Below, we have provided the full transcript of the interview with Daniel Francis, Climenko Fellow and Lecturer on Law at Harvard Law School, recorded on September 7, 2021.
This interview was done as part of the Antitrust Brainstorming Board created by CPI with the support of the CCIA.
Thank you, Mr. Francis, for sharing your time for this interview with CPI.
A video of the complete interview is available HERE.
Do you think the current antitrust framework works for consumers?
Daniel FRANCIS:
I think the answer to that question depends on what you think the antitrust laws should do. So my own view is that the antitrust laws are there to serve consumers by balancing two things. One is it should protect them from transactions or practices that are going to harm them as buyers or sellers, including sellers of their own labor in the market, by dampening competition. It’s the first thing the antitrust laws should do. Second thing, though, is it should also protect consumers from the risk that agencies or courts might themselves dampen competition by prohibiting or deterring aggressive rivalry. Antitrust has to balance those two sources of consumer benefit, always with what’s best for the consumer in mind, and by those lights or against that standard, I think the antitrust rules are basically in the right shape, but are probably a bit too blunt on some important margins.
I could imagine, a handful of changes that would make a lot of sense in the law from the perspective that I described. So on enforcement architecture, for example, the FTC really needs full authority to litigate in district court. That means fixing Section 13 via the FTC act, giving them full power to go after past conduct or to seek full equitable relief. That’s really important. The agencies, I think should have identical procedural options when they act to protect consumers. On conduct law, I think one of the big sort of banner projects is dispelling the idea that in an individual case you need to show sort of measurable or quantifiable or specifically predictable effects on the outcome of the competitive process, talking about things like price or quality or output. A serious threat of such effects, even if you can’t be precise about exactly what form they might show up, has got to be enough particularly, but not exclusively on the section two.
I think that is one of the great challenges for conduct enforcement going forward. I also would really revisit the law of justification. I think a pernicious idea has crept in some recent cases – and by recent, I mean in the last couple of decades – that suggests that all a defendant has to do is identify a pro-competitive justification, let’s say ‘free-riding’, and then it’s for the plaintiff to disprove the sufficiency of that justification. And that really has it backwards. And it has it backwards in a very important way, particularly in some digital market cases. I think it’s very important that antitrust law, conduct and merger law recognize the consumer benefits that come from efficiencies. But when those are being raised in response to a prima facie case of competitive harm, it has got to be for the defendant to show not just the existence, but the sufficiency of that justification. I think that’s really important for antitrust. So that kind of thing, improving antitrust on some very important margins, I think is a really important and worthwhile project. But I think the shape of the rules is about right.
Do you believe the vertical merger guidelines need to be changed?
FRANCIS:
I think the most important question is actually not what the vertical merger guidelines say. I think it’s what vertical merger cases the antitrust agencies investigate, bring to court and eventually the judicial opinions that are going to come down on vertical mergers. So for what it’s worth, I support a pretty vigorous vertical merger enforcement policy. But rewriting the guidelines I think is not the first item on the wish list of someone who supports stronger vertical merger enforcement. The problem or a reason for a deficiency in vertical merger enforcement is not what the merger guidelines have or haven’t said about vertical transactions. What’s really going to be hard and what’s really going to be necessary if you want to develop the law of vertical mergers, is finding and identifying and bringing promising cases, maybe Illumine grail, which the FTC is litigating now, is that case.
Obviously these cases are often tricky. They’re often very expensive, particularly the kinds of economic modeling that’s necessary, but I really don’t think there’s an alternative and I worry a little bit that too much focus on revising guidelines, issuing them, moving them through multiple iterations, might both number one, weaken that persuasive force; and number two takes some energy and attention away from the real problem, which is, as always, enforcement. I think the current vertical merger guidelines are a pretty good statement of central analytical matters – When we’re thinking about vertical transactions, I think we do a pretty good job of capturing what in practice the agencies do think about when they’re assessing vertical transactions or the vertical elements of transactions – I think some folks like Steve Salop have contributed some very good ideas about ways to fill in between the lines of the existing vertical merger guidelines. But again, I would really emphasize that I don’t think the main event when we’re talking about vertical merger enforcement is the content of the guidelines. I think people have a good sense of what the core theories are, what the arguments are likely to be in a vertical transaction. We need to go and generate some case law.
