Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Saturday, May 24, 2008

Federalism, Substantive Preemption, and Limits on Antitrust

Posted by D. Daniel Sokol

Bruce H. Kobayashi and Joshua D. Wright (both of George Mason University Law School) discuss Federalism, Substantive Preemption, and Limits on Antitrust in their latest working paper.

ABSTRACT: In Credit Suisse v. Billing, the Court held that the securities law implicitly precludes the application of the antitrust laws to the conduct alleged in that case.  In that case, the court considered several factors, including the availability and competence of other laws to regulated unwanted behavior, and the potential that application of the antitrust laws would result in "unusually serious mistakes".  This paper examines whether similar considerations suggest restraint when applying the antitrust laws to conduct that is normally regulated by state laws and other federal laws.  In particular, we examine the use of the antitrust laws to regulate the problem of patent hold up of members of standard setting organizations.  While some have suggested that this conduct illustrates a gap in the current enforcement of the antitrust laws, our analysis finds that such conduct would be better evaluated under the federal patent laws, and under state contract laws.

May 24, 2008 | Permalink | Comments (0) | TrackBack (0)

Thursday, May 22, 2008

A "Plausible" Showing after Bell Atlantic Corp. v. Twombly

Posted by D. Daniel Sokol

Charles Campbell of Faulkner University, Jones School of Law discusses A "Plausible" Showing after Bell Atlantic Corp. v. Twombly in a forthcoming article in the Nevada Law Review.

ABSTRACT:  The United States Supreme Court's decision in Bell Atlantic Corp. v. Twombly is creating quite a stir. Suddenly gone is the famous loosey-goosey rule of Conley v. Gibson that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.

Now a complaint must provide enough facts to state a claim to relief that is plausible on its face. Only decided last May, Bell Atlantic has been cited in over 3,700 cases. Already being described as a landmark decision, Bell Atlantic nonetheless has lawyers and judges scratching their heads over the precise pleading standard to apply in its wake. As the Second Circuit (mildly) put it, Considerable uncertainty concerning the standard for assessing the adequacy of pleadings has recently been created by the Supreme Court's decision in Bell Atlantic Corp. v. Twombly. Just what is a plausible showing that the pleader is entitled to relief under Rule 8(a)(2)?

I believe an answer lies in the 26-year-old decision of the Former Fifth Circuit in In re Plywood Antitrust Litigation. Plywood Antitrust requires, at a minimum, that a complaint . . . contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory. Already used in more than half the circuits, this standard paraphrases advice found in the venerable WRIGHT & MILLER for nearly 40 years.

Properly applied, this all . . . material elements standard satisfies Bell Atlantic's plausibility requirement in all respects. The Plywood Antitrust pleading standard works well after Bell Atlantic, first, because the Supreme Court referred to the standard, albeit parenthetically, with approval in Bell Atlantic. Second, it does much to harmonize the Federal Rules' goal of dispensing with pleading technicalities while still requiring enough general factual information about a pleader's claim to make the notice in notice pleading meaningful. Finally, and perhaps most importantly, it gives lawyers, litigants, and courts a standard they can actually use when drafting, or assessing the sufficiency of, pleadings.

May 22, 2008 | Permalink | Comments (0) | TrackBack (0)

Bell Atlantic v. Twombly: How Motions to Dismiss Become (Disguised) Summary Judgments

Epstein

Richard Epstein of the University of Chicago Law School gives his take on the meaning of Twombly in Bell Atlantic v. Twombly: How Motions to Dismiss Become (Disguised) Summary Judgments.

ABSTRACT: The recent Supreme Court decision in Bell Atlantic v. Twombly stands at the crossroads of antitrust and civil procedure. As an antitrust case, Twombly makes sense on structural grounds. The FCC regulation of the telecommunications industry, and the many innocent explanations as to why each telecommunications company would stay out of its rival's territories obviated the need for further discovery. But in many other contexts, including Conley v. Gibson a case involving potential breach of the duty of fair representation on matters of racial discrimination discovery could flesh out the relevant factual issues. The Supreme Court's general disapproval of Conley sweeps far too wide. Discovery should only be denied when the plausible inferences that can be drawn from the complaint and publicly available evidence clearly imply further discovery is of little value. Accordingly, the Federal Rules of Civil procedure should explicitly acknowledge that in a small set of cases motions on the pleadings can properly function as truncated and disguised motions for summary judgment.

May 22, 2008 | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 21, 2008

Managing the Intersection of Utilities Regulation and EC Competition Law

Posted by D. Daniel Sokol

Giorgio Monti of LSE's Law Department provides some thoughts on Managing the Intersection of Utilities Regulation and EC Competition Law.

ABSTRACT: Utilities regulation in the Member States is always subject to the application of EC competition law. However, this undermines the effectiveness of utilities regulation and a more flexible standard should be devised by the European Courts. The Court of First Instance has an opportunity to do so in two pending appeals where the Commission found an infringement of Article 82 EC after the actions of the dominant firm had been endorsed by the national telecommunications regulator. The grounds for affording greater latitude to regulators are threefold: first the regulator should be free to make decisions on economic grounds that support dynamic over allocative efficiency, second it should also be free to make decisions non non-economic grounds to prioritise other objectives at the expense of competition, third the present scope of EC competition law is so wide that in several instances the Commission acts in a regulatory manner, stepping over tasks best left to the regulator. No general principle is recommended to demarcate the borderline between competition law and sector regulation but a case-by-case assessment should be carried out to determine whether the application of competition law would cut across the policy choices reached by the utilities regulator, and competition law should not apply when it would harm the regulatory goals.

