The United States Department of Justice (DOJ) recently issued a report on monopolization under the US antitrust laws - “Competition and Monopoly: Single Firm Conduct Under Section Two of the Sherman Act” (DOJ Report). The Report arose out of joint hearings undertaken by DOJ and the Federal Trade Commission (FTC), and the agencies were expected to issue a joint report. It is now clear that the agencies hold strikingly different views of enforcement policy for dominant firm conduct. The DOJ Report drew a sharp dissenting opinion from three FTC Commissioners who termed it a “blueprint for radically weakened enforcement of Section 2 of the Sherman Act.” These Commissioners criticized the DOJ Report, saying that they expected “a Report that would identify outstanding issues in Section 2 enforcement; provide neutral and balanced illustrations of the conflicting positions that have been taken on these issues; and suggest topics for further study to resolve the debate.” FTC Chairman Kovacic also seems to have envisioned a different end product, specifically, “a DOJ/FTC report on the unilateral conduct deliberations [which] would devote considerable effort to put modern developments in context – to examine how the U.S. antitrust system developed as it did, and to assess what that history means for the future of U.S. and global competition policy.”
The DOJ Report describes the agency’s current Section 2 enforcement policy as it relates to monopoly power and conduct standards for predatory pricing and bidding, loyalty discounts, tying, bundling, refusals to deal and exclusive dealing. It evinces a strong concern that overzealous enforcement would needlessly deter aggressive competition and innovation, and ultimately disadvantage consumers. It thus signals that the current DOJ leadership interprets Section 2 of the Sherman Act to provide significantly wider latitude for aggressive conduct by monopoly firms than prior enforcement standards have countenanced.
One of the DOJ Report’s singular departures from prior enforcement standards is its proposal that anticompetitive conduct be considered unlawful only when it results in harm to competition that is “disproportionate” to any consumer and economic benefit. According to the three dissenting FTC Commissioners, this standard is one that “would place a thumb on the scales in favor of firms with monopoly or near-monopoly power and against other equally significant stakeholders.” These differences of view are reflected in the agencies’ enforcement records in recent years: DOJ has not filed a Section 2 case during the Bush Administration, while the FTC has brought several cases.
The DOJ Report sets out a benchmark for identification of monopoly power under which a firm that has maintained a market share in excess of two-thirds for a significant period, and with a market position that is unlikely to be eroded in the near future, would be presumed to possess monopoly power. It then proposes a series of presumptions, or safe harbors, in favor of legality for certain kinds of unilateral conduct by monopoly firms including:
- Most tying, particularly technological product tying, absent evidence that the tie serves no purpose other than to disadvantage competitors;
- Bundled discounting, absent evidence of predatory pricing or anticompetitive tying:
- Unilateral, unconditional refusals to deal with rivals; and
- Exclusive dealing arrangements that foreclose less than 30 percent of the market.
The DOJ Report underscores the critical role that efficiencies play in its assessment of single firm conduct. For example, the disproportionality test described above would require plaintiffs to show either the absence of procompetitive benefits or that the anticompetitive effects of the conduct at issue disproportionately outweigh the procompetitive effects. This emphasis on efficiencies from the point of view of the monopolist tends to downplay the significance of consumer harm or harm to the competitive process, both of which have been traditionally touchstones of Section 2 jurisprudence. In effect, it creates a rebuttable presumption that single firm conduct generally is beneficial to consumers.
The long-term influence of the DOJ Report on the development of antitrust law is questionable. The report clearly reflects a recent tendency in Supreme Court cases to limit the scope of antitrust liability for monopoly firm conduct, and it contributes to a lively on-going academic debate that has surrounded the application of antitrust law to unilateral conduct. Nevertheless, given the sharp reaction to it from the FTC Commissioners, coupled with recent events that call in question deregulation in many sectors of the economy -- and the fact that it was issued by a lame duck Administration -- its practical impact for the business community may be small. Perhaps at most it means that the likelihood of being investigated or challenged will be lower if a matter is taken up by the DOJ rather than the FTC during the transition from the Bush Administration to the Obama Administration. It would thus be inadvisable for antitrust counsellors to rely on it as a definitive statement of federal enforcement policy as they guide clients who enjoy dominant market positions.