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Abstract:
The overwhelming majority of intellectual property lawsuits settle before trial. These settlements involve agreements between the patentee and the accused infringer, parties who are often competitors before the lawsuit. Because these competitors may agree to stop competing, to regulate the price each charges, and to exchange information about products and prices, settlements of intellectual property disputes naturally raise antitrust concerns. In this paper, we suggest a way to reconcile the interests of intellectual property law and antitrust law in evaluating intellectual property settlements. In Part I, we provide background on the issue. Part II argues that in most cases courts can determine the legality of a settlement agreement without inquiring into the merits of the intellectual property dispute being settled, either because the settlement would be legal even if the patent were invalid or not infringed, or because the settlement would be illegal even if the patent were valid and infringed. Only in a narrow class of cases will the merits of the intellectual property dispute matter. In Part III, we argue that in that narrow middle set of cases antitrust's rule of reason is unlikely to be helpful. Rather, courts must inquire into the validity, enforceability, and infringement issues in the underlying case, with particular sensitivity to both the type of intellectual property right at issue and the industrial context of the dispute. In Part IV, we apply our framework to a number of common settlement terms, most notably the use of exclusion payments to settle pharmaceutical patent disputes. We argue that exclusion payments that exceed litigation costs should be deemed illegal per se. There is no legitimate reason for such payments, and the most likely reason - to permit the patentee to exclude competition that would likely have occurred absent the payment - is anticompetitive. Further, legitimate patent disputes can be settled in other ways than with an exclusion payment - for example, by licensing the defendant or by agreeing to delay entry.

antitrust, patent, settlement, intellectual property, Hatch-Waxman, exit payments

Abstract:
The Chicago School has produced many significant contributions to the antitrust literature of the last half century. Thanks in part to Chicago School efforts today we have an antitrust policy that is more rigorously economic, less concerned with protecting noneconomic values that are impossible to identify and weigh, and more confident that markets will correct themselves without government intervention. This Chicago School revolution came at the expense of the Harvard structural school, which flourished from the 1930s through the 1950s. That school rested on a fairly rigid theory of Cournot oligopoly, exaggerated notions about barriers and impediments to entry, and a belief that certain types of anticompetitive conduct were more-or-less inevitable given a particular market structure. However, the chastised Harvard School that emerged in the late 1970s in the writings of Phillip E. Areeda and a converted Donald F. Turner were much less ambitious about the goals of antitrust, more concerned with conduct as such, and significantly more skeptical about the benefits of aggressive judicial intervention.

This story of a victorious Chicago School and a humbled and disciplined Harvard School is incomplete, however. The antitrust case law reveals something quite different. On most of the important issues this chastised Harvard School has captured antitrust decision making in the courts, and largely in the enforcement agencies. This paper explores these differences, focusing mainly on dominant firm practices.

Antitrust, Competition, Competition Law, Monopolization, Dominant firm, Leverage, Industrial Organization, Economics

Abstract:
Most antitrust claims relating to intellectual property involve challenges to agreements, licensing practices or affirmative conduct involving the use or disposition of the intellectual property rights or the products they cover. But sometimes an antitrust claim centers on an intellectual property owner's refusal to use or license an intellectual property right, perhaps coupled with efforts to enforce the intellectual property right against infringers. The allegation may be that the intellectual property right is so essential to competition that it must be licensed across the board, or that a refusal to license it to one particular party was discriminatory, or that in context a refusal to license helped a monopolist to acquire or maintain market power.

Claims based on a unilateral refusal to license - the subject of this chapter - present important issues at the center of the tension between antitrust and intellectual property. The antitrust and intellectual property laws are not necessarily in conflict. For the most part they serve complementary goals, though each must limit the scope of the other. Unilateral refusal to license cases, however, cut to the heart of the intellectual property owner's right to exclude others from practicing the intellectual property. As such, efforts to invoke antitrust law in this context deserve special scrutiny.

Section 2 reviews the basic principles relating to unilateral refusals to license intellectual property rights. Section 3 discusses in detail the various sets of circumstances in which antitrust plaintiffs argue for exceptions to those basic rules. Section 4 distinguishes unilateral from concerted and conditional refusals to deal.

Abstract:
The history of IP/antitrust litigation is filled with exaggerated notions of the power conferred by IP rights and imagined threats to competition. The result is that antitrust litigation involving IP practices has seen problems where none existed. To be sure, finding the right balance between maintaining competition and creating incentives to innovate is no easy task. However, the judge in an IP/antitrust case almost never needs to do the balancing, most of which is done in the language of the IP provisions. The role of antitrust tribunals is the much more limited one of ensuring that any alleged threat to competition is real. At the same time, however, antitrust judges should not be reluctant to condemn IP practices once a real threat to competition is found, unless the practice has a clear justification in the IP statutes themselves or the explicit policies that the Supreme Court has derived from those statutes.

Antitrust, Intellectual property, Patents, Copyright, Legal history, Collusion, Exclusionary practices, Misuse

Abstract:
The idea that there is a tension between antitrust and the intellectual property laws is readily exaggerated. The tension that exists results mainly from our uncertainty about the optimal amount and scope of IP protection. In general, antitrust draws clearer lines than intellectual property law does, although one should not push the point too far. Antitrust policy as manifested in the courts has achieved a fair amount of consensus today. By contrast, deep uncertainty remains about fundamental questions concerning the socially optimal outcome of IP disputes. In addition, while the antitrust statutes are for the most part public regarding provisions interpreted by the courts, the IP laws have increasingly become special interest statutes less concerned with optimal IP coverage and more concerned with protection of the claims of particular interest groups. As a result, antitrust needs to take a bolder position in areas of potential conflict with IP law than it has in the past. This does not mean that we must revert to a post-New Deal regime in which the courts imagined threats from IP rights where none existed. However, it does entail that antitrust stop being so deferential in areas where threats to competition are real and the IP laws are ambiguous on the issue in question.

antitrust, intellectual property

Abstract:
Antitrust policy and the IP laws are both concerned with practices that restrain competition unnecessarily by reducing the size of the public domain beyond that which the Constitution contemplates, or as Congress intended for them to be expanded. In fact, antitrust has a dual role as promoter of competition in IP intensive markets. It regulates both restraints on competition and restraints on innovation. The first line protector of the competitive process in innovation is the IP statutes themselves. The Constitutional Mandate to Congress to create intellectual property regimes in order to promote the Progress of Science and useful Arts is expressly tied to creating incentives to innovate. Indeed, the IP Clause is the only place where the Constitution expressly links the scope of a property right to the incentive to develop it. An optimal IP policy creates just enough incentive to cause creative people to innovate at the optimal level, but not so much so as to restrain excessively others who want to build on their work. Maintaining this balance requires a determination of both the optimal duration and the optimal scope, or coverage, of IP rights.

Antitrust should not be too defensive about asserting a broader role in IP/competition disputes. This is so for two reasons. First, the extent of special interest capture is significantly greater in IP law than in antitrust, although today patent is experiencing some important reforms. Second, antitrust has profited greatly from its period in the wilderness, something that the IP laws have yet to experience. While no statute is free of special interest influence, the antitrust laws must be counted among the relatively cleaner substantive statutory regimes in the United States code. Antitrust has the comparative advantage of well behaved doctrine that, at least currently, is reasonable free of special interest pressure. The patent and copyright acts cannot make the same claim to well behaved doctrine, although patent law seems to be entering its own period of self-criticism and reform.

