Archives For Association of American Law Schools

I will be participating in a wide-ranging discussion of Google and antitrust issues at the upcoming AALS meeting in New Orleans in January. The Antitrust and Economic Regulation Section of the AALS is hosting the roundtable, organized by Mike Carrier. Mike and I will be joined by Marina Lao, Frank Pasquale, Pam Samuelson, and Mark Patterson, and the discussion will cover Google Book Search as well as the FTC investigations/possible cases against Google based on search and SEPs.

The session will be on Saturday, January 5, from 10:30 to 12:15 in the Hilton New Orleans Riverside (Newberry, Third Floor).

 Google and Antitrust

(Papers to be published in Harvard Journal of Law & Technology Digest)

Moderator:

Michael A. Carrier, Rutgers School of Law – Camden

Speakers:

Marina L. Lao, Seton Hall University School of Law

Geoffrey A. Manne, Lewis & Clark Law School

Frank A. Pasquale, Seton Hall University School of Law

Mark R. Patterson, Fordham University School of Law

Pamela Samuelson, University of California, Berkeley, School of Law

How should the antitrust laws apply to Google? Though the question is simple, the answer implicates an array of far-reaching issues related to how we access information and how we interact with others. This program will feature a distinguished panel engaging in a fastpaced discussion (no PowerPoints!) about these topics.

The panel will explore the Federal Trade Commission’s potential case against Google. It will discuss Google’s position in the search market and potential effects of its conduct on rivals. The panel also will explore the nuances of the Google Book Search settlement. What would – and should – antitrust law do about the project? How should the procompetitive justifications of the increased availability of books be weighed against the effects of the project on rivals?

Antitrust’s role in a 21st-century economy is frequently debated. Google provides a fruitful setting in which to discuss these important issues.

The U.S. Department of Justice sued eBay last week for agreeing not to poach employees from rival Intuit. According to the Department’s press release, “eBay’s agreement with Intuit hurt employees by lowering the salaries and benefits they might have received and deprived them of better job opportunities at the other company.” DOJ maintains that agreements among rivals not to compete for workers have long been deemed per se illegal. (Indeed, Google, Apple, Adobe, and Pixar quickly settled antitrust claims based on similar non-poaching arrangements in 2010.)

DOJ is right to attack this type of arrangement. Apart from harming individual employees, non-poaching agreements occasion a societal harm: They preclude labor resources from being channeled to their highest and best uses. To poach a competitor’s star employee, you must offer to pay that employee more than she’s currently making (or otherwise adjust the terms of her employment in a way she deems desirable). Her current employer will usually have a chance to counter your offer. If you win the bidding war, it’s likely because the current employer’s willingness-to-pay for the employee—an amount reflective of the degree by which the employee enhances her firm’s value—is less than yours. If you can derive more value from the employee, you should have her. When employers agree to limit competition for workers, they preclude labor resources from flowing to their highest and best ends, causing an “allocative inefficiency.”

So perhaps DOJ should go after the members of the Association of American Law Schools. Pursuant to a Statement of Good Practices to which AALS members scrupulously adhere, each law school has agreed to limit competition with its rivals by refraining from making lateral offers of employment after March 1 each year. Unlike the eBay/Intuit arrangement, the competing law schools’ trade restraint is applicable for only part of the year–from March 1 until the fall hiring season–but it has the same basic effect as the eBay arrangement. And, despite the law schools’ claims to the contrary, it isn’t justified on efficiency grounds.

By preventing law professors from credibly threatening to leave their existing employers after March 1, the AALS restraint significantly reduces professors’ ability to negotiate higher wages or more favorable employment terms. If you announce a competing school’s offer six weeks before fall classes start, you’re much more likely to receive an attractive counter-offer from your current employer than you would be if you sprang the news of your potential departure six months before the start of classes, when you’re more easily replaced. What’s more, law schools generally don’t tell professors what they’ll be earning the following year until after March 1, when it’s too late for a disgruntled professor to secure another offer elsewhere. The AALS restraint thus artificially depresses the salaries of a school’s most desirable professors.

