David Balto is an antitrust attorney in Washington, D.C. Mr. Balto has over 20 years of experience as an antitrust attorney in the private sector, the Antitrust Division of the Department of Justice, and the Federal Trade Commission, where he was the policy director of the Bureau of Competition and attorney adviser to Chairman Robert Pitofsky.
When it comes to antitrust enforcement, even though the typical dogma is that it is a bipartisan sport, elections matter.
One hundred years ago, the need to control monopolists was a central issue in the battle for the presidency between President William Howard Taft and challengers Theodore Roosevelt and Woodrow Wilson. Much of the 1912 campaign centered on Taft's failure to reign in the trusts and monopolists like Standard Oil. Roosevelt decried his successor's failure to sustain the vigorous antitrust enforcement he had pursued during his administration, while Wilson called for greater legislative reform to reign in trusts and create new tools to prevent anticompetitive conduct.
We know the result. Wilson won the election, and with the guidance of future Supreme Court Justice Louis Brandeis, enacted a host of regulatory and legislative reforms, including the critical Clayton Act, which made it easier to challenge anticompetitive acquisitions. Perhaps most importantly, the Federal Trade Commission was created and given powers under Section 5 of the Federal Trade Commission Act to police "unfair methods of competition," a broad jurisdiction that has benefited consumers for nearly a century. It's clear that the course of antitrust policy would have been considerably different had Taft won re-election and maintained the laissez-faire status quo.
What was true in 1912 is still true today. Antitrust enforcement is one of the many policy areas in which elections matter. As I have discussed in my previous two posts, there are vital differences between the Bush and Obama administrations on antitrust, including criminal and merger enforcement. Picking up where the Clinton administration left off, the Obama team has aggressively reinvigorated antitrust enforcement after eight years of relative passivity under their predecessors.
In our final week of reviewing the Obama and Bush antitrust records, we turn to the stark difference in attitude between the two administrations toward dominant firm conduct. A "dominant firm" is a firm that accounts for a significant share of a market, and seeks to exploit that position to fend off competition from the industry's remaining players. Perhaps the most notorious example of a dominant firm was late-1990s Microsoft, whose operating system Windows and web browser Internet Explorer quickly rose to prominence in both consumer and business markets, particularly when Microsoft began bundling the browser with all new Windows computers.
President Clinton's Department of Justice brought a lawsuit challenging this bundling and numerous other practices that culminated in a widely publicized, months long trial. It was clearly the antitrust case of the century. The Clinton Department of Justice (along with partners in several states) aggressively targeted Microsoft's efforts to use its position to increase its market dominance, and stifle incipient competition (especially from the internet) going so far as to seek a breakup of the company's operating system and web browser divisions toward the end of Clinton's term.
The sea change in the approach to Microsoft that took place when the Bush administration arrived in Washington is the less reported conclusion of the matter. Following an en banc unanimous appeals court decision affirming much of the DOJ challenge (but rejecting breakup), the Bush Antitrust Division settled the case with some relatively narrow behavioral remedies. Numerous state attorneys general and consumer groups cried foul, arguing that the final agreement was far too modest. Indeed, the attorneys general of New York and California stated that they would be open to pursuing remedies beyond those requested by the new leadership at the Department of Justice, although their efforts and those of their colleagues in several other states were mostly unsuccessful.
Not surprisingly the Bush Department of Justice did not bring any monopolization cases during its eight years, a period of nonenforcement even President Taft (or even Coolidge) could not match. (The bipartisan Federal Trade Commission, in contrast, brought some important monopolization cases). Furthermore, apparently not satisfied with not enforcing existing antitrust laws, the Antitrust Division frequently filed amicus briefs in private cases to try to narrow the ability of plaintiffs to attack the exclusionary actions of dominant firms. At the end of Bush's tenure, as if to clear a path of antitrust permissiveness for monopolists, the Department of Justice issued a new report on dominant firm conduct to serve as a guideline for federal courts. Although the process encouragingly began with joint hearings with the Federal Trade Commission (cooperation with whom is critical for effective enforcement), the Bush Department of Justice ultimately chose to go its own way with the report, resulting in a set of recommendations that created barriers to challenging monopolistic and exclusionary conduct, rather than strengthening enforcement.