Antitrust, Monopoly, Intellectual Property, Patents, Copyright, Competition

Abstract:
This paper explores the implications of two recent Federal Circuit Court decisions involving patent holdup in the standard setting process. While the Rambus decision can be defended as a matter of antitrust policy, it exposes serious deficiencies in the patent continuation process that can legally permit anticompetitive holdup to occur. Broadcom, by contrast, is arguably not about antitrust policy at all, but rather the law of contract or equitable estoppel.

Antitrust, Monopoly, Patents, Standard Setting

Abstract:
This essay explores two different but related problems and how U.S. antitrust law and EU competition law approach them. The first is the offense of attempt to monopolize, which concerns the acts that a firm that is not yet dominant might undertake in order to become dominant. The second is the offense of monopoly or dominant firm leveraging, which occurs when a firm uses its dominant position in one market to cause some kind of harm in a different market where it also does business.

Antitrust, Competition, Competition Law, Monopolization, Dominant firm, Leverage, Industrial Organization, Economics

Abstract:
The discounting practices of dominant firms has emerged as one of the most problematic areas of private antitrust enforcement against single-firm conduct. The most difficult discount practices to assess are bundled, or multi-product discounts in situations where no significant rival produces every product that is included in the bundle. A debate has emerged over whether such discounts are properly assessed under a legal test that analogizes them to predatory pricing or to tying. Defendants typically prefer predatory pricing analogies, requiring a showing that the price of the assembled bundle was below a relevant measure of cost, such as marginal cost or average variable cost. Plaintiffs typically want a standard that compares bundled discounts to tying arrangements. This paper argues that bundled discounts are best analogized to tying arrangements. However, because the practice is a discount and not a contractual requirement linking two products, a cost test is nevertheless necessary to determine whether the two products are really tied together in a way that has the potential to exclude rival firms. Once that threshold requirement has been met, then the case should proceed under the same analysis that is usually applied to tying cases analyzed under the rule of reason, except that a few additional defenses must be allowed when the tie takes the form of a discount.

Antitrust, Exclusionary Practice, Monopolization, Discounts, Package Discount, Tying, Predatory Pricing

Abstract:
In "The Problem of Social Cost" Ronald Coase was highly critical of the work of Cambridge University Economics Professor Arthur Cecil Pigou, presenting him as a radical government interventionist. In later work Coase's critique of Pigou became even more strident. In fact, however, Pigou's Economics of Welfare created the basic model and many of the tools that Coase's later work employed. Much of what we today characterize as the "Coase Theorem," including the relevance of transaction costs, externalities, and bilateral monopoly, was either stated or anticipated in Pigou's work. Further, Coase's extreme faith in private bargaining led him to fail to see problems that Pigou saw quite clearly and that remain with us to this day.

Coase Theorem, Pigou, Social Cost, Law and Economics, Economic History, Legal History, Marginalism

Abstract:
"Separation of ownership and control" is a phrase whose history will forever be associated with Adolf A. Berle and Gardiner C. Means' The Modern Corporation and Private Property (1932), as well as with Institutionalist economics, Legal Realism, and the New Deal. Within that milieu the large publicly held business corporation became identified with excessive managerial power at the expense of stockholders, social irresponsibility, and internal inefficiency. Neoclassical economists both then and ever since have generally been critical, both of the historical facts that Berle and Means purported to describe and of the conclusions that they drew. In fact, however, within neoclassical economics the separation of ownership and control has always been an essential element of efficient corporate governance and corporate finance. This paper explores the history of the concept of separation of ownership and control within neoclassical economics, starting with Yale economist Irving Fisher's separation theorem developed early in the twentieth century, which held that a corporation's profit function could not be derived from shareholders' utility functions; Ronald Coase's The Nature of the Firm (1937), which applied purely marginalist analysis to the determinants of the horizontal and vertical structure of the corporation; and then to the great corporate finance theorems of the 1950s and 1960s. These concluded that ownership and debt are nothing more than alternative, fungible sources of capital, and that a profitable stock ownership strategy involves no knowledge whatsoever about the firms in which purchasers are investing. Within this model "separation of ownership and control" actually understates the degree of separation. A better phrase would be "separation of ownership and awareness."

Corporations, Berle and Means, Economics, Economic History, Legal History, Marginalism, Coase, Modigliani-Miller Theorem, Efficient Market, Fisher Separation Theorem

Abstract:
The development of marginalist, or neoclassical, economics led to a fifty-year long crisis in competition theory. Given an industrial structure with sufficient fixed costs, competition always became "ruinous," forcing firms to cut prices to marginal cost without sufficient revenue remaining to pay off investment. Early neoclassicists such as Alfred Marshall were not able to solve this problem, and as a result many economists were hostile toward the antitrust laws in the early decades of the twentieth century. The ruinous competition debate came to an abrupt end in the early 1930's, when Joan Robinson and particularly Edward Chamberlin developed models that took product differentiation into account. The emergent theory of monopolistic competition came with its own problems, however - namely, "excessive" product variety and advertising, chronic excess capacity, and prices above short-run marginal cost. In sharp contrast to the ruinous competition model, the monopolistic competition model called for aggressive antitrust enforcement. This change of model largely explains the Roosevelt administration's abrupt shift in antitrust policy between the First and Second New Deals. Only with John Maurice Clark's theory of workable competition in 1940 and the Mason-Bain structure-conduct-performance paradigm developed in the 1950s did neoclassical competition theory begin to reach a new equilibrium which attempted to calibrate the amount and kind of competition policy necessary to produce satisfactory results in diverse markets. The subsequent debate between Harvard structuralism and the emergent Chicago School occurred largely within this paradigm.

antitrust, competition policy, economics, economic history, legal history, marginalism

Abstract:
The success of the Areeda-Turner test for predatory pricing and the Supreme Court's adoption of demanding proof requirements in its 1993 Brooke Group decision have made it very difficult for plaintiffs to win conventional predatory pricing claims. While many challenges to exclusionary pricing continue to be made, the legal theory has evolved away from classical predation to a variety of other theories. These include challenges to quantity and market share discounts, single item and package discounts, and various purchasing practices, including slotting fees, overinvestment in fixed cost assets, and overbuying of variable cost inputs. Plaintiffs have enjoyed somewhat greater success with these alternative theories, in large part because the practices are not as well understood as conventional price predation is. This essay examines the state of the law of both conventional predatory pricing and these more recent variants and offers some recommendations.

antitrust, exclusionary pricing, predatory pricing

Abstract:
A price squeeze occurs when a vertically integrated firm "squeezes' a rival's margins between a high wholesale price for an essential input sold to the rival, and a low output price to consumers for whom the two firms compete. Price squeezes have been a recognized but controversial antitrust violation for two-thirds of a century. We examine the law and economics of the price squeeze, beginning with Judge Hand's famous discussion in the Alcoa case in 1945. While Alcoa has been widely portrayed as creating a "fairness" or "fair profit" test for unlawful price squeezes, Judge Hand actually adopted a cost-based test, although a somewhat different one than most courts and scholars would adopt today. We conclude that strictly cost-based predatory pricing tests such as the one the Supreme Court developed in its 1993 Brooke Group decision are not appropriate to the concerns being raised in a price squeeze. We also consider several efficiency explanations, the importance of joint costs, situations in which the dominant firm uses a squeeze to appropriate the fixed cost portion of the rival's investment, as well as those where the shared input is a fixed rather than variable cost for the rival. Ultimately, we find little room for antitrust liability except in one circumstance: where a squeeze is used to restrain the rival's vertical integration into the monopolized market.

