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.

by Dan Crane, Associate Dean for Faculty and Research and Frederick Paul Furth, Sr. Professor of Law, University of Michigan Law School

The FTC was the brain child of Progressive Era technocrats who believed that markets could be made to run more effectively if distinguished experts in industry and economics were just put in charge. Alas, as former FTC Chair Bill Kovacic has chronicled, over the Commission’s first century precious few of the Commissioners have been distinguished economists or business leaders. Rather, the Commissioners have been largely drawn from the ranks of politically connected lawyers, often filling patronage appointments.

How refreshing it’s been to have Josh Wright, highly distinguished both as an economist and as a law professor, serve on the Commission. Much of the media attention to Josh has focused on his bold conservatism in antitrust and consumer protection matters. But Josh has made at least as much of a mark in advocating for the importance of economists and rigorous economic analysis at the Commission.

Josh has long proclaimed that his enforcement philosophy is evidence-based rather than a priori or ideological. He has argued that the Commission should bring enforcement actions when the economic facts show objective harm to consumers, and not bring actions when the facts don’t show harm to consumers. A good example of Josh’s perspective in action is his dissenting statement in the McWane case, where the Commission staff may have had a reasonable theory of foreclosure, but not enough economic evidence to back it up.

Among other things, Josh has eloquently advocated for the institutional importance of the economist’s role in FTC decision making. Just a few weeks ago, he issued a statement on the Bureau of Economics, Independence, and Agency Performance. Josh began with the astute observation that, in disputes within large bureaucratic organizations, the larger group usually wins. He then observed that the lopsided ratio of lawyers in the Bureau of Competition to economists in the Bureau of Economics has led to lawyers holding the whip hand within the organization. This structural bias toward legal rather than economic reasoning has important implications for the substance of Commission decisions. For example, Malcolm Coate and Andrew Heimert’s study of merger efficiencies claims at the FTC showed that economists in BE were far more likely than lawyers in BC to credit efficiencies claims. Josh’s focus on the institutional importance of economists deserves careful consideration in future budgetary and resource allocation discussions.

In considering Josh’s legacy, it’s also important to note that Josh’s prescriptions in favor of economic analysis were not uniformly “conservative” in the trite political or ideological sense. In 2013, Josh gave a speech arguing against the application of the cost-price test in loyalty discount cases. This surprised lots of people in the antitrust community, myself included. The gist of Josh’s argument was that a legalistic cost-price test would be insufficiently attentive to the economic facts of a particular case and potentially immunize exclusionary behavior. I disagreed (and still disagree) with Josh’s analysis and said so at the time. Nonetheless, it’s important to note that Josh was acting consistently with his evidence-based philosophy, asking for proof of economic facts rather than reliance on legal short-cuts. To his great credit, Josh followed his philosophy regardless of whether it supported more or less intervention.

In sum, though his service was relatively short, Josh has left an important mark on the Commission, founded in his distinctive perspective as an economist. It is to be hoped that his appointment and service will set a precedent for more economist Commissioners in the future.

Dan Crane is Sr. Professor of Law and Associate Dean for Faculty and Research at the University of Michigan Law School

I’m delighted that Josh and Maureen have launched a concerted effort to have the FTC articulate clear principles for Section 5 enforcement.  My own views on the proper scope of Section 5 are articulated in my book The Institutional Structure of Antitrust Enforcement.  I won’t attempt a comprehensive regurgitation here, but just offer three quick observations that may be relevant to the present debate.

First, the most important reason for the articulation of clear Section 5 principles is not to give greater guidance to the business community, although that’s important too.  The most important reason is to articulate principles of self-restraint that Article III courts can invoke in reviewing Commission decisions applying Section 5 in spaces that Sections 1 and 2 of the Sherman Act would not apply under current judicial doctrine.  History suggests that courts jealously guard their interpretations of the Sherman Act and are reluctant to allow the FTC to effectively override them based on assertions of Section 5 independence.  The courts rejected FTC efforts to wield an independent Section 5 in the late 70s and early 80s.  They will be inclined to do so again if the FTC merely asserts “Section 5 is a prophylactic statute; trust us to wield it to good ends.”  By articulating principles that delimit how far the FTC can go under Section 5, the FTC would provide courts assurances that meaningful judicial review can still occur.

Second, and in the same vein, the Commission needs to articulate principles not just about how far it can go under Section 5 but also about how far it cannot go.  It needs to say, in effect, “courts, here is how you will know if we crossed the line.”  These limitation principles need to be concrete enough that defendants have a reasonable opportunity to show through objective evidence that their conduct does not contravene the statute.  In other words, the Commission needs to explain how its view of Section 5 independence is not a plea for greater administrative discretion, which courts will be unlikely to afford, but for an expanded scope of antitrust coverage under principles that can be fairly contested in litigation.

Shifting to the substance of these limitation principles, my third point concerns one of the criteria proposed by Josh—that the challenged conduct have no cognizable efficiency benefits.  I agree with the thrust of Josh’s suggestion, but would suggest a small qualification.   There is virtually no anticompetitive conduct that doesn’t produce someefficiency.  Heck, even the proverbial blowing up of the competitor’s factory might product some efficiency (the rebuilt factory might be 3% more efficient than the old one and hence might spur greater competition in the long run).  Cartels often have some efficiency benefit—they reduce planning costs, smooth prices to customers, etc.  So if the criterion were that the challenged conduct had to be absolutely devoid of efficiency benefits, that might create a null set of independent Section 5 cases.  I would suggest, as a qualification, that the criterion be akin to that used to justify the per se rule—that the challenged conduct is so unlikely to have redeeming efficiencies that the law is justified in not inquiring into whether there are in fact efficiencies.  This is not to say that Section 5 cases would disallow inquiry into efficiencies, but rather that the Commission would need to show that any claimed efficiencies were so trivial or speculative compared to the clear competitive harms that the conduct was similar in kind to price fixing, market division, or bid rigging.  The paradigmatic Section 5 cases—invitations to collude and fraud—easily fit that bill.

I feel no great urgency to revise the Guidelines.  True enough, they’re more of an analytical thought experiment than an accurate description of how merger review takes place in the agencies, but who’s really fooled?  Perhaps some business people think that the Guidelines are a computer program waiting for the introduction of the relevant data to spit out the answer, but most sophisticated executives contemplating a merger will understand that the Guidelines are just a beginning point for conversation.

Read the full piece here.

Bundled discounts have been one of the hottest monopolization topics of the last decade. Much of the trouble began with the Third Circuit’s en banc decision in LePage’s v. 3M, which reversed an earlier 2-1 panel decision which in turn had overturned a plaintiff’s jury verdict largely based on 3M’s bundled discounts. After the Solicitor General’s amicus curiae brief asked the Supreme Court to deny cert on the grounds that there wasn’t sufficient scholarship on bundled discounts, there was a flurry of legal and economic scholarship, the overwhelming majority of which was highly critical of LePage’s.

Read the full piece here.

I must confess that my basic reaction to the Section 2 report was disappointment.  It’s not that I find much fault with the report itself–a few quibbles yes, but generally I find it quite satisfactory–but that after all of the time and effort put into the joint hearings by the FTC, the FTC wasn’t able to join the report.  Moreover, the shrill dissenting statement by three commissioners will probably prevent the report from playing influencing judicial decisions or legislation.

Read the full piece here.

Congratulations to Mike on a very fine book, which I must admit I am still in the process of digesting.  I will confine my initial comments to Mike’s chapter on patent settlements (Chapter 15), which I understand will also be coming out as an article in the Michigan Law Review.

Read the full piece here.