“ A lawyer who has not studied economics and sociology is very apt to become a public...

Law 552 - Antitrust - Instructor: Dwight Drake

“ A lawyer who has not studied economics and sociology is very apt to become a public enemy.”

Louis D. Brandeis

Contact Info – Office Hours• Email: djdrake@u.washington.edu

• Phones: 425.281.1493, 425.222.5988, 480.272.6419, 206.616.6385

• Guaranteed Office Hours: - Tuesday 2:30 p.m to 4:00 p.m. - Wednesday 2:30 p.m. to 4:00 p.m. - By Appointment. Open Door - Whenever you can catch me!

Course URL: http://faculty.washington.edu/djdrake/Antitrust/index.shtml

Course Objectives• Survey history, scope, impact of Antitrust.

• Focus on Three Dimensions of Antitrust: - Neighborhood - National - World

• Internalize Antitrust “flags”.

• Enhance fundamental lawyer skills: - Analytical, creative thinking - Communication Skills

America’s Privately-Owned Businesses

• 25 Million• 99 % of all employers• 75% of all new jobs• 53% of private workforce• 70% of all first jobs• 50% of all sales• 14 times more patents• Largest client base for professionals• Badly under-serviced by Bar

The Lawyer’s Role as an Advisor to Business Owners, Professionals and

Entrepreneurs

Flash Presentation (20 Min. approx) byDwight Drake

www.law.washington.edu/Career/Handouts/FlashNote: It takes a few minutes to load

What Course Is Not!• Hide the flags.

• Hunt for the flags.

• Memorize the flags.

• Wave flags on exam – score!

Grade Criteria

• Seven Case Memos (Each 6 Pts) - 42 pts (21%)

• Key Team Case Presentation - 18 pts (9%)

• Take Home Final - 140 pts (70%)

Total 200 pts

Note: Law School Curve Policy in effect.

Case Study Game• Number of Weekly Case Studies - 8• Case Study Teams (5 persons) - 8• Key Team for Week has until Friday 5 p.m. to make single email

request for additional specific facts• New facts will be provided to Key Team via email within 24 hour

of request• Key Team ( two players max) give oral “partner briefing”

following Tuesday (12 Minutes Max). Plus, must provide written memo in Key Player format for entire class.

• All others may submit optional written memo in Observer Format. Although optional, there is grade impact. Observer Memo individual, but team dialogue encouraged.

Different Fact Game

Economic analysis determines: - What facts are relevant - What facts need to be ascertained - When ascertained, how facts impact

or alter economic theory - How best to interpret facts

The Challenge: Be good enough to get and apply the right facts!

Memo Presentation Format – Key Team

• New facts – The stuff you found

• Statement of the key issues

• Summary of your conclusions and related rationale

• Analysis

• Short summation close

Memo Presentation Format -Observers

• Desired additional facts

• Statement of issues

• Preliminary analysis of issues - predicated on discovery of additional facts

Writing Basics• Four “C”s – Concise, Credible, Confident, Convincing • Keep it tight, real tight. No needless words.• Use strong, precise verbs.• Avoid overstated adjectives.• 100% Intellectual honesty – no finessing.• Preferred max sentence length: 20 words.• Avoid multiple negatives.• No “shall”, “provisos”, “and/or” and other drafting jargon.• Write for the normal reader, not the intellectual.• End sentences emphatically.• Organize, then draft.• Edit, edit, edit.

Antitrust Lingo

Nail the Glossary NOW!

Pages 1-13 of Supplemental Materials

Overriding Goal of US Antitrust

Preserve, protect and maintain public confidence in free market system by deterring and eliminating economic oppression.

Social Goals of U.S. Antitrust

• Efficient allocation of goods and services

• Prevent “deadweight loss”

• Stop “wealth transfer” from market power

• Promote innovation – “dynamic efficiency”

• Two fading-fast goals:

- Protect market entry for individual firms

- Decentralize economic power

Antitrust Statutes• Broad statements, ala constitution

• Courts have huge interpretive freedom

• Courts used “charter of freedom” to gradually define what we call “Antitrust law”

• An ever evolving process – at varying speeds and often in varying directions

• Tangled with microeconomic analysis that cries out for commentators and experts

• Cases heavily fact driven

Sherman Act Section 1 • Every “contract, combination, conspiracy”

• In “restrain of trade or commerce”

• Justice Hughes in 1933 – a “Charter of Freedom” ala constitution provisions

• First two approaches – “Rule of Reason” and “Per Se” doctrines.

• Middle ground approach since ’78 – “Truncated Rule of Reason”

Sherman Act Section 2

Three criminal offenses:

- To monopolize

- To attempt to monopolize

- To combine or conspire to monopolize

Not unlawful to just be a monopolist

There must be offensive conduct

Separate elements of each offense

Robinson-Patman §§ 2 -3

• Price discrimination unlawful

• Must show “substantially lessen competition”, “tend to create monopoly” or “injure, destroy or prevent competition”

• No monopolization showing required

• Overlap with Sherman 2 where price discrimination in seller’s own market

• Burden of proof shift

• Exclusive dealing, tying

FTC Act Section 5

• Makes unlawful “unfair methods of competition” and “unfair and deceptive acts and practices”

• Empowers FTC

• Gives FTC broad power to wade in

• Monopolization enforcement heavily influenced by Sherman 2 interpretations

FTAIA of 1982

• Bottom line: Foreigners not protected

• Export commerce to foreign nations excluded.

