Truth on the Market

1. Introduction

The International Competition Network (ICN), a “virtual” organization comprised of most of the world’s competition (antitrust) agencies and expert non-governmental advisors (NGAs), held its Sixteenth Annual Conference in Porto, Portugal from May 10-12. (I attended this Conference as an NGA.) Now that the ICN has turned “sweet sixteen,” a stocktaking is appropriate. The ICN can point to some significant accomplishments, but faces major future challenges. After describing those challenges, I advance four recommendations for U.S.-led initiatives to enhance the future effectiveness of the ICN.

2. ICN Background and Successes

The ICN, whose key objective is to promote “soft convergence” among competition law regimes, has much to celebrate. It has gone from a small core of competition authorities focused on a limited set of issues to a collection of 135 agencies from 122 far-flung jurisdictions, plus a large cadre of NGA lawyers and economists who provide practical and theoretical advice. The ICN’s nature and initiatives are concisely summarized on its website:

The ICN provides competition authorities with a specialized yet informal venue for maintaining regular contacts and addressing practical competition concerns. This allows for a dynamic dialogue that serves to build consensus and convergence towards sound competition policy principles across the global antitrust community.

The ICN is unique as it is the only international body devoted exclusively to competition law enforcement and its members represent national and multinational competition authorities. Members produce work products through their involvement in flexible project-oriented and results-based working groups. Working group members work together largely by Internet, telephone, teleseminars and webinars.

Annual conferences and workshops provide opportunities to discuss working group projects and their implications for enforcement. The ICN does not exercise any rule-making function. Where the ICN reaches consensus on recommendations, or “best practices”, arising from the projects, individual competition authorities decide whether and how to implement the recommendations, through unilateral, bilateral or multilateral arrangements, as appropriate.

The Porto Conference highlighted the extent of the ICN’s influence. Representatives from key international organizations that focus on economic growth and development (and at one time were viewed as ICN “rivals”), including the OECD, the World Bank, and UNCTAD, participated in the Conference. A feature in recent years, the one-day “Pre-ICN” Forum jointly sponsored by the World Bank, the International Chamber of Commerce, and the International Bar Association, this year shared the spotlight with other “sidebar” events (for example, an antitrust symposium cosponsored by UNCTAD and the Japan Fair Trade Commission, an “African Competition Forum,” and a roundtable of former senior officials and academics sponsored by a journal). The Porto Conference formally adopted an impressive array of documents generated over the past year by the ICN’s various Working Groups (the Advocacy, Agency Effectiveness, Cartel, Merger, and Unilateral Conduct Working Groups) (see here and here). This work product focuses on offering practical advice to agencies, rather than theoretical academic speculation. If recent history is in any indication, a substantial portion of this advice will be incorporated within some national laws, and various agencies guidance documents, and strategic plans.

In sum, the ICN is an increasingly influential organization. More importantly, it has, on balance, been a force for the promotion of sound policies on such issues as pre-merger notifications and cartel enforcement – policies that reduce transaction costs for the private sector and tend to improve the quality of antitrust enforcement. It has produced valuable training materials for agencies. Furthermore, the ICN’s Advocacy Working Group, buoyed by a growing amount of academic research (some of it supported by the World Bank), increasingly has highlighted the costs of anticompetitive government laws and regulations, and provided a template for assessing and critiquing regulatory schemes that undermine the competitive process. Most recently, the revised chapter on the “analytical framework for evaluating unilateral exclusionary conduct” issued at the 2017 Porto Conference did a solid job of describing the nature of harm to the competitive process and the need to consider error costs in evaluating such conduct. Other examples of welfare-enhancing ICN proposals abound.

3. Grounds for Caution Going Forward

Nevertheless, despite its generally good record, one must be cautious in evaluating the ICN’s long-term prospects, for at least five reasons.

First, as the ICN tackles increasingly contentious issues (such as the assessment of vertical restraints, which are part of the 2017-2018 ICN Work Plan, and “dominant” single firm “platforms,” cited specifically by ICN Chairman Andreas Mundt in Porto), the possibility for controversy and difficulty in crafting recommendations rises.

