A UNIFYING STANDARD FOR MONOPOLIZATION: 'OBJECTIVE ANTICOMPETITIVE PURPOSE'.

Author:Kemp, Katharine
 
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Most commentary on the law against monopolization under Section 2 of the Sherman Act highlights the difficulty in distinguishing aggressive competition (which society prizes) from anticompetitive exclusionary conduct (which should be condemned), as well as the controversy created by various tests for monopolization proposed since the turn of the century. This Article seeks to do the opposite. It argues that, despite the apparent differences between the key proposals in this area, a common thread can be identified. In particular, each of the proposed tests for monopolization reveals a central concern, not with the actual effect of the impugned conduct, nor with its profitability for the monopolist or the firm's subjective intent, but with the objective purpose of the impugned conduct. There is, in fact, a unifying theme, an implicit norm, at work in Section 2 cases and commentary. The implicit norm is that a firm should not engage in conduct which has the purpose, objectively assessed, of creating, protecting, or enhancing monopoly power by suppressing rivalry without creating proportionate benefits for consumers. The relevance of this type of purpose is reinforced by the key themes in the current, highly contentious, debate about the reform of misuse of market power laws in Australia.

INTRODUCTION I. RATIONALE FOR UNILATERAL ANTICOMPETITIVE CONDUCT LAWS II. "EFFECTS-BASED" TESTS FOR EXCLUSIONARY CONDUCT A. "Effects-Based" Tests in Case Law and Commentary B. Common Themes in Effects-Based Tests C. Criticism of Effects-Based Tests D. Responses to Criticisms of Effects-Based Tests III. "PROFIT-FOCUSED" TESTS FOR UNILATERAL CONDUCT A. Introduction to "Profit-Focused" Tests B. Profit Sacrifice in the Case Law C. Proposals for a Profit-Focused Test for Unilateral Conduct Generally D. The "Take Advantage" Test in Australia and New Zealand E. The Common Concern of Profit-Focused Tests: Objective Purpose F. Criticisms of Profit-Focused Tests G. Responses to Criticisms of Profit-Focused Tests IV. PURPOSE AND INTENT IN THE CASE LAW A. Introduction to Purpose and Intent B. Subjective Purpose or Intent to Harm Competitors C. Subjective Purpose of Hindering the Competitive Process D. Subjective and Objective Purpose Distinguished E. "Normal Business Purpose" V. THE RATIONALE FOR AN OBJECTIVE ANTICOMPETITIVE PURPOSE STANDARD A. Signposts in the Existing Law B. A Return to the Rationale for Unilateral Conduct Rules C. The Role of Objective Purpose in Characterizing Unilateral Conduct D. Improved Certainty and Administrability E. Reduced Error Costs and Deterrent Effects CONCLUSION INTRODUCTION

It has become customary, when discussing monopolizing conduct, to begin by applying some disparaging label to the current state of the law. Monopolization under Section 2 of the Sherman Act is said to require proof of two elements: the possession of monopoly power and exclusionary conduct. (1) The standards applicable to the second element, exclusionary conduct, have been variously described as "vacuous," (2) "uncertain," (3) "elusive," (4) "unclear," (5) "unsettled," (6) "oxymoronic," (7) "in substantial disarray," (8) "in dire need of correction," (9) and plagued by "serious definitional inadequacies." (10) Or, as Lambert more recently began, "[t]here is a problem with Section 2 of the Sherman Act: nobody knows what it means." (11)

It is true that the law on what constitutes exclusionary conduct under Section 2 remains unsettled, particularly in the absence of unifying guidance from the Supreme Court. (12) It is also true that, since the turn of the century, United States courts and commentators have proposed a variety of tests and definitions for exclusionary conduct in an attempt to resolve this uncertainty. (13) These include the "consumer harm" test, (14) the "no economic sense" test, (15) the "profit sacrifice" test, (16) the "equally efficient competitor" test, (17) and the "proportionality" definition. (18) Most commentary in this area highlights the difficulty in distinguishing aggressive competition (which society prizes) from anticompetitive exclusionary conduct (which should be condemned), as well as the differences between the major approaches proposed for the characterization of exclusionary conduct. (19)

This Article seeks to do the opposite. This Article argues that, despite the apparent differences between the key proposals in this area, a common thread can be identified. In particular, each of these proposals reveals a central concern, not with the actual effect of the conduct, nor with its profitability for the monopolist or the firm's subjective intent, but with the objective purpose of the impugned conduct. There is, in fact, a unifying theme, an implicit norm, at work in Section 2 cases and commentary. The implicit norm is that a firm should not engage in conduct which has the purpose, objectively assessed, of creating, protecting, or enhancing monopoly power by suppressing rivalry, without creating proportionate benefits for consumers--an objective anticompetitive purpose.

