Does the Packers and Stockyards Act Require Antitrust Harm?

The Packers and Stockyards Act was enacted in 1921. Congress was plainly influenced by the 1919 publication of a Federal Trade Commission Report on the meatpacking industry. Consistent with the FTC’s jurisdiction and concerns, the Report dealt with deceptive and unfair practices as well as practices that were believed to violate the antitrust laws. The language of the PSA does much the same, mixing the two. Of its seven specific prohibitions, three contain antitrust-like provisions requiring a lessening of competition. Two others reach unfair and tort-like conduct without any requirement of harm to competition. The remaining two reach both anticompetitive and tortuous conspiracies. One of the conspiracy provisions plainly reaches price fixing and market division agreements. The other plainly reaches a full range of tortious and anticompetitive conduct without stating a harm to competition requirement. This brief essay considers the wisdom of holdings in half a dozen Circuit Courts of Appeal that even those sections of the statute that do not explicitly require harm to competition must be interpreted as if they did

Innovation and Competition Policy, Ch. 5 (2d ed): Competition and Innovation in Copyright and the DMCA

This book of CASES AND MATERIALS ON INNOVATION AND COMPETITION POLICY is intended for educational use. The book is free for all to use subject to an open source license agreement. It differs from IP/antitrust casebooks in that it considers numerous sources of competition policy in addition to antitrust, including those that emanate from the intellectual property laws themselves, and also related issues such as the relationship between market structure and innovation, the competitive consequences of regulatory rules governing technology competition such as net neutrality and interconnection, misuse, the first sale doctrine, and the Digital Millennium Copyright Act (DMCA). Chapters will be updated frequently. The author uses this casebook for a three-unit class in Innovation and Competition Policy taught at the University of Iowa College of Law and available to first year law students as an elective. This document is Chapter 5, second edition, on competition policy and the Copyright Act and DMCA

Prophylactic Merger Policy

An important purpose of the antitrust merger law is to arrest certain anticompetitive practices or outcomes in their “incipiency.” Many Clayton Act decisions involving both mergers and other practices had recognized the idea as early as the 1920s. In Brown Shoe the Supreme Court doubled down on the idea, attributing to Congress a concern about a “rising tide of economic concentration” that must be halted “at its outset and before it gathered momentum.” The Supreme Court did not explain why an incipiency test was needed to address this particular problem. Once structural thresholds for identifying problematic mergers are identified there is no need to condemn mergers that fall below that threshold. In the future merger law could always be brought to bear if the relevant numbers became larger. But this does not mean that incipiency tests are unimportant. They properly have a different use than the one that the Supreme Court identified. A better use of incipiency tests is to prevent certain bad outcomes early when antitrust rules make it difficult or impossible to prevent them later. Today most mergers are challenged before they occur. As a result, the feared post-merger conduct has not occurred either and the evidence pertains to predicted rather than actual effects. This makes it important to place some limits on merger law’s prophylactic reach. First, the language of §7 requires causation -- a showing that the merger is what is likely to facilitate that feared anticompetitive conduct. Second, we need to be satisfied that this conduct, if it should occur, will be both anticompetitive and difficult to reach through direct application of the antitrust laws. Third, the merger must raise a significant risk that the conduct will occur. Finally, as with all merger cases, there must not be offsetting gains that serve to justify the merger notwithstanding these threats to competition. This paper then applies these considerations in several areas: mergers threatening coordinated interaction; merges to monopoly and those facilitating anticompetitive unilateral effects; vertical mergers threatening input foreclosure or some instances of price discrimination; exclusionary IP acquisitions from outside inventors; and mergers of very small but highly innovative firm. The paper particularly focuses on some high profile transactions, including the AT&T/Time Warner acquisition, which the Justice Department has challenged, and the contemplated partial asset acquisition involving Disney and 21st Century Fox. We also examine the impact of the FCC’s decision rolling back net neutrality, which increases competitive concerns in this area, whether or not the acquisition falls under the jurisdiction of the FCC’s power to evaluate mergers. We also examine the recent Intellectual Ventures decision, now subject to appeal, which involves an allegedly anticompetitive acquisition of patents

Innovation and Competition Policy, Chapter 8 (2d ed): Innovation, IP Rights, and Anticompetitive Exclusion