Second, most ICN members have adopted heavily administrative competition law frameworks that draw upon an inquisitorial civil law model, as opposed to the common law adversarial legal system in which independent courts conduct full legal reviews of agency conclusions. Public choice analysis (not to mention casual empiricism and common sense) indicates that as they become established, administrative agencies will have a strong incentive to “do something” in order to expand their authority. Generally speaking, sound economic analysis (bolstered by large staffs of economists) that stresses consumer welfare has been incorporated into U.S. federal antitrust enforcement decisions and federal antitrust jurisprudence – but that is not the case in large parts of the world. As its newer member agencies grow in size and influence, the ICN may be challenged by those authorities to address “novel” practices that stray beyond well-understood competition law categories. As a result, innovative welfare-enhancing business innovations could be given unwarranted scrutiny and thereby discouraged.

Third, as various informed commentators in Porto noted, many competition laws explicitly permit consideration of non-economic welfare-based goals, such as “industrial policy” (including promotion of “national champion” competitors), “fairness,” and general “public policy.” Such ill-defined statutory goals allow competition agencies (and, of course, politicians who may exercise influence over those agencies) to apply competition statutes in an unpredictable manner that has nothing to do with (indeed, may be antithetical to) promotion of a vigorous competitive process and consumer welfare. With the proliferation of international commerce, the costly uncertainty injected into business decision-making by malleable antitrust statutes becomes increasingly significant. The ICN, which issues non-binding recommendations and advice and relies on voluntary interagency cooperation, may have little practical ability to fend off such welfare-inimical politicization of antitrust.

Fourth, for nearly a decade United States antitrust agencies have expressed concern in international forums about lack of due process in competition enforcement. Commendably, in 2015 the ICN did issue guidance regarding “key investigative principles and practices important to effective and fair investigative process”, but this guidance did not address administrative hearings and enforcement actions, which remain particularly serious concerns. The ICN’s ability to drive a “due process improvements” agenda may be inherently limited, due to differences among ICN members’ legal systems and sensitivities regarding the second-guessing of national enforcement norms associated with the concept of “due process.”

Fifth, there is “the elephant outside the room.” One major jurisdiction, China, still has not joined the ICN. Given China’s size, importance in the global economy, and vigorous enforcement of its completion law, China’s “absence from “the table” is a significant limitation on the ICN’s ability to promote economically meaningful global policy convergence. (Since Hong Kong, a “special administrative region” of China, has joined the ICN, one may hope that China itself will consider opting for ICN membership in the not too distant future.)

4. What Should the U.S. Antitrust Agencies Do?

Despite the notes of caution regarding the ICN’s future initiatives and effectiveness, the ICN will remain for the foreseeable future a useful forum for “nudging” members toward improvements in their competition law systems, particularly in key areas such as cartel enforcement, merger review, and agency effectiveness (internal improvements in agency management may improve the quality of enforcement and advocacy initiatives). Thus, the U.S. federal antitrust agencies, the Justice Department’s Antitrust Division (DOJ) and the Federal Trade Commission (FTC), should (and undoubtedly will) remain fully engaged with the ICN. DOJ and the FTC not only should remain fully engaged in the ICN’s Working Groups, they should also develop a strategy for minimizing the negative effects of the ICN’s limitations and capitalizing on its strengths. What should such a strategy entail? Four key elements come to mind.

First, the FTC and DOJ should strongly advocate against an ICN focus on expansive theories of liability for unilateral conduct (particularly involving such areas as popular Internet “platforms” (e.g., Google, Facebook, and Amazon, among others) and vertical restraints), not tied to showings of harm to the competitive process. The proliferation of cases based on such theories could chill economically desirable business innovations. In countering such novel and expansive condemnations of unilateral conduct, the U.S. agencies could draw upon the extensive law and economics literature on efficiencies and unilateral conduct in speeches, publications, and presentations to ICN Working Groups. To provide further support for their advocacy, the FTC and DOJ should also consider issuing a new joint statement of unilateral conduct enforcement principles, inspired by the general lines of the 2008 DOJ Report on Single Firm Conduct Under Section 2 of the Sherman Act (regrettably withdrawn by the Obama Administration DOJ in 2009). Relatedly, the FTC and DOJ should advocate the right of intellectual property (IP) holders legitimately to maximize returns on their holdings. The U.S. agencies also should be prepared to argue against novel theories of antitrust liability untethered from traditional concepts of antitrust harm, based on the unilateral exploitation of IP rights (see here, here, here, and here).