It is necessary to clarify at the outset what is meant by "objective purpose." A "purpose" is the end or goal which a person seeks to achieve by their act or omission. (20) References to purpose or intent in antitrust case law and commentary are generally references to a person's subjective purpose or intent. "Subjective purpose" refers to the end that the relevant person actually seeks to achieve. (21) Proof of subjective purpose requires direct or indirect evidence of that person's actual state of mind.

"Objective purpose," on the other hand, refers to a purpose determined without the need to refer to the person's mental state. (22) It is possible to bypass evidence concerning a person's actual state of mind and "attribute a purpose to an artificial or notional mind that is deemed responsible for some act or omission." (23) Objective purpose may be deduced from the nature of the act or omission and the surrounding circumstances. (24) To be clear, this is not a matter of using indirect or objective evidence to prove a person's actual state of mind. (25) Rather, under an objective standard, these factors are taken into account to determine the nature of conduct rather than the mind of actors. (26) Conduct is therefore not absolved on the basis of the dominant firm's erroneous assessment of the likely impact of its conduct, or because the firm failed to turn its mind to the likely impact of its conduct.

This Article argues that U.S. case law and commentary have been concerned with objective anticompetitive purpose as an implicit norm for many years. However, an objective anticompetitive purpose standard should be expressly recognized and articulated. This standard is justifiable as it targets the relevant harm addressed by Section 2 at the same time as improving the administrability of the standard, reducing uncertainty and the risk of over-deterrence. (27) Once the true standard for exclusionary conduct is identified, workable tests for applying this standard can be framed.

Laws prohibiting unilateral anticompetitive conduct have been the subject of international debate for decades, as policymakers, antitrust scholars, and agencies continue to disagree over how best to regulate the market conduct of a single firm when that firm enjoys a substantial degree of market power. (28)

In recent years, Australia, in particular, has witnessed unprecedented controversy concerning its law against misuse of market power, largely as a result of growing dissatisfaction on the part of the competition regulator and small business groups over the operation of this law. (29) The debate in Australia has intensified since March 2015, when the final report of the Harper Review recommended fundamental and controversial changes to the relevant law, which the government now proposes to adopt. (30) This Article argues that the relevance of objective anticompetitive purpose is reinforced by the key themes in the current debate concerning the potential reform of misuse of market power laws in Australia. (31)

This Article proceeds as follows. Part I explains the underlying rationale for laws against single-firm, or unilateral, anticompetitive conduct. Part II describes several proposals for "effects-based" tests for exclusionary conduct, which arose around the time of Microsoft, as well as the "substantial lessening of competition" test recently proposed to reform the law in Australia. (32) It goes on to explain the criticisms of these tests --especially claims of uncertainty and over-deterrence --and responses to those criticisms by advocates of "effects-based" tests. These responses, it is submitted, reveal a fundamental concern with the objective purpose of the conduct.

Part III describes proposals for several "profit-focused" tests for exclusionary conduct, especially following the decision of the Supreme Court in Trinko. (33) It argues that a similarly profit-focused test, in the form of the "take advantage" requirement, has been adopted as part of the misuse of market power laws in Australia and New Zealand. While, in the United States, such tests have been proposed as a means of avoiding the uncertainty and over-deterrence of effects-based tests, they have largely been rejected as a general standard for unilateral anticompetitive conduct due to their under-inclusiveness (and sometimes over-inclusiveness). This part goes on to explain that "profit-focused" tests each represent one method of identifying the objective purpose of the impugned conduct, but they are too restricted in their scope to capture all significant instances of unilateral anticompetitive conduct. (34)

Part IV considers other cases in which the case law and commentary have focused on "purpose" in the characterization of unilateral conduct. It distinguishes the concept of a "normal business purpose" or "legitimate business purpose" (which has suffered from a lack of definition (35))...

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