[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





IS THERE LIFE AFTER TRINKO AND CREDIT SUISSE?: THE ROLE OF ANTITRUST IN 
                          REGULATED INDUSTRIES

=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON COURTS AND
                           COMPETITION POLICY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 15, 2010

                               __________

                           Serial No. 111-119

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov



                  U.S. GOVERNMENT PRINTING OFFICE
56-952 PDF                WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001





                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
STEVE COHEN, Tennessee               STEVE KING, Iowa
HENRY C. ``HANK'' JOHNSON, Jr.,      TRENT FRANKS, Arizona
  Georgia                            LOUIE GOHMERT, Texas
PEDRO PIERLUISI, Puerto Rico         JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois               TED POE, Texas
JUDY CHU, California                 JASON CHAFFETZ, Utah
TED DEUTCH, Florida                  TOM ROONEY, Florida
LUIS V. GUTIERREZ, Illinois          GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DANIEL MAFFEI, New York
JARED POLIS, Colorado

       Perry Apelbaum, Majority Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel
                                 ------                                

             Subcommittee on Courts and Competition Policy

           HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chairman

JOHN CONYERS, Jr., Michigan          HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia               JASON CHAFFETZ, Utah
CHARLES A. GONZALEZ, Texas           F. JAMES SENSENBRENNER, Jr., 
SHEILA JACKSON LEE, Texas            Wisconsin
MELVIN L. WATT, North Carolina       BOB GOODLATTE, Virginia
MIKE QUIGLEY, Illinois               DARRELL ISSA, California
DANIEL MAFFEI, New York              GREGG HARPER, Mississippi
JARED POLIS, Colorado

                    Christal Sheppard, Chief Counsel

                    Blaine Merritt, Minority Counsel








                            C O N T E N T S

                              ----------                              

                             JUNE 15, 2010

                                                                   Page

                           OPENING STATEMENTS

The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Chairman, Subcommittee 
  on Courts and Competition Policy...............................     1
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Ranking Member, Subcommittee on 
  Courts and Competition Policy..................................     2
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Chairman, Committee on the 
  Judiciary, and Member, Subcommittee on Courts and Competition 
  Policy.........................................................     3

                               WITNESSES

Mr. Howard A. Shelanski, Deputy Director for Antitrust in the 
  Bureau of Economics, Federal Trade COmmission, Washington, DC
  Oral Testimony.................................................    10
  Prepared Statement.............................................    12
Mr. John Thorne, Senior Vice President, Verizon Communications, 
  Incorporated, Arlington, VA
  Oral Testimony.................................................    27
  Prepared Statement.............................................    29
Mr. Mark A. Lemley, William H. Neukom Professor of Law, Stanford 
  University, School of Law, Stanford, CA
  Oral Testimony.................................................    45
  Prepared Statement.............................................    47
Mr. Mark Cooper, Director of Research, Consumer Federation of 
  America, Washington, DC
  Oral Testimony.................................................   110
  Prepared Statement.............................................   112

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, 
  Chairman, Committee on the Judiciary, and Member, Subcommittee 
  on Courts and Competition Policy...............................     5

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Howard Coble, a 
  Representative in Congress from the State of North Carolina, 
  and Ranking Member, Subcommittee on Courts and Competition 
  Policy.........................................................   135

 
IS THERE LIFE AFTER TRINKO AND CREDIT SUISSE?: THE ROLE OF ANTITRUST IN 
                          REGULATED INDUSTRIES

                              ----------                              


                         TUESDAY, JUNE 15, 2010

              House of Representatives,    
                 Subcommittee on Courts and
                                 Competition Policy
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:21 a.m., in 
room 2237, Rayburn House Office Building, the Honorable Henry 
C. ``Hank'' Johnson, Jr. (Chairman of the Subcommittee) 
presiding.
    Present: Representatives Johnson, Conyers, Quigley, Polis, 
Coble, Chaffetz, and Goodlatte.
    Staff present: (Majority) Anant Raut, Counsel; Rosalind 
Jackson, Professional Staff Member; (Minority) Stewart 
Jeffries, Counsel; and Tim Cook, Staff Assistant.
    Mr. Johnson. This hearing of the Committee on the Judiciary 
Subcommittee on Courts and Competition Policy will now come to 
order. Without objection, the Chair is authorized to declare a 
recess.
    Today's hearing is the latest in the series of hearings I 
call, ``An Antitrust System for the 21st Century.'' I have 
initiated these hearings to consider some of the issues raised 
by the bipartisan Antitrust Modernization Commission created by 
the Judiciary Committee.
    The question before us today is this: Did the Supreme 
Court's decision in the Trinko and Credit Suisse cases sound 
the death knell for antitrust enforcement in regulated 
industries? In the 100-plus years since the antitrust laws were 
enacted they have coexisted with other types of regulations.
    The reason Congress wrote both is that different types of 
laws provide different types of protection for consumers. 
Antitrust has always been concerned with promoting competition; 
when businesses compete consumers win. But regulators may have 
other concerns, such as safety or policy goals other than fair 
competition.
    In some cases the antitrust laws may be in tension with 
other regulations. In rare instances, following one law might 
result in the violation of an antitrust duty.
    In a few of these cases Congress has expressly created 
exemptions from the antitrust laws. In others, courts have 
implied an immunity, as is the case with certain rights under 
labor and employment law.
    Traditionally, such implied immunities have been narrow in 
scope because the courts have assumed that, unless Congress has 
said so explicitly, it intends for all laws that it passes to 
coexist. But in Trinko and Credit Suisse the Supreme Court 
appears to have abandoned this traditional perspective. In a 
most unjudicial way the Court went beyond ruling on the facts 
at hand and took a skeptical approach to the antitrust laws and 
the competence of our Federal judges and juries in applying 
them.
    As a Member of Congress and as the Chairman of the 
Subcommittee on Courts and Competition Policy, I find this to 
be offensive. Our Federal courts and juries handle complex 
matters all the time, and if the judges of the Supreme Court 
believe our system is not up to the task they should make 
suggestions for improving the system, not take swipes at it in 
their opinions.
    The past century has been one of growth and innovation, and 
time and again the courts have proven well capable of adjusting 
and refining the antitrust laws to reign in excess and ensure 
that antitrust rules are fair, efficient, and predictable. As a 
result, our antitrust laws police business excesses but do not 
hamper legitimate innovation. That is an approach I support, 
but it is one that the Supreme Court appears to have 
inexplicably cast aside in these cases.
    In a few short years the effect of those decisions has been 
devastating. Instead of the default being that the antitrust 
laws apply, Trinko and Credit Suisse have been cited to dismiss 
antitrust cases in the securities and telecom industries before 
they can even be tried on their merits, nor is there anything 
that limits these decisions to their respective industries. 
Under Trinko, will courts start looking skeptically at all 
antitrust claims?
    I am also concerned by what appears to be a trend of the 
Supreme Court legislating from the bench. As a former judge I 
take the role of the court very seriously, and I also respect 
its limits. The regulatory laws in both Trinko and Credit 
Suisse contain savings clauses that Congress has specifically 
written-in in order to ensure that antitrust law was not 
displaced by regulation, yet that is exactly what happened.
    As Justice Thomas wrote in a scathing decent in Credit 
Suisse, ``The regulatory statutes explicitly say the very 
remedies the Court hopes to be impliedly precluded.'' It is not 
every day that I agree with Justice Thomas, but on this one I 
do.
    The role of the courts is to interpret the law, not to 
rewrite the law or usurp the role of Congress in setting 
economic policy for this Nation. If these cases were correctly 
decided, what more does Congress have to do to keep the 
antitrust laws in effect?
    I will now recognize my colleague, Howard Coble, the 
distinguished Ranking Member of the Subcommittee, for his 
opening remarks.
    Mr. Coble. Thank you, Mr. Chairman. Thank you for calling 
this hearing of the Courts and Competition Policy Subcommittee.
    Today's hearing could have profound implications for the 
jurisdiction of this Subcommittee. It deals with two Supreme 
Court cases that you mentioned that, if the critics are 
correct, could severely limit the reach of antitrust laws in 
regulated industries.
    I am of two minds on today's hearing, Mr. Chairman. On the 
one hand, I am an avid supporter of our Federal antitrust laws. 
They are critical to ensuring that customers receive the 
benefits of competition, namely lower prices and greater 
choices. So, to the extent that these decisions can be read as 
a blanket exemption from the antitrust laws, I am skeptical of 
their reach.
    On the other hand, I am wary of overregulating businesses, 
or what is worse, giving businesses conflicting regulatory 
demands; to the extent that these decisions can be read as 
merely clarifying the regulatory burden borne by businesses, I 
am supportive.
    The fact that these decisions can be read two different 
ways really complicates matters, it seems to me. For example, 
is Trinko merely a limit on the extent that antitrust law can 
compel a dial-up firm to deal with its rivals, or is it a 
blanket antitrust exemption for the telecommunications industry 
despite an antitrust savings clause in the 1996 
Telecommunications Act?
    These are very complicated and weighty issues, as we all 
know, in antitrust law, and I am pleased that we have such a 
diverse panel of experts to assist us in understanding the 
reach of these decisions. These questions are hardly just 
academic.
    Currently, members of both the House and Senate are meeting 
to reconcile the financial services regulatory bill. Those 
versions of that legislation contain antitrust savings clauses. 
Depending on what we learn here today we may need to revisit 
that language to ensure that courts will honor congressional 
intent with respect to the role that antitrust will play in the 
financial services industry going forward.
    With that, Mr. Chairman, I look forward to hearing from our 
witnesses on this important topic and I yield back the balance 
of my time.
    Mr. Johnson. Thank you, Mr. Coble.
    I now recognize John Conyers, a distinguished Member of the 
Subcommittee and the Chairman of the full Committee on 
Judiciary.
    Mr. Conyers. Thank you, Chairman Johnson, and Howard Coble, 
and my other colleagues here. This is an important hearing in 
many respects and unusual. The part that makes it so unusual 
for me is we have attorney John Thorne, who argued the Trinko 
case, as a witness.
    We are very honored to have you here.
    Mr. Thorne. I argued the case in the Second Circuit, where 
we lost, however, and left it to my colleague to argue 
successfully in the Supreme Court.
    Mr. Conyers. Yes, but you were assisting those that argued 
it in the Supreme Court, where you did a lot better, and we 
thank you for coming here today, because we look forward to 
your analysis and experience in this matter.
    As both the Chairman and Howard Coble have suggested, this 
is a hugely important matter, and this Committee in the 
judiciary is very important. One way to look at it is that we 
are caught between Thurgood Marshall's calling antitrust laws 
``the Magna Carta of free enterprise'' and the fact that the 
courts are implying that antitrust is more subordinated to 
other regulatory concerns.
    And Thorne goes even as far as to say that--well, he goes 
further than anybody else: ``The result in Trinko did not 
depend on regulatory context.''
    And so there is a pattern and direction that has been 
determined by the courts that I think we don't disagree on, and 
the question is, is antitrust just a good law and look, we have 
got the Sherman and Clayton Acts, and then Rodino--the Hart-
Scott-Rodino--came in even later. So what the Committee is 
asking is, what direction are we going in and what direction 
ought we go in?
    Now, I would like to describe my take on what the 
relationship of the three branches of government are, because 
sure, the Court takes swipes at legislation, but we take swipes 
at the Court all the time. We don't do so badly ourselves.
    Matter of fact, we can take out a Court decision if we want 
to, and they can find unconstitutional or some other problem of 
our legislation. And, of course, that is the genius with the 
system, isn't it, that we have three branches coequal?
    And there are always these tugs of war and differing 
interpretations that are going on, and so I am anxious to hear 
from the witnesses. I will put my statement--the rest of my 
statement--in the record. And thank you for calling this 
hearing.
    [The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
  in Congress from the State of Michigan, Chairman, Committee on the 
  Judiciary, and Member, Subcommittee on Courts and Competition Policy



