Antitrust Law: Resisting Modern Protectionism in a Global Recession

 

by Bo James Howell*

I.                    Introduction

           This article discusses the relationship between state protectionism and the global market, and how this relationship impacts antitrust law through trade policy.  In order to contain this relatively deep topic, this article focuses on monopoly power, as opposed to anticompetitive agreements.  Focusing on monopoly power, this article discusses this relationship and effect in the context of current antitrust disputes, primarily in the United States and Europe.  Through these examples, this article intends to address the current trends in antitrust law and caution against states moving towards more protectionist trade and antitrust policies.[1]  Although, as a matter of trade policy, most states are concerned about the competitiveness of global economic markets, over regulation through antitrust law can result in higher prices and less economic benefits.[2]  Such economic consequences would be devastating in today's global recession.  To avoid further exacerbating the current global recession, states must understand the connection between trade policy and antitrust law as it exists in two forms. 

           First, state-economic-protectionist policies reduce global competitiveness and economic benefit; in fact, such policies are the ultimate anticompetitive action.  States that champion domestic firms are pursuing anticompetitive policies on a global level.  In fact, one can argue that state economies themselves are the global market.  Thus, state-level protectionism influences the efficiency of the global market; I refer to this as the "state protectionist effect." 

          Second, the global market structure influences state competition laws.[3]  The global market's current structure will force states to make trade policy decisions, which in turn alter the state's antitrust laws.  There are two ways in which state trade policy may later affect antitrust laws: (a) the state may create, amend, or repeal certain antitrust laws in order to protect or promote local firms; or (b) the state may alter its enforcement of its current antitrust laws.[4]  Thus, the global market structure impacts the composition or enforcement of state antitrust laws, which I refer to as the "global market effect." 

          In sum, there is a circular relationship between the state protectionist and global market effects.  In one instance a state affects the global market structure by promoting domestic firms.  In another instance, a separate state reacts to the change in global market structure by altering its antitrust laws or enforcement.  The net result of such behavior is a spiraling crisis in which states continually discriminate against foreign firms, which ultimately crashes the global market.

           This article discusses the influence of the global economy on antitrust laws: in good times, antitrust laws and regulation generally function to prevent anticompetitive actions by domestic and foreign firms, because there is enough growth to satisfy the trade policies of most states.  But in bad times, antitrust laws and regulations take on protectionist characteristics as states seek to maintain economic viability by supporting domestic firms.  For example, a state which enters into a local recession may act in a protectionist manner, which influences the global market.  As a result of that state's anticompetitive actions, other states react to the global market change, and the net result is a global recession.    

           In order to facilitate the discussion of this relationship between state protectionism and the global market, this article proceeds in the following three-part approach.  Part I outlines the relationship by providing a brief overview of antitrust law from the United States and the international community.  Next, Part II provides historic and current examples of this relationship.  Finally, Part III discusses the economic costs of this relationship.  

II.                 An Overview of United States and International Antitrust Law

           Antitrust law, commonly referred to as the law of competition, relies on the notion of a competitive free market.[5]  In the United States, antitrust law started with the turn-of-the-century Sherman Act.  International antitrust law, however, is a significantly younger movement.  In fact, "[i]ntegrated...attempts to control anticompetitive practices are for the most part a post-World War II endeavor."[6]

          a.       United States Antitrust Law: The Sherman Act


          When the Sherman Act was enacted in 1890, Congress was primarily "concerned about exclusionary practices, including predatory and discriminatory pricing."[12]  Overall, Congress was concerned with monopolistic behavior that arose out of unfair practices, as opposed to the creation of a monopoly through competitive, efficient practices.[13]  In other words, Congress' concerns addressed unfair trade practices and "bad" monopolies.  But regardless of whether Congress created the Sherman Act to maintain a diversified market comprised of small, competitive firms or whether Congress intended to appease both big business and the American people,[14] the Act addressed national concerns at a time when the global economy focused on state or regional interests.

          More recently, federal courts have hammered out analytical, economic models to address the most common forms of an anticompetitive behavior.[15]  Under Section 1, federal courts generally apply either the per se rule or the rule of reason, although the modern approach is less dichotomous.[16]  Under the traditional per se approach, antitrust law prohibits "practices that are thought to be so likely to be harmful to competition that they are prohibited without regard to whether they actually reduce competition in the particular case."[17]  Classic examples of per se practices are price fixing, including vertical maximum price fixing, and certain refusals to deal, tying arrangements, and vertical territorial restraints.[18]  

           Less stringent is the rule of reason, which includes "practices that are unlawful only if proven to have unreasonably restrained trade."[19]  Traditionally, the rule of reason required an extensive, but unstructured, analysis of the affected market.  As stated in Chicago Bd. of Trade v. United States, the courts were required to look at the restraint effect, the relevant market, the specific facts, and the reason for imposing the restraint.[20]  Essentially, the rule of reason review was so broad that it provided little guidance for lower courts, and therefore its application had minimal impact.[21]

