Showing 9 of 34 Publications by Richard Epstein

BRIEF OF RICHARD A. EPSTEIN & GEOFFREY A. MANNE, IN SUPPORT OF Defendant in Pulse Network, LLC v. Visa Incorporated

Amicus Brief To establish antitrust standing, Pulse must show not only “injury causally linked to an illegal presence in the market” but also antitrust injury “attributable to an anti-competitive aspect of the practice under scrutiny.”

Summary

To establish antitrust standing, Pulse must show not only “injury causally linked to an illegal presence in the market” but also antitrust injury “attributable to an anti-competitive aspect of the practice under scrutiny.” Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990) (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488-89 (1977)). Put differently, Pulse must prove the existence of an injury “of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” Id. (quoting Brunswick Corp., 429 U.S. at 489). As the district court rightly decided, Pulse has failed to meet its burden.

Antitrust law does not punish firms for succeeding even if they become dominant. Congress enacted the Sherman Act for “the protection of competition, not competitors.” Id. at 338 (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)). Yet Pulse’s injury flows from increased competition due to Visa’s innovation in the debit- network industry. Pulse freely admits that it lacks the “scale and market relevance” needed to compete with Visa’s challenged business strategies. (Appellant’s Br. 34) That Pulse’s PIN product has (so far, anyway) failed to gain traction in the marketplace, however, is not proof of antitrust injury. On the contrary, mere injury to a competitor, rather than to competition, is not an injury “of the type the antitrust laws were intended to prevent.” Phototron Corp. v. Eastman Kodak Co., 842 F.2d 95, 99 (5th Cir. 1988) (quoting Brunswick Corp., 429 U.S. at 489).

What’s more, Pulse has sued Visa for conduct that Pulse admits lowered merchants’ per-transaction fees, contending that those lower fees caused Pulse to obtain fewer transactions and generate less revenue. Pulse complains that it cannot “undercut” Visa’s new pricing structure. (Appellant’s Br. 40) But non-predatory price competition is no basis for antitrust injury. “When a firm … lowers prices but maintains them above predatory levels, the business lost by rivals cannot be viewed as an ‘anticompetitive’ consequence of the claimed violation.” Atl. Richfield, 495 U.S. at 337. So even if it harms Pulse, Visa’s charging low, but not below-cost, per-transaction fees to win market share is not harm to competition. Instead, both Visa’s conduct and its effects are “fully consistent with competition on the merits.” Taylor Publ’g Co. v. Jostens, Inc., 216 F.3d 465, 477 (5th Cir. 2000).

True, when assessing standing, this Court will assume that an antitrust violation exists. Doctor’s Hosp. of Jefferson, Inc. v. Se. Med. All., Inc., 123 F.3d 301, 306 (5th Cir. 1997). But that is not enough. “[P]roof of a[n antitrust] violation and of antitrust injury are distinct matters that must be shown independently.” Atl. Richfield, 495 U.S. at 344 (quoting Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 334.2c, at 330 (1989 Supp.)). Unable to show how Visa’s conduct harmed competition in any way, Pulse seeks to wag the dog of antitrust injury with the tail of an assumed violation. But a competitor has standing only if it proves that its “loss stems from a competition- reducing aspect or effect of the defendant’s behavior.” Atl. Richfield, 495 U.S. at 344. Pulse has proven nothing of the sort.

Antitrust is about unleashing the forces of competition, not throttling them. Accepting Pulse’s watered-down approach to antitrust injury, however, would have just the opposite effect. It would invite struggling firms to use antitrust law as a sword rather than a shield. It would deter innovation in highly competitive markets. And it would permit competitors to seek treble damages for pro-competitive harms that antitrust law does not reach. Rather than ensure vigorous competition, reversing the judgment below would harm competition and consumers alike.

Click here to read the full brief.

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Antitrust & Consumer Protection

ICLE Letter to Senate Judiciary re T-Mobile-Sprint Merger

Written Testimonies & Filings We are a group of eight scholars of antitrust law and economics affiliated with the International Center for Law & Economics, a nonprofit, nonpartisan policy research center based in Portland, OR. Without taking a position on the merits of the proposed T-Mobile/Sprint merger, this letter provides a brief explication of our views on some of the important economic issues involved in the transaction’s antitrust review.

