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Class Action Issues Update Spring-Summer 2021

The American Antitrust Institute (AAI) seeks to preserve the effectiveness of antitrust class actions as a central component of ensuring the vitality of private antitrust enforcement.[1] As part of its efforts, AAI issues periodic updates on developments in the courts and elsewhere that may affect this important device for protecting competition, consumers, and workers. This update covers developments since our Fall 2020 update.

I. CLASSES CONTAINING UNINJURED CLASS MEMBERS

There is recurring debate in the federal courts over the rules and standards that govern the certification of classes that may contain some class members who were not injured by the defendant’s conduct. In our Fall 2016 update, we noted that the Supreme Court’s opinion in Tyson Foods v. Bouaphakeo, 577 U.S. 442 (2016), strongly implied that the presence of uninjured class members does not necessarily defeat class certification.

In our Spring 2020 update, we noted that the Eleventh Circuit in Cordoba v. DirecTV, LLC, 942 F.3d 1259 (11th Cir. 2019), held that individualized questions of standing can be relevant to the predominance inquiry, and that the standing of allegedly uninjured class members presented an individualized question in the Telephone Consumer Protection Act (TCPA) case before the court. We also noted that the Ninth Circuit, in Ramirez v. TransUnion LLC, 951 F.3d 1008 (9th Cir. 2020), in a class action brought under the Fair Credit Reporting Act (FCRA), held that each class member must have Article III standing at the final judgment stage of a class action, subsequent to trial.

In December 2020, the Supreme Court granted certiorari in Ramirez, and in June, in a 5-4 opinion authored by Justice Kavanaugh, a sharply divided Court reversed. But the Court’s controversial holding turned on what it takes for any individual victim of a federal statutory violation to establish standing, not on the timing of the standing inquiry when plaintiffs seek to aggregate claims in a class action.

The majority opinion by Justice Kavanaugh, joined by Justices Roberts, Alito, Gorsuch, and Barrett, held that the vast majority of class members suffered no concrete injury—and lacked Article III standing to bring FCRA claims accordingly—because the parties stipulated that false information contained in their TransUnion credit reports was never distributed to businesses. As a result, it was not possible that they suffered the requisite harm, which the Court defined by analogizing to the tort of defamation. Impassioned dissents authored by Justice Thomas, joined by the Court’s three liberal members, and by Justice Kagan, joined by Justices Breyer and Sotomayor, chastised the majority for “transform[ing] standing law from a doctrine of judicial modesty into a tool of judicial aggrandizement,” and for holding, for the first time, “that a specific class of plaintiffs whom Congress allowed to bring a lawsuit cannot do so under Article III.”

As relevant to antitrust class actions, however, the Court expressly disclaimed any judgment as to the propriety or impropriety of certifying classes containing some class members who may be shown to lack standing at subsequent stages of litigation proceedings. In a footnote, citing the Eleventh Circuit’s decision in Cordoba, the Court said, “We  do  not  here  address  the  distinct  question  whether  every  class  member must demonstrate standing before a court certifies a class.” But the Court did state, “On remand, the Ninth Circuit may consider in the first instance whether class certification is appropriate in light of our conclusion about standing.”

In early April, while the Supreme Court’s decision in Ramirez was still pending (and with potentially important implications for its future disposition on remand), the Ninth Circuit issued its highly anticipated decision in Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 993 F.3d 774 (9th Cir. 2021), discussed in our Fall 2020 update. In Bumble Bee, a divided Ninth Circuit panel held that, in applying Rule 23(b)(3)’s predominance requirement, a district court must find that no more than a “de minimis” number of class members are uninjured. Because the district court did not make such a finding, the panel vacated the class certification order and remanded for further proceedings. Judge Hurwitz, partially dissenting, maintained that neither the text of Rule 23 nor Ninth Circuit precedent permit the court to create such a requirement.

Although neither the plaintiffs nor the defendants sought en banc rehearing in Bumble Bee, the Ninth Circuit, acting sua sponte, ordered briefing on whether en banc rehearing is warranted and specifically directed the parties to focus on the “de minimis” issue that divided the panel. In May, AAI, which had submitted an amicus brief on the merits, submitted an amicus brief in support of en banc rehearing, identifying several legal and practical problems with the standard the panel majority articulated. As of this writing, the en banc rehearing vote remains pending, and a mandate has yet to issue.