           Finally, the modern approach considers the characteristics of the restraint and its impact on competition.[22]  Beginning with Continental T.V., Inc. v. GTE Sylvania, Inc.,[23] the United States Supreme Court began to erode the distinction between per se restraints and the rule of reason.[24]  In Sylvania, the Supreme Court held that vertical non-price restraints were not per se antitrust violations.[25]  Later, the court also abandoned the application of the per se rule to vertical maximum price fixing, which exists when a manufacturer dictates the retail price of its own products.[26]  At approximately the same time, the Supreme Court began injecting the rule of reason into the per se analysis.[27]  In essence, the Court required lower courts to look at the character of the restraint (i.e. whether it facially harms competition).[28]  Today, the Supreme Court has abandoned the categorical line between per se restraints and the rule of reason by requiring lower courts to enquire into "the circumstances, details, and logic of [the] restraint ..." and its impact on the market.[29]  Ultimately, the Court's modern approach requires lower courts to prescreen restraint to determine which type of analysis applies: per se, searching examination, quick look, or rule of reason.[30] 

           The modern Section 2 monopoly analysis utilizes a similar market approach by incorporating modern economic theory on two issues: market definition and the fungibility of products.[31]  The original approach to Section 2 was Judge Learned Hand's "accidental monopoly" analysis, but the modern approach focuses on the firm's economic practices during its rise to ascendency.[32]  "In the most-often stated version of the Section 2 offense, the courts require that the government show ‘(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.'"[33]  Indeed, if the leviathan firm can fairly provide the best product at the best price to the consumer, challengers will have a difficult time establishing anticompetitive behavior. 

          In sum, the development of economic theory has shifted the interpretation and application of federal antitrust law from the dichotomous per se versus reasonableness approach or accidental analysis to a more structured and refined analysis that focuses on the economic benefits of business behavior.  The rise of globalization is influencing this shift, which expands the economic market/region, and the liberalization of business, which removes the corporation from a generally national entity into a more multi-national role.  As global markets continue to expand, so does the reach of the Sherman Act.   

          Although the Sherman Act was intended to address primarily domestic concerns of unfair competition, "American antitrust laws apply equally to activities in interstate and foreign commerce."[34]  As a result of globalization and market liberalization, the application of federal antitrust law to the global market exists in three circumstances: "(1) activities of foreign firms within the United States which have an effect in this country, (2) activities of foreign firms outside United States boundaries which have an adverse effect on the United States economy, and (3) activities of United States firms located outside of the country to which have adverse effects on the economy of the United States."[35]  Thus, the United States applies the Sherman Act to global trade through the purpose and effects test.[36]

          In addition to the extraterritorial reach of the Sherman act, Congress created the Foreign Trade Antitrust Improvement Act (FTAIA) to address global commerce.[37]  The Department of Justice's Antitrust Enforcement Guidelines for International Operations of 1995 (DOJ Antitrust Guidelines) outlines the enforcement of the FTAIA.[38]  The DOJ Antitrust Guidelines apply both the strict effects doctrine and the substantial test for assessing the effect on commerce.[39]  But there are limitations to the reach of federal antitrust law.  Despite the Sherman Act, FTAIA, and the DOJ Antitrust Guidelines, federal antitrust law does not apply to certain sovereign activities, foreign activities in compliance with conflicting foreign law, acts of governmental sovereignty, and foreign lobbying of the federal government.[40]  The reasons for these limitations are both diplomatic and legal.

          Similarly, when applying the purpose and effects test to a transaction that has a significant economic effect here in the United States, there are two approaches to resolve anticompetitive conflicts: diplomatic and legal.[41]  The diplomatic approach requires dialogue and cooperation between the United States and the foreign state, while the legal approach is a unilateral approach were the United States applies its own law to the situation, which may be viewed as a protectionist action. 

          The United States' use of antitrust law to attack foreign firms has a historical ring.  Despite the United States Supreme Court holding in American Banana Co. v. United Fruit Co., which held that international law required deference to the law of the country were the transaction occurred,[42] the modern use of United States antitrust law has taken a more unilateral expansion.  The Supreme Court was quick to partially modify its decision if the dispute involved more important federal interests, such as transportation, even if some of the conduct occurred outside the boundaries of the United States.[43]  In other words, the reach of federal antitrust law depended on some direct contact between the illegal transaction and the United States, with such contact being more direct for transportation and less direct for bananas.  This expansion continues in the post-World War II era.

           Following the establishment of the Bretton Woods economic order, the United States unilaterally attacked foreign cartels, particularly in Britain, Germany, and Japan.[44]  The United States' actions suggest that it was intent on using its antitrust law to solidify its economic hegemony over the post-war economic order.  Ultimately, American competition laws conflicted with many foreign perspectives, which "did not view cartels as particularly serious problem relative to their perceived benefits of helping to strengthen domestic economies at the expense of foreign consumers."[45]  In addition, the action imposed American views of competition law on foreign countries, which tends to create resentment with the foreign nations and further push the nations into a protectionist stance, a reaction I refer to as the "displacement effect."[46]

          b.      The Displacement Effect of United States Antitrust Policy

           This displacement effect has taken an ascent-descent pattern as the various United States administrations and courts manipulate United States antitrust law.  The displacement effect descended when the United States Supreme Court tempered the aggressiveness of America's assertion of its antitrust laws by jurisdictional limitation in Timberlane Lumber Co. v. Bank of America,[47] which applies a "jurisdictional rule of reason."[48]  Later, however, Congress superseded the Timberlane[49]  This descent, however, reversed a few years later.

