What Every Lawyer Should Know about U.S. Antitrust Law
by John M. Landry
(County Bar Update, December 2007, Vol. 27, No. 11)
What Every Lawyer Should Know about U.S. Antitrust Law
By John M. Landry, a shareholder in the Los Angeles office of Heller Ehrman LLP, where his practice focuses on antitrust litigation. He is currently serving as chair of LACBA’s Antitrust and Unfair Business Practices Section, and is a member of the Executive Committee of the State Bar of California’s Antitrust and Unfair Competition Law Section.
Those who are new to antitrust litigation may be surprised at what they find. This article can only touch on several of the many unique characteristics that separate antitrust from other practice areas. The five points below provide insight into some of its more fundamental aspects.
1. An antitrust violation is not a business tort or an unfair business practices claim.
A business tort or unfair business practice by one competitor against another may resemble conduct that triggers antitrust liability. But such conduct, if it merely injures a competitor, does not sufficiently implicate the U.S. antitrust laws, whose broad goal is to preserve competition in markets. Our political system accepts that competition—rather than direct government regulation—yields the best allocation of economic resources and leads to the lowest prices and highest quality. The U.S. antitrust laws—by ensuring competition—serve as a “consumer welfare prescription”1 and the “Magna Carta of free enterprise.”2 Thus, the hallmark of any U.S. antitrust violation is harm to competition in some defined market. Without such proof, even tortious acts of pure malice by one business competitor against another do not state an antitrust claim.
2. Do not look solely to the language of the applicable antitrust statute to determine the law.
Antitrust statutes are notoriously spare. Antitrust jurisprudence develops in a common law fashion with decisional law supplying its true breadth and scope. As a result, the U.S. Supreme Court is naturally “the central institution in making antitrust law....[T]he Court plays in antitrust almost as unconstrained a role as it does in constitutional law.”3 Indeed, state courts, including California, often look to the U.S. Supreme Court’s precedents when interpreting state antitrust law statutes.4 Moreover, due to its common law nature, antitrust law continually evolves. Judicial acceptance of new academic perspectives on the economic effects of conduct on markets drives much of this change, with modern precedents often diametrically at odds with earlier ones. An antitrust practitioner must be cognizant of this and always look to the latest precedents.
3. A “rule of reason” analysis is the typical form of judicial scrutiny applied in antitrust litigation.
The rule of reason approach looks at all the circumstances to determine whether the defendant has sufficient market power to inflict marketwide injury, and also whether the challenged conduct is anticompetitive—and if so, whether its harmful effects outweigh any pro-competitive effects. Courts use this balancing test to assess both alleged monopolization conduct and agreements in restraint of trade.5 Some of the more common agreements subject to this rule include price and non-price limitations on distribution, joint ventures, and exclusive dealing arrangements. A major exception to the rule of reason arises when the conduct is horizontal cartel behavior: an agreement between or among competitors to fix prices or allocate customers or markets. Such conduct is the “supreme evil” of antitrust,6 is prosecuted as a crime, and, when proven in a civil case, gives rise to a conclusive presumption of marketwide injury to competition.
4. At the outset, consult with an economist.
Other than in cartel cases, the relevant market, the issue of market power, and the presence of anticompetitive or pro-competitive effects are always key issues. An economist can assist counsel in framing these issues in the pleadings or in marshaling the evidence in support of or opposition to the claim. Importantly, this nontestifying consultant also can assist counsel in the retention and management of the testifying expert. Expert opinion testimony from an economist is indispensable in antitrust cases. The utility of economist opinion evidence is not limited to the specific substantive issues. Antitrust cases are inherently complex, and testifying experts can help educate the court or the jury on the relevant economic principles and point them in the proper direction. Even in cartel cases, when the focus is on the existence of the secret cartel, expert economic evidence is crucial as there is often a lack of direct evidence. Circumstantial proof depends on whether the alleged participants were acting contrary to their economic self-interest absent collusion and whether the proffered cartel theory plausibly explains any observed parallel behavior on their part. Rules of procedure as applied in antitrust cases present an opportunity for defendants to obtain summary judgment when such conduct is equally consistent with lawful, unilateral behavior.7 Expert evidence in the record may be crucial in enabling the court to view the evidence in the light needed to obtain or defeat summary judgment.
5. The antitrust laws do not provide a remedy for every injury that can be attributed to an antitrust violation.
The goals of antitrust depend significantly on private enforcement, which is encouraged through a litigant’s ability to obtain treble damages and attorney fees. But there are special antitrust standing requirements that greatly limit those who can sue. Foremost among these, the plaintiff must allege “injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.”8 This rule recognizes that private enforcement properly advances the goal of antitrust only when the alleged injury reflects and coincides with a reduction in competition in the relevant market. By limiting access to the courts in this way, this rule seeks to ensure that private recovery corresponds to the social cost of the violation, thereby avoiding overdeterrence. Moreover, by this rule, it is generally understood that only participants in the allegedly restrained market—consumers and competitors—can suffer the requisite antitrust injury.9 But note that even a plaintiff who alleges classic antitrust injury—an overcharge attributable to price-fixing—may not bring a federal antitrust damages claim if other standing requirements are not met, including the requirement that plaintiff purchase directly from the defendant.10
1 Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979) (quoting Robert H. Bork, The Antitrust Paradox 66 (1978)).
2 United States v. Topco Associates, Inc., 405 U.S. 596, 610 (1972).
3 See Bork, supra note 1, at 409.
4 See, e.g., Aguilar v. Atlantic Richfield Co., 25 Cal. 4th 826, 862-64 (2001) (applying U.S. Supreme Court precedents in deciding antitrust action brought under California’s Cartwright Act).
5 United States v. Microsoft Corporation, 253 F. 3d 34, 59 (D.C. Cir. 2001).
6 Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004).
7 Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986).
8 Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).
9 See, e.g., Glen Holly Entertainment Inc. v. Tektronix Inc., 343 F. 3d 1000, 1008 (9th Cir. 2003).
10 Associated Gen. Contractors of Cal., Inc. v. Cal. St. Council of Carpenters, 459 U.S. 519, 540, 544-45 (1983) (identifying “directness . . . of the asserted injury” as a standing factor, and citing Illinois Brick Co. v. Illinois, 431 U.S. 720, 737-38 (1977) (precluding damages recoveries by indirect purchasers), as an example of its application).
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