FTC Commissioners React to Department of Justice Report, Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act

Today the U.S. Department of Justice (DOJ) independently issued a report on Section 2 of the Sherman Act, the statute that protects Americans from predatory or monopolistic harm. The Federal Trade Commission does not join or endorse this report. Commissioners Pamela Jones Harbour, Jon Leibowitz, and J. Thomas Rosch jointly issued a statement responding to the report and Chairman William E. Kovacic today, writing individually, issued a separate statement on Section 2 of the Sherman Act.

Statement of Commissioners Harbour, Leibowitz, and Rosch

Commissioners Harbour, Leibowitz, and Rosch believe that the Department’s report, if adopted by the courts, “would be a blueprint for radically weakened enforcement of Section 2 of the Sherman Act.” Commissioners Harbour, Leibowitz, and Rosch identified two “overarching concerns” with the DOJ report. First, while the Supreme Court has declared the welfare of consumers the primary goal of antitrust laws, the Department’s report “is chiefly concerned with firms that enjoy monopoly or near-monopoly power, and prescribes a legal regime that places these firms’ interests ahead of those of consumers.”

Second, the report “seriously overstates the level of legal, economic, and academic consensus regarding Section 2 ” and “the testimony gathered during the hearings was not representative of the views of all Section 2 stakeholders.” In particular, Commissioners Harbour, Leibowitz, and Rosch wrote, “. . . we are concerned that voices representing the interests of consumers were not adequately heard,” and that the report relied too heavily on economic theory in the consideration of applying antitrust law.

Commissioners Harbour, Leibowitz, and Rosch specifically addressed a number of points articulated in the DOJ report and concluded that, “[t]he Department’s premises lead it to adopt law enforcement standards that would make it nearly impossible to prosecute a case under Section 2.” In a detailed analysis, the statement described the specific tests embraced by the DOJ report for a variety of conduct such as predatory pricing, loyalty discounts, price bundling, tying, refusals to deal with rivals, and exclusive dealing.

“In almost every case,” Commissioners Harbour, Leibowitz, and Rosch wrote, “the Department adopts standards that are tougher – and in some cases much tougher – than existing standards as defined by Section 2 case law.” For example, the Department’s baseline test for Section 2 liability would only condemn conduct, according to the three Commissioners, if the demonstrable anticompetitive effects are “disproportionately” greater than the procompetitive potential. This test distorts the rule of reason standard, which simply asks whether anticompetitive harm “outweighs” the procompetitive benefits.

“In short,” Commissioners Harbour, Leibowitz, and Rosch, wrote “the Department’s Report erects a multi-layered protective screen for firms with monopoly or near-monopoly power. As an inevitable consequence, dominant firms would be able to engage in these practices with impunity, regardless of potential foreclosure effects and impact on consumers. Indeed, it appears that the Department intends for this screen to apply even when a firm uses two or more of these practices collectively, instead of just one practice individually.”

Commissioners Harbour, Leibowitz, and Rosch stressed that the FTC “stands ready to fill any Sherman Act enforcement void that might be created if the Department actually implements the policy decisions expressed in its Report.”

Statement of Chairman Kovacic

Chairman Kovacic did not join the statement issued by Commissioners Harbour, Leibowitz, and Rosch. In his statement, Chairman Kovacic wrote to express his gratitude to the DOJ and FTC staff attorneys, economists, and administrative professionals who organized the underlying hearings upon which the Department’s report was based. The Chairman also noted that much of the Department’s final report absorbed the work of the FTC employees supporting this effort.

The Chairman’s statement explained how a report on the proceedings would have benefitted from a fuller examination of the history of modern doctrine and policy. This approach would having added additional context, including identifying the formative influences in the evolution of the United States’ system and assessing how those influences bear upon the future development of law and policy towards dominant firms.

The Chairman noted that a proper regard for the trends in modern Supreme Court jurisprudence necessarily must inspire caution before embracing the proposition that U.S. antitrust doctrine and policy today expose dominant firms to significant, systematic risks attributable to over-inclusive liability rules. His statement then went on to offer a thorough examination of the intellectual foundations relating to Section 2 doctrine that guide the application of U.S. antitrust laws to dominant firm conduct. Finally, he described how the views of the Chicago School and Harvard School scholars dictate close attention to the institutional capacity of courts and enforcement agencies.

Chairman Kovacic concluded by pointing to the need for a deeper empirical examination of how the operation of private rights affects business decision making and how public agencies can prosecute cases without carrying burdens that courts have imposed on private litigants to cure perceived deficiencies in the system of private rights.

Copies of the statement of Commissioners Harbour, Leibowitz, and Rosch, and the separate statement of Chairman Kovacic, are available as links to this press release on the FTC’s Web site. The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's Web site provides free information on a variety of consumer topics.