          The displacement effect began to rise after the United States Supreme Court case of Hartford Fire Ins. Co. v. California because the Supreme Court significantly limited the principles of comity.[50]  In Hartford, the Supreme Court held the United States antitrust laws reached foreign transaction if the conduct had a substantial effect on the United States.[51]  Further, the Court held that if there is a substantial effect, then American antitrust law applies even if the conduct is legal in a foreign jurisdiction and that jurisdiction has strong public policy permitting the conduct.[52]  In other words, the United States approach to antitrust enforcement disregards, in some circumstances, any difference between the foreign jurisdiction's antitrust laws and the United States' laws.

           The interaction between the United States and foreign nations is clearly expressed in the United States Supreme Court case of F. Hoffman-La Roche Ltd. v. Empagran S.A.[53]  In Empagran, the Supreme Court stated that "our courts have long held that application of our antitrust laws to foreign anticompetitive conduct is nonetheless reasonable, and hence consistent with principles of prescriptive comity, insofar as they reflect a legislative effort to redress domestic antitrust injury that foreign anticompetitive conduct has caused."[54]  In other words, the United States is more than willing to impose its view of anticompetitive conduct of foreign nations so long as such conduct affects United States consumers.  Thus, the United States' unilateral approach has pushed the current status of the displacement effect to a modern apex.

           Because America's unilateral approach has created animosity in foreign jurisdictions,[55] the European Union system of antitrust "is [now] displacing U.S. antitrust as the model toward which countries throughout much of the world are turning when they seek to develop competition policy."[56]  In comparison to the United States' system, the European Union system has a more active governmental presence, wider policy goals, and less stringent theoretical guides.[57]  Indeed, the United States may now feel the displacement effect as its system of antitrust, which has suffered under almost three decades of deregulation, falls from ascendancy.  In other words, the displacement effect may push the United States towards a more protectionist stance as it views Europe's conduct "as socially harmful while those in the [European Union model] regard the same conduct as beneficial."[58]    

          c.       International Antitrust Law

          As Lord Brittan suggested in his 1992 speech to the World Competition Forum, increased globalization and trade liberalization allowed domestic firms in some countries to manipulate antitrust concepts into protectionist tools.[59]  National governments can impose protectionist tools through a variety of measures, such as blocking competition through trade restrictions, tariffs, and other regulations or in promoting, condoning, or ignoring anticompetitive private action.[60]  Ultimately, powerful local interests, national security concerns, nationalist fervor, and even racism or religious intolerance influence government actions. 

          Although the 1944 Bretton Woods Conference attempted to address these anticompetitive practices through the International Trade Organization, many countries, including the United States, retained a protectionist concern over their domestic business.[61]  In fact, Robert Pitofsky, former Chairman of the Federal Trade Commission, personally expressed doubt that global convergence in antitrust law is currently possible because of the wide range of views on monopoly power, mergers, vertical distribution practices and the whole range of competition issues...."[62]  Thus, protectionist concerns still block the development of a global competition code. 

           For example, the United Nations Conference on Trade and Development (UNCTAD) attempted to create a competition code, but divisions between the developed and developing world outlined the protectionist concerns inherent in international antitrust codes.  Developing countries wanted the code "to limit the ability of multinational corporations (MNCs) to operate in their countries ... [and] condone developing-world anticompetitive practices."[63]  In other words, the developing countries wanted to protect their domestic firms against the developed countries' MNCs.  Ultimately, the nonbinding code reflected each country's desire to maintain domestic antitrust law, which other jurisdictions can view as a disguised protectionist tool.   

           Like UNCTAD, various international economic organizations have attempted to establish a minimum international antitrust code.  In 1996, the World Trade Organization (WTO) created the Working Group on the Interaction Between Trade and Competition Policy to address international antitrust law.[64]  Although this Working Group started with a broad list of competition issues, the WTO's 2001 Doha Declaration presented a watered-down focus on, essentially, a single issue: cartel enforcement.[65]  However, [b]y 2003, the Working Group agreed that any binding standard for antitrust law were not feasible or desirable."[66]  Eventually, the WTO dropped antitrust issues from the Doha agenda, and, similarly, the OECD dropped its Joint Group on Trade and Competition.[67]

          In sum, many nations, including the United States and the European Union, have repeatedly established international non-governmental organizations to address antitrust law, and then subsequently abandoned such organizations when the outcome did not suit their domestic view.[68]  Usually, the rift is between developed and developing nations because the former seek to impose their antitrust views on the developing world, while the developing world demand leniency in order to reach higher levels of economic development. 

          Today, the International Competition Network (ICN) seeks the best recommended practices through national experimentation and recognition of various "economic, institutional, legal, and cultural settings prevalent in the home jurisdictions of its member agencies."[69]  While such an egalitarian approach fosters less conflict, it also allows for the maintenance of protectionist sentiment.  The flexibility and harmony of the ICN does little to address national protectionist tendencies.  In fact, the institution appears to accept certain levels of protectionism. 

