Explainer Episode 19 – The Burden of Proof in Competition Law
The House Committee on the Judiciary recently released a report on the state of competition in the digital marketplace. The report, which was the result of a 16-month-long investigation, describes itself as “an attack on how America has approached antitrust for the past 40 years.”
One of the recommendations in the report involves shifting the evidentiary burden of proof from the plaintiff to the defendant, particularly in civil mergers challenges, which would entail a significant change to antitrust law.
In this episode, Ashley Baker lays out the current burden of proof framework used in U.S. courts in competition law cases, the role of presumptions in antitrust litigation, and the potential implications of the burden shift proposed in the report.
[Music and Narration]
Operator: Welcome to The Regulatory Transparency Project’s Fourth Branch Podcast Series. All expressions of opinion are those of the speaker.
Nathan Kaczmarek: Hello. This is Nate Kaczmarek, Vice President and Director of the Regulatory Transparency Project for The Federalist Society. Today, we’re pleased to have Ashley Baker with us. Ashley, how are you today?
Ashley Baker: I’m great, Nate. How are you?
Nathan Kaczmarek: I’m very good, and all the better for having you with us. Ashley, as most of you probably know, is the Director of Public Policy for the Committee for Justice where her focus areas include the Supreme Court, technology and regulatory policy, and judicial nominations. Her full bio is, of course, available at our website, regproject.org. That’s R-E-G-project.org.
Today, Ashley is here to explain some recent developments in the antitrust world, and we’re grateful for that. And, Ashley, specifically, there’s been a lot of talk around shifting the burden of proof in antitrust cases. Where has this been proposed recently? And what are — give us the landscape. What are the proposals that people have set forth?
Ashley Baker: Sure. And thank you for having me, Nate. So right now, one of the more, I would say, radical proposals out there regarding how we should or should not change our antitrust laws to adapt to the digital economies, a proposal to shift the burden of proof from the plaintiff to the defendants in antitrust cases and specifically in civil merger challenges.
So the House Committee on the Judiciary, about a little over a month ago in early October, came out with this report. It was about 450 pages, and it had a whole host of recommendations in their — had many, many recommendations. They never really identified the problem, but it gave a lot of recommendations.
And one of the more, as I said, radical proposals that were in there was to shift the burden of proof away from the government or the plaintiff and to the defendant or likely the company. And this is something that also would affect a lot more than just the tech industry. This would affect mergers and acquisitions across the board. So this will be a really impactful proposal, both in its practical impact and just for our judicial system as a whole.
Nathan Kaczmarek: I see. And so we’re talking about a discreet area of — I think it’s over a 400-page report. But we’re talking — it’s an important concept and maybe you could just lay out at a basic level what — before this proposal would go into place or before it’d be accepted by anyone, what is the current burden for the government, and why is the current setup so important?
Ashley Baker: Sure. So the government’s current framework as for the burden of proof as to who must prove the case, case law has held that under Section 7 of the Clayton Act that the government must one, propose the proper relevant market, so that’s market that’s [inaudible 3:09], and two, also show the effect of the merger in that market is likely to be anticompetitive or cause anticompetitive harm.
So if the government can meet these two prongs, the burden then switches to the defendant to provide evidence that the case inaccurately predicts the transaction’s probable effect to on competition or that the government does not accurately predict anticompetitive harm.
However, there’s one other way in which to defend [inaudible 3:38] the case with evidence of pro-competitive efficiencies or synergies, as they’re called, it would create by the merger. And then the burden of proof then rests with the defendant to remove those pro-competitive justifications.
And then after that, the burden once again shifts to the plaintiff or the government to show that these pro-competitive efficiencies could be reasonably achieved through its anti-competitive means. But I’ll point out that for that second pathway, only one defendant has ever successfully prevailed on an efficiencies defense in a litigated case ever. So that path is rarely explored, and that shows how hard it is when you shift the burden to the defendants as a whole.
So under this current framework, the presumption really favors plaintiffs for the type of conduct — whatever the type of conduct issues is likely to harm consumers and then when the type of conduct addition was likely to have a beneficial or neutral effect on consumers, the presumptions favored defendants.