This book of CASES AND MATERIALS ON INNOVATION AND COMPETITION POLICY is intended for educational use. The book is free for all to use subject to an open source license agreement. It considers numerous sources of competition policy in addition to antitrust, including those that emanate from the intellectual property laws themselves, and also related issues such as the relationship between market structure and innovation, the competitive consequences of regulatory rules governing technology competition such as net neutrality and interconnection, misuse, the first sale doctrine, and the Digital Millennium Copyright Act (DMCA). Chapters will be updated frequently. The author uses this casebook for a three-unit class in Innovation and Competition Policy taught at the University of Iowa College of Law and available to first year law students as an elective. This document is Chapter 8, revised second edition on exclusionary practices, including refusal to license, exclusionary pricing, anticompetitive design, and technological tying. It also includes coverage of expanded sharing duties under the 1996 Telecommunications Act, as well as net neutrality and related regulations promulgated by the Federal Communications Commissio

Antitrust: What Counts as Consumer Welfare?

Antitrust’s consumer welfare principle is accepted in some form by the entire Supreme Court and the majority of other writers. However, it means different things to different people. For example, some members of the Supreme Court can simultaneously acknowledge the antitrust consumer welfare principle even as they approve practices that result in immediate, obvious, and substantial consumer harm. At the same time, however, a properly defined consumer welfare principle is essential if antitrust is to achieve its statutory purpose, which is to pursue practices that injure competition. The wish to make antitrust a more general social justice statute is understandable: it permits people to obtain a result from the judiciary that they cannot get through legislation. One thing antitrust enforcers and policy makers can do is agree that while antitrust should be guided by a consumer welfare principle, output rather than price should be the relevant variable. Higher output benefits not only consumers, but also workers and most of the smaller firms that are affected. The consumer welfare principle in antitrust is best understood as pursuing maximum output consistent with sustainable competition

The Rule of Reason and the Scope of the Patent

For a century and a half the Supreme Court has described perceived patent abuses as conduct that reaches beyond the scope of the patent. That phrase, which evokes an image of boundary lines in real property, has been applied to both government and private activity and has many different meanings. It has been used offensively to conclude that certain patent uses are unlawful because they extend beyond the scope of the patent. It is also used defensively to characterize activities as lawful if they do not extend beyond the patent\u27s scope. In the first half of the twentieth century the phrase was imported from patent law into antitrust law, where it continues to be used to assess license agreements or other arrangements involving patents, as well as settlements of patent infringement cases.While the scope of the patent metaphor might remain useful for assessing conduct thought to be inconsistent with patent law, it is generally not a helpful antitrust tool. Offensive antitrust use of the scope of the patent test often identified practices as anticompetitive when they were in fact competitively harmless. By contrast, defensive antitrust use of the scope of the patent formulation creates a patent silo that protects collusion or anticompetitive exclusion from antitrust scrutiny. The result limits adversity between a patentee and potential licensee or infringer, producing a socially costly collusive equilibrium that benefits the parties but harms consumers.A pervasive problem of the scope of the patent test is that it confuses patent value with product value. For example, both product price fixing and product market division agreements contained in patent licenses have been found to fall within the scope of the patent. If the price fix or market division lasts no longer than the duration of the patent, then it is no more harmful to customers than a patentee\u27s simple solo production under its patent.Recognizing this, several courts have concluded that product price fixes should be unlawful under the antitrust laws only if the patents involved are likely to be invalid, making the patent license nothing more than a cover for collusion. The important question is not patent validity, however, but rather patent value. Many perfectly valid patents have little value because they add little to a licensee\u27s technology, or alternative patents or technological routes exist that serve the same purpose. Further, this phenomenon is ubiquitous. Cartel markups in industries prone to collusion run in the range of 20% to 50% over the pre-cartel price. By contrast, average royalty rates on licensed patents average around 3%, and this value is much larger than the value of the great majority of patents that are never licensed. The real problem of product restraints in patent licenses is that they are attempts to attribute the full product cartel markup to the patents being licensed. Only a tiny percentage of patents do anything like that.A better rule for identifying the boundaries of antitrust liability than the scope of the patent formulation permits antitrust intervention in the case of post-issuance patent conduct that is not explicitly authorized by the Patent Act. Of course, only a relatively small proportion of such conduct will actually violate the antitrust laws. With immunity off the table, however, assessing the competitive and innovation effects of challenged practices involves questions of antitrust law, not of patent law. Seen this way, certain questions such as a pioneer patentee\u27s agreement to refrain from entering the market with an authorized generic become fairly easy. Such agreements are nothing more than cartel arrangements under which a firm agrees to make another firm\u27s production more profitable by restraining its own output. Under the scope of the patent test as the Actavis dissenters would have applied it the equilibrium period of delay is up to the expiration date of the patent. In that case, however, the agreement never involves a license at all. During the life of the patent the generic firm produces nothing, and once the patent expires it no longer needs a license.Outside of damages measurement, patent law has no tool kit for assessing either the market or even the innovation effects of a particular practice. While that criticism may seem harsh, the reality is that patent law has developed in relative isolation from any significant inquiry into how patents function in the marketplace. The result gives antitrust policy a comparative advantage, not only for assessing competition effects but ironically, even for assessing innovation effects