Now this might not seem like something to get worked up over. Most people think law professors are a spoiled lot. They have relatively low teaching loads and, despite the fact that most lack PhDs, they generally earn a good deal more than most academics. Why should DOJ intervene on behalf of these fat cats? Because the law schools’ non-poaching arrangement diminishes the quality of legal education. Here’s why.

At most law schools, where equality of end-states tends to be fetishized, professors are generally compensated in lock-step according to seniority. There’s some variation, but apart from endowed positions, starting salaries and annual raises are around the same level for everyone.

Talent and effort, by contrast, are not evenly distributed. Most law schools have some super-stars who are exceptional teachers and scholars, a number of “solid” professors who put in their time and provide competent teaching and enough scholarship to stay engaged, and a fair bit of dead weight. Lock-step compensation depresses the incentive to move into the first category and enhances the attractiveness of the last. It’s favored by administrators, though, because it permits them to avoid awkward conversations about merit.

If late-in-time departures of professors were a real possibility, administrators would have a stronger incentive to keep their most productive folks happy. They could stand to lose teachers with low course enrollments, so they probably wouldn’t worry too much about keeping their salaries relatively high. They’d also know that their less productive scholars are unlikely to receive a late offer. But highly productive scholars who also provide lots of the thing the law school is ultimately selling–law teaching–would likely begin to earn higher salaries than their less valuable colleagues. With compensation more accurately reflecting the value professors provide, labor resources would be allocated more efficiently. And, of course, law professors would have an increased incentive to make themselves both “poachable” and indispensable by firing on all cylinders–teaching, scholarship, and service.

But don’t the law schools need their non-poaching arrangement in order to prevent scheduling disorder that would hurt students? That’s certainly what they claim. The “Statement of Good Practices” memorializing the law schools’ collusive agreement begins:

[T]he departure of a full-time law teacher always requires changes at the law school. Unless the school is given sufficient time to make the necessary arrangements to find another to offer the instruction given by the departing teacher, the reasonable expectations of students will be  frustrated and the school’s educational program otherwise disrupted. To serve  the best interests of the program of legal education from which the teacher is departing and that to which she or he may be going, the Association urges that law schools and law faculty members follow these suggested practices….

A horizontal restraint of trade, though, isn’t necessary to prevent the sort of harm the law schools envision. If a law school believes it needs some amount of lead time to prepare for a professor’s departure, it may unilaterally negotiate contracts with its professors obligating them to provide a certain amount of notice before any departure and specifying liquidated damages for breach. Unlike the “one-size-fits-all” AALS restraint, such contracts could accommodate heterogeneous needs and preferences. For example, required lead times and the amount of liquidated damages could vary based on the location of the school (urban with lots of adjunct possibilities vs. rural with few), the degree to which the professor’s course offerings require a specialized background (Securities Regulation vs. Contracts), and the pedagogical importance of the courses (Business Organizations vs. Law & Literature). Moreover, this contractarian approach, unlike the AALS’s horizontal restraint, would further allocative efficiency across law schools: If Raider Law is willing to pay Target Law’s hot professor an amount that will increase her salary and cover the liquidated damages she owes Target because of an untimely departure, then Raider must value her more than Target and should get her. Thus, it is possible to achieve the practical benefit the AALS restraint purports to pursue without using a horizontal restraint and in a manner that permits allocative efficiency.

A horizontal agreement not to compete should not be allowed to stand when a less restrictive, easily achieved vertical option could secure the retraint’s benefits. See, e.g., Maricopa County Med. Soc’y (condemning an efficiency-enhancing maximum price-fixing agreement among physicians and observing that the procompetitive benefit occasioned by the restraint could be achieved via vertical agreements rather than a horizontal restraint); NCAA (refusing to allow the need for competitive balance to immunize a naked horizontal restraint because such balance could be achieved less restrictively); cf. Professional Engineers (horizontal agreement not to engage in price negotiations in order to assure high-quality engineering illegal when substantive quality standards could achieve same result).

Perhaps one day the DOJ will acknowledge that American law schools are competitors and, for the benefit of law students and the legal profession, ought to act like it.

If you’re currently a law professor and you’re thinking you might want to change schools (because, for example, your school continued its precipitous slide in the law school rankings . . . more about that later), you’d better hop on the phone. Today is your last day to snag a visiting offer from another law school. (You’ve already missed the deadline for procuring a permanent offer. That was March 1.)

