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Antitrust in 60 Seconds: Private Rights to Enforce the Antitrust Laws

· August 9, 2019

The 60-Second Read:

U.S. antitrust enforcement relies on a combination of public and private rights of action to secure its objectives. Public enforcement is led by the Department of Justice’s Antitrust Division, the Federal Trade Commission, and the states. Those harmed by anticompetitive actions that violate the Sherman or Clayton Act also have the right to bring a private cause of action for treble damages (triple the amount of actual damages) plus attorney’s fees and costs. These treble damages are mandatory, and private plaintiffs are further incentivized to enforce the antitrust laws by the absence of the typical requirements to sue in federal court. This reliance on private enforcement is somewhat unique in the world and is not without controversy. There are many instances in which private enforcement follows, not leads, public enforcement. Some have argued that private rights, especially the mandatory trebling of damages, have led to judges trending towards narrow interpretations of antitrust laws because of their discomfort with the possibility of multiple damage awards stemming from a single finding of bad behavior.

The U.S. relies heavily on delegating antitrust enforcement to private parties. The ratio of private cases to public enforcement actions a decade ago was ten to one. The U.S. gives many tools to private plaintiffs: mandatory treble damages, asymmetric shifting of costs, broad rights of discovery, class actions, and jury trials. In contrast, in the EU, the decision to prosecute is largely dedicated to public authorities.

Benefits of Private Rights

Many scholars and practitioners have praised the U.S. system of private rights. The Antitrust Modernization Commission, which examined private rights in its extensive 2007 report to Congress, stated “[p]rivate antitrust enforcement plays a critically important role in implementing the U.S. antitrust laws.” The Commission recommended that the U.S. private rights system largely remain the same. In his article “In Praise of Private Litigation,” Spencer Weber Waller (building on a book by Professor Alexandra Lahav) identified four values in the U.S. private action system: “enforcement, transparency, participation, and equality before the law.”

One of the most common benefits of private rights mentioned in the literature is increased enforcement. The U.S. system is largely built on the idea that private enforcement will fill in the gaps left by public enforcement. In a sense, the U.S. system of antitrust enforcement has outsourced the bulk of the responsibility for correcting markets to those that are hurt by the bad behavior. This generally works well because the interests of a wronged business usually overlaps with the interests of consumers. A company who is stopped from bringing a better, less expensive, or more innovative product to market can benefit consumers by winning an antitrust suit and gaining access to the market. Consumers can also directly participate in enforcement through class action suits if they were injured by anticompetitive behavior. 

This system reduces the need to invest large sums of money in government enforcement, like what would be needed if the government was solely responsible for policing markets. Indeed, there are many that believe that government enforcement is underfunded and that the problem is growing. The availability of private enforcement eases the burden that this causes. Private parties need not wait on government intervention if they believe they have been wronged, and can pursue their claims directly in the courts.

Another important benefit of private enforcement is simply compensation for damages. Anticompetitive actions generally have a victim who has suffered a loss. Private rights are a way to compensate those victims.

Challenges with Private Rights

The U.S. private rights system is not without its critics. Professors Phillip Areeda and Donald Turner blamed the treble damages remedy for making the courts reluctant to expand monopolization law. There is evidence on each side of this argument, as Professor Steven Calkins outlines in his 1986 paper. Important decisions that restricted the application of antitrust law seemed to do so at least partially out of concern of the overuse of the treble damages remedy. However, there are counter-examples: cases where antitrust law was expanded in treble damage cases or restricted in government cases seeking equitable relief. Calkins is fairly sure that the cost-based approach to predatory pricing was in response “to a perception that private litigation threatened to lessen competition.”

Professor William Kovacic agrees with the Areeda and Turner interpretation of case law, and believes that U.S. judges have trended towards raising liability standards for antitrust violations because of perceived overdeterrence from private rights and their trebling of damages. An example of a decision narrowing private rights is Illinois Brick. Kovacic believes this has caused more leniency toward dominant firm conduct and could be responsible for the differences in enforcement between the U.S. and EU.

The IBM cases could be an example of this. The government initiated an abuse of dominance case against IBM in the late 1960s, and by 1975 roughly 45 private suits had been filed against IBM. Kovacic thinks that courts were apprehensive to find that IBM had engaged in illegal monopolization because of the possibility it would set off massive monetary awards. Indeed, the track records in these cases were not great for the plaintiffs. The government dropped its case and some plaintiffs settled. IBM mostly won in the rest of the private cases. If Kovacic is right, it means that private rights might increase the number of enforcers at the expense of reducing the percentage of successful enforcement actions.

The courts have often referenced treble damages in explaining their decisions. The Supreme Court in Copperweld explained that its decision would “simply eliminate treble damages from private state tort suits masquerading as antitrust actions.” The Fifth Circuit has declared “only if the defendant can gain an increment of monopoly through his unfair competition would the additional sanctions of the Sherman Act, including treble damages and criminal sanctions, be appropriately used to deter him. Single damages or equivalent injunctive relief is thought sufficient to compensate a firm for unfair competition.” The Supreme Court, in raising evidentiary standards in a case, explained that “it is of considerable importance that independent action by the manufacturer, and concerted action on non price restrictions, be distinguished from price-fixing agreements, since under present law the latter are subject to per se treatment and treble damages.”

Another issue with private rights is the question of whether private rights are considered a substitute or a complement to public enforcement. In other words, are we looking to private enforcement to act only when the government agencies do not? Or is optimal deterrence caused when both the government and private parties pursue a case on the same conduct? Both scenarios happen in the U.S.. Professor Daniel Sokol believes that it may be strategic for a company to pursue simultaneous public and private enforcement as a way to raise a dominant rival’s costs. This might not be harmful if the use of public and private enforcement together is optimal. It also might be an inappropriate use of public enforcement for private ends.

Finally, many antitrust scholars have raised the idea of a “no-fault” monopolization law as a way to greatly increase enforcement in this area. Professor Chris Sagers argues that a way to preserve public will for strong monopolization enforcement is for a law “to control size or concentration for their own sake, with no concern for proof that bad conduct has occurred.” Sagers believes that it’s hard to maintain public support to punish companies for bad consequences that might happen due to concentration, but that some markets cannot be fixed by relying on new entry or conduct remedies. Sagers argues that the best way to control concentration for its own sake is to have “no-fault” enforcement.

Conclusion

Private rights of action to enforce antitrust laws and seek treble damages have a lot of supporters and detractors. Supporters believe that treble damages are an essential part of the U.S. antitrust system. Among detractors are those that think that treble damages are an overenforcement of the antitrust laws, and those that believe that greater enforcement can only be achieved by having some limitations on the mandatory treble damages rule for private plaintiffs.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.