Klobuchar Book: A Practitioner's Response 

After setting the stage with U.S. antitrust history, the author describes her views of the state of antitrust and big tech.  She complains that some companies are “big,” that they have large lobbying budgets, can contribute to political campaigns, and wield power over wages and markets.  Many industries have consolidated to just 3 or 4 companies.  Income inequality and disparities in health care and education have reached unacceptable levels.  Families grapple with issues of childcare and pre-K schooling.  Racial disparities persist in business ownership and in new business start-ups.  The media have consolidated and misinformation is rife.  Local newspapers and independent TV and radio struggle to survive. 

The problem, though, is that most of these concerns cannot be addressed by antitrust law, even with increased enforcement resources.  The concerns raised are critically important.  But many of them need to be addressed by tax policy, labor law, health and public education, civil rights, copyright, the laws on libel and fraud, human and drug trafficking, finance, reform of political campaign funding, and amendment of section 230.  Antitrust law can contribute, but it cannot address all of them.  (See my post titled “Antitrust and Big Tech” at darrellprescott.com/commentary, where I describe the mission of antitrust law.)  

The work of U.S. antitrust law can be seen in the cases filed by government antitrust authorities during the past year against large tech companies.  Each case would try to restore competition, not to protect some particular competitor or group, nor to implement a broader industrial or social policy objective.  The FTC and 46 states challenged FaceBook’s acquisitions of Instagram and WhatsApp and its refusal to make certain of its code available to those who would use it to compete against it.  (See my post titled “FTC v. FaceBook: The FTC Faces a Steep Challenge, But It Could Win” analyzing this case at darrellprescott.com/Commentary.)  The DOJ sued Google for its agreements with mobile phone makers to pre-install Chrome and for exclusionary agreements with wireless carriers and browser developers, which allegedly limit new entry.  The Attorney General for the District of Columbia sued Amazon alleging that most favored nation clauses in Amazon’s contracts with third party sellers prohibit the TPSs from offering the same products on other platforms, or even on their own websites, at prices or terms more favorable than those offered on Amazon.  Although private litigants complain about the 30% fee charged by Apple’s App Store, federal and state antitrust authorities have not yet challenged it. 

In presenting the current issues, the book tends to look only at numbers of cases filed, for example in the 1970s vs. the 2000s, without considering the merits of cases or whether they brought about increased competition.  Negotiated resolutions of merger filings are not evaluated, even though the premerger review process and HHI measures are in effect an extra-judicial form of industrial policy pursued not by law or regulations but by administrative agency merger guidelines and government/ private party negotiation.  There is a tendency to criticize bigness without regard to whether size is a necessary attribute to provide  output on commercially viable terms.   

Some of the criticisms of Supreme Court cases are, in my view, not well grounded.  The book criticizes the Twombly case because it required pleading sufficient facts to allege an agreement; Section 1 of the Sherman Act prohibits agreements, so to require that one be alleged is not excessive.  Comcast required that the remedy in an antitrust case be consistent with the nature of the harm to competition that is proven; this is appropriate because antitrust law protects the process of competition in a relevant market and is not a roving mandate to restructure industries.  Some Supreme Court decisions, however, warrant criticism and should be revisited or addressed by statute.  Illinois Brick, Hanover Shoe, and American Express would be good candidates for such scrutiny. But the book evinces a pro-plaintiff mentality without considering whether the claims brought would have led to greater competition vs. legal expense, expenditure of judicial resources, and distraction of executive talent.   

Senator Klobuchar proposes a path forward in the Competition and Antitrust Law Enforcement Reform Act.  The Act’s purposes are laudable: strengthen the FTC, the Antitrust Division of DOJ, state AGs and private plaintiffs; enforce potential competition doctrine in merger control and consider more than just price effects; clarify that monopsony is unlawful; shift the burden of proof in vetting large mergers; deter exclusionary conduct by dominant firms; increase the FTC and DOJ Antitrust Division budgets; enhance protections and financial rewards for whistleblowers; and allow private plaintiffs to get prejudgment interest.  However, with a few exceptions, most of these goals could be accomplished under existing law if agency budgets were increased, and if more lawyers and economists are recruited.   