                               __________

    Mr. Johnson. I thank you, Mr. Chairman, for your statement.
    And are there any other statements?
    I am now pleased to introduce the witnesses for today's 
hearing. Let the record show that there was no affirmative 
response to my last question.
    Our first witness is Howard Shelanski, Deputy Director of 
Antitrust for the Bureau of Economics at the Federal Trade 
Commission. Mr. Shelanski is also a former Supreme Court clerk 
for Justice Antonin Scalia.
    Our next witness is Mr. John Thorne, Senior Vice President 
for Verizon Communications. Mr. Thorne successfully argued the 
Trinko case before the Second Circuit in 2004.
    Next we have Professor Mark Lemley, from Stanford 
University School of Law.
    Finally, we have Dr. Mark Cooper, Director of Research for 
the Consumer Federation of America.
    Thank you all for your willingness to participate in 
today's hearing. Without objection, your written statement will 
be placed into the record, and we would ask that you limit your 
oral remarks to 5 minutes.
    You will note that we have a lighting system on the table 
that starts with the green light. After 4 minutes it turns 
yellow, then red at 5 minutes.
    After each witness has presented his or her testimony 
Subcommittee Members will be permitted to ask questions subject 
to the 5-minute rule.
    Mr. Shelanski, will you begin your testimony?

TESTIMONY OF HOWARD A. SHELANSKI, DEPUTY DIRECTOR FOR ANTITRUST 
     IN THE BUREAU OF ECONOMICS, FEDERAL TRADE COMMISSION, 
                         WASHINGTON, DC

    Mr. Shelanski. Chairman Johnson, Ranking Member Coble, and 
Members of the Subcommittee, thank you for the opportunity to 
appear before you today. I am Howard Shelanski, deputy director 
for antitrust in the FTC's Bureau of Economics.
    The written statement we have already submitted represents 
the views of the Commission. My oral testimony is my own and 
does not necessarily reflect the views of the Commission or any 
commissioner.
    I would like to make two points in this statement: First, 
the Supreme Court's decisions in Credit Suisse and Trinko make 
it more difficult for antitrust law to play the important role 
it has long played in regulated sectors of the American 
economy. Second, the cost-benefit reasoning that led the 
Supreme Court to reject the private suits at issue in Credit 
Suisse and Trinko does not apply to public enforcement acts. 
Even if one assumes that those cases strike the correct balance 
in private suits, they should not be interpreted to block 
public cases where the Federal antitrust agencies find that 
antitrust enforcement would yield additional benefits for 
American consumers.
    Before the 2004 Trinko decision public agencies and private 
plaintiffs have long enforced antitrust law in a variety of 
regulated settings. Those cases range from enforcement against 
collective refusals to deal in the securities industry to 
refusals to interconnect with rivals in the electricity and 
telecommunications markets. The most dramatic example, of 
course, is the government's 1973 suit against AT&T that 
culminated in the breakup of the bell system and to thwart 
competition in lower long-distance calling rates to American 
consumers.
    But cases show that antitrust laws have played an important 
complimentary role to regulation. It can reach conduct that 
regulation did not anticipate, filling gaps left by agency 
rules, and often protect competition and innovation in a more 
targeted, less burdensome way than rules do. This is the role 
that antitrust, particularly public enforcement of antitrust, 
should be able to continue to play in the future, but which it 
may be impeded by Credit Suisse and Trinko.
    Antitrust enforcement was not, of course, unlimited in 
regulated industries. The Supreme Court has long held that 
antitrust enforcement could not occur when it directly 
conflicts with regulation, but Credit Suisse and Trinko marks a 
significant change from that earlier doctrine.
    Credit Suisse extended the definition of conflicts by 
blocking from antitrust claims that involve conducts not 
regulated by securities law, and it could only conflict with 
regulations through judicial error. The result could be gaps in 
enforcement when neither antitrust nor regulation can reach 
harmful conduct.
    Trinko can be read to make it harder to bring antitrust 
claims against firms, since competitive conduct is subject to 
regulated--regulatory oversight, even when Congress has 
included a savings clause that expressly preserves the 
simultaneous operation of antitrust and regulation. In some 
instances this might make sense. For example, in the specific 
context where an agency actively administers a rule whose 
standard for the competitive conduct at issue is more demanding 
on the defendant than antitrust laws. In such cases the courts 
are right to ask whether the marginal gains from antitrust 
enforcement outweigh the potential costs.
    Our concern is that Trinko could be read more broadly by 
the lower courts and block antitrust claims even when 
regulation does not directly or effectively address unfair 
methods of competition. Had the Supreme Court made clear that 
to preclude antitrust claims a regulatory structure must, like 
the one at issue in Trinko, be directly relevant to the conduct 
at issue, be more demanding than antitrust law, and be actively 
administered, one might worry less about harmful side effects 
of that ruling.
    The risk for public enforcement agencies is that, given the 
Trinko Court's emphasis on the potential costs of antitrust, 
lower courts will block public antitrust cases where the 
regulatory scheme falls well short of the FCC's implementation 
of the 1996 act's competitive access provisions.
    Why did the Court rule as it did in Credit Suisse and 
Trinko? Phrased broadly, the Court's concern was that antitrust 
is always costly, and in the presence of regulation is likely 
to have little additional benefit for competition.
    If that cost-benefit calculation for the kinds of private 
suits at issue in Credit Suisse and Trinko, they differ greatly 
for public enforcement acts. A public agency's incentives are 
very different from those of private plaintiffs.
    The FTC does not collect revenue or otherwise materially 
benefit from successful competition enforcement. The government 
has no incentive to use antitrust law or the Federal Trade 
Commission Act against a regulated firm unless doing so can 
yield benefits beyond those the market already gets through 
regulation.
    The Federal antitrust agencies, therefore, have more 
incentive and obligation than private plaintiffs do to assess 
the potential cost of an antitrust case, to evaluate whether 
antitrust enforcement can provide benefits not provided by 
regulation, and to balance the two in the public interest. As a 
result, public enforcement is more likely than private 
litigation to avoid claims that would be prone to judicial 
errors, that will interfere with regulation, or that will fail 
to yield net benefits over regulation.
    We therefore think it would be good policy for Congress to 
clarify that neither Credit Suisse nor Trinko prevents public 
antitrust agencies from acting when they conclude that 
anticompetitive conduct would otherwise escape effective 
regulatory scrutiny.
    Thank you again for allowing me to appear today. I would be 
happy to answer any questions you may have.
    [The prepared statement of Mr. Shelanski follows:]
               Prepared Statement of Howard A. Shelanski




