Rules Versus Standards in Antitrust Adjudication Daniel A

Washington and Lee Law Review Volume 64 | Issue 1 Article 3 Winter 10-1-2007 Rules Versus Standards in Antitrust Adjudication Daniel A. Crane Follow this and additional works at: https://scholarlycommons.law.wlu.edu/wlulr Part of the Antitrust and Trade Regulation Commons Recommended Citation Daniel A. Crane, Rules Versus Standards in Antitrust Adjudication, 64 Wash. & Lee L. Rev. 49 (2007), https://scholarlycommons.law.wlu.edu/wlulr/vol64/iss1/3 This Article is brought to you for free and open access by the Washington and Lee Law Review at Washington & Lee University School of Law Scholarly Commons. It has been accepted for inclusion in Washington and Lee Law Review by an authorized editor of Washington & Lee University School of Law Scholarly Commons. For more information, please contact [email protected]. Rules Versus Standards in Antitrust Adjudication Daniel A. Crane* Abstract Antitrust law is moving away from rules (ex ante, limited factor liability determinants) and toward standards (ex post, multi-factor liability determinants). This movement has importantconsequencesfor the structure of antitrust adjudication,including shifting ultimate decision-making down the legal hierarchy (in the direction ofjuries, trial courts sitting as fact- finders, and administrative agencies) and increasing the importance of economic experts. The efficiency consequences of this trend are often negative. Specifying liability determinants as open-ended, unpredictable standards increases litigation costs, chills socially beneficial industrial practices,allocates decisionmaking on microeconomicpolicy to unqualified juries, andfacilitatesstrategic misuse of antitrustlitigation by rent-seeking competitors. Instead offollowing a generalizedpreference for standards, courts should considerfive factors in choosing the ex ante precision of liability determinants: (1) whether the lawsuit was brought by the government or a private party; (2) whether the legal determinant would create liability or immunize against it; (3) whether the remedy sought is prospective (i.e., injunctive) orretrospective (i.e., damages); (4) whether the conduct is idiosyncraticor paradigmatic;and (5) whether the misconduct alleged is collusion or exclusion. Table of Contents I. Introduction ............................................................................... 50 II. From Rules to Standards ............................................................ 55 A . C ollusion ............................................................................. 57 * Assistant Professor, Benjamin N. Cardozo School of Law, Yeshiva University. B.A. Wheaton College; J.D. University of Chicago. I thank the participants in the Cardozo Junior Faculty Workshop for many helpful comments. 64 WASH. & LEE L. REV 49 (2007) B . Exclusion ...........................................................................65 III. The Possibility of (Real) Rules ..................................................71 IV. Efficiency Considerations .........................................................80 A. Costs of Promulgating and Administering the Legal Comm and ..................................................................81 B. Underinclusion, Overinclusion, and Incentive Effects ......84 C. Choice of Ultimate Decision-Maker ...................................91 D. Strategic Manipulation and Public Choice ......................... 95 E. Synthesis and Decisional Principles ..................................98 V. Non-Efficiency Considerations .....................................................101 A. Distributive Justice, Personal Autonomy, and Equal Treatm ent ...........................................................................101 B. Maintaining the Expressive Core ...........................................106 V I. C onclusion ....................................................................................109 . Introduction Antitrust law finds itself in the midst of a creeping transition from rules to standards. Adjudicatory categories that have long held sway-such as the dichotomy between the per se rule and the rule of reason for collaborative conduct or categorical rules of liability and immunity in monopolization law- are progressively being replaced by a multi-factor, ex post approach to antitrust adjudication. As antitrust has become de-politicized and de-ideologized, flexible technocratic expertise has replaced legalist conceptualism. Once the stars of the antitrust courtroom, lawyers now play the supporting cast to economists. Economic theory and post-hoc, contextual examination of facts, rather than a priorilegal categories, take center stage in antitrust proceedings. Gone are the days when the Supreme Court advocated stark antitrust rules and condemned "rambl[ing] through the wilds of economic theory in order to maintain a flexible approach."' The wilds are being tamed, and adjudicatory flexibility favored. Why this transition? The Chicago School's dramatic influence on antitrust law since the mid- 1970s accounts for a significant part of the story. Economic theory has rehabilitated practices once condemned as per se illegal because courts thought it a waste of time to see whether that conduct might be justified 1. United States v. Topco Assoc., Inc., 405 U.S. 569, 609-10 n.10 (1972). RULES VERSUS STANDARDS IN ANTITRUST ADJUDICA TION 51 by efficiency considerations. 