Posted by New York Law Journal
A Focus on Price: Antitrust in the Kavanaugh Era
By Shepard Goldfein and Karen Hoffman Lent
With confirmation hearings looming for DC Circuit Judge Brett Kavanaugh, President Trump’s Supreme Court nominee to replace retiring Justice Anthony Kennedy, senators will prepare to probe Judge Kavanaugh’s judicial record on various matters—including antitrust law. But unlike Justice Gorsuch—who was confirmed to the Court in Spring 2017—Judge Kavanaugh was neither an antitrust professor nor an antitrust practitioner, and has heard few antitrust cases while on the bench.
Although Judge Kavanaugh’s antitrust experience is relatively sparse, his doctrinal preferences seem anything but. Dissenting in two merger reviews, FTC v. Whole Foods Market and United States v. Anthem, Judge Kavanaugh expressed support for both mergers and indicated his desire to shift antitrust law towards a “modern” doctrine that stresses pricing and economic data. F.T.C. v. Whole Foods Mkt., 548 F.3d 1028 (D.C. Cir. 2008) (Skadden Arps represented Wild Oats at the trial level in the matter); U.S. v. Anthem, 855 F.3d 345 (D.C. Cir. 2017).
If confirmed, Judge Kavanaugh may have the chance to leave his mark on antitrust law, and his Whole Foods and Anthem dissents may provide clues as to how.
‘FTC v. Whole Foods Market’
In Whole Foods, a divided DC Circuit reversed the district court’s denial of a preliminary injunction to block a merger between Whole Foods and Wild Oats, supermarkets that the FTC alleged focused on “high-quality perishables” and “specialty and natural” products. The panel divided on a standard antitrust issue: what is the product market? Judge Brown and Judge Tatel (concurring) both voted to reverse the district court, concluding that the FTC showed a likelihood of success on the merits that the merger may lessen competition in the discrete submarket for “premium natural and organic supermarkets.” Judge Kavanaugh, by contrast, would have affirmed the district court’s decision denying the preliminary injunction because the FTC failed to show a likelihood of success on the merits that the merger may lessen competition in the broader market for all supermarkets.
In reaching this conclusion, Judge Kavanaugh’s reasoning—and his rebuke of his colleagues’—highlights the antitrust significance he places on pricing data. Unlike Judge Kavanaugh, Judges Brown and Tatel based their conclusions, in part, on evidence relating to the “practical indicia” that the Supreme Court explained in Brown Shoe could help determine the existence of a discrete market. Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962) (“The boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.”).
For example, in addition to pricing data, Judge Brown highlighted that Whole Foods and Wild Oats catered to a core group of consumers by providing “higher levels of customer service than conventional supermarkets, a ‘unique environment,’ and a particular focus on the ‘core values’ these customers espoused.” Also citing Brown Shoe, Judge Tatel supported his conclusion that Whole Foods and Wild Oats operated in the discrete premium natural and organic market because “‘industry or public recognition’” regarded it “‘as a separate economic entity,’” and because both companies had “peculiar characteristics” that distinguished them from traditional supermarkets. Moreover, Whole Foods and Wild Oats executives made statements explaining the ways in which the retailers considered themselves competitors.
Dissenting, Judge Kavanaugh stated that his colleagues’ reliance on Brown Shoe was out of step with what he called “modern antitrust doctrine.” Indeed, he attacked his colleagues’ reliance on Brown Shoe’s “practical indicia” as a “brand of free-wheeling antitrust analysis [that] has not stood the test of time” and that “does not sufficiently account for the basic economic principles that … must be considered under modern antitrust doctrine.”
Judge Kavanaugh’s dissent revealed what could become key to defining markets in a Justice Kavanaugh era: evidence of pricing practices. In addition to suggesting that practical indicia evidence should not “‘trump objective evidence about how customers would react in the event of a price increase,’” Judge Kavanaugh stated that in the merger context, the product market inquiry comes down to whether “the merged entity could profitably impose at least a five percent price increase (because the price increase would not cause a sufficient number of consumers to switch to substitutes outside the alleged product market.)” Yet, he said, the FTC failed to make this “economic showing that is Antitrust 101.” To be sure, Judge Tatel argued that Judge Kavanaugh’s price-driven analysis was “not the only way to prove a separate market” given Brown Shoe. But to Judge Kavanaugh, the record’s “all-but-dispositive price evidence” paved a clear path to affirm the district court.
