Markets? We Don T Need No Stinking Markets! the Ftc and Market Definition

• Author: James A. Keyte,Neal R. Stoll
• Published date: 01 September 2004
• Date: 01 September 2004
• DOI: http://doi.org/10.1177/0003603X0404900304
• Subject Matter: Article

The Antitrust Bulletill/Fall 2004

Markets? We don t need no stinking

markets! The FTC and market

definition

BY JAMES A. KEYTE and NEAL R. STOLL *

593

In recent years adistinct trend has emerged in the Federal Trade

Commission's

(FTC or the Commission)

approach

to non merger

antitrust enforcement. The FTC has begun to eschew the "traditional"

structural method of proving harm to competition in favor of a more

fashionable and flexible approach. Gone are the days when a precisely

delineated market definition and rigid structural market analysis were

invariably the starting point in Sherman Act or FTC section 5 cases.

Indeed,

the position

often

now

articulated

by the

FTC

is that a

rigorous structural analysis. including market definition. is essentially

unnecessary where a

defendant's

conduct

can

be characterized as

"inherently suspect" or where it believes there is "direct" evidence

of

harm to competition. The most recent examples

of

this evolution is

*Partners in the Antitrust Group in the New York office

of

Skadden,

Arps, Slate. Meagher &

F10m

LLP.

AUTHORS' NOTE: Jeffrey M. Beyer and Joseph A. Garcia. associates

of

the

finn. assisted in the preparation

of

this article. We thank a referee

for

his

helpful comments. The 1948 film The Treasure

of

the Sierra Madre, based on

the 1935 novel

of

the same name, was the origin

of

the line, "Badges!? We

ain

't

got no badges. We don't need no badges! 1don't have to show you any

stinking

badgesl!"

The line

has

been oft-parodied,

perhaps

no

more

famously than in the 1974 Mel Brooks film, Blazing Saddles. See generally.

http://www.jact-index.com/w/we/we_ain_t...got_no_badges.html(visited

March 8.2(04).

©2004 by Federal Legal Publicanons, Inc.

594

The antitrust bulletin

reflected in the Commission's 2003 PolyGram and Schering-Plough

decisions, in which the Commission reiterated its belief that it need

not prove market definition where more direct methods of establishing

actual or likely competitive harm are available.

Nor has the FTC's use of direct anticompetitive effects analysis

been confined to the nonmerger context. For the past several years,

particularly

following

the

Staples

decision,

the FTC has been

pursuing astrategy of challenging mergers under section 7 based

primarily, if not solely, on the idea that the acquisition eliminates

significant head-to-head competition between close substitutes; in the

FTC's

view,

defining

traditional

antitrust

markets

in

such

circumstances is unnecessary. This approach is most often used when

challenging

a

combination's

so-called

unilateral effects. Taken

together, the FTC's infatuation with these new modes of analyses of

competitive

harm

not

only

must

be

acknowledged,

it must be

anticipated by all antitrust practitioners from the outset of any FTC

matter that historically would have been subject to the usual market

definition

battle. More broadly, the trend away

from

amarket

definition requirement in FTC actions raises several significant policy

concerns-including the risk of "false

positives"-and,

at a minimum,

suggests that courts need to define much more clearly and predictably

what will be considered an anticompetitive effect.

This article attempts to detail the FTC's shift away from structural

analysis to demonstrate harm to competition, with a particular focus

on nonmerger cases. It also contains a brief review of this same shift

in thinking in FTC merger investigations and enforcement actions, as

such review provides a window into the FTC's analytical direction.

Section I contains a brief examination of the historical underpinnings

of traditional market definition and structural analysis for nonmerger

cases. Section II examines the development of the

"quick

look"

analysis-eulminating

(for

the time being) with the Cal Dental

case-and

how the quick look offers the FTC opportunities to depart

from the classic notions of market definition and traditional structural

analysis. Section III examines the "direct effects" variation of the

"full"

rule

of

reason-particularly

as

reflected

in the

Indiana

Federation

of

Dentists case and its

progeny-and

explores how direct

effects

analysis

continues to

expand

within the

FTC's

antitrust

Market definition :595

enforcement policy. Finally, Section IV contains abrief look at the

FTC's post-Staples merger enforcement performance, examining how

the

Commission's

departure

from

traditional

market

definition

analysis in the nonmerger area has comfortably insinuated itself into

the merger area as well.

The practical advice that emerges from these trends is clear:

practitioners must recognize that the

FTC-rightly

or

wrongly-is

aggressively

attempting to use the

quick

look

as

essentially

an

expanded (an extremely flexible) per se vehicle to establish antitrust

liability. At the same time, the FTC is successfully expanding the

separate and distinct

"direct

effects" approach under the rule

of

reason, including even in the section 2

setting-an

analysis that also

obviates the need for market definition analysis. And there are few

limits in sight to this trend. Armed with the flexibility of Cal Dental's

"sliding scale" test of reasonableness under the antitrust laws, the

FTC is effectively free to roam the industrial landscape without

having to establish relevant markets before it brings its enforcement

powers to bear on any particular industry or defendants. Not quite the

questionable band of characters in Treasure

of

the Sierra Madre, but

the potential for

mischief-or

at least misplaced

enthusiasm-is

real

and upon us.

1.

Historical

use

of

markets

in

antitrust

analysis-

nonmerger

cases

'

For several decades, market definition and structural analysis had

afairly understood role in Sherman Act cases. In section Icases

analyzed under the per se rule, the Supreme Court has directed that a

structural analysis, including market definition, is unnecessary: where

a"practice facially appears to be one that would always or almost

always tend to restrict competition and decrease output," the restraint

may be condemned without any further analysis.' Thus, under the per

se doctrine, a restraint is conclusively presumed to be anticompetitive

Broadcast Music, Inc. v. CBS, 441 U.S. l , 19-20 (1979); accord

Continental T.V. v. GTE Sylvania Inc., 433 U.S. 36, 50 (1977) (per se

rules are appropriate for "conduct that is manifestly anticornpetitive").