Business Testimony

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1	UNITED STATES FEDERAL TRADE COMMISSION
2	and
3	UNITED STATES DEPARTMENT OF JUSTICE
4
5
6
7	SHERMAN ACT SECTION 2 JOINT HEARING
8	UNDERSTANDING SINGLE-FIRM BEHAVIOR
9	SECTION 2 POLICY ISSUES
10	TUESDAY, MAY 1, 2007
11
12
13
14
15	HELD AT:
16	UNITED STATES FEDERAL TRADE COMMISSION
17	CONFERENCE CENTER
18	601 NEW JERSEY AVENUE, N.W.
19	WASHINGTON, D.C.
20	1:00 P.M. TO 5:00 P.M.
21
22
23	Reported and Transcribed by:
24	Susanne Bergling, RMR-CLR
25

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1	MODERATORS:
2	William Blumenthal
3	General Counsel
4	Federal Trade Commission
5	and
6	Dennis W. Carlton
7	Deputy Assistant Attorney General for Economic Analysis
8	Department of Justice
9
10	PANELISTS:
11
12	William J. Baer
13	Jonathan B. Baker
14	Stephen Calkins
15	Einer R. Elhauge
16	Jonathan M. Jacobson
17	William J. Kolasky
18	Thomas G. Krattenmaker
19	Janet L. McDavid
20	Robert D. Willig
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22
23
24
25

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1	C O N T E N T S
2
3	Introduction........................................................................................................................................................ 4
4
5	Moderated Discussion:
6	By Mr. Blumenthal......................................................................................................................................... 5
7	By Mr. Carlton............................................................................................................................................. 89
8
9	Conclusion.........................................................................................................................................................162
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11
12
13
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25

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1	P R O C E E D I N G S
2	- - - - -
3	MR. BLUMENTHAL: Well, good afternoon,
4	everybody. I am Bill Blumenthal from the FTC staff, and
5	I am one of the moderators for our program this
6	afternoon.
7	This is the first of two sessions we are going
8	to be conducting to wrap up the series of hearings that
9	I think, as all of you know, DOJ and the FTC have been
10	conducting jointly for the past year or so into issues
11	posed by Section 2, and more generally, dominance and
12	monopolization and single-firm conduct.
13	I had the honor to moderate the first of the
14	hearings that we had. That was the kick-off on June
15	20th of 2006, where the speakers were FTC Chairman
16	Debbie Majoras, AAG for Antitrust Tom Barnett, Dennis
17	Carlton when he was still a professor in the private
18	sector, and Herb Hovenkamp, and basically today and next
19	week we are coming full circle.
20	Dennis, now in the Antitrust Division, will be
21	joining us as co-moderator a little later this
22	afternoon, and Tom and Debbie will be co-moderating the
23	final, final hearing a week from today, Tuesday, May
24	8th, from 9:00 a.m. until 1:00 p.m., and at that point
25	we will turn our attention to next steps.

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1	I want to thank the FTC and DOJ staffs for
2	organizing this session. Today's hearing is going to be
3	different from the way we have done all of the hearings
4	up until now in this series. All of the ones to date
5	have been basically set presentations with a little bit
6	of Q&A at the end, and instead, today's entire session
7	is unscripted.
8	Dennis and I will be posing questions and asking
9	the panel to respond and to discuss, and we are honored
10	to have with us a truly all-star group. Both today and
11	next week, we have truly all-star panels of
12	practitioners, consultants, and academics who I think
13	are basically of the caliber that we need to be able to
14	handle the extemporaneous back and forth that we are
15	going to have.
16	Let me introduce all of them. They will be
17	brief inductions. More detailed bios are available in
18	the bio packet, copies of which are on the table as you
19	enter the Conference Center, and I think probably all of
20	these folks are known to you, but I will just go down
21	for the record. Starting.
22	With Bill Baer, down at the end, a partner at
23	Arnold & Porter and former Director of the Bureau of
24	Competition at the FTC. Jon Baker, Professor at
25	American University and a former Director of the FTC's

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1	Bureau of Economics. Steve Calkins, former General
2	Counsel and a Professor at Wayne State. Einer Elhauge,
3	who is a Professor at Harvard Law School, and I might
4	add, I see the prop right there. Hold it up. The
5	author, co-author, of the just released Foundation Press
6	Case book, the first, I believe, to deal with the topic
7	of multi-jurisdictional competition law.
8	John Jacobson, a partner at the Wilson Sonsini
9	firm and a member of the Antitrust Modernization
10	Commission. Shifting over to this side, Bill Kolasky, a
11	partner at WilmerHale and a former Deputy AAG in the
12	Antitrust Division. Tom Krattenmaker, Of Counsel of the
13	Wilson Sonsini firm, more recently; before that, a front
14	office advisor at the FTC, and before that, a Professor
15	with an illustrious career in academia. Jan McDavid,
16	partner at Hogan & Hartson, and Bobby Willig, Professor
17	of Economics and Public Policy at Princeton and, years
18	ago, one of the Deputy AAGs in the Antitrust Division
19	front office.
20	DR. WILLIG: Not like decades. You didn't say
21	MR. BLUMENTHAL: We were all young.
22	With Bill Baer, down at the end, a partner at
23	Okay, before we start, some housekeeping
24	matters. Actually, I have to check my own. Cell
25	phones, BlackBerries, other electronic devices, please

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1	turn them into vibrate or manner mode. While we are on
2	cell phones, Steve Calkins has asked me to let you know
3	that if he has to step out to take a call, it was
4	because it was unavoidable. One of his classes is
5	having its final exam right now in Michigan -- well, it
6	starts in 25 minutes -- but in Michigan, and he is
7	standing by for the sorts of emergencies that sometimes
8	come up.
9	MR. CALKINS: So, if my phone rings, that is bad
10	news, and it means I blew it and need to grab a file and
11	run away and answer a stupid question.
12	DR. WILLIG: It means we are all posed a new
13	question; namely, the one on your exam.
14	MR. CALKINS: Right.
15	MR. BLUMENTHAL: Speaking of emergencies,
16	second, in case the building alarms go off, stay calm,
17	follow instructions -- we do this at every one of
18	these -- and if you must leave the building, you are
19	supposed to exit from the New Jersey Avenue exit by the
20	guard's desk out here. Please follow the stream of FTC
21	staffers who are leaving the building to a gathering
22	point and await further instruction and stay calm.
23	Third, restrooms, outside the double doors,
24	across the lobby, just follow the signs.
25	Finally, we ask that you not make comments or