Several of the proposed provisions would create new ambiguities and complexities that would take years of litigation to iron out.  For example, a new definition of “market power” would compare price, quantity, product or service quality or “other terms affecting the value of consideration” to what a person could obtain in a “competitive market.”  This terminology is ambiguous and will require new rounds of expert reports and hearings for a court to discern what the standard is and whether it is met. 

For acquisitions of $5 billion or greater, companies that have market power or a market share greater than 50% would bear the burden of proving that a merger should be approved under a new standard of whether the transaction creates “an appreciable risk of materially lessening competition.” “Appreciable” and “materially” will require litigation, or at best new merger guidelines, to discern what they mean.  “Appreciable” is a term of art used in EU competition law.  Does the Act propose to import European law standards to the U.S.?   

Similar conundrums arise when the bill addresses exclusionary conduct, defined as conduct that “materially disadvantages 1 or more actual or potential competitors” or “tends to foreclose or limit the ability or incentive of 1 or more actual or potential competitors to compete.”  The meanings of the phrases “materially disadvantage” and “limit the ability or incentive” are not self-evident when applied to myriad fact situations.   

The book seems to have in mind conduct that has been debated at several hearings of officers from 4 big tech companies.  But it would be dangerous and counterproductive to craft laws of broad applicability to address questions that have been addressed to specific companies.  There could be unforeseen adverse consequences. 

Some of the book’s proposals would have a salutary effect: increase the staffing at the FTC and DOJ; increase premerger filing fees for the largest deals and decrease them for the smaller ones; do a retrospective review of mergers. 

Ohers require more thought.  Burden shifting on predatory pricing claims might be useful.  Caution is warranted because lower prices and price competition are goals of antitrust.  But a defendant inherently possesses the information on whether it is selling below cost, and its internal deliberations and revenue projections may reflect on the issue of recoupment.   

The author suggests we need to increase the penalty against cartels.  But under existing law and practice, the sanctions for cartel conduct are already strong and serious.  Cartel participants go to prison for a year or more; a cartel conviction is a felony that can lead to debarment from selling to government agencies; private class actions then follow, entailing invasive discovery, legal expense often in the $millions; then a jury trial, treble damages and an award of the plaintiffs attorneys’  fees and expenses.  In a private damage action, each defendant is jointly and severally liable for the acts of all defendants, which means one company can be liable for the overcharges imposed by the whole industry. And typically, the claims are brought as class actions on behalf of all purchasers.  This creates tremendous pressure to settle antitrust cartel cases, sometimes regardless of how strong the case is. In addition, indirect purchaser state law claims are usually removed to Federal Court, which creates a second layer of treble damage exposure.  Then fines follow in foreign countries where sales are made. Cases can go on for five years or more, resulting in a substantial commitment of executive time.  This process is daunting, even for large companies. 

Further, the Foreign Trade Antitrust Improvements Act (“FTAIA”) as interpreted by the courts enables foreign purchasers of products to sue in the U.S. courts if they pay for product outside the United States but then have it imported into the U.S.  This has the effect of bringing foreign procurement subsidiaries and affiliates, foreign sales representatives, and international trading companies into U.S. courts and U.S. class actions even though they bought the affected products outside the U.S.  Many other countries are now aggressive antitrust law enforcers themselves, which creates further exposure to multiple fines for the same sales.   

The author recommends allowing indirect purchasers to sue for damages.  But in more than 30 states they already do, and those cases are routinely removed to Federal Court under the Class Action Fairness Act and consolidated with the direct purchaser actions.  I agree that the Illinois Brick case, which limits Federal antitrust claims to direct purchasers, should be overruled.  But if indirect purchasers are to sue, then in fairness a defendants should be permitted to show that the direct purchaser passed any overcharge on to the indirect purchaser.  It often happens that the direct purchaser – who ironically is the only one permitted to sue – has passed on the overcharge, perhaps with an additional markup, and has either not been injured at all or made a profit in the matter.   

Senator Klobuchar does a great service in bringing antitrust to the fore and reminding us how deeply embedded antitrust law is in our history.  Some of her recommendations to amend the law could be useful, especially to increase enforcement resources and recruit and train talent.  But others risk creating more complexity and litigation with no net gain to society or the economy.  Much can be dealt with under existing law.  The key here is for the President to appoint the best people to enforce it.