Antitrust Alert: New Antitrust Chief Outlines Enforcement Philosophy
Elections have consequences, and one of the results of our most recent Presidential election is going to be a more aggressive antitrust enforcement policy. Yesterday the new Assistant Attorney General for Antitrust, Christine Varney, gave her first policy speech since taking her job at the Department of Justice, and it demonstrated the sharp change in tone that we should get used to for the next several years. If you read the front page story in the New York Times that conveniently appeared the morning of the speech, you would be forgiven for thinking that the antitrust world is going to turn upside down. There will be changes, but we are talking about movement from one side to the other of what is a pretty broad antitrust mainstream. We are not looking at the antitrust version of socialized medicine here. We are going to see much tougher rhetoric and more aggressive enforcement; what will not be clear, until we have some actual experience, is what exactly "more aggressive" means.
The actual text is worth reading, since that is likely to give a more accurate picture of her approach than some of the news coverage. Varney's speech had three parts. In the first, she took essentially the same position that any of her predecessors would have taken – asserting that we need strong antitrust enforcement in bad economic times at least as much as in good times. As the Executive Branch's chief competition advocate, it would have been real news if she had taken any other position. She harkened back to Thurman Arnold, probably the most well-known antitrust enforcer in American history, and his program of aggressive enforcement beginning in the late 1930s, suggesting that she thought current circumstances required a similar enforcement program. On this general point, Varney is with most in the antitrust mainstream, who believe that competitive markets require effective antitrust enforcement and are to be encouraged and preserved.
The second part of her talk was more controversial, but equally unsurprising. Sherman Act § 2 prohibits anticompetitive conduct that excludes competitors and helps create or maintain a monopoly. Varney emphasized that she is committed to more aggressive antitrust enforcement against "dominant firms," and criticized DOJ officials in the Bush Administration as being too skeptical about the ability to determine whether business conduct is anticompetitive, and too cautious about using Section 2 to challenge exclusionary conduct because it might have procompetitive benefits. To punctuate these differences, she formally withdrew the Report on Section 2 enforcement that DOJ issued in September 2008, saying that it should no longer be relied on as guidance by business or courts.
This was hardly surprising, because this Report was heavily criticized by most on the aggressive side of the antitrust mainstream. It followed months of stalemate between the Antitrust Division and FTC; eventually, the Antitrust Division decided it would make its views known, and that prompted a sharp negative response from a majority of FTC Commissioners, including the now-Chairman. The Report's withdrawal has been loudly called for since the election and was widely expected. So this pronouncement was newsworthy, simply because it officially announced a reversal, but it was hardly a shock to anyone who follows these things.
What was somewhat more interesting was Varney's list of cases that she says will form the basis of DOJ's monopolization enforcement. They included Lorain Journal and Aspen Skiing, two Supreme Court decisions that have been criticized by many antitrust scholars and (for Aspen) criticized recently by the Supreme Court. Aspen Skiing was a 1985 decision that applied the refusal to deal doctrine, under which a company that has resources without which others cannot compete may be obliged to share those resources with its rivals. The question of what duties a large company has to its smaller competitors has been a hot topic in antitrust, and the Supreme Court's 2004 Trinko case narrowed the application of this doctrine, while at the same time explicitly minimizing the continued significance of Aspen Skiing. In its amicus briefs in Trinko, the Bush Administration argued that mandated duties to share reduced the incentives for new entrants to develop their own resources, and thus were not procompetitive. Varney clearly does not agree with this emphasis, and perhaps not even with the concept; her remarks certainly suggest she may be inclined to challenge "refusals to deal" with rivals by firms that can be characterized as monopolists or at least dominant firms. Her citation of the D.C. Circuit's Microsoft opinion further supports this conclusion. So it is fair to say that firms that arguably have a "dominant" market position will likely be at greater risk of challenge in this Administration. Of course, the devil is in the details, since this all depends on such things as market definition and the presence (or absence) of legitimate business justifications, but the fact that Varney has laid this marker out as her first official policy pronouncement should be ignored at your peril.
