Abstract
Henry G. Manne, our friend, Mentor, and colleague, was a pioneer in the economic analysis of law. By consistently challenging the notion that existing institutions were well understood, he expanded the domain of economics to new and fertile ground. In that spirit, our goal in this article is to bring out of the shadows an institution that has thus far evaded the light of economic analysis: antitrust consents. In our view, competition authorities around the world should be asking themselves what ratio of litigation to settlement is optimal for their agency. Over the last 35 years, the United States Federal Trade Commission and the Antitrust Division of the Department of Justice have shifted dramatically toward greater reliance upon consent decrees than upon litigation to resolve antitrust disputes. As an aid to national competition agencies considering the desirability of adopting a similar approach, we focus upon the importance of economic analysis in evaluating movement along the continuum from a law enforcement model to a regulatory model of agency behavior. We draw upon the U.S. experience to substantiate our claim that the costs associated with a shift toward the regulatory model, including the potential distortion in the development of substantive antitrust doctrine, may be under-appreciated and discernable only in the long run. We acknowledge that consent decrees can and should be an important tool in an antitrust agency’s toolkit for resolving antitrust disputes. We contend, however, that a full economic analysis of reliance primarily upon consent decrees is necessary to inform each competition agency’s strategic decision about the optimal mix of law enforcement and regulatory techniques.
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Notes
See Larry E. Ribstein, Henry Manne: Intellecutal Entrepreneur, in Pioneers of Law and Economics 1 (Cohen & Wright eds. 2008).
Henry G. Manne, Our Two Corporation Systems: Law and Economics, 53 Va. L. Rev. 259 (1967); Henry G. Manne, Cash Tender Offers for Shares: A Reply to Chairman Cohen, 16 Duke L.J. 231 (1967); Henry G. Manne, Mergers and the Market for Corporate Control, 73 J. Pol. Econ. 110 (1965); Henry G. Manne, The “Higher Criticism” of the Modern Corporation, 63 Colum. L. Rev. 399 (1962) [hereinafter “Higher Criticisms”]; Henry G. Manne, Current Views on the Modern Corporation, 38 U. Det. L.J. 559 (1961); Henry G. Manne, Review of Livingston, The American Stockholder, 5 St. Louis U. L.J. 309 (1958).
Manne, Higher Criticisms, supra note 2.
See Henry G. Manne, Insider Trading and the Stock Market (1966); see also Henry G. Manne, Insider Trading: Hayek, Virtual Markets, and the Dog That Did Not Bark, 31 J. Corp. L. 167 (2005); Henry G. Manne, Insider Trading and the Law Professors, 23 Vand. L. Rev. 547 (1970).
Henry G. Manne, The Parable of the Parking Lots, in 3 The Collected Works of Henry G. Manne 158 (Fred S. McChesney ed., 2009).
Id.
Henry G. Manne, The Judiciary and Free Markets, 21 Harv. J.L. & Pub. Pol’y 11, 13–19 (1997).
Id. at 15 n.16, 18–19.
Id. at 19.
Id.
See Douglas H. Ginsburg & Joshua D. Wright, Antitrust Settlements: The Culture of Consent, in 1 William E. Kovacic: An Antitrust Tribute 177 (Charbit et al. eds. 2013).
Id; see also George Stephanov Georgiev, Contagious Efficiency: The Growing Reliance on U.S.-Style Antitrust Settlements in EU Law, 2007 Utah L. Rev. 971, 1026 (2007) (“Settlements further the bureaucratic regulation model because they focus not on the actual past violation of the law (indeed, they are purposefully silent on this question), but rather on the future remedies that would best address what the regulator perceives as a market failure.”); Harry First, Is Antitrust “Law”?, 10 Antitrust 9, Fall 1995, at 11 (observing a similar “shift on the policy continuum toward bureaucratic regulation”); A. Douglas Melamed, Antitrust: The New Regulation, 10 Antitrust 13 (1995) (describing antitrust enforcement as having “moved markedly along the continuum from the Law Enforcement Model toward the Regulatory Model”).
Secretariat, Organization for Economic Co-operation and Development, Commitment Decisions in Antitrust Cases, at 8 (Mar. 30, 2016).
Dep’t of Justice, Antitrust Div., FY 2012 Performance Budget, at 27 (2012), https://www.justice.gov/sites/default/files/jmd/legacy/2014/01/19/fy12-atr-justification.pdf; Fed. Trade Comm’n, Competition Enforcement Database, https://www.ftc.gov/competition-enforcement-database.
See Ginsburg & Wright, supra note 11, at 178 ("By the 1980s, 97 percent of civil cases filed by the Division resulted in a consent decree, and that percentage remained relatively constant at 93 percent in the 1990s. This trend has continued, with the Division resolving nearly its entire antitrust civil enforcement docket by consent decree from 2004 to present…. FTC consent decrees more than tripled in number from 1992 to 1995. Since 1995, the FTC has settled 93 percent of its competition cases.”); Melamed, supra note 12, at 13 (“The Antitrust Division… entered into 8 consent decrees in 1993, 19 in 1994, and 12 in the first half of 1995. The number of consent decrees put out for comment by the (Federal Trade) Commission has continually increased. There were 5 in 1992, 9 in 1993, 15 in 1994, and 22 in the first six and one-half months of 1995.”).
