ANTITRUST DEVELOPMENTS IN THE U.S.

1. ANTITRUST DEVELOPMENTS IN THE U.S. George A. HayCornell Law School

2. INTRODUCTION • At the mid-point of the 20th century the United States was almost unique country with a commitment to antitrust enforcement. • Antitrust is now a global phenomenon and countries around the world have come to realize the critical role that the maintenance of a competitive environment plays is the long term health of an economy.

3. SOME OF THE RECENT ANTITRUST DEVELOPMENTS AROUND THE WORLD • 3 October 2008Russia's Federal Antimonopoly Service has established a new department that will focus solely on combating cartels. • 1 October, 2008 -- The European Commission has hit nine parafin wax producers - including Exxon Mobil, Sasol and ENI - with more than €676 million in fines, the fourth-largest cartel fine the regulator has levied. • 1 October 2008Estonia's Competition Authority has launched an investigation of several travel agencies that it suspects may have entered into an anti-competitive agreement. • 29 September 2008Israel's Antitrust Authority yesterday raided the offices of four health funds suspected of operating a cartel.

4. SOME OF THE RECENT ANTITRUST DEVELOPMENTS AROUND THE WORLD • September 30, 2008 -- The Norwegian government's Market Council is set to take a close look at Apple Inc.'s decision to make songs from its iTunes music store play only on the iPod, a move that is seen as a test case for other European countries that believe Apple's practice violates their laws. • 29 September 2008 - Korea's Fair Trade Commission has told rival online auction sites eBay and Gmarket that if they want to strike a deal, they must maintain the commissions they charge sellers for three years. • 26 September 2008- Ghana and Nigeria are under pressure to introduce fully functioning competition laws, after key stakeholders met in each country to discuss the competition landscape. • 19 September 2008 -Brazil's antitrust tribunal CADE has approved the sale of Anheuser-Busch to InBev without restrictions.

5. SOME OF THE RECENT ANTITRUST DEVELOPMENTS AROUND THE WORLD • 15 September 2008-Austria's Competition Authority has held an international conference on resale price maintenance.  • 10 September 2008 - New Zealand's Commerce Commission has blocked a merger between Southern Cross Health Trust and Aorangi Hospital. • 9 September 2008 - South Africa's Competition Commission has blocked four mergers in the steel industry in part to prevent the strengthening of what it suggests is "widespread collusion" in parts of the steel sector. • 5 September 2008 - Japan's Fair Trade Commission will ask for information on BHP Billiton's proposed US$170 billion acquisition of rival Rio Tinto, even though the deal does not have to be notified in Japan.

6. THE STRUCTURE OF ANTITRUST IN THE UNITED STATES

7. THE RULES • The Rules in the U.S. are roughly similar in concept to the rules that have emerged in various countries around the world. There are essentially three basic rules and each one can be expressed in a single sentence: a) agreements in restraint of trade are unlawful; b) it is unlawful to monopolize or to attempt to monopolize a market; c) mergers are unlawful if the effect is substantially to lessen competition or to tend toward the creation of a monopoly.

8. THE PLAYERS • Perhaps unique in the world, the U.S. has two separate federal enforcement agencies: • The Antitrust Division of the Department of Justice • The Federal Trade Commission Both have essentially the same jurisdiction and powers. The most important distinction is that the Federal Trade Commission cannot impose criminal penalties, such as a prison sentence or a fine (which is a criminal penalty in the U.S.). • Each of our 50 states has some version of antitrust enforcement under its own state law. • Private plaintiffs (90%) • Defendants can include, obviously, major corporations, but also individuals, professional organizations (e.g., The American Medical Association or state and local bar associations), universities and other non-profit organizations, and sporting leagues, both amateur and professional.

9. THE REFEREES •  General-purpose federal judge, with a limited staff and no claim of expertise or experience in antitrust matters (cases are essentially assigned randomly in the particular jurisdiction where they are filed). • The parties are entitled to have the case tried before a lay jury (in most antitrust matters, those involving criminal penalties or money damages) One cannot read U.S. Supreme Court decisions intelligently unless one realizes that a significant purpose of the Court is to limit the scope of discretion that can be exercised by the jury and even to some extent by the trial judge.

10. THE STAKES • A defendant in an antitrust case can face a variety of different sanctions including: • Injunction, • Divestiture of illegally acquired assets, • Dissolution of a monopoly position via divestiture of assets, • Substantial fines (up to $10 million for an individual person, and substantially higher, up to $100 million or even higher in some cases, for corporations), and • Jail sentences (up to 10 years) for an individual defendant.

11. THE STAKES Penalties that should be listed above damages are: • Injunction • Divestiture • Dissolution • Fines • Jail • Damages (x3)

12. RECENT DEVELOPMENTS

13. A) CARTELS UNCOVERED • The result has been a large number of significant fines (the Antitrust Division obtained fines of over $630 million in fiscal year 2007), jail sentences (in fiscal year 2007, defendants were sentenced to a total of 31,391 jail days) and, in subsequent private actions, billions of dollars in settlements. The use of amnesty and related settlement incentives to encourage cartel participants to confess and to provide evidence against fellow cartel members is now quite commonplace among modern economies. 

14. B) THE REPORT OF THE ANTITRUST MODERNIZATION COMMISSION • In April 2007, the Antitrust Modernization Commission issued its final Report (http://govinfo.library.unt.edu/amc/report_recommendation/toc.htm). • The Report, in declining to make any recommendations for substantive legislative changes, emphasized the common law nature of antitrust jurisprudence and expressed confidence that, over the long run, this was a sensible approach. • One potentially influential section includes a recommendation about how the courts should analyze refusals to deal and bundling/loyalty discounts, which have featured prominently in a number of recent lower court decisions.

15. C) THE DOJ REPORT ON SECTION 2 ENFORCEMENT • “Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act.” [ http://www.usdoj.gov/atr/public/reports/236681.htm ] • The Division Section 2 Report covers many substantive aspects in great detail, including: the concept and proof of market power, bundled discounts, product tying and bundling, exclusive dealing, predatory pricing, and exclusionary product design. The focus of the Report was not on legislative change but on how courts should examine various allegations of exclusionary conduct. • An important and somewhat novel theme which is clearly reflected in the substantive recommendations is the risk of over-deterrence (“false positives” in the language of statistics) and the notion that substantive rules should be crafted in such a way as to reduce the incidence of false positives.

16. D) THE CONVERGENCE EFFORTS OF THE OECD AND THE ICN • A substantial part of the ICN effort has been aimed at harmonization of the merger review process. The Organization for Economic Co-operation and Development (OECD) is a more established organization but has been very active recently in convening discussions in which member countries share their experiences in antitrust enforcement with a view towards a “best practice” approach where there are no fundamental political obstacles to doing so. • I attribute this is part to the very strong role economists play in the antitrust agencies of many of the member countries (often serving as the head of the agency).

17. E) THE ACTIONS OF THE U.S. SUPREME COURT • Beginning in 2004, the U.S. Supreme Court has been very active in examining antitrust cases. Reference: George A. Hay, “The Quiet Revolution in U.S. Antitrust Law,” 26 University of Queensland Law Journal, pp. 27-37, available (via subscription) here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1029401#

18. CASES • Trinko • Illinois Tool • Weyerhaeuser • Twombly • Leegin