2 Full-blown review of the context and motivation of practices once viewed as necessarily anticompetitive often reveals that they are competitively benign. Yet the move toward greater adjudicatory flexibility-the move from rules to standards-cannot be attributed solely to a less interventionist preference. In recent years, the growing inclination toward fulsome review of the facts has led a number of courts to reject bright-line rules that would have immunized defendants from liability. In monopolization cases in particular, prominent decisions have emphasized the need to consider the fullness of the defendant's conduct on a case-by-case basis, thus denying defendants the sort of categorical legal rules most helpful for avoiding jury trials.4 It appears that the move toward standards has been motivated in part by a sense that antitrust cases are too complex and socially important to turn on simplistic legalist commands. If history is a reliable teacher, the pendulum will eventually swing back toward rules. Morris Cohen once noted that "periodic waves of reform during which the sense ofjustice, natural law, or equity introduces life and flexibility 2. See Richard A. Posner, The Chicago School ofAntitrust Analysis, 127 U. PA. L. REv. 925, 925 (1979) (arguing that the distinctions between the "Chicago" school and other schools of antitrust theory have greatly diminished as a result of the maturing of economics as a social science and a growing consensus between the schools of thought on antitrust issues). The Supreme Court has described its per se approach in antitrust as "reflect[ing] broad generalizations holding true in so many cases that inquiry into whether they apply to the case at hand would be needless and wasteful." Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81, 92-93 (2002). 3. For example, vertical maximum resale price setting by upstream firms was once condemned as per se unlawful. See Albrecht v. Herald Co., 390 U.S. 145, 151 (1968) (stating that "resale price fixing is a per se violation of the law whether done by agreement or combination"). In 1997, the Supreme Court held that Albrecht had been mistaken and that the flexible rule of reason should apply instead. See State Oil v. Khan, 522 U.S. 3, 16 (1997) (describing the criticisms of the Albrecht decision). Since State Oil, plaintiffs appear to have had a hard time establishing that maximum retail price setting has anticompetitive effects. See, e.g., Mathias v. Daily News, L.P., 152 F. Supp. 2d 465, 483 (S.D.N.Y. 2001) (dismissing a claim for maximum resale price maintenance in violation of the Sherman Act because the plaintiffs did not plead a viable relevant market). Similarly, the Supreme Court once believed that tying could "serve hardly any purpose beyond the suppression of competition," Standard Oil Co. of Cal. v. United States, 337 U.S. 293, 305-06 (1949), but subsequent learning has shown that tying has many procompetitive purposes. See Benjamin Klein, Tying, in III THE NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW 630 (Peter Newman ed., 1998) (describing tying generally and providing several explanations as to why firms engage in tying); David S. Evans and Michael Salinger, Why Do Firms Bundle and Tie? Evidence from Competitive Markets andImplicationsforTying Law, 22 YALE J. REG. 37,41-42 (2005) (noting that firms in competitive markets may find it efficient to tie products when they can economize on fixed costs or realize product-specific scale economics). 4. See infra notes 93-99 and accompanying text (noting that appellate courts have indicated that rules are insufficient to resolve extraordinary conduct cases.). 64 WASH. & LEE L. REV 49 (2007) into the law and makes it adjustable to its work" are often followed by periods where "under the social demand for certainty, equity gets hardened and reduced to rigid rules. 5 Similarly, Carol Rose has documented a tendency in property law to "shift back and forth between hard-edged, yes-or-no crystalline rules and discretion-laden, post hoc muddy rules."6 Whatever the perceived advantages of standards over rules in antitrust, the disadvantages of standards will probably induce a counter-movement

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