Do you approve of the shift from competition towards regulation?
FRANCIS:
I think that’s a huge question. Obviously, regulation done right is great, but to do it right, means looking very carefully at individual markets and being serious about identifying specific problems that we’re trying to solve and candid about the costs we’re willing to incur in order to do so. So in some conversations about regulation right now, kind of heap together, a small group of particular companies: They don’t really seem to have a lot in common, they operate in very different markets that are different in a lot of ways, economics, the technology of them, the commercial realities. And to my mind, that’s not a particularly helpful way to think about regulation. So antitrust is very good at protecting competition. Particularly, it’s good at protecting competition from certain kinds of practices or deals that might harm it, but there are a lot of other things that society might quite rationally decide it wants to protect.
We have other systems of law that protect values that are orthogonal to competition. The IP system is a great example. So I certainly prefer if we’re going to pursue some of those broader goals, many of which are important and desirable, that we do it through systems that are really designed to execute that function rather than through borrowing the antitrust function, which is good at competition, but not really good at doing other things.
So then the question about what kind of regulation is optimal becomes a much more granular, much more technical discussion about what’s going wrong in a specific market. I think, in general, utility regulation, you talk about a shift from competition to regulation. I don’t think of them as substitutes so much as I think of them as complements, now again, regulations are designed often to do something other than just protect – Usually it’s designed to do something other than protect a competitive market in the way that the antitrust laws do.
In general, I think some kinds of regulation, particularly things that protect rights to information, disclosure, transparency, really enabling consumers to make informed decision. Those things are often low hanging fruit, but some of the broader ideas that I think have been prominent recently like open access or equal treatment obligations for certain kinds of business. I think those things can be much easier to describe than they are to enforce. I think drowning an antitrust agency in complaints of unequal treatment in a sense that’s uninformed from the antitrust laws, but is sort of a freestanding regulatory project- It’s not obvious to me that is in consumer’s best interest.
How would you ensure antitrust is enforced vigorously if no changes are made to the current antitrust system?
FRANCIS:
So I would certainly support some reinforcements in the law in the way that we talked about a little earlier, particularly clarifying that a serious threat of harm is enough for liability, making sure defendants bear the burdens of justifications, that kind of thing. But I take the core of your question really to be about enforcement practices. So I just want to take that head on.
I think by far the best way to invigorate antitrust enforcement in this country is to double, let’s say the budget and the FTE count of the antitrust agencies. So the staff of the FTC, including not just the lawyers in the bureau of competition, but also the economists in the bureau of economics and the staff of the antitrust division are the best weapon that we have in the United States against anti-competitive practices and bad deals. They are creative, they are hardworking, they are deeply experienced.
What they need is support. And as I say this, the single thing that would have the most impact on antitrust enforcement would be a dramatic increase in both staffing and budget. I think it’s pretty clear that for a while now, the agencies have been operating near capacity. So in my last year at the FTC, we brought more merger enforcement actions than any other year, for I think, two decades. And we had a pretty busy conduct portfolio on top of that. So before it’s anything else, any trust enforcement is an exercise in resource allocation and allocating some very scarce resources and above all people. So the attorneys and economists and money to pay for experts. And you start obviously with the case, this is where you think you can do the most good for consumers. And then you move as far down the supply curve as your resources allow.
Recognizing that there are always more speculative or more aggressive cases, one might bring, if you’re not going to leave the lowest hanging or hottest burning fires on the table, then what you need is additional bandwidth in the form of money and people to be able to move all the way down that curve. I don’t think anyone wants to see two to one hospital consolidations or pharmaceutical monopolization or retail deals that really affect working families. No one wants to see those cases not brought. And so if the idea is to do more, then more resources are going to be necessary. And I think I would say one more thing as well. I sometimes hear that the cases that the agencies have brought are in some sense, conservative or too safe, or that the agencies have taken too long or too much money to investigate them.
