Justice Department Issues Report on Antitrust Monopoly Law

Not that the subject of monopoly would ever come up in a telecommunications policy discussion, but if it did, the Department of Justice issued a report informing consumers, businesses and policy makers about issues relating to monopolization offenses under the antitrust laws. The report, "Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act," examines whether and when specific types of single-firm conduct may or may not violate Section 2 of the Sherman Act by harming competition and consumer welfare. Section 2 of the Sherman Act prohibits a firm from illegally acquiring or maintaining a monopoly, meaning the ability to exclude competitors and profitably raise price significantly above competitive levels for a sustained period of time. Unlike antitrust laws that prohibit anticompetitive mergers or other agreements among firms, Section 2 particularly targets single-firm conduct, such as decisions regarding whether and on what terms to sell to or buy from others. Although possessing monopoly power is not unlawful, using an improper means to seek or maintain monopoly power is unlawful where it can harm competition and consumers.
Among the observations in the report:

1) Enforcement of Section 2 has been and should continue to be a key component of antitrust enforcement;

2) While market share does not itself prove the existence of monopoly power, it is an important factor. When a firm has maintained a market share in excess of two-thirds for a significant period and its market position would not likely be eroded in the near future, the Department normally will presume that the firm possesses monopoly power, absent convincing evidence to the contrary;

3) No single test for determining whether conduct is anticompetitive-such as the effects-balancing, profit-sacrifice, no-economic-sense, equally efficient competitor, or disproportionality tests-works well in all cases. The Department encourages the continuing development of conduct-specific tests and safe harbors;

4) Vague or overly inclusive prohibitions against single-firm conduct are particularly likely to undermine economic growth and to harm consumers.

5) In contrast, Section 2 prohibitions that are based on clear and objective criteria, and that are carefully tailored to conduct likely to harm the competitive process, are likely to increase economic growth and to benefit consumers. Businesses are better able to comply with the law and avoid violations; antitrust enforcers can more easily identify and prove violations; effective and administrable remedies are more likely to be available; and aggressive but beneficial competition is less likely to be deterred;

6) The appropriate measure of cost in relation to predatory-pricing claims should identify loss-creating sales that could force an equally efficient rival out of the market, and such a measure should be administrable by businesses and the courts. In most cases, the best cost measure likely will be average avoidable cost;

7) The historical hostility of the law to the practice of tying is unjustified, and the qualified rule of per se illegality applicable to tying is inconsistent with the U.S. Supreme Court's modern antitrust decisions and should be abandoned;

8) Bundled discounting, although a common practice that frequently benefits consumers, can potentially harm competition in two different ways. Accordingly, depending on particular facts, either an analysis similar to predatory pricing is appropriate or an analysis similar to tying is appropriate;

9) Antitrust liability for mere unilateral, unconditional refusals to deal with rivals should not play a meaningful role in Section 2 enforcement because compelling access is likely to harm long-term competition and courts are ill suited to be market regulators;

10) Exclusive-dealing arrangements foreclosing less than 30 percent of existing customers or effective distribution should not be illegal;

11) Remedies for conduct that is found to violate Section 2 should re-establish the opportunity for competition without unnecessarily chilling competitive practices or undermining incentives to invest and innovate;

12) Further consideration of monetary damages and penalties for Section 2 violations may be useful; and 1

3) The Department will continue to explore ways of strengthening cooperation with counterparts in foreign jurisdictions and to encourage further convergence on sound enforcement policies in this important area.

Members of the Federal Trade Commission were quick to say they do not endorse the report.

Commissioners Harbour, Leibowitz, and Rosch believe that the Department's report, if adopted by the courts, "would be a blueprint for radically weakened enforcement of Section 2 of the Sherman Act." Commissioners Harbour, Leibowitz, and Rosch identified two "overarching concerns" with the DOJ report.

First, while the Supreme Court has declared the welfare of consumers the primary goal of antitrust laws, the Department's report "is chiefly concerned with firms that enjoy monopoly or near-monopoly power, and prescribes a legal regime that places these firms' interests ahead of those of consumers."

Second, the report "seriously overstates the level of legal, economic, and academic consensus regarding Section 2 " and "the testimony gathered during the hearings was not representative of the views of all Section 2 stakeholders." In particular, Commissioners Harbour, Leibowitz, and Rosch wrote, ". . . we are concerned that voices representing the interests of consumers were not adequately heard," and that the report relied too heavily on economic theory in the consideration of applying antitrust law.

Chairman Kovacic did not join the statement issued by Commissioners Harbour, Leibowitz, and Rosch. The Chairman's statement explained how a report on the proceedings would have benefitted from a fuller examination of the history of modern doctrine and policy. This approach would having added additional context, including identifying the formative influences in the evolution of the United States' system and assessing how those influences bear upon the future development of law and policy towards dominant firms. The Chairman noted that a proper regard for the trends in modern Supreme Court jurisprudence necessarily must inspire caution before embracing the proposition that U.S. antitrust doctrine and policy today expose dominant firms to significant, systematic risks attributable to over-inclusive liability rules.