question over the years, none has assessed the question from within the broader political framework in which all relations between nations exist. Our article endeavors to fill this intellectual gap.

Existing efforts to describe or explain the lack of international harmonization have generally focused on the direct economic effects, and the narrow political difficulties, of the harmonization of competition laws through certain international mechanisms, most notably the WTO and the OECD. Largely absent in these accounts is a background theory of international politics against which the practicalities – and the ultimate desirability – of international competition law harmonization can be assessed. Our article presents such a theory. It places the conflict over international competition laws within the larger framework of international relations, and in so doing draws out some novel and important implications of the debate.

An important insight of this Article is that, largely independent of the economic calculus regarding the costs and benefits of entering into a multilateral international antitrust agreement, there is an inherent “transaction benefit” in the act of engaging in political exchange between states. Traditional economic and legal analyses of international relations have focused largely on the choice of organizational form (market exchange (no explicit agreement) versus bilateral versus multilateral institutions) and the likelihood and nature of compliance with each type in the absence of a central enforcement authority. By contrast, we strive here to develop a political theory of international law which accounts on the one hand for the costs of entering into international agreements, but also accounts for the state’s political preference for a specific form of agreement.

The novel implication of this understanding is that, by crafting international agreements in which the other parties are made to alter their domestic institutions as a condition of agreement, the dominant state (here, the United States) receives a credible commitment from the other state as to its willingness to adhere to the terms of the specific agreement under negotiation which, in the absence of centralized enforcement, might not otherwise be forthcoming. Additionally, the alteration of domestic institutions in a manner directed by the dominant state will in and of itself be viewed as a benefit of the agreement. By facilitating domestic normative change, the dominant state will gain a measure of transformative power from the change of domestic institutions. As a result, nations derive political benefits from international agreements in a way that transcends the substance of the agreements themselves.

The process of internationalizing and harmonizing competition law provides fertile ground in which to examine these ideas. Negotiations over antitrust policy are particularly important because as government barriers to trade have fallen they may well be replaced by private barriers. At the same time, as tariff barriers to trade have fallen, governments may resort to the discriminate application of antitrust law to maintain preferred local monopolies, and therefore to make payoffs to politically important constituents. The prospects for the illiberal application of antitrust laws and their economic importance make the debates over their form an issue of abiding concern for the process of global economic liberalization.

Get it while it’s hot!

My friend Seth Weinberger over at Security Dilemmas has a great post on why the left is actually to blame for the post-9/11 national security apparatus it (and many others) hates so much.  Basically, it comes down to “when the only tool you have is a hammer, everything looks like a nail.”  When bigger government is your answer to every problem, don’t be too surprised when big government tries to actually solve every problem.  And, as Seth points out, in this regard, the right has happily capitulated (the Republicans are laughably far from being the party of Reagan anymore).  So for the moment the government is being enlarged in the service of the particular problems that the right (the party in power just now) wants to solve.  But the modern path to this ever-expanding use of power — the justification and the moral basis — was paved by the Big Government lefties (oh, sure, and Nixon.  But he was just ahead of his time).

So here’s my question (this version is really for the left, but there are analogues for the right):  Why, if “Big Oil,” “Big Pharma,” Wal-Mart and Microsoft are so scary, does it make sense to turn to the biggest of the big, the most oppressive of the oppressive, to constrain those other big baddies, to keep them from getting too big, too powerful?  Is there anyone who really has so much faith in our democratic process that despite, say, the legal monopoly on the use of force and the ability to print money, he is worried less about “Big Government” than about “Big Tobacco”?  I don’t get it.  Don’t get me wrong:  I realize the biggest of the big is a really effective hammer with which to pummel all those pesky nails.  But is it so hard to see the broader, bigger, long-term implications of consistently handing over that power to the government?