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1	ask questions during the session, but we are going to
2	take a break around 2:45 or 3:00, and if people want to
3	slip questions to the moderators, we will, if they are
4	reasonable questions, find a way to work those in.
5	Okay, with that, we will start the round table
6	discussion, and the first question to the panel -- we
7	can do this in reverse alphabetical order, we are going
8	to start with Bobby Willig down at that end and work
9	around -- but I want to start with the broad picture
10	question, and I will ask it three different ways, and
11	take whichever variation you want to use.
12	What do you regard as the one or two issues that
13	the agencies most urgently need to address in the
14	Section 2 report, or if you prefer to think of it a
15	slightly different way, what are the one or two things
16	we ought to be trying to achieve in the report, or what
17	do you regard as the one or two biggest problems in
18	Section 2 doctrine as it stands today?
19	If you don't want to do one or two, if you want
20	to do three or four, that is okay, but let's just work
21	around the horn with Bobby Willig, you first.
22	DR. WILLIG: Well, thank you, thank you. You
23	connect your commentary on my age to the difficulty of
24	the question to be posed, somebody -- with the number of
25	years behind me -- of course, you have been at the front

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1	the whole time, so...
2	I have read through these 15 pages, the extant
3	agenda as of at least yesterday, called "Questions for
4	Hearing." There are many sections of these questions.
5	The first section is called "General Standards." There
6	follows many, many other sections about particular areas
7	of conduct. Each of the sections, in essence, as I read
8	them, poses the same question, and it is the fundamental
9	question that makes these very exciting times for those
10	who like to think about Section 2, competition, and firm
11	conduct, and that is, what should our attitude be as an
12	enforcement community, as a competition policy
13	community? What should our overall philosophy be in
14	considering the everyday legal and counseling issues
15	that arise under Section 2?
16	Is there a philosophy that should come out of
17	academia that should generate particular standards for
18	various contexts and various practices? Should there be
19	one philosophy that actually itself applies in every
20	context and to every set of practices? Or is it really
21	hopeless and all we can do is blunder along in each
22	separate context and make use of whatever experience we
23	have, which differs from context to context, and use the
24	accumulation of case law and footnotes and various
25	economic articles and give up for another decade or so

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1	some sort of overall, coherent view of philosophy in
2	forming standards, in forming particular lines of useful
3	evidence?
4	This to me is the big question of the day. It
5	is an exciting question. It is really at its peak in
6	terms of the span of time that I have spent in this
7	profession right now, and around this horseshoe, and
8	once again a few days from now, are the leading mouths,
9	if not the leading minds, of the community, and if not
10	us, who, and if not now, then when?
11	What makes this worthwhile from my point of view
12	is that, look, if we spend four hours and actually make
13	some progress on it all -- and there is enough of a
14	chance of that in my mind to have motivated the train
15	trip -- it will be an even more exciting time as we can
16	move forward from that kind of progress. So, I would
17	hope that we can do that. I would hope we set ourselves
18	to that task as a group. If we make any progress at all
19	in that respect, I would hope that the organizers and
20	the authors of the subsequent report highlight that and
21	say it as clearly as possible -- within the bounds of
22	politeness in any event -- because such a move by such a
23	group will actually help enormously in terms of framing
24	where we go in the journals and even where we go in case
25	decision-making over the next decade.

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1	That would be my thoughts.
2	MR. BLUMENTHAL: We will talk about general
3	standards.
4	Jan, same question.
5	MS. McDAVID: Well, first of all, I want to
6	applaud the agencies for doing this. These hearings and
7	the AMC hearings and report have really provided a
8	wonderful opportunity to consider the questions that
9	have been vexing many of us in antitrust law for a very
10	long time, and I think it has provided a terrific forum.
11	The AMC report -- congratulations Jonathan and to the
12	staff and to the other commissioners -- it is a
13	wonderful piece of scholarship and provides a lot of
14	useful guidance, and I hope this report will do the
15	same.
16	I would make two relatively simple pleas. The
17	first would be practical advice. On a day-to-day basis,
18	the issues governing Section 2 are applied by
19	businesspeople, inside counsel, and outside counsel in a
20	counseling setting, applying these standards to real
21	life business questions as they arrive without the
22	benefit of Dr. Willig and his colleagues and --
23	DR. WILLIG: I am always ready to serve.
24	MS. McDAVID: -- I know, but it is rarely
25	practical here -- trying to determine whether there is

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1	or is not a price above average variable cost, or
2	whatever measure of cost one might be thinking to apply.
3	So, try to provide some practical guidance that can
4	actually be used to provide horseback advice, which is
5	what most of us do on a day-to-day basis. You can also
6	do the deep thinking, but we need some guidance in that
7	way.
8	I would eschew the request for the Holy Grail.
9	The question as to whether there is a single standard
10	that should be applicable to all conduct under Section 2
11	I think is probably an interesting intellectual
12	exercise, but I would be very surprised if there is one.
13	I do not think there is. Everything I have read
14	recently leads me to think that it is very
15	fact-specific, and that should not surprise us.
16	Antitrust analysis is inherently very fact-specific and
17	very dependent on the particular effects of the
18	particular conduct at issue and the justifications for
19	it, and so I would eschew the quest for the Holy Grail
20	and a single standard.
21	MR. BLUMENTHAL: Tom Krattenmaker?
22	MR. KRATTENMAKER: Thanks, Bill.
23	I agree with Jan, I think the hearings and the
24	AMC have been terrific contributions to antitrust
25	jurisprudence, and everybody should be congratulated for

