Corporate & Securities Law

Kolasky on What Happens with the Section 2 Report

William Kolasky (Wilmer Hale, and one of the frontrunners for the DOJ AG spot according to the rumormill) has an interesting piece in the Antitrust Source on the DOJ Section 2 Report arguing that while:

even the objecting Commissioners would probably agree that the Justice Department Report does a good job analyzing particular types of exclusionary conduct, such as price predation, tying, bundled and loyalty discounts, refusals to deal, and exclusive dealing …. The principal focus of the three Commissioners? objections is not to this part of the Report, but rather to the general standard it proposes for exclusionary conduct. And, in that regard, their concerns appear to have some merit.

The most interesting paragraph in the article, and the one most likely to grasp the attention of the antitrust community, is the closer:

With a new Administration in January, we should have further discussion of the standards the agencies and courts should use in enforcing Section 2. Until then, we should treat the Justice Department?s Report, not as its final word, but rather as a discussion draft, and continue to search for a common standard that both agencies could apply. That was how the European Commission presented its report on Article 82 and abuse of dominance. It is an approach that makes particularly good sense here, so that we do not have the Justice Department applying one, highly laissez-faire standard to single-firm conduct and the FTC a different, more restrictive standard.

There are a couple of ways this might go.  Defenders of the Report might argue that the Section 2 Hearings involved plenty of discussion over the appropriate standards and it is for the FTC to either join the DOJ or offer a better alternative.  Alternatively, the new DOJ could go a bit further than Kolasky’s suggestion here and renounce or reject the Report in some fashion, clearing that path for FTC/DOJ convergence on some new (and presumably more aggressive) standard.  Of course, a third possibility is that the FTC and DOJ continue to apply divergent standards to single firm conduct.  That would be costly.  But if you are of the view that the DOJ Section 2 Report offers a good set of substantive monopolization rules and provides valuable guidance in the area of antitrust law that needs it the most — I hold this view — it is not so clear to me that the uncertainty between agencies is less costly than converging to a yet to be determined and possibly worse set of rules.

At some point, and this goes for the conversation about convergence and divergence between Section 2 and Article 82, we are going to have to have a frank discussion about the optimal monopolization standards.  Yes, institutional design matters here.  The absence of private rights in the EU compared to the high cost of false positives in the United States given treble damages and private actions means that the domestic standards should be less restrictive than those overseas.  But the discussion shouldn’t stop there.  Private rights of action and generous remedies in the U.S. system is only one reason to optimal monopolization standards should under-deter.  The more general point is an Easterbrookian one.  The costs of false positives are higher even without those institutional concerns both because they are self-correcting where as false negatives are not and, importantly but often ignored in this context, we just aren’t very good at distinguishing anticompetitive from pro-competitive conduct in the single firm context yet. That’s as true in Europe as it is in the United States.  It’s the same economics.

Other thoughts on the FTC v. DOJ Section 2 ruckus here and here).

Full post as published by Truth on the Market on December 14, 2008 (boomark / email).