Senator Amy Klobuchar (D-MN) and three Democratic colleagues on the subcommittee with oversight of antitrust and anti-competitive matters have unveiled their bill to remake the United States’ (U.S.) antitrust enforcement regime. Left unsaid in their press release and in the lengthy findings section of the bill is the fact that the growing concentration in technology markets has been a major driving factor in Congress’ reawakened interest in changing policy in these areas. Last year’s House Judiciary Committee report on digital markets focused exclusively on the effect that Google, Facebook, Apple, and Amazon had across many markets and proposed dramatic changes to change how the U.S. stops monopolistic and anti-competitive behavior.
It is expected Klobuchar will chair the Antitrust, Competition Policy and Consumer Rights Subcommittee on the Senate Judiciary Committee when Democrats formally take control of Senate committees. Therefore, Klobuchar is positioned to be a major stakeholder and to use the power of the subcommittee to call hearings and largely control the witness list to set an agenda making the case for antitrust reform.
And yet, House and Senate Republicans will likely oppose portions of the bill. Last year, despite a significant number of Republicans on the House Judiciary Committee agreeing with the majority about antitrust and anti-competitive problems in digital markets, they published a separate report that had more modest changes.
As mentioned earlier, the House Judiciary Committee’s report called for wide-ranging changes to the antitrust and anti-competitive system. However, the committee has not yet introduced a bill despite the subcommittee chair who helmed the investigation vowing to do so. It is probably just a matter of time before Representative David Cicilline (D-RI) unveils a bill, one likely to propose even more sweeping changes to U.S. antitrust law.
As for the White House and Biden Administration, it is not immediately clear how receptive to antitrust reform it will be. While President Joe Biden made some comments about this field on the campaign trail, it was not a point of emphasis the way it was for rivals Senators Elizabeth Warren (D-MA) and Bernie Sanders (I-VT) who focus on the issue did pull the Democratic Party leftward on these issues.
If enacted as written, the “Competition and Antitrust Law Enforcement Reform Act of 2021” represents the most significant reform of U.S. antitrust law since the “Hart-Scott-Rodino Antitrust Improvements Act of 1976” (P.L. 94-435) were enacted when President Gerald Ford was in office. The bill seeks to reverse and undo some of the case law U.S. courts have put in place to interpret the Sherman and Clayton Antitrust Acts that critics claim have severely compromised the effectiveness and intent of those statutes.
The bill adds a definition of “market power” to the Clayton Act:
the ability of a person, or a group of persons acting in concert, to profitably impose terms or conditions on counterparties, including terms regarding price, quantity, product or service quality, or other terms affecting the value of consideration exchanged in the transaction, that are more favorable to the person or group of persons imposing them than what the person or group of persons could obtain in a competitive market.
Market power has been defined as “the ability ‘to increase prices above competitive levels, and sustain them for an extended period’” as explained in the trial court’s decision in the recent case, FTC v. Qualcomm. In the case the trial court cited, it is further explained:
In order unilaterally to raise prices above competitive levels, the predator must obtain sufficient market power. A predator has sufficient market power when, by restricting its own output, it can restrict marketwide output and, hence, increase marketwide prices. Phillip Areeda & Donald F. Turner, Antitrust Law p 501, at 322 (1978) (hereinafter Areeda & Turner). Prices increase marketwide in response to the reduced output because consumers bid more in competing against one another to obtain the smaller quantity available. Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1335 (7th Cir.1986). Without market power to increase prices above competitive levels, and sustain them for an extended period, a predator’s actions do not threaten consumer welfare
The Supreme Court of the United States has defined the term a bit differently:
Market power is the ability to raise price profitably by restricting output.
As may be obvious, the definitions of market power in the FTC v. Qualcomm case and in the aforementioned case, Ohio v. American Express,focus primarily on the ability to unilaterally raise price, for if there are no other products or services in the relevant market consumers can buy, then the firm may extract the price it wants. Obviously for many technology companies, they do not charge money for their service or product. Hence, in a strict reading of antitrust law, it is hard to make the case they have market power. This bill seeks to close this apparent loophole and make clear that entities can have market power in ways other than just price.
Klobuchar and her cosponsors make this case in the Findings and Purposes section:
- anticompetitive exclusionary conduct constitutes a particularly harmful exercise of market power and a substantial threat to the United States economy;
- when dominant sellers exercise market power, they harm buyers by overcharging them, reducing product or service quality, limiting their choices, and impairing innovation;
- when dominant buyers exercise market power, they harm suppliers by underpaying them, limiting their business opportunities, and impairing innovation;
- when dominant employers exercise market power, they harm workers by paying them low wages, reducing their benefits, and limiting their future employment opportunities;
- nascent or potential rivals—even those that are unprofitable or inefficient—can be an important source of competitive discipline for dominant firms;
- antitrust enforcement against anticompetitive exclusionary conduct has been impeded when courts have declined to rigorously examine the facts in favor of relying on inaccurate economic assumptions that are inconsistent with contemporary economic learning, such as presuming that market power is not durable and can be expected to self-correct, that monopolies can drive as much or more innovation than a competitive market, that above-cost pricing cannot harm competition, and other flawed assumptions;
The “Competition and Antitrust Law Enforcement Reform Act of 2021” would change the current paradigm for most mergers. At present, firms go to the United States (U.S.) Department of Justice (DOJ) or the Federal Trade Commission (FTC) and make their case as to why it is okay for them to buy another, and the impetus is on the agencies to demonstrate prospectively the proposed deal would violate anti-trust law. The bill flips that dynamic, and firms would now have to prove to the agencies the deals are not anti-competitive. Consequently, Klobuchar and her cosponsors would make a number of mergers and acquisitions illegal “unless the acquiring or acquired person establish, by a preponderance of the evidence, that the effect of the acquisition will not be to create an appreciable risk of materially lessening competition or tend to create a monopoly or a monopsony.”