The class plaintiffs have since settled with one of the defendants and moved the Court to begin settlement approval hearings.  Although none of the remaining defendants objected to proceeding with settlement hearings, the district court has refused in light of the Ninth Circuit’s order vacating class certification, noting that, because the panel’s de minimis holding is grounded in predominance and not manageability, it will apply to both settlement and litigation classes if en banc rehearing ultimately is rejected and a mandate subsequently issues.

II. THE USE OF STATISTICAL EVIDENCE TO PROVE COMMON IMPACT

The aforementioned Ninth Circuit opinion in Bumble Bee also has important implications for another recurring question we have tracked for several years: the appropriate class certification standards when liability and damages are determined on the basis of statistical evidence. In Bumble Bee, the defendants argued that the class plaintiffs’ use of statistical evidence masked substantial differences among class members, partly because the plaintiffs’ reliance on average overcharges obscured the presence of class members who did not pay an overcharge at all and therefore were not impacted by the admitted price fixing.

The Ninth Circuit affirmed the district court’s holding that plaintiffs’ reliance on common statistical evidence was capable of proving classwide impact. Citing the Supreme Court’s holding in Tyson Foods, the Ninth Circuit held that “representative evidence can be relied on to establish a class” so long as it is “closely and carefully scrutinized” for conformance with Rule 23’s requirements. Here, the plaintiffs’ statistical evidence passed muster because (1) an individual plaintiff could have relied on the statistical models to show impact in a hypothetical individual case; (2) there was a sufficient nexus between the plaintiffs’ statistical evidence and their theory of liability in accordance with Comcast; and (3) the plaintiffs’ statistical methodology was capable of showing that virtually all class members suffered injury so long as the methodology is sufficiently reliable.

The Bumble Bee panel-majority’s treatment of plaintiffs’ statistical evidence offered to prove common impact has not been briefed in en banc proceedings.

III. DAUBERT AT THE CLASS CERTIFICATION STAGE

When plaintiffs rely on expert testimony at the class certification stage, it is currently unsettled as to whether a court should perform a full Daubert analysis of the expert testimony or instead apply a tailored approach specific to the “rigorous analysis” required to satisfy Rule 23. In antitrust class actions, the Daubert and predominance standards can overlap when expert testimony is used to prove common impact and damages.

In January, in Prantil v. Arkema Inc., 986 F.3d 570 (5th Cir. 2021), the Fifth Circuit held in an environmental case that Daubert analysis is required at the class certification stage when scientific evidence is relevant to the Rule 23 standard. Class plaintiffs filed suit under two environmental statutes alleging adverse health effects and property damage caused by emissions emanating from the defendant’s Texas-based volatile chemical facility in the aftermath of Hurricane Harvey. The class plaintiffs relied upon four experts in seeking class certification, and on the defendant’s motion to exclude, the district court granted the motion as to plaintiffs’ damages expert but nonetheless certified the class. On appeal, the defendant argued that the district court erred in failing to ensure that the three remaining, relied-upon experts passed the Daubert test.

In an opinion by Judge Higginbotham, the Fifth Circuit agreed. Joining the Third, Seventh and Eleventh Circuits, the Fifth Circuit held that “the Daubert hurdle must be cleared when scientific evidence is relevant to the decision to certify.” Adopting Third Circuit reasoning, the Fifth Circuit found the application of Daubert analysis at the certification stage to be a “natural extension” of the need to conduct a “rigorous analysis” to determine whether the proposed class qualified under Rule 23. The court stated that expert testimony that “would not be admissible at trial … should not pave the way for certifying a proposed class.”

According to one analysis, the 8th Circuit holds that a Daubert review is unnecessary at the class certification stage, and the Ninth Circuit holds that Daubert standards do not apply when weighing certification. Another analysis describes the 8th and 9th Circuits as applying a “limited Daubert analysis” in which some inquiry is made into reliability but a finding establishing ultimate admissibility is not required. The Ninth Circuit panel majority in Bumble Bee did not explicitly address the role of the Daubert standard at class certification.