So right now, we have a system that’s working pretty well already. And in cases when the presumptions do favor the plaintiffs, for example, if there’s conduct that is known to always or almost always reduce market output or raise prices to consumers, the person rule of illegality applies, just like it would in any other case. These are in cases like price fixing and things other than just straight outright merger cases.
So when we have that sort of behavior, it’s not just weighing efficiencies. But in that scenario, the presumption does obviously favor the plaintiff in those types of cases. So the proposal would essentially ban — I wouldn’t say ban mergers, but effectively, it would make all mergers illegal. There would be a presumption of illegality and you would have to, as the defendant, prove that the merger is legal.
Nathan Kaczmarek: From your perspective, it sounds like — you indicated that the current framework works pretty well already. What is the reasoning behind this proposal? What is the desire by those who are putting it forward to change the framework? Why do they view it as advantageous?
Ashley Baker: Well, to get at some of the root problems of the proposal first, I would point out that shifting the burden to the defendant does offend our basic sense of due process as Americans and the way that our justice system works now and just the sense of fairness. It promotes the notion that all mergers are unlawful if no showing from the government, at all places, and it puts the agency, the DOJ or the FTC, as a super regulator and that everything is already presumed illegal. You have to prove that it’s not.
In light of this, though, it’s based on this kind of assumption that agencies are having a hard time proving — that they have a high burden to meet in antitrust cases, which is a little bit ridiculous because agencies almost always win these merger cases.
I think agencies have lost cases of these types about three times at least, three or four times, in the past decade. So it’s not that they are losing cases. That’s really — it’s not a litigation problem. So that problem, it’s hard to fix a problem that really doesn’t exist. So that’s one of the faults premises that it rests on that agencies cannot and do not win in court. But that’s obviously false. They have proper authority to bring cases. They do bring cases, and they win those cases most of the time.
Nathan Kaczmarek: So this would in fact then give them an even greater advantage then they, at least from your perspective, a greater advantage than they already enjoy.
Ashley Baker: Yes. A greater advantage than they already enjoy and also agencies already have the benefit of having a rebuttable presumption of illegality for horizontal mergers resulting in a firm having more than a 30 percent market share under a case known as Philadelphia National Bank, the PNB presumption as some refer to it colloquially. So there’s already, in a lot of cases, a presumption of illegality for horizontal mergers at least.
The broad implications of this I think are really largely — it can stifle innovation, obviously, as it would — then corporations are disincentivized to merge for fear that they might not be able to down the road prove that there are competitive efficiencies to their merger to the satisfaction of the court.
So these are things that are going through the heads of people who are running these businesses as they’re making these decisions. So it effects decision-making on a day to day level, and that would definitely have a chilling effect.
And it would also really just eliminate the need for a reinforcement agency to precisely measure, even allege anticompetitive effects because the burden is on the defendant to do the opposite. So what is the agency measuring? It has a lot of practical consequences there as well.
Nathan Kaczmarek: I see. So and I guess from the agency’s perspective, they would be gaining a greater advantage and maybe pushing out some of the court’s impact or role in these sorts of cases. Is that fair?
Ashley Baker: Right, exactly. It does diminish the role of the Judiciary, absolutely. You’re right. And one other fault premise that this relies on in the report as a whole — relies on two as if — it acts as if there’s been these huge mergers and acquisitions buying spree in the tech industry. And sure, there are a fair number of M&As in the industry and that is how the industry functions, how it started the commute functions when these businesses are started and then they’re acquired by a larger company or they merge, a lot of them start for that reason.
But even looking at the data in the reports, the majority of stats points out that since 1998, the four digital platforms that were examined in the report were able to acquire more than 500 other companies. But if you really do the math and break that down, then this is only an average of less than six mergers or acquisitions per company per year.
So this is hardly a big buying spree that’s going on here. So there’s faulty data. There’s also just, as I said, the fundamental problem of switching the burden of proof. And surprisingly so, after the report came out, or as the report came out, there was a secondary report led by Representative Buck that three other congressmen signed onto. And it was from the minority members, it was from the Republican members. They were all four Republican members.
