The Atlantic Divide in Antitrust

An Examination of US and EU Competition Policy

Daniel J. Gifford, Robert T. Kudrle

• Publisher: University of Chicago Press
• Year: 2015
• Print ISBN: 9780226176109
• eBook ISBN: 9780226176246
• Topic: Law
• Subtopic: Antitrust
• Index: Law

How is it that two broadly similar systems of competition law have reached different results across a number of significant antitrust issues? While the United States and the European Union share a commitment to maintaining competition in the marketplace and employ similar concepts and legal language in making antitrust decisions, differences in social values, political institutions, and legal precedent have inhibited close convergence.
           
With The Atlantic Divide in Antitrust, Daniel J. Gifford and Robert T. Kudrle explore many of the main contested areas of contemporary antitrust, including mergers, price discrimination, predatory pricing, and intellectual property. After identifying how prevailing analyses differ across these areas, they then examine the policy ramifications. Several themes run throughout the book, including differences in the amount of discretion firms have in dealing with purchasers, the weight given to the welfare of various market participants, and whether competition tends to be viewed as an efficiency-generating process or as rivalry. The authors conclude with forecasts and suggestions for how greater compatibility might ultimately be attained.

1

American and European Perspectives on Antitrust

A Comparison and a Puzzle

This book examines US antitrust law and EU competition law as they apply to several current and important issues. We also address a puzzle posed by this examination: The United States and the European Union have competition laws that are broadly similar. They are concerned with maintaining competition in the marketplace. The courts and enforcement authorities employ similar language and concepts in their decisions. Yet in a range of significant antitrust issues, the applied law is, or appears to be, different in the two jurisdictions. In the following pages, we will review the role of efficiency in merger evaluations, price discrimination, predatory pricing, exclusive-supply agreements, loyalty, and bundled discounts and rebates. We will also explore the role of antitrust as it relates its essential facilities doctrine to intellectual property in the context of dynamic Schumpeterian competition often found in knowledge-based industries. In these different areas, we will find some similarities, but we will often find that different analyses predominate.

Legal Similarities

The United States has had an antitrust law since Congress enacted the Sherman Act in 1890.1 Europe has had a competition law since the Treaty of Rome in 1957.2 Although the US law is much older, the basic structure of EU competition provisions resembles that of its US counterpart. Section 1 of the Sherman Act is directed against anticompetitive concerted action; Article 101 of the Treaty similarly targets anticompetitive concerted action. Section 2 of the Sherman Act is directed against all acts of monopolization or attempts to monopolize, whether unilateral or concerted, while Article 102 is similarly directed against all abuses of dominant position, whether unilateral or concerted. In addition to the Sherman Act, Congress enacted the Clayton Act in 1914.3 One of the most important provisions of the Clayton Act is Section 7, governing mergers. Section 7 was cast in its present form by an amendment adopted in 1950.4 The European Union (through the Council of Ministers) adopted its analogue to the revised Section 7 in the Merger Regulation of 19895 and its revision in 2004.6

Both the US and European systems have developed categories of behaviors that are deemed inherently unlawful. In the United States, these categories are referred to as per se illegal. In the European Union, this approach is referred to as form-based (as opposed to effects-based) analysis. Examples include horizontal price-fixing agreements and tying arrangements, which have historically been treated as inherently unlawful in both jurisdictions.7

Both the US and European systems employ safeguards designed to prevent condemnation of cooperative arrangements that benefit the public by generating efficiencies. In the United States the so-called Rule of Reason accomplishes this end. The Rule of Reason requires that the government (or private plaintiff) carry the burden of proving that the business arrangement being challenged reduces the supply of goods in the general interbrand market, although this difficult burden can sometimes be mitigated through burden allocations of subordinate issues. In the European Union a safeguard inheres in the structure of Article 101: Article 101(1) sweeps broadly to prohibit all concerted practices that have as their object or effect the prevention, restriction, or distortion of competition, but Article 101(3) then exempts arrangements that contribute to improving the production or distribution of goods or to promoting technical or economic progress and afford consumers a fair share of the resulting benefit. The broad balancing under Article 101 is carried over to Article 102 through judicial decisions. The Merger Regulation carries a similar balancing with different language.

