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Monday, September 19, 2011

The Institutional Structure of Antitrust Enforcement: Comments of Max Huffman

Posted by Max Huffman

Gen Next Antitrust? Reviewing Daniel Crane, The Institutional Structure of Antitrust Enforcement (Oxford, 2011).

My job lets me read most anything that grabs my attention and consider it “billable time,” so at some point or another a fair number of the new books on antitrust/competition law, policy or enforcement find their way to my inbox. I find all of it interesting and most of it educational, but only rarely does a book offer (threaten?) completely to change my understanding of antitrust law and policy. In the past year two have. One is Tim Wu’s The Master Switch (2010), in which Wu traces the development of information industries with particular attention to the processes of innovation, development, consolidation and regulation over time and across industries. The other is Dan Crane’s The Institutional Structure of Antitrust Enforcement (2011), the subject of this review.

The Institutional Structure is a 12-chapter discussion of antitrust enforcement, with primary emphasis on the US, but turning in the last three chapters to a comparative and international perspective. I’ve considered in the past teaching a seminar on “antitrust litigation and enforcement” -- it’s been a matter of no small embarrassment to me that despite scoring well as a law student taking antitrust, I began my career as a DOJ staffer not knowing how the agencies handled their overlapping enforcement authority. This book would serve well for a seminar: one chapter per week for the semester, leaving the remaining week or two for student paper presentations.

Crane’s first chapter is enormously interesting. He teaches that conflicts between the fear and embrace of monopoly pervaded the founders’ political economic philosophy. Even after the battles over federal incorporation had subsided, state incorporation and the race to the bottom (states competing for corporate charters by passing deregulatory corporation laws) -- with Standard Oil’s home state of New Jersey being that era’s Delaware -- lent urgency to the enactment of federal antitrust legislation.

But how to protect against economic harm caused by aggregations of capital was itself a problem. Crane describes first the regulatory approach, whose advocates favored federal incorporation of business entities, presumably preempting state incorporation laws where interstate commerce was concerned, and “supervis[ing] the activities of the gigantic interstate trusts and prevent[ing] them from exercising monopolistic power.” Wu’s Master Switch detailed the failings of the regulatory approach in the case of AT&T, and I thus applauded the success of those who favored second-order regulation under what Crane has called the “crime-tort model” of antitrust enforcement.

In the next two chapters Crane discusses the history of federal antitrust institutions and private enforcement, before turning, in Chapter 4, to a theme he has explored in a series of articles in recent years -- antitrust enforcement as a technocratic endeavor. Crane’s work in that field -- most notably his 2008 article “Technocracy and Antitrust” -- is extraordinary, and in my experience unique. When not so long ago I left practice to teach (among other things) antitrust law, I recall commiserating with other new entrant antitrust academics that there were no more grand theories to explore. Antitrust as consumer protection was firmly embedded, antitrust as guardian of democratic ideals had been tried and failed, and antitrust as economics had been adopted (with consumer protection as the overarching goal). What was left to write? There remained, of course, plenty of room to quibble at the margins, but all that was defining the contours of somebody else’s theory.

But that may not be so. Dan Crane writes in the language of antitrust economics, but his focus on the institutions of antitrust enforcement reflects an entirely different theoretical framework. To be clear, institutionalism is not new in economics or political theory. In law, institutionalism is an adjunct to Henry Maine’s time-honored dictum that “substance is secreted in the interstices of procedure.” And even in antitrust specifically, scholars such as William Kovacic have written that “institutions matter.” But Crane has pursued this study, demonstrating in his articles and now in The Institutional Structure that approaches to enforcement are as important as are the rules being enforced. Others are following this lead -- for example, Danny Sokol has written well and extensively in the area of comparative antitrust institutionalism.