Second, the U.S. agencies should promote a special ICN project on decision theory and competition law enforcement (see my Heritage Foundation commentary here), under the aegis of the ICN’s Agency Effectiveness Working Group. A decision-theoretic framework aims to minimize the costs of antitrust administration and enforcement error, in order to promote cost-beneficial enforcement outcomes. ICN guidance on decision theory (which would stress the primacy of empirical analysis and the need for easily administrable rules) hopefully would encourage competition agencies to focus on clearly welfare-inimical practices, and avoid pursuing fanciful new theories of antitrust violations unmoored from robust theories of competitive harm. The FTC and DOJ should also work to inculcate decision theory into the work of the core ICN Cartel and Merger Working Groups (see here).

Third, the U.S. agencies should also encourage the ICN’s Agency Effectiveness Working Group to pursue a comprehensive “due process” initiative, focused on guaranteeing fundamental fairness to parties at all stages of a competition law proceeding.  An emphasis on basic universal notions of fairness would transcend the differences inherent in civil law and common law administrative processes. It would suggest a path forward whereby agencies could agree on the nature of basic rights owed litigants, while still preserving differences among administrative enforcement models. Administrative procedure recommendations developed by the American Bar Association’s Antitrust Section in 2015 (see here) offer a good template for consideration, and 2012 OECD deliberations on fairness and transparency (see here) yield valuable background analysis. Consistent with these materials, the U.S. agencies could stress that due process reforms to protect basic rights would not only improve the quality of competition authority decision-making, it would also enhance economic welfare and encourage firms from around the world to do business in reforming jurisdictions. (As discussed above, due process raises major sensitivities, and thus the push for due process improvements should be viewed as a long-term project that will have to be pursued vigorously and very patiently.)

Fourth, working through the ICN’s Advocacy Working Group, the FTC and DOJ should push to substantially raise the profile of competition advocacy at the ICN. A growing body of economic research reveals the enormous economic gains that could be unlocked within individual countries by the removal of anticompetitive laws and rules, particularly those that create artificial barriers to entry and distort trade (see, for example, here and here). The U.S. agencies should emphasize the negative consequences for poorer consumers, reduced innovation, and foregone national income due to many of these anticompetitive barriers, drawing upon research by World Bank and OECD scholars (see here). (Fortunately, the ICN already works with the World Bank to promote an annual contest that showcases economic “success stories” due to agency advocacy.) The FTC and DOJ should also use the ICN as a forum to recommend that national competition authorities accord competition advocacy aimed at domestic regulatory reform relatively more resources and attention, particularly compared to investigations of vertical restraints and novel unilateral conduct. It should also work within the ICN’s guidance and oversight body, the “Steering Group,” to make far-reaching competition advocacy initiatives a top ICN priority.

5. Conclusion

The ICN is a worthwhile international organization that stands at a crossroads. Having no permanent bureaucracy (its website is maintained by the Canadian Competition Bureau), and relying in large part on online communications among agency staff and NGAs to carry out its work, the ICN represents a very good investment of scare resources by the U.S. Government. Absent thoughtful guidance, however, there is a danger that it could drift and become less effective at promoting welfare-enhancing competition law improvements around the world. To avert such an outcome, U.S. antitrust enforcement agencies (joined by like-minded ICN members from other jurisdictions) should proactively seek to have the ICN take up new projects that hold out the promise for substantive and process-based improvements in competition policy worldwide, including far-reaching regulatory reform. A positive ICN response to such initiatives would enhance the quality of competition policy. Moreover, it could contribute in no small fashion to increased economic welfare and innovation in those jurisdictions that adopted reforms in response to the ICN’s call. American businesses operating internationally also would benefit from improvements in the global competition climate generated by ICN-incentivized reforms.