                               __________
    Mr. Johnson. Thank you, Mr. Shelanski.
    Mr. Thorne?

   TESTIMONY OF JOHN THORNE, SENIOR VICE PRESIDENT, VERIZON 
          COMMUNICATIONS, INCORPORATED, ARLINGTON, VA

    Mr. Thorne. Likewise, I want to thank----
    Mr. Johnson. And, Mr. Thorne, could you make sure that that 
mic is on? Okay.
    Mr. Thorne. Mr. Chairman, Mr. Ranking Member, Chairman 
Conyers, Members of the Subcommittee, thank you for inviting me 
to testify today, and thanks for the introduction. I want to 
clarify one small point: I argued the Trinko case in the Second 
Circuit, and unfortunately, I lost it. My good friend, Richard 
Taranto, argued it in the Supreme Court, and the Court was so 
impressed with his argument that there was no dissent from the 
decision in that case.
    So I am very familiar. One effect of losing a case is you 
really do come to understand it well. I am familiar with the 
Trinko case. I am, unfortunately, much less familiar with 
Credit Suisse. I am not an expert in SEC regulation, and so I 
am not going to be able to say very much about that today.
    I want to point out, as a matter of Verizon's interest in 
this hearing, is it is primarily as a customer. We buy--and 
these are rough numbers--$30 billion every year of products 
from other firms. We buy enormous amounts of health care, and 
medicine, and telecom infrastructure, and devices of various 
sorts to build our networks. So we are extremely focused on 
effective, vigorous antitrust enforcement.
    And so, for example, I pointed out in my written testimony, 
we brought affirmative, offensive antitrust cases to enforce 
the antitrust laws. We believe in it that strongly.
    Let me just make two quick points, and these are elaborated 
on in the written testimony. First of all, as I read the Trinko 
decision it did not depend on a regulatory context. The facts 
came out of regulation because the things that Verizon was 
selling to its competitors were things that had been compelled 
by the FTC rules under the 1996 act, so the fact-setting was a 
regulatory fact-setting, but the decision was straight 
antitrust.
    The Supreme Court's decision itself said so. It said that 
because of the--regulation that might have been a good 
candidate for regulatory immunities, but because of the savings 
clause they weren't going to think immunity, they were just 
going to apply the existing antitrust precedents. That is what 
the Court said. So you don't have to take the Court at its 
word, you can ask people like the people on this panel, ``What 
do you think the Court meant? Does its reasoning or decision go 
broader?''
    A few years back Congress commissioned the Antitrust 
Modernization Commission to do a full study of how are the 
antitrust laws working? And in particular, one of the things 
that the commission was charged with looking at was, how is the 
intersection between antitrust and regulation going? And so 
there is a chapter in the Antitrust Modernization Commission's 
report on the intersection of antitrust and regulation, how 
antitrust applies with these regulated industries.
    If you spend time with this, as I have done, it has got a 
series of findings and recommendations for congressional action 
peppered throughout it. They are in the gray boxes. And most of 
the gray boxes have an asterisk or two indicating that one or 
another of the members of the commission disagree with the 
particular consensus that the commission came up with. So it 
will say Cochairman Yarowsky dissented from a particular 
recommendation, or Commission member Kempf dissented--lots of 
dissents from the recommendations.
    There is one--one of the findings that the commission made 
that was unanimous--this was a bipartisan commission, and a 
unanimous finding--that the Trinko decision--I am going to 
quote from it--``is best understood only as a limit on refusal-
to-deal claims under Section 2 of the Sherman Act. It does not 
displace the role of the antitrust laws in regulated 
industries.'' So since Congress asked the commission to study 
how things were going and they looked at Trinko, their view, 
like mine, is Trinko did not displace antitrust in regulated 
industries.
    Now, the second thing I will just say a word about, and it 
is elaborated on in the written testimony, is there is a series 
of Supreme Court decisions going back to 1920 that say--this 
could have been a controversial decision back in 1920, but it 
is well established in the subsequent 90 years--if you get to a 
monopoly position lawfully by being the first in the market, by 
having a better product, by having a government franchise--if 
you get to a lawful monopoly you are not required to dismantle 
the monopoly by giving it up to rivals.
    All of the cases involving refusal-to-deal, all of the 
Supreme Court cases involve a situation where you are 
voluntarily dealing with some folks and then you discriminate 
against your rival. In that situation you can have antitrust 
liability for refusal-to-deal, but it is based on 
discrimination between voluntary dealing and refusal to deal 
with rivals or customers of rivals, and there is no Supreme 
Court decision that is different from what Trinko has said in 
90 years of history on those sorts of cases.
    So thank you again for the invitation, and I look forward 
to the questions.
    [The prepared statement of Mr. Thorne follows:]
                   Prepared Statement of John Thorne




                               __________
    Mr. Johnson. Thank you, Mr. Thorne.
    Professor Lemley?

  TESTIMONY OF MARK A. LEMLEY, WILLIAM H. NEUKOM PROFESSOR OF 
     LAW, STANFORD UNIVERSITY, SCHOOL OF LAW, STANFORD, CA

    Mr. Lemley. Thank you, Mr. Chairman, Ranking Member Coble, 
Members of the Subcommittee. I appreciate the invitation to 
speak here, and I want to start by saying that I agree, Mr. 
Chairman, with what you said in your opening statement.
    I think it is right to say that the antitrust law 
traditionally opposed implied repeal of antitrust law by 
regulation, that that policy is a good one because it protects 
important competition interests in circumstances where 
regulated industries--where regulators--might not protect those 
interests. And I will also agree with you that that wise policy 
is under attack as a result of the Trinko, and particularly the 
Credit Suisse decisions, because the Supreme Court in the last 
10 years seems to have backed off from the rule--longstanding 
rule--that there is no implied repeal of the antitrust laws in 
government regulation.
    What I want to spend my time today talking about just 
briefly is one of the unfortunate consequences, which is the 
problem that I call regulatory gaming. There are a number of 
circumstances in which private parties engage in behavior that 
harnesses pro-competitive or neutral regulations and uses them 
for exclusionary purposes.
    In the paper that is attached to my testimony, Stacey Dogan 
and I identify a number of those circumstances. Let me just 
give two examples: one is the Unocal case, in which the--an oil 
company participated before a government-run standard-setting 
organization to set air quality standards in California, 
persuaded the government to adopt as a mandatory rule a 
particular set of air quality standards, and then revealed that 
it had a patent covering that particular technology and no one 
else could use it unless they paid a super-competitive price.
    Another example involves the pharmaceutical industry, which 
is engaged in a variety of techniques designed to try to extend 
the life of its patents covering certain drugs. One particular 
example involves so-called product-hopping, in which 
pharmaceutical patent owners make minor changes to their 
products that don't affect their FDA regulatory approval but 
make it impossible under the Hatch-Waxman Act for generic 
manufacturers to substitute generic drugs that are cheaper for 
those patented products.
    The difficulty here is that these are actions which, in the 
absence of a regulatory system, wouldn't exist. There wouldn't 
be a problem but for the fact that the government regulation 
helps the gaming to take effect. It gives it cover. It gives it 
monopoly power. It gives it mandatory authority.
    And in those circumstances where the regulation itself is 
not restricting competition but private action is restricting 
competition, antitrust law can and should step in. The worry is 
that under Credit Suisse and Trinko the reasoning of the 
Supreme Court suggests that antitrust law needs to back off, it 
needs to defer to the regulatory agency not just in 
circumstances where the regulatory agency has made an 
affirmative decision to restrict competition, but even in 
circumstances where the regulatory agency has merely been 
silent--has not acted--and I think that is a mistake.
    Now, Mr. Chairman, you suggested correctly that we have 
long had a maxim in antitrust law that courts wouldn't assume 
the passage of a particular regulation impliedly repealed or 
limited the reach of that antitrust law. And I think that maxim 
is correct, and if the Supreme Court is no longer properly 
applying it the right solution, it seems to me, is to reverse 
the presumption.
    Rather than simply having individual savings clauses in 
particular regulatory statutes, which seems in recent years to 
have been effective, we might consider a more general amendment 
to the antitrust law along the following lines: No regulation 
or act of Congress shall be interpreted to restrict or repeal 
the antitrust laws unless it expressly so provides.
    And a provision along those lines would serve the same 
purpose--it would enact the no implied repeal rule--but it 
would effectively reverse the presumption. Rather than asking 
in any particular case, ``Did Congress intend this regulation 
to change the antitrust laws?'' the rule would be that unless 
Congress expressly said, ``Here is an exemption from the 
antitrust laws,'' courts wouldn't be allowed to create one. And 
I think that would be wise policy.
    [The prepared statement of Mr. Lemley follows:]
                  Prepared Statement of Mark A. Lemley





                               __________
    Mr. Johnson. Thank you, Professor Lemley, and also thank 
you for your submission of corrective language.
    Dr. Cooper?