The competing law schools, you see, have agreed to limit competition amongst themselves for law professor talent. Pursuant to the Association of American Law Schools’ Statement of Good Practices for the Recruitment of and Resignation by Full-Time Faculty Members, the law schools have pledged to “make an[y] offer of an indefinite appointment as a teacher during the following academic year no later than March 1 and of a visiting appointment no later than March 15.”

If this arrangement strikes you as legally suspect, congratulations. You know more about antitrust law than does the Executive Committee of the AALS. This arrangement is, quite simply, an unreasonable horizontal restraint of trade — not unlike an agreement among Ford, Chrysler, and GM that they will not poach engineers and designers from one another during the six-month period preceding the debut of new models. They’d no doubt love to adopt an agreement like that, but their lawyers would wisely counsel against doing so.

Members of the AALS, of course, contend that their little arrangement is fine. First, they insist it’s merely a “statement of good practices,” not an actual agreement, which is necessary to satisfy the “contract, combination, or conspiracy” element of Sherman Act Section 1. In addition, they maintain, it’s not an “unreasonable” restraint of trade. They’re wrong on both points.

As anyone who’s spent time teaching in a law school knows, law school administrators treat the hiring arrangement as though it is an actual agreement that binds them. They speed up recruiting to ensure that they make lateral offers before the cut-off dates. They talk to each other about the arrangement as though they recognize it as a common commitment.  Moreover, even if the arrangement were not the product of an express agreement, a reasonable factfinder would infer agreement from the fact that the law schools, in collectively adhering to the “good practice,” are engaging in consciously parallel behavior that would make no sense to adopt unilaterally (i.e., any law school that unilaterally adopted a policy of refusing to poach from its rivals after a certain date would hurt itself without procuring any economic benefit).  Thus, there is no question that the arrangement represents an antitrust “agreement” under prevailing legal standards.

The restraint is also unreasonable.  Most likely, the agreement would be deemed a “naked” restraint of trade.  Herbert Hovenkamp has written that “a serviceable definition of a naked restraint is one whose profitability depends on the exercise of market power.”  (The Antitrust Enterprise: Principle and Execution 112 (2005).)  If the participants in this agreement didn’t have market power — e.g., if only 20 of the nearly 200 law schools in the AALS adopted this policy — the policy wouldn’t really work.  An exercise of market power seems to be required for the arrangement to have efficacy, so the restraint is probably naked.  And if it’s naked, then it’s per se unreasonable and thus illegal.

But even if the arrangement is not naked, it would be condemned under a more probing analysis — either a “quick look” or a full-on rule of reason analysis.  Because it precludes law professors from procuring other offers when they’re most valuable to their existing employers (and thus in the best position to extract salaries approaching their actual worth), the arrangement systematically drives faculty salaries below the levels that persist in free competition.  This is especially galling because most law professors do not learn what they will be paid the following year until after the deadline for procuring another offer has passed.

The law schools would contend, of course, that this anticompetitive effect is outweighed by an important benefit: avoidance of the disruption that inevitably occurs when a professor resigns late in the spring term, after the fall schedule has been completed and students have selected courses.  There are at least two problems with that argument.

First, the argument really amounts to an assertion that vigorous competition among schools for professor talent is itself unreasonable because it leads to messy results.  The Supreme Court has rejected that line of argument in no uncertain terms.  In the Professional Engineers case, the Court condemned an agreement among engineers not to discuss price with potential clients, despite the engineers’ insistence that the agreement was necessary to prevent the shoddy design work that would result from low engineering prices.  The engineers’ public safety argument would not fly, the Court concluded, because “the Rule of Reason does not support a defense based on the assumption that competition itself is unreasonable.”  The Court explained that the Sherman Act is premised on “[t]he assumption that competition is the best method of allocating resources in a free market,” and it insisted that “[e]ven assuming occasional exceptions to the presumed [good] consequences of competition, the statutory policy precludes inquiry into the question whether competition is good or bad.”  Thus, the competing law schools can’t agree not to compete for labor just because doing so is hard.