Antitrust, Monopoly, Sherman Act, Price Squeeze, Predatory Pricing, Linkline

Abstract:
Where it applies, the essential facility doctrine requires a monopolist to share its "essential facility." Since the only qualifying exclusionary practice is the refusal to share the facility itself, the doctrine comes about as close as antitrust ever does to condemning "no fault" monopolization. There is no independent justification for an essential facility doctrine separate and apart from general Section 2 doctrine governing the vertically integrated monopolist's refusal to deal. In its Trinko decision the Supreme Court placed that doctrine about where it should be. The Court did not categorically reject all unilateral refusal to deal claims, but it placed very strict limits on the doctrine's use, which this paper explores.

Antitrust, Monopoly, Sherman Act, Essential Facility, Vertical Integration

Abstract:
Joseph Schumpeter's vision of competition saw it as a destructive process in which effort, assets and fortunes were continuously destroyed by innovation. One possible implication is that antitrust's attention on short-run price and output issues is myopic: what seems at first glance to be a monopolistic exclusionary practice might really be an innovative enterprise with enormous payoffs in the long run. While this may be the case, three qualifications are critical. First, one must not confuse the prospect of innovation with the scope of the intellectual property laws; their excesses and special interest capture cast serious doubt on the proposition that they are any better at fostering innovation than antitrust is. Second, for many antitrust practices positive innovation effects are difficult to foresee even on Schumpeter's own expansive and nonmathematical terms. Third, many antitrust violations serve to restrain rather than promote innovation.

Antitrust, Monopoly, Innovation, Schumpeter, Patents

Abstract:
This essay considers the general definition of unlawful exclusionary practices under Section 2 of the Sherman Act as acts that: (1) are reasonably capable of creating, enlarging or prolonging monopoly power by impairing the opportunities of rivals; and (2) that either (2a) do not benefit consumers at all, or (2b) are unnecessary for the particular consumer benefits claimed for them, or (2c) produce harms disproportionate to any resulting benefits. An important purpose of this progression of queries is to permit the court to avoid balancing, although balancing certainly cannot be avoided in some close cases. The given definition is very general, in the sense that it does not provide precise tests for specific practices, such as improper patent infringement suits or predatory pricing. Numerous definitions of exclusionary conduct have been proposed that are more focused or more technical, and some of these may be more useful for analyzing specific exclusionary practices than the very general definition offered here. However, as this paper develops, these definitions are also incomplete, in the sense that they do not account for every type of exclusionary conduct that the law of monopolization should condemn. Proof of actual consumer harm is generally unnecessary to the definition, but the challenged conduct must be of a type that the anticipated end result is actual consumer harm. Of course, the private plaintiff must prove the requisite actual or threatened harm to itself. Most importantly, the given definition of monopolizing conduct is flexible and frees the court of doctrinal rigidity, but it requires an extremely careful determination that the defendant has substantial market power.

Antitrust, Monopoly, Sherman Act

Abstract:
The decision to regulate involves the identification of markets where simple assignment of property rights is not sufficient to ensure satisfactory competitive results, usually because some type of market failure obtains. By contrast, if property rights are well defined when they are initially created and can subsequently be traded to some reasonably competitive equilibrium, then regulation is thought not to be necessary. In such cases the antitrust laws have a significant role to play in ensuring that the market can be as competitive as free trading allows. One problem with the patent system is that once a patent is granted it has neither significant ongoing regulation nor a clear and effective initial assignment of property rights that serves to make the market perform competitively. One could attempt to correct this system either by defining the initial assignment of property rights more clearly or else by imposing more elaborate regulation that continued through the period subsequent to patent issuance and perhaps even for the remainder of a patent's enforcement life.

In the past half century we have come to think of patents less as a species of "monopoly" and more like a kind of "property." But this revised conception of patents as property rather than monopoly remains incomplete in significant ways. While "property" is rhetorically much less threatening than "monopoly," that is so because traditional property rights come with built in limitations that serve to discipline the power to exclude -- namely, boundaries and priority rules that define the extent of ownership and give notice to non-owners. Patent law has become "property" without either. Indeed, many of the opportunities for anticompetitive behavior in the area of patents can be traced back to the twin problems that boundaries are not clear and priority, and thus ownership, is so difficult to determine. This suggests an increased role for either post-issuance antitrust or regulation.

Antitrust, Monopoly, Patents, Regulation

Abstract:
During the late nineteenth and early twentieth centuries fundamental changes in economic thought revolutionized the theory of corporate finance, leading to changes in its legal regulation. The changes were massive, and this branch of financial analysis and law became virtually unrecognizable to those who had practiced it earlier. The source of this revision was the marginalist, or neoclassical, revolution in economic thought. The classical theory had seen corporate finance as an historical, relatively self-executing inquiry based on the classical theory of value and administered by common law courts. By contrast, neoclassical value theory was forward looking and as a result a much more realistic way of assessing a corporation's value; but it was also subject to a great deal more prediction and interpretation, and thus to more abuse. That possibility led the states first and later the federal government to respond with regulatory legislation.

While marginalism effected a sweeping change in regulatory attitudes toward the corporation, the changes in the basic theory of corporate behavior, including finance, were at least as striking. The marginalist revolution turned the corporation into a rational actor intent on maximizing value. Neoclassical corporate finance theory unambiguously choose marginalist price theory rather than welfare economics as the source of its working assumptions, thus guaranteeing the irrelevance of not only the individual shareholder but also of managers. Or to say it differently, the neoclassical concept of the corporation did not merely separate ownership from control; it separated corporate decision making from all human preference whatsoever, unless those preferences were simply asserted to be maximization of value. Within the neoclassical model the separate human identities of shareholders or even managers came to matter only under the rubric of agency costs, which were regarded as nothing more than an imperfection in the neoclassical corporate ideal.

Corporations, Corporate Finance, Economics, Economic History, Legal History, Marginalism

Abstract:
A bundled discount occurs when a seller charges less for a bundle of goods than for its components when sold separately. A characteristic of such discounting is that a rival who makes only one of the products in the bundle may have to give a larger per item discount in order to compensate the buyer for the foregone discount on goods that the rival does not sell. For example, if I sell A and B and offer a 20% discount only to customers who purchase one A and one B together, a rival in the B market might be able to match the discounted B price. But the rival must also compensate the customer for the loss of discount on A, given that the customer would still have to purchase A from the dominant firm at the undiscounted price. As a result, a rival who is equally efficient in other respects but who makes only product B may not be able to match the discount. The final Report of the Antitrust Modernization Commission (AMC) proposed a three part test for the illegality of a monopolist's bundling under Section 2 of the Sherman Act: (1) after allocating all discounts and rebates attributable to the entire bundle of products to the competitive product, the defendant sold the competitive product below its incremental cost for the competitive product; (2) the defendant is likely to recoup these short-term losses; and; (3) the bundled discount or rebate program has had or is likely to have an adverse effect on competition. We argue that the first of these three tests must be restated in order to take into account important possibilities, such as economies of scope; even so it is seriously overdeterrent particularly when bundling is used to facilitate price discrimination, where the secondary market is competitive, or where bundling is used to disguise price cuts in oligopolistic or cartelized markets. We also argue that the AMC's recoupment test is not helpful in most circumstances, but that its requirement of a separate showing of an adverse impact on competition is essential.