          The ICN relies on a "soft coercive element," which in turn relies upon cooperation among member groups.[70]  Cooperation, however, is a difficult concept to sell when a nation's economy is hurtling towards a recession or, worse yet, a full on depression.  During such times populist or nationalist fervor may compel governments to renege on previous cooperative action, which often has a domino effect.  In sum, while the ICN's democratic approach to international antitrust regulation appears flexible and effective, domestic concerns necessarily limit the institution, and therefore local protectionist concerns limit its use as a vehicle for international antitrust consensus.[71]   

III.               Protectionist-Antitrust Policy and Local Interests

           The foundation of protectionist-antitrust policy is special local interests.  People want jobs near their home.  They want money in their pockets.  And be damned with foreigners' similar interests.  These local interests are the focus of most political decision makers.[72]  Rather than concern themselves with the optimal global welfare, most political decision makers "reflect the preference of homogenous and compact interest groups at the expense of the general welfare."[73]  As a result of this local focus, troubled or ambitious firms will lobby political decision makers to protect the firm's interest, which is naturally associated with local interests, at the expense of the general global welfare.[74]  Since these large, wealthy firms are frequently generous donors to the politician's coffers, most elected officials are happy to assist such a noble cause.[75] 

           Because of the close relationship between politics and big business, many states have continually utilized protectionist-antitrust policies to satisfy political obligations.[76]  Two explanations illustrate how the actions of the United States, the European Union, and Japan have deviated from maximizing global welfare: these economic powers disagree over the effects of certain antitrust policies and each state has sought to promote domestic firms by externalizing costs and internalizing benefits.[77]  Examples of these protectionist-antitrust policies are evident in both historic and current events.

IV.              Historic and Current Examples of Protectionist-Antitrust Policy

           To illustrate how protectionist-antitrust policies arise, this section first looks at the United States' and European Unions' antitrust policies and enforcement.  An examination of these policies and their enforcement show both convergence and divergence between these economic superpowers.  The divergences in policy or enforcement are often the impetus behind each actor's protectionist-antitrust policies.

          a.       Converging and Diverging Antitrust Policies

          From a policy perspective, American antitrust law, as illustrated by the Sherman Act, is primarily concerned with "protecting market competition, not competitors."[78]  As discussed earlier, the Sherman Act seeks to maintain market competition by prohibiting anticompetitive agreements and bad monopolies.  Similarly, Articles 81 and 82 of the European Union's Treaty of Rome respectively address anticompetitive agreements and bad monopolies.[79]  Thus, the basic ideology of both the United States and the European Union converges on one basic principle: maintaining the efficient allocation of resources in a free and open market.[80]  The European Union policy, however, has striking differences from American antitrust laws. 

          Two significant differences between the United States and the European Union is their respective treatment of monopolies and underlying concerns.  Dominant firms receive greater flexibility in the United States,[81] where as Europe is more suspicious of dominant firm.  Also, while the United States is solely concerned with consumer welfare, the European Union is also concerned with fairness in the market.[82] 

          As a result of this divergence, European Union antitrust law is more skeptical about industry consolidation than the United States.[83]  Such skepticism prevents consensus between the two actors on a host of antitrust issues, including:

jurisdictional rule of reason by enacting Section 6a of the Foreign Trade Antitrust Improvement Act, which maintained the principles of comity, further lowering the displacement effect.

the distinction between successful consolidation and the abuse of monopoly power, on when vertical supply and purchase commitments encourage productive firm-specific investments and when they unnecessarily restrict consumer choice, or when predatory pricing constitutes a genuine threat to consumer welfare....[84]

 
          And this lack of consensus on antitrust issues creates an impulsion to engage in protectionist-antitrust policies; or alternatively, to engage in protectionist-antitrust enforcement.

           b.      Diverging Antitrust Enforcement

           In addition, the European Union system lacks criminal penalties and private causes of action.[85]  The treatment of monopolies by these two jurisdictions reflects their differences.  In the United States, firms do not violate antitrust law if they achieve monopoly power through competitive practices and subsequently charge monopoly prices.[86]  As stated in Verizon Commun. v. Law Off. Of Curtis Trinko, "[i]t  is settled law that [a bad monopoly] requires, in addition to the possession of monopoly power in the relevant market, ‘willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.'"[87]  In the European Union, however, monopoly pricing alone can be an Article 82 violation.[88]  As a result, the European Union may be quicker to target an American firm than vice versa. 

          c.       Historical and Current Examples

           Reagan-era deregulation exacerbated the divergence between the American and European perspective.[89]  The IBM cases illustrated the effect of the conservative deregulation movement.[90]  In the early 1980s, just before the United States proceeded to trial against IBM, Regan's newly appointed head of the Department of Justice, Antitrust Division decided that IBM's monopolistic practices were not anticompetitive, and therefore the United States dismissed its case against the computer giant.[91]  Conversely, the European Union proceeded against IBM, despite pleas by the U.S. Attorney General who argued "that IBM's conduct was not anticompetitive, that forbidding [its practices] would discourage innovation, and that any relief granted against IBM under Article 82 would handicap this successful U.S. firm in world competition, with overspill into the U.S. market."[92]  Ultimately, the European Union succeeded in its suit against IBM.[93]

           In the early 1990s, the Clinton administration slightly reversed the Reagonomics perspective and brought and settled an antitrust case against Pilkington Plc., a British glass-making firm.[94]  Afterwards, the United States brought a suit against Nippon Paper, a Japanese papermaking company.[95]  Collectively, the IBM, Pilkington, and Nippon Paper cases highlight the United States' willingness to let domestic-giants lie, while attacking foreign anti-competitors.

