Herbert J. Hovenkamp

Antitrust law : an analysis of antitrust principles and their application

Recognized by antitrust practitioners and the courts as the most authoritative and comprehensive treatise on antitrust principles and practice, Antitrust Law explains the interplay of judicial, statutory, public policy, and economic forces that shape the world of antitrust. Its thorough analysis and criticism of U.S. Supreme Court, appellate court and major lower court antitrust decisions will help you truly understand the underpinnings of the law and frame successful arguments in litigation. The most recently revised volumes contain greatly expanded coverage of the Noerr-Pennington doctrine; state action, implied, and statutory immunity; and the international and extraterritorial application of U.S. antitrust laws. Author Herbert Hovenkamp is recognized as one of the foremost experts on antitrust law in the country and has consulted extensively for both the government and the private sector.

The New High Priests: Lawyers in Post-Civil War America

Gerard W. Gawalt has collected essays that explore the critical period in the development of the legal profession from 1865 to 1900, when law replaced religion as the controlling element in American society and lawyers clearly established themselves as the formulators, advocates, and arbiters of the law. The authors of these essays explore the extent of the legal professions involvement in the growth of industrial America, focusing on the state of the profession in various geographic regions and on the professions institutions and plans for education, regulation, reform, and practice in the period after the Civil War. They address the central question of how the nature and structure of the legal profession was molded by the growth of urban-industrial society and argue that the profession not only adapted, but pioneered and adopted many of the aspects of the new industrialism.

Creation Without Restraint: Promoting Liberty and Rivalry in Innovation

This document contains the table of contents, introduction, and a brief description of Christina Bohannan & Herbert Hovenkamp, Creation without Restraint: Promoting Liberty and Rivalry in Innovation (Oxford 2011).Promoting rivalry in innovation requires a fusion of legal policies drawn from patent, copyright, and antitrust law, as well as economics and other disciplines. Creation Without Restraint looks first at the relationship between markets and innovation, noting that innovation occurs most in moderately competitive markets and that small actors are more likely to be truly creative innovators. Then we examine the problem of connected and complementary relationships, a dominant feature of high technology markets. Interconnection requirements, technological compatibility requirements, standard setting, and the relationship between durable products and aftermarkets all involve interconnection, or “tying.” Some see tying as inherently anticompetitive, while others view it as unexceptionally benign. In fact, bundling products or technologies is essential in high technology markets and most of it is socially beneficial, but possibilities of abuse nevertheless remain.Identifying good substantive legal rules for facilitating innovation is often very difficult. Two generations ago antitrust law addressed problems of complexity by shifting the focus to harm. The courts reasoned that they could often avoid unmanageable substantive doctrine by considering whether the plaintiff had suffered the appropriate kind of injury. Plaintiffs who are injured by more rather than less competition should be denied a remedy. In the case of patent and copyright law, the appropriate question is whether an infringer’s conduct served to undermine the right holder’s incentive to innovate, with incentives measured from before the innovation occurred. Some IP infringements do no harm to the incentive to innovate; others actually make the right more rather than less valuable. In these situations relief should be denied.Patent and copyright law are both in crisis today – major problems include overissuance, overly broad and ambiguously defined protections, and rules that permit both patentees and copyright holders to make broad claims on unforeseen innovations. The result has been that many patents are valueless, while others have very considerable value precisely because they enclose ideas or technologies that rightfully belong in the public domain. Patent law could be greatly improved if inventions were tied to real, nonobvious technology actually in the patentee’s possession at the time its application was filed, and if patentees were obliged to give comprehensible and timely notice of their inventions. Copyright law would be greatly improved by an aggressive theory of harm that reduces the scope of the derivative works right and increases the scope of fair use. In Eldred the Supreme Court suggested that the First Amendment should not be an important copyright infringement defense because the Constitution’s IP clause and the initial copyright act were passed “close in time,” leading to an inference that Congress must have considered these concerns. But the original copyright act bears little resemblance to the expansive coverage granted by the current Act, passed almost two centuries later.Finally, we examine the role of both antitrust and intellectual property law in two areas, exclusionary practices and licensing arrangements among multiple firms. On the first, one of the most controversial practices is refusal to license, because compulsory licensing rules are so difficult to administer. Nevertheless, serious competition concerns arise when dominant firms acquire technologies from others mainly to shut them down without actually employing them. We also examine claims that innovation itself should be regarded as anticompetitive when it makes the technology of others incompatible with a dominant firm’s technology.The size and diversity of the “innovation commons,” or the vast area involving collaborative innovation and dissemination of IP rights, is driven mainly by the fact that IP rights are nonrivalrous. In addition, however, in some industries patents are worthless or have negative value. Pooling becomes a mechanism by which firms use private ordering to “back out” of an IP system that is unsuitable to their needs. By recognizing this fact the legal system can provide greater accommodation for much needed diversity in IP coverage.

