Competition Laws in Conflict: Antitrust Jurisdiction in the Global Economy
With a Keynote Address by FTC Chairman Timothy J. Muris
About This Event

Seemingly arcane questions of jurisdiction have emerged as a massive problem in antitrust law. After settling with U.S. state and federal authorities over antitrust allegations, Microsoft was again the target on March 24 when the European Commission fined the company $613 million for monopolistic practices. Just a month later, in F. Hoffmann-La Roche Ltd. v. Empagran, the U.S. Supreme Court heard argument about whether foreign companies may bring suit in U.S. courts for alleged violations of U.S. antitrust law in foreign transactions.

In a world of multiple antitrust authorities, whose law should govern any given case--and under what rules of engagement? In Competition Laws in Conflict (AEI Press, 2004), leading experts explore routes to an improved institutional design in the national and international contexts. Editors Richard A. Epstein and Michael S. Greve will discuss a theoretical framework for the basic jurisdictional problems, as well as current global antitrust cases and policy recommendations on how to move forward. Federal Trade Commission chairman Timothy J. Muris will deliver the keynote address.

Agenda
10:15 a.m.

Registration

10:30 Presenters: Richard A. Epstein, University of Chicago
Michael S. Greve, AEI
Keynote Address: Timothy J. Muris, Federal Trade Commission
Noon

Adjournment

Event Summary

May 2004

Competition Laws in Conflict: Antitrust Jurisdiction in the Global Economy

Seemingly arcane questions of jurisdiction have emerged as a massive problem in antitrust law. After settling with U.S. state and federal authorities over antitrust allegations, Microsoft was again the target on March 24 when the European Commission fined the company $613 million for monopolistic practices. Just a month later, in F. Hoffmann-La Roche Ltd. v. Empagran, the U.S. Supreme Court heard arguments about whether foreign companies may bring suit in U.S. courts for alleged violations of U.S. antitrust law in foreign transactions.

In a world of multiple antitrust authorities, whose law should govern any given case--and under what rules of engagement? In
Competition Laws in Conflict: Antitrust Jurisdiction in the Global Economy (AEI Press, 2004), leading experts explore routes to an improved institutional design in national and international contexts. At a May 13 AEI forum, editors Richard A. Epstein and Michael S. Greve discussed a theoretical framework for the basic jurisdictional problems, as well as current global antitrust cases and policy recommendations on how to move forward. Federal Trade Commission chairman Timothy J. Muris delivered the keynote address.
 
Michael S. Greve
AEI

 

Competition Laws in Conflict is about jurisdictional problems in antitrust law, both in the United States and on an international scale.  It is a mistake to conceptualize an entire legal field from the vantage of the hardest possible case, such as the Microsoft situation or the GE-Honeywell merger.  As a first step, rather, we ought to get the humdrum cases right, and so the question is this:  if you could choose an antitrust constitution for the world, what would it look like?  The following four examples, all of which have occurred within the past four weeks, illustrate the astounding range of problems arising from this question.

Example one:  In a case pending before the Texas Supreme Court, lower courts held that Texas antitrust law bars certain marketing arrangements between soft drink bottlers and retailers.  The agreements, however, are by region, and none of the regions at stake in the case are in Texas.  But the theory is that Texas courts have personal jurisdiction over the parties because some of the contracts were allegedly drawn up in Dallas. 

Example two: In Wisconsin courts, Microsoft is arguing that the state's antitrust laws apply only to conduct within that state--so if anticompetitive conduct occurs elsewhere, even if it has price effects inside Wisconsin, Wisconsin law cannot reach it. 
 
As it happens, I think both of those positions are wrong, but the larger point is that the courts in these cases are approaching the question unassisted by anything resembling systematic thought about the larger issues at stake.

Example three:  In April, the Supreme Court heard the Empagran case, which presents the question of whether anticompetitive conduct that has price effects principally abroad can be heard in U.S. courts and at whose behest.  Issues of delicate statutory interpretation in the conflicting appellate court rulings have obscured the larger jurisdictional conflict: with what presumptions should our courts approach the statutory questions?

Example four: Brussels.  First, Mario Monti (the member of the European Commission responsible for competition policy) has taken a licking in some recent antitrust matters in his courts, but in the long term, is that good or bad for us?  Should we treat international merger disputes and other antitrust matters as trade questions (which, institutionally speaking, means negotiation with trade partners) or as legal matters where we have no such leverage?  Second, the Microsoft order in Europe contains a provision for a permanent monitor to be paid for by Microsoft--effectively putting the company into receivership.  You have to worry about the institutional implications.   

Finally, on May 1, as part of its enlargement, the EU decentralized some of its antitrust enforcement authority to the member states.  This is supposed to be a first step toward a more American-style private antitrust enforcement.  But arguably one of the few good things about European competition policy is that it was a de facto monopoly.  Perhaps the United States can afford to live with private enforcement because our substantive law is relatively disciplined--but in that case, what should we expect to come of the EU reforms?  More broadly, how does the increased fragmentation of antitrust authority fit together with the European ambition to harmonize competition law worldwide?

Richard A. Epstein
University of Chicago

In trying to put government and society together, my sometimes favorite political philosopher, John Locke, engages in one of the most famous cheats in the history of political philosophy.  First, he says that when we leave the state of nature, private property can be taken by the government from an individual only with his consent.  That seems to mean that you cannot tax anybody unless he personally agrees to the tax in question, which translates itself into a unanimity rule.  But in the next sentence he tells us what consent means, i.e., majority rule, which is exactly the opposite of unanimity because 51 percent can vote on some kind of a general law and may do so in a way which will systematically exploit the other 49 percent.

