Federal Trade Commission/
Hearings on Single-Firm
Vice President and Senior Competition Counsel
General Electric Company
February 13, 2007
Overview Business Perspective on Single-Firm
- Clear, administrable and objective rules are very important
- Agree with Assistant Attorney General Barnett that "both consumers
and the business community benefit from clear, administrable and
objective rules that both allow business to assess the legality
of a practice before acting and enable enforcers and courts to judge
challenged conduct predictably and correctly." (Testimony, June20,
2006 at 16-17.)
- Agree with Chairman Majoras that "much of the value of sound
competition policies come from the promulgation of practical and
straightforward standards that enable firms to avoid engaging in
unlawful conduct, with minimal transaction costs." (Testimony, June
20, 2006 at 10.)
- Hearings are important not only for furthering the development
of a clear, administrable U.S. approach but also for fostering sound
global approaches to single-firm conduct
Counseling Perspective Some Key Questions
- What rule governs Is this single-firm conduct?
- Is the "threshold test" of "monopoly power" satisfied?
- Is the proposed conduct "exclusionary?" What "safe harbors" or
"clear rules" exist to guide counseling?
- What are the potential risks and related costs?
- Government investigations and enforcement actions; private treble
- Injunctive relief; fines; treble damage awards; legal fees; diversion
of management resources; negative press; potential adverse commercial
Jury Instructions Are Often Problematic
- Weyerhaeuser Company v. Ross-Simmons Hardwood Lumber Company,
Inc., No. 05-381, Brief for the United States as Amicus Curiae
"The court defined 'anticompetitive conduct' generally as 'conduct
that has theeffect of wrongly preventing or excluding competition.'"
Pet. App. 14a n.30.
"With reference to respondent's 'predatory bidding' and 'overbuying'
claims, the court instructed the jury as follows: One of [respondent's]
contentions in this case is that [petitioner] purchased more logs
than it needed or paid a higher price for logs than necessary, in
order to prevent [respondent] from obtaining the logs [it] needed
at a fair price. If you find this to be true you may regard it as
an anti-competitive act." Pet. App. 7a n.8, 14a n.30.
- 3M v. LePage's Inc., No. 01-1865, Brief for the United States
as Amicus Curia at 6:
"The district court instructed the jury that exclusionary or predatory
conduct 'either does not further competition on the merits, or does
so in an unnecessarily restrictive way. If 3M has been attempting
to exclude rivals on some basis other than efficiency, you may characterize
that behavior as predatory.'" Pet. App. at 151a.
- The ABA's Model Jury Instructions in Civil Antitrust Cases also
fail to provide coherent guidance. See Testimony of Mark D. Whitener,
July 18, 2006 at 8-9 & n. 13.
Single Firm Conduct Complex Business Structures
- Copperweld (1984)--Parent and wholly-owned subsidiary are
one entity; §2 (single-firm conduct) rather than §1 (agreements
in restraint of trade) applies
- Treatment of less than wholly-owned subsidiaries should be clarified.
Lower court decisions fail to provide coherent guidance. See Antitrust
Law Developments (Fifth) at 28-30.
- Reinstate guidance from 1988 DOJ Antitrust Enforcement Guidelines
for International Operations (Case 9 A Multinational Operation):
"In the Department's view, however, the policies underlying the Sherman
Act (as discussed in Copperweld) support the conclusion that
a parent corporation and any subsidiary corporation of which the parent
owns more than 50 percent of the voting stock are a single economic
unit under common control and are thus legally incapable of conspiring
with one another within the meaning of Section 1."
Monopoly Power A Helpful U.S. Threshold
- Monopolization Two elements: (1) monopoly power (the power
to control prices or exclude competition) and (2) willful acquisition
of maintenance of that power (exclusionary conduct)
- Monopoly Power A helpful screen in the U.S.
- Does the business have "the power to control market prices?"
- "Bidding markets" other credible competitors prevent ability
to control market prices
- Market share guidance: >70% (likely); <50% (virtually
- Attempt requires a dangerous probability of achieving monopoly
power [Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993)]
- Most very successful firms do not meet the "monopoly power" test
- However, important issues remain:
- Treatment of "aftermarkets"
- Non-U.S. issues: Lower "dominance" thresholds; Collective Dominance
- Kodak Potential for "single-brand" parts and service
- Only small share (<25%) of interbrand photocopier market
- But 100% of intrabrand parts market; 80-95% of intrabrand service
- Post-Kodak Limiting Interpretations
- "A number of courts have limited Eastman Kodak to test
situations in which the supplier changed its policy regarding aftermarket
sales, and accordingly have held proof that an assertively restrictive
aftermarket sales policy was generally known and thus presumed to
be part of the buyer's decision calculus will defeat a claim confined
to an aftermarket." Antitrust Law Developments (Fifth) at
- Kodak should be reversed All capital goods suppliers
- Chills potentially procompetitive conduct creates an incentive
adopt/maintain restrictive parts and service policies
- Customers can protect themselves both via contract and interbrand
competition (repeat customers; reputation)
- U.S. amicus position in Kodak remains correct:
"Because it is not disputed that Kodak lacks market power in the
market for equipment (Pet. App. A8 n.3), however, the suggestion
that it nonetheless would exercise market power in a market for
replacement parts or service for Kodak equipment is inherently implausible."
See also ICC Comments on the European Commission's Article 82 Discussion
Paper, §10 (available on the DG Competition website).
Monopoly Power Global Considerations
- Lower Thresholds in Other Jurisdictions
- ICN Unilateral Conduct Working Group Draft Report: "Those responding
jurisdictions which have done so, have generally set their dominance/SMP
presumption at 33-50% (except Brazil) and their
safe harbor at 20-40% (except Korea)."
