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Frank Fisher, Apr 05, 2007
The question of how to design remedies in Section 2 cases is not an easy one. Unlike prospective mergers, which can be blocked, or price-fixing and other collusion cases, where actions can be enjoined, single-firm monopoly cases even when won on liability can founder on remedy design. Structural relief can be seen as too drastic, and injunctive relief can simply turn into an effort to prohibit actions already in the past and already obsolete or can require continued (and perhaps continual) judicial supervision.
Too often in the past, the antitrust authorities have failed adequately to consider the problem of remedies, and I am glad to see this set of hearings taking place.
In these remarks, I first discuss the desirable objectives that a Section 2 remedy (or, perhaps, any antitrust remedy) should have, and then go on to a discussion of the Microsoft case.
1. Principles and Objectives Please note that the following objectives are not necessarily listed in order of importance. Further, be aware that, even if an objective is obtainable considered alone, it may conflict with other objectives.
A. Restore competition. A primary objective should surely be the undoing of the anticompetitive effects of the violation. If possible, a remedy should restore the market or markets to the state in which they would have been had the violation not taken place. Of course, this may not be possible. Indeed, it may not be clear what would have happened in the absence of the violation. This is particularly true in innovative industries.
B. Fit the remedy to the violation. It is natural to require that the remedy be reasonably consonant with the liability findings. In particular, it is natural to require that the remedy be such that, had it been in place at the time, the violations would not have occurred. Note, however, that while the latter requirement may satisfy proceedings in consent-decree cases under the Tunney Act, it is not guaranteed to satisfy the important objective A. Again, this is particularly true in innovative industries.
A broader remedy that prohibits violations similar to those found liable may do better, but may still not satisfy objective A. This is likely to happen (as in the Microsoft case discussed below) if the defendant used the anticompetitive actions to ward off a threat to its monopoly power at a crucial moment, with similar threats unlikely to arise soon again (or perhaps ever).
C. Disgorge monopoly profits. The violator must not be permitted to profit from the violation. Otherwise, there will be no disincentives for it or others to repeat such violations. But fines are unusual in Section 2 cases.
On the other hand, fines may not be necessary. The treble-damage provision of the Clayton Act certainly encourages private suits. The loss of such a suit can result in more than the disgorgement of monopoly profits.
I do not really like this answer, however. Treble damages also encourage reasonably basic private suits “ sometimes suits that follow a federal investigation even though that investigation does not result in an actual case and finding of liability. Particularly in large class-action suits, this can result in a kind of legalized piracy, with the mere certification of the class enough to produce settlement by defendants greatly at risk. Of course, this is most likely in Section 1 cases, but the whole issue of treble damages is too complex to simply assume that they should continue and will result in the disgorgement of monopoly profits.
One possible answer is to require the defendants to compensate those who were injured as well as paying something above that (since otherwise they or others may be tempted to take advantage of a no-lose situation). In return, the compensated victims must give up their rights to sue for treble damages.
D. Make the remedy self-enforcing. If possible, a remedy should be self-enforcing. A situation should be created in which market forces prevent a recurrence of the same or similar violations. As opposed to injunctive relief, such a remedy ideally does not require continued and long judicial supervision and the continued wrangling and litigation that can go with that supervision.
Of course, accomplishing this will require some form of structural remedy. This is not easy to do. In the first place, courts are traditionally reluctant to grant structural relief which usually means divestment or break-up. In the second place, crafting a really good structural remedy is not easy (and may sometimes be impossible).
Too often in the past, the antitrust authorities have simply assumed that a somewhat arbitrary divestment is what is called for. That may have gone hand-in-hand with the nave belief that monopoly power equals large market share, so that simply breaking up the defendant would be sufficient whatever the relation of the breakup to the nature of the violation.
Certainly that was true in the great fiasco of the IBM case of the 1970s in which I was the principal economic witness for IBM. The government’s remedy proposal never reached the court but was discussed at deposition by an economist. He proposed breaking up IBM into 4 successor companies each of which would have one and only one disk plant or tape plant. No consideration was given to whether computer companies with only one such plant and not at least one of both types where likely to be viable. The focus was exclusively on reducing IBM’s supposedly very large market share which was measured by the government in truly peculiar ways having little to do with market power. Structural remedies need to be better thought through than this.
E. Avoid prolonged and complicated judicial oversight. On the other hand, as I have already suggested, injunctive relief can lead to a situation in which extensive and long-lasting judicial oversight is required. That is particularly true if the injunction is complicated. It is particularly burdensome if the injunction is to hold for long periods of time in a changing industry.