Summary

Dear Senators Grassley, Feinstein, Lee, and Klobuchar,

We are a group of eight scholars of antitrust law and economics affiliated with the International Center for Law & Economics, a nonprofit, nonpartisan policy research center based in Portland, OR. Without taking a position on the merits of the proposed T-Mobile/Sprint merger, this letter provides a brief explication of our views on some of the important economic issues involved in the transaction’s antitrust review.

At the highest level, and as discussed in more detail below, we believe that an appropriate concern for consumer welfare in the regulatory review of the transaction demands that the Federal Communications Commission (“FCC”) and the Department of Justice (“DOJ”) account for the dynamic, fast-moving nature of competition in the markets affected by the merger. Above all, this means that the agencies should shun the mechanical application of obsolete market-share and concentration presumptions that could wrongly condemn the merger.

Modern antitrust principles, sound economics, and the public interest dictate that an analysis of the proposed merger incorporate these foundational precepts:

  1. The resolute avoidance of a presumption of illegality based upon purely static market shares and measures of industry concentration;
  2. The rigorous consideration of the effect of the merger on the dynamic competition that has long characterized the telecommunications industry; and
  3. The careful assessment of the long-term benefits of the deal to consumers and the economy as a whole.

These principles are particularly appropriate here given the clear importance to the parties’ decision to merge of their interest in launching a competitive, national 5G network. If successful, the deal could create a combined T-Mobile and Sprint that is a stronger competitor to AT&T and Verizon, which, in turn, could spur increased investment competition in the market. Realizing those objectives — which could result in enormous benefit to consumers and enhance competition in the wireless communications and broadband markets — will take time, and the process will entail business model disruption, corporate reorganization, experimentation, and significant investment.

It is crucial to ensuring that the claimed consumer benefits of this process can be realized that the proposed merger not be thwarted by regulators inappropriately focused on short-term, static effects.

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Antitrust & Consumer Protection

Amicus Brief, Ohio v. American Express

Amicus Brief Summary While the three-step burden-shifting framework for evaluating antitrust cases under the rule of reason is conceptually well-accepted and understood, case law remains unclear regarding . . .

Summary

While the three-step burden-shifting framework for evaluating antitrust cases under the rule of reason is conceptually well-accepted and understood, case law remains unclear regarding what suffices to satisfy each party’s burden at each of the three stages. This case offers the Court an opportunity both to clarify what constitutes harm to competition and to explain the nature of the shifting burdens in rule of reason analysis.

In their merits briefing, rather than offer tools for providing structure to the rule of reason, Petitioners urge the Court to adopt an amorphous standard that would permit plaintiffs to satisfy their burden without evidence of durable market power— and even without direct proof of anticompetitive effects as the term is traditionally and properly understood in Section 1 jurisprudence. Acquiescing to Petitioners’ vague conception of a plaintiff’s prima facie burden would untether antitrust law from rigorous economic analysis and harm consumers by increasing significantly the risk of error in lower courts. This would leave litigants with little to no certainty regarding what evidence they should introduce, let alone what evidence a court would find persuasive in any given case, and no clarity as to what businesses can and cannot do.

Without an approach to establishing plaintiff’s burden disciplined by economic analysis and proof, the balance of false positive (Type I) and false negative (Type II) errors—which is critical to proper adjudication of the antitrust laws—would be thrown off keel. The fundamental goal of antitrust law is to foster consumer welfare by enhancing or increasing output in a relevant market. Output is the touchstone of antitrust analysis because a dominant firm’s ability to constrain market-wide output is what allows it to anticompetitively raise prices and harm consumers. Petitioners’ approach, however, would flip this analysis on its head and allow price effects to dictate results, thereby permitting courts to ignore output effects—the sine qua non of antitrust analysis—in ascertaining whether a plaintiff satisfied its prima facie burden.

Such a result is contrary to this Court’s precedent and particularly problematic here. This Court has recognized that vertical restraints might “[increase prices] in the course of promoting procompetitive effects.” Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 895-96 (2007) (citing Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 728 (1988)). And modern economics provides no basis for assuming that a demonstration of price effects on only one side of a two-sided market accurately represents the market-wide effects of a course of conduct. Rather, economics predicts that market-wide welfare might increase, decrease, or remain neutral given price effects on a single side. Only an analysis of the market as a whole can illuminate the true competitive implications.