And the first area of overlap between his report and Cicilline’s report, which he says yes, we absolutely agree with the majority, is on burden shifting, which is not something that I think would sell very well with conservatives, or certainly shouldn’t, given what it does to our sense of due process and fairness in our judicial system.
Nathan Kaczmarek: Interesting. And are there are insights into — from Buck’s report, are there specific reasons why he and others indicated that they feel like this is a supportable element of the majority’s report?
Ashley Baker: So one of the major rationales that this “Third Way” report, which is what Buck’s report is called, gives this — he notes, he says, “Of course, many of these deals were either pro-competitive or competitively benign, but the important point here is that we have no real way of knowing what their competitive effect was because they were not reviewed by the antitrust cops.”
I point out, though, that however under current antitrust law, enforcers have plenty of adequate power to intervene in mergers and acquisitions. And as I said, the FTC and the DOJ have only lost a handful of cases in the past decade. You have the fact that private litigants continue to bring monopolization claims. And then outside the courtroom as well, you have plenty of mergers and acquisitions that are prevented out of fear of government action. They never take place, so obviously, you don’t have data on that.
One alternative to shifting the burden I think could give the agencies more funding to pursue these cases, to pursue legitimate cases. I don’t see that as necessarily being problematic. And that would be the more sensible way to go about doing this, but this would be, really, a big upheaval of how our current framework works.
And although it doesn’t say this explicitly and it’s never explicitly acknowledged, this is also — it’s an end run around work consumer welfare centered. It takes those principles behind the consumer welfare standard and really turns them over on their head when it comes to litigation. And that’s something I think that has not really been realized yet.
Nathan Kaczmarek: I see. That’s very interesting. And you mentioned suggested alternatives. Are there any other alternatives, at least at this point, that come to mind that would be more prudent from, as you say, from the conservative perspective to follow rather than this burden shifting process?
Ashley Baker: Aside from — like I just mentioned, they could give more — allocate more funds to the DOJ or the FTC to pursue these types of cases. And our current system is working perfectly well, so it’s really a solution in search of a problem. It’s even really silly to suggest that the government is having problems winning cases.
Nathan Kaczmarek: Got it. Well understood. And in terms of other thoughts or reflections about this topic and area, is there anything else that — I think you’ve really covered the landscape and where things are at currently. Are there other things you’d like to share with our audience before we conclude?
Ashley Baker: Well, I couldn’t cover all that’s in the report if you gave me an hour or five hours.
Nathan Kaczmarek: Right.
Ashley Baker: So in the narrow confines of this topic, I think that this sort of proposal, it would shift us back to the pre-1970s world of antitrust litigation. You have this great quote from Justice Potter Stewart in a case in which he says, “The only certainty in antitrust litigation is that the government always wins.” And now, the government still wins most of the time. But we would certainly be going back to an era where the government does win all cases all the time.
I would say that this specific proposal, it is one of the more radical ones, and it is one of the ones I think is lacking more in popular support. And I don’t know if the members of Congress don’t necessarily realize that yet. And it should be lacking in popular support, for obvious reasons, the notion about fairness and just the broad array of industries that this would affect. This would go far beyond tech. It’s not as if all M&A cases are from the tech industry either, so you would see this in lots of other industries as well.
So I would just emphasize how broad reaching this really is and how broad reaching the similar proposals in the report as a whole are as well because it’s really not just about tech. These antitrust proposals really affect all sectors.
Nathan Kaczmarek: Yeah. I think that’s a really good case, and I think you’ve done a really good job of helping our audience to understand this concept here. And certainly, there’ll be more discussion to be had later, but for now, Ashley, thank you very much for joining us. We look forward to our next opportunity to talk.
Ashley Baker: Thank you.
Operator: On behalf of The Federalist Society’s Regulatory Transparency Project, thanks for tuning in to the Fourth Branch Podcast. To catch every new episode when it’s released, you can subscribe on Apple Podcasts, Google Play, and Spreaker. For the latest from RTP, please visit our website at regproject.org. That’s R-E-G-project.org.
This has been a FedSoc audio production.