   TESTIMONY OF MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER 
             FEDERATION OF AMERICA, WASHINGTON, DC

    Mr. Cooper. Thank you, Mr. Chairman, Members of the 
Committee.
    Former Federal Trade Commission Chairman Robert Pitofsky 
edited a recent volume on antitrust practice in the last couple 
decades entitled, ``How the Chicago School Overshot the Marks: 
The Effect of Conservative Economic Analysis on U.S. 
Antitrust.'' The Trinko and Credit Suisse rulings demonstrate 
that under the influence of conservative economics the Supreme 
Court has not simply overshot the mark, it has gone off the 
deep end.
    These cases establish regulation as the barrier to 
antitrust oversight without requiring the courts to examine the 
effectiveness of regulation in controlling behaviors that are 
repugnant to both regulation and antitrust. This is 
particularly ironic since conservative economics generally 
takes a dim view of the ability of regulators to promote the 
public interest. If anything, conservative economic theories 
should have led the Court to give antitrust a wider berth, not 
a narrower berth.
    Trinko, in particular, presumes antitrust has high costs 
and low benefits without demanding a careful accounting of the 
costs and benefits. It assumes false positives are plentiful, 
more likely, and more costly than false negatives without any 
empirical evidence to support that claim. It is the ultimate 
triumph of economic theory over fact in the antitrust space 
that favors corporations and regulation at the expense of 
competition and antitrust.
    After a decade in which we have watched large corporations 
inflict huge losses on the economy and society--Worldcom, 
Enron, Lehman Brothers, Goldman Sachs, and BP--the notion that 
large corporations acting on their private interests can be 
expected to behave in economically efficient and socially 
responsible ways or that regulation can be presumed to be 
effective in protecting the public interest seems rather silly.
    We need every regulatory cop on the beat and antitrust is 
one of the most important weapons policymakers have to protect 
the public from anticompetitive, anti-consumer business 
practices. To preemptively sideline antitrust in industries 
where it is needed most--those with the greatest market power--
destroys the balance between regulation and antitrust that has 
worked well over the course of a century.
    Regulation is a second best, to be sure, but better than 
unfettered exercise of market power where market structure does 
not support vigorous competition, and I testified here on that 
issue in relationship to the antitrust modernization process.
    The antitrust laws are simultaneously applied to regulated 
industries to constantly probe for areas where competition can 
improve the public welfare. Regulators are not particularly 
adept at this role because it is not their core competence and 
they have a tendency to be captured by the industries they 
regulate. The greatest value of the balance between regulation 
and antitrust exists where the market structure is least 
certain, where there is a transition between regulation and 
competition or where there are a mix of competitive and 
monopoly elements in the market.
    Much of a 21st century economy resides in this middle 
range, and the telecommunications sector, which was the target 
of the Trinko case, is a perfect example. Congress was seeking 
to move telecommunications to a greater reliance on competition 
after a century of reliance on monopoly. The incumbent 
telephone companies would determine to prevent the loss of 
their market power. Under their litigious, obstinate foot-
dragging, the effort to open the network collapsed.
    Both antitrust and regulation were aiming at the same goal, 
and the transition would have benefited from close antitrust 
scrutiny. The Trinko decision not only prevented this scrutiny 
in that case, but it severely restricted the likelihood of 
scrutiny in future cases.
    Trinko was a stretch of the antitrust laws that the Court 
could have easily brushed aside if it was so inclined without 
changing the terrain of antitrust laws. That was the easy and 
prudent thing to do, especially when citing the regulatory 
scheme of a statute that expressly stated Congress was not 
intending to restrict the applicability of the antitrust laws. 
Instead, the Supreme Court engaged in an extreme form of 
judicial activism using a weak case to make a major change in 
antitrust practice.
    The Court could remedy the situation in future cases by 
making it clear that the Trinko decision applies only to 
private antitrust suits and its application to private 
antitrust actions rests on the unique regulatory obligations 
and oversight embodied in the 1996 Telecommunications Act. 
Unfortunately, given the extremist ideology that underlies the 
decisions I am doubtful that the Court will be inclined to fix 
the problem any time soon.
    Congress should act swiftly to restore the balance between 
antitrust and regulation that worked so well in the 20th 
century. Thank you.
    [The prepared statement of Mr. Cooper follows:]
                   Prepared Statement of Mark Cooper