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1	them. I have had the great good fortune in my life to
2	spend a fair amount of time on the enforcement side and
3	an even longer time on the academic side, and from the
4	enforcement side, my recommendation to those of you
5	writing the report, Bill, and your colleagues, is that
6	you should follow the path of the article "Cheap
7	Exclusion" in the 2005 Antitrust Law Journal, of which I
8	am a very junior author. That article tries to explain,
9	at least in terms of enforcement priorities, there is
10	behavior out there that is relatively cheap to engage in
11	and oftentimes, nevertheless, promises large and durable
12	pockets of market power, and that is where enforcers
13	ought to be looking, and I still believe that is the
14	case.
15	From my academic studies of Section 2, the
16	conclusion I draw or drew and still do is that when you
17	have got a Section 2 case, you begin with remedies; you
18	do not end with remedies. I think the landscape is
19	littered with Section 2 cases, that when they were all
20	over, there was a victory, but it was completely
21	pyrrhic. Sort of the best metaphor I have is that we
22	were given 15 pages of very, very good questions for
23	this session, and the last page was about remedies. The
24	next time you do this, make the first page about
25	remedies. Before you start to talk about Alcoa, tell me

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1	the remedy; before you start to talk about Aspen Ski,
2	tell me the remedy; before you bring the Microsoft case,
3	talk about what the remedy is. So, I would hope the
4	report will focus on remedies a lot. That is
5	substantively.
6	In terms of what I think the report might
7	achieve -- and as Bill knows, I have also had the chance
8	to be Mr. Inside on this, because I had something to do
9	with setting up some of these hearings in a different
10	life -- I would like to see the report call for
11	contributions from outside what I call the fraternity.
12	There are a whole bunch of people in here that belong to
13	the antitrust fraternity. One of the things I learned
14	is -- and maybe it is, again, because I had another
15	life -- is that we actually do not know everything that
16	is relevant to antitrust. I will give you two examples.
17	If you want to learn about immunities, you ought
18	to go talk to somebody who does Constitutional law and
19	public choice. You will be shocked if you think you
20	know what Noerr Pennington is about if you go talk to
21	somebody who only does First Amendment law. Find me a
22	Noerr Pennington case that has the phrase "commercial
23	speech doctrine" in it. Find me a Noerr case that says
24	we are dealing here with a content-neutral statute that
25	serves an important governmental interest and is

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1	entirely unrelated to the suppression of free
2	expression. These phrases are littered throughout First
3	Amendment jurisprudence, and they have never been tied
4	in, because somehow Noerr became captured by the
5	antitrust people and not by the First Amendment people.
6	The second example, which I do not have as much
7	familiarity with -- as you would probably guess, I used
8	to be a First Amendment teacher -- is what about, as Jan
9	referred to, people are confused to some extent.
10	Section 2 law contains many vague admonitions and
11	somewhat inconsistent admonitions. How does this affect
12	business decision-making? I do not know the exact
13	phrase, but there is something like behavioral
14	psychologists, and they are out there in universities
15	and they are in business schools, and you could ask
16	people to come tell you about what difference it makes
17	if you have trouble guessing exactly what the rule is.
18	I really do not know what the outcome is going
19	to be, because it is not my field, but instead of having
20	somebody in here all the time telling us, "Our clients
21	cannot possibly live under that rule of law," or as I
22	now tell people, "My clients cannot possibly live under
23	this vague standard," we have got people out there who
24	might actually be able to address those questions.
25	Finally, I hope that the first sentence of the

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1	report will be, "The fundamental purpose of the
2	antitrust enforcement program at the antitrust agencies
3	is to prevent firms from acquiring and exercising market
4	power to the detriment of consumers." If you write that
5	as your first sentence -- it is the second sentence of
6	the "Cheap Exclusion" article -- I think you will get
7	everything else right. I think your first legal point
8	should be as follows: "Predatory pricing is not the
9	only paradigm."
10	Thank you.
11	MR. BLUMENTHAL: Bill Kolasky, what are the one
12	or two or four things we ought to address?
13	MR. KOLASKY: First of all, I want to join Jan
14	and Tom in complimenting the agencies in having these
15	hearings. I think that it is very important and very
16	useful, especially when the European Commission is going
17	through a similar process on the other side of the
18	Atlantic and has put out a very thoughtful discussion
19	paper, which is I think both provocative and in some
20	ways troubling, while still being reassuring in other
21	ways.
22	I would say three things very quickly. First, I
23	think it is very important that the report focus on what
24	the analytical framework for applying Section 2 ought to
25	be, and I prefer to think about it in terms of an

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1	analytical framework rather than general standards.
2	Because antitrust is highly fact-specific, I do not
3	think you can have general standards. I think you need
4	a sound analytical framework that you apply through our
5	traditional common law means.
6	I actually think that has worked quite well in
7	the Section 2 area but that we have in some ways lost
8	sight of the analytical framework that Chief Justice
9	White first conceived way back in Standard Oil and
10	applied to Section 2 as well as to Section 1, and that
11	is the rule of reason, and I think that that is the
12	framework that we should go back to applying under
13	Section 2.
14	Second, I think it is very important that we
15	focus attention on what is happening on the other side
16	of the Atlantic and that we continue to have a dialogue
17	about how we should apply our antitrust and competition
18	laws to unilateral conduct, and I think there are at
19	least three areas that I would focus on there.
20	The first and most general is the extent to
21	which antitrust authorities -- I hesitate to call them
22	regulators -- should intervene in the operation of
23	markets and substitute their judgment for the judgment
24	of markets. When I say that the European Commission's
25	discussion paper is troubling in some respects, it is

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1	because, while the discussion is extremely
2	sophisticated, it is very difficult to imagine how you
3	would reach decisions, taking into account all of the
4	factors that the discussion paper puts forward with
5	respect to many types of unilateral conduct, and what
6	that suggests, again, is, as with Section 1, we
7	basically need a sound analytical framework and a set of
8	presumptions that we then apply case by case.
9	Second, I think we need to pay close attention
10	to the whole issue of compulsory access to intellectual
11	property, because that is the area in which
12	decision-making by one competition authority can have
13	the greatest spillover effects on other economies.
14	Third, in that regard, I think we need to
15	restore a greater role for the notion of international
16	comity, the idea that one jurisdiction will defer to
17	another jurisdiction which has more substantial and
18	significant contacts with the conduct at issue.
19	Then third and finally, I think that it would be
20	very useful, in whatever reports come out of this
21	hearing, for the report to address particular types of
22	unilateral conduct on which the law is now most
23	confused, and the one that springs to mind immediately
24	is the whole subject of bundled discounts.
25	I think it is a very difficult subject. It is