I think it’s very hard to see why someone would come to that view. So if you think about the cases that the agencies have brought even pretty recently, one thing that is very clear is that the courts have said no to an awful lot of them. So you can think of Facebook and social networking. You can think the Qualcomm in alleged IP misuse, I think of 1-800-CONTACTS, Ivonek on supply-side substitution, Amex, and Sabre, even Jefferson Einstein, a hospital merger. So these are cases, many of the cases I’ve just described are creative or, advanced or unusual in some ways, and even in what you might think of as a fairly traditional case, like a hospital merger. Now, the FTC hasn’t been winning all the cases that it’s brought. The idea that the agencies have been concentrating on cases that are safe, I really don’t think it survives contact with the reality.
What are your thoughts regarding start-up acquisitions?
FRANCIS:
For sure. So when there’s evidence that a startup is a significant competitive threat to an acquirer, but has market power or monopoly power, then absolutely. That’s a matter of antitrust concern. I’m not saying anything unusual when I suggest that should be a matter of antitrust concern, an enforcement action if necessary. I’m aware of costs that there’s at least a hypothetical concern about being too aggressive. I didn’t think anyone would look at the enforcement landscape over the last 10 years and say, gosh, well, what there’s really been too much of is enforcement action of transactions that harm nascent or potential competition. I think whatever the nature of that concern at the point where we get that, we’re not at that point on the curve. It also shouldn’t need saying, but sometimes I think it does, that most acquirers are not monopolists or whole market power or anything like it. And most acquisition targets aren’t significant competitive threats. So the idea that robust antitrust enforcement is inconsistent with a healthy M&A market is no more the case in the startup context than it is elsewhere.
Is break-up the best solution for the digital economy and for consumers?
FRANCIS:
I know that’s the form in which this question is often asked, right? Are breakups good for consumers, would we be better with X digital company? Usually it’s a digital company being broken up along some line or other. But I’m not sure I think of the question that way. So whether or not breakup is the best solution, depends for me on what problem you’re trying to solve and what business and market you’re looking at and what you’re willing to accept as the price. So breakups in contrary to the way that I think it’s sometimes described, breakups laced in a certain sense are pretty common in merger enforcement. The routine term is divestiture and those are available not just in merger cases, but also at least in principle in conduct cases when the nature of the conduct violation is in some way grounded in or traceable to a structural feature of the defendant.
The common thread in the way antitrust is always responded to breakups is that we use them when they’re the right solution to a specific problem in a specific market, this connected to a specific practice or transaction. So to pick an example, if a monopolist, digital or otherwise, acquired an important competitor or competitive threat, even if this was now a few years ago, and it was demonstrated that the conditions for liability on the section seven, section two, section five, whatever it might be were met, then divestiture just as in any consummated merger case would be a natural place to start thinking about remedy, but to disconnect the breakup conversation from specific antitrust enforcement projects. And the idea that sort of break them up is good for consumers across an entire sway that the economy, like that’s not an idea that I see having much foundation in the body of evidence and theory that we’re used to working with in antitrust.
To pick an obvious example, there’s a lot of criticism right now about certain kinds of vertical integration, particularly in digital markets, but vertical integration is ubiquitous across the economy and it’s associated with some good effects. Just as it’s associated with certain kinds of harm. So I would really resist the impulse that I sometimes see to talk about breakup as if it were a matter of industrial policy for antitrust to say we would all be better off if we just pursued a policy of dis-aggregation, atomization, vertical separation. That to my mind, would be a radical departure from the approach that we have thought of as, as serving consumers. I’m not aware of anything like a robust record of evidence that that would be good for consumers.
How do you see the role of the FTC and the DOJ in ensuring competition works for consumers?