See, e.g., Ginsburg & Wright, supra note 11, at 178; see also Jan M. Rybnicek & Joshua D. Wright, Defining Section 5 of the FTC Act: The Failure of the Common Law Method and the Case for Formal Agency Guidelines, 21 Geo. Mason L. Rev. 1287, 1308 (2014). See generally Owen M. Fiss, Against Settlement, 93 Yale L.J. 1073 (1984); Kobayashi et al., Actavis and Multiple ANDA Entrants: Beyond the Temporary Duopoly, 29 Antitrust 89, (2015).
Henry G. Manne, The Judiciary and Free Markets, 21 Harv. J.L. & Pub. Pol’y 11, 18 (1997).
See Rybnicek and Wright, supra note 16, at 1308 (“In addition, at least part of the reason why the common law has been successful in developing substantive legal rules is because adversarial proceedings between self-interested parties tend to lead to the development of efficient legal rules.”); see, e.g., Richard M. Steuer, Counseling Without Case Law, 63 Antitrust L.J. 823, 823 (1995) (“Administrative guidance likewise serves to provide direction to practitioners, but it can be subject to abrupt change depending on which way the political winds blow.”).
See Damien M. B. Gerard, Negotiated Remedies in the Modernization Era: The Limits of Effectiveness, in European Competition Law Annual 2013: Effective and Legitimate Enforcement (Lowe et al. eds. 2013).
See Leah Brannon & Douglas H. Ginsburg, Antitrust Decisions of the U.S. Supreme Court, 1967 to 2007, 3 Competition Pol’y Int’l 1, Autumn 2007, at 4–13.
See Mortimer N.S. Sellers, The Doctrine of Precedent in the United States of America, 54 Am. J. Comp. L. 67, 80–84 (2006).
Compare Dr. Miles Med. Co. v. John D. Park & Sons, 220 U.S. 373, 404–05 (1911), overruled by Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877 (2007) (applying a per se rule to resale price maintenance), and United States v. Arnold Schwinn & Co., 388 U.S. 365, 382 (1967), overruled by Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) (applying a per se rule to vertical non-price restraints), with Continental T.V., 433 U.S. at 57–59 (applying the rule of reason to vertical nonprice restraints), and State Oil Co. v. Khan, 522 U.S. 3, 21–22 (1997) (applying the rule of reason to maximum resale price maintenance), and Leegin Creative Leather, 551 U.S. at 906–07 (applying the rule of reason to minimum resale price maintenance).
Continental T.V., 433 U.S. at 57.
See Joe Sims & Deborah P. Herman, The Effect of Twenty Years of Hart-Scott-Rodino on Merger Practice: A Case Study in the Law of Unintended Consequences Applied to Antitrust Legislation, 65 Antitrust L.J. 865, 887–88 (1997) (tracking the use of consent decrees to pressure parties to accede to agency wishes).
See Rybnicek and Wright, supra note 16, at 1312 (“In a world without precedent, every case stands on its own and decisionmakers have broad discretion to apply liability standards without regard for earlier pronouncements about the appropriate scope of the law.”).
See Michael R. Baye & Joshua D. Wright, In Antitrust Too Complicated for Generalist Judges? The Impact of Economic Complexity and Judicial Training on Appeals, 54 J. L. Econ. 1, 2 (2011); Douglas H. Ginsburg & Joshua D. Wright, Antitrust Courts: Specialists Versus Generalists, 36 Fordham Int’l L.J. 788, (2013); Joshua D. Wright & Angela M. Diveley, Do Expert Agencies Outperform Generalist Judges? Some Preliminary Evidence from the Federal Trade Commission, 1 J. Antitrust Enforcement 82 (2012).
See Wright & Diveley, supra note 26, at 5.
See William E. Kovacic & David A. Hyman, Regulatory Leveraging: Problem or Solution?, 23 Geo. Mason L. Rev. 1163, 1179 (2016) (“[R]egulatory leveraging leads to less disciplined decisionmaking by governmental agencies. Substantive antitrust law governs merger reviews, but regulatory leveraging encourages agencies to ignore or downgrade these controls. The result is discounting of both process and substance, in favor of the unimpeded pursuit of more nebulous (and often contestable) goals. Among other consequences, this comes at a considerable cost in predictability for affected commercial parties.”). State Attorneys General have also used antitrust settlements to extract remedies untethered from conventional, welfare-based antitrust goals. See, e.g., Nevada v. UnitedHealth Grp. Inc., No. 2:08-CV-00233-JCMRJJ, 2008 WL 5657751, at *16 (D. Nev. Oct. 8, 2008) (as a condition for approval of a merger, a state Attorney General obtained an agreement that the merged company would “donate” $15 million to support various health related activities, including the nursing program at the state university and funding for “one position within the Governor’s Consumer Healthcare Assistance Program.”); see also Pennsylvania. v. Providence Health Sys., Inc., No. 4:CV-94-772, 1994 WL 374424 (M.D. Pa. May 26, 1994).