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1	certainly not one on which I would pretend to have the
2	answers, but I think the law, after LePage's, is
3	extremely confused in that area, making it very
4	difficult for us to counsel our clients.
5	MR. BLUMENTHAL: Jonathan?
6	MR. JACOBSON: Bill, thanks.
7	I agree largely with what all of the panelists
8	have said so far, particularly Jan's comment on
9	counseling and Bill's endorsement of it. I think
10	counseling in the single-firm conduct area is extremely
11	difficult. Clients want to obey the law. They want to
12	be able to engage in activities that are not going to
13	get them sued or investigated, and today, there are a
14	couple of areas, in particular, where counseling is
15	extremely difficult.
16	One of them certainly is bundling. I do think
17	some clarity in bundling is desirable. I am fond of the
18	AMC's proposed test for bundling, which I do not think
19	is intended by anyone as sort of a final measure on it
20	but is sort of an interim measure until something better
21	comes along, and I am sure we will discuss that in more
22	detail today.
23	The second area where counseling is extremely
24	difficult is refusals to deal, and, in particular, how
25	do you deal with a rival in the same market, the Aspen

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1	context; how do you deal with a rival in an adjacent
2	market, Otter Tail and numerous other cases, AT&T; what
3	is the standard for refusals to deal with customers and
4	suppliers that impact horizontal competition in the
5	defendant's market? There is no accepted standard for
6	these areas. The issue arises constantly, and
7	businesses are in dire need of some guidance on how to
8	conduct their affairs in these areas.
9	Then, just sort of going upwards to the larger
10	issues, I do think it is critical that the report say
11	something about the overall framework and the general
12	standards, if any, for Section 2 jurisprudence. I think
13	it is important that the agencies repudiate the no
14	economic sense test as a general test applicable to all
15	forms of conduct. I am sure we will talk about that
16	later. No economic sense has its application in
17	predatory pricing and in some refusals to deal, but it
18	is not a general test, and I think a lot of time and
19	attention is being spent on it when that time and
20	attention would be better devoted to other areas.
21	If we can start with an overall framework, as
22	Bill mentioned, with the rule of reason as articulated
23	in 1911, I think that would be a good place to start.
24	MR. BLUMENTHAL: Einer?
25	DR. ELHAUGE: I think the number one issue

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1	should be increasing clarity. I happened to last week
2	be at a Federal Judicial Conference event, and four
3	judges, when they were introduced to me and found out I
4	was an antitrust professor, sua sponte, volunteered they
5	had each had a recent antitrust case, and they had no
6	idea what the antitrust law meant on their case. These
7	were very smart people. They are doing the
8	instructions. They do not even know what it means. So,
9	it is not surprising that you have trouble counseling
10	firms about what the antitrust law might mean.
11	I think in order to achieve greater clarity, we
12	actually need some more analytical clarity in separating
13	out three questions relevant to this single standard
14	issue. One is, what should the ultimate metric of
15	social desirability be? On that, I actually think we do
16	need one single standard, because we need to know what
17	we are trying to maximize.
18	The second question is, what set of rules and
19	standards will, given the imprecision of rules and
20	standards in application, best advance that ultimate
21	metric of social desirability? And the two are not at
22	all the same.
23	So, for example, for driving, I think the
24	ultimate metric is, we want everybody to drive the
25	socially optimal speed, taking into account the

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1	advantages of speed and the safety risks. We do not say
2	just maximize safety; otherwise, the speed limit would
3	be zero, and our cars would stay in the garage all the
4	time, right?
5	So, we have some policy speed limit, but having
6	decided that the optimal rule -- that that is what we
7	are trying to maximize, we do not make the law, oh,
8	drive the speed that maximizes total driver welfare,
9	because nobody would know what that meant on a
10	case-by-case basis. Instead, we have rules, set
11	particular speed limits for particular areas, so there
12	is a set of rules, they are over and under-inclusive,
13	but they are designed, given the imprecision of
14	application, to best achieve overall results of
15	optimality.
16	In some cases, we have a back-stop standard
17	where if it is, in fact, icy -- you may or may not know
18	this -- but you cannot drive the speed limit if it is
19	very icy. Instead, there is a backup standard that
20	says, you know, in bad conditions, then we fall back to
21	a more general standard of driving safely.
22	So, I think for antitrust, I guess the analogy
23	would be, we evolve that metric, and I would say
24	consumer welfare, given our history, one might argue for
25	total welfare.

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1	Second, we need to have a set of rules that are
2	designed to maximize that. Having a test that was, oh,
3	just act in whatever way maximizes consumer welfare,
4	will lead to no guidance and lots of error, but we could
5	have specific rules for particular suites of antitrust,
6	that is, a rule for predatory pricing, another rule for
7	loyalty discounts, another for bundled discounts, et
8	cetera, et cetera, and then have a backup standard for
9	when none of those rules apply.
10	My nominee is my own article, which is whether
11	or not you are advancing monopoly efficiency or
12	succeeding by depriving rivals of efficiency, and I
13	share the skepticism about the profit sacrifice test.
14	But anyway, I think we need to relegate it to separate
15	out those three things, because they are analytically
16	three very separate questions: Ultimate metric, rules
17	that advance that metric generally, and backup
18	standards.
19	The second thing I think you need to emphasize
20	in any report you write is to make sure that whatever
21	rules we pick are clearly founded in economics. I would
22	describe sort of the broad history of antitrust was we
23	used to have silly, liberal rules based on formalisms.
24	Economics critiqued those successfully, but it has led
25	to a lot of open-ended standards, and there is a risk,

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1	unless we have pretty clear rules that are based in some
2	serious economics, we will instead have silly formalisms
3	of another kind, and I think there is a lot of sort of
4	silly conservative rule formalisms also based on
5	autonomy notions that have nothing to do with economics
6	that are out there now. So, I think you can be
7	rule-like, but be a functionalist and not be a
8	formalist.
9	MR. BLUMENTHAL: Steve?
10	MR. CALKINS: My colleague Baker tells me that
11	you emailed me this question this morning, but I was
12	traveling and did not get it. Previously, I had
13	received the 15 pages of detailed questions, and I do
14	not read 15 pages of questions, so instead, I spent my
15	time reading transcripts of these hearings, and it is
16	really a treat. I mean, it is a genuine feast of
17	people's views, and let me just toss out four things
18	that caught my eye as I was reading the transcripts,
19	and, frankly, I am hoping I can go find somebody who
20	will commission me to write a little article with what
21	you can learn from these, because it is really
22	fascinating. It is a real treasure trove of materials.
23	I have four things to mention.
24	First, Ron Stern, General Electric: counseling
25	in the world of Section 2, is very, very easy. The U.S.