In short, EU antitrust is governed by provisions similar to those governing US antitrust. It employs per se rules aimed at behavior deemed inherently anticompetitive, just as US antitrust law does. Like US antitrust, the European law employs the equivalent of a Rule of Reason designed to protect efficiency-enhancing behavior from condemnation. In subsequent chapters, we will examine how the similar legal structures in the United States and Europe often generate substantial differences in practice.

We direct our attention in this chapter to a broad overview of the current similarities and differences between the competition policies8 of the two jurisdictions and to the factors that have shaped these policies and their administration. These similarities and differences can be best understood in historical context, by comparing competition policy developments on both sides of the Atlantic in terms of the interactions of three sets of considerations across time: ideology, institutions, and interests.9 Many of these issues will be revisited later when individual competition policy issues are examined.

Ideology and Doctrine

The relative absence of the residue of feudalism left the American Republic largely free of both reactionary and revolutionary impulses.10 The convulsive history of Europe since the French revolution has generated a far broader array of basic postures toward government and its role in the economy, both within states and among them. This fundamental difference must condition all serious considerations of state action, including competition policy.

As the following discussion will illustrate, much of this difference finds roots in several distinctive characteristics of European thought and experience that have almost no counterpart in the United States:

1. The role of cartels,

2. The role of the national state in the economy,

3. The role of political forces skeptical of market competition or capitalism more broadly,

4. The role of ordoliberalism as a political philosophy, and, in the period since 1957,

5. The use of competition policy to mesh national markets with each other.

The United States. The United States stands sharply apart from Europe at the level of ideological complexity. Many writers have noted the relative narrowness of America’s ideological foundation. In the middle of the twentieth century, Arthur Schlesinger saw the American political environment as similar to Emerson’s description of it a hundred years earlier: a broadly prevailing consensus marked by two strands of liberalism, one more optimistic about the efficacy of state action and one more skeptical.11 And that situation has continued.

All accounts of the development of competition policy stress the singularity of the US Sherman Act of 1890,12 which responded to a confluence of developments in post–Civil War America. Increasing economies of scale and scope in production were enabled and increasingly strengthened by improvements in transportation and communication. This contributed to a drop in commodity prices as part of generally falling general price levels that disadvantaged debtors. These circumstances created irresistible political pressure for government action to curb the power of the great manufacturing and railroad enterprises that came to dominate American commerce in the late nineteenth century and that seemed to be benefiting at the expense of smaller firms and independent agricultural producers.13

The erratic enforcement of the Sherman Act—and the subsequent passage of the Clayton Act and Federal Trade Commission Act14 in 1914 that were intended to clarify, enforce, and strengthen it—has been related well and often.15 The Sherman Act attempted to protect small market participants from inappropriate behavior by larger private actors, but to do so through a unique and circumscribed form of public intervention that was consistent with the almost universally prevailing belief in limited government. This view (allowing limited government intervention through the courts in affairs that are otherwise subject to market forces) has been broadly accepted and has endured with minor exceptions over the entire period since. At the time of its enactment the kind of intervention authorized by the Sherman Act had little parallel, domestic or foreign. Its initial uniqueness is often largely ignored because it has become so familiar in the United States and, very recently, almost everywhere.16

The Sherman Act particularized the idea of selective intervention in private markets by applying two concepts from the common law: “restraint of trade” and “monopolization.” These concepts were used to craft tersely worded legislation that relied for enforcement on administrative and private initiative in bringing cases before the regular courts.17 The consequent judicial decisions establish the rules for competition policy. After enacting the Sherman Act and following it up with the Clayton and Federal Trade Commission Acts, Congress was largely content to allow the courts to develop the applicable legal standards, intervening only occasionally. Yet the judicially set rules for competition policy leave much unsaid. As David Evans has recently pointed out, “unlike most sports, the rules for the game of competition say little about how the game should be played, only how the game should not be played. The rules identify certain foul practices, though with varying degrees of particularity.”18

