Coming to Terms With Daubert in Sherman Act Complaints: a Suggested Economic Approach

• Publication year: 2021

77 Nebraska L. Rev. 83. Coming To Terms With Daubert In Sherman Act Complaints: A Suggested Economic Approach

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Robert F. Lanzillotti*

Coming To Terms With Daubert In Sherman Act Complaints: A Suggested Economic Approach

TABLE OF CONTENTS

I. Introduction .......................................... 83
II. Standard Economic Indicia of Collusion................ 93
III. Oligopoly Models of Collusive Behavior ................ 95
IV. The Test Model: Product and Market Characteristics . . 96
A. Bid Strategies ..................................... 98
B. Bidding Constraints ............................... 99
C. Test Hypothesis ................................... 100
V. A Test Case Study: Bidding Patterns for School Milk
Contracts ............................................. 101
A. Bidding Patterns for School Milk Contracts
Generated Under a Duopoly: Some Empirical
Evidence .......................................... 102
B. Bid Prices in Greater Cincinnati Area, 1992-1995 . . 106
VI. Summary and Conclusions ............................ 108

I. INTRODUCTION

United States Supreme Court opinions handed down over the past fifty years appeared to have accepted and clarified the circumstances under which agreement (conspiracy) can be reasonably inferred from

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circumstantial evidence.(fn1) These cases, however, have been placed under a cloud by recent court interpretations of the Federal Rules of Evidence. Invoking the 1993 Daubert rule,(fn2) defendants in several price-fixing/bid-rigging cases have successfully raised the bar on the "evidentiary high jump" governing the admissibility of economic and statistical evidence presented through expert testimony.(fn3) In each instance, defendants moved for summary judgment contending that expert testimony was inadmissible under Daubert. In Ohio v. Louis Trauth Dairy, Inc.,(fn4) Tuscaloosa v. Harcos Chemical, Inc.,(fn5) and In re Aluminum Phosphide Antitrust Litigation,(fn6) defendants argued in a pre-trial motion that economic expert testimony to be offered by plaintiffs should be excluded.

A recently published article argues that several antitrust trial courts since Daubert "have fulfilled their 'gatekeeping role' by scrutinizing expert economic testimony under the Daubert microscope," and

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concluding "[i]n the meantime, Daubert is already emerging as a significant evidentiary hurdle for expert economic testimony in antitrust cases."(fn7) A contrary interpretation of Daubert, also very recently published, observes that "[i]n recent years, the defense bar has mounted a legal offensive, euphemistically called 'the Daubert defense,' to skew the balance of 'expert power.'. . . A brief analysis of Daubert and its progeny will demonstrate the fallacy that Daubert has licensed courts to reduce litigation by excluding competent experts."(fn8) Moreover, the apparent current euphoria of the defense bar over recent Daubert challenges to expert economic testimony overlooks the possibility (probability?) of a "boomerang" effect when defense economic experts themselves become the targets of Daubert challenges. This is especially true in instances where their expert contribution amounts to little more than a simple critique of the work of others.

Care should be exercised in reading too much into these recent opinions since both the trial and appellate courts have not been consistent in their application and interpretation of Daubert's two-prong test. Daubert has been applied in literally dozens of cases since the 1993 United States Supreme Court opinion, most of which have involved product liability issues and the admissibility of testimony by medical, epidemiological, biostatistical, or chemical experts. Challenges to economic experts represent a relatively new extension of Daubert.(fn9) To illustrate, (a) in Aluminum Phosphide, Judge Vratil sustained defendants' motion to exclude testimony of plaintiff's economic expert, after holding a full evidentiary hearing on defendants' motion that included a review of the economic reports prepared by plaintiff and defense experts, and a lengthy consideration of testimony at the hearing

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by both plaintiff and defendant economic experts;(fn10) (b) similarly, in Trauth Dairy, Judge Spiegel held an evidentiary hearing that included affidavit testimony by both plaintiff and defense economic experts, but declined to exclude the proposed testimony;(fn11) (c) by contrast, in Harcos Chemicals, Judge Guin did not follow the guidelines or standards of Daubert. He did not convene an evidentiary hearing on defendants' pretrial motion to determine whether the theory or techniques offered by plaintiffs' experts can be or have been tested, whether they had been subject to peer review, whether the theory or techniques have been generally accepted, whether the experts were proposing to testify about matters growing naturally and directly out of research conducted independent of the litigation, or whether they had developed theories or techniques expressly for the purpose of testifying in the instant litigation.(fn12)

