Prepared Remarks of Thomas O. Barnett, Assistant Attorney General for Antitrust, at the Bundeskartellamt Ceremony Celebrating Fifty Years of the German Competition Act

Jan 15, 2008, 00:00 ET from U.S. Department of Justice

    BONN, Germany, Jan. 15 /PRNewswire-USNewswire/ -- Today we celebrate
 the 50th anniversary of the entry into force of Germany's Act Against
 Restraints of Competition (ARC). I am greatly honored that Dr. Heitzer and
 the Bundeskartellamt (BKA) invited me to Bonn to join your celebration. In
 my time today, I want to look first to the past by providing an American
 perspective on the significance of the BKA's contribution to global
 competition policy during the half-century of its work. Then I will turn
 toward some of the future challenges we will face together, in particular
 one of the most difficult and contentious areas of modern antitrust -- the
 rules governing single-firm conduct by firms that are 'dominant' or possess
 what we would call 'monopoly power.' In this area I will offer some
 thoughts on how safe harbors can help business to conform to and understand
 the rules, provide guidance to enforcement authorities, and minimize the
 risk of costly errors that may chill the vigorous competition and the
 spirited innovation that are of most long-term benefit to consumers.
     Most of you are well aware that Germany's robust tradition of antitrust
 enforcement began much earlier than 50 years ago. The Weimar Republic's
 Regulation Against Abuse of Economic Power Positions in 1923 was 'the first
 general legislation in Europe aimed specifically at protecting the
 competitive process.' Three decades later, the German federal parliament
 enacted the ARC after many years of debate, building upon the
 de-cartelization and de-concentration laws introduced in Germany by the
 U.S. authorities in 1947. The year 1958 is a major milestone in the history
 of antitrust, with the adoption of the ARC in Germany and the signing of
 the Treaty of Rome establishing the European Community, with its famous
 articles 85 and 86 (since renumbered as 81 and 82). Both legal regimes
 became effective on January 1, 1958.
     Dr. Franz Bohm, a prominent German thinker and champion of the ARC,
 once observed that 'a free market economy resembles a monarchy in that the
 consumer is the king.' In substance, this sentiment closely mirrors the
 U.S. commitment to consumer welfare as the foundation of a free market.
     With the adoption of the ARC, the newly-established BKA instantly
 became the preeminent model of an independent, court-like expert
 administrative body. The BKA's first President, Dr. Eberhard Gunther, held
 his post for eighteen years -- an extraordinarily long tenure -- and set
 the BKA on a firm foundation. One of the great strengths of the German
 antitrust regime has been that the BKA is insulated from political
 considerations. Any ministerial overruling of its decisions on
 non-competition grounds is open and transparent, clearly exposing the
 trade-off between competition and other policies for healthy debate. This
 has surely been an important confidence-building measure for German
 consumers and businesses alike.
     From an early date, the German authorities have been reliable partners
 in cooperation with the U.S. Department of Justice, to our mutual benefit.
 Our first bilateral antitrust agreement dedicated to enforcement
 cooperation was signed with Germany, in 1976. Especially in the field of
 anti-cartel enforcement, we have had a long and productive relationship
 involving legal assistance, extending well over a decade. After years of
 negotiation, a Mutual Legal Assistance Treaty (MLAT) with Germany has now
 been signed; when ratified by our respective federal legislatures, it will
 be the first of the United States' 50-plus MLATs to apply to administrative
 cartel investigations, giving the BKA reciprocity in seeking U.S.
 Government assistance in cartel cases.
     Germany has also played a leading role in the development of European
 Community competition law as a source of highly-qualified enforcement
 officials, having provided the first Commissioner responsible for
 competition policy (Dr. Hans von der Groeben) and a stellar series of
 Directors-General for Competition (including Drs. Manfred Caspari, Claus
 Ehlermann, and Alexander Schaub). And last, but not least, while we in the
 U.S. often think that we invented premerger notification, in fact the
 German merger notification regime was established in 1973, three years
 before our Hart-Scott-Rodino Act, and 16 years before the EC's Merger
 Control Regulation.
     In addition, the BKA has consistently been a leader in the
 international antitrust community. For many years it has hosted the
 prestigious biennial Cartel Conference -- one of the highlights of the
 international antitrust calendar -- first in Berlin, then in Bonn, and most
 recently in Munich. A senior BKA official chaired the OECD's Competition
 Law and Policy Committee from 1987 to 1994, and BKA presidents have always
 been members of the Committee's guiding Bureau. The BKA was a founding
 member of the International Competition Network (ICN) in 2001, and former
 BKA President Dr. Ulf Boge was an outstanding ICN Steering Group Chair
 until his retirement last year. Today, the BKA serves as co-chair, with the
 U.S. Federal Trade Commission, of the ICN's Unilateral Conduct Working
 Group (UCWG). Co-chairing the UCWG is not an easy task, as the rules
 governing unilateral conduct are perhaps the most difficult area of
 antitrust law and policy.