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1	has a massive safe harbor. You do not need to think
2	about antitrust so long as your market share is not over
3	50 percent, and maybe it has to be beyond that, and it
4	is very easy for him to figure that out, and it is just
5	not a problem counseling in the world of Section 2,
6	contrast dramatically the very, very different standards
7	in other parts of the world, where agencies care about
8	firms that have market shares that are somewhere below
9	50 percent. That is where you have interesting,
10	difficult counseling questions. In the U.S., things are
11	very clear, very easy. There are big safe harbors. He
12	would like to see more, but in general, we do not have a
13	big problem in the vast majority of cases.
14	Second, this was a terrific collection of
15	distinguished economists, and one theme sang loud and
16	clear throughout their testimony, and that is that we do
17	not know very much. Again and again and again, people
18	would say: we do not know this, we do not know that; it
19	could be this, it could be that; it could be this way,
20	could be that way; maybe it is going to lessen
21	competition, maybe it won't; we have a lot of
22	uncertainty, we are just beginning to learn this kind of
23	thing. Of course, the interesting question then is:
24	okay, if that is true, what do you do?
25	Some would say what you do is you bring no

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1	lawsuits because you do not know enough, and so when in
2	doubt, do not sue; and others would say, what you do is
3	you create a bunch of rules of per se lawfulness because
4	that is a way of making sure that lawsuits do not get
5	brought; whereas others say, golly, if you do not know
6	things, maybe you should hesitate before trying to lock
7	in per se rules one way or the other when you do not
8	know what the right answer is, and maybe you should
9	hesitate before trying to solidify things exactly where
10	they are today when we have so much uncertainty.
11	Third, if I could get a penny for every time
12	there was mention of the word "Microsoft" or "Dentsply"
13	or "American Airlines" or "LePage's," I could retire
14	right now. My children's college tuition would be taken
15	care of. That is what comes through this. Every time
16	you come to another commentator, he or she says, "Well,
17	since LePage's, we have had 50 different articles
18	exploring these issues;" or "since Microsoft, we have
19	begun to learn about tying law and dominant firms using
20	tying law" -- and so on and so forth.
21	The thing that comes out is you stop and you
22	say, my golly, put aside whether those were meritorious
23	cases or whether they should have been brought or who
24	should have won. Think how impoverished our antitrust
25	law and economic learning would be had they not been

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1	brought! I mean, the positive externalities of one
2	interesting, important monopoly case are really
3	extraordinary, and I hope that one thing that comes
4	through this report is to remind the Department of
5	Justice that, you know, if once every administration or
6	two you bring a monopoly case -- maybe it will be a good
7	case, maybe it won't -- but at least it will stimulate
8	all sorts of learning and scholarship, which may advance
9	the dialogue.
10	The last point was the very interesting lesson
11	that came out of the monopoly power hearing where you
12	had a number of people saying, golly, it is really hard
13	to think about monopoly power, because let's go back and
14	go back to the Department of Justice Guidelines, and how
15	were we able to think about power issues there? We were
16	able to think about power issues because we knew what
17	our goal was. Our goal was to prevent a certain kind of
18	merger, and having figured out our goal, we could then
19	use that goal to think about the test that we would use
20	for deciding whether the merger would result in an
21	excessive increase in power.
22	The problem with Section 2 law is that we do not
23	have that nice, bright, widely-agreed-to goal that is
24	motivating what enforcers are doing, and because we do
25	not, it makes the measuring -- the determining -- of

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1	monopoly power much, much more difficult. So, I guess I
2	would go back to Tom and say we need, in part, to have
3	some lessons here about what we are about. Just in
4	closing on that one, it seems to me critical to remind
5	people that monopoly enforcement is not just about
6	preventing the attaining of monopoly power; it is also
7	about preventing the wrongful maintaining of monopoly
8	power, and that is a message that ought to come through
9	the report loud and clear.
10	Thanks.
11	MR. BLUMENTHAL: All right.
12	DR. BAKER: Well, thank you.
13	Let me begin by echoing many of my colleagues
14	before in commending the agencies and the AMC and others
15	who are doing similar work for systematically thinking
16	about antitrust among the competition community. This
17	is a great way of developing a basis for enforcement
18	programs, for influencing how the courts think about
19	things, and for giving Steve a treasure trove of
20	testimony to work through.
21	As to the report, I would recommend beginning by
22	re-affirming that monopolization is a legitimate area of
23	antitrust enforcement, that firms can harm competition
24	through acts that permit them to achieve or maintain
25	monopoly, and that exclusion can be as harmful as

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1	collusion. I imagine the report would likely go on and
2	launch into some cautions, the sorts of things that many
3	people also talk about, difficulties that arise in
4	telling apart harmful conduct from procompetitive
5	conduct; concerns about the motives of rivals when they
6	complain about exclusion, and those are all legitimate,
7	but I would start with a big endorsement of Section 2
8	and its importance.
9	I would also recommend that the report question
10	an argument I sometimes hear, that when you consider
11	false acquittals and false convictions, that that
12	thinking should somehow suggest putting a thumb on the
13	scales when analyzing monopolization in favor of
14	defendants. The range of tests that are proposed I
15	think of as the "thumb on the scales" tests -- profit
16	sacrifice, no economic sense, disproportionate impact,
17	things like that -- I think should be questioned and
18	that the report should instead endorse a reasonableness
19	approach, which I have heard some of my colleagues
20	endorse also earlier on in the panel, either in an
21	unstructured way, but potentially in the structured kind
22	of way with shifting presumptions in the way that the
23	Microsoft decision of the D.C. Circuit analyzed
24	monopolization. I thought that was a sensible approach
25	and would be an appropriate standard for the Commission