Varney only briefly mentioned merger and other civil enforcement, commenting that DOJ will "explore vertical theories and other new areas of civil enforcement, such as those arising in high-tech and Internet-based markets." We will likely hear more about this in coming months, but Varney's interest in technology industries and her willingness to consider the vertical effects of mergers are consistent. In response to one question about Internet markets, she observed that the "radically new economic models" of some companies raise new questions, such as how to define market concentration, that will have to be answered as specific matters are presented. These are areas in which Varney has substantial experience as a private lawyer, and in which the law is still evolving, so we can expect DOJ will give special attention to these industries and issues.
Varney also asserted that the DOJ "must consider the overall state of competition in the industries" in which transactions or conduct is being reviewed. What this means for any particular case probably won't be clear for some time. While it sounds consistent with the sort of hands-on industrial policy that has been a hallmark of the new Administration, it is also possible this is merely a description of what happens in every investigation. Still, we should not assume the choice of words was unintentional. Varney is a very sophisticated manager of public statements (yesterday's NY Times front page was not an accident), and she also understands that a big part of U.S. antitrust enforcement takes place through public statements of policy and the enforcement intentions of the federal agencies, particularly the head of the Antitrust Division. Varney's predecessor chose not to use this bully pulpit very much, and it seems likely that this will be one of the most visible early changes, since Varney is likely to make effective use of this enforcement tool. Talking directly to corporate officers, in-house lawyers, and the antitrust bar through vehicles like this speech and the media reports it produced is a very effective way to start changing attitudes and expectations, and that is certainly one of Varney's objectives. Since most antitrust "enforcement" in the U.S. is done by antitrust lawyers (both inside and outside companies) giving advice to their clients, the bang for the buck on public rhetoric is pretty high.
In response to questions, Varney addressed two other significant issues. She was asked about U.S. companies that in recent years have complained about competitors to the European Union antitrust authorities rather than the U.S. agencies, expecting a more favorable forum. She stated that she would discourage forum shopping and that in the future she would not expect complainants to get a better result in one jurisdiction over another. This suggests that Varney expects greater agreement on antitrust philosophy between the U.S. agencies and European Commission, between which there has been considerable divergence over the last decade. It will be interesting to watch this, because some of the differences in concepts and approach have been very large indeed; whether Varney is really aiming to converge U.S. antitrust policy with that of the EU is not yet clear.
Varney also was asked about the recent Supreme Court trend to bring antitrust jurisprudence into line with modern economic thinking, which clearly had the effect of restricting broad antitrust claims. This was encouraged by the advocacy of the Bush Antitrust Division, and Varney made it clear (to anyone who has not been paying attention) that the DOJ's appellate advocacy would take "a different tone" going forward. This is another cost-effective enforcement vehicle; writing amicus briefs is both cheaper and gets faster results than bringing cases. Still, in the U.S. the courts have the final word; the antitrust agencies can choose to bring cases and argue new positions, but the final arbiter of the meaning of the antitrust laws is the federal judiciary. Whether the recent spate of Supreme Court antitrust opinions would have come out differently if the DOJ advocacy position had been different is hard to say, but we may be able to answer that question relatively soon.
In sum, Christine Varney's first major policy statement was fully in line with her prior history and statements as an FTC Commissioner, her subsequent work as a private lawyer, and her earlier public statements at her confirmation, as described in a prior Jones Day Commentary She will be more aggressive than her predecessors. She will be more willing to consider Section 2 and vertical theories. She may well be willing to consider a wider variety of facts relevant to a competitive analysis, although what exactly this could mean is not yet clear. Certainly she will work to influence business conduct by the tone and substance of her public rhetoric, and she will seek to influence the courts with amicus efforts, as the Bush Administration did. None of this is really news, the New York Times notwithstanding. The real news will come when these principles and concepts start to be applied to particular cases. Stay tuned.
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