STATEMENT OF AMICI INTEREST

Amici are law professors, economists, or other academics with expertise in competition law and economic regulation. Amici do not work for Tesla, nor have they been compensated in any way for their participation in this brief.[1]

SUMMARY OF ARGUMENT

Amici appear in support of Tesla on two issues with a common thread.[2] The district court’s opinion erred in insulating the actions of the Louisiana legislature and the Louisiana Motor Vehicle Commission (“LMVC”) from antitrust and constitutional review under a flawed framework for scrutinizing state regulations that suppress competition and favor economic special interests.

First, Amici submit that the district court erred in holding that commissioners of the LMVC were protected by Noerr-Pennington immunity when they “agreed with [the Louisiana Automobile Dealers Association (“LADA”)] to use the regulatory power of the Commission to investigate Tesla.” Op. at 27. Although public officials may enjoy Noerr-Pennington immunity when they act in a purely private capacity, a public official who is also a market participant and agrees with others to utilize public power in a manner designed to suppress competition in order to further his own economic interests should not be immunized from antitrust scrutiny. The Noerr-Pennington doctrine protects the rights of citizens to petition the government for redress of grievance. It does not protect governmental officials who conspire to use governmental power to favor their own economic interests. The district court’s approach would create a loophole in the antitrust laws permitting actors wielding state power to avoid responsibility for abuses of official power.

Second, Amici dispute the district court’s finding that Louisiana’s direct sales ban had a rational basis in consumer protection. As Amici explain below, direct sales bans in automotive retailing were historically focused on the exclusive goal of protecting dealers in franchise relationships with manufacturers. Thus, in the cases in which this Court upheld such statutes against constitutional challenge—Ford Motor Co. v. Texas Dep’t of Transp., 264 F.3d 493 (5th Cir. 2001); Int’l Truck & Engine Corp. v. Bray, 372 F.3d 717 (5th Cir. 2004)—the ostensible rational basis of the legislation was the protection of dealers against the superior bargaining power of their franchising manufacturers. But that logic can have no bearing on the application of Louisiana’s 2017, anti-Tesla direct sales prohibition, for the simple reason that Tesla (and other new electric vehicle manufacturers) do not use franchised dealers at all, but sell directly to the consuming public. In such circumstances, dealers are not being protected as franchisees, they are protected from economic competition by companies using a different business model—exactly what this Court held does not count as a rational basis in St. Joseph Abbey v. Castille, 712 F.3d 215 (5th Cir. 2013). Further, efforts to justify direct sales bans as consumer protection rather than dealer protection have no support in economic theory or evidence. Such arguments are mere pretexts for the economic protectionism that this Court has held does not survive equal protection scrutiny

[1] Amici join this brief solely in their individual capacities and express only their individual views. Institutional affiliations are listed for identification purposes only.

[2] Amici take no position on other arguments raised by Tesla’s appeal.

In response to the Draft Vertical Merger Guidelines released by DOJ and the FTC on January 10, 2020,1 the International Center for Law & Economics convened a blog symposium to discuss the legal and economic implications of the proposed changes. Published on Thursday, February 6, 2020 and Friday, February 7, 2020 on TruthOnTheMarket.com, that symposium included contributions from twenty-six well respected legal academics, economists, and seasoned practitioners. This Comment collects those posts together so that they can form part of the record as DOJ and the FTC consider the final form of the Vertical Merger Guidelines.

Please note, inclusion of the posts in this comment should not be interpreted as indicating that any particular author supports any post that is not his or her own — this was a broad effort that included many different viewpoints.

In its 2019 AT&T/Time-Warner merger decision the D.C. Circuit Court of Appeals mentioned something that antitrust enforcers have known for years: We need a new set of Agency Guidelines for vertical mergers. The vertical merger Guidelines were last revised in 1984 at the height of Chicago School hostility toward harsh antitrust treatment of vertical restraints. In January, 2020, the Agencies issued a set of draft vertical merger Guidelines for comment. At this writing the Guidelines are not final, and the Agencies are soliciting comments on the draft and will be holding at least two workshops to discuss them before they are finalized.

Read the full piece here.

1. Yes, the Merger Guidelines should be revised; in particular:

a.  The discussion of concentration thresholds for collusion facilitating mergers must be aligned more closely with both recent case law and actual enforcement practices; otherwise they fail to provide guidance.  The current Guidelines indicate that concentrations greater than 1800 HHI and a post-merger increase exceeding 100HHI presumptively indicates a challenge. In fact, mergers with post-merger HHIs in excess of both these numbers are routinely permitted. While the standards in the current Guidelines are too aggressive, the George W. Bush administration policy was too lenient.  More fundamentally, the HHI creates an illusion of precision in coordinated effects analysis that is simply not warranted, particularly not when market definitions are ambiguous or when the merger market is subject to product differentiation.  Further, the “other factors” portion of the Guidelines tends to dominate the analysis.  A better approach is reduced reliance on the HHI and more on simpler observations about who the 3 or 4 largest firms in the market are, the effects of eliminating the acquired firm as an independent market entity, and the likely responses of rivals to an output reduction by the post-merger firm.

Read the full piece here.

One interesting aspect of the DOJ Report on Section 2 is the scant, episodic treatment of IP issues. The Report rejects the presumption of market power for patent ties (p. 81); has a very brief discussion of refusal to license patented parts in which it properly rejects the reasoning of the Ninth Circuit’s Kodak decision and aligns itself with the Federal Circuit’s Xerox decision (p. 121-122). The Walker Process case, which held that an infringement action based on an improperly acquired and unenforceable patent could violate §2, is cited in a footnote, and only for the proposition that market power is required in a §2 case (p. 25 n. 53). Finally, the Report contains a brief discussion of the presence of intellectual property in measuring incremental cost for purposes of analyzing predatory pricing (p. 63).

Read the full piece here.

The baseline for testing predatory pricing in the Section 2 Report is average avoidable cost (AAC), together with recoupment as a structural test (Report, p. 65). The AAC test or reasonably close variations, such as average variable cost or short-run marginal cost, seems about right. However, differences among them can become very technical and fine. The Report correctly includes in AAC those fixed costs that “were incurred only because of the predatory strategy, for example, as a result of expanding capacity to enable the predatory sales.” (Report, pp. xiv, 64-65) Such a strategy would make some sense for a predator if the fixed costs in question are easily re-deployed once the predation has succeeded – for example, in the case of an airline whose planes can be shifted to a different route. The test virtually guarantees that in industries that require heavy investment in production capacity that cannot be redployed the test will approach strict average variable cost. In cases where fixed costs are relatively high, an investment of this nature that lasted only through the predatory period and became excess capacity thereafter would not be worth it. Further, if fixed costs are low the market is almost certainly not prone to monopoly to begin with. AVC is probably underdeterrent, but it is also probably the best we can do without chilling procompetitive behavior.

Read the full piece here.