Most prominently, the report recommended requiring consumers to demonstrate that the anticompetitive effects of dominant firms' conduct must be "disproportionately" greater than the procompetitive potential of the dominant firm's actions for federal courts to consider a case. This "standard," criticized by several FTC commissioners, represented an extremely narrow view of the law, one in which dominant firm cases could be brought rarely—if ever—and would almost never succeed, radically weakening opportunities for policing anticompetitive conduct. In short, the report was a green light for dominant firms to practice exclusionary and anticompetitive tactics to force competitors out of the market, leading to less choice and higher prices for consumers.
Fortunately for consumers and small firms alike, President Obama was elected in 2008 and brought with him a restored focus on the right priorities of antitrust enforcement, as he had pledged when he told the American Antitrust Institute during the campaign that while "[t]he [Bush] administration has what may be the weakest record of antitrust enforcement of any administration in the last half century…[,] an Obama administration will take seriously its responsibility to enforce the antitrust laws."
The president kept his promise. As one of her first acts in 2009, new Antitrust Division head Christine Varney dismissed the Bush Department of Justice's dominant firm report, stating in her inaugural speech that it would no longer guide Department policy. New Federal Trade Commission Chair Jon Leibowitz, an outspoken critic of the report, welcomed the return to active enforcement and soon oversaw the commission's massive investigation of Intel, the major dominant firm investigation of the last four years.
In the Intel case, the Federal Trade Commission alleged that the giant chip maker engaged in anticompetitive tactics to shut out its rivals in the microchip market, including coercing and bribing computer manufacturers to use only Intel's chips. The primary charge was a violation of Section 5 of the Federal Trade Commission Act, which now prohibits unfair methods of competition as well as deceptive acts and practices. At issue was Intel's clear effort to suppress innovation in the burgeoning graphics progressing units industry, which had the potential to bring cheaper processing technology to the market and reduce Intel's processor dominance. The Federal Trade Commission sued and Intel settled agreeing to rescind these anticompetitive practices. The impact for consumers is undoubtedly positive, as innovation and choice increase in the computer market and prices continue to drop.
Intel wasn't the only recent case targeting dominant firms. The Federal Trade Commission has also successfully pursued light-sensitive eyeglass lens maker Transitions. The Department of Justice appropriately focused on healthcare bringing actions against a Texas hospital attempting to prevent insurers from contracting with its competitors, as well as Blue Cross Blue Shield of Michigan for entering contracts with Michigan hospitals that would raise rates for Blue Cross's competitors.
The Department of Justice has also shown its willingness to go to court to protect consumers' pocketbooks from harm by exclusionary and anticompetitive conduct. This includes a suit against American Express, challenging its efforts to prevent merchants from steering customers to use credit cards with lower transaction fees, as well as a suit against Apple and several major book publishers (effectively representing the majority of the market) for colluding to raise the prices of e-books, simply to increase profits. As the Department of Justice observed, "Before the companies began their conspiracy, retailers regularly sold e-book versions of new releases and bestsellers for, as described by one of the publisher's CEO, the 'wretched $9.99 price point.' As a result of the conspiracy, consumers are now typically forced to pay $12.99, $14.99, or more for the most sought-after e-books." Because of Department of Justice action, consumers in many states are now being compensated for their overpayments.
Although the number of such cases in the last four years has been relatively small, the change in attitude toward dominant firm conduct between the Obama antitrust authorities and their Bush administration predecessors couldn't be clearer. The non-enforcement guidelines put forth by Bush officials have been abandoned and replaced with a goal of prudent and progressive enforcement against the exclusionary practices of monopolistic firms, to the great benefit of consumers.
It is likely that the winner of the election this Tuesday will continue the trends of antitrust enforcement that previous presidents in his party have established. Indeed, there is a clear continuity in many areas between administrations of the same party: The antitrust authorities' approach under President George W. Bush largely mirrored that under his father and President Ronald Reagan, and President Obama's enforcement team has followed the model set forth under President Clinton. There is little reason to think this trend will change in the near future.
Thus, voters are now faced with two choices when they enter the polling booth: an approach to enforcement that favors competitors instead of competition and corporations instead of consumers, or one that works to protect innovation, promote choice and transparency, and make the markets work for consumers. When it comes to antitrust enforcement, the choice for president is clear.
- Read Thomas C. Lawton: Why Your Company Needs a Second CEO.
- Read Patrick McLaughlin: The Science of Government Regulation.
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