To wit, the bill provides that if the FTC, DOJ, or state attorneys general bring an anti-trust action to block a merger or acquisition, a court must “determine that the effect of an acquisition described in this section may be to create an appreciable risk of materially lessening competition or to tend to create a monopoly or a monopsony, in or affecting commerce, if—
- The deal “would lead to a significant increase in market concentration in any relevant market;”
- the acquiring person has a market share of greater than 50 percent or otherwise has significant market power, as a seller or a buyer, in any relevant market, and as a result of the acquisition, the acquiring person would obtain control over entities or assets that compete or have a reasonable probability of competing with the acquiring person in the same relevant market; or
- as a result of the acquisition, the acquiring person would obtain control over entities or assets that have a market share of greater than 50 percent or otherwise have significant market power, as a seller or a buyer, in any relevant market, and the acquiring person competes or has a reasonable probability of competing with the entities or assets over which it would obtain control, as result of the acquisition, in the same relevant market;
- the acquisition would lead to the combination of entities or assets that compete or have a reasonable probability of competing in a relevant market, and either the acquiring person or the entities or assets over which it would obtain control prevents, limits, or disrupts coordinated interaction among competitors in a relevant market or has a reasonable probability of doing so;
- the acquisition—
- would likely enable the acquiring person to unilaterally and profitably exercise market power or materially increase its ability to do so; or
- would materially increase the probability of coordinated interaction among competitors in any relevant market
- the acquiring person would hold an aggregate total amount of the voting securities and assets of the acquired person in excess of $5,000,000,000 (as adjusted and published for each fiscal year beginning after September 30, 2022…
- the person acquiring or the person being acquired has assets, net annual sales, or a market capitalization greater than $100,000,000,000 (as so adjusted and published); and
- as a result of such acquisition, the acquiring person would hold an aggregate total amount of the voting securities and assets of the acquired person in excess of $50,000,000 (as so adjusted and published),
The “Competition and Antitrust Law Enforcement Reform Act of 2021” also takes aim at “exclusionary conduct,” making it “unlawful for a person, acting alone or in concert with other persons, to engage in exclusionary conduct that presents an appreciable risk of harming competition.” Exclusionary conduct is defined as: conduct that ‘‘ materially disadvantages 1 or more actual or potential competitors; or tends to foreclose or limit the ability or incentive of 1 or more actual or potential competitors to compete.” Moreover, there shall be the presumption of exclusionary conduct harming competition in a relevant market if
- An entity or group of entities already have a 50% or greater share of the market; or
- “otherwise has significant market power in the relevant market.”
However, any person or entity accused of exclusionary conduct may show by a preponderance of the evidence that “distinct procompetitive benefits” obviate any such risks to competition, the entrance or presence of other players in the market decrease the risk of anti-competitive harm, or the conduct does not, in fact, pose a risk of harm to competition. Again, this change in anti-trust law would shift the burden to the companies that apparently dominate a market that they do not, other competitors have introduced real competition, or there are benefits that aid competition.
Klobuchar and her cosponsors also seek to address the imbalance in resources wrought by the money firms like Google and Apple can throw at mergers and anti-trust versus the regulators. The bill proposes dramatic changes for the next fiscal year in funding for the DOJ and FTC
- $484,500,000 for the Antitrust Division of the DOJ; and
- $651,000,000 for the FTC
To put those numbers in perspective, the DOJ’s Antitrust Division will get $184 million for FY 2021, and the entire FTC will get $351 million for the current fiscal year. So, obviously these are massive increases in authorized levels of funding, but appropriators and the White House would need to agree on actually providing these funds, something either, or both, may be unwilling to do. And, of course, Republicans will have leverage through the filibuster in the Senate, meaning they would ultimately need to sign off on these dramatic increases in funding, something they may not be willing to do.
The package would also establish a new position, Competition Advocate, and an office, the Office of the Competition Advocate. This position would be filled by the FTC chair according to a vote by the Commissioners with at least one vote coming from members of the minority. The Competition Advocate would have a range of responsibilities, including
- Making recommendations to the FTC and DOJ on how to improve the solicitation and collection of reports from a variety of sources on anti-competitive behavior
- Advise other federal agencies on administrative actions that may be anti-competitive and any actions that may be pro-competitive
- Publish reports on market competition in the U.S. and how successful anti-trust actions brought by the FTC and DOJ are
- Collect data on market concentration in a number of markets
Within this new Office, a Division of Market Analysis would be established to serve as an in-house think tank to aid the Competition Advocate of FTC in analyzing markets and proposed acquisitions.
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