                               __________

    Mr. Johnson. Thank you, Dr. Cooper.
    And now we will begin with questions.
    Mr. Thorne, is it not true that the issue in Trinko that 
went up to the Supreme Court was whether the conduct by the 
telecom company violated the antitrust law?
    Mr. Thorne. Mr. Chairman, that is exactly correct. The 
question in Trinko was whether Verizon, in providing access to 
its facilities, had done it in a way that was consistent with 
the antitrust laws.
    Mr. Johnson. And the Court used dictum to suggest that in 
general the benefits of applying antitrust law in a privately-
brought case was few. In other words, there weren't very many 
benefits to be had for the bringing of a private action in a 
regulated industry context. Is that correct?
    Mr. Thorne. Mr. Chairman, with all respect, I have read the 
case differently. I read it as having two parts, and give me a 
second, I will explain: First, the Court asked----
    Mr. Johnson. And I think you did during your testimony.
    Mr. Thorne [continuing]. That the dicta that you are 
referring to was not on the question of whether Verizon had 
violated the existing antitrust laws. The additional question--
the second part of the decision--because the antitrust laws are 
somewhat plastic--it is a very brief statute--don't restrain 
competition, don't monopolize--the Court has the ability if it 
wants to to expand antitrust into places it has never gone 
before.
    And on the question of--the second question, not whether 
existing antitrust laws were violated--the Court found clearly 
they were not--but on the second question, should we take this 
occasion to expand antitrust into a new place, in that 
circumstance the Court thought for a whole list of reasons it 
would be a bad idea. And one of the things the Court listed was 
the fact that regulators were already policing the very 
conduct.
    Mr. Johnson. Okay. Well, let me get Professor Lemley's 
opinion about that.
    Mr. Lemley. So I think Mr. Thorne is correct to say the 
Court expressly considered should antitrust law not apply here 
at all, and they rejected that conclusion because of the 
savings clause. But I think it is also correct to say that the 
Court went out of its way to express skepticism of the value 
and role of antitrust in an area that was subject already to 
regulation. And the Court in particular said antitrust can do 
less good here because regulators are already policing the risk 
to competition and it has a greater potential for harm. And so 
I think the Court was, in fact, going beyond its brief to 
decide the question that Mr. Thorne's case presented----
    Mr. Johnson. Do you----
    Mr. Lemley [continuing]. Conduct violated the antitrust 
laws.
    Mr. Johnson. All right. Thank you.
    Do you agree, Mr. Shelanski?
    Mr. Shelanski. Mr. Chairman, I think that the Court tried 
to draw two lines that will be very difficult to implement in 
practice. On one hand, as Professor Lemley said, the Court did 
not say that antitrust law, as clearly established, doesn't 
apply. It wasn't able to say that in light of the savings 
clause.
    It did, however, say that claims that would be an extension 
of the outer boundaries of antitrust law could not be brought 
where there is a regulatory structure in place. There are two 
problems with that statement: Under the fact-intensive analysis 
of Section 2 of the Sherman Act, which tends to occur under the 
rule of reason and involve a balancing of pro-versus 
anticompetitive effects, every case is going to be different on 
its facts, and identifying the outer boundary is not nearly as 
clear or straightforward an exercise as the Court represents.
    And so lower courts could look at a case, say, ``Well, we 
have never seen exactly this case before. It must be beyond the 
outer boundary. It must be foreclosed in the presence of a 
regulatory structure,'' which brings me to the second problem 
of the decision: The Court does not establish clear standards 
for the regulatory structure that must be in place before it 
precludes an antitrust claim. Does it have to be as elaborate, 
detailed, and competently and actively enforced as the 
Telecommunications Act of 1996? If so, as I suggested in my 
testimony, we may worry less about the displacement of 
antitrust.
    But what about a regulatory scheme that does not directly 
address the competitive harm at issue but addresses some 
competitive harm, or it is within the authority of an agency 
but not enforced? The Court doesn't tell us whether or not that 
kind of regulatory structure is adequate, and our profound 
concern at the Federal Trade Commission is that lower courts 
could interpret such a weak regulatory structure to defeat 
antitrust claims, and not just outer boundary antitrust claims, 
good antitrust claims that could be brought under existing 
precedence.
    Mr. Johnson. Well, let me ask Dr. Cooper, do you feel that 
the ruling in Trinko taken together with--or ruling in Credit 
Suisse taken together with Trinko actually act to impose a 
presumption that actions brought by plaintiffs, both public and 
private, in a regulated setting are--in other words, the burden 
of proof has been shifted to the plaintiff on these kinds of 
cases to establish that the antitrust laws do apply?
    Mr. Cooper. Actually, I think the example that--the end 
point where Mr. Thorne wants to end up shows us the great 
danger. Of course, the argument he makes is that, if I never 
dealt voluntarily I never have to deal. And this is an industry 
in which it controlled access to its networks for a century 
never voluntarily making it available, and Congress said it is 
now time to make it available.
    For me, the critical question will be, if you allow that to 
happen in our--especially in our technology industries, you 
will have a lockdown of all of the functionalities on which a 
broad swath of economic activity relies. That is the 
implication of this case, and he drew it. That implication is 
disastrous; it needs to be rebutted, I think, precisely by 
containing the damage that this case can do. So the proposition 
which we can ask is whether the refusal-to-deal has severe 
negative economic and social effects.
    Mr. Johnson. Thank you, Dr. Cooper.
    I will now turn to the Ranking Member, Mr. Howard Coble.
    Mr. Coble. Thank you, Mr. Chairman.
    Gentlemen, thank you for your appearance today.
    Mr. Shelanski, you expressed concern that the FTC and DOJ 
could be precluded from bringing some antitrust cases in 
regulated industries as a result of these two cases. Do you 
have some suggestion for how Congress could legislatively 
repeal these cases for DOJ and FTC, A, and B, is this concern 
based on how Trinko and CSFB have been actually interpreted by 
district courts and courts of appeal, or are you concerned 
mainly as to how they may be interpreted?
    Mr. Shelanski. Thank you, sir.
    Let me start with your second question first. I think our 
principal concern is, given the relatively few number of years 
that have occurred since Credit Suisse and given the long cycle 
that our investigations in cases can occur over, that we are 
thinking about how these cases may affect our enforcement. We 
are always thinking in every action about these cases, about 
whether they impose some impediments.
    And we have current cases in which we are very attuned to 
the possibility that Credit Suisse and the Trinko issues could 
arise. So at this point, given the relatively short time that 
has passed, our concern is mostly current and prospective than 
with particular decisions that have occurred.
    As to what could be done to protect the jurisdiction of the 
Federal Trade Commission--I am obviously not here to speak on 
behalf of the Justice Department, but I will speak broadly 
about public enforcement--our concern is that public enforcers 
who have an ability to coordinate with regulatory authorities, 
to identify the gaps in regulation, to work interactively with 
regulatory authorities to identify places where antitrust can 
be a useful complement, that we not be prevented by 
interpretations of Credit Suisse and Trinko from undertaking 
that independent policy judgment about whether antitrust would 
be more beneficial than costly in any particular setting where 
we are investigating a regulated firm.
    And so the particular kind of language is not something 
that I would be prepared to provide you right off the top of my 
head, but a general thrust would be something that protects 
that jurisdiction that expressly says, ``Nothing in the 
antitrust laws as heretofore developed would prevent the public 
antitrust agencies from exercising their independent judgment 
about the value of an antitrust case.''
    Mr. Coble. Thank you, Mr. Shelanski.
    Mr. Thorne, you stated in your testimony that Trinko would 
not have prevented the government from bringing its case at 
AT&T. One thing that has been suggested here is that the 
antitrust enforcement agencies--notably DOJ and FTC--be 
exempted from the Trinko and CSFB decisions. Would such an 
exemption underline the regulatory clarity that you wanted to 
bring to bear with the Trinko case? Or in other word, would you 
favor a statutory exemption from Trinko for DOJ and FTC?
    Mr. Thorne. Mr. Ranking Member, first of all--and I have to 
say this--my experience with both the Justice Department and 
FTC has been one of absolute admiration. The enforcers at the 
Justice Department and the Federal Trade Commission are first-
rate; they are the best antitrust enforcers on the planet. So I 
am not going to say anything bad about their ability to enforce 
the antitrust laws.
    But the idea of breaking apart public enforcement and 
private enforcement under two different regimes is a new idea. 
It is the first time in over 100 years under the Sherman Act 
that we have had a different enforcement regime for the two 
areas. So it started to raise questions in my mind like, if you 
are going to separate the private cases from the public cases 
does that mean that the private cases can no longer tag along 
with the public cases? And it seems like there are a series of 
questions.
    Right now the Justice Department is viewed as only a law 
enforcer; it doesn't set out separate policies or make laws, it 
just enforces the laws as they are written. Would this change 
that relationship that the Justice and the Federal Trade 
Commission have?
    So I am interested in the proposal. It is novel, and it 
seems to raise for me a series of questions that ought to be 
thought through.
    Mr. Coble. And I didn't mean to imply, Mr. Thorne, that you 
are accusatory. I didn't mean to suggest that at all.
    Mr. Lemley, let me start with you and then open it up to 
the others. Professor, how can Congress effectively communicate 
its intent to have antitrust laws and telecommunication laws 
operate side by side?
    Mr. Lemley. Well, I do think it is a problem because of the 
presence of savings clauses in the very statutes that have been 
interpreted, and that is why I think the best approach is 
actually to modify the antitrust law itself to say that you 
should not assume or imply repeal from the antitrust law unless 
Congress expressly grants an immunity. I think that if done in 
the context of a hearing like this and with legislative history 
that made it clear that this was directed at cases like Credit 
Suisse, I think the message would be received by the courts 
that this was not, in fact, an area in which antitrust 
deference was appropriate merely because there was a regulatory 
system. And I have suggested in my written testimony some 
language that--quite brief language--that might achieve that 
end.
    Mr. Coble. Mr. Chairman, a red light appeared, but may 
others respond to my question?
    Mr. Johnson. Certainly.
    Mr. Coble. Doctor, do you want to start?
    Mr. Cooper. The goal that Professor Lemley outlined is 
precisely the place we need to get to, where the full force of 
the antitrust laws apply. And if the argument is going to be 
that somehow or another regulation has done the job then that 
burden ought to be on the defendant in the case. That is, we 
need the antitrust laws to have full effect.
    The savings clauses tend to get thrown in at the last 
minute. They don't have a lot of legislative history. If there 
is any possibility that the Congress was carving out some sort 
of exemption they are not well documented in the record, and I 
think that is a mistake. This is a moment, and this is a 
sector, where we desperately need to make sure that we can get 
down that path to a more competitive environment, so----
    Mr. Coble. Thank you, sir.
    Mr. Cooper [continuing]. Changing the--switching the burden 
would be the critical point here. The presumption should be in 
favor of antitrust and rebuttable if there is specific 
regulatory language that one can cite and demonstrate effective 
regulation is actually in place, not just in theory.
    Mr. Coble. Thank you.
    Mr. Thorne, do you and Mr. Shelanski want to weigh in?
    Mr. Thorne. No, thank you, Mr. Ranking Member.
    Mr. Shelanski. I have nothing to add.
    Mr. Coble. Thank you.
    I yield back. Thank you, Mr. Chairman.
    Mr. Johnson. Thank you, sir.
    Next we will recognize Mr. Conyers for questions.
    Mr. Conyers. Thank you very much.
    Just for the record, Dr. Cooper, are you a lawyer?
    Mr. Cooper. I am not a lawyer.
    Mr. Conyers. Okay. You seem to advise a lot of lawyers, 
though.
    Mr. Cooper. I have been an expert witness about 400 times, 
so you spend a lot of time with lawyers.
    Mr. Conyers. Okay. I have never recommended law school to a 
person your age, but there are honorary degrees, probably, 
floating around in the profession.
    Anybody want to comment on their thinking about the pattern 
of the history of antitrust law in America--Sherman Act 1890, 
Clayton Act 1914, Robinson-Patman Act 1936, Hart-Scott-Rodino 
1976? Where we started off with--while we were protecting 
people originally in the 19th century from consumer fraud, 
conspiracies, collusion, it was anti-monopolistic, price-
fixing. Then Clayton came in with private--the rights of 
private lawsuits to enforce antitrust law in America; Hart-
Scott-Rodino mergers, Robinson-Patman fair pricing 
considerations.
    Is this an era that is gone--we sort of dealt with it? We 
had a rash of cases--big cases--that we study in law school. 
But now it seems like the pendulum is swinging the other way, 
that we are trying to scale back and even to me sometimes 
strange interpretations of savings clauses, that if you don't 
put a savings clause in it maybe means that antitrust isn't 
being contemplated.
    What do you think, Cooper, Lemley, Thorne, Shelanski?
    Mr. Cooper. I would offer two observations. It is 
interesting, you gave me the following key dates in the 
antitrust history: 1890, 1914, 1936, and 1976. I would point 
out that the Interstate Commerce Act is 1887; the Mann Act, 
which extended the Interstate Commerce Act to telecom, is 1910; 
and the Federal Communications Act--the Federal Power Act--are 
all the early 1930's.
    So the interesting thing is that the notion that we needed 
both regulation and antitrust is deeply embedded in that 
century of legislative history, so the idea that the Court 
finds it repugnant to have dual jurisdiction just is 