• Other foreign commerce included if “direct, substantial, reasonable effect” on:

- Non foreign commerce

- Import commerce

- Injury to export business in US

H.R. 1086 – June 22, 2004• Increased Sherman Act criminal penalties - $10 mill to $100 mill for corporations - $250k to $1 mill for individuals - Jail time from 3 to 10 years• Civil penalty drop for squealers – single

damages only, no joint and several• Easier on Standard Dev. Orgs – Single damages

only, rule of reason applied• Tougher Tunney Act; Approval of consent

decrees – Notice and comment period

The Players

• Congress

• Feds, DOJ & FTC – up and down

• The courts – off and running after commerce clause boom of mid-’30s

• Academic commentators

• State Attorney General Offices

• Private antitrust bar

Fed Ups and Downs • Vigorous during Taft years (1909-1913)• Slow down in the roaring ‘20s.• Hit all time low in depression years 30-35• FDR’s 1st term cartel experiments• FDR’s 2nd term started hard-nosed action • Enforcement peaked during ’60s• Commentators triggered slow down in ’70s• Reagan accelerated slow down in ’80s• Bush One cranked up a little• Clinton turned up more, but nothing like ’60s• Bush two more than expected.

Academic Commentators

• Traditionalists – industrial organization economists

• Chicago School of Antitrust

• Post-Chicago Players

Industrial Org. Economists

• Big impact players during ’50s and ‘60s

• Structuralists – Number of buyers and sellers and entry barriers were ball game

• Assumed market concentration was always anticompetitive

• Efficiency no big deal – to tough to prove

• Focus was on “Concentration trends” and “Concentration ratios”

• Fed and plaintiffs had an easier job

Chicago School• Emerged in ’50s, kicked-in late ’70s• Pioneers from University of Chicago• Rejected “structure” – lead to bad decisions that

hurt competition, efficiency• Focus on price theory, efficiency – assumptions

of how firms and markets behave• Few prohibitions of ’50s and ’60s were

objectionable to Chicago School• Profit maximizing plus efficiency equal

“consumer welfare”• Music to ears of conservative political tide

Post Chicago Analysis• Emerged in mid ’80s• Focus – efficiency and wealth transfer

• Unlike Chicago, look hard at game theory and strategic conduct of situation

• Work inductively from broad inquiry of facts of particular case

• New empirical tools for spotting strategic interactions

• Biggest impact in “exclusion” cases and new merger guidelines

State AG Offices

• May enforce Fed law on behalf of citizens

• Treble damages plus attorneys fees

• No claim for injury to economy

• May sue to stop mergers

• 19 states and DC joined Fed in Microsoft litigation

Private Antitrust Suits

• Treble damages - deterrence and greed

• Uniquely American

• High watermark late ’70s – 20 to 1

• Today – 10 private to 1 government

• Tougher now – fairness, efficiency values; standing, injury, causation issues

• The debate continues

Enforcement Limitations

• Interstate Commerce – Usually no big deal

• Federal exemptions – labor, insurance, pro baseball, clear regulatory conflicts

• State action to “regulate” and “supervise”

• Act of city or private party pursuant to state policy to regulate

• Noerr-Pennington doctrine: Lobbying for government action protected

• Standing issues - huge

Economic Globalization

• A process of integrating national economies through trade, investment, and capital, technology and labor flows

• Pre-WWI Globalization: Steam engine, railroad, telegraph

• War periods – complete retrenchment

• Post WWII actions – IMF, World Bank, ITO, GATT, WTO

Global Reach of US Antitrust

• “Stop at Shore” Doctrine

• “Effects” Alcoa Doctrine

• “Direct, substantial and reasonable foreseeable effect”

• ’80s export deficit – Foreign Trade Antitrust Improvements Act of 1982 (“FTAIA”)

Globalization Driving Forces

• Technology, innovation

• Evolution of money markets

• Failure of import-substitution countries

• End of Berlin Wall and Soviet Union

• Boom ’90s – Near universal buy-in

• Proliferation of multinationals

• Spread of democracy

Shared Fears• More risks, anxieties from new unknowns, more

and different competitors

• Spreading gaps between Have and Have-nots, Skilled and Unskilled

• New roles for many governments – referee, trainer, safety net

• Deadly opposing forces

• Environment and oil

• Preservation of free market competition

Major U.S. Globalization Challenges

• Huge competition for skilled and unskilled

• America’s huge oil advantage

• America’s toughest antitrust laws

• America’s dismal savings capacity

• America’s neglected, brewing mega financial crisis

• Terrorism - the “war”, the cost, the hate

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