In re Intel Corp., FTC Docket No. 9341, 2010 WL 4542454 (Nov. 2, 2010).
Id. at 10.
In re Graco, Inc., FTC File No. 101-0215 (2013).
See Statement of Commissioner Joshua D. Wright, Graco, Inc., FTC File No. 101-0215 (Apr. 17, 2013).
See, e.g., Benjamin Klein & Kevin M. Murphy, Exclusive Dealing Intensifies Competition for Distribution, 75 Antitrust L.J. 433 (2008).
Id.
See generally Kovacic & Hyman, supra note 28.
Id. at 1178.
Id. at 1179.
Id.
See, Ginsburg & Wright, supra note 11, at 181 (“An abusive settlement can also have a chilling effect upon non-parties… who glean the agency’s enforcement position from the terms of the settlement.”).
LePage’s Inc. v. 3 M Co., 324 F.3d 141, 169 (3d Cir. 2003) (en banc).
See Kovacic & Hyman, supra note 28, at 1181 (“[O]nce it becomes clear that regulatory leveraging is what well-established first-world regulators do, it will be much more difficult to persuade competition authorities in other nations not to take advantage of the same opportunities.”); see also William E. Kovacic, The Modern Evolution of U.S. Competition Policy Enforcement Norms, 71 Antitrust L.J. 377, 477 (2003) (discussing the sensitivity of the development of antitrust law in transition economies to developments in the United States).
See Maureen K. Ohlhaussen, Comm’r, Fed. Trade Comm’n, Antitrust Enforcement In China—What Next?, Second Annual GCR Live Conference (Sept. 16, 2014), https://www.ftc.gov/public-statements/2014/09/antitrust-enforcement-china-what-next-second-annual-gcr-live-conference.
In re Pool Corp., FTC File No. 101-0115 (2011).
Order, In re Pool Corp., 2011 WL 5881164 (FTC 2011).
See Dissenting Statement of Commissioner Rosch, In re Pool Corp., 2011 WL 5881164, at *1–2 (FTC 2011) (“This case presents the novel situation of a company willing to enter into a consent decree notwithstanding a lack of evidence indicating that a violation has occurred. The FTC Act requires that the Commission find a ‘reason to believe’ that a violation has occurred and determine that Commission action would be in the public interest any time it issues a complaint. 15 U.S.C. § 45(b). In my view, the same standard applies regardless of whether the Commission is seeking a litigated decree or a consent decree for the charged violation.”).
Ronald A. Cass, Antitrust and High-Tech: Regulatory Risks for Innovation and Competition, 14 Engage: J. Federalist Soc’y Prac. Groups 25, 26 (Feb. 2013) (“Antitrust inquiries can exact extraordinarily high costs from target firms, both in direct expenditures and in distraction from core business operations. Even inquiries that do not result in suits can be costly and disruptive. And in fields characterized by dynamic competition, there generally is little reason to expect that inquiries into individual firm conduct on dominance grounds will be socially beneficial—at least if pursued beyond an initial, cursory review; not only is it unlikely that there single-firm conduct will generate serious harm to consumers (as opposed to competitors), but whatever benefit in expanded competition might be produced by litigation is apt to be largely attained from market forces in any event. In other words, the incremental remedial benefit from investigation and litigation is apt to be modest when it exists at all.”) (citations omitted).
See Gary Becker, Crime and Punishment: An Economic Approach, 76 J. Pol. Econ. 169 (1968); A. Mitchell Polinsky & Daniel L. Rubinfeld, A Note on Optimal Public Enforcement with Settlements and Litigation Costs, 12 Res. L. Econ. 1 (1989).
See Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 383 (1992) (“Although we hold that a district court should exercise flexibility in considering requests for modification of an institutional reform consent decree, it does not follow that a modification will be warranted in all circumstances. Rule 60(b)(5) provides that a party may obtain relief from a court order when "it is no longer equitable that the judgment should have prospective application," not when it is no longer convenient to live with the terms of a consent decree. Accordingly, a party seeking modification of a consent decree bears the burden of establishing that a significant change in circumstances warrants revision of the decree. If the moving party meets this standard, the court should consider whether the proposed modification is suitably tailored to the changed circumstance.”). The Second Circuit and the D.C. Circuit have explicitly applied the standard in Rufo to cases involving antitrust consent decrees. Both courts also required the defendant to demonstrate that a modification will not undermine the primary purpose of the decree. See United States v. Eastman Kodak Co., 63 F.3d 95 (2d Cir. 1995), and United States v. Western Electric Co., 46 F.3d 1198 (D.C. Cir. 1995).
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We thank Lindsey Edwards, Brandon Gould, Jacob Hamburger, and Thomas Rucker for valuable research assistance.
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Wright, J.D., Ginsburg, D.H. The economic analysis of antitrust consents. Eur J Law Econ 46, 245–259 (2018). https://doi.org/10.1007/s10657-018-9579-6
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DOI: https://doi.org/10.1007/s10657-018-9579-6