inconsistent with that history, and I think it is really 
important, as I mentioned in my testimony, that Congress 
legislated both at almost exactly the same time very 
consciously understanding it needed both. That is, to me, the 
most important lesson.
    The second point I would make is that the essential 
facilities doctrine, in an age where digital networks become 
the center of economic and communications and social 
activities, the access to that essential facilities--that 
network--becomes more important than ever. And of course, that 
is the issue that the Court was whacking away at in this case.
    So we are going in the wrong direction on both counts. We 
are claiming that we ought not have dual jurisdiction when that 
is clearly a part of our history, and we are restricting the 
access to essential facilities when it is more important than 
ever to have access to those facilities.
    Mr. Lemley. I do think antitrust has a--antitrust history 
has a pendulum problem. We started out with the antitrust laws 
to correct excesses of private behavior and we succeeded, but 
in some sense we succeeded too well and antitrust laws started 
to reach too far into the regulation of private behavior. That 
pendulum has been swinging back for 30 years now and I think it 
may well have swung too far in the opposite direction.
    It is absolutely desirable to have economic analysis and 
sophistication in thinking about antitrust. I guess I would 
like to see us not push the pendulum back the other way but see 
if we can get it not to swing so far in either direction and to 
center itself somewhere where we focus on economic analysis, we 
make the right decisions, but we are not simply saying we have 
to cut back antitrust or we have to expand antitrust at all 
costs.
    Mr. Conyers. Professor, what cases were you thinking of 
when you mentioned the pendulum had swung too far?
    Mr. Lemley. Well, if you look at the history until a couple 
of weeks ago when the Supreme Court decided the American Needle 
case antitrust plaintiffs, both governmental and private, have 
been on a losing streak in the United States Supreme Court that 
had run 18 years and 18 cases without a single antitrust 
plaintiff's victory until American Needle.
    And I do think--I think the concerns that were expressed in 
the early 1980's about not simply reacting to any private 
behavior by saying, ``There must be an antitrust problem 
here,'' were real, but I think the opposite concern is equally 
powerful. You cannot simply say, ``Well, if there is any 
plausible justification that we can come up with for why 
private behavior might be acceptable we should automatically 
defer to that behavior.
    Mr. Conyers. I quite agree with your analysis with the 
numbers, but name me a case.
    Mr. Lemley. Well, so some of the ones--I think the Credit 
Suisse case that we are talking about here is problematic. I 
think the--I think some of the decisions that make it 
essentially impossible to prove certain types of antitrust 
cases--predatory pricing cases, for example--are problematic. 
Predatory pricing is often over-claimed, but that doesn't mean 
it doesn't happen. So the legal standards that we have created 
in cases like Brooke Group may be too strict.
    Mr. Conyers. Mr. Thorne?
    Mr. Thorne. Two quick observations, Mr. Chairman. First, 
listening to your summary of the dates, it just--it is amazing 
to me how durable these very simple antitrust laws have been, 
and I think everybody on the panel agrees how important. 
Justice Marshall was not going too far in talking about the 
Sherman Act as a Magna Carta for free enterprise, almost on the 
par of the First Amendment guaranteeing speech and political 
participation. It is very important and there is no--it is 
wonderful to see how durable it has been.
    As a small second note on Brooke Group and on cases like 
it, these are the new cases that probably add up to the 18 that 
Professor Lemley talks about. If you think that it is important 
to have antitrust that is fair, efficient, and predictable, you 
need some clarity for businesses that are going to go out--like 
Verizon or other private enterprises--go out and then actually 
behave in the marketplace. So if Verizon is going to price a 
product it needs to know at what point can we go in cutting 
prices to benefit consumers--at what point can we go before we 
will be in some liability, we will be hailed before a one-time 
lay jury and then told we have priced too low, we have hurt our 
rivals, and now you pay triple damages in a class action.
    The predictability comes from having a test like, don't 
price below your costs. That is something businesses 
understand. There is sometimes a debate about where, you know, 
this measure of cost or another measure of a cost--but the 
concept, don't price below your costs and you will be okay----
    Mr. Conyers. But there is no law against that.
    Mr. Thorne. Well, that is what Brooke Group held, but if 
Brooke Group could be repealed then businesses would not have 
the predictability of knowing. For example, if I lower my 
prices today and hurt some small rivals I have benefited 
consumers right away but the rivals may not be able to keep up 
with price cuts.
    So there is a theme in the recent cases of saying a 
successful firm is allowed to do things that benefit consumers. 
A successful firm can cut price down to cost. A successful firm 
can innovate or invest just like a smaller rival can do. These 
are things that are good for consumers, and these are decisions 
that I think----
    Mr. Conyers. Your recommendation is good if the company has 
market power--in other words, if it is big and powerful. If it 
isn't you can price wherever you want--and I will be corrected 
on this; I have got a number of lawyers that are researching it 
now.
    Attorney Thorne, do you think you should have won your 
case?
    Mr. Thorne. The Trinko decision? I thought I should have 
won it in the Second Circuit and I am pleased that we won it 
without dissent in the Supreme Court, and I think it is good 
law and not a mistaken law. Thank you, Mr. Chairman.
    Mr. Conyers. Well, why didn't you win? [Laughter.]
    Mr. Thorne. The Second Circuit has, in a series of cases, 
expressed skepticism not about the particular legal standards 
that apply but the procedural posture of the case. So the way 
the case came up to the Second Circuit and then the Supreme 
Court was on a motion to dismiss. Trinko had not been allowed 
to take discovery, and we had not been allowed to take 
discovery of Trinko.
    So it was on--it was a--complaint with a lot of details 
which gave you the information necessary to decide if there was 
a complaint there. But the Second Circuit is historically 
reluctant to decide things on a motion to dismiss; they prefer 
to see a little discovery. And the phrase of Judge Sack, who 
was on the Second Circuit panel of writing, he quoted--I think 
it was Dickens, it was with some miscreant in Oliver Twist ``--
Let's see what happens; maybe something will turn up.'' 
Discovery was and summary judgment, was just the preferred 
procedure, and I think that is why we lost in the Second 
Circuit.
    Mr. Conyers. And it reminded me of the sports metaphor--
``We was robbed.''
    Thank you, Mr. Chairman.
    Mr. Johnson. Thank you, Mr. Chairman.
    Next we will hear from Mr. Chaffetz for questions.
    Mr. Chaffetz. Thank you.
    And thank you all for being here.
    Mr. Shelanski, I would like to start with you if I could. 
Recently Congress passed a massive health care reform bill, and 
the FTC has historically pursued numerous antitrust actions in 
the health care field. Are there any concerns that what was 
passed in March will prevent the FTC from bringing price-fixing 
cases in the health care industry?
    Mr. Shelanski. Thank you. That is an excellent question.
    We at the commission do a lot of enforcement, as you 
noticed, in the health care sector. It has been historically 
one of the major regulated industries in which we have operated 
and continue to operate. And the health care bill, having been 
recently passed, is something that we are, of course, studying 
with a great eye to the extent to which there may be regulatory 
provisions that affect our ability to continue----
    Mr. Chaffetz. I am not an attorney, by the way, Mr. 
Chairman. I just want to know for the record. If you have got 
one of those honorary degrees you are handing out let me know, 
though. That would be great.
    Mr. Conyers. Well, I am sure the law schools are already 
deciding among themselves which ones will confer you with an 
honor by next summer.
    Mr. Chaffetz. Thank you.
    To continue on, Mr. Shelanski, if the FTC and the 
Department of Justice are given different substantive legal 
standards for bringing antitrust cases how would you deal with 
all the private class action cases that would want to follow in 
their wake? Would trial bar lawyers, class actions, triple 
damages be allowed to piggyback on the government cases? How is 
that going to work?
    Mr. Shelanski. Well, that is obviously going to be an 
extremely important area for policy. And to the extent that 
what the Supreme Court was primarily concerned about were what 
has been called the toxic combination of triple damages and 
class action--how to preserve the good aspects of antitrust 
without the high error costs, where--and not all such cases are 
inappropriate, I want to be very clear about that; but those 
that are have to be prevented from following on the heels.
    I would make two remarks about that, though. One is that 
when the public agencies win a case that demonstrates that 
there is merit to the claim of anticompetitive conduct, and so 
to the extent that a firm may have further civil damages that 
flow from proven anticompetitive conduct, that is what the 
antitrust laws are there to prevent and to compensate the 
damage of plaintiffs for.
    But I would also add that where the Federal agencies 
enforce there may be ways for them to resolve claims without 
precedential effects. The Federal Trade Commission Act brings 
all of its competition law cases technically under Section 5--
that is of not the Sherman Act, not the Clayton Act, but the 
Federal Trade Commission Act. It does not provide for private 
rights of--automatic private rights of action. It does not 
provide for triple damages; and which also provides, under the 
Supreme Court's very decision in a number of other cases for--
antitrust law, but clearer that private plaintiffs can follow 
on with those actions.
    Mr. Chaffetz. Let me continue on here regarding Trinko 
here. You argued that ``The Second Circuit's erroneous 
construction of Section 2 would fundamentally transform the 
Sherman Act so as to require monopolists to pull their 
competitive punches, assist their competitors, convert 
themselves from retailers into wholesalers, and share monopoly 
profits on demand.'' Are you repudiating your earlier findings 
in the Supreme Court, and why, and what has changed?
    Mr. Shelanski. Okay, I just want to be clear--I am not sure 
I wrote those words----
    Mr. Chaffetz. Okay, assuming that it is not a quote, but 
generally the spirit of what I said there--I am happy to repeat 
it, but I believe I am pulling from a direct quote here that 
was in the brief, at least----
    Mr. Shelanski. Okay. Okay. I thought you were quoting the 
testimony. I am sorry.
    Mr. Chaffetz. My apologies. From the brief----
    Mr. Shelanski. The public antitrust agencies are just as 
concerned with sound antitrust enforcement as the Supreme Court 
is, and the public agencies would, I think--what they were 
expressing in that brief--and I want to be clear that I was 
neither an author of the brief nor am I authorized to speak on 
behalf of those that were--but my personal interpretation of 
what was written in that brief was a concern that refusals-to-
deal not be too automatically punished because, as Mr. Thorne 
has argued, when you have successfully developed a product and 
successfully innovated in an area there should--it would be 
harmful, as the FTC has often stated, for American consumers if 
you automatically had to turn over that innovation, that 
invention, that product to a rival. That could harm competition 
rather than help competition.
    And I think what was being expressed in the brief was a 
concern that we not have a rule that, as we were talking about 
pendulums, that goes too far in telling successful innovators 
that as successful competitors you have to confer your 
advantage on your rivals. As Justice Scalia said in the Trinko 
case, that could harm competition, not help it, and I don't 
think we disagree with that.
    The question is, as my colleague, Professor Lemley said, 
where that pendulum is set. The Court may have gone too far in 
Trinko.
    Mr. Chaffetz. Thank you, Mr. Chair.
    Mr. Johnson. Thank you.
    Next we will hear from Mr. Polis with questions.
    Mr. Polis. I join my colleague from Utah as a non-attorney 
on the Committee. A basic question maybe one of you can help me 
with is the concept--legal term--regulated industry binary and 
clear, or is it a continuum of what a regulated industry is or 
isn't?
    Mr. Lemley. I think the answer is it is clearly--it is a 
continuum and that is a significant part of the problem. In 
some sense all industries are regulated, they are all subject 
to health and welfare regulation, environmental oversight and 
that sort of thing, and so one of the worries is that if we 
defer in--if antitrust law defers to any area in which there is 
regulation in the modern economy that may be almost on to 
everyone. Now, obviously some industries are more heavily 
regulated----
    Mr. Polis. If we take an example--if we can comment on the 
publishing industry as an example. This would be an industry 
that has some regulation, especially regarding, you know, sale 
of books and pricing and so forth that could be viewed within 
the antitrust realm. Is that one that falls somewhere on the 
continuum between--if anybody is familiar already with that 
industry--between regulated and unregulated?
    Mr. Lemley. I think it is probably a less regulated 
industry than most, but--and it is certainly the case that we 
wouldn't want antitrust to step away from actions in the book 
publishing industry. There were, in the last 10 years, 
significant antitrust cases brought against price-fixing 
behavior among publishers, and we don't want to give cover to 
antitrust violations as private defendant have sometimes 
suggested in other industries merely because there is a 
regulatory component.
    Mr. Polis. And some of the regulated industries on that end 
are, in fact, regulated for other reasons, and indeed, for 
primary reasons unrelated to competition policies. Is that 
correct as well?
    Mr. Lemley. Absolutely. Absolutely.
    Mr. Polis. Do you have any examples of that you can give, 
what you might consider a regulated industry where the primary 
thrust of the regulatory structure is not necessarily around 
the same types of concerns that antitrust law address?
    Mr. Lemley. Well, I mean, so I think one example is 
securities regulation, right, where our interests are in--they 
are in some sense bound up with the working of the marketplace, 
