On May 11, 2009, Christine Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, withdrew the Bush administration’s Policy on Enforcement Against Dominant Firms (September 2008) saying it “no longer represents the policy” of the federal government. Ms. Varney commented, “Vigorous antitrust enforcement under Section 2 of the Sherman Act will be part of the [government’s] critical contribution.” Firms with leading positions in various markets should expect greater scrutiny from federal authorities, particularly with respect to conduct that is viewed as harming competitors or erecting barriers to entry by potential competitors. Ms. Varney’s statement is viewed by some as an invitation to firms to complain to enforcers about the business practices of competitors with large market shares. It is anticipated that the stepped-up enforcement policy will focus on licensing and distribution practices by dominant firms. The newly announced initiative, however, will face some hurdles, including the long-established case law setting forth exacting tests for monopoly enforcement.
The now-repudiated Department of Justice report on single-firm conduct under Section 2 of the Sherman Act was issued after nearly one year of hearings jointly conducted by the Department of Justice and the Federal Trade Commission. However, three Federal Trade Commissioners issued a very negative statement about the report, and the Commission did not concur in its conclusions. The report advocated restraint before enforcing actions against dominant firms, based on the perceived problems in determining whether certain actions, such as aggressive pricing or discounting, are pro-competitive or are illegal exclusionary or predatory conduct. The Report advocates that action should be taken against a monopolist only where there is strong evidence that the anticompetitive effects are disproportionately greater than the precompetitive potential. The Obama administration has made clear that it will not be as deferential toward allegedly exclusionary practices by firms with monopoly power.
Ms. Varney announced the current administration’s “shift in philosophy” because she believes the Report overestimates the potential value of possible efficiencies by dominant firms, relies too heavily on marketplace correction, and presents “too many hurdles to government enforcement . . . .” Accordingly, the prior position lost sight “of an ultimate goal of the antitrust laws – the protection of consumer welfare.” Ms. Varney wanted to send a clear message of “a shift in philosophy and the clearest way to let everyone know that the Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers.”
As a result of the Obama administration’s announcement of this vigorous new enforcement policy, firms with high market shares should carefully review any practices that potentially harm actual or potential competitors. These practices include, among others, exclusivity provisions that have the effect of preventing customers or suppliers from dealing with competitors, most-favored-nations clauses, certain non-competition provisions, and extremely aggressive pricing, discounting or bundling that may cause substantial harm to a rival. If a firm feels it has suffered significant competitive harm from such conduct, the enforcement agencies will be more willing to review and possibly investigate such a claim than they were in the past. We expect that the new policy may also target tying or other uses of alleged monopoly power in one market to gain an advantage in another market.
Perhaps as a sign of things to come, two investigations were opened up in recent weeks targeting the practices of Google. The Justice Department is looking into a settlement agreement between Google and authors and publishers regarding Google’s book-search service. The FTC is also investigating whether Google’s sharing two board members with Apple reduces competition, because both companies offer Web browsers and phone operating systems.