Second, even if the policy at issue creates a good effect — reduced disruption from untimely resignations — there are less restrictive means of securing that end.  Each individual law school could negotiate resignation rules with its own professors.  For example, a law school could agree with its professors that they may not resign after Date X, and it could even bargain for a liquidated damages provision that would compensate it for any disruption occurring from breach.  Law schools would then compete with each other on this contract term — some would allow later resignations than others.  They could even have different resignation dates for different professors.  This sort of unilateral, non-collusive solution to the problem of untimely resignations would preserve competition for labor resources, causing them to be allocated more efficiently.

Of course, the members of the AALS know that they’re unlikely to be sued over this policy.  After all, any disgruntled law professors that brought suit over the policy would signal that they are prone to litigate and would thereby reduce their attractiveness as lateral candidates.  You’d think, though, that the AALS would show a little more respect for the law. 

A few years back, my colleague Royce Barondes and I wrote an essay entitled Should Antitrust Education Be Mandatory (for Law School Administrators)? The essay, whose title was intended to be tongue-in-cheek, argued that the members of the Association of American Law Schools were engaged in an illegal conspiracy to limit competition for professor talent. The focus of our criticism was an AALS “good practice” under which the law schools agree not to extend offers of employment to professors at competing law schools after March 1.

Law school administrators maintain that their agreement not to compete is justifiable because unbridled competition for professor talent causes them inconvenience (e.g., having to reschedule the fall semester courses of a professor who gets hired away during the spring or summer). But law schools could always rely on non-collusive, unilateral means of avoiding these difficulties. They could, for example, execute employment contracts that preclude professors from departing after some particular date and specify some amount of liquidated damages as a remedy for breach. In any event, the Supreme Court has made clear that the law schools’ argument — “Competition for professor talent is just too hard!” — amounts to a frontal assault on the Sherman Act and is entitled to no weight. (See Professional Engineers.)

Perhaps Royce and I should have included law firm recruiters and law school placement directors in our proposed antitrust education program. A few weeks back, a prominent group of those folks — acting through the National Association for Law Placement, or “NALP” — proposed a similarly collusive agreement not to compete for legal talent. The centerpiece of the proposed scheme is a pact among law firms, which currently interview law students whenever they want and make offers on a rolling basis, to refuse to extend offers of summer employment to second-year law students before a set date in January. The law schools, then, agree to punish gun-jumping firms (which the NALP proposal revealingly terms “cheaters”) by barring them from on-campus recruiting. NALP attempts to justify this law school-policed collusion among employers on grounds that it (1) allows firms to make staffing decisions when they have a better idea of their employment needs (i.e., after their year-end accounting); (2) enables firms to utilize better, but more time-consuming, interview methods (tests, simulations, “McKinsey-style group projects,” etc.); and (3) prevents firms from having to interview law students in the late summer and early fall, when lawyers like to vacation. (I’m serious. Read the proposal linked above.)

This agreement among law firms to limit competition in entry-level hiring is a bad idea for a number of reasons. For example, do the firms really want to extend the wining and dining period until January? Do they really want to replace the current system of rolling offers, in which the timing of an offer doesn’t reveal much information, with a system that signals to second-round offerees that they were not first choice? Relative to the current rolling offer system, won’t a scheme that encourages firms to make all or most of their offers at once (lest they lose attractive candidates to other firms) exacerbate, rather than alleviate, the difficulty of managing yield?

Most importantly, though, this agreement is a bad idea because it constitutes an illegal restraint of trade among competitors. A group of competitors has effectively said: “We don’t like having to make quick hiring decisions to catch the best talent, so we’re going to agree to limit competition amongst ourselves, and we’re going to enlist the law schools, who desperately want us to hire their grads, to act as our policemen.” That, my friends, is a naked restraint of trade. It seeks to level the playing field by removing an advantage from those well-managed law firms that are good at identifying and wooing talent and that can confidently predict their future business prospects, and it doesn’t create notable efficiencies (e.g., transaction cost reductions) or enable the creation of a new product or service.