but they are not with competition in the same sense antitrust 
law thinks about it. But environmental regulation obviously 
fits into that category as well. If we are restricting the way 
in which you run a coal mine we are not doing it in order to 
encourage competition; we are doing it because we are worried 
about the environmental consequences----
    Mr. Polis. And in your opinion there is not any legislative 
legal language in the regulatory structure that is created for 
many of these regulated industries that specifically was 
designed by Congress to exempt them from antitrust?
    Mr. Lemley. I think that is right, and I think that is 
right precisely because the assumption, until 6 or 7 years ago, 
was that we didn't need legislative language to solve this 
problem because courts wouldn't impliedly repeal the antitrust 
laws merely because there was regulation. And it is that 
assumption that has been called into question.
    Mr. Polis. Right. So an answer--a legislative answer--could 
take two forms. One would be modifying the Antitrust Act to 
explicitly not exempt regulated industries; the others would be 
to amend the relevant regulations for the respective industries 
to make it clear that nothing contained in those acts exempt 
them from antitrust.
    Mr. Lemley. Right. And I will just mention in the latter 
category that there are an awful lot of regulations out there. 
The former seems the simpler approach.
    Mr. Polis. I should ask, clearly the former is the simpler 
approach, also, perhaps, you know, difficult--so would it, in 
fact, be legally constructive going forward when we look at 
industry regulation to include boilerplate language not 
exempting them from antitrust, or could that be taken as a 
point of evidence that, in fact, the ones that don't contain 
that language it wasn't contemplated? Would you recommend 
that--would you consider recommending that course of action to 
us going forward in the industries who regulate?
    Mr. Lemley. So I think it is a worry, right, because one of 
the cannons of construction the courts use is, ``Well, you said 
it here, you didn't say it here, so in the second category you 
must not have meant it to apply,'' which is why I think that 
the general approach within the antitrust laws is the proper 
one.
    Mr. Polis. Yes. Thank you. Just as a--and this would 
obviously--the counterargument would be as a reaction to a 
precedent that didn't exist when the other laws were set up. 
You are correct, obviously, legislatively in terms of opening 
up all the various industries that are regulated not the most 
likely political occurrence. But certainly going forward, 
absent an ability to modify the Antitrust Act itself, it 
certainly is a possibility that we could explore at the same 
time as we started to explore a clarification within the 
Antitrust Act.
    I appreciate your answers and I yield back.
    Mr. Johnson. Thank you, Mr. Polis.
    Next, Mr. Goodlatte?
    Mr. Goodlatte. Well, thank you, Mr. Chairman. I appreciate 
your holding this hearing and I appreciate this very 
interesting discussion by our panelists.
    To follow up on the comments of the gentleman from 
Colorado, you could also take it a step further and in writing 
revisions to our antitrust laws say that when those laws are 
applied under circumstances specified in the law they would 
supersede the regulatory effect.
    My concern here is this: I am very much a supporter of our 
antitrust laws, and I do not think we apply them as often as we 
should, and I share some of the concerns that have been 
expressed here. But quite frankly, I think antitrust has a more 
positive effect on our economy when it tells an entity, you 
can't do a certain thing because of its anticompetitive effect. 
But that still incentivizes that business to find a different 
way to deliver those services to their customers that they were 
told they couldn't deliver in that fashion because it had an 
unfair effect on their competition. Whereas with regulation my 
fear is that the regulatory process is, you will do this but 
you will do it this specific way, and that often has a very 
negative impact upon the incentive of businesses to be 
innovative in their process. So the clashing of those two ideas 
here is one that I respect, quite frankly, the Court's 
concerns.
    And Professor Lemley, let me ask you in that regard: You 
are talking about reversing the presumption. Help me juxtapose 
that with the Supreme Court's decision in Credit Suisse in 
which they have set forth this four-factor test which seems to 
me would put some burden on the defendant in those cases to 
first say, hey, there are regulations here, number one. Number 
two, the regulatory agency, whether it is FTC or somebody else, 
is indeed exercising their authority under those regulatory 
powers. Thirdly, that there would be a conflict that would 
exist between those regulations and the exercise of the 
antitrust decision. And then finally, whether the practices 
would be subject to conflicting requirements lie within the 
heart of the securities laws. Obviously this decision could 
well be read to only apply to the securities industry.
    But that seems to be a pretty good test. What is your 
response to that?
    Mr. Lemley. Well, so I think my first response is that test 
in the--articulated in the abstract is not a bad test. As 
applied in the actual Credit Suisse case it didn't work because 
the very conduct--the conduct that was in question, I think, 
was pretty clearly anticompetitive, and the regulatory decision 
to which the Court chose to defer was not an affirmative 
decision to require the conduct or even to bless the conduct; 
it was merely regulatory in action, the fact that the FCC 
hadn't brought an action against this particular conduct.
    Mr. Goodlatte. So good test but bad decision?
    Mr. Lemley. Yes, I think that is right.
    Now, so I think the--so my worry, then, is, you know, what 
is the--how are lower courts who are reading this decision as 
applied in this context going to take terms like, ``Is there a 
conflict between the two?'' If there is a real conflict--if the 
regulation affirmatively says you have to do it this way--then 
yes, you shouldn't hold people liable for violating the 
antitrust laws for doing what the regulators told them they had 
to do. That would be unfair.
    I agree with you, on the other hand, that if we have a 
choice between and antitrust regime that says, don't engage in 
anticompetitive conduct but feel free to compete otherwise, we 
are better off choosing that over a regulatory system that 
tells people how they have to compete. And so my instinct would 
be to say we ought to limit the circumstances in which we think 
there is a real conflict between regulation and the antitrust 
laws as much as possible.
    Mr. Goodlatte. How does your ``reversing the presumption'' 
differ from this test? I mean, what would you add to that or 
how would you differ from that in terms of attempting to 
reinstate some antitrust authority here without creating too 
many of these conflicts between the antitrust enforcement and 
regulatory enforcement?
    Mr. Lemley. Well, I think the focus should, in fact, be on 
conflict. That is, I think if we simply had a rule that said, 
the antitrust laws apply here, they haven't been repealed, they 
can nonetheless--they should nonetheless be--antitrust should 
defer to actual actions by the regulators and they ought to 
defer in circumstances in which there really is a conflict so 
that the behavior by the defendant is compelled by the 
regulators and so it can't be an antitrust violation as a 
result. You can't put a private company in the position of 
having to violate one law or the other.
    But short of that, if the government hasn't acted and if 
the government's regulatory scheme doesn't put people in the 
position that they are going to run afoul of one regime or the 
other, unless there is an express immunity that Congress has 
adopted, I don't think the courts should be creating one by 
implication.
    Mr. Goodlatte. Mr. Chairman, my time is expired. I wonder 
if I might ask Mr. Thorne if he--I know he didn't profess to be 
an expert on the Credit Suisse decision, but he might visualize 
how this discussion that we have just had might impact his 
company and his point of view about this.
    Mr. Thorne. Well, my company is probably not affected by 
Credit Suisse because in----
    Mr. Goodlatte. You are not in the securities industry, 
but----
    Mr. Thorne. The telecom statute has a very strong, explicit 
savings clause, so antitrust is fully preserved for telecom. 
But, you know, I have read the Credit Suisse decision. I 
noticed how deeply context-specific it was. It didn't seem like 
a blanket rule was going to work. It was something that 
depended on the rules, depended on the facts.
    The Securities Exchange Commission there was an advocate 
for immunity. The Justice Department came in on the other side 
and said, no, we think we have got a way to make antitrust work 
despite your concerns about needing all the cooperation of the 
firms to aggregate capital. So it sounds like something where 
you would want the advice of the SEC in crafting something that 
will change how the SEC-related rules were immunizing against 
antitrust conduct.
    Mr. Goodlatte. And if I might also ask Mr. Shelanski to 
talk about that very point, you had a conflict between two 
government agencies--not yours, but the SEC and the Justice 
Department--the court of appeals, the Department of Justice, 
and the SEC had decidedly different positions on the question 
of whether security law is preemptive in the antitrust laws. 
Can you explain the position that the agencies took before the 
Supreme Court and the extent to which the Court adopted the 
government's position? Would the FTC take the same position 
today?
    Mr. Shelanski. I can't speak to whether the FCC would take 
the same position today----
    Mr. Goodlatte. I said the FTC.
    Mr. Shelanski. Oh, the FTC. I think that our position would 
be very much along the--I can't speak for the agency, but our 
testimony today suggests that our testimony would be very much 
along the lines, or our position would be very much along the 
lines of the position that the Department of Justice took.
    We as a public agency can make a reasoned judgment about 
whether the conduct we are attacking is reached or not by 
regulation and whether or not we can frame the issue crisply 
enough that a court can separate the antitrust conduct from 
regulated conduct.
    There is a profound irony that the Credit Suisse court did 
not address. The very courts that they are saying are incapable 
of avoiding confusion between the securities laws and separate 
non-regulated antitrust conduct are the same courts they are 
saying will have to apply the four-part test whenever a 
conflict comes up. I find that to be a little bit strange.
    And just to address your other point, I agree fully that 
fixed rules that say you must do something in a particular way 
are less desirable than more targeted and more flexible 
antitrust enforcement. There is a risk after Credit Suisse and 
after Trinko that regulatory agencies will feel they have to be 
more rather than less aggressive because of fear that antitrust 
cannot play its backup role. That was a concern of the Justice 
Department in the Credit Suisse case and I think it is a 
concern that we at the commission would have today.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Johnson. Thank you.
    I have one additional question. What is the cumulative 
effect on public and private enforcement of antitrust laws of 
the Supreme Court's decisions in Trinko and Credit Suisse? What 
is the cumulative effect?
    And I would like to get a response from you all.
    Mr. Shelanski. Well, I will begin with addressing the 
public enforcement side of your question and I will try to say 
a word about private enforcement as well. Certainly at the FTC 
we do a substantial amount of enforcement in regulated 
industries--health care and electricity, just to name two, 
would be a couple of areas----
    We have to think very carefully in our enforcement 
decisions going forward about whether or not we will, in a 
given case, run into a Credit Suisse or a Trinko problem, so it 
certainly imposes a burden and a litigation of risk on the 
agency. And as I said in response to Mr. Chaffetz, this is 
something that is, going forward, going to be a serious concern 
for us in health care, energy, other industries.
    On private enforcement, the only thing I can say is it 
must--I think both of these cases will, over time, and perhaps 
have already, although we can't observe cases that have soon 
happened because counsel said we can't bring the case, but I 
would imagine that it is a--the effects have been to reduce 
private enforcement.
    Mr. Thorne. Mr. Chairman, as a private enforcer, Trinko and 
Credit Suisse have not cooled our ardor at all in seeking to 
fully enforce the antitrust laws. As I mentioned in my written 
testimony, after Trinko we brought a case in a highly regulated 
industry. We felt no deterrent from the Trinko decision. We 
think Trinko lines up squarely with the prior precedents and 
didn't change anything.
    And again, I am not an expert, but as I read Credit Suisse 
that is a case that is specific to the SEC context, and I don't 
see that precluding private enforcement. And if you look at the 
good work that the Justice Department and the FTC have done in 
this Administration so far I don't see these cases cooling 
their ardor at all either.
    Mr. Johnson. Thank you, Mr. Thorne. Very careful analysis.
    Professor?
    Mr. Lemley. I think the cases have emboldened the companies 
that are regulated to look for ways that they can game the 
system, because if they can engage in conduct that is within or 
find shelter in regulation they are more confident that they 
will escape antitrust scrutiny, and I think that is a bad 
thing.
    Mr. Cooper. That is my concern and I have expressed it 
already--the dynamic of establishing the principle that if you 
never deal you never have to deal. In industries where we have 
deeply interconnected networks and essential facilities is 
leading us to a place where you get people with the ability to 
really frustrate the entry of competition.
    Mr. Johnson. Thank you.
    And are there any other questions from Members of the 
Committee?
    With that, I will conclude this hearing. I would like to 
thank all of the witnesses for their testimony, and without 
objection Members will have 5 legislative days to submit any 
additional written questions which we will forward to the 
witnesses and ask that you answer as promptly as you can to 
made a part--to be made a part of the record. Without objection 
the record will remain open for 5 legislative days for the 
submission of any other additional materials.
    Today's hearing has raised troubling questions regarding 
the Supreme Court's attitude toward antitrust laws and the 
ability of the lower courts to enforce them. I remain concerned 
that this is part of a larger disregard held by this Court 
toward the will of Congress.
    And with that, this hearing of the Subcommittee on Courts 
and Competition Policy is adjourned.
    [Whereupon, at 11:48 a.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

