On Monday, May 11, 2009, the new Assistant Attorney General in charge of the Antitrust Division of the U.S. Department of Justice (DOJ), Christine A. Varney, announced that the DOJ is withdrawing its September 2008 report on Section 2 of the Sherman Act entitled Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act (“Section 2 Report”). The withdrawal of the Section 2 Report was announced in a speech by Ms. Varney entitled “Vigorous Antitrust Enforcement in this Challenging Era.” This withdrawal reverses the position taken by the DOJ during the Bush Administration and puts the DOJ more in line with the Federal Trade Commission’s positions on these issues.
The also DOJ set forth a new set of enforcement priorities that substantially increase the likelihood of antitrust prosecution for a broad range of conduct that might otherwise have been cleared. These remarks are of particular note because they are the first major remarks by the new Obama administration appointees in the DOJ as to the future of antitrust enforcement. Summing up the new attitude she wished to convey, Ms. Varney declared that “We cannot sit on the sidelines any longer.”
The Section 2 Report was issued by the Antitrust Division of the DOJ in late 2008 as a new set of guidelines for courts, practitioners, and companies for single firm conduct. It sought to codify the approach of the Bush (II) Administration DOJ to antitrust enforcement. Ms. Varney stated that withdrawing the report was important because it represented a “shift in philosophy” and would be the “the clearest way to let everyone know that the Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers.” Specifically, Ms. Varney contrasted the DOJ’s new approach with the “self-policing” that she considered the hallmark of the prior administration.
In the speech, Ms. Varney explained her understanding of the role of antitrust enforcement should play in difficult economic times and laid out a case for vigorous antitrust enforcement during economic crises. Ms. Varney argued that lax antitrust enforcement during the early phase of the Great Depression harmed consumers and prolonged the period of economic distress. Connecting the 1930s depression to this current recession, Ms. Varney stated that “ineffective government regulation, ill-considered deregulatory measures, and inadequate antitrust oversight” were contributing factors to the current poor economic conditions. There was no doubt that Ms. Varney intended to send a message that the DOJ would act more aggressively in the future to pursue conduct that had previously been tolerated.
Ms. Varney also signaled a significant philosophical departure from the withdrawn Section 2 Report. The Antitrust Division of the DOJ will no longer take the position that core concern of antitrust enforcement is to maximize economic efficiency, but rather will place the emphasis instead on the protection of consumer welfare. While continuing to endorse economic efficiency as a key value, she explained that, in her view, market efficiencies could and often would be in contest with consumer welfare.
Of particular note, the DOJ will not be adopting the “disproportionality test” for arguably anticompetitive conduct endorsed by the Section 2 Report. The Section 2 Report recommended insulating arguably exclusionary or predatory conduct from review except where the harm to competition was shown to be disproportionate to both the consumer benefits and the economic benefits to the firm. She found that this approach “straitjackets” antitrust enforcers and prevents them from punishing or deterring “all but the most bold and predatory conduct.”
Ms. Varney also more broadly rejected the concern expressed in the Section 2 Report that enforcement could lead to over-deterrence of potentially precompetitive conduct. Instead, the DOJ will seek to determine whether the net effect of challenged activity harms competition and consumers.
In fact, Ms. Varney explained that the DOJ would now follow what she called the “back to basics” analyses exemplified by two old Supreme Court cases (the 1951 Lorain Journal and 1985 Aspen Skiing cases) that set out “clear limitations” on firm behavior. Specifically, she noted that a “back to basics” approach will mean careful scrutiny to dominant firms’ refusals to deal with competitor firms. She noted that there are times when cooperation between rival firms is “indispensable” to effective competition.
The remarks were not limited to Section 2 of the Sherman Act. In keeping with this “back to basics” approach, the DOJ will also turn its attention to what she termed “new areas of civil enforcement” in high-technology and internet markets in Section 1 enforcement. For example, Ms. Varney announced that the DOJ will focus on intellectual property rights and seek to ensure that competition is not thwarted through misuse or improper extension of intellectual property rights. While the actions to be undertaken were not discussed in detail, this expanded approach has the potential to subject significant new areas of business activity to antitrust enforcement going forward.
In the area of criminal enforcement under Section 1, Ms. Varney praised the DOJ’s recent successes in breaking domestic and international cartels as well as imposing higher fines and longer jail sentences for offenders, and promised such actions would continue. She also set down a marker for deterring anticompetitive activity in connection with the stimulus package passed by Congress in February 2009. She announced the creation of the Antitrust Division Recovery Initiative designed to guard against the risks of collusion or other fraudulent activity.
In sum, Christine Varney’s public debut as the Assistant Attorney General in charge of the Antitrust Division signaled a substantial change in direction for the DOJ. The Obama administration has made it clear that it intends to adopt an aggressive approach to antitrust enforcement.