IV. SPECIFIC PERSONAL JURISDICTION

Since 2017, we have been tracking the lower federal courts’ application of the Supreme Court’s decision in Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017), which prevents defendants who are engaged in nationwide conduct from being subject to a mass action by plaintiffs injured both within and outside the forum state if general jurisdiction is lacking and if the defendant otherwise has insufficient contacts with the forum states to establish specific jurisdiction over the claims of some of the plaintiffs in the forum state. That decision has engendered questions as to whether such defendants can be subject to a class action brought by such plaintiffs. If not, nationwide or multi-state classes of plaintiffs often might be unable to bring class actions except in a defendant’s home state. Among other things, this would result in significant litigation advantages for corporate antitrust defendants, as well as inefficiency.

In our Spring 2020 update, we explained that the 5th, 7th, and D.C. Circuits all ruled on the issue in the span of a two-week period, and all three held that Bristol-Myers does not bar nationwide class actions prior to class certification, notwithstanding that specific jurisdiction may be lacking for unnamed class members. The 7th Circuit, in an opinion by Chief Judge Wood in Mussat v. IQVIA, went further than the others in holding affirmatively that Bristol-Myers does not apply to class actions.

In January, the Supreme Court denied certiorari in Mussat. Two months later, in Lyngaas v. Curaden AG, 992 F.3d 412 (6th Cir. 2021), the 6th Circuit joined the 7th Circuit in holding explicitly that “Bristol-Myers Squibb does not extend to federal class actions.” Citing and quoting extensively from Chief Judge Wood’s opinion in Mussat, the court noted that a class action is formally one suit in which a defendant litigates against only the class representative, and, accordingly, precedent does not deem the absent class members to be “parties.” Therefore, the court held, “The different procedures underlying a mass-tort action and a class action demand diverging specific personal jurisdiction analyses.”

In our Fall 2020 update, we noted that the 9th Circuit is currently considering this question on interlocutory appeal in Moser v. Health Ins. Innovations, Inc. No. 19-56224 (9th Cir. docketed Oct. 23, 2019). The appeal has now been fully briefed, and oral argument was held on May 13, 2021. A decision remains pending. To date, no circuit court has held that Bristol-Myers bars nationwide class actions in forum states that lack personal jurisdiction over absent class members.

We also noted in our Fall 2020 update that the Supreme Court granted certiorari and heard oral argument in Ford Motor Co. v. Montana Eighth Judicial Dist. Ct., which addressed the “arise out of or relate to” requirement for specific personal jurisdiction. The petitioners sought a strict standard requiring a causal connection between the plaintiff’s claimed injury and the defendant’s contacts with the forum state, which would have raised the stakes as other circuit courts consider whether to apply Bristol-Myers to class actions. If, for example, personal jurisdiction were understood to require that the defendant’s contacts with the forum state must be the but-for or proximate cause of each plaintiff’s claimed injury, as the Ford defendants argued, then nearly all nationwide classes would be left without a venue other than the defendant’s home state.

In March, the Supreme Court unanimously rejected the petitioners’ strict causal connection standard. Justice Kagan’s opinion for the Court, joined by Justices Roberts, Breyer, Sotomayor, and Kavanaugh, held that the “relates to” language in the “arise out of or relate to” requirement “contemplates that some relationships will support jurisdiction without a causal showing.”

Justice Alito, concurring, would have held that “arise out of” and “relate to” are “are not really two discrete grounds for jurisdiction.” He would have reaffirmed the basic minimum contacts standard adopted in International Shoe and thereby “leave the law exactly where it stood before we took these cases.” Justice Gorsuch, in a concurring opinion joined by Justice Thomas, implied that he would have overturned International Shoe and begun creating “a new jurisprudence about corporate jurisdiction” rooted in the Fourteenth Amendment’s original meaning as it pertains to personal jurisdiction.

Although the Court’s holding leaves room for further development of its personal jurisdiction jurisprudence, the majority and concurring opinions arguably should quell concerns that the Court will look to adopt overly stringent causation requirements that could threaten the viability of nationwide antitrust class actions on personal jurisdiction grounds.