This brief explains amici’s understanding of the relevant economic analysis. It explains why basic economic principles underlying the analysis of multi-sided markets lead to the conclusion that a plaintiff should be required to demonstrate, at a minimum, that: (1) the allegedly unlawful restraint caused anticompetitive effects in the form of actual or probable restricted output market-wide—a showing that logically requires analyzing both sides of a two-sided market; and (2) the defendant had sufficient market power to restrict output in a properly defined market. These two requirements align with sound economics and would also provide clear guidance for courts in applying the rule of reason.

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Antitrust & Consumer Protection

Amicus Brief, ICLE & Scholars, Expressions Hair Design v. Schneiderman, SCOTUS

Amicus Brief Petitioners base their First Amendment argument on two premises: first, that surcharges are “more effective” than discounts at altering consumer behavior; and second, that surcharges and discounts are economically equivalent except for their labels.

Summary

Petitioners base their First Amendment argument on two premises: first, that surcharges are “more effective” than discounts at altering consumer behavior; and second, that surcharges and discounts are economically equivalent except for their labels. Under this view, because the only difference between discounts and surcharges is how they are framed, it must be this framing that leads to the difference in consumers’ responses. To explain why Petitioners believe this is true—and, thus, to maintain their claim that New York’s surcharge prohibition is an impermissible restriction on speech—Petitioners and their amici rely on the behavioral economic concepts of “framing” and “loss aversion.” They claim that the State impermissibly wishes to prohibit surcharging because these cognitive biases render surcharge labels more effective than discount labels in altering consumers’ preferred form of payment.

Petitioners’ premises are wrong. There is no sound evidence that the asserted behavioral theories are at work here, or that credit-card surcharging— much less the mere label used to describe the practice—more greatly affects consumers’ chosen method of payment than cash discounting. In fact, some of the studies on which Petitioners and their amici rely suggest the opposite. The Court should not rely, in the absence of sound supporting evidence, on a malleable theory that can be used to support contradictory positions.

Moreover, surcharges and discounts differ in material ways beyond the words used to describe them. Surcharging—but not discounting—enables merchants to engage in certain pricing and sales practices that explain both consumers’ different responses to them, as well as the State’s interest in regulating them differently. And while petitioners lack empirical support for the behavioral claims at the heart of their First Amendment argument, the evidence from countries that permit surcharging reveals that merchants often use surcharges to engage in these types of pricing practices. This Court should thus reject Petitioners’ invitation to base constitutional doctrine on a behavioral hypothesis unsupported by any sound empirical evidence—especially where, as here, that result could potentially expose consumers to the type of conduct that the State’s law seeks to prevent.

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Financial Regulation & Corporate Governance

Epstein on the Apple e-books case: The hidden traps in the Apple ebook case

TOTM On balance the Second Circuit was right to apply the antitrust laws to Apple. Right now the Supreme Court has before it a petition for . . .

On balance the Second Circuit was right to apply the antitrust laws to Apple.

Right now the Supreme Court has before it a petition for Certiorari, brought by Apple, Inc., which asks the Court to reverse the decision of the Second Circuit. That decision found per se illegality under the Sherman Act, for Apple’s efforts to promote cooperation among a group of six major publishers, who desperately sought to break Amazon’s dominant position in the ebook market. At that time, Amazon employed a wholesale model for ebooks under which it bought them for a fixed price, but could sell them for whatever price it wanted, including sales at below cost of popular books treated as loss leaders. These sales particularly frustrated publishers because of the extra pressure they placed on the sale of hard cover and paper back books. That problem disappeared under the agency relationship model that Apple pioneered. Now the publishers would set the prices for the sale of their own volumes, and then pay Apple a fixed commission for its services in selling the ebooks.

Read the full piece here.

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Antitrust & Consumer Protection

A Tribute to Joshua Wright

Popular Media A recent story in the Wall Street Journal described Josh Wright as the “FTC’s most conservative commissioner.” It is a sign of today’s politicized environment that this label is used as a substitute for serious substantive analysis of the particular positions that Wright has taken relative to the other commissioners.

by Richard A. Epstein, Laurence A. Tisch Professor of Law, NYU School of Law

A recent story in the Wall Street Journal described Josh Wright as the “FTC’s most conservative commissioner.” It is a sign of today’s politicized environment that this label is used as a substitute for serious substantive analysis of the particular positions that Wright has taken relative to the other commissioners. The article also noted that he was the Republican commissioner who brokered a deal with the three democratic members to publish a short set of guidelines to deal with the Delphic question of what counts as unlawful methods of competition. Before I had received knowledge that Josh was about to resign, I had posted a piece on Defining Ideas that carried with it the near-oxymoronic title, “When Bureaucrats Do Good.”