FRANCIS:
I think they have a few different complimentary roles. All of which are pretty important. Maybe the first is to my mind, they are the best antitrust litigation shops in the world, and they work for the public. And that’s an incredible thing. So the FTC and the DOJ bring the hardest and the biggest cases often in partnership with state AGS. They are at the front of the line for long, difficult, expensive fights, including on frontiers, where you need to bring and lose a bunch of cases before you start winning them. I’m thinking of pay-for-delay, or other places where the law has moved. Private litigation is very important, and control to some of the burden, but it can’t inconsolable the competitive problems in the economy. And for some important incentive reasons, sometimes the job falls only to the federal agencies.
Point one would be they’re a great leader of the project of antitrust litigation on behalf of the public. The second thing that I think they are is centers of antitrust economics excellence. And I think that sometimes it doesn’t get talked about as much as it should. So the bureau of economics at the FTC and their sister group over at DOJ are indispensable to the health and vigor of the antitrust project in this country, in supporting investigations and cases, and in generating scholarship really on the cutting edge of antitrust questions, whether it’s tech or healthcare or pharma, so much of the country’s and even the world’s great antitrust ideas, will have breaking antitrust economic scholarship come out of the agencies. And then maybe the third function that I think they may perform in a way that is unique or distinctive, is the power that they have of giving direction to the shape of the ball.
I talked earlier about case selection and resource allocation that is often very hard. And again, I think that’s the foundation stone of antitrust enforcement is case selection, but it’s also an opportunity. It’s an opportunity to pursue certain programmatic goals or projects that can span years and administrations and can eventually yield some pretty important victories for consumers. So I mentioned pay for delay. I think it’s state action. I think of hospital merges as three critical areas where the FTC in particular has taken on a very difficult fight over multiple cases, multiple years, and really developed a new strand of law for consumers. I think looking at the work of the past few years, you could say the same about potential niche and competition cases.
Tthe FTC, Illumine PacBio, Harry’s Edgewell, P&G Billie, Facebook of course, Visa played out of the DOJ. In a whole variety of ways, the agencies hold the power to say, look, there’s an area of law where really the rules aren’t working, where courts are getting it wrong, or we haven’t yet found a way to tell the economic story in a way that’s persuasive. And then over an extended period of time across multiple individual enforcement actions that can really change the fabric of the law and change the way the economy works.
How would you reconcile competition and competitiveness? Should antitrust reforms take into account the potential impact on proposed changes vis-à-vis China?
FRANCIS:
I think antitrust enforcement gets into very hot water pretty quickly when it starts worrying about what we often call competitiveness. Partly I think because what that means in practice often is going easy on a small and somewhat arbitrarily populated number of companies who very often don’t need the help. I think a premise of antitrust enforcement and particularly fair due process compliance, even handed antitrust enforcement, is that you can focus on competition and leave industrial policy to others. And I would really hate to see that change, not least because I don’t know that antitrust enforces, even if you accepted the wisdom and desirability of integrating those functions, I don’t know that antitrust enforcers would be great stewards of industrial policy. I deeply fear both the harms to the antitrust enforcement project and the response that it would plausibly elicit from other agencies around the world.
If there was a flip side to this, it might be that if part of the competitiveness concern is that there are certain companies, enterprises, operating in or selling into the U S domestic market who are benefiting from anti-competitive practices, that are physically located overseas that have the effects within the United States, whether or not those practices involve foreign governments who have different views about how markets should work, or whether they’re disconnected from a government, then a robust and appropriately tailored policy of pursuing extra-territorial conduct that has effects on US consumers and on competition in US markets can serve both competition and competitiveness. I don’t think the agencies should shy away from those cases when they come along.
Any final comments you would like to make?
FRANCIS:
I think the only thing that I would say is this is a great time to be doing antitrust. I think the anti-trust conversation has never been broader and more inclusive than it is right now. I think a lot of the deepest and in some sense, most difficult like foundational and normative and philosophical questions about the antitrust project are getting more attention right now than they have done in a very long time. And that makes it a terrific time to be interested in and thinking about antitrust.
