Corporate & Securities Law

Will Section 2 Thwart the DOJ’s New Antitrust Agenda?

George Priest has an excellent op-ed in the WSJ correctly calling out the Justice Department’s new Assistant Attorney General Christine Varney for attributing the financial crisis to a lack of antitrust enforcement:

Assistant Attorney General for Antitrust Christine Varney claims that the Justice Department can aid economic recovery by prosecuting businesses that have been successful in gaining large market shares. In her announcement last month she argued that “many observers agree” that our current recession reflects “a failure of antitrust” and “inadequate antitrust oversight.”

This is news to most economists. The cause of the recession is not easy money by the Fed, or the bursting of the housing bubble, or excessive risk-taking through complicated financial instruments? It’s insufficient antitrust prosecution? The claim is hardly plausible. Prosecuting successful businesses will help the recovery? Again, hard to believe.

Priest raises similar issues to those Keith Hylton, Geoff and I discussed in our Forbes piece.  One of those issues is that it is misleading to characterize the Section 2 Report as  a “right wing” political document, rather the product of hearings that consulted the views of hundreds of witnesses, including those enforcement agency officials, practitioners, academics and the business community over two years.  Professor Priest makes the point as follows:

It’s fair enough for a succeeding administration to reject policies of its predecessor. But the Justice Department report was not authored by John Yoo or Alberto Gonzales. It was the work of a year-long study that considered recommendations from 29 panels and 119 witnesses, most of them critical of the minimalist Chicago School approach to antitrust law. The report’s conclusions basically track Supreme Court law with modest extensions in areas where the Supreme Court has not ruled. Ms. Varney denounced the report in its entirety.

But the real punchline of Priest’s op-ed is the confident and interesting conclusion that despite the strong will of the DOJ to reinvigorate Section 2 enforcement, the “new” antitrust agenda will be thwarted by existing Section 2 law:

The saving grace here is that, unlike her European counterpart Neelie Kroes (who is antitrust prosecutor and judge at once), Ms. Varney is only the director of an administrative agency. She and her department can prosecute cases but they cannot convict. The positions put forth in the now-rejected 2008 Justice Department study derive largely from opinions of the Supreme Court. And in the last three monopolization cases considered by the Supreme Court (spanning over a decade) there were no dissenting opinions. Even if President Obama makes the court more liberal the court’s antitrust opinions are secure.  Ms. Varney’s proposed change in direction of antitrust policy may impose extraordinary litigation costs on the government and on her targets. It is unlikely to have a significant effect on U.S. antitrust law.

Professors Hylton, Manne and Wright make a related point about the prospects under existing Supreme Court monopolization doctrine:

The new strategy, so far as one can tell, seeks to pressure the courts to change the law in order to meet the desires of the new administration. In the end, either the Antitrust Division will fail, or the courts will bend in a way that unsettles the law. But either way, this week’s events in Europe and the U.S. portend a tough road ahead for the world’s most successful companies.

I do wonder how confident one can be that the new agenda will fail?  It is true that it will be tough for the DOJ to win Section 2 cases such as the ones favored by the EU, e.g. Intel and Microsoft.  Section 2 law certainly does place significant constraints on the ability to force convergence with the European approach.  But there are limits to these constraints.  One is that firms have to be willing to engage in high stakes and costly litigation to force the agencies into court and win.  Another is, at least at the FTC, the use of Section 5 to circumvent those constraints.  And of course, much of Section 2 law was borne out of private litigation rather than public enforcement.  At the end of the day, however, I do think it’s correct to say that the agencies are going to have a very tough time winning monopolization cases because the law is, as Priest says, essentially as the Section 2 Report describes it.

Full post as published by Truth on the Market on June 05, 2009 (boomark / email).