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1	and the Justice Department to endorse.
2	Now, that does not mean you should stop there.
3	I certainly understand the importance of counseling and
4	practical guidance, not just for firms who want to stay
5	within the antitrust laws, but also for Einer's judges
6	who need to understand how to apply them in court, and
7	it would certainly be appropriate for the agencies to
8	propose various kinds of guide posts for implementing
9	the general reasonableness standard in the form of
10	presumptions, for example, in specific types of cases to
11	get some of the benefits of bright line standards,
12	either in settings where there is a reason to think harm
13	is likely, or harm is not likely, or maybe there is no
14	basis for intervention because there is no practical
15	remedy. Those would all be good reasons to generate
16	guide posts.
17	We can go into the details of this later on as
18	we get into cases, but I think that is the general
19	framework that I would suggest approaching in the
20	report.
21	MR. BAER: Thanks, Bill. It is great to be
22	considered a leading mouth, Bobby, and I thank you for
23	that.
24	One of the great benefits of going last, of
25	course, is that most of the things that you might want

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1	to observe have already been articulated well by others,
2	and so I will try and be very brief.
3	I do think a report out of these hearings ought
4	to indicate the agencies' belief in the value of Section
5	2 enforcement. A number of people have talked about
6	that. I think there ought to be a priority given to
7	articulating, as best we can -- and we cannot in all
8	areas -- what the standards are that ought to be
9	applied. I think we need to appreciate not only the
10	point that Jan and others made that guidance to clients,
11	for those of us who are in private practice, are
12	important, but that guidance to enforcers and to judges
13	and to private plaintiff lawyers is of great value, too.
14	One of the most extraordinary benefits, I think,
15	of the Merger Guidelines was the fact that it created
16	common terminology, common ground, for enforcers and
17	private parties to engage in understanding the key
18	issues that needed to be addressed, and I think to the
19	extent we can or this report can articulate comparable
20	Section 2 standards, there is tremendous value to that.
21	Specifically, I do think the confusion over
22	bundled discounts is an area where the business
23	community, the courts, are crying out for guidance, and
24	having this report begin to advance that dialogue is
25	important, but it has to be accompanied, I think, with a

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1	commitment to intervene and articulate the standard in
2	courts in the hopes of expediting a refinement of what
3	the law is on bundled discounts.
4	Finally, I agree with Tom's point that thinking
5	about remedy, not as the throw-away issue but as a
6	front-end issue, do not go in without knowing this has a
7	foreign policy implications, too, without knowing where
8	it is you want to come out or where you think you
9	realistically can come out is a key consideration in
10	terms of Section 2 enforcement.
11	MR. BLUMENTHAL: Well, thank you all. That is a
12	lot to start, and as a moderator, it is almost the
13	question of where do we go next.
14	You know, there are a number of themes that come
15	out of the nine sets of comments. Let me start with
16	this one. A number of people have spoken about the
17	importance of re-affirming Section 2 as a basis for
18	enforcement. Does anyone want to take the opposite side
19	of that and stand up for the proposition that we ought
20	to be expressing caution about excessive enforcement in
21	the area?
22	If the answer is no, if that is the sense of the
23	panel -- Steve?
24	MR. CALKINS: Bill, it is hard to say file fewer
25	cases than the Justice Department is filing, because I

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1	do not think the current Justice Department has filed a
2	single case under Section 2. It is hard to say you want
3	to cut back on that.
4	MR. BLUMENTHAL: Although I will say, in
5	fairness, that Dennis is not here yet, so we do not have
6	the Justice representative up here to defend himself,
7	and I do not carry around a list of Justice Section 2
8	cases the way I do with FTC Section 2.
9	MR. JACOBSON: That is because there are not
10	any, and Dennis would say, "I just got there."
11	MR. CALKINS: I mean, the question here is --
12	private enforcement is what a lot of this is all about.
13	I mean, even some of the people who say, "Let's be
14	cautious, let's cut back, let's have bright rules or
15	bright line rules about why defendants should win," will
16	concede that, in the end, what they are talking about is
17	private litigation. Indeed, I think it was Dan Crane in
18	his session who specifically said that he would like to
19	have a different rule for a government case than he
20	would for a private case.
21	So, when you are talking about enforcement,
22	nobody could suggest that the Justice Department should
23	file fewer suits. If people think there is too much
24	litigation going on, they usually have in mind private
25	enforcement, and, of course, that is controlled by the

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1	private litigants.
2	MS. McDAVID: I would like to echo at least the
3	implicit point Steve has made that there is a role for
4	government enforcement in Section 2. That is something
5	I have believed for a very long time. Let's remember
6	that private cases often involve rivals who have axes to
7	grind and may be fighting their battles in multiple
8	fora, whereas the Antitrust Division and the Commission
9	speak for the United States, and they speak for the
10	consumers of the United States. So they do not bring
11	those biases, and presumably can bring the kind of
12	objectivity as to whether an appropriate case should or
13	should not be brought that may be lacking in the private
14	context. So, I think there is an important role for
15	public enforcement of Section 2, in addition to having
16	public advocacy with respect to Section 2.
17	MR. JACOBSON: Bill, if I could just endorse
18	what Steve and Jan and John, in particular, said
19	earlier, that we would be hard-pressed to say that there
20	should be less Section 2 enforcement than there is
21	today, and I think if one goes back through history and
22	looks at the conduct that has had long-term deleterious
23	impacts on consumers, we will focus on single-firm
24	conduct a good deal more than we will focus on
25	collusion.