The tremendous degree of diversity of Daubert interpretations

among various district and appellate courts has been exhaustively reviewed
and documented.(fn13) Hence, Daubert rulings on the admissibil-

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ity of expert economic testimony reflect some of the same confusion and inconsistency that has characterized the application of Daubert in other areas involving expert testimony.(fn14) In Joiner v. General Electric Company, District Judge Evans deemed inadmissible all of the testimony of plaintiffs' experts and granted summary judgment for defendants. Judge Evans also denied both the plaintiffs' and defendants' requests for oral arguments on the defendants' joint motion for summary judgment.(fn15)

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Daubert motions typically are based on challenges to the validity, testability or general acceptance by other scholars of the particular methodology employed by experts.(fn16) Yet, the district courts in Joiner v. General Electric Company (fn17) (medical experts) and Harcos Chemicals (economic experts) rested their decisions not on the methodology, that is, whether the methods, procedures, and information used by the plaintiffs' experts are scientifically reliable, but on the courts' conclusions that were contrary to that of proffered testimony.(fn18) As a factual matter, economic analysis grounded in modern oligopoly theory has

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been (a) exhaustively analyzed and tested under different assumptions and configurations, (b) copiously published in economic literature over the past five decades, and (c) widely accepted at face value for years by the courts as an essential, if not crucial element of proof in demonstrating the presence of price-fixing, bid-rigging and other horizontal agreements where only circumstantial evidence is available.(fn19) However, economics is not a "hard" science, and it is debatable whether economic testimony should be subjected to the same type of standard as expert testimony by laboratory sciences.(fn20)

Based upon other recent court interpretations of Daubert, there already exists good reason for the Eleventh Circuit to rule that the Harcos Chemicals court incorrectly applied the holding in Daubert.(fn21) Nonetheless, the Harcos Chemicals ruling underscores for all antitrust counsel and antitrust experts the importance of coming to terms with standing requirements of Daubert and the burdens of proof they must shoulder even when Daubert is correctly applied.

Aside from the relative merits of the complaint and defenses in Harcos Chemicals, the Daubert rule reflects a deep disagreement and confusion that permeates the literature with respect to the purposes and uses of theoretical constructs (both legal and economic) and the requirements of legal proof. Oligopoly theory instructs us that collusion (a tacit or overt agreement or mutual understanding among firms

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to coordinate their actions on some business objective, such as artificially raising price levels or allocating customers or markets) creates a
"non-competitive" event, that is the necessary economic finding required
to satisfy the legal proof of a Section 1 violation involving a combination or conspiracy in restraint of trade.(fn22) At the same time, some legal theory appears to argue that the firms in question should not be found guilty if that same result (a) could plausibly have occurred without an agreement (even though some circumstantial or testimonial evidence of an agreement exists), or (b) unless it can be demonstrated that the firms intentionally contributed to the contested results (rigged or higher than competitive prices, allocated customers, or arbitrarily divided geographic markets).

Short of "smoking-gun," or testimonial evidence confirming competitor

agreements, proof of a violation in Section 1 cases inevitably requires an examination and evaluation of certain business phenomena that, by their nature, are largely economic, statistical, and full of complexities requiring expert exposition and explanations.(fn23) However, of late some judges apparently have become uncomfortable with such testimony as a form of proof, and availed themselves of the Daubert option. Thus, even though strong circumstantial economic evidence has been admitted in a given fact situation showing that an agreement of some sort existed (tacit, sophisticated or clumsy) it may not satisfy the "form" requirements considered essential in order to find liability. Daubert seems to hold that testing must be "scientific," but it is not clear on probative grounds just how this would differ from a demonstration that a certain pattern of behavior could only have occurred with collusion. The way the Daubert rule has been injected into antitrust litigation adds to the confusion surrounding the policies the courts believe they are enforcing. The confusion is twofold...