The Bitter Fruits of Federal Antitrust ‘Reform’ Legislation - International Center for Law & Economics
Focus Areas:    Harm to Competition | Monopoly & Monopsony | Platforms | Sherman Act | Vertical Restraints & Tying

The Bitter Fruits of Federal Antitrust ‘Reform’ Legislation

Truth on the Market View Original

[The following is part of a digital symposium by Truth on the Market guests and authors on Antitrust’s Uncertain Future: Visions of Competition in the New Regulatory Landscape. Information on the authors and the entire series of posts is available here.]

Much ink has been spilled regarding the potential harm to the economy and to the rule of law that could stem from enactment of the primary federal antitrust legislative proposal, the American Innovation and Choice Online Act (AICOA) (see here). AICOA proponents, of course, would beg to differ, emphasizing the purported procompetitive benefits of limiting the business freedom of “Big Tech monopolists.”

There is, however, one inescapable reality—as night follows day, passage of AICOA would usher in an extended period of costly litigation over the meaning of a host of AICOA terms. As we will see, this would generate business uncertainty and dampen innovative conduct that might be covered by new AICOA statutory terms.

The history of antitrust illustrates the difficulties inherent in clarifying the meaning of novel federal statutory language. It was not until 21 years after passage of the Sherman Antitrust Act that the Supreme Court held that Section 1 of the act’s prohibition on contracts, combinations, and conspiracies “in restraint of trade” only covered unreasonable restraints of trade (see Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)). Furthermore, courts took decades to clarify that certain types of restraints (for example, hardcore price fixing and horizontal market division) were inherently unreasonable and thus per se illegal, while others would be evaluated on a case-by-case basis under a “rule of reason.”

In addition, even far more specific terms related to exclusive dealing, tying, and price discrimination found within the Clayton Antitrust Act gave rise to uncertainty over the scope of their application. This uncertainty had to be sorted out through judicial case-law tests developed over many decades.

Even today, there is no simple, easily applicable test to determine whether conduct in the abstract constitutes illegal monopolization under Section 2 of the Sherman Act. Rather, whether Section 2 has been violated in any particular instance depends upon the application of economic analysis and certain case-law principles to matter-specific facts.

As is the case with current antitrust law, the precise meaning and scope of AICOA’s terms will have to be fleshed out over many years. Scholarly critiques of AICOA’s language underscore the seriousness of this problem.

In its April 2022 public comment on AICOA, the American Bar Association (ABA)  Antitrust Law Section explains in some detail the significant ambiguities inherent in specific AICOA language that the courts will have to address. These include “ambiguous terminology … regarding fairness, preferencing, materiality, and harm to competition on covered platforms”; and “specific language establishing affirmative defenses [that] creates significant uncertainty”. The ABA comment further stresses that AICOA’s failure to include harm to the competitive process as a prerequisite for a statutory violation departs from a broad-based consensus understanding within the antitrust community and could have the unintended consequence of disincentivizing efficient conduct. This departure would, of course, create additional interpretive difficulties for federal judges, further complicating the task of developing coherent case-law principles for the new statute.

Lending support to the ABA’s concerns, Northwestern University professor of economics Dan Spulber notes that AICOA “may have adverse effects on innovation and competition because of imprecise concepts and terminology.”

In a somewhat similar vein, Stanford Law School Professor (and former acting assistant attorney general for antitrust during the Clinton administration) Douglas Melamed complains that:

[AICOA] does not include the normal antitrust language (e.g., “competition in the market as a whole,” “market power”) that gives meaning to the idea of harm to competition, nor does it say that the imprecise language it does use is to be construed as that language is construed by the antitrust laws. … The bill could be very harmful if it is construed to require, not increased market power, but simply harm to rivals.

In sum, ambiguities inherent in AICOA’s new terminology will generate substantial uncertainty among affected businesses. This uncertainty will play out in the courts over a period of years. Moreover, the likelihood that judicial statutory constructions of AICOA language will support “efficiency-promoting” interpretations of behavior is diminished by the fact that AICOA’s structural scheme (which focuses on harm to rivals) does not harmonize with traditional antitrust concerns about promoting a vibrant competitive process.

Knowing this, the large high-tech firms covered by AICOA will become risk averse and less likely to innovate. (For example, they will be reluctant to improve algorithms in a manner that would increase efficiency and benefit consumers, but that might be seen as disadvantaging rivals.) As such, American innovation will slow, and consumers will suffer. (See here for an estimate of the enormous consumer-welfare gains generated by high tech platforms—gains of a type that AICOA’s enactment may be expected to jeopardize.) It is to be hoped that Congress will take note and consign AICOA to the rubbish heap of disastrous legislative policy proposals.