V. ASCERTAINABILITY

A circuit split persists over whether Rule 23 contains a heightened ascertainability requirement that demands class plaintiffs plead and prove an administratively feasible mechanism for identifying absent class members. In our Fall 2020 update, we noted that the tide of recent decisions has moved against such a requirement, with each of the last five courts to consider a heightened ascertainability requirement having ruled against it. The Second, Sixth, Seventh, Eighth, and Ninth Circuits now reject an administrative feasibility prerequisite, while the First and Third Circuits have embraced some form of a heightened ascertainability requirement. The Fifth, Tenth, and D.C. Circuits have not yet explicitly adopted a position. The Eleventh Circuit had addressed the issue in unpublished opinions but characterized its position as “unresolved.”

In February, in a 3-0 panel opinion authored by Chief Judge Pryor in Cherry v. Dometic Corp., 986 F.3d 1296 (11th Cir. 2021), the Eleventh Circuit joined the majority of circuits in holding that “administrative feasibility cannot be a precondition for certification” under Rule 23. The court reasoned that an ascertainability requirement is implicit in Rule 23’s requirement of a clearly defined class, but administrative feasibility is not. Class membership can be “capable of determination without being capable of convenient determination.” (emphasis in original).  Administrative feasibility therefore has “no connection to Rule 23(a).”

The court did hold that administrative feasibility is relevant to the manageability criterion of Rule 23(b)(3). However, “because Rule 23(b)(3) requires a balancing test, it does not permit district courts to make administrative feasibility a requirement.”

VI. CLASS ACTION WAIVERS IN MANDATORY ARBITRATION CLAUSES

Since our Fall 2016 update, we have been tracking the use of mandatory arbitration clauses in employment agreements, which the Supreme Court upheld in a 5-4 decision in Epic System Corp. v. Lewis, 138 S. Ct. 1612 (2018).  In our Spring 2019 update, we noted that the FAA, by its terms, excludes “contracts of employment” with transportation workers from its coverage, provided they are “engaged in foreign or interstate commerce.” The Supreme Court, in New Prime, Inc. v. Oliveira, 139 S. Ct. 532 (2019), unanimously held that the FAA does not compel courts to enforce private arbitration agreements involving workers covered by the exclusion, and the Court also broadly interpreted the FAA’s use of “contracts of employment” to include both employees and independent contractors.

In the wake of New Prime, we noted that Epic Systems apparently will not bar transportation employees or independent contractors in interstate commerce from successfully challenging class-action waivers embedded in arbitration agreements, but that it remains to be seen how the Court might rule on the validity of such waivers as a matter of contract law where the FAA does not apply.

In our Fall 2020 update, we noted that a circuit split arguably had arisen over how the “foreign or interstate commerce” requirement affects the scope of the transportation-worker exclusion, particularly as applied to gig economy workers. In cases involving Amazon workers, the First and Ninth Circuits held that local delivery drivers fell within the exclusion insofar as they hauled goods on the final legs of interstate journeys, notwithstanding that they did not personally cross state lines. The Seventh Circuit, in Wallace v. Grubhub Holdings, Inc., 970 F.3d 798 (7th Cir. 2020)—in an opinion authored by now-Justice Amy Coney Barrett—held that workers seeking to qualify for the exclusion must be connected not simply to the goods, but to the act of moving those goods across state or national borders.

The Ninth Circuit, in the course of denying a mandamus petition in In re Grice, 974 F.3d 950 (9th Cir. 2020), surveyed the recent cases and concluded that the critical factor in each case “was not the nature of the item transported in interstate commerce (person or good) or whether the plaintiffs themselves crossed state lines, but rather ‘[t]he nature of the business for which a class of workers perform[ed] their activities.’”

In March, the 7th Circuit issued an opinion implying that the 9th Circuit’s statement is correct, and that there may be less to the perceived circuit split than meets the eye. In Saxon v. Southwest Airlines, in a unanimous panel opinion authored by Judge St. Eve, the court reversed a district court order holding that a ramp supervisor who manages and assists workers loading and unloading airplane cargo for Southwest Airlines fell outside the transportation-worker exclusion of the FAA. The court explained that the FAA’s residual phrase—“any other class of workers engaged in foreign or interstate commerce”—“cuts both ways.” A transportation worker need not work for a transportation company, but a person does not become a transportation worker simply because she does work for a transportation company.