           Similar to the IBM case, the European Union has targeted mergers of United States-based firms to protect its own champions.  For example, in order to protect France's Airbus, an airplane manufacturer, the European Commission denied the Boeing-McDonnell Douglas merger.[96]  Beyond mergers, the European Union has also targeted non-European dominant firms, as illustrated by the United Brands case.[97]  In the United Brands case, the European Union targeted the American banana producer in order to protect European banana producers in Europe's former colonies.[98]

           Today, the current European action against Microsoft, the United States action against De Beers, and the broader foreign action against Intel are examples of current protectionist trends in antitrust law.  In January 2009, only a year after Microsoft had a lengthy legal battle against the European Union, the corporation once again found itself charged with abusing its monopoly over computer operating systems.[99]  Microsoft's first legal battled stemmed from bundling Windows, its operating system, with its media player, and the result was over $1 billion in fines.  Conversely, Microsoft settled the American antitrust suit by allowing the United States Department of Justice to monitor its business practices.[100]  The current battle addresses Microsoft's bundling Internet Explorer 7 with its Windows operating system.[101]  In fact, while the European Union's antitrust enforcer is just getting started, American regulators are suggesting that court oversight of Microsoft may be coming to an end.[102] 

           Similarly, T3 Technologies Inc., a small mainframe maker in Tampa, Florida, filed a lawsuit against another American technology giant, IBM, in the European Union.[103]  The strategic move is likely the result of ongoing T3/IBM litigation in the United States.  This action illustrates the anti-dominant firm policy of the European Union, which prefers smaller or domestic firms over large foreign firms.

          The European Union's favoritism for domestic firms is not unique to Europe; the United States recently targeted one of Europe's largest monopolies, De Beers S.A., the Luxembourg-based diamond giant.[104]  Back in 2004 the diamond giant settled federal antitrust concerns, and in May 2008, De Beers settled a private antitrust action for $295 million.[105] 

           Together, these three examples reveal two interesting points about U.S.-E.U. antitrust policies:  the divergence of policy regarding monopoly power and the convergence of both states to extend their antitrust laws far beyond their respective borders.  Indeed, the Microsoft, IBM/T3, and De Beers examples show that although the United States and European Union diverge in the treatment of "good" monopolies, the United States is apparently more comfortable with its own technology giants, while the European Union is concerned with their interference with European technology markets.  Likewise, America has recently been heavily involved with Europe's diamond giant despite its less stringent treatment of monopolies.  However, the European Union's antitrust law has an extraterritorial reach similar to the United States' Sherman Act.[106]  One can only assume that each jurisdiction is using its own antitrust laws as part of its trade policy in a global recession, but the assumption isn't compelling.  In fact, the AMD/Intel storyline illustrates these distinctions. 

           In January 2009, the European Union dismissed Intel's appeal against the European antitrust regulator's legal challenge, which is investigating Intel's pricing practices.[107]  According to the European Union, Intel's predatory pricing was an attempt to limit AMD's access to the European market.[108]  American antitrust regulators, however, did not begin an investigation in the matter until June 2008, at which time the FTC merely subpoenaed information about Intel's customers.[109]  By that time, Korean antitrust regulators had already imposed a $25 million fine on Intel and Japan's regulators had also come out against Intel.[110]

           In sum, the actions by the European Union, Korea, and Japan show that foreign jurisdictions are quicker to act against American monopolies than either the Federal Trade Commission or the Department of Justice.  In other words, America is less keen to go after its own monopolies, although it appears to have no problem going after foreign ones (e.g. De Beers).  This selective targeting by these states illustrates that most countries openly favor domestic export cartels because these domestic cartels pass most of their anticompetitive costs onto foreign consumers,[111] but they quickly act against anticompetitive foreign firms. 

V.                 The Cost of Protectionist-Antitrust Policy

           National protectionism has never been more threatening to the global economy.  As trade continues to move from "more regulated national markets to less regulated international markets,"[112] the impact of anticompetitive practices affects a wider range of people.  Given the depth of the current global recession, which plagues both developed and developing nations, the cry for protectionist policies is louder than it has been for decades.  Such nationalistic cries reflect the increasing conflicts over global competition policies.[113]  In fact, a global recession is likely to result in the use of antitrust law as an aspect of protectionist-trade policy.[114] 

          In order to discuss how antitrust laws become protectionist-trade policy, this section presents the basic costs of monopolies and the primary costs of protectionist-antitrust enforcement.

          a.       The Basic Cost of Monopolies: Monopoly Pricing

           The basic economic costs of allowing monopolies to "competitively" engage their relevant markets is monopoly pricing.  Monopoly pricing allows a dominant firm to offer consumers short-term lower prices with the intent to dominate the market, which risks long-term exclusionary effects including higher prices, market entry barriers, and resistance to innovation.[115]  Although antitrust law, as it applies to monopolies, is intended to protect the consumer and not competitors, the current protectionist movement arising from the global recession is placing pressure on national governments to protect domestic business at the expense of foreign competitors.[116]

           In fact, some authors argue that such protectionist policies are actually preferable despite the risk of monopoly pricing.[117]  This argument, known as "strategic trade theory," suggests that promoting a state monopoly is economically beneficial because the host country enjoys the monopoly rents while the dominant firm exports most of the monopoly pricing.[118]  Proponents of strategic trade theory assert that "[t]he premises of liberal trade theory-that international trade proceeds in competitive markets and that comparative advantages in production capacities determine the efficient distribution of production- [] do not hold."[119]  Strategic trade theory, however, overemphasizes rents and monopoly pricing without adequately considering the other benefits of a liberalized global economy: a non-chilling effect and economies of scale that arise from global integration.