The period from 1890 to 1933 saw considerable variation in enforcement: some of the most heavy-handed remedies in US history can be found here (the dismemberment of Standard Oil; the restriction of International Harvester to one dealership per town), but for the most part enforcement was lax even after the passage of the Clayton and Federal Trade Commission Acts in 1914. The former attempted to specify better what actions by individual firms, particularly price discrimination and mergers, were to be antitrust violations, while the latter, in section 5, established a specialized agency that would combat “unfair methods of competition” that remained unspecified in the other legislation. Ever since the Federal Trade Commission Act was passed, there has been continuing dispute about what this means. Does it refer to the same kind of competition issues as the other laws only perhaps earlier (in their “incipiency”) or more broadly construed (lower thresholds for action), or is it essentially redundant absent fresh agendas such as that provided in 1938 when the Wheeler-Lea amendment added “unfair or deceptive acts in commerce” to the Federal Trade Commission’s (FTC) agenda, seemingly empowering it as a proto-consumer-protection agency.

This period saw the development of the broad parameters of antitrust enforcement, including the Supreme Court’s adoption of the Rule of Reason as the basic analytical approach to antitrust in its twin decisions in the Standard Oil and American Tobacco cases; only activities that “unreasonably” restrain trade were to be illegal, but price-fixing agreements were deemed per se illegal.19 Congress’s enactment of the Clayton and Federal Trade Commission Acts three years later was at least in part a reaction to the Court’s embrace of the Rule of Reason in 1911. Although Justice Louis Brandeis set forth the classic parameters of a Rule of Reason case in 1918,20 generally during the 1917–18 period antitrust enforcement was restricted in the interests of war preparation.

In 1933 the Franklin Roosevelt administration also initially pursued a policy of suppressing antitrust enforcement. Challenged by the Great Depression, the president and the Congress experimented with a form of corporatism under the National Industrial Recovery Act (NIRA).21 Under the NIRA, industries were required to organize themselves cooperatively under presidentially approved “codes of fair competition,” thus temporarily abandoning competition as a social goal, leaving the Sherman and Clayton Acts in a kind of political limbo. This hiatus in antitrust enforcement ended abruptly in 1935 when the Supreme Court invalidated the NIRA as an unlawful delegation of legislative power to the president.

The next period, 1935–74, began with the New Deal’s abandonment of sympathy for firm cooperation to maintain prices and output and a renewed determination to assure competition. This return to an active antitrust policy began with the appointments of Robert H. Jackson and Thurman Arnold as heads of the Antitrust Division, both of whom aggressively enforced the antitrust laws. But Congress also passed the Robinson-Patman Act in 1936,22 legislation that targeted price discrimination by suppliers that, in Congress’s view, disadvantaged small retailers vis-à-vis their larger rivals, such as chain stores. The act effectively replaced protections accorded small retailers under the NIRA. In 1938 Congress established the Temporary National Economic Committee that produced important studies on the state of competition and set the stage for the postwar amendment of the Clayton Act’s merger provisions. This renewed focus on antitrust was short-lived, as rearmament for World War II resulted in another temporary suspension of antitrust enforcement.

Antitrust revived with the end of the war. The Second Circuit Court of Appeals issued a final decision in the Alcoa case,23 setting forth a proposed framework for construing the “monopolization” clause of Section 2. The Supreme Court added other foundational monopolization cases in Griffith24 and Grinnell.25 The failure of the government’s case against Columbia Steel26 gave the final impetus to Congress to enact the Clayton Act’s revised antimerger provisions in 1950.27 During the postwar period, the Court set forth a per se rule against tying agreements28 that became more severe throughout the 1950s and 1960s. The Court gave an expansive construction to the original language of the Clayton Act dealing with stock acquisitions.29

The Cou...

Table of contents

• Cover
• Title Page
• Copyright Page
• Contents
• 1 American and European Perspectives on Antitrust
• 2 Welfare, Monopolization, Dominance, and Judicial Review
• 3 Merger Policy and Efficiencies
• 4 Price Discrimination
• 5 Predatory Pricing
• 6 Exclusive-Supply Contracts
• 7 Single-Product Loyalty Rebates: Is a Large Gap Narrowing?
• 8 Bundled Discounts
• 9 Intellectual Property, the Two Microsoft Decisions, and Antitrust in Dynamic Industries
• 10 A Summing Up
• Notes
• Bibliography
• Index