Here, the 7th Circuit, citing approvingly to then-Judge Barrett’s opinion Wallace, maintained that transportation workers must be “actively occupied in ‘the enterprise of moving goods across interstate lines’” to be sufficiently engaged in “commerce” in satisfaction of the FAA exclusion. But it interpreted the scope of work meeting that requirement expansively, to avoid “put[ting] ourselves in conflict with the Third Circuit’s approach and in tension with the First and Ninth Circuits’ interpretation of § 1.”

The court held, “Actual transportation is not limited to the precise moment either goods or the people accompanying them cross state lines.” Rather, consistent with contemporary statutes from the 1920s when the FAA was passed, which recognized as much, the “loading and unloading [of]  cargo onto a vehicle so that it may be moved interstate, too, is actual transportation.” In the aftermath of Judge St. Eve’s opinion, district courts in the Seventh Circuit may likewise resort to textualist analyses in determining whether any given class of workers is engaged in “the actual transportation of goods” under the FAA’s transportation-worker exclusion.

According to one analysis, federal courts in the last two years have issued more rulings on whether plaintiffs are transportation workers engaged in interstate commerce—and thus are exempt from the FAA—than they did over the preceding 17 years. Over the past two decades, courts have reportedly decided 92 cases involving worker claims that they are covered by the FAA’s transportation-worker exclusion, with workers prevailing in 30 percent of the cases.

VII. INCENTIVE AWARDS FOR CLASS REPRESENTATIVES

In our Fall 2020 update , we discussed the Eleventh Circuit’s decision in Johnson v. NPAS Sols., LLC, 975 F.3d 1244 (11th Cir. 2020), which held that incentive awards paid to lead class plaintiffs—a longstanding feature of antitrust and other class actions—are unlawful under 19th Century Supreme Court precedent. The court entered an order withholding the issuance of the mandate following the plaintiff’s petition for rehearing en banc. In May, the plaintiffs submitted a notice of supplemental authority regarding plaintiffs’ contention that the prohibition on incentive awards conflicts with decisions from every other circuit.

According to the submission, nine district court cases from outside the Eleventh Circuit and seven appellate panels have addressed the legality of incentive awards paid to lead class plaintiffs since the petition for rehearing en banc was submitted. The nine district court decisions have cited to and rejected the Johnson holding, permitting service awards to class representatives. The seven appellate panels, most of which are unpublished, have affirmed service awards. In a response, the defendant counters that the cited cases are non-binding and did not directly consider the 19th Century precedent on which Johnson relied. As of this writing, the plaintiffs’ en banc rehearing petition remains pending.

VIII. PRIVATE ENFORCEMENT FEATURES OF PROPOSED ANTITRUST LEGISLATION

As we noted in our Fall 2020 update, the majority and minority staffs of the House Antitrust Subcommittee issued dueling reports that found common ground after a year-long investigation into the market power of Big Tech firms, and how the antitrust laws can be strengthened to address it. However, the minority report emphasized that it “would rather see the subcommittee focus on legislation that removes barriers to agency antitrust enforcement rather than private enforcement.”

On June 11, 2021, Subcommittee members introduced five new antitrust bills aimed at curbing the monopoly power of Big Tech firms. Two of the five bills feature private enforcement and parens patriae provisions, as discussed below.

The American Choice and Innovation Online Act, sponsored by Rep. David Cicilline (RI-01) and Rep. Lance Gooden (TX-05), prohibits discriminatory conduct by dominant online platforms. This bill allows for an injured person to recover three-times the damages he or she sustained with simple interest on actual damages during the pendency of the suit, as well as the cost of the suit, including a reasonably attorney’s fee. It also has a parens patriae provision that empowers state attorneys general to bring civil actions to recover on behalf of their injured citizens.

The “Platform Competition and Opportunity Act,” sponsored by Rep. Hakeen Jeffries (NY-08) and Rep. Ken Buck (CO-04), prohibits covered platform operators from acquiring any entity that competes with or can augment the covered platform operator’s existing business. This bill contains private enforcement and parens patriae provisions that are identical to those of the American Innovation and Choice Online Act.