I must confess that my initial impression on hearing of the publication of the statement was that it would be more bad news. But I happily I changed course after reading the statement, which is mercifully short, and after having the benefit of the thoughtful dissent of the other Republican Commissioner Maureen Ohlhausen, and of the speech that FTC Chairwoman Edith Ramirez gave in defense of those guidelines at the George Washington Law School.

There are clearly times when short should be regarded as sweet, and this is one of them.  It may well be that there is an iron law that says the longer the document that any government prepares, the worse its content. This short policy statement sets matters in the right direction when it treats unfair methods of competition as a variation on the basic theme of monopoly, and notes that where the antitrust laws do apply, the FTC should be reluctant to exercise its standalone jurisdiction. It is a tribute to Ramirez and Wright that they could come to agree on the statement, so that a set of sound principles has bipartisan support.

It is also welcome that the dissent of Commissioner Ohlhausen does not differ on fundamental orientation but on two questions that I regard as having subordinate importance: do we give public hearings before publishing the statement; and do we provide more illustrations as to how the principle out to be applied. The pressure therefore came from the pro-market side of the political spectrum such that there is now no Commissioner on the FTC who regards Section 5 of the Federal Trade Commission Act as a general warrant to pursue any and all forms of professional mischief.

The contrast of this document with the FCC’s net neutrality principles is too clear to require much comment.

At this point, Josh will return to his position at George Mason University Law School, where he shall resume his distinguished academic career. He regards the publication of this one page statement as the capstone of his career. On that point, I am confident that history will prove him right. Welcome back to the Academy, and thanks for a job well done on the Commission.

Filed under: consumer protection, federal trade commission, ftc, JDW Symposium, regulation, section 5 Tagged: Federal Trade Commission, ftc, joshua wright, Symposium

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Antitrust & Consumer Protection

Amicus brief of ICLE and Administrative Law Scholars, US Telecom v. FCC, D.C. Circuit

Amicus Brief The Order represents a substantial and unprecedented expansion of the FCC’s claimed authority. The Commission asserts authority to implement agency-defined policy by any means over . . .

The Order represents a substantial and unprecedented expansion of the FCC’s claimed authority. The Commission asserts authority to implement agency-defined policy by any means over the entire broadband communications infrastructure of the United States—in the words of FCC Chairman Wheeler, “[t]he most powerful network ever known to Man”[1]—under the auspices of FCC regulation; and it assumes the ability to regulate even beyond this already incredibly broad scope on an “ancillary” or “secondary” basis so long as such regulation has at least a Rube-Goldberg-like connection to broadband deployment. In the Order, the Commission claims authority that it has consistently disclaimed; it ignores this court’s holding in Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014) (“Verizon”); and it bends to the point of breaking the statutory structure and purpose of the Communications and Telecommunications Acts. For all of these reasons, the Order should be rejected as exceeding the Commission’s statutory authority and as presenting and addressing major questions—questions of “deep economic and political significance,” see, e.g., King v. Burwell, No. 14-114, slip op. at 8 (2015)—that can only be addressed by Congress. See Randolph May, Chevron Decision’s Domain May Be Shrinking, THE HILL (Jul. 7, 2015).

The Commission’s authority is based in the 1934 Act, as modified by the 1996 Act. The general purpose of the 1934 Act was to establish and maintain a pervasively-regulated federal telephone monopoly built upon a relatively simple and static technology. This was the status quo for most of the 20th century, during which time the FCC had authority to regulate every aspect of the telecommunications industry—down to investment decisions, pricing, business plans, and even employment decisions. As technology progressed, however, competition found its way into various parts of the industry, upsetting the regulated monopoly structure. This ultimately led to passage of the 1996 Act, the general purpose of which was to deregulate the telecommunications industry—that is, to get the FCC out of the business of pervasive regulation and to rely, instead, on competition.[2] This objective has proven effective: Over the past two decades, competition has driven hundreds of billions of dollars of private investment, the telecommunications capabilities available to all Americans have expanded dramatically, and competition—while still developing—has increased substantially. The range of technologies available to every American has exceeded expectations, at costs and in a timeframe previously unimagined, and at a pace that leads the world.[3]

Today, many Americans are continuously engaged in online interactions. The Internet is the locus of significant political and educational activity; it is an indispensable source of basic and emergency news and information; it is a central hub for social interaction and organization; it is where people go to conduct business and find work; it is how many Americans engage with their communities and leaders; and it has generated hundreds of billions of dollars of annual economic activity.