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1	Cartels are short-lived, there is cheating, they
2	have no redeeming value, but the raw amount of harm that
3	they inflict on consumers is a good deal less than the
4	durable monopolies. One example that I go back to, and
5	there are many others, but if you look at the motion
6	picture patents case, you are looking at largely
7	single-firm conduct based on the tying of the motion
8	picture projector patent that messed up the motion
9	picture industry for almost a century. I mean, it is
10	still messed up today as a result the cartelization that
11	was formed as a result of the tying arrangements
12	associated with the Edison patent, and there are
13	numerous examples, maybe not as dramatic as that, but
14	the harm inflicted on the economy by unlawful
15	monopolization is very, very severe and much
16	longer-lasting than cartels.
17	MR. BLUMENTHAL: We are going to come back to
18	that, but, Tom, you had --
19	MR. KRATTENMAKER: Well, yes, I will just
20	congratulate Steve for having signed onto the
21	Baer-Krattenmaker Doctrine, and the same kind of
22	thought, if you think about remedies, that might shape a
23	case you would bring, and also, at least -- forgive me
24	if it is heresy, but if you think about a case and you
25	say here is a Section 2 case, what is the end result

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1	going to be, somebody is going to pay treble damages to
2	somebody else, and there is going to be no other change
3	in the world, I have to wonder whether that is something
4	that is a good use of social resources.
5	So, whether you have the basis in this record
6	for that kind of thing, I just do not know, Bill, but I
7	do think that -- I think we have all seen -- and I do
8	not know how many times I have wanted to ask somebody,
9	you are proposing this standard, are you proposing this
10	standard for the definition of monopoly, of a legal
11	monopoly, or are you proposing this standard for the
12	definition of illegal monopoly in a treble damages
13	private action case? It is remarkable how often the
14	explicit or implicit answer is it is only the latter
15	that I have in mind.
16	I do not know that it is the burden of these
17	hearings, but I do not know that it is right that the
18	law of monopolization ought to be driven by the rules of
19	standing to bring private treble damage actions, and I
20	am glad Steve put that -- let me say, that issue, I
21	think, should be on the table. I won't say I am glad
22	Steve put it on the table. Maybe he does not find it
23	that way, so I will take responsibility for it.
24	DR. WILLIG: But to go back to your question,
25	Mr. Chair, do we see too many or too few cases and what

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1	are the dangers, how do they balance going forward, to
2	me this comes back to the standards question, to the
3	question of what are the standards that the enforcement
4	decision has in our collective minds and stomachs about
5	bringing public cases, and how do courts react, and what
6	are the footnotes in the latest Supreme Court case?
7	These are all extremely important, as we all know, for
8	the flow of cases and for the flow of counseling
9	instructions that shape business based on liabilities
10	and expected trouble in litigation.
11	All of this, at the end of the day, really does
12	stem in ways that we can all appreciate from what is the
13	general view, if there is a consensus, of what are the
14	right standards to guide business conduct in specific
15	areas unilaterally. I would like to put in my voice,
16	once again, to say everything everyone has said is
17	great, but, at the end of the day, we have got to get
18	our standards straight, understand what the philosophy
19	is, where we are coming from, and then what are the
20	horseback implications, Jan, but you have got to start
21	from a framework that makes sense, and, yes, makes sense
22	economically as well as legally.
23	DR. ELHAUGE: I was going to say, I agreed very
24	much with the comments that Tom made, and I wanted to
25	relate it to the issue of EC convergence, because often

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1	we say the EC has broader standards, but since there is
2	very little private litigation, and thus, less of an
3	over-deterrence problem, because almost every case is
4	brought by a disinterested regulator who, in theory, has
5	no interest in bringing it if he thinks it is desirable
6	conduct, it actually makes sense for the EC to have
7	broader standard than the U.S. has for the same sort of
8	statute that is also enforceable with private actions.
9	That same kind of logic may suggest that the
10	standards that the Government applies to enforcement
11	action should be broader than the standards we apply in
12	private litigation. A little harder to do for the
13	Department of Justice, because it is the same statute; a
14	little easier to do with the FTC Act, as they could
15	limit these broader rules of FTC Act Section 5, which is
16	not enforceable by the private parties.
17	MR. BLUMENTHAL: Although I suppose one could
18	ask whether the absence of private cases ought to go to
19	broader standards or simply a more active set of
20	enforcement activities by the Government. In other
21	words, it may be that we have the same set of standards
22	but not necessarily the same bundle of government
23	activity.
24	DR. ELHAUGE: Right, but I think different
25	standards are optimal, though. I do think, though, if,

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1	for example, you have some remedy -- if at the end you
2	decide there is no equitable remedy, you might decide
3	the only thing we can do is deter this conduct with
4	treble damages, and so the Government may say this is
5	very important, we just do not have treble damages in
6	our arsenal of remedies, and that is why we leave it to
7	private litigation.
8	MR. BLUMENTHAL: Let's chase down that line for
9	a second. Does anyone have any views on whether we
10	ought to be looking at a different set of standards for
11	government enforcement versus private damage cases?
12	MR. JACOBSON: Well, I will take the contrary
13	position. I believe one of the most important reasons
14	for private enforcement law is government inactivity,
15	and I think it is essential -- and I have said this
16	publicly very recently in connection with the AMC -- it
17	is important to have a robust private enforcement
18	mechanism to make up for periods, as we are living
19	through today, of under-enforcement by the Federal
20	Government.
21	Why is this not a problem in my judgment? It is
22	because, at the end of the day, there is no remedy other
23	than what the courts grant, and there is no
24	self-enforcing private enforcement mechanism. You have
25	to get a court, sometimes a jury, usually the district

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1	judge as well, finding the facts, and you have to get it
2	through a court of appeals, and if you get through those
3	hurdles and to get some relief, the private firm is
4	going to have to have a very meritorious case, and if
5	the private firm has a meritorious case and has been
6	found to have standing and antitrust injury under the
7	case law that has developed, I do not see why the
8	substantive standard should be different than when the
9	Federal Government sues.
10	I do think Section 5 has a role to play in terms
11	of experimentation by the FTC that is broader than
12	Section 2, but fundamentally, I think private
13	enforcement is a good thing, and we should not be
14	embarrassed about it.
15	DR. BAKER: I have a comment on the number of
16	cases, private and government. I did a little research
17	this morning, but it was not, you know, what you would
18	like to do in going through the dockets in all the
19	courts and actually count cases, but in terms of -- it
20	might be useful to lay this out a little bit.
21	The Government, since about 1977, has basically
22	brought about one monopolization case a year, and during
23	the past -- during the current administration, they have
24	essentially been all at the FTC. The FTC is bringing
25	cases at the rate that has been common for the

