On May 11, 2009, Christine A. Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division, in a speech at the Center for American Progress announced that the Department is withdrawing effective immediately its 2008 report regarding single-firm conduct enforcement under Section 2 of the Sherman Act and outlined the Division’s overall enforcement agenda.
The September 2008 Department of Justice report, “Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act” (“Report”), was the culmination of a year-long series of joint DOJ-FTC hearings addressing issues relating to the enforcement of Section 2 with respect to single-firm conduct. The Report received considerable criticism, particularly by three Federal Trade Commissioners (including the new FTC Chairman, Jon Leibowitz). Criticisms included that it drastically weakened enforcement of Section 2, ignored the goal of protecting consumer welfare, relied too heavily on economic theory, and adopted standards stricter than existing standards defined by Section 2 case law making it nearly impossible to prosecute a case under Section 2.
In her speech – and confirmed in a May 11 DOJ press release – Varney stated that the Antitrust Division was withdrawing the Report as it no longer represented DOJ policy regarding antitrust enforcement under Section 2. As Ms. Varney stated, “the Report and its conclusions should not be used as guidance by courts, antitrust practitioners, and the business community.” Although commending the attempt to develop a comprehensive evaluation of single-firm enforcement and analyze the risks and benefits of various enforcement strategies, Varney noted that the Report’s conclusions and overly cautious approach to enforcement “miss[ed] the mark.”
Varney concluded that the Report lost sight of protection of consumer welfare as the ultimate goal of antitrust laws. In particular, she concluded that the Report raised too many hurdles to effective Government antitrust enforcement. The limited enforcement approach outlined in the Report had been premised on: (a) skepticism regarding the ability of antitrust enforcers and courts to distinguish between anticompetitive acts and lawful conduct; and (b) assumptions regarding a dominant firm’s ability to act efficiently and whether markets will “self-police” and “self-correct.” Varney rejected those conclusions and related concerns that antitrust enforcers--and courts--cannot effectively distinguish between anticompetitive acts and lawful conduct. Furthermore, she criticized the Report’s “excessive concern with the risks of over-deterrence and a resulting preference for an overly lenient approach to enforcement.”
Noting that the Report “advocates extreme hesitancy in the face of potential abuses by monopoly firms,” Varney stated that the Department “must change course and take a new tack.” In particular, Varney rejected the Report’s conclusion that the “disproportionality test” (i.e., conduct is condemned only if its demonstrable anticompetitive effects are “disproprotionately” greater than its procompetitive potential) is likely to be the most appropriate test where conduct-specific tests do not apply. In recognizing the constraints this test places on antitrust enforcers and courts redressing monopolistic abuses, Varney proposed a strategy grounded in, and guided by, the “balanced analyses” of leading case law interpreting the Sherman Act. Specifically, Varney cited Lorain Journal v. United States, Aspen Skiing Co. v. Aspen Highlands Skiing Corp., and United States v. Microsoft, as examples of leading Section 2 cases that highlight the harmful effects of monopolists’ exclusionary and predatory conduct on competition and consumers.
Accordingly, instructive jurisprudence “set[ting] forth clear limitations on how monopoly firms are permitted to behave” will guide the Department’s enforcement of single-firm conduct, rather than the conclusions developed in the withdrawn Report. For example, in Lorain Journal, the Court expressly rejected that a newspaper publisher had a “right as a private business concern to select its customers and refuse to accept advertisements from whomever it pleases.” Similarly, in Aspen Skiing Co, the Court reaffirmed that any right of a monopolist to refuse to deal with other firms is not unqualified, and emphasized that, in analyzing such behavior, courts will consider the firm’s anticompetitive motivation and the impact of the conduct on consumers. Furthermore, Varney cited United States v. Microsoft, as providing instruction that courts will “look closely at both the perceived procompetitive and anticompetitive aspects of a dominant firm’s conduct, weigh those factors, and determine whether on balance the net effect of this conduct harms competition and consumers.” Varney cited other examples of cases in which the Government and private parties have successfully challenged exclusionary conduct as “strong examples…the Department will look to in establishing Section 2 enforcement priorities.”
Varney also reiterated the Division’s commitment to identifying and prosecuting domestic and international cartels. She further noted that the Division was dedicating significant resources to assist agencies that receive and spend economic stimulus funds to detect and prosecute collusive and other fraudulent conduct. In addition, Varney confirmed the Antitrust Division will aggressively pursue both merger and non-merger investigations and will explore vertical theories and other new areas of civil enforcement, especially in high-technology and Internet-based markets. Finally, Varney stated that “rigorous economic analysis” will be the touchstone for Antitrust Division policy, with the focus on the “power of competition in the market to ensure the American consumer’s access to the best products at the lowest prices.”
In sum, Varney took a forceful stance against the Report’s approach to enforcement of single-firm (and other) conduct. Varney summarized the Antitrust Division’s position going forward, stating: “In short, while preserving the right of firms with market power to continue to compete, we cannot allow them a free pass to undertake predatory or unjustified exclusionary acts.” In this connection, Varney plainly stated that “passive monitoring of market participants is not an option.” For these reasons, businesses with high market shares should carefully analyze their practices in light of the Department’s plan to aggressively pursue enforcement of Section 2 and the related invitation for aggrieved rivals to bring complaints of exclusionary conduct to the Division’s attention.