Essentially the problem with political theory is that the two most obvious forms of governance have fatal objections to them.  One of them, unanimity, invites holdouts, which are impossible to deal with in many circumstances, and the other majority rule invites exploitation.  The only way  to solve this problem is by a compromise principle which says that the majority may rule, but it may do so only if it is bound to the same extent as the minority which it is going to govern.  You are left with a just compensation principle.  Within the framework of the commerce clause and jurisdictional issue, this cashes out into what we call the nondiscrimination principle. In the international region, they call it the national treatment principle.  International trade, it turns out, and domestic trade within the United States give rise to exactly the same kind of an issue.

Within the American federalist system, the full faith and credit clause means that issue-by-issue state cooperation has in effect been abrogated by a larger national government.  And although you can find the occasional blunder associated with the application of dormant commerce clause principles in the United States, we think that of illegitimate constitutional doctrines, this has been by far the most productive one that you can imagine.  It has gone an enormous way to create a free trade zone in the United States which reflects the differences states have with respect to matters that take place within their borders on such issues as zoning, labor regulation, and so forth.

In the international sphere, our book is quite unusual because we have authors who express three differing positions.  Paul Stephan of the University of Virginia says, "I never met a contract I did not like, and I never met a social contract I did like, so I am in favor of the autarchic solution."  Either each nation makes its own policy or it enters into bilateral agreements, and the gain from trade will be large enough to lead to a slow level of liberalization without running into any of the complications associated with national government.  At the other end we have Andrew Guzman, who complains about the duplicative laws and non-cooperative behavior involved in multiple systems.  He favors global harmonization, allowing a single supranational body to pass one set of particular rules.

In between it turns out to be Michael Trebilcock and Edward Iacobucci on the one hand, and John McGinnis on the other.  They all believe that these extremes are unworkable.  Autarchy leads to degeneration and trade wars, and harmonization in the European style leads to the creation of massive cartels by organizations.  They prefer some version of American federalism, and so do we. 

Michael and I move toward that middle position as a compromise between what we would like to do substantively, but cannot impose unilaterally, and proceduralism.  We understand that this requires cooperation, and we understand that there are going to be major breakdowns that take place under this situation.  We understand that if there are really deep substantive divisions such as those between the United States and Europe on matters like Microsoft and monopolization, the divisions are not going to be papered over. In a world in which the stakes are as enormous as this and you have to choose between one or another high-cost alternative, we think you are going to have fewer errors with this particular principle than any other.

Timothy J. Muris
Federal Trade Commission

I want to make three observations.  Each is based on my experience at the FTC, and each sheds light on the issues in the Competition Laws in Conflict.

The first is the stunning rapid emergence of antitrust around the world.  This book is a testament to that phenomenon.  Everybody here today is familiar with the current multijurisdictional nature of antitrust, but I think it is worthwhile to step back and remember just how far and how fast we have come. Think about the status quo three--even two--decades ago.  Few countries had antitrust laws.  Most enforcement was exclusively domestic.  There was no broad international consensus about the value of stringent prohibitions against cartels like there is now.  Then cross-border competition issues mainly involved attempts to use blocking statutes and claw-back laws to blunt the reach of U.S. antitrust enforcement.

Most countries today agree that markets form the core of a vital economy.  Over ninety nations have adopted antitrust laws, including more than fifty in the last twenty years.  This trend reflects a basic change in how nations around the world define government's role in the economy, because antitrust views the government as a referee, not as the manager or star player.  Antitrust, like the referee, is essential, but again like the referee, its job is to let them play so that all may benefit from what competition can produce.

My second obeservation is the enormous importance of the U.S. common market and how antitrust enforcement at the federal level remains crucial to maintain our common market and the benefits that it offers.  The political autonomy of our states, of course, is central to the political and economic health of the United States.  The states are rightly regarded as laboratories of innovation and as law enforcers who have their ears closely attuned to the people.  Regrettably, however, discussions about the competence of the states can sometimes lead to suggestions that federal enforcers should abandon or be forced to abandon certain areas of antitrust concern to the exclusive control of state antitrust.  I think such suggestions are quite mistaken.  They are simultaneously ignorant of the lessons of history, of economics, and of politics.  Our common market is the envy of the world, and it should not be entrusted exclusively to those who have different priorities.

Finally, I must address the need to clarify the antitrust state action doctrine.  What do you do when a jurisdiction abandons antitrust law in favor of some other form of regulation?  A local authority might want to control entry and regulate prices rather than let the market decide.  We regulate this in the United States with our state action doctrine.  Years ago the Supreme Court decided that the antitrust laws did not mean that all local economic activity had to be regulated by competitive markets overseen by antitrust.  Antitrust law currently reconciles our commitments to state autonomy and national competition policy by saying that antitrust will not reach private activity within a state if two conditions are met: The first is that the state has clearly articulated and affirmatively expressed a state policy to supplant competition. The second requires that if the state itself does not directly undertake the regulation, then the state has to actively supervise it.

Because the state action doctrine weakens antitrust, the doctrine must be, under these tenets, properly limited to matters that deserve antitrust immunity, which would mean deliberate decisions to substitute regulation for competition with true oversight of the results.  The FTC recently released a state action report that concludes that the doctrine has grown without, to coin a phrase, clearly articulated and active judicial supervision. 

AEI research assistant Kate Rick prepared this summary.

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