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Efficient Antitrust Enforcement

· October 7, 2019

A policy debate has been bubbling up to the surface about the best use of antitrust enforcer time and resources. This debate has been a part of public reactions to recent antitrust enforcement actions and disagreements among FTC Commissioners. A good example of this is the FTC fine of Facebook, which was both record-setting and criticized by some who believed it did not go far enough. One of the core issues that critics focus on is that this fine was obtained in an agreement with the company, and not by trying a case in court. To some, this signals weakness. To others, it was a smart use of resources.

This debate has a lot to do with efficient enforcement, or how to maximize the benefit from the actions of a resource-constrained enforcement agency. Some context is important here. First, the government was never intended to be the sole enforcer of the antitrust laws. As I explained in a previous post, private rights of action are an important part of antitrust enforcement and it has been estimated that private cases outnumber government cases ten-to-one. Government antitrust agencies are simply not funded at levels necessary to completely police all markets, and must choose actions based on how they benefit the public.

Second, settlements (for better or worse) have become a fundamental part of our legal system. It’s commonly cited that 95% of all civil cases settle (although there is some dispute). Among criminal cases, 97% of federal cases and 94% of state cases end in plea bargains. Even the judiciary doesn’t have the resources to fully litigate every action. 

Finally, the agencies are subject to political oversight where concrete measures of successful use of budget dollars are helpful. The antitrust enforcement agencies regularly report returns to the public per enforcement dollar of over 1,000%.

In this context, settlements can be an important tool of efficient enforcement under the right circumstances. If companies see tremendous risk in taking a case through litigation, and see too much downside in the form of litigation expense and harm to reputation, then they can be very motivated to settle with antitrust enforcement agencies on terms that are good for the public. Companies may also wish to settle simply out of contrition; some actionable conduct can be done without malice but through carelessness or lack of understanding of the law. Settlements also cost less agency resources to secure, and can save certain resources – like top staff litigators – for actions that need to be litigated.

However, the cost of enforcement that is too focused on avoiding risk through settlements can be problematic. This seems to be a concern of critics of recent agency actions. Litigating cases means generating new case law. This can bring important clarity to the law, and agency wins can help future enforcement efforts. Wins can also increase future leverage to get favorable settlements. Losses also have a small chance of having an upside if they can spur Congressional action on an important issue of law. Litigation itself can be important for keeping agency lawyers’ skills sharp and keeping the threat of litigation as a real motivator for companies to settle on terms that are good for the public.

But risk taking necessarily comes with downsides. The agencies can produce case law that hurts future enforcement efforts. This happened in the Schering-Plough decision, where the Eleventh Circuit found pay-for-delay agreements to be essentially legal. It took the FTC eight years to get this case law reversed in the Supreme Court’s 2013 FTC v. Actavis decision. This litigation was worthwhile, but took significant agency resources. Aspects of this decision are still being litigated, and efforts to clarify through legislation are ongoing. Losses may not be saved through Congressional action, as it is very difficult to pass legislation. Losses can also embolden companies to more often try their luck in litigation, which could strain agencies’ resources or lead to weak settlements.

Settlements can be a good thing in the enforcement of antitrust laws. Efficient enforcement requires a careful balance in resolving cases through zealously negotiating settlements in the public interest and litigating when necessary. Due to resource constraints, this balance must be negotiated among enforcement efforts across all industries. Overcommitting in one industry can mean a deficit of resources available to enforce competition laws in another industry.

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.