          b.      The Primary Costs of Protectionist-Antitrust Enforcement

          In addition, there are two primary costs to protectionist-antitrust enforcement.  First, a chilling effect causes opportunity costs to increase and innovation to decrease.  Domestic giants will spend increasing efforts and resources in legal and regulatory battles in order to maintain their status quo, as opposed to focusing on producing the best possible product at the best possible price.[120]  This chilling effect quickly spreads as foreign nations take similar protectionist stances.  Second, protectionist-antitrust enforcement necessarily limits economies of scale by artificially restricting the relevant market.[121]  Conversely, at a certain level an increase in economy of scales allows a firm to lower its cost of production and allow the firm to gather a greater share of the market by selling a product at the best, or at least, a better price.[122]  But by limiting the relevant market or dominating a particular industry, protectionist-antitrust enforcement inhibits global integration, which maximizes the world's capital and economic resources.  As a result, transaction costs will increase and efficiencies will stagnate or diminish as firms are stuck within narrower markets. 

           Thus, protectionist-antitrust enforcement, like the failed mercantilist economic theory, creates additional costs that strategic trade policy does not adequately account for.  These primary costs waste scarce resources and capital.  As a result, consumers will suffer from the lack of product development, price competition, and economic efficiency.  The net result is an increase in costs for the consumer coupled with the losses of economic gains by companies, in the form of profits, and consumers, in the form of jobs and products.  These effects will reverberate throughout the global market as one state's protectionist practices compel other states to engage in similar practices.  In the end, the global market forces both state's firms to pass on the costs of higher prices and smaller scales of economies to the consumer, and economic growth in the global market stagnates or rescinds. 

          c.       The Transactional Cost of Anticompetitive Regulation

           Although transactional costs are slightly inherent in the chilling effect, they warrant separate illustration because these costs are more tangible than the lost opportunity costs of the chilling effect. When competing states have divergent antitrust schemes or enforcement, global firms pay duplicate transactional costs because they must hire separate legal and financial teams for each jurisdiction or spend significantly more time creating separate business approaches to each jurisdiction.[123]  Summarily, divergent antitrust schemes or enforcement create a form of international overregulation because, for example, "firms doing business in both the United States and the [European Union] face an international competition policy regime that is more burdensome than the regime of either the [European Union] or the United States and very likely more restrictive than what either jurisdiction would choose if it were a closed economy."[124] 

           This increase in transaction costs is evident in the recent lawsuit between Intel and its insurer.  As noted earlier, Intel and AMD have litigated antitrust issues in both the United States and the European Union.  Intel is now suing one of its insurers for $50 million because the insurer does not believe Intel's defense against AMD contained reasonable costs.[125]  And this amount relates only to the American lawsuit, where courts have taken a less stringent stance on dominant firm behavior.[126]  Thus, the enforcement of protectionist-trade policies causes firms in both the United States and the European Union, and potentially elsewhere, to absorb higher transactional costs.

VI.              Conclusion

           As the length and depth of the current global economic crisis continue to expand, so too will the populist demand for protectionist economic policies.  Given global acceptance of free market concepts such as competition, which many people are increasingly challenging as the current crisis deepens, governments may use disguised means of satisfying domestic dominant firms at the expense of foreign ones.    

           As noted by other scholars, antitrust laws "are not well-suited for achieving employment or other economic or social policy objections, and that attempts to infuse amorphous "public interest" considerations into competition law standards create serious uncertainty which may chill investment and precompetitive initiates."  While politicians will no doubt look to antitrust enforcement as means to satisfy populist sentiment, short-term gains, if there are any, are significantly outweighed by the long-term costs. 

          As a matter of both principal and sound economic policy, antitrust enforcement should focus on promoting competition- lower prices, higher quality, greater innovation-by focusing on global economic welfare standards as opposed to protecting national champions.[127]  In fact, using antitrust law as a protectionist tool necessarily implies that a domestic monopoly is failing to effectively compete in the free market.  And although the free market certainly needs some level of government regulation, such regulation should be fair to both foreign and domestic firms. 

 

 

* Attorney Adviser, U.S. Securities and Exchange Commission, Division of Investment Management. Judicial Clerk for Justice Mark Gibbons, Nevada Supreme Court. Judicial Extern for the Honorable Patricia C. Williams and the Honorable John A. Rossmeissl, U.S. Bankruptcy Court for the Eastern District of Washington. J.D., magna cum laude, Gonzaga University School of Law. B.A., magna cum laude, Washington State University.

[1] Recently, many quality articles have addressed the type of international systems that would resolve conflicting antitrust systems, but this article does not join the foray.  Instead, this article seeks to address the current economic crisis and the political motivations towards protectionist trade policies.     

[2] E. Thomas Sullivan & Jeffrey L. Harrison, Understanding Antitrust and its Economic Implications § 1.01 (4th ed. 2003).

[3] Paul B. Stephan, Global Governance, Antitrust, and the Limits of International Cooperation, 38 Cornell Int'l L.J. 173, 180 (2005).

[4] Id. 

