The Obama Administration today signaled a more aggressive antitrust enforcement policy and a clear shift away from the Bush Administration’s more laissez-faire approach. It also drew from lessons of U.S. recession-era policy to highlight the need for continued antitrust enforcement during the current financial crisis and global recession, and hinted at more robust review of mergers and acquisitions—especially in high-tech industries.
A Renewed Focus on Section 2 Monopolization Claims
Specifically, in an announcement on the Antitrust Division’s Web site1 and an important speech this morning at the Center for American Progress,2 Christine Varney, the Assistant Attorney General for Antitrust, today announced the withdrawal of a report on Section 2 monopolization offenses issued last year. “As of today, the Section 2 report will no longer be Department of Justice policy,” the Department of Justice announcement said. “The Report and its conclusions should not be used as guidance by courts, antitrust practitioners, and the business community,” Ms. Varney stated in her speech today.
Assistant Attorney General Varney stated in the announcement that “[t]he report, “Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act,” raised too many hurdles to government antitrust enforcement and favored extreme caution and the development of safe harbors for certain conduct within reach of Section 2.” As she also observed, “[w]ithdrawing the Section 2 report is 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.”
While the Department did not articulate a single new test to govern all Section 2 monopolization cases at this time, Assistant Attorney General Varney did highlight the “balanced analyses reflected in the leading cases” interpreting the antitrust law as providing “important guidance.” Thus, the policy marks a reversion to reliance on prior Supreme Court and other major lower court precedents on exclusionary practices such as Lorain Journal, Aspen Skiing, and Microsoft.3 This view may, however, be circumscribed by some recent Supreme Court decisions that have expressed a narrower view of the kinds of actions that may constitute exclusionary or predatory practices that may give rise to an antitrust claim.4
This new policy shift thus focuses on the elimination of a set of restrictive Bush-era guidelines that effectively made it hard for smaller firms to challenge on antitrust grounds a larger firm’s unilateral conduct (predatory practices, various forms of exclusionary conduct, and other abuses of monopoly power). In effect, this also marks a return to more robust Clinton-era policies.
A Focus on Certain Industries
While Assistant Attorney General Varney did not single out any particular industries in her speech today, media reports indicate that she is believed to be aiming at agriculture, energy, health care, technology and telecommunications companies.5 She may also review the conduct of some firms in the financial services industry, which is undergoing a wave of consolidation as a result of the financial crisis.
The Need for Sustained and Robust Antitrust Enforcement in the Current Economic Crisis
More generally, Assistant Attorney General Varney noted the need for vigilance and sustained antitrust scrutiny even during hard economic times, where there often are calls for a relaxation of the rules for firms in distress. Varney noted, however, that the lessons from the Great Depression teach that early New Deal-era policies that created industrial codes that set prices and wages and established production quotas had the effect of restricting competition and required more vigorous antitrust enforcement later.
As she observed, “[t]he lessons learned from this historical example are twofold. First, there is no adequate substitute for a competitive market, particularly during times of economic distress. Second, vigorous antitrust enforcement must play a significant role in the Government’s response to economic crises to ensure that markets remain competitive.”
She noted that in recent times, the pendulum “swung too far” from vigorous enforcement toward the idea of “self-policing” where enforcement authorities would wait for markets to “self-correct,” with resulting innovation and the enhancement of consumer welfare. However, “these developments have not occurred … [and] we now see numerous markets distorted,” as well as firms failing to the detriment of consumers,” she said.
With respect to the current economic crisis, Assistant Attorney General Varney further observed that “[I]t appears that a combination of factors, including ineffective government regulation, ill-considered deregulatory measures, and inadequate antitrust oversight contributed to the current conditions.” She thus declared her view that “these extreme conditions require a recalibration of economic and legal analysis and theories, and a clearer plan for action. As antitrust enforcers, we cannot sit on the sidelines any longer—both in terms of enforcing the antitrust laws and contributing to sound competition policy as part of our nation’s economic strategy.”
Antitrust Policy on Mergers and Other Areas
While the new policy does not directly address the enforcement of antitrust rules governing mergers and acquisitions or conspiracies in restraint of trade, Assistant Attorney General Varney’s remarks and the more general philosophy of the Obama Administration does suggest some more robust efforts in the merger area as well. Ms. Varney indicated, for example, a hope that the Department would explore more “vertical theories” of liability (e.g., that a merger can be anticompetitive because of the vertical integration it may create) in addition to traditional concerns that a merger could restrict competition among horizontal competitors. The Bush Administration had been very muted in its pursuit of such vertical challenges to mergers.
The Obama era policies may vary to some extent by market. Ms. Varney noted in her speech a need, for example, to focus on “high-tech and Internet-based markets,” where “Americans are … enjoying the fruits of innovation … that have been spurred on by competition between rival firms.” Also, the new Under Secretary of Defense for Acquisition, Technology and Logistics recently testified at his confirmation hearing that he was concerned over consolidation in the defense industry. His comments echoed a recent report of the Defense Science Board,6 which recommended additional scrutiny of certain types of defense mergers (especially those among prime level competitors where consolidation has already been significant and in “innovation” markets with robust demand and the need for new technology solutions to significant war fighting challenges).