The case for rebalancing antitrust and regulation.

AuthorShelanski, Howard A.

The Supreme Court's decisions in Verizon v. Trinko and Credit Suisse v. Billing reduced the reach of antitrust law in regulated industries; they did so even where Congress expressly preserved antitrust enforcement, and even though the Court itself had long declined to block antitrust suits against regulated firms except in unusual circumstances. This Article analyzes the reasoning and potential consequences of Trinko and Credit Suisse. It provides a critique of the Supreme Court's redrawing of the relationship between antitrust and regulation and explains how Trinko and Credit Suisse could saddle regulators with a choice between inefficiently strong and overly weak regulation as economic conditions change in regulated industries. The Article concludes that consumers and industry would benefit from a rebalancing of antitrust and regulation and discusses several possible means to that end.

TABLE OF CONTENTS INTRODUCTION I. THE DOCTRINAL EVOLUTION OF REGULATORY IMMUNITY FROM ANTITRUST LAW A. Antitrust and Regulation Before 2004 1. Implied Immunity Without a Savings Clause 2. Immunity and Statutes with an Antitrust Savings Clause B. Antitrust and Regulation After 2004 1. Verizon v. Trinko 2. Credit Suisse v. Billing C. The Court's Underlying Rationale: Overemphasis on Overenforcement? 1. Overemphasis on False Positives: Some Evidence 2. Public Versus Private Antitrust Actions II. Do TRINKO AND CREDIT SUISSE MAKE A DIFFERENCE? III. CONSEQUENCES FOR THE BALANCE BETWEEN ANTITRUST AND REGULATION A. The Costs and Benefits of Regulation 1. Price Regulation 2. Access Regulation B. Why Regulation Gets Harder as Competition Develops C. Antitrust as a Substitute for Regulation IV. ALTERNATIVE SOLUTIONS TO BALANCING ANTITRUST AND REGULATION CONCLUSION INTRODUCTION

One good way to measure the importance of a court decision is to ask how previous cases would have differed had the decision been in place earlier. By that measure, the Supreme Court's decisions in Verizon v. Trinko (1) and Credit Suisse v. Billing (2) turn out to be unusually significant. By broadening the conditions under which regulation blocks antitrust enforcement, those cases redrew the boundary between antitrust and regulation and would likely have prevented the government from bringing, in previous decades, a number of important antitrust cases in regulated industries. Most notably, Trinko and Credit Suisse would likely have blocked the suit by the U.S. Department of Justice ("DOJ") that in 1984 broke up AT&T's monopoly over telephone service, (3) considered among the most important antitrust enforcement actions in history. (4)

The preclusion of such cases has strong implications for the future of both antitrust enforcement and industrial regulation. Before 2004, the year the Supreme Court decided Trinko, public agencies and private plaintiffs had long enforced antitrust law in a variety of regulated settings. Several of those cases reached the Supreme Court and many more went through lower federal courts with no finding that they were inconsistent with the core objectives of antitrust or would interfere with regulatory objectives. (5) Yet many of those cases would have difficulty surviving a motion to dismiss today. Without specifically indentifying legal flaws or harmful consequences from previous antitrust actions in regulated markets, the Supreme Court has in the past decade reconfigured the relationship between antitrust law and regulation to make it much more difficult for antitrust law to play an important role in regulated markets--a limitation this Article will argue is potentially costly and unnecessarily strong.

Although the recent Supreme Court decisions on the relationship between antitrust and regulation are grounded in reasonable concerns about the potential costs of antitrust enforcement, they cast aside several important countervailing considerations. The Court discounted the potential for antitrust to complement regulation and to fill gaps where regulation is unsuccessful. Moreover, the Court presented little basis for its strong assumptions about the high costs of antitrust and mostly ignored the costs of regulation. This is a particularly important omission because, as this Article will argue, the relative costs of regulation and antitrust enforcement vary as technological developments and other economic forces alter the market structures and economic conditions of regulated industries. By limiting antitrust law's ability to step in during such transitions, the Supreme Court's current doctrine governing the interaction of antitrust and regulation could restrict competition policy in regulated markets to a needlessly inefficient choice between underregulation and overregulation, to the potential detriment of American consumers and economic growth.