[5] Sullivan & Harrison, supra note 2, § 1.01.
1
[6] D. Daniel Sokol, Monopolists Without Borders: The Institutional Challenge of International Antitrust in a Global Gilded Age, 4 Berkeley Bus. L. J. 37, 44 (2007). 

[7] 15 U.S.C. §§ 1-7 (2006).

[8] Id. § 1. 

[9] 2 Joseph P. Bauer & William H. Page, Kintner Federal Antitrust Law 1 (2002). 

[10] 15 U.S.C. § 2. 

[11] Bauer & Page, supra note 9, § 9.1. 

[12] Id. (citing R. Posner, Antitrust Law 34 (2d ed. 2001). 

[13] Id.

[14] Id.

[15] Id. § 9.3. 

[16] Id. 

[17] Bauer & Page, supra note 9, § 9.5.

[18] Id. § 9.6. 

[19] Id. § 9.5. 

[20] 246 U.S. 231, 238 (1918). 

[21] Bauer & Page, supra note 9, § 9.6.

[22] Id. § 9.5. 

[23] 433 U.S. 36, 54-59 (1977). 

[24] Bauer & Page, supra note 9, §9.7. 

[25] 433 U.S. at 59. 

[26] State Oil Co. v. Kahn, 522 U.S. 3, 22 (1997). 

[27] Bauer & Page, supra note 9, § 9.7. 

[28] Id.

[29] California Dental Ass'n v. FTC, 526 U.S. 756, 780-81 (1999).

[30] Bauer & Page, supra note 9, § 9.7. 

[31] Id. § 9.10. 

[32] Id. § 9.3.

[33] Id. § 9.9 (quoting United States v. Grinnel Corp., 384 U.S. 563, 570-71 (1966)).  

[34] Sullivan & Harrison, supra note 2, at § 3.03[C] (citing P. Areeda & H. Hovenkamp, Antitrust Law ¶ 2706 (Supp. 1993) and United States v. Nippon Paper, 109 F.3d 1 (1st Cir. 1997)).

[35] Id. (internal quotations omitted) (quoting C. Douglas Floyd & E. Thomas Sullivan, Private Antitrust Actions: The Structure and Process of Civil Antitrust Litigation §1.1.4, at 14 (Supp. 1996)).

[36] See Lawrence A. Sullivan & Warren S. Grimes, The Law of Antitrust: An Integrated Handbook § 18.2a (2d ed. 2006) (discussing the United States Supreme Court Case of  Hartford Fire Insurance Co. v. California, 509 U.S. 764 (1993)). 

[37] Pub. L. 97-290, 96 Stat. 1246 (1982) (codified at 15 U.S.C. § 6a (2006)).

[38] U.S. Dep't of Justice, Antitrust Enforcement Guidelines for International Operations (1995), available at http://www.usdoj.gov/atr/public/guidelines/internat.htm . 

[39] Sullivan & Harrison, supra note 2, § 3.03[C].

[40] Id.

[41] Id.

[42] 213 U.S. 347, 356 (1909).

[43] United States v. Pac. & Arctic Ry. & Nav. Co., 228 U.S. 87 (1913).

[44] Sokol, supra note 6, at 45 n. 14 (citing Helen Mercer, The Rhetoric and Reality of Anti-cartel Policies: Britain, Germany, and Japan and the Effects of US Pressure in the 1940s, Cartels and Market Management in the Post-War World (London Sch. Econ. Business History Occasional Paper, Working Paper No. 1, Carlo Morelli ed. 1997).

[45] Id. at 46. 

[46] See, e.g., Robert Pitofsky, Competition Policy in a Global Economy-Today and Tomorrow, 2 J. Int'l Econ. L. 403, 408 (1999) (discussing the litigation against European uranium cartels and the resulting protectionist reaction).   

[47] 549 F.2d 597 (9th Cir. 1976). 

[48] Sullivan & Grimes, supra note 36, § 18.2a4i (internal quotations omitted) (quoting Timberlane, 549 F.2d at 613)). 

[49] Pub. L. No. 97-290, 96 Stat. 1246 (codified at 15 U.S.C. § 6a (2006); McGlinchy v. Shell Chem. Co., 845 F.2d 802, 814 n.8 (9th Cir. 1988).

[50] 509 U.S. 764 (1993).

[51] Id. at 796. 

[52] Id. at 799. 

[53] 542 U.S. 155 (2004). 

[54] Id. at 165 (citing United States v. Aluminum Co. of Am., 148 F.2d 416, 443-44 (2nd Cir. 1945)). 

[55] See id. at 167 (recognizing that the application of American antitrust remedies on foreign firms has created "considerable controversy").

[56] Sullivan & Grimes, supra note 36, § 18.1.

[57] Id.

[58] Id.

[59] See Sokol, supra note 6, at 49 (discussing Lord Brittan's comments while he was serving as the head of antitrust for the European Union). 

[60] Id. at 67-68.  For example, a government can establish a monopoly, provide subsidies or tax breaks, or prevent market entry for a host of reasons, such as national security. 

[61] See id. at 44-45 (discussing the failure of the International Trade Organization). 

[62] Pitofsky, supra note 46, at 410. 

[63] Sokol, supra note 6, at 48. 

[64] See id.  at 49-50 (discussing the Working Group on the Interaction Between Trade and Competition Policy). 

[65] Id. at 50-51. 

[66] Id. at 51. 

[67] Id.

