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Antitrust Law & Policies from Brussels to Washington D.C.: The Atlantic Divide Brussels 16 October 2015 Selection of articles Barry Hawk Skadden Arps and Fordham University Law School – New York, USA Separating the Wheat from the Chaff: How the U.S. Courts Analyze Antitrust Evidence written with James Keyte European University Institute Robert Schuman Centre for Advanced Studies 2009 EU Competition Law and Policy Workshop/Proceedings To be published in the following volume: Claus-Dieter Ehlermann and Mel Marquis (eds.), European Competition Law Annual 2009: Evaluation of Evidence and its Judicial Review in Competition Cases, Hart Publishing, Oxford and Portland (forthcoming 2010). © Barry Hawk and James Keyte. All rights reserved. EUI-RSCAS / Competition 2009 / Proceedings 1 Separating the Wheat from the Chaff: How the U.S. Courts Analyze Antitrust Evidence Barry Hawk and James Keyte* Unlike in many countries, the U.S. court system provides essentially open access to potential antitrust plaintiffs: a plaintiff who loses a case does not have to pay defendant's attorney fees and costs, and winning plaintiffs can get their fees and costs reimbursed by defendants. While courts have the power to sanction a plaintiff for bringing a frivolous case, those cases are relatively rare.1 As a result, U.S. courts have the potential to be clogged with an enormous number and variety of cases – many perfectly legitimate, but many not. It is left to the courts, then, to apply U.S. procedure and law to determine which cases may proceed to trial. This paper addresses how U.S. courts analyze evidence in antitrust cases with a particular focus on how U.S. court procedure and application of law have evolved to limit cases to those aimed at redressing legitimate antitrust violations. No doubt it is a broad topic; one could write dozens of articles that touch upon the evaluation of evidence by U.S. courts in antitrust cases. The objective here, however, is both less ambitious and hopefully more useful for those who do not practice antitrust in the U.S., yet wish to understand more generally how U.S. courts assess the merits of antitrust cases. With this objective in mind, a review of recent U.S. antitrust cases suggests that in order to understand the evidentiary battlegrounds in U.S. antitrust cases, one must understand (i) when courts have an opportunity to assess evidence (both alleged and offered), (ii) what types of antitrust cases are being litigated and which particular elements of a claim raise the most evidentiary challenges for plaintiffs, and (iii) how courts are assessing the quality and quantum of evidence necessary to permit an antitrust case to move forward to final resolution on the merits. The question of when a U.S. court has the opportunity to assess antitrust evidence is an important one that has significant practical implications in many U.S. antitrust cases. Even at the pleading stage (the filing of an initial complaint), antitrust courts often are asked to assess whether the complaint alleges enough "evidence" (facts that must be taken as true at this early stage) to support each required element of the antitrust claim at issue. For example, in conspiracy claims under Section 1 of the Sherman Act,2 the initial and often decisive battle may center on whether the complaint itself sets forth sufficient factual allegations to establish an "agreement" that unreasonably restrains trade. Indeed, under the U.S. Supreme Court's recent opinion in Bell Atlantic Corp. v. Twombly,3 antitrust cases must be dismissed at an * Barry Hawk and James Keyte are partners in the Antitrust Group of Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates. The authors would like to thank Adam Hosmer-Henner, Anna Peltier, and Michael Roth for their invaluable assistance in the preparation of this paper. 1 See FED. R. CIV. P. 11. 2 15 U.S.C. § 1 ("Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal."). 