Moreover, its purported justifications fail. The agreement isn’t necessary to achieve the first two putative benefits — enabling firms to make hiring decisions when they have a better idea of future labor needs and permitting them to utilize more time-consuming interview methods. Under the current system, firms are free to delay making offers until they get year-end accounting data, and they can take as long as they want to evaluate job candidates. While they might find that they lose candidates to employers who are more confident about future needs and who are speedier evaluators, no one’s stopping them from taking their sweet time if they want to. As for the third purported benefit — less need to interrupt attorneys’ late summer vacations, etc. — courts have not looked favorably on the “But competition makes us work too hard!” defense.

Fortunately, one prominent law firm — Jones Day — has objected to the NALP recommendations on grounds similar to those set forth above. Perhaps we should put that firm’s excellent antitrust lawyers in charge of our mandatory antitrust education program for law school administrators and law firm recruiters.

In an op-ed published in Saturday’s W$J (slightly updated version available here for free), Prof. David Bernstein drew attention to the American Bar Association’s proposed revision to its law school accreditation standards concerning student and faculty racial diversity. Bernstein criticized the ABA proposal for, in essence, calling on law schools to ignore constitutional and statutory provisions governing the use of racial preferences in admissions and hiring. Indeed, the revision’s interpretive guidelines (which apparently carry the same weight as the standards themselves) state that:

the requirements of a constitutional provision or statute that purports to prohibit consideration of gender, race, ethnicity or national origin in admissions decisions is not a justification for a school’s non-compliance with [the diversity standard].

It thus seems that Bernstein is not exaggerating when he claims that the ABA is attempting to put its own political agenda above the law.

The ABA, of course, says otherwise. In a letter in yesterday’s W$J (free copy here), the ABA president says that “David E. Bernstein unfortunately misrepresents the impact of proposed revisions to the ABA Standards for the Approval of Law Schools,” for a law school would not be required to consider race and ethnicity in its admissions process.

I don’t intend to weigh in on the debate over the ABA diversity standards — except to say that Bernstein’s view that the ABA is calling for law schools to ignore laws that conflict with its own agenda is consistent with my experience with the Association of American Law Schools (AALS). My own institution has recently gone through re-accreditation, and the direction we received from the AALS regarding our heroic efforts to diversify our student body and faculty suggest that the organization will be satisfied with nothing less than results — regardless of constitutional or statutory impediments. As an untenured faculty member, I’m reluctant to say more about what went down at my school (I thought of posting the AALS’s letter, but that would likely be frowned upon). I will therefore leave the debate regarding the ABA’s diversity standards to Bernstein (blogging at Volokh) and the others who have weighed in on that issue.

I do want to note, though, that this is not the only context in which the ABA and the AALS have sought to put themselves above the law. They’ve taken a similar stance toward the antitrust laws. First, the ABA imposed accreditation standards that collusively increased faculty salaries and thereby raised the barriers to entry into legal education. The Justice Department sued the ABA over those standards, and the association entered a consent decree settling the lawsuit and agreeing to alter its competition-reducing rules.

The AALS’s antitrust conspiracy, on the other hand, continues. As law professors throughout the land well know, the days in which lateral employment offers may be extended are waning. Pursuant to AALS “good practices,” member law schools have agreed amongst themselves not to make permanent employment offers to law professors at other law schools after March 1 (or, for offers to visit, after March 15). In other words, a group of competitors, who are not engaged in any sort of joint venture, have collectively agreed not to compete with each other after a certain date for what is undoubtedly their most important input. Imagine if Ford and GM, who must prepare models for the new season and therefore need some lead time for their design teams, agreed that they would not try to poach each others’ engineers after a certain date. That would clearly be a per se violation of Sherman Act Section 1. Similarly, the agreement among AALS members to restrict their competition for professors would seem per se illegal.

Even if the agreement is not illegal per se, it cannot withstand rule of reason scrutiny. As Royce Barondes and I argued in a recent essay (Should Antitrust Education Be Mandatory (for Law School Administrators)?, 38 U.C. Davis L. Rev. 1299 (2005)), the restraint at issue has a substantially adverse effect on competition and provides no countervailing procompetitive virtues, and its legitimate ends could be achieved less restrictively. (I won’t bore you with the details of our rule of reason analysis — an SSRN version of the essay is available.)

As they exercise their powers to regulate (i.e., restrict) who may enter the legal profession, the leaders of the ABA and AALS would do well to remember John Adams’ little maxim about this being “a government of laws and not of men.”