[68] See id. at 51-52 (discussing the United States' and the European Union's abandoning the WTO in favor of the International Competition Network).

[69] Sokol, supra note 6, at 110. 

[70] Id.

[71] See also Stephan, supra note 3 (in-depth discussion on why international antitrust law is not a promising approach to regulating international competition).

[72] Id. at 185-86.

[73] Id. at 186-187; Andrew Guzman, The Case for International Antitrust, 22 Berkley J. Int'l L. 355, 357 (2004).

[74] Guzman, supra note 73, at 357.

[75] Stephan, supra note 3, at 186. 

[76] Id.

[77] Id. at 187. 

[78] Sullivan & Grimes, supra note 36, § 18.6a.

[79] Id.   

[80] Id.; Stephan, supra note 3, at 189.

[81] William E. Kovacic, The Intellectual DNA of Modern U.S. Competition Law for Dominant Firm Conduct: The Chicago/Harvard Double Helix, 2007 Colum. Bus. L. Rev. 1, 43 (2007).

[82] Sullivan & Grimes, supra note 36, § 18.6a. 

[83] Stephan, supra note 3, at 189. 

[84] Id. at 189-90.

[85] Sullivan & Grimes, supra note 36, § 18.6a.

[86] Id. § 18.6b.

[87] 540 U.S. 398, 407 (2004) (quoting United States v. Grinnell, 384 U.S. 563, 570-71 (1966)).

[88] Sullivan & Grimes, supra note 36, § 18.6b.

[89] Keith N. Hylton & Fei Deng, Antitrust Around the World: An Empirical Analysis of the Scope of Competition Laws and their Effects, 74 Antitrust L.J. 271, 293 (2007); Stephan, supra note 3, at 188-89. 

[90] See, e.g., Transamerica Computer Co. v. IBM Corp., 698 F.2d 1377 (9th Cir. 1993), cert. denied, 464 U.S. 955 (1983); California Computer Products Inc. v. IBM Corp., 613 F.2d 727 (9th Cir. 1979).

[91] Sullivan & Grimes, supra note 36, § 18.7a.

[92] Id.

[93] Id. (citing IBM Settles Antitrust Suit with Common Market, Wall St. J., Aug. 3, 1984). 

[94] Stephan, supra note 3, at 191 (citing United States v. Pilkington Plc., 1994-2 Trade Cas. (CCH) P 70,842 (D. Ariz. 1994)).

[95] Id.  (citing United States v. Nippon Paper Indust. Co., 109 F.3d 1 (1st Cir. 1997)).

[96] Id. at 192. 

[97] Id.  (citing Case 27/76, United Brands Co. v. Comm'n, 1978 E.C.R. 207, 1 C.M.L.R. 429 (1978)). 

[98] Id.  

[99] Kevin J. O'Brien, Microsoft Again Target of an EU Investigation, Int'l Herald Trib. Finance 13, Jan. 21, 2009, at 13.

[100] Id.

[101] Id.

[102] Brent Kendall, Antitrust Officials Unsure on More Oversight of Microsoft, Jan. 28, 2009, available at http://english.capital.gr/NewsPrint.asp?id=664954 .

[103] Charles Forelle, IBM Faces Complaint in EU on Software, Jan. 20, 2009, http://online.wsj.com/article/SB123242309681596853.html .

[104] Jocelyn Allison, Judge Refuses to Dismiss De Beers Antitrust Suit, Jan. 26, 2009, available at http://competition.law360.com/print_article/84446 .

[105] Id.

[106] Sullivan & Grimes, supra note 36, at 18.3. 

[107] EU Dismisses Intel Bid to Delay Antitrust Deadline, Jan. 28, 2009, available at http://www.gmanews.tv/print/146207 .   

[108] Id.

[109] Arik Hesseldahl, AMD Wins Another Round Against Intel, June 6, 2008, http://www.businessweek.com/techonolgy.content/jun2008/tc2008066_633295.htm .

[110] Id.

[111] Stephan, supra note 3, at 193; Andrew T. Guzman, Is International Antitrust Possible, 73 N.Y.U. L. Rev. 1501, 1514 (1998). 

[112] Sullivan & Grimes, supra note 36, § 18.1.

[113] Id. § 18.2a4iv.

[114] See id. § 18.6a (stating that globalization increases the risk of trade policy using antitrust laws as a tool, which "should be resisted everywhere").

[115] A. Neil Campbell & J William Rowley, The Internationalization of Unilateral Conduct Laws - Conflict, Comity, Cooperation, and or convergence, 75 Antitrust L.J. 267, 274 (2008). 

[116] See id. at 275 (discussing national populist movements with analogous intent).

[117] Stephan, supra note 3, at 182-83.

[118] Id. at 183. 

[119] Id. at 184.

[120] Campbell & Rowley, supra note 115, at 309-10.

[121] Id. at 309. 

[122] Guzman, supra note 122, at 1509.

[123] See Guzman, supra note 73, at 355 (stating noncooperation between competing states "generates duplicative costs and wastes time").

[124] Id. at 359-60.

[125] Shah Agam, Intel Sues Insurer for Failure to Cover Legal Costs, PC World, Jan. 30, 2009, available at http://www.pcworld.com/printable.article/id,158649/printable.html .

[126] Id.

[127] Campbell & Rowley, supra note 115, at 316-17.