The Death of Antitrust Safe Harbors: Causes and Consequences

Competition Policy and Antitrust, Intellectual Property and Patents

Article Snapshot

Author(s)

Lindsey M. Edwards and Joshua Wright

Source

George Mason Law Review, Vol. 23, No. 5, pp. 1205-1250, 2016

Summary

In the 1980s and 1990s, antitrust courts ruled that some business behavior would be presumed legal under antitrust case law and merger guidelines, creating “safe harbors.” In the twenty-first century, most of those safe harbors have disappeared.

Policy Relevance

Advances in economic analysis and theory do not justify abandonment of safe harbors. The loss of safe harbors is best explained by political changes at administrative agencies.

Main Points

  • The Sherman Act prohibits “restraints on trade;” over the years, courts have interpreted this prohibition differently; after the Depression, courts enforced antitrust rules aggressively, making some business behavior per se illegal, and strictly scrutinizing mergers.
     
  • This article uses the term “safe harbor” to refer to behavior that is usually presumed legal under an antitrust court’s “rule of reason” analysis.
     
  • The modern antitrust era originated with insights from the accumulation of economic learning by the Chicago School of Antitrust Economics.
     
  • Beginning in the 1980s, the courts created important safe harbors from antitrust liability; for example, liability for “predatory pricing” was limited to cases where retail prices fell below cost, and safe harbors were created to protect innovation and many mergers.
     
  • Safe harbors were created partly because of economic insights into the costs of legal errors and administrative rules: Judge Easterbrook emphasized that wrongful antitrust convictions were probably more harmful to consumers than false acquittals.
     
  • Beginning in 2010, the Supreme Court and regulatory agencies began to abandon safe harbors; for example, the FTC abandoned the assumption that it should be legal for a monopolist to charge a monopoly price, ruling the owner of a patent may not charge a monopoly price when it has agreed to license the patent on fair, reasonable, and nondiscriminatory terms (FRAND).
     
  • There is no evidence that advances in economic analysis justify abandoning safe harbors; neither development in economic theory nor trends in empirical studies explain or justify the retreat from safe harbors.
     
  • Shifts in political and ideological thinking at key agencies such as the Federal Trade Commission and the Department of Justice seem to best explain the movement away from safe harbors; agencies might tend to favor rules that increase their “win” rate.
     

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