Regulation of the Internet, in other words, presents questions of “vast ‘economic and political significance,’” Utility Air Regulatory Group v. Envtl. Prot. Agency, 134 S. Ct. 2427, 2444 (2014) (“UARG”), as substantial as any ever considered by a federal agency.

While the Commission disclaims authority to regulate significant swaths of the Internet ecosystem, the Order is nonetheless premised on interpretations of the 1934 Act that do give it authority over that ecosystem. This court should greet the Commission’s claimed authority with substantial skepticism. See UARG, 134 S. Ct. at 2444 (“When an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy,’ we typically greet its announcement with a measure of skepticism.”) (emphasis added) (quoting Brown & Williamson v. Food & Drug Admin., 529 U.S. 120, 159 (2000) (“Brown & Williamson”). This is especially true given the statutory structure and purpose of the 1996 Act and the Commission’s historical, hands-off approach to the Internet. See King v. Burwell, slip op. at 15 (courts “must turn to the broader structure of the Act to determine the meaning” of language within a statute). Although this court addressed and rejected a challenge to the 2010 Order on these grounds, the Supreme Court has in the intervening months decided two cases—UARG and King v. Burwell—that revitalize the challenge, especially given the 2015 Order’s more aggressive posture.

The FCC claims that new rules were needed to prevent blocking, throttling, and discrimination on the Internet. But the poor fit between the Commission’s preferred regulatory regime and the statutory authority upon which it rests is manifest. This disconnect is made clear by the numerous effects of the regulations that the Commission must describe as “ancillary” or “secondary,” and the numerous statutory provisions that must be forborne from or otherwise ignored in order to make the Order feasible.

In short, the Order rests upon a confusing patchwork of individual clauses from scattered sections of the Act, sewn together without regard to the context, structure, purpose, or limitations of the Act, in order to “find” a statutory basis for the Commission’s preferred approach to regulating the Internet. As such, it fails to “bear[] in mind the ‘fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.’” UARG, 134 S. Ct. at 2441 (quoting Brown & Williamson, 529 U.S. at 133).

Accordingly, the court should vacate the Order

[1] See Remarks of FCC Chairman Tom Wheeler, Silicon Flatirons Center (Feb. 9, 2015) at 5, available at https://www.fcc.gov/document/chairman-wheeler-siliconflatirons-center-boulder-colorado.

[2] See, e.g., FCC Chairman William Kennard, A New Federal Communications Commission for the 21st Century, I-A (1999), available at http://transition.fcc.gov/Reports/fcc21.html. (“With the passage of the Telecommunications Act of 1996, Congress recognized that competition should be the organizing principle of our communications law and policy and should replace micromanagement and monopoly regulation.”).

[3] See id. (“[A]s competition develops across what had been distinct industries, we should level… regulation down to the least burdensome level necessary to protect the public interest. Our guiding principle should be to presume that new entrants and competitors should not be subjected to legacy regulation.”)

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Telecommunications & Regulated Utilities

Amicus Brief, Howard Stirk Holdings, LLC. et al. v. FCC, D.C. Circuit

Amicus Brief "'Capricious' is defined as 'given to sudden and unaccountable changes of mood or behavior.' That is just the word to describe the FCC’s decision in its 2014 Order to reverse a quarter century of agency practice by a vote of 3-to-2..."

Summary

“‘Capricious’ is defined as ‘given to sudden and unaccountable changes of mood or behavior.’ That is just the word to describe the FCC’s decision in its 2014 Order to reverse a quarter century of agency practice by a vote of 3-to-2 and suddenly declare unlawful scores of JSAs between local television broadcast stations, many of which were originally approved by the FCC and have been in place for a decade or longer. The FCC’s action was not only capricious, but also contrary to law for two fundamental reasons.

First, the 2014 Order extends the FCC’s outdated ‘duopoly’ rule to JSAs that have never before been subject to it, many of which were blessed by the agency, without first determining whether that rule is still in the public interest. The ‘duopoly’ rule — first adopted in 1964 during the age of black-and-white TV — prohibits one entity from owning FCC licenses to two or more TV stations in the same local market unless there are at least eight independently owned stations in that market…The FCC’s 2014 Order makes a mockery of this congressional directive. In it, the Commission announced that, instead of completing its statutorily-mandated 2010 Quadrennial Review of its local ownership rules, it would roll that review into a new 2014 Quadrennial Review, while retaining its duopoly rule pending completion of that review because it had ‘tentatively’ concluded that it was still necessary. This Court should not accept this regulatory legerdemain. The 1996 Act does not allow the FCC to retain its duopoly rule in its current form without making the statutorily-required determination that it is still necessary. A ‘tentative’ conclusion that does not take into account the significant changes both in competition policy and in the market for video programming that have occurred since the current rule was first adopted in 1999 is not an acceptable substitute.