Antitrust, Monopoly, Discounting, Public Policy, Competition, Bundling

Abstract:
This historical overview examines the relationship between antitrust policy and intellectual property in the United States since 1890. Over most of this history, judges imagined far greater conflicts between antitrust policy and intellectual property rights than actually existed, or else relied on sweeping generalizations rather than close analysis. For example, they often assumed that the presence of an intellectual property right led to anticompetitive effects where there was no basis for finding any injury to competition at all. At the other extreme, they often concluded that an intellectual property right immunized seriously anticompetitive conduct even when the intellectual property statute at issue did not authorize the challenged practice. True conflicts between antitrust and intellectual property rights are relatively rare.

Antitrust, Monopoly, Patents, Standard Setting

Abstract:
Antitrust law is a blunt instrument for dealing with many claims of anticompetitive standard setting. Antitrust fact finders lack the sophistication to pass judgment on the substantive merits of a standard. In any event, antitrust is not a roving mandate to question bad standards. It requires an injury to competition, and whether the minimum conditions for competitive harm are present can often be determined without examining the substance of the standard itself.

When government involvement in standard setting is substantial antitrust challenges should generally be rejected. The petitioning process in a democratic system protects even bad legislative judgments from collateral attack. In any event, antitrust's purpose is to correct private markets. It is not a general corrective for political processes that have gone awry. The best case for antitrust liability occurs when the government has somehow been deceived into adopting a standard that it would not have adopted had it known the true facts. Even then, nonantitrust remedies such as equitable estoppel are probably a superior solution.

Antitrust, Competition, Standard Setting, Technology, Networks, Exclusion, Collusion, Regulation

Abstract:
Mergers involving dominant firms legitimately receive close scrutiny under the antitrust laws, even if they involve tiny firms. Further, they should be examined closely even in markets that generally exhibit low entry barriers. Many of the so-called "unilateral effects" cases in current merger law are in fact mergers that create dominant firms. The rhetoric of unilateral effects often serves to disguise this fact by presenting the situation as if it involves the ability of a small number of firms (typically two or three) in a much larger market to increase their price to unacceptable levels. In fact, if such a grouping of firms can achieve an unacceptably high price increase for an unacceptable length of time, that grouping is best viewed as a relevant market unto itself.

Antitrust, Monopoly, Mergers, Competition

Abstract:
Antitrust and intellectual property law both seek to improve economic welfare by facilitating competition and investment in innovation. At various times both antitrust and IP law have wandered off this course and have become more driven by special interests. Today, antitrust and IP are on very different roads to reform. Antitrust reform began in the late 1970s with a series of Supreme Court decisions that linked the plaintiff’s harm and right to obtain a remedy to the competition-furthering goals of antitrust policy. Today, patent law has begun its own reform journey, but it is in a much earlier stage. The outlook for copyright law is much bleaker.

The main component in these reforms has been the development of a concept of harm that is related to the underlying goal of legal policy. In its 1977 Brunswick decision the Supreme Court largely ignored the language of an expansive antitrust damages provision that gives private plaintiffs treble damages for every injury caused by an antitrust violation. Rather, the Court said, the type of harm must be sufficiently related to the goals of the antitrust laws, which is to make markets more competitive. We propose a concept of “IP injury” that limits IP remedies to situations in which the IP holder has suffered actual harm sufficiently linked to the purpose of IP law, which is to incentivize innovation. An infringement that benefits the infringer and does no cognizable harm to the IP right holder or anyone else is a pure Pareto improvement – something that can be said of few involuntary transactions. The trick for legal policy is to determine when the IP holder has not suffered any cognizable harm. This analysis requires a re-examination of IP externalities, or spillovers, where IP should follow the antitrust lead in permitting the market to correct for them, intervening only where the inability to recover for an external benefit has a material impact on ex ante incentives to innovate. It also requires a re-examination of patent holdup and remedies. We propose rules that reward the relevant actors for either giving or obtaining timely notice. As in the case of antitrust, reformation of IP’s theory of harm must likely come from the judiciary and not from Congress.

Antitrust, Monopoly, Patents, Regulation, Copyright, Intellectual Property

Abstract:
Vertical integration occurs when a firm does something for itself that it could otherwise procure on the market. For example, a manufacturer that opens its own stores is said to be vertically integrated into distribution. One irony of history is that both classical political economy and neoclassicism saw vertical integration and vertical contractual arrangements as much less threatening to competition than cartels or other horizontal arrangements. Nevertheless, vertical integration has produced by far the greater amount of legislation at both federal and state levels and has motivated many more political action groups. Two things explain this phenomenon. First, while economists prior to the 1930s rarely saw a threat, neither did they understand why firms integrate or enter into long term contracts, except for fairly obvious savings in production costs. Second, vertical integration led to many bankruptcies of small family businesses unable or unwilling to take on the costs and associated risks of integrating vertically themselves. When that happened, politics inevitably triumphed over economics.

Both the common law and classical economists tended to view vertical integration favorably. The principal limitation on vertical integration by contract was common law rules limiting restraints on alienation. The managerial revolution in the United States in the nineteenth century occasioned the rise of significant vertical integration. At the same time, however marginalist, or neoclassical, economics first began to see significant competitive problems. The emergent legal policy toward vertical control by contract was developed first in intellectual property law's "first sale" doctrine, and later on in antitrust policy.

In his 1937 article on the "Nature of the Firm," Ronald H. Coase formulated a purely marginalist theory of vertical integration, but it was ignored by both economists and legal policy makers for nearly half a century. Economists continued to wrestle with theories that were far more myopic, and as a result much less satisfactory. The result was that vertical integration became much more vulnerable to special interest legislation than did competition policy generally. By the mid-twentieth century a set of aggressive antitrust policies had emerged that dealt harshly with both vertical integration by contract and ownership vertical integration.

Corporations, Vertical Integration, Economics, Economic History, Legal History, Marginalism

Abstract:
Antitrust law's Walker Process doctrine permits a patent infringement defendant to show that an improperly maintained infringement action constitutes unlawful monopolization or an unlawful attempt to monopolize. The infringement defendant must show both that the lawsuit is improper, which establishes the conduct portion of the violation and generally satisfies tort law requirements, and also that the structural prerequisites for the monopolization offense are present. The doctrine also applies to non-patent infringement actions and has been applied by the Supreme Court to copyright infringement actions. Walker Process itself somewhat loosely derives from the Supreme Court's Noerr-Pennington line of cases holding that while the right to file a lawsuit is grounded in First Amendment concerns, the right does not extend to "baseless" litigation. The doctrine has not been particularly effective, however, mainly because patent boundaries are so poorly defined that it is often impossible to say that an infringement suit was baseless.