3 550 U.S. 544 (2007). Cite as: Barry Hawk and James Keyte, “Separating the Wheat from the Chaff: How the U.S. Courts Analyze Antitrust Evidence”, in Claus-Dieter Ehlermann and Mel Marquis, eds., European Competition Law Annual 2009: Evaluation of Evidence and its Judicial Review in Competition Cases, forthcoming, Hart Publishing 2 EUI-RSCAS / Competition 2009 / Proceedings early stage if an antitrust plaintiff cannot allege sufficient facts to make a violation likely. It is important, therefore, to understand at what stages of a case U.S. antitrust courts have the opportunity to assess antitrust "evidence" and in which procedural contexts courts are summarily rejecting cases. A review of recent U.S. antitrust cases also confirms that the nature of the evidentiary battle depends significantly on what type of claim is being asserted, as well as the legal elements of a claim that a plaintiff must allege and eventually prove. For example, in many conspiracy cases, the primary evidentiary focus will be on whether there is enough evidence of an illegal agreement among otherwise independent horizontal competitors. By contrast, in cases involving facially legitimate horizontal collaborations (e.g., joint ventures) or "vertical" agreements (e.g., between a manufacturer and a distributor), the existence of an agreement often is not in serious dispute and the evidentiary fight is over whether the agreement unreasonably restrains trade and harms competition in a relevant antitrust market. Similarly, in Section 2 cases, 4 the initial evidentiary fight usually centers around whether the defendant is in fact a "monopolist" in a well-defined market; very few cases make it to the stage where the dispositive issue is whether the defendant monopolist engaged in exclusionary conduct. And, in Section 7 merger cases, 5 the battle rarely focuses on the nature of the parties' agreement and more on market structure (market definition, concentration and entry conditions) and likely competitive effects of the proposed transaction. Finally, in the context of these various claims, it is useful to understand how U.S. courts determine what quality and quantum of evidence are required or most useful for their analysis. For example, there is an established principle in U.S. courts to credit so-called "direct" evidence on an issue much more than circumstantial evidence. In recent years, the over reliance by plaintiffs in Sherman Act cases on what may be characterized as "ambiguous evidence" has tended to lead to the rejection of claims at an early or intermediate procedural stage. Similarly, U.S. antitrust courts have devised common law evidentiary "screens" (e.g., for evidence of a defendant's "market power") in an attempt to ensure that plaintiff's claim redress harm to overall competition rather than just to itself. And there is now a fairly clear body of decisional law defining when a plaintiff must offer expert economic evidence on a particular element (e.g., market definition) and what that evidence must entail. 6 An understanding of these principles and trends not only helps practitioners assess antitrust risk for clients and devise the most effective litigation strategies (for both plaintiffs and defendants), it also enables all of us to step back and assess whether U.S. courts are in fact separating the wheat from the chaff in reviewing the thousands of antitrust cases filed each year. 4 15 U.S.C. § 2 ("Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony . ."). 5 15 U.S.C. § 18 ("No person . shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person . shall acquire the whole or any part of the assets of another person . , where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."). 6 See FED. R. EVID. 702; see also Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 n.7 (1993). Cite as: Barry Hawk and James Keyte, “Separating the Wheat from the Chaff: How the U.S. Courts Analyze Antitrust Evidence”, in Claus-Dieter Ehlermann and Mel Marquis, eds., European Competition Law Annual 2009: Evaluation of Evidence and its Judicial Review in Competition Cases, forthcoming, Hart Publishing EUI-RSCAS / Competition 2009 / Proceedings 3 It is a lot to sort out, but the results are revealing. For example, we can observe that when the issue is the existence of an illegal agreement among horizontal competitors (a large portion of U.S. antitrust cases), U.S. courts are most active in putting antitrust plaintiffs to their proof early on and with little flexibility. These types of conspiracy cases are intensely practical factual battles with little room or necessity for sophisticated economic analysis. At the other end of the spectrum, in Section 7 merger cases the issue of market definition and the competitive effects resulting from a proposed merger have become intensely "economic" both as a matter of theory and quantitative proof – indeed, here, there is a recent trend to de- emphasize qualitative evidence such as the opinions of customers and other industry participants. Similar discernible evidentiary patterns and trends have emerged in Section 1 cases involving competitors or vertically-related firms as well as in Section 2 monopolization cases. In an attempt to assess these topics in an orderly fashion, this paper is divided into four parts.