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1	Government since then. In the sixties and early
2	seventies, it was about three times a year.
3	Now, in private monopolization cases, what I
4	learned was I went back and read -- looked at Steve
5	Salop and Larry White's work on the Georgetown Treble
6	Damages Study. They were looking at 1973 to 1983, and
7	monopoly or monopolization was a primary allegation,
8	they say, in only 3.7 percent of private antitrust
9	complaints. That is what I found. It was a secondary
10	allegation in another almost 9 percent, but a primary
11	allegation in less than 4 percent of the cases.
12	Now, I also happened to notice that predatory
13	pricing was a primary allegation in about 3 percent of
14	the cases, and you did not have to bring a predatory
15	pricing case as a monopolization case, but it is
16	possible that most -- and I just do not know this --
17	that most of those cases were predatory pricing. This
18	study was done before Matsushita and before Brooke
19	Group, and so the predatory pricing cases have become
20	much more difficult to bring.
21	In addition, the antitrust injury requirements
22	operate particularly on monopolization cases in private
23	litigation, because they are often brought by
24	competitors who then have to prove their antitrust
25	injury. So, my suspicion, based on this limited

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1	analysis, is that there is not a plague of bad
2	monopolization cases going on right now and that one
3	could overstate the concern with what would happen if
4	private litigation were somehow -- or what does happen
5	in private litigation, and, therefore, overstate a need
6	to have a different standard for private litigation than
7	for the Government.
8	MR. CALKINS: Well, I have to object. Although
9	I love doing research, and I love having other people do
10	research even better than doing it myself, the problem
11	with looking at the Georgetown study to figure out how
12	many private monopoly cases exist is that you have to
13	remember that back in '73 to '83, there was a viable
14	Section 1 private jurisprudence, and if you were a
15	private party, you could bring a Section 1 case
16	involving something other than cartels and expect to
17	win.
18	Gradually, over time, we have learned that under
19	Section 1, the defendants always win -- that is an
20	overstatement -- unless it is a cartel; just you rattle
21	through it: you know, it is very, very hard to win an
22	exclusive dealing case (Section 1), or a tying case
23	(Section 1), or any kind of Section 1 case. And what
24	has happened? The answer is that innovative private
25	plaintiffs' lawyers are not stupid. They have learned

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1	that if you want to survive summary judgment or a motion
2	to dismiss, the thing to do is to not bring a case
3	unless you either can allege some kind of thing that is
4	like a cartel or something that you can say with a
5	straight face is a Section 2 case.
6	So, what might have been a Section 1 case back
7	during the Georgetown study era might very well, today,
8	be a Section 2 case. It might not. I am not saying
9	there are lots of private Section 2 cases. I am just
10	saying that you have to be careful before drawing a
11	conclusion from how many there were to how many there
12	are today.
13	DR. BAKER: Fair enough, but you still have to
14	prove monopoly power under Section 2, which you do not
15	have to prove in Section 1.
16	MR. CALKINS: Well, and on that one, I am going
17	to flip back to your should we use Section 5 kind of
18	thing and might ever there be an appropriate situation
19	where the Federal Trade Commission maybe should prevail
20	in a Section 5 case, whereas it might be hard for a
21	private party to prevail in a private treble damages
22	case. I cannot say that I am ready to sit down and
23	write a different legal standard, right, but in most of
24	these cases, it is really about a story. It is not
25	usually a single act. It is usually a story of what the

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1	defendant has done that has allegedly lessened
2	competition.
3	As a practical matter, a whole lot of these
4	cases are won by defendants getting summary judgment for
5	failure to show sufficiently high market share. Might
6	there sometime be a situation where, we might decide
7	that the Government, in a Section 5 case, should be able
8	to intervene and prevent some pernicious activity even
9	if, you know, maybe there is more of a debate about
10	market power or maybe the market share is only 60
11	percent and not the 70 percent maybe that circuits seems
12	to require in a private case?
13	Well, I would certainly want at least to leave
14	that question open and think about it -- not as a matter
15	of a different standard, as such, but maybe as applied.
16	There may well be a time when there is a role for
17	Section 5 here.
18	DR. ELHAUGE: In my earlier comment, I was not
19	trying to suggest that private litigation, we need to
20	clamp down on it more now. Instead, I was making a
21	quite different point, that current Section 2 law, it
22	seems to me, is already constrained by the fear of
23	over-deterrence because of private litigation, and if we
24	decouple the standards, then the Government could be
25	freer to choose broader standards, because it may be the

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1	case that the open-ended contextual standard, when
2	applied by a disinterested regulator, makes sense, but
3	if I were working for the Department of Justice, I would
4	hesitate to establish that as the law through a case
5	when I know every private party will be able to operate
6	under the same standard. If you decouple them, then you
7	may find, instead, a different standard would instead
8	make sense.
9	DR. WILLIG: Does this go back to the questions
10	of remedies that some of the panelists have put in the
11	forefront? When I saw the remedy page of the 15, I just
12	scribbled notes that said it is the last page, it is a
13	throw-away, because we all know -- but I really do not
14	know, this is a question for the practitioners -- but I
15	would suggest that we all know that the real force
16	behind counseling and behind your clients paying
17	attention to your counseling is not the fear of remedies
18	imposed by the Government or even by a private court,
19	but instead, the massive treble damages in all the
20	follow-on cases. Isn't that the real force that leads
21	up to deterrence if we had clear and sensible standards?
22	And if that's right, maybe we can leave the remedies
23	page at the back of the stack instead of at the front.
24	MR. BLUMENTHAL: Does anyone have any comments
25	on that?

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1	MR. JACOBSON: I think that is absolutely right.
2	DR. WILLIG: No further questions.
3	MR. BLUMENTHAL: I want to come back to the
4	standards question in a minute, but first, let me do a
5	little bit more just to make sure we are all grounded on
6	the too much or too little dimension.
7	A couple of people have expressed the view that
8	exclusion is as big a problem as collusion. Somebody
9	said it is a bigger problem than collusion can be. I
10	know of at least a few speeches