Antitrust, Monopoly, Patents, Standard Setting

Abstract:
The Neal Report, which was commissioned by Lyndon Johnson and published in 1967, is rightfully criticized for representing the past rather than the future of antitrust. Its authors completely embraced a theory of competition and industrial organization that had dominated American economic thinking for forty years, but was just in the process of coming to an end. The structure-conduct-performance (S-C-P) paradigm that the Neal Report embodied had in fact been one of the most elegant and most tested theories of industrial organization. The theory represented the high point of structuralism in industrial organization economics, resting on the proposition that certain market structures were highly concentrated and experienced high barriers to entry, making certain types of conduct inevitable. Under the very strong Cournot assumptions of the day oligopolists simply could not avoid setting prices above costs and continuously and excessively differentiating their products. The result was high short-run profits, excessive investment in product differentiation and advertising, reluctance to cut price in order to grow market share, and general stagnation.

The Neal Report's fate lay in the fact that the S-C-P paradigm was coming under withering attack by the late 1960s. The Report's simple and uncritical acceptance of the S-C-P paradigm as gospel inspired many young academics in the United States to align themselves with the competing Stigler Report, commission by President Johnson's successor Richard M. Nixon. The conflicts that erupted largely defined the views of some of the 1970s most important antitrust scholars - namely Richard A. Posner, Robert H. Bork, and William F. Baxter.

Antitrust, Monopoly, Sherman Act, Industrial Concentration, Legal History

Abstract:
A bundled discount occurs when a seller conditions a discount or rebate on the buyer's purchaser or two or more different products. Firms that produce fewer than all the good in the bundle find it difficult to compete because they must amortize the discount across a smaller range of goods. For example, if the dominant firm offers a 10% discount for purchase of both good A and good B, but the rival makes only good B, it will have to offer a discount that is large enough to match the dominant firm's B discount as well as the foregone discount on A. The Antitrust Modernization Commission and several courts have adopted an "attribution" test for assessing the antitrust legality of bundled discounts. The test attributes the full discount to the product(s) for which rivals are claiming exclusion, and asks whether the resulting price is below cost. This test contains some features of the cost-based rule for single product predatory pricing, but it also differs in important respects. Both tests query whether an equally efficient rival can match the dominant firm's price. On the other hand, bundles that fail the attribution test can still be "sustainable." That is, they need not involve pricing below cost, and thus their success does not depend on recoupment during a subsequent period of higher prices.

Most models of bundled discounting consider two goods that are purchased in a one-to-one ratio. None of the judicial decisions involve such simplicity. In most the bundle consists of more than two goods, and different rivals may produce differing subsets of the dominant firm's bundle. Further, in nearly all of the cases the proportion of goods in the bundle can be varied at the will of the customer. We show that in such situations antitrust analysis of the bundle is significantly more complex and anti-competitive exclusion must typically be assessed on a rival-by-rival and customer-by-customer basis. This has important implications for the certification of class actions in bundled discount cases. We also provide some apparatus for assessing bundled discounts in these situations.

Antitrust, Monopoly, Sherman Act, Bundled Discount, Predatory Pricing, Tying

Abstract:
This essay offers a brief, non-technical exposition of the antitrust analysis of horizontal mergers in product differentiated markets where the resulting price increase is thought to be unilateral - that is, only the post-merger firm increases its prices while other firms in the market do not. More realistically, non-merging firms who are reasonably close in product space to the merging firm will also be able to increase their prices when the post-merger firm's prices rise. The unilateral effects theory is robust and has become quite conventional in merger analysis. There is certainly no reason for thinking that it involves any more conjecture than what occurs in traditional concentration-increasing merger analysis. Nevertheless, as with all predictions about mergers, we must live with a certain measure of uncertainty.

Antitrust, Monopoly, Mergers, Competition

Abstract:
Currently the Antitrust Modernization Commission is considering numerous proposals for adjusting the relationship between federal antitrust authority and state regulation. This essay examines two areas that have produced a significant amount of state-federal conflict: state regulation of insurance and the state action immunity for general state regulation. It argues that no principle of efficiency, regulatory theory, or federalism justifies the McCarran-Ferguson Act, which creates an antitrust immunity for state regulation of insurance. What few benefits the Act confers could be fully realized by an appropriate interpretation of the state action doctrine. Second, the current formulation of the antitrust state action doctrine creates approximately the correct balance between state and federal authority where competition is concerned, although both its clear articulation and active supervision prongs need to be strengthened and refined. In addition, basing state action immunity on the degree to which a state imposes the burden of in-state monopoly on out-of-state interests very likely comes with greater costs than any benefit that is likely to result.

Antitrust, Immunity, Federalism, Insurance, "state action", Regulation, Local government, Externality

Abstract:
The 1945 McCarran-Ferguson Act provides that federal legislation generally, including the antitrust laws, is “applicable to the business of insurance [only] to the extent that such business is not regulated by State law.” The statute was enacted after United States v. South Eastern Underwriters Assn. (1944), held that insurance transactions were “interstate commerce” and thus subject to the antitrust laws. That case had in turn undermined the traditional view expressed in Paul v. Virginia (1868), that insurance was not interstate commerce, but strictly local transactions. The South Eastern case followed in turn upon the Supreme Court's decision in Wickard v. Filburn (1942), which had greatly expanded the reach to relatively local activities of federal statutes passed under the Commerce Clause. Under the McCarran-Ferguson Act Congress thus relinquished its power to regulate to the states, provided that the states did at least a modicum of regulation themselves. The immunity applies equally to all federal statutes not intended to regulate the insurance industry, including the Federal Trade Commission (FTC) Act.

As a matter of history, the jurisdictional rationales for McCarran-Ferguson are obsolete. Today insurance is a national rather than statewide industry and numerous companies write insurance in nearly every state. Economically, however, the immunity may continue to serve a purpose. Most but not all portions of insurance industry are characterized by a large number of firms and low entry barriers. Further, the industry depends critically on shared information, including statistical loss data and common coverage, or standardized forms. As a result, many practices that might be misunderstood as collusive are in fact quite procompetitive. Further, as this paper demonstrates, the case law has tended to find the immunity in cases that involve true anticompetitive practices, and they have tended not to find it with respect to vertical relationships, product provision, or other areas where competition was not threatened.

antitrust, insurance, immunity, McCarran-Ferguson, cartel

Abstract:
During the administration of President George W. Bush, the Antitrust Division was not enthusiastic about use of §2 of the Sherman Act to pursue anticompetitive single-firm conduct. Indeed, its most prominent contribution on the issue was the Antitrust Division’s §2 Report, which the Obama Antitrust Division withdrew only eight months after it was issued. This withdrawal was entirely in keeping with candidate Obama’s repeated promises to reinvigorate antitrust enforcement

This essay analyzes the current state of antitrust and makes recommendations concerning structures and practices where increased §2 enforcement is warranted and those where it is not. Wise use of enforcement dollars suggests greater enforcement in areas where private enforcement is unlikely to be effective.