Second, having illegally retained the outdated duopoly rule, the 2014 Order then dramatically expands its scope by amending the FCC’s local ownership attribution rules to make the rule applicable to JSAs, which had never before been subject to it. The Commission thereby suddenly declares unlawful JSAs in scores of local markets, many of which have been operating for a decade or longer without any harm to competition. Even more remarkably, it does so despite the fact that both the DOJ and the FCC itself had previously reviewed many of these JSAs and concluded that they were not likely to lessen competition. In doing so, the FCC also fails to examine the empirical evidence accumulated over the nearly two decades some of these JSAs have been operating. That evidence shows that many of these JSAs have substantially reduced the costs of operating TV stations and improved the quality of their programming without causing any harm to competition, thereby serving the public interest…”

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Telecommunications & Regulated Utilities

Amicus Brief, McWane Inc. v. FTC, 11th Circuit

Amicus Brief Unlike in a pre-merger investigation, the Federal Trade Commission (“FTC”) did not need to rely on indirect evidence related to market structure to predict the competitive effect of the conduct challenged in this case.

Summary

Unlike in a pre-merger investigation, the Federal Trade Commission (“FTC”) did not need to rely on indirect evidence related to market structure to predict the competitive effect of the conduct challenged in this case. McWane’s Full Support Program, which gave rise to the Commission’s exclusive dealing claim, was fully operational—and had terminated—prior to the proceedings below. Complaint Counsel thus had access to data on actual market effects.

But Complaint Counsel did not base its case on such effects, some of which suggested an absence of anticompetitive harm. Instead, Complaint Counsel theorized that McWane’s exclusive dealing could have anticompetitively “raised rivals’ costs” by holding them below minimum efficient scale, and it relied entirely on a self-serving statement by McWane’s chief rival to establish what constitutes such scale in the industry at issue. In addition, Complaint Counsel failed to establish the extent of market foreclosure actually occasioned by McWane’s Full Support Program, did not assess the degree to which the program’s significant exceptions mitigated its anticompetitive potential, and virtually ignored a compelling procompetitive rationale for McWane’s exclusive dealing. In short, Complaint Counsel presented only weak and incomplete indirect evidence in an attempt to prove anticompetitive harm from an exclusive dealing arrangement that had produced actual effects tending to disprove such harm. Sustaining a liability judgment based on so thin a reed would substantially ease the government’s burden of proof in exclusive dealing cases.

Exclusive dealing liability should not be so easy to establish. Economics has taught that although exclusive dealing may sometimes occasion anticompetitive
harm, several prerequisites must be in place before such harm can occur. Moreover, exclusive dealing can achieve a number of procompetitive benefits and
is quite common in highly competitive markets. The published empirical evidence suggests that most instances of exclusive dealing are procompetitive rather than
anticompetitive. Antitrust tribunals should therefore take care not to impose liability too easily.

Supreme Court precedents, reflecting economic learning on exclusive dealing, have evolved to make liability more difficult to establish. Whereas exclusive
dealing was originally condemned almost per se, Standard Oil of California v. United States, 337 U.S. 293 (1949) (hereinafter “Standard Stations”), the Supreme
Court eventually instructed that a reviewing court should make a fuller inquiry into the competitive effect of the challenged exclusive dealing activity. See Tampa
Electric Co. v. Nashville Coal Co., 365 U.S. 320, 329 (1961). In In re Beltone Electronics, 100 F.T.C. 68 (1982), the FTC followed Tampa Electric’s instruction
and embraced an economically informed method of analyzing exclusive dealing.

The decision on appeal departs from Beltone—which the FTC never even cited—by imposing liability for exclusive dealing without an adequate showing of likely competitive harm. If allowed to stand, the judgment below could condemn or chill a wide range of beneficial exclusive dealing arrangements. We therefore urge reversal to avoid creating new and unwelcome antitrust enforcement risks.”

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Antitrust & Consumer Protection