A Miser’s Rule of Reason: Student Athlete Compensation and the \u3ci\u3eAlston\u3c/i\u3e Antitrust Case

The unanimous Supreme Court decision in NCAA v. Alston is its most important probe of antitrust’s rule of reason in decades. The decision implicates several issues, including the role of antitrust in labor markets, how antitrust applies to institutions that have an educational mission as well as involvement in a large commercial enterprise, and how much leeway district courts should have in creating decrees that contemplate ongoing administration. The Court accepted what has come to be the accepted framework: the plaintiff must make out a prima facie case of competitive harm. Then the burden shifts to the defendant to produce a justification and, if it produces one, the plaintiff will have a chance to show a less restrictive alternative. While the Court has articulated this three-stage inquiry several times, it has almost always loaded all the important proof requirements into the first stage, with the result that plaintiffs nearly always lose. This is an irrational approach to decision making that reflects a deep anti-enforcement bias. In Alston, however, the plaintiffs finally broke out of that box, but only because the practice itself was a nearly naked cartel. So is the Court now ready to develop a more enforcement-neutral approach to antitrust’s rule of reason?Most rule of reason cases do not involve naked or nearly naked cartels. They are concerned with production or research joint ventures, standard setting, or other agreements whose effects are more complex. Alston was the unique rule of reason case in which the challenged practice was close to a naked cartel. In any other setting it would have been governed by the per se rule but for an idiosyncratic history that compelled the rule of reason.If plaintiffs can successfully navigate the “three-step” rule of reason case only when the challenged restraint is little more than collusion, then the rule of reason is not doing its job. In most rule of reason challenges, including those brought by the government, the plaintiff’s prima facie case depends on market evidence that supports reasonable inferences of competitive harm. By contrast, when the burden shirts, the defense typically depends on evidence about its own conduct and the rationales for it. In terms of decisional quality, cases that raise an inference of competitive harm will be more accurately resolved at the second stage rather than the first one. This does not mean that trivial claims or claims against firms that clearly lack power should go forward. It does suggest, however, that at the first stage the plaintiff should bear a smaller burden

President Biden\u27s Executive Order on Promoting Competition: an Antitrust Analysis

In July, 2021, President Biden signed a far ranging Executive Order directed to promoting competition in the American economy. This paper analyzes issues covered by the Order that are most likely to affect the scope and enforcement of antitrust law. The only passage that the Executive Order quoted from a Supreme Court antitrust decision captures its antitrust ideology well – that the Sherman Act: rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 4 (1958) (Black, j.)

Rabban\u27s Law\u27s History

This is a brief review of David Rabban\u27s new book: Law\u27s History: American Legal Thought and the Transatlantic Turn to History (Cambridge, 2013)

United States Competition Policy in Crisis: 1890-1955

The development of marginalist, or neoclassical, economics led to a fifty-year long crisis in competition theory. Given an industrial structure with sufficient fixed costs, competition always became ruinous, forcing firms to cut prices to marginal cost without sufficient revenue remaining to pay off investment. Early neoclassicists such as Alfred Marshall were not able to solve this problem, and as a result many economists were hostile toward the antitrust laws in the early decades of the twentieth century. The ruinous competition debate came to an abrupt end in the early 1930\u27s, when Joan Robinson and particularly Edward Chamberlin developed models that took product differentiation into account. The emergent theory of monopolistic competition came with its own problems, however - namely, excessive product variety and advertising, chronic excess capacity, and prices above short-run marginal cost. In sharp contrast to the ruinous competition model, the monopolistic competition model called for aggressive antitrust enforcement. This change of model largely explains the Roosevelt administration\u27s abrupt shift in antitrust policy between the First and Second New Deals. Only with John Maurice Clark\u27s theory of workable competition in 1940 and the Mason-Bain structure-conduct-performance paradigm developed in the 1950s did neoclassical competition theory begin to reach a new equilibrium which attempted to calibrate the amount and kind of competition policy necessary to produce satisfactory results in diverse markets. The subsequent debate between Harvard structuralism and the emergent Chicago School occurred largely within this paradigm