 Prepared Statement of the Honorable Howard Coble, a Representative in 
    Congress from the State of North Carolina, and Ranking Member, 
             Subcommittee on Courts and Competition Policy
    Mr. Chairman, thank you for calling this hearing of the Courts and 
Competition Policy Subcommittee.
    Today's hearing could have profound implications for the 
jurisdiction of this subcommittee. It deals with two Supreme Court 
cases that, if the critics are correct, could severely limit the reach 
of antitrust laws in regulated industries.
    I am of two minds on today's hearing. On the one hand, I am a 
strong supporter of our federal antitrust laws. They are critical to 
ensuring that customers receive the benefits of competition, namely, 
lower prices and greater choices.
    So, to the extent that these decisions can be read as blanket 
exemptions from the antitrust laws, I am skeptical of their reach.
    On the other hand, I am wary of over-regulating businesses or, what 
is worse, giving businesses conflicting regulatory demands.
    So, to the extent that these decisions can be read as merely 
clarifying the regulatory burden borne by businesses, I am supportive.
    The fact that these decisions can be read two different ways really 
complicates matters. For example, is Trinko merely a limit on the 
extent that antitrust law can compel a dominant firm to deal with its 
rivals? Or is it a blanket antitrust exemption for the 
telecommunications industry, despite an antitrust savings clause in the 
1996 Telecommunications Act?
    These are very complicated and weighty issues in antitrust law and 
I am glad that we have such a diverse panel of experts to help us 
understand the reach of these decisions.
    These questions are hardly just academic. Currently, Members of 
both the House and Senate are meeting to reconcile the financial 
services regulatory bill. Both versions of that legislation contain 
antitrust savings clauses. Depending on what we learn here today, we 
may need to revisit that language to ensure that courts will honor 
Congressional intent with respect to the role that antitrust will play 
in the financial services industry going forward.
    With that, I look forward to hearing from all of our witnesses on 
this important topic.
    I yield back the balance of my time.

                                 