The migration of tying and exclusive dealing law toward greater use of §2 is a good trend that ought to be continued. However, this essay disputes the view that tying arrangements imposed by dominant firms are inherently harmful to consumers and should be pursued more aggressively. These arguments are mistaken about the type of price discrimination that variable proportion tying arrangements involve, and as a consequence exaggerate their potential for harm. On the other hand, some room for expansion of the §2 law of refusal to deal is appropriate, at least in narrowly defined circumstances involving networks. In such cases something that is formally a refusal to deal operates more like a tying arrangement. The law of exclusionary pricing has become somewhat too lenient. The recoupment requirement in predatory pricing cases should be abandoned if prices are clearly below average variable cost or short run marginal cost. However, it does not seem appropriate to jettison cost-based pricing rules, even for loyalty discounts, bundled discounts and other discounting practices. At the same time, some adjustment of cost tests is appropriate for “leveraged” discounts, which are situations in which a dominant firm blends the discount over one grouping of sales in which it faces little competition and another grouping that is more competitive, causing competitive harm in the latter group. Finally, this essay argues for increased antitrust enforcement against anticompetitive restraints on innovation, an area in which private enforcement is likely to falter because of antitrust’s strict causation and injury requirements.

Obama, antitrust, tying arrangements, refusal to deal, networks, enforcement, intellectual property

Abstract:
A tying arrangement is a seller’s requirement that a customer may purchase its “tying” product only by taking its “tied” product. In a variable proportion tie the purchaser can vary her purchases of the tied product. For example, a customer might purchase a single printer, but either a contract or technological design requires her to purchase varying numbers of printer cartridges from the same manufacturer. Such arrangements are widely considered to be price discrimination devices, but their economic effects have been controversial.

Price discrimination comes in various “degrees.” In third degree price discrimination the seller isolates two or more different sets of customers who have differential willingness-to-pay and charges them different prices. This practice creates a discontinuity in marginal valuation which entails that some output is assigned from higher value to lower value purchasers. As a result, any third degree price discrimination scheme that fails to increase output will reduce economic welfare.

By contrast, second degree price discrimination occurs when a firm creates a price schedule and customers determine where on the schedule they purchase. Common examples are quantity discounts or differential pricing for different classes of transportation. In these cases, which include variable proportion ties, there is no discontinuity in marginal valuation. For example, in a tie every buyer purchases up to the point that her marginal valuation of the tied product equals its price, and that price is the same for everyone. Such arrangements can improve welfare and benefit consumers even if output falls, and are likely to benefit consumers when output increases. We conclude that variable proportion ties very likely increase both total welfare (producer surplus plus consumer surplus) and consumer welfare (consumer surplus alone).

The case for variable proportion ties becomes even stronger when one considers fixed costs and scale economies, which reward higher output with lower costs. Variable proportion ties can also deconcentrate downstream markets, benefitting consumers. Finally, tying often reflects economies of joint provision or improved quality of product or distribution.

The policy implication is that antitrust law should forget about price discrimination as an independent anticompetitive concern. The one measurable exception occurs when the tie benefits no one other than the seller. Even the noneconomic rationale for condemnation that price discrimination is an unappealing practice disappears once we consider that the true impact of variable proportion ties is to reduce rather than increase the extent of price disparities to buyers.

antitrust, tying arrangement, tie, welfare, competition, price discrimination, consumers

Abstract:
This article, which was published in 1985, describes the development of a "Post-Chicago" antitrust policy. The Chicago School of antitrust analysis has made an important and lasting contribution to antitrust policy. The School has placed an emphasis on economic analysis in antitrust jurisprudence that will likely never disappear. At the same time, however, the Chicago School's approach to antitrust is defective for two important reasons. First of all, the notion that public policymaking should be guided exclusively by a notion of efficiency based on the neoclassical market efficiency model is naive. That notion both overstates the ability of the policymaker to apply such a model to real world affairs and understates the complexity of the process by which the policymaker must select among competing policy values.

Second, the neoclassical market efficiency model is itself too simple to account for or to predict business firm behavior in the real world The model has proved to be particularly unsuccessful at identifying many forms of strategic behavior. In large part this is so because the market efficiency model is static and dwells too much on long-run effects. In the real world, short-run considerations are critical to business planning. Furthermore, the short run can be a very long time. In many industries a monopoly that lasts only for the short run can inflict great economic loss on society. By ignoring the short run, the market efficiency model fails to appreciate the social cost of many forms of monopolistic behavior.

Antitrust, Monopoly, Sherman Act

Abstract:
Beginning in the 1880s American economists turned their attention to the law in a way unprecedented in American thought. Some legal academics in turn incorporated economics into their thinking about the law. Whether their output or its impact were great enough to warrant calling their efforts a law and economics "movement" is worth debating. This essay argues that there was such a movement.

Four things account for the increasing interest in law and economics at the turn of the century: (1) the widespread application of evolutionary models to the development of both law and economic theory; (2) the influence of the German Historical School, which encouraged economists to spend more time studying social institutions, including law; (3) the rise of marginalist welfare economics, with its enhanced concern about the relationship between distribution and welfare; and (4) the development of the social sciences, which were perceived to include both law and economics, and the widespread belief that the social sciences must somehow be "unified".

Why did the critics of Progressive law and economics make the value judgments that they did? Principally, it seems, because of a preference for markets over state command as a mechanism for allocating resources. Even under the strictest ordinalist criteria for measuring welfare, markets were welfare enhancing: Someone makes a voluntary exchange only if the exchange makes him better off. Thus, ordinalist economics recovered the strong preference for the market reflected in classical political economy but which had gradually eroded during the late nineteenth century under the marginal utility theory. Use of the positivist economist's rather than the psychologist's behavioral criterion of welfare has led to quite astonishing real world consequences. The real reason that neoclassical economics gave up marginal utility as the basis for welfare economics was not because utilitarianism was less "scientific" than the alternatives. Before one could know whether it was scientific, he had to settle on a definition of science. That decision was driven by the fact that marginal utility economics was traveling down a politically unacceptable path, leading economics directly to socialism.

Corporations, Economics, Economic History, Legal History, Marginalism, Coase

Abstract:
The modern science of industrial organization grew out of a debate among lawyers and economists in the waning years of the nineteenth century. For Americans, the emergent business "trust" provoked a dialogue about how the law should respond. Many of the formal theories of industrial organization, such as the ruinous competition doctrine, the potential competition doctrine, and the post-classical concern about vertical integration, were actually borrowed from the law.

Anglo-American and European economists disputed the proper domain of theory and description in economic analysis. The British approach was exemplified Alfred and Mary Paley Marshall's Economics of Industry, published in 1881, which discussed such phenomena as economies of scale, multiplant economies, and plant specialization with scant mention of a single particular industry. Alfred Marshall took an even more theoretical approach to industrial organization in his 1890 Principles of Economics. By contrast, German economics of the same period was dominated by the historical school, which had survived a bitter methodological debate between the German and Austrian schools of political economy. The Austrians urged a theoretical model similar to English neoclassical price theory, while the Germans advocated a more empirical case-study approach.

The historical method received a boost in the United States in 1876 when a prominent railroad regulator, Charles Francis Adams, Jr., endorsed it and criticized British political economy for its naivete about business firm behavior. In the 1870s and 1880s many American students who would become the prominent economists of the next generation selected German rather than English universities for their graduate education. Among these students were F.W. Taussig, Frank Fetter, John Bates Clark, Richard T. Ely, Simon Patten, and Edwin R. A. Seligman. Although the founders of the American Economic Association (AEA), formed in 1885, were careful to qualify their enthusiasm for the German historical methodology, part of the AEA's agenda was to include more case-study analysis.