- But trend to use of a "behavioral definition" (ability to price
independently) rather than a "structural definition" (large market
share) offers potential for convergence
- Collective Dominance How to counsel re unilateral conduct?
- EC Article 82 Discussion Paper: "[T]he existence of an agreement
or of other links in law is not indispensable to a finding of a
collective dominant position. . . . Undertakings in oligopolitic
markets may sometimes be able to raise prices substantially above
the competitive level without having recourse to any explicit agreement
or concerted practice." (paragraphs 46 & 47)
- Article 14 of June 22, 2006 Draft Anti-Monopoly Law of the People's
Republic of China (2 firms >67%; 3 firms >75% but excludes
firms with <10% share) [ Will each firm be treated as dominant
even with modest shares and #2 or #3 position?]
Refusals to Deal/Essential Facilities Doctrine
- Promote clarity by adopting the position that unconditional, unilateral
refusals to deal with a competitor do not constitute "exclusionary
conduct" and therefore do not provide a basis for a §2 claim
(See Testimony of Mark D. Whitener, July 18, 2006).
- Aspen Skiing "qualification" in Trinko of right to
refuse to deal is unsound deters dealing in the first place
if §2 exposure can be based on a "refusal to continue to deal"
- Essential Facilities Doctrine has been appropriately criticized
by the Antitrust Division and the FTC. See Brief for the United
States and the Federal Trade Commission as Amicus Curiae Supporting
Petitioner in Verizon Communications Inc. v. Law Offices of Curtis
V. Trinko, LLP, No. 02-682.
- Suggested approach avoids the problem posed by the inherent limitations
on the ability of courts to design workable remedies for unilateral
refusals to deal
Bundled Discounts/Mixed Bundling
- Are there situations in which there is little or no potential for
harm to competition?
- For example, Professor Nalebuff has concluded that mixed bundling
does not pose a risk to competition in markets in which sellers
do not offer a single price to all customers. This would exclude
numerous markets where prices are set through bidding or customer-specific
negotiations. See Nalebuff and Majerus, Bundling, Tying and Portfolio
Effects, Part II Case Studies at 30, DTI Economics Paper
No. 1 (2003)
- Do most cases involve alleged leveraging from "monopoly market"
to a separate "competitive market?" If so, a §2 bundled discount
claim should be required to meet the"attempt to monopolize" test.
- See Testimony of Professor Thomas A Lambert, November 29, 2006;
Testimony of Professor Robert Willig, November 1, 2006 (both stressing
the need to show harm to competition from bundling and tying).
Bundled Discounts/Mixed Bundling
Can these claims be addressed as either involving tying or predatory
- Tying A means to address Professor Nalebuff's "No-cost
Predation" case (Testimony, November 29, 2006)?
- Raising price of the "monopoly market" to well above the monopoly
price so that no one is willing to buy it separately can be viewed
as the legal equivalent of tying since the "monopoly product"
is only (economically) available with the purchase of the "competitive
- A §2 violation based on tying involving a second product
market should require a showing that the tie presents a dangerous
probability of creating monopoly power in that market. Cf.
DOJ/FTC Antitrust Guidelines for the Licensing of Intellectual
Property, §5.3 (1995) ("The Agencies would be likely to challenge
a tying arrangement if . . . (2) the arrangement has an adverse
effect on competition in the relevant market for the tied product.
. . .").
Bundled Discounts/Mixed Bundling
Can these claims be addressed as either involving tying or
- Predatory Pricing Applies to discounting of the "monopoly
product" to promote purchase of the "competitive product"
- Cost-based screens: Is price of the bundle > cost
of the bundle? Is the net price of the "competitive product" >
cost of the competitive product? (Ortho)
- Key considerations: Are there "fringe sellers" of the
"monopoly product?" See Testimony of Professor Muris, November
29, 2006. Ability of multiple firms to discount one or more of
the various "competitive products" in a multi-product bundle.
See Brief of United States as Amicus Curiae in 3M v. LePage's,
No. 02-2865 at fn. 13 (2004).
- Recoupment: Recoupment must also be established since
this scenario involves losses on the "monopoly product." In order
to show likelihood of recoupment, one must provide evidence of
likely exit of rivals and barriers to re-entry as well as likelihood
that bundling would be profitable on a NPV basis.
3M/LePage's Some Questions
Does it depend on treatment of transparent tape as one product market?
- If separate markets, LePage's would have had >65% of generic
tape market could it show attempted monopolization/"dangerous
probability of success" by 3M in that market?
- If one "transparent tape market," why not look at whether price
of the bundle as a whole is > cost of bundle as a whole?
- Wouldn't reduced but above-cost pricing of 3M's branded tape have
had a similar impact on LePage's if one product market?
What is the result less discounting by 3M?
- Enhance clarity by establishing that customer-driven exclusive arrangements
are presumptively legal
- ABA Comments on the EC Article 82 Discussion Paper at 41-42,
available at http:www.abanet.org/antitrust/atcomments/2006/06-06/com-article-82.pdf
- Steuer, "Customer --Instigated Exclusive Dealing," 68 Antitrust
L.J. 239 (2000), available at www.mayerbrownrowe.com
- Clear, administrable, and objective rules are very important
- A few modest suggestions to improve §2 guidance
- A company and all >50% owned entities are "a single economic
- Eliminate the "aftermarket" exception to the "monopoly power"
threshold element for §2 liability
- Treat all unconditional unilateral refusals to deal (or refusals
to continue to deal) as per se lawful
- Clarify the treatment of bundled discounts
- Treat customer-initiated exclusive dealing arrangements as presumptively
- Redouble efforts to promote international convergence on sound
principles for assessing single-firm conduct