Antitrust Law: Look Back to the Future

Benton Foundation

Wednesday, November 14, 2018

Digital Beat

Jonathan Sallet
 Jonathan Sallet

On November 14, 2018, the Washington Center for Equitable Growth hosted Building a New Consensus on Antitrust Reform, a conversation on reforming federal antitrust law. Benton Senior Fellow Jonathan Sallet presented his paper Louis Brandeis: A Man for This Season at the event. His remarks follow. You can view the event here.

Antitrust Law: Look Back to the Future

In the afternoon of May 15, 1911, the Supreme Court convened here in the Capitol, where it sat from 1860 to 1935. Expectations were high that the Court would announce a major antitrust decision. The line of people waiting to get in extended across the Capitol Rotunda. The Attorney General and members of Congress were present.

At about 4 pm, the Chief Justice began to deliver the Court’s opinion in Standard Oil v. United States, upholding the finding of antitrust violations and ordering that the giant trust be broken apart.

In those days, Standard Oil was almost synonymous with antitrust. Indeed the word “antitrust” itself came from the belief that Standard Oil and other trusts were harmful to the American economy and to American democracy.

But the reaction to the Standard Oil decision was counter-intuitive. Business liked it. The progressives did not.

Why? Because the Supreme Court had announced the so-called Rule of Reason under which a court applying Section 1 of the Sherman Act asks if an agreement unreasonably restrains competition. Progressives feared the power of the judiciary to decide what was, and was not, reasonable.

Late the next day, Tuesday May 16th, Senator Robert La Follette, the leading Republican progressive in Congress, sent a telegram to the man who was known then as the “people’s lawyer,” who authored the book entitled “The Curse of Bigness,” and who was renowned for his opposition to the trusts.  La Follette sent this telegraph to Louis Brandeis: “We need you to consider next important step in view of decision yesterday. Come immediately if possible.”

Louis BrandeisThe next day, Wednesday, Brandeis took the night train from Boston and arrived here in Washington on Thursday, May 18th. He met with Senator La Follette and others to start drafting new antitrust legislation. Brandeis sent in his first draft in May, and in August, Senator La Follette introduced the new legislation, which was mainly drafted by Brandeis. Brandeis himself then testified in favor of the legislation for three days – three days including a Saturday -- in December 1911.

Why does this history matter? We are, for example, a long way away from a time when railroads and telegraphs were the main networks of communication.

It matters because this is the place – Congress – where history is made, and where history is remembered. Brandeis looked back to Thomas Jefferson. Jefferson and his fellow framers looked back to the democracy of ancient Athens. Today, in a moment when antitrust is in the spotlight, we should look back to the progressive framework articulated by Louis Brandeis.

Brandeis opposed the trusts because he thought they were bad for individual opportunity and bad for democracy. This was not a subtle view. He went so far as to say that “we cannot maintain democratic conditions in America if we allow corporations to arise in our midst with the power of the [U.S.] Steel Corporation.”

And he thought Congress is the fulcrum of action because Congress is the political institution that Brandeis believed can – and should – consider broad social and economic issues in shaping the content of antitrust, not antitrust enforcers and not the courts.

To me, a critical lesson from Brandeis describes the broad role of legislatures as contrasted to the focused task of antitrust enforcement.

Brandeis thought the job of Congress was to enact laws that would serve larger social and economic goals. Congress should do so by creating standards that looked directly at economic outcomes, such as a firm’s market share or the use by dominant firms of practices like tying or exclusive contracts.

Then he thought that antitrust enforcers and courts should vindicate legislative goals and apply the chosen statutory language by relying on their expertise, on economics, and on evidence. But antitrust enforcers should not decide on political grounds which case should proceed and which should not. What they should do is to employ their expertise, economics, and evidence to block anti-competitive conduct.

In 1912, Brandeis helped Woodrow Wilson win the presidency on a platform that included strong antitrust enforcement. Indeed, the future of antitrust was a critical issue in this election between Wilson, Theodore Roosevelt, and William Howard Taft.

In 1914, Wilson proposed antitrust legislation and that year Congress enacted two new bills. One was the Federal Trade Commission Act, which created an expert commission that Brandeis favored and gave it the power to stop “unfair methods of competition.” Congress enacted the Clayton Act, which allows the FTC and the Department of Justice to block mergers that threaten substantially to lessen competition or that will tend to create a monopoly.

I think there are two important principles embedded in those pieces of legislation. First, that the antitrust laws look to the future. As Brandeis later explained, the laws were designed to prevent harm to competition, not just to cure it after the fact. Think of this in connection with the power of the antitrust agencies to sue to stop mergers before they are consummated.

Second, with the prohibition in the FTC Act of “unfair methods of competition,” Congress recognized that any detailed list of anti-competitive acts would soon become obsolete as new kinds of conduct emerged.

The basic point is that Congress has the power, Brandeis likely would have said the obligation, to keep antitrust laws current. So, for example, Senator Klobuchar introduced a bill last year to amend the antitrust laws that reflects a Brandeisian structure: based on broad social and political concerns and translating those concerns into administrable legal standards. Congress also fulfills a critical role through its oversight of, and dialogue with, the antitrust enforcers – not about specific cases but about the trajectory of antitrust enforcement.

Antitrust is not, however, the only tool for competition and this is also important for Congress. As he thought it was justified, Brandeis supported detailed sectoral regulation, that is to say, industry-specific regulation. He was himself very active in railroad regulation, serving for a time as a special counsel for the Interstate Commerce Commission.