May 21, 2008 | Permalink | Comments (1) | TrackBack (0)

Tuesday, May 20, 2008

The Essential Facilities Doctrine

Posted by D. Daniel Sokol

Tom Cotter of the University of Minnesota Law School provides a nice summary of The Essential Facilities Doctrine in a forthcoming book chapter.

ABSTRACT: According to some courts and commentators, the essential facilities doctrine sometimes requires a monopolist to provide access to a facility that the monopolist controls and that is deemed necessary for effective competition. Although sometimes the facility is, literally, a physical facility, in principle the doctrine could apply to other types of property or inputs as well, including intangibles such as intellectual property. And while the U.S. Supreme Court has never expressly recognized the doctrine, even casting doubt in recent years on the doctrine's viability under U.S. law, the European Communities have applied a version of the doctrine in several cases, including most recently against Microsoft. This book chapter, from a forthcoming book titled Antitrust Law and Economics (Keith N. Hylton ed., Edward Elgar Publishing 2008), provides a short overview of the essential facilities doctrine as it has evolved in the relevant caselaw and commentary. The chapter presents the leading arguments for and against the general recognition of an essential facilities doctrine; discusses some of the ongoing controversies over the doctrine's specific contours (for example, the necessity of proving the existence of two vertically-related markets); and highlights the doctrine's potential tension with intellectual property law.

May 20, 2008 | Permalink | Comments (0) | TrackBack (0)

Monday, May 19, 2008

The Stochastic Relationship Between Patents and Antitrust

Posted by D. Daniel Sokol

Alan Devlin of Latham & Watkins has an interesting article on The Stochastic Relationship Between Patents and Antitrust.

ABSTRACT: This article develops a novel theory by which to construe the interaction between the patent and antitrust laws. The rules of these respective disciplines are often portrayed as conflicting in means, yet harmonious in purpose. Although the intellectual property and antitrust laws have ostensibly divergent views on the role of competition, their interaction is typically limited to one of constraint. More specifically, antitrust rules have been (poorly) designed to limit the exclusivity inherent in a patent grant to the claimed invention alone. This article, however, articulates a new vision for the role of antitrust: it posits that competition rules operate as a stochastic regulator of exclusionary patent rights. The Sherman Act constrains patentees' efforts to positively transform the probabilistic nature of their intellectual property rights through contract. Yet, because the empirical calculation of optimal innovation rates is an elusive, if not Sisyphean, task, the normative desirability of the foregoing fact is abstruse. Nevertheless, policymakers' inability to pinpoint precisely the ex post rewards required to trigger ideal levels of ex ante investment need not bind our hands to inaction. If contemporary rates of innovation are deemed acceptable (even if not necessarily perfect), there may be ways to trigger equivalent levels of ex ante investment with lower social cost. In this regard, it is clear that currently enacted competition rules significantly accentuate the uncertainty surrounding patents' apotropaic effect. Concluding that contracts securing otherwise stochastic rights may be highly desirable, the article calls for the incorporation of this concern into contemporary rules, with modest substantive effect, and further advocates a qualified antitrust immunity for "gold-plated" patents if and when they are introduced.

May 19, 2008 | Permalink | Comments (0) | TrackBack (0)

Is Antitrust Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels

Posted by D. Daniel Sokol

David Bartolini and Alberto Zazzaro (respectively Università Politecnica delle Marche and Università Politecnica delle Marche - Faculty of Economics) ask Is Antitrust Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels.

ABSTRACT: A well-established result of the theory of antitrust policy is that it might be optimal to tolerate some degree of collusion among firms if the Authority in charge is constrained by limited resources and imperfect information. However, no one has ever cast doubt on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of a positive (expected) antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the social optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and equilibrium binding agreements. Then we extend the analysis to the case of $n$ symmetric firms and a generic rule of coalition formation. Finally, we consider the case of asymmetric firms and show that our results still hold for an industry populated by one Stackelberg leader and two followers.

May 19, 2008 | Permalink | Comments (0) | TrackBack (0)

Sunday, May 18, 2008

Efficiency Gains and Structural Remedies in Merger Control.

Posted by D. Daniel Sokol

Helder Vasconcelos of University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER) and Department of Economics discusses Efficiency Gains and Structural Remedies in Merger Control.

ABSTRACT: This paper studies the role of structural remedies in merger control in a Cournot setting where (endogenous) mergers are motivated by prospective efficiency gains and must be submitted to an Antitrust Authority (AA) which might require partial divestiture for approval. Both positive and negative effects of merger remedies are identified. First, structural remedies create new merger opportunities to firms. Second, when divestitures are required, the AA over-fixes, i.e., goes beyond the recreation of the level of competition that existed prior to the transaction. Finally, by insisting in over-fixing, the AA may discourage firms to look for more efficient mergers, inducing a final outcome where consumers' surplus is lower than if divestitures couldn't be required. Overall, however, structural remedies are shown to be good: consumers' surplus ex-ante is higher with than without remedies.

May 18, 2008 | Permalink | Comments (0) | TrackBack (0)