     This brings me to my second topic: the application of competition law
 to unilateral conduct. Let me start with our Supreme Court's most
 frequently cited recitation of the elements of a monopolization claim under
 our Sherman Act: '(1) the possession of monopoly power in the relevant
 market and (2) the willful acquisition or maintenance of that power as
 distinguished from growth or development as a consequence of a superior
 product, business acumen, or historic accident.' Translating this general
 principle into operational rules and guidance for the business community
 has been difficult, both for U.S. courts and the U.S. antitrust agencies.
 In this regard I offer five broad principles to inform our enforcement
 policy and to guide our discussions.
     -- Individual firms with monopoly power can act anticompetitively and
 harm consumer welfare, and we should seek to identify and challenge such
     -- Mere size does not demonstrate harm to competition or a violation of
 the antitrust laws. The proper focus of antitrust law is on anticompetitive
 conduct and effect, not just firm size or market share.
     -- Mere injury to a particular firm does not itself show that
 competition has suffered. Indeed, a firm's inability to garner sales may
 indicate no more than the superiority of its competitors' products. A
 successful firm should not be penalized for creating a product that is
 preferred by consumers. Further, the loss of sales can be an important
 incentive to other firms to improve their efforts to offer new and better
 products at the lowest possible price.
     -- Consumers, the business community, and antitrust enforcers benefit
 from clear, administrable and objective rules that allow businesses to
 assess the legality of a practice before acting and enable enforcers and
 courts to judge challenged conduct predictably and correctly. This is
 particularly true in the context of unilateral conduct. Every time a firm
 is kept from engaging in aggressive conduct because it fears an
 unnecessarily expansive interpretation of the antitrust laws, competition
 is harmed.
     -- A remedy that harms competition is worse than no remedy at all. A
 remedy needs to be effective and administrable by courts and agencies
 without restricting competition.
     In this brief summary of our overall approach to the appropriate role
 for antitrust in relation to single-firm conduct, I emphasize the
 importance of clear, administrable, and objective rules. I would like now
 to focus on one example of such rules: safe harbors. Antitrust enforcement
 agencies should consider employing safe harbors that identify conduct that
 will never be the target of antitrust enforcement. (I note that, if an
 absolute safe harbor is not feasible, it can still be valuable to identify
 harbors that are unlikely to lead to enforcement actions except under
 'extraordinary circumstances.') In the words of the intellectual property
 guidelines issued by the Department of Justice and Federal Trade Commission
 in 1995, safe harbors provide a 'degree of certainty and thus ...
 encourage' innovation and competition. The conduct covered by the safe
 harbor may be entirely pro-competitive, or may be overwhelmingly so, such
 that 'anticompetitive effects are so unlikely that the arrangements may be
 presumed not to be anticompetitive without an inquiry into particular
 industry circumstances.'
     The rationale for most safe harbors is not that the conduct within the
 safe harbor never can harm competition, but rather that the conduct poses
 an insufficient risk of harm to warrant further consideration in view of
 the administrative costs of proceeding, the potential harm from erroneous
 condemnation of the conduct, and the chilling effect of business
 uncertainty on legitimate conduct.
     An antitrust regime could, for example, establish a market share below
 which a competitor is conclusively presumed not to possess market power
 (nor to be dominant), and thus may compete for business secure from any
 concern about an antitrust challenge to its unilateral conduct. But such a
 safe harbor significantly enhances legal certainty only if the market-share
 threshold adopted is high enough that it affords safety to competitors that
 had perceived a non-trivial risk of being found to possess monopoly power.
 Indeed, adopting a safe-harbor market share that is very low actually could
 increase business uncertainty by suggesting -- unintentionally -- an
 increased likelihood that competitors just outside the safe harbor will
 often be found to possess monopoly power.
     In the United States, the vast majority of competitors in the vast
 majority of markets do not possess monopoly power. Courts in the United
 States have consistently held that a market share below 50% does not
 support the inference of monopoly power, effectively establishing a safe
 harbor for firms with less than a 50% market share, and the leading
 treatise suggests that a share of at least 70 -- 75% for five years is
 required to infer monopoly power. Modern case law also holds that 'market
 share is only a starting point for determining whether monopoly power
 exists, and the inference of monopoly power does not automatically follow
 from the possession of a commanding market share.' Courts in the United
 States require proof that entry or expansion would not effectively
 discipline a competitor alleged to possess monopoly power, and firms with
 market shares well in excess of 50% have been found not to possess monopoly
 power because their power over price was insufficiently durable.