Harvard, Chicago and Transaction Cost Economics in Antitrust Analysis

Since Oliver Williamson published Markets and Hierarchies, transaction cost economics (TCE) has claimed an important place in antitrust, avoiding the extremes of the structuralist school, which saw market structure as decisive, and the Chicago school, which found monopoly only infrequently and denied that a monopolist could leverage its power into related markets. Since the 1970s both the structuralist and Chicago positions have moved toward the center, partly as a result of TCE. Already in 1978 Areeda and Turner produced the first volumes of the Antitrust Law treatise, which completely repudiated the leverage theory and abandoned the structuralist and leveraging positions on vertical integration. TCE analysis of contractual restraints recognizes that an important threat to competition is double marginalization, which can occur when market power is held by separate firms with complementary outputs. Nevertheless, one comparative advantage of both structuralism and the Chicago school was their simplicity. TCE analysis is more specific to the situation, demanding close scrutiny when significant market power is either present or realistically threatened.

Actavis and Error Costs: A Reply to Critics

The Supreme Court’s opinion in Federal Trade Commission v. Actavis, Inc. provided fundamental guidance about how courts should handle antitrust challenges to reverse payment patent settlements. In our previous article, Activating Actavis, we identified and operationalized the essential features of the Court’s analysis. Our analysis has been challenged by four economists, who argue that our approach might condemn procompetitive settlements. As we explain in this reply, such settlements are feasible, however, only under special circumstances. Moreover, even where feasible, the parties would not actually choose such a settlement in equilibrium. These considerations, and others discussed in the reply, serve to confirm the wisdom of the Actavis inference, in which the observation of a large reverse payment serves as a “surrogate” for patent-case weakness and therefore for lost competition.

Horizontal Mergers, Market Structure, and Burdens of Proof

Since the Supreme Court’s landmark 1963 decision in Philadelphia National Bank, antitrust challengers have mounted prima facie cases against horizontal mergers that rested on the level and increase in market concentration caused by the merger, with proponents of the merger then permitted to rebut by providing evidence that the merger will not have the feared anticompetitive effects. Although the way that concentration is measured and the triggering levels have changed over the last half century, the basic approach has remained intact. This longstanding structural presumption, which is well supported by economic theory and evidence, has been critical to effective merger enforcement. We suggest some ways to strengthen it further. One critical assumption in this burden shifting framework is that the goal of merger policy is to protect consumers against high prices or reduced output, product variety, product quality, or innovation (“consumer welfare”). If the goal is something else, such as deterring industrial concentration to control corporate political power, or protecting small firms from larger competitors, then the structural presumption must be viewed differently. The bulk of this essay examines and defends the role of structural presumptions in the present legal world where protection of consumer welfare is the point of merger enforcement. We also briefly consider a legislative proposal that could be seen as departing from this norm, offering some guidance concerning how this proposal could be improved so as to strengthen merger enforcement, in part by making it easier for the government to establish its prima facie case.

Implementing Antitrust's Welfare Goals

United States antitrust policy is said to promote some version of economic welfare. Antitrust promotes allocative efficiency by ensuring that markets are as competitive as they can practicably be, and that firms do not face unreasonable roadblocks to attaining productive efficiency, which refers to both cost minimization and innovation. One important welfare debate is whether antitrust should adopt a “consumer welfare” principle rather than a more general “total welfare” principle.The simple version of the consumer welfare test is not a balancing test. If consumers are harmed by reduced output or higher prices resulting from the exercise of market power, then this fact trumps any offsetting gains to producers. In this sense the consumer welfare test is easier to administer on a case by case basis than general welfare tests that may have to trade consumer losses and producer gains against each other.The volume and complexity of the academic debate on the general welfare vs. consumer welfare question creates an impression of policy significance that is completely belied by the case law. Few if any decisions have turned on the difference. In fact, antitrust policy generally applies both tests in the following sense. First, the economic analysis from the dominant Harvard and Chicago schools of antitrust is consistently concerned with general welfare. Second, however, if the evidence in a particular case indicates that a challenged practice facilitates the exercise of market power, resulting in output that is actually lower and prices that are actually higher, then tribunals uniformly condemn the restraint without regard to offsetting efficiencies. Indeed, one is hard pressed to find a single appellate decision that made a fact finding that a challenged practice resulted in lower market wide output and higher prices, but that also went on to approve the restraint because proven efficiencies exceeded consumer losses. In sum, courts invariably apply a consumer welfare test.In the paradigm cases that are commonly used as illustrations in this debate, all consumers either gain or lose from a practice. Often things are not that simple. Many practices affect different consumers in different ways, making the computation of net effects very difficult. Among such practices are (1) variable proportion ties; (2) ties that result in interproduct price discrimination; (3) tying and bundled discounts of imperfect complements; (4) vertical restraints and other practices used to facilitate third degree price discrimination; and (5) resale price maintenance which causes nominally higher prices but produces services that are more valuable to some customers than to others.When a practice causes both consumer harm and consumer benefit but net effects are unknown, producer gains may become more relevant, particularly if they result from significant production efficiencies.

