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Rules Versus Standards in Antitrust Adjudication

Rules Versus Standards in Antitrust Adjudication. Daniel A. Crane Benjamin N. Cardozo School of Law University of Michigan Law School June 25, 2009. Rules vs. Standards. Rule: liability hinges on small number of binary factors. 50 km/hour speed limit Per se rule for price fixing

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Rules Versus Standards in Antitrust Adjudication

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  1. Rules Versus Standards in Antitrust Adjudication Daniel A. Crane Benjamin N. Cardozo School of Law University of Michigan Law School June 25, 2009

  2. Rules vs. Standards • Rule: liability hinges on small number of binary factors. • 50 km/hour speed limit • Per se rule for price fixing • Standard: liability hinges on a balance of multiple factors or an open-ended norm. • Drive reasonably under the circumstances • Rule of reason for joint venture agreements

  3. Vast Literature in Jurisprudence and Economics • Kaplow, Rules Versus Standards: An Economic Analysis (1992) • When a legal command will be applied frequently, minimize decisional costs by formulating as a rule • When a situation comes up infrequently, employ the greater precision a standard allows.

  4. Three Claims • (1) In U.S. law there has been a movement from rules to standards in the last two decades. • (2) The specification of the norm as rule or standard matters, but not always in obvious ways. • (3) The optimal specification depends on five factors.

  5. The Movement Toward Standards • Obvious cases • Resale price maintenance • Other vertical restraints • Presumption of market power in patent tying cases (rule of per se illegality for tying?) • Less obvious cases • Kodak (1992): “Legal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law. This Court has preferred to resolve antitrust claims on a case-by-case basis, focusing on the ‘particular facts disclosed by the record.” • Monopoly broth theories • Rejection of cost-based tests for loyalty or bundled rebates • Real teeth to the rule of reason (Visa/Mastercard) • Colgate doctrine is hanging by a thread

  6. Does It Matter? • Classic example: "No vehicles in the park." • Tricyles? • Airplane crashes? • Antitrust example: "No price fixing." • Cases where no prices were fixed (Socony Vacuum) are "price fixing." • Cases where prices were literally fixed (ASCAP) are not "price fixing." • Rejects rule-literalism • Adds "characterization" stage to restraints of trade analysis

  7. Over Time, Categories Erode • Quick Look (NCAA 1984) • Poylgram (2005): Law has has not moved "from a dichotomy to a trichotomy;” the question is always “whether ... the challenged restraint enhances competition." • Continuum rather than set of categories.

  8. But It Does Matter • Rules narrow the range of reasonably contestable issues. • i.e., no ruinous competition defenses • Outcomes under rules are more predictable than outcomes under standards, and therefore enhance predictability • Rules invite trial judges to employ procedural screens. • Standards tend to delegate decisional authority to decision-makers low in the legal hierarchy. • Standards elevate the importance of economists; rules elevate lawyers.

  9. Decisional Factors

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