One powerful argument Crane makes in service of his institutionalist approach is the argument that turned me on to his scholarship several years ago. Crane demonstrates the failings of saddling the enforcement agencies, and in particular the Federal Trade Commission, with rules derived from private antitrust enforcement. He dubs this phenomenon “private enforcement hangover,” and uses it to explain, for example, decisions in US v. AMR Corp. (DOJ saddled with defendant-friendly Brooke Group precedent) and Schering Plough v. FTC (FTC unable to overcome 11th Circuit’s Valley Drug decision). He concludes that “restrictive liability norms” developed in private litigation may “dull[] the effectiveness of public litigation for reasons that have nothing to do with public enforcement.”

This wouldn’t be a book review if I always said Crane was right, and there are some arguments here that trouble me. Crane proposes that the Justice Department might “make a formal filing at the outset of the litigation declaring that the case would have no collateral estoppel or evidentiary consequences” to avoid judges’ concerns for follow-on actions. Others have expressed concern with the hammer of follow-on private enforcement; arguments to this effect were successfully deployed by defendants and amici in the F. Hoffmann-LaRoche v. Empagran litigation. But is Crane’s approach workable? I wonder in what case the Justice Department would not make such a filing? Crane’s approach sounds like a de facto repeal of the collateral estoppel effect. And it ignores that the collateral estoppel effect is itself a powerful tool incentivizing settlements.

Crane also looks to FTC antitrust rule-making as a means of releasing the FTC from restrictive rules developed in private litigation. He twice repeats the claim, which I have seen elsewhere, that the FTC has only once issue an antitrust rule, and that in 1968. The argument is no longer true. The FTC’s petroleum market manipulation rule, promulgated in November 2009, though couched in terms of fraud, should be considered an “antitrust rule” for at least two reasons. The first is institutionalist (this is a book about institutions, after all): the rulemaking involved enforcers from the FTC Bureau of Competition, which enforces antitrust laws against conduct in oil and gas markets. The second is substantive: though the rule prohibits fraud and deceit, it does so in wholesale and not retail markets. The enforcement guide published concurrently with the final rule clarifies that one-on-one transactions are not the Commission’s target. Rather, it is broader dissemination of misinformation that undermines the integrity of the market. The conduct within the Commission’s sights sounds very much like that at issue in a classic antitrust authority, US v. Socony-Vacuum Oil Co.

One might argue my definition of “antitrust” is too broad. (The FTC might agree with such an argument -- it noted, in its Revised Notice of Proposed Rulemaking, 74 Fed. Reg. 18304, 18310 n.63, that it did not “intend to focus on anti-competitive conduct . . . which remains the province of antitrust law.”) There is work to be done in defining the distinction between consumer protection and antitrust, but outlawing conduct in upstream markets with market-wide effects smacks thoroughly of antitrust rule-making. That is more so because this market-manipulation rule sounds very much like the legislative role Crane proposes the FTC undertake -- further defining the “undeniably indefinite” word “unfair”; exploiting the FTC’s strong position “when challenging market power created by fraud and deception”; and stating rules for commercial practices where courts lack a great body of precedent. My complaint regarding this possible omission does not undermine Crane’s message in Institutional Structure. It does suggest the step to FTC antitrust legislation is shorter than he suggests.

I’ll throw out two more complaints about things that are almost too petty to mention, but I did find them distracting. (If you do not share my pet peeves, you may be exempt from such distraction!) First, Crane sure uses the word “norm” frequently, and does so when I think either “rule” or “law” might be a better fit. Second -- and this one isn’t Crane’s fault -- there is a painfully large number of editorial errors throughout the book. I saw two instances of “antitrusttrusters,” and actually found myself wondering if this was a novel institutionalist term to which I was not privy; missuses of plurals and tenses; redundancies; and omissions from the index. Again, Crane is not at fault (and please don’t search my journal articles for comparable errors), but one might think a press of the prestige of Oxford would take one more pass with a red pen before printing.

In sum, this book is endlessly fascinating, educational, and for those in the academic and policy realms, even useful. Crane is leading the charge toward a new theory of antitrust that may permit or require the revisiting of substantive legal rules in light of new understandings of their application in the real world of enforcement. In so doing he may be establishing himself as a leader of a new academic antitrust movement that also has tremendous practical consequences. If it means more writing in this vein, I hope so.

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