The historical method was later critiqued by a rising group of positivist economists, particularly at the University of Chicago. The positivists tried to add rigor to their discipline by identifying economic science with the ability to predict. Frank Knight argued in The Limitations of Scientific Method in Economics that detailed historical inquiries add little to the ability to predict firm behavior. But the most famous expression of the new classicism in industrial organization theory was Ronald Coase's essay on The Nature of the Firm.

Antitrust, Competition Policy, Economics, Economic History, Legal History

Abstract:
Few ideas in intellectual history have been so captivating that they have overflowed the discipline from which they came and spilled over into everything else. The theory of evolution is unquestionably one of these. Evolution was an idea so powerful that it seemed obvious when Charles Darwin offered it. After all, there were prominent evolutionists a century before Darwin. Charles Darwin merely presented a model that made the theory plausible. It was a model, though, that infected everything, and one that appeared to answer every question worth asking, no matter what the subject. The model had the potential to lead "to some great generalization which would finish one's clamor to be educated," wrote Henry Adams in the best-known autobiography of the Progressive Era. "Natural selection seemed a dogma to be put in the place of the Athanasian Creed . . . ."

The discovery of self-consciousness in reasoning that marks the beginning of the modern era contributed greatly to our understanding of intellectual frameworks as evolutionary. Today every theory of jurisprudence worth contemplating incorporates a theory of change, but not every theory of jurisprudence qualifies as 'evolutionary.' Rather, evolutionary jurisprudence refers only to those jurisprudential theories that explicitly focus on legal change, or that make use of a particular model to explain how legal change occurs. For example, one might classify theories of jurisprudence as 'evolutionary' if they rely on the model of natural selection created by Charles Darwin. Nothing in particular dictates such an approach. In fact, to describe as 'evolutionary' those jurisprudential theories that relied on Darwin assumes the chronology backwards. The theory of evolution by natural selection was a theory about the development of ideas long before it was applied to the development of biological organisms.

At the turn of the twentieth century both the Gilded Age political right and the Progressive political left found their ideologies in evolutionary models and passed these models on to their intellectual descendants. Both models were Darwinian, and both accepted the doctrine of natural selection. The difference between the Social Darwinists and the Reform Darwinists rested ultimately on questions not of science, however, but of political values. Each of the influential evolutionary models in jurisprudence was closely tied to a particular political view about the role of the state in the allocation of scarce resources. Within such a fundamentally political paradigm, the question how the law itself evolves was little more than a detail.

Legal History, Jurisprudence, Social History, Social Darwinism, Progressivism

Abstract:
The welfare state could not function without judgments about how well off its citizens are. For example, governments devise progressive income taxes, which are designed to capture more wealth from the well off and less from the impecunious. These policies presume an ability to take a manageable amount of information about an individual's income or assets and make judgments about her welfare. In fact, people do this all the time, mostly without thinking about the methodological problems involved.

The superficial casualness of our daily observations about welfare belies the state of the economic science of welfare measurement. Economists have attempted to measure welfare scientifically for more than a century, but after an early period of optimism, the general history of welfare measurement has not been a happy one. In the 1930s many economists began to conclude that the measurement of welfare involved interpersonal comparisons of utilities, and that we lacked the observation and measurement tools to make such comparisons scientifically.

Progressive legal thought, and particularly the Legal Realists, developed out of the coalescence of three important ideas: (1) Darwinism in the social sciences, which was the view that all organisms, including the human race, are both evolving and struggling to survive in an essentially hostile environment; (2) marginalism in economics, which stressed that rational people make choices by ranking their preferences, committing resources to that which they want most first, and so on; and (3) objective welfare judgments, which are basically judgments about welfare that do not depend on assumptions about other people's mental states. Progressive legal thought was more republican than liberal in its social theory, and was never very comfortable with mainstream neoclassical economics. While economists became increasingly strict and pessimistic about the science of measuring welfare, Progressive legal policy was able to lay the foundation for the New Deal, and later the Great Society - both based on visions about the role of government that required elaborate and ubiquitous assumptions about people's welfare. The Progressives' use of "objective" welfare judgments serves to remind us that technical methodologies in the social sciences are used for a purpose, that they rarely lack alternatives, and that the search for methodological elegance and sophistication should never trump the search for answers.

Economics, Economic History, Legal History, Marginalism, Legal Realism

Abstract:
America's political institutions are built on the principle that individual preferences are central to the formation of policy. The two most important institutions in our system, democracy and the market, make individual preference decisive in the formation of policy and the allocation of resources. American legal traditions have always reflected the centrality of preference in policy determination. In private law, the importance of preference is reflected mainly in the development and persistence of common-law rules, which are intended to facilitate private transactions over legal entitlements. In constitutional law, the centrality of preference is reflected in the high position we assign to voting and other forms of governmental participation.

Both the theory of law and economics and the theory of public choice claim superiority over alternative disciplines, such as sociology or some kinds of psychology, which offer policy recommendations based, not on people's preferences, but rather on objective judgments about what the observer thinks is good for someone else. Indeed, neoclassical economics, which forms the foundation for both law and economics and public choice theory, generally regards objective welfare judgments as illegitimate.

Assumptions about preference have enabled neoclassical economics and public choice theory to describe both private and public markets by means of mathematical models that have great rhetorical power These models begin with the proposition that preferences, as revealed by the market at hand, are positive, or observed. As a result, they are subject to scientific description. By contrast, objective welfare judgments are one person's assessment of what is good for another, made without observation of the other's asserted preference. These judgments are sometimes called "normative," a term which implies that any conclusions to be drawn are unscientific. They can be neither verified nor falsified, but are based on someone's value-laden or ethical notion about what is good for someone else.

My thesis here is that the task of discovering and evaluating preferences is so filled with unverifiable assumptions and gaps that it cannot be described in any fashion other than as normative. As a result, a complete legal policy can never be based on the policymaker's observations of the preferences of her constituency. A coherent legal policy must supplement revealed preference with a substantial dose of objective welfare judgments. By the same token, many critiques of existing legal policy are misguided, because they rest on too narrow a view of how the legal policymaker determines welfare.

Jurisprudence, Law and Economics, Legal History, Legal theory, Welfare economics

Abstract:
Beginning with the work of Joseph Schumpeter in the 1940s and later elaborated by Robert W. Solow's work on the neoclassical growth model, economics has produced a strong consensus that the economic gains from innovation dwarf those to be had from capital accumulation and increased price competition. An important but sometimes overlooked corollary is that restraints on innovation can do far more harm to the economy than restraints on traditional output or pricing. Many practices that violate the antitrust laws are best understood as restraints on innovation rather than restraints on pricing.

