Antitrust Law and Digital Markets: Who Has the Burden of Proof?

This post is part of a series covering different studies on antitrust enforcement of digital services released by various academics, think tanks, and regulatory agencies. 

Given the increasingly visible role of digital services in the U.S. economy, there have been various proposals to change the way that digital services are scrutinized under antitrust, competition, and privacy laws. While evolution of regulatory standards and practices is important, it is imperative that the updates are not hastily created and overburdensome. This is especially the case when current standards may be just as capable of providing meaningful solutions with minor adjustments. The Stigler Report provides a host of answers in search of problems. DisCo has previously covered the Stigler Report generally (and provided a summary) as well as how implementation of the Stigler Report’s recommendations could affect consumer privacy. Chief among these issues, however, is by regulating what digital services can and cannot do, would policymakers be engaging in industrial policy that could leave users and consumers worse off?

Background on the Stigler Report

As digital markets grow and evolve so must the antitrust laws that govern how players in these areas interact. The Stigler Report contends that this evolution should take the form of increased government enforcement action, arguing there has been a critical underenforcement of antitrust law in the period since the Supreme Court declined to hear the Microsoft case in 1998. However, this overlooks a critical aspect of the U.S. antitrust system: private enforcement. As DisCo has previously covered, private enforcement’s benefits are two-fold. First, the interests of a wronged business usually overlap with the interests of consumers. Second, it reduces the need for the government to invest large sums of money into enforcement as it would if it were solely responsible for enforcement. Additionally the Report argues that the judiciary continues to adhere to what it characterizes as the Chicago School approach — that markets can self-correct — even in the face of evolving economic literature. Finally, the Report notes that case law is generally slow to react to fundamental changes in the way industries are structured. However, the solutions the Report suggests fundamentally alter the way the judicial system operates, and could cause serious problems for smaller firms that seek to merge in order to create greater competition in markets with large incumbent players. 

The Report offers several solutions on how the judiciary can change how it operates in order to better enforce antitrust and competition law with respect to mergers:

• Shifting Burden of Proof: The Stigler Report suggests shifting the burden of proof from the federal government to those firms wishing to merge. Specifically, the Report argues that mergers between dominant firms and substantial competitors or future competitors should be presumed to be unlawful, subject to rebuttal by defendants.
• Vertical Integration Efficiencies: Additionally, the Report suggests that courts should not presume efficiencies from vertical transactions, and instead strong supporting evidence should be presented showing merger-specificity and verifiability. 
• Evidentiary Standard: Finally, the Report argues that there should be a change in the evidentiary standard by which courts allow plaintiffs to prove harm to competition. The Report suggests broadening the allowable evidence from only direct evidence to include circumstantial evidence, especially when the propositions in question are not observable and direct evidence cannot be presented. 

In conjunction with suggesting changes to burden of proof and evidentiary standards, the Stigler Report also suggests the creation of a specific competition court that would specialize in hearing antitrust and competition cases. The Report cites the rarity of antitrust and competition cases as the reason for the necessity of this court, but by the same token, if these cases are so rare what problem does the court’s creation solve? The Report is quick to offer a better way to police antitrust and competition law, but any justifications for why this is a better way than the status quo are absent. 

While each of these topics are equally important, and could warrant a post discussing each of them individually, the purpose of this post is to assess current burden of proof standards as they pertain to the United States and European Union. Additionally, this post seeks to elucidate the primary problems a shift in the burden of proof standard could bring about and what it could mean for antitrust and competition litigation moving forward.  

Benchmarking of Antitrust Regimes

The question remains, how are these suggestions different from the current antitrust and competition law practices currently in use by courts in the United States and European Union? 

United States: Innocent Until Proven Guilty

As for the burden of proof as to who must prove the prima facie case, case law has held under Section 7 of the Clayton Act that the government must (1) propose the proper relevant market and (2) show that the effect of the merger in that market is likely to be anti-competitive. If the government can make the two prongs of the prima facie case, the burden then switches to the defendant to provide sufficient evidence that the prima facie case inaccurately predicts the transaction’s probable effect on competition. The more compelling the prima facie case, the more evidence is required from the defendant to rebut the claims. However, if the defendant wishes to rebut the case with evidence of pro-competitive efficiencies or synergies it will create by the merger, the burden of proof rests with the defendant to prove those justifications. Finally, the burden then once again shifts to the plaintiff to show that these pro-competitive efficiencies could be reasonably achieved through less anti-competitive means.

European Union: Innocent Until Proven Guilty

The European Union under Article 2 of Council Regulation No. 1/2003 states that the burden of proof to prove an infringement of Article 81 or 82 of the Treaty Creating the European Community is on the party or authority alleging the infringement. Articles 81 and 82 of the Treaty Creating the European Community regulate what market behavior is permissible in the EU and what market behavior is not permissible. While there is a rich history of case law that further explains the complexities of EU antitrust and competition law, the European Commission has made it clear that they wish the burdens to rest on those who seek to enforce the law, not those who are hauled into court to defend their actions.  

Issues with Shifting the Burden 

Both the United States and the European Union have long-established traditions of leaving the burden of proving a case with the prosecution and any attempt to change this would set a dangerous precedent in any criminal context. It is also highly unlikely that the U.S. Supreme Court, the European Union Court of Justice, or any other court system would be willing to set such a precedent. The Stigler Report argues that the presumption of anti-competitive harm is nothing serious because the defendants have greater knowledge and better access to relevant information that will allow them to more easily exculpate themselves than the accusing entity or authority has to inculpate them. This is very likely not the case, and could potentially stifle innovation as corporations are disincentivized to merge for fear that they may not be able to prove the competitive efficiencies to the satisfaction of the court. The main reason for this is that shifting the burden away from the plaintiff and putting it on the defendant, as Alfonso Lamadrid De Pablo notes in a recent article, “would eliminate the need for an enforcement agency to precisely measure, or even allege anti-competitive effects and defendants on the other hand, would need to ‘clearly document’ welfare gains.” This would make it impossible to weigh pro-competitive benefits against anti-competitive effects, as they no longer need to be clearly identified by enforcement agencies. The article concludes by suggesting that if an anti-competitive practice is truly anti-competitive, we need not presume that it is so, because the evidence of those practices will already be there. 

A second issue that necessarily arises is, where do we stop the burden shifting? The Stigler Report itself only discusses what should be done to digital markets. However, a change in antitrust law in one area could have a snowball effect into disrupting more than just the industry it was intended to impact. Further, how would mixed industries be affected by a shift in who bears the burden of proof? The Stigler Report notes that the value of shifting the burden of proof from the prosecution to the defense is not to increase precision in identifying anti-competitive mergers, but it would simply forestall any mergers that could potentially be anti-competitive based on the quality of the arguments made by the defense. The Report seems to lean on the premise that once mergers between substantial competitors or dominant firms are presumed unlawful, competition will increase and that new entrants will find it easier to enter the market. However, while this may increase competition horizontally across markets, it could result in an uptick in vertical mergers, which the Stigler Report finds just as unacceptable.