Leegin, the Rule of Reason, and Vertical Agreement

The Supreme Court’s Leegin decision overturned the longstanding rule of per se illegality for resale price maintenance and applied a rule of reason. One might think that the question whether a vertical “agreement” exists between a manufacturer and a dealer should not be affected by the mode of analysis to be applied after an agreement is found. First one asks whether an agreement exists, and determines whether the per se rule or rule of reason applies only after receiving an affirmative answer. Nevertheless, ever since Colgate the Supreme Court has generally taken a more restrictive approach on the agreement issue in resale price maintenance cases than in cases involving other vertical agreements.Unlike horizontal agreements among competitors, which are relatively uncommon, vertical agreements between actual or would-be suppliers and customers are everywhere, and include sales, licenses, franchises, employment agreements, and information arrangements. Their very ubiquity indicates that only a few will be of antitrust concern. Given the ubiquity of vertical agreements, we need to be clear on which ones should be of concern to antitrust law. Too many cases have asked whether an agreement is present without considering the nature of the agreement sought. Indeed, virtually every case alleging resale price maintenance or other vertical restraints involves firms who are the parties to some agreement.A curiosity of many dealer-complaint cases is their failure to identify the nature and content of the alleged complainer-manufacturer agreement. The apparent subject matter of the alleged agreement is not the plaintiff’s destruction but the manufacturer’s distribution policy and its implementation, the complainer’s future behavior, or both.The tribunal must first define its concept of an agreement and then ask whether the defendant had a motive to enter into that agreement. If unilateral termination of a price cutter because of price cutting does not constitute an agreement, then no agreement exists unless there is a motive for and evidence of the manufacturer’s agreement with some third party. In any event, the consequences of not finding an agreement are not quite the same when the underlying restraint is addressed under the rule of reason. Both unilateral and multilateral conduct that result in reduced output and higher prices are actionable, although unilateral conduct must meet the somewhat stricter structural standards of §2’s monopolization or attempt offense.

Competition Policy and the Technologies of Information

When we speak about information and competition policy we are usually thinking about oral or written communications that have an anticompetitive potential, and mainly in the context of collusion of exclusionary threats. These are important topics. Indeed, among the most difficult problems that competition policy has had to confront over the years is understanding communications that can be construed as either threats to exclude or as offers to collude or facilitators of collusion. My topic here, however, is the relationship between information technologies and competition policy. Technological change can both induce and undermine the use of information to facilitate anticompetitive practices. This change is partly a result of digitization and the many products and processes that it enables. The technologies of information account for a significant portion of the difficulties that competition law encounters when its addresses intellectual property rights. In addition, changes in the technologies of information affect the structures of certain products, in the process either increasing or decreasing the potential for competitive harm. This paper focuses briefly on five issues: (1) assessments of market power and the opportunities for its exercise in information technologies; (2) the U.S. and EU antitrust or quasi-antitrust inquiries into Google Search; (3) the eBooks price-fixing and most-favored nation litigation; (4) the appropriate role of competition policy in facilitating internet neutrality; (5) the special problems posed by the patent laws in antitrust analysis of information technologies.

Consumer Welfare in Competition and Intellectual Property Law

Whether antitrust policy should pursue a goal of A¢â‚¬A“general welfareA¢â‚¬Â or A¢â‚¬A“consumer welfareA¢â‚¬Â has been debated for decades. The academic debate is much more varied than the case law, however, which has consistently adopted consumer welfare as a goal.