Part I of this Article describes the relationship between antitrust and regulation before 2004 and examines how the Supreme Court changed that relationship through its decisions in Trinko and Credit Suisse. It then offers a critique of the Court's doctrinal and analytic reasons for limiting antitrust in regulated markets and discusses some important questions that the Court's decisions leave open. Part II explains why Trinko and Credit Suisse matter by examining how their rules might have affected prior antitrust cases, notably AT&T. Part III explains why Trinko and Credit Suisse are likely to leave important gaps in market settings in which the very antitrust enforcement that the cases limit would be particularly valuable. It argues that Trinko and Credit Suisse may limit regulators' ability to adapt their regulatory policies as competition emerges in the industries they govern, creating a potential costly choice between underregulation and overregulation. It analyzes why default to certain common forms of regulation to fill the gap of diminished antitrust enforcement is particularly costly as industries transition from monopoly to competition. Finally, Part IV considers how the current state of the law could be improved while still addressing the concerns that motivated the Supreme Court to adopt its restrictive stance toward antitrust enforcement in regulated industries.

  1. THE DOCTRINAL EVOLUTION OF REGULATORY IMMUNITY FROM ANTITRUST LAW

    Before 2004, the federal courts readily allowed public enforcement agencies or private parties to base antitrust claims on conduct subject to regulation and construed limits on such claims narrowly. In 1963, for example, the Supreme Court rejected the New York Stock Exchange's attempt to block a group of securities dealers from pursuing an antitrust suit against the exchange for having directed its members not to provide wire transfer services to the nonmember plaintiffs. (6) The Court ruled that the Securities Exchange Act of 1934 allowed some self-regulatory conduct by exchanges that might ordinarily run afoul of the antitrust laws, but held that the group boycott at issue was outside the permissible scope of such self-regulation and therefore not exempt from antitrust suits. (7) The Court's decision presumed against exemptions from Sherman Act scrutiny in order to advance section l's core objective of preventing anticompetitive collusion. Similarly, in 1973 the Court affirmed the government's application of section 2 of the Sherman Antitrust Act (8) ("section 2") to interconnection among rival electric utilities. (9) The Federal Power Commission ("FPC") had independent authority under the Federal Power Act to order and regulate such interconnection. (10) The Court nonetheless upheld the lower court's decision to block a dominant utility from using its control over electrical generation to exclude a rival power distributor and monopolize the power market. (11) The DOJ had three times sued AT&T (in 1912, 1949, and 1974) for a variety of exclusionary practices against rivals in various telephone equipment and service markets. (12)

    In several of those cases, the Supreme Court expressly grappled with whether the applicable regulation implied immunity from particular applications of antitrust law; in others, the courts implicitly resolved the question of antitrust immunity by letting the antitrust case proceed without comment. The key point is that the federal courts allowed the simultaneous operation of the general antitrust statutes and an industry-specific regulatory statute. This simultaneous operation was consistent with the respective statutory texts. Nothing in the Communications Act, the Securities Exchange Act, or the Federal Power Act expressly conferred immunity from antitrust law. Congress was silent on the relationship between antitrust law and those statutes, and the Supreme Court maintained a presumption against antitrust immunity. It established specific standards for the level of conflict--"plain repugnancy" in the Court's words--between antitrust law and the regulatory statute that must exist before courts can imply immunity from antitrust. (13) While the strength of the presumption against implied immunity from antitrust law did not remain constant across the cases that came before Trinko and Credit Suisse, those two cases marked a significant change from the earlier decisions. As will be discussed in detail below, Trinko expanded the scope and rationale for implied immunity from antitrust enforcement in a market governed by a regulatory statute that, far from being silent with regard to antitrust, contains a savings clause that expressly preserves the simultaneous operation of antitrust and regulation. Credit Suisse extended the idea of "repugnancy" between regulation and antitrust even to antitrust claims that could not in fact conflict with regulatory prerogatives. To understand the impact of the Supreme Court's recent decisions, this Part begins with a discussion of the doctrinal relationship between antitrust and regulation before Trinko and then turns to a discussion of the Trinko and Credit Suisse decisions themselves.

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