     Agencies and courts can also articulate safe harbors for particular
 categories of conduct. They could, for example, establish that a
 competitor, even a monopolist, engages in lawful competition on the merits
 (i) when it prices aggressively but does not price below some measure of
 cost, (ii) when it makes investments that reduce its own costs, (iii) when
 it introduces a new product, or (iv) when it does nothing more than
 exercise unilaterally and unconditionally its right to refuse to license an
 intellectual property right.
     A good example of a safe harbor for specific conduct is the one created
 15 years ago by our Supreme Court that distinguishes unlawful predatory
 pricing from aggressive price-cutting. In Brooke Group v. Brown &
 Williamson Tobacco Corp., the Court held that a successful antitrust
 challenge to price-cutting requires proof 'that the prices complained of
 are below an appropriate measure of the rival's costs' and that the alleged
 predator had 'a dangerous probability ... of recouping its investment in
 below cost prices.' The Court expressly recognized that its standard might
 permit some price-cutting that theoretically could harm consumers.
 Specifically, the Court observed that above-cost pricing could sometimes be
 used to 'induce or reestablish supracompetitive pricing,' and implicitly
 acknowledged that, even absent recoupment, below-cost pricing could allow a
 predator to establish short-term market power by injuring and driving out
 its rivals (until new competitors enter the market and drive the market
 price back down).
     Notwithstanding those possibilities, the Court concluded that those
 categories of anticompetitive price-cutting were 'beyond the practical
 ability of a judicial tribunal to control without courting intolerable
 risks of chilling legitimate price cutting.' As the Court explained, a
 broader standard would run the risk of imposing liability in cases
 involving pro-competitive price-cutting, and 'the costs of [such] an
 erroneous finding of liability are high,' because such errors (or 'false
 positives') would 'chill the very conduct the antitrust laws are designed
 to protect.' And the risk that such 'false positives' will occur under a
 broader standard is substantial, the Court explained, because '[t]he
 mechanism by which a firm engages in predatory pricing -- lowering prices
 -- is the same mechanism by which a firm stimulates competition.'
     Whatever measure is adopted for the safe harbor, it must be an
 objective one. As Justice Breyer explained in an appellate decision before
 he joined the Supreme Court, antitrust rules 'must be clear enough for
 lawyers to explain them to clients' and 'must be designed with the
 knowledge that firms ultimately act, not in precise conformity with the
 literal language of complex rules, but in reaction to what they see as the
 likely outcome of court proceedings.' If the line between lawful aggressive
 pricing and unlawful predatory pricing were to turn on a subjective ex post
 assessment of the price (i.e., is it too low or unfairly low), large firms
 competing for sales would rationally err on the side of caution, pull their
 competitive punches, and price less aggressively. An amorphous and
 subjective standard would discourage the competitive enthusiasm that the
 antitrust laws seek to promote and chill the very conduct the antitrust
 laws are designed to protect.
     Turning back to the occasion for our celebration today, I emphasize
 that overall we have much in common. The BKA has long pursued anti-cartel
 enforcement, has become a firm proponent of serious economic analysis, and
 continues to expand the role and number of its economists.
     The U.S. and German agencies face many common antitrust challenges
 today, and we must continue to work closely together in the future.
 International cartels disrupt the efficient working of our economies, and
 we need to expand our cooperation even further, coordinating our leniency
 programs and ensuring that our criminal and administrative approaches work
 together to achieve maximum deterrence. The role of private antitrust
 enforcement seems likely to grow in Germany, and the European Union as a
 whole, and European courts thus will have to address some of the
 procedural, jurisdictional and comity issues that have already arisen in
 U.S. courts.
     Competition in newly deregulated sectors, with problematic claims for
 network access and misplaced demands for national champions and increased
 state ownership, should be addressed in ways that preserve competition,
 reward innovation, and promote consumer welfare. While the U.S. and German
 antitrust agencies have some doctrinal differences to sort out, with our
 30-year history of cooperation and good will we can, and surely will,
 bridge those differences and continue to converge on the best policies in
 our bilateral relationship and in the many multilateral settings where we
 work together so closely. We owe nothing less to our respective consumers.
     In closing, consumers have every reason to look forward with confidence
 to another 50 years of healthy economic performance in a German economy
 where competitive markets are capably defended by the BKA. Thank you.

SOURCE U.S. Department of Justice