The difference is this: Antitrust is broad, applicable across industries, but focused on harm to competition. Sectoral regulation is much more narrow, applicable, for example, to railroads or airlines or telecommunications. But within its sphere, sectoral regulation can reach much deeper. To regulate price, for example in the case of natural monopolies. Where Congress has enacted specific authorization, to directly advance non-economic goals. An example is the historic task of the Federal Communications Commission to ensure that broadcasters serve the needs and interests of their local communities.

So, for example, a few years ago I argued the Open Internet case in the D.C. Circuit, where the court upheld those rules. Now they’re gone, at least for the moment, but it’s worth remembering the goals they served. To improve economic opportunity, to encourage diversity of speech, to serve democracy. That’s not a bad list.

Same with mergers. The Department of Justice and the FCC work together closely in reviewing telecommunications mergers. The job of the DOJ is to prevent harm to competition. The FCC’s mandate is more expansive; it is to promote competition.

And so, when Congress reviews the actions of administrative agencies it should ask: how are the goals of competition being advanced? And where Congress has empowered agencies to further other social or economic goals, like safety or speech, it should ask: How can these goals be pursued in harmony with competition?

Brandeis believed in institutions. In a time of populist frustration, he didn’t try to undo government; he tried to make it better. He believed in experimentation, in innovation, even in government. It’s why he coined the term “laboratories of the states.”

The Federal Trade Commission was such an innovation. Brandeis believed in expertise and he believed that expertise was based on the facts. He described the Commission as “a new device in administrative machinery.”

So, for example, as the FTC conducts its current hearings into competition and consumer protection, it carries out this Brandeisian function. When Commissioner Rohit Chopra recommends that the FTC use rulemaking authority to protect competition, he looks back to Brandeis’s emphasis on innovation.

Of course, at the end of the day, laws are only efficacious if they are effectively enforced.

That means meeting the challenges of the day. Brandeis foresaw that “with new conditions constantly arising novel unfair methods would be devised and developed.” He expected both the FTC and the DOJ to challenge new forms of anti-competitive practices.

And he expected antitrust enforcement to be free from day-to-day politics. This is very important. Remember Brandeis lived in the shadow of Lochner v. New York, where the Supreme Court struck down a state law limiting the hours of workers. Brandeis viewed that decision as a result of philosophy, not facts.

And so, he turned, as I said a few minutes ago, to expertise, economics and, always, evidence.  The so-called Brandeis brief filed in Mueller v. Oregon contained over a hundred pages of facts – and very little law. And the Supreme Court expressly noted its reliance on Brandeis’ work.

He took the same attitude towards antitrust. For example, Brandeis criticized the Supreme Court decision restricting resale price maintenance (a decision since overturned) because he thought it demonstrated a “lack of familiarity with the facts of business.”

I saw this myself in government.  In the review of a large telecommunications merger, we were told that no broadband provider would ever have an incentive to disadvantage any online content. The economic analysis was straightforward – broadband access and online content are complementary products, limiting consumption of one limits the demand for the other.

But economic theory needs to confront the facts. And the facts made clear that a company providing both broadband and cable TV was more worried about empowering a competitor to its cable service than disadvantaging its broadband customers. In one case, the DOJ filed in court a Board presentation depicting online competitors as a meteor headed directly for earth. Like the one that exterminated the dinosaurs.

Facts aren’t always exciting and finding them can be drudgery. But I’ve seen myself what a difference they make to competition enforcement. As Brandeis said, “no law…can be understood without a full knowledge of the facts out of which it arises, and to which it is to be applied.”

And economics should be the starting point. Because economics not only providers answers, it often provides the questions that are necessary to find the right facts. Sometimes, antitrust economics is described as if it were only represented by the Chicago School. In fact, we have more pro-enforcement economic work than it’s possible to mention. To note just a few: John Kwolka’s merger retrospectives; Steve Salop’s analysis of vertical mergers; the recent Marinescu-Hovenkamp review of the impact of mergers on labor markets; Carl Shapiro’s work on innovation. As I’ve said in an article with Jonathan Baker and Fiona Scott Morton, ‘[t]heories of collusion and exclusion have developed in sophistication and variety.”

In sum, I believe that Brandeis’ progressive framework can help us navigate the future of antitrust.

To recap five principles:

  1. First, Brandeis believed that legislators creating antitrust laws should consider broad economic and social issues.
  2. Second, legislatures should enact enforceable legal standards that identify harmful industrial (that is to say, economic) conduct in a manner that vindicates their chosen social and democratic values.
  3. Third, antitrust enforcers are to bring their expertise to bear, using economics and evidence. And, of course, they must prove their cases in court, which focuses any lawyer’s attention – and judicial decisions -- on the facts at hand. Brandeis believed that the right laws would lead to the right investigations, and then, to the right results.
  4. Fourth, Brandeis was creative in thinking of ways to improve sectoral regulation when competition could not be expected to flourish.
  5. Fifth, competition policy (both antitrust and sectoral regulation) is to be informed by a spirit of experimentation. 

All of this was animated by Brandeis’s determination to do better. When I worked at the Department of Justice, I would sometimes wander up to the law library, located on the same floor as the Attorney General’s office. Inscribed in the stairwell on the way upstairs is this admonition from Brandeis’s dissent in New State Ice Company v, Liebmann. Louise Brandeis said: “If we would guide by the light of reason, we must let our minds be bold.”

Jonathan Sallet is a Benton Senior Fellow. He works to promote broadband access and deployment, to advance competition, including through antitrust, and to preserve and protect internet openness. He is the former-Federal Communications Commission General Counsel (2013-2016), and Deputy Assistant Attorney General for Litigation, Antitrust Division, US Department of Justice (2016-2017). 

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By Jonathan Sallet.