While antitrust models for assessing losses that result from reduced output and higher prices are fairly conventional, the losses that accrue from innovation restraints are very difficult to predict. In general, as an innovation project progresses further along and the resulting product or process comes closer to marketability, the effects of an innovation restraint become easier to assess. But many restraints on innovation occur long before we can make a reliable prediction about whether a viable product or process will result, and whether it will be a market success. In these situations one cannot rely on private antitrust enforcement, given the strict antitrust requirements for proof of harm, causation and damages. By contrast, the federal government agencies acting as enforcers have authority to restrain antitrust violations even if relevant private harm and damages cannot be proven. As a result, antitrust challenges to innovation restraints should be of greater government concern.

antitrust, intellectual property, innovation, private enforcement, restraints, Sherman Act

Abstract:
The courts must bear a heavy share of the burden of American racism. An outpouring of historical scholarship on racism and the American law reveals the outrageous and humiliating extent to which American lawyers, judges, and legislators created, perpetuated, and defended racist American institutions. The law is not autonomous, however, particularly in areas of explicit public policy making. Lawyers did not invent racism. Rather they created racist institutions because society was racist and racism was implicit in its values. The trend in scholarship on the legal history of American racism, however, has been to place most of the blame for racism entirely on the lawmakers. C. Vann Woodward began the trend a half century ago by identifying the rise of the 'Strange Career of Jim Crow' with the passage of statutes that mandated segregation in the American South. Woodward studied both antebellum and post-Civil War America to about 1890 and argued that popular custom favored integration as a general rule, with segregation as the exception. He suggested that only after southern self-determination was restored at the end of Reconstruction did whites assert their hostility toward afro-Americans.

This article disputes this view. It examines the relationship between law and the social sciences during the period in which many of America's segregationist legal institutions and practices came into effect. Before the turn of the century, a large number of scientific studies warned against the dangers of racial mixing. Elite scientists just as much as laypersons believed that Afro-Americans were intellectually inferior, that they learned much more slowly than white persons, and that their close association with whites could contaminate and weaken the white race. After the Civil War, the possibility of substantial racial mixing became real; the prospect most feared was that of interracial marriage. Nearly everyone assumed that the way to prevent interracial sexual contact was to keep the races separated, particularly in those institutions where young people's values and attractions were developed, such as the schools.

The development of a ruling environmentalist paradigm to explain racial differences in test performance, physical integrity, criminal behavior, and economic status took more than half a century from the rise of the Jim Crow era. Scientific racism did not begin to disappear from American universities until the 1940's, until the publication of such consensus-creating documents as Gunnar Myrdal's An American Dilemma in 1944.

Legal History, Racism, Social History, Discrimination, Civil Rights

Abstract:
In Twombly the Supreme Court held that an antitrust complaint failed because its allegations did not include enough “factual matter” to justify proceeding to discovery. Two years later the Court extended this new pleading standard to federal complaints generally. Twombly’s unnecessarily broad language had led to a broad rewriting of federal pleading doctrine.

Naked market division conspiracies such as the one pled in Twombly must be kept secret because antitrust enforcers will prosecute them when they are detected. This inherent secrecy, which the Supreme Court did not discuss, has dire consequences for pleading if too much factual specificity is required. Indeed, it can close the door in cases where the conspiracy is reasonably suspected but supporting evidence has not already been uncovered.

In the paradigm cartel case the defendants meet secretly in a hotel room and plot prices or output. But antitrust agreements can be proven by other evidence, including evidence of interdependence, parallel behavior, and actions contrary to independent self-interest. By indicating that the complaint failed because it did not state “which of their employees” may have conspired and that there was some “when” or “where” that the agreement took place, the Court was apparently requiring the plaintiff to plead something in its complaint that existing law woud not require it to show in order to avoid summary judgment or a JML at trial. Or to say it differently, the Court was changing conspiracy doctrine at the same time that it was changing pleading doctrine.

The most salient fact about Twombly is that, although it was a proof-of-agreement case, the claim was of geographic market division rather than parallel pricing. For all of its lengthy discussion about the facts essential to a good complaint, the Supreme Court paid little attention to the difference between price fixing and market division. While parallel pricing typically is interdependent conduct, parallel failures to enter one another’s markets typically are not. As a result, methods of indirect proof that might work in a case alleging unlawful price fixing are unlikely to work in one alleging unlawful market division. Twombly clearly reached the correct conclusion, but it could have done less damage to the values of notice pleading stated in the Federal Rules had it focused more narrowly on the mechanisms by which anticompetitive agreements are proven. Pleading reform requires, not an increase in “factual matter,” but rather a closer correlation between the legal elements that must be proven and the allegations in a complaint.

Twombly, pleading, civil procedure, antitrust, federal courts, Iqbal

Abstract:
Classical political economy was dedicated to the principle that the state could best encourage economic development by leaving entrepreneurs alone, free of regulation and subsidy. The development of classical economic policy in the United States dramatically changed the concept of the business corporation. Within the preclassical, mercantilist model, the corporation was a unique entity created by the state for a special purpose and enjoyed a privileged relationship with the sovereign. The very act of incorporation presumed state involvement. State subsidy and the incorporators' public obligation were natural corollaries. Business firms that relied on the market alone to determine their prospects were simply not incorporated.

As classical theory replaced the mercantilist model, the business corporation gradually evolved into a device for assembling large amounts of capital in a manner that could be controlled efficiently by a small number of managers. The classical model of the corporation did not emerge mature in a single decision. It evolved gradually in the nineteenth century, reaching its apogee in the 1880s and 1890s.The developing model of the classical corporation included two fundamental premises: (1) the corporate form is not a special privilege but merely one of many ways of organizing a business firm; and (2) the peculiar advantage of the corporation which the law should encourage is its ability to raise and concentrate capital more efficiently than other forms of business organization.

These important developments formed the core of the classical corporate model: (1) the attack on the Marshall era contract clause; (2) the demise of the charter theory of business regulation; (3) the rise of the General Corporation Act and the decline of the special subsidy; (4) the application of the fourteenth amendment's protections to corporations; (5) the expansion of limited shareholder liability; (6) the narrowing scope of quo warranto and ultra vires; (7) the facilitation of multistate corporate business activities; and (8) the separation of ownership and control.

corporation, classical, neoclassical, political economy, business, limited liability

Abstract:
In the American Needle case the Supreme Court will consider whether the NFL’s decision to give an exclusive trademark license to one firm should be counted as “unilateral” on the NFL’s part, or rather as the concerted joint venture activity of the NFL’s individual member teams. The intellectual property in question is not trademarks in the NFL itself, but rather the trademarks and other intellectual property developed separately by each individual team, and which the teams in turn have licensed exclusively to the NFL.

In general, when a joint venture is engaged in its own business the unilateral characterization is appropriate. Thus, for example, if the ABA decides to hold its convention in San Francisco rather than Chicago that decision should not ordinarily be treated as a “conspiracy” of the ABA’s members to boycott Chicago. By the same token, the NFL has many employees of its own, and labor disputes between those employees and the NFL would be considered as involving a single employer. By contrast, when disputes involving the players of individual teams are at issue the NFL is properly treated as a collaboration of employers, as the Supreme Court assumed to be the case in its Brown vs. Pro Football decision in 1996.

A decision that the NFL is a joint venture of multiple firms when it is managing the separable business interests of the member teams need not result in per se illegality or, for that matter, not even in particularly harsh treatment. Output limiting restrictions by legitimate joint ventures are dealt with under the ancillary restraints doctrine and tested for reasonableness. The great majority of such restraints are reasonable and lawful. By contrast, even efficient joint ventures can become vehicles for the naked restraints of their members.

Antitrust, Copperweld, single entity, conspiracy, intellectual property, Supreme Court