The “Ending Platform Monopolies Act,” sponsored by Rep. Pramila Jayapal (WA-07) and Rep. Gooden, prohibits covered platform operators from selling goods or services on their platforms, and also from vertically or horizontally integrating into any line of business if the platform would have the ability and incentive to favor its own products or exclude rivals. Unlike the aforementioned bills, this bill lacks private enforcement or parens patriae provisions. Enforcement is left to the Department of Justice and the Federal Trade Commission.

The “Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act,” sponsored by Rep. Mary Scanlon (PA-05) and Rep. Burgess Owens (UT-04), enhances standards for data security and data transferability to third-parties. This bill likewise lacks private enforcement or parens patriae provisions and vests enforcement authority solely with the Department of Justice and the Federal Trade Commission.

The “Merger Filing Fee Modernization Act,” sponsored by Rep. Joe Neguse (CO-02) and Rep. Victoria Spartz (IN-05), amends the Hart Scott Rodino Act to increase filing fees for certain large mergers and acquisitions and increases budget appropriations for the Department of Justice and the Federal Trade Commission. There are no enforcement provisions in this bill.

A sixth bill introduced in May, the State Antitrust Enforcement Venue Act, sponsored by Reps. Cicilline, Buck, Neguse, Owens and Sanford Bishop (GA-02), exempts states’ suits brought under federal antitrust law from being consolidated and relocated with private cases by the Judicial Panel on Multidistrict Litigation. In this regard, the bill would put states on equal footing with the federal government when enforcing federal antitrust law. It does not feature any enforcement provisions.

After a 29-hour markup session that ended on June 24, 2021, the House Judiciary Committee advanced all six bills with at least some bipartisan support for each. The American Innovation and Choice Online Act passed 24-20; the Platform Competition and Opportunity Act passed 23-18-1; the Ending Platform Monopolies Act passed 21-20; the ACCESS Act passed 25-19; the Merger Filling Fee Modernization Act passed 29-12; and the State Antitrust Enforcement Venue Act passed 34-7. The legislation is expected to receive a close vote in the full House, and as of this writing it is unclear when it will get to the floor.

Two analogous bills introduced in the Senate in February and April, respectively, lack private enforcement and parens patriae provisions: the Competition and Antitrust Law Enforcement Act of 2021, sponsored by Senator Amy Klobuchar (D-MN), and the Trust-Busting for the Twenty-First Century Act, sponsored by Senator Josh Hawley (R-MO).

 

[1] The American Antitrust Institute is an independent, nonprofit organization devoted to promoting competition that protects consumers, businesses, and society. We serve the public through research, education, and advocacy on the benefits of competition and the use of antitrust enforcement as a vital component of national and international competition policy. For more information, see https://www.antitrustinstitute.org. Comments on this update or suggestions for AAI amicus participation should be directed to Randy Stutz, rstutz@antitrustinstitute.org, (202) 905-5420.

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AAI Advisor Bob Litan Unpacks Higher Education and Competition in Soapbox Article “Why Does Congress Let the Ivy League Operate as a Monopoly?”

AAI Advisor Bob Litan published an article in Soapbox on July 20, 2021 “Why Does Congress Let the Ivy League Operate as a Monopoly?” Litan unpacks a little-known law that allows the most prestigious schools in America to cap the aid they offer to the most sought-after applicants, a provision that he argues harms students of color.

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What’s the Beef? How the Beef Packing Cartel Hurts Producers and Consumers and How Independent Cattle Producers and Processors Can Help Restore Competition and Choice

In this podcast, AAI President Diana Moss sits down with two leaders in the independent sector to discuss the fallout from decades of massive consolidation and rising concentration in beef packing. Her guests, Mike Callicrate and Patrick Robinette, run innovative, independent business operations in two different parts of the US. They discuss the state of competition in U.S. beef packing, which is dominated by four packing firms that control over 80% of the market. Next, they turn to problems of market access for smaller ranchers and processors and deceptive labeling that deprives consumers of informed choices. The conversation reveals that an industrial food system with little competition packs significant inefficiency and susceptibility to shocks like COVID-19. On the other hand, smaller operations provide needed competition and resiliency in the beef supply. Moss, Callicrate, and Robinette close with the importance of stronger antitrust enforcement in the beef packing sector and USDA initiatives that promote competition, price transparency, and the importance of alternative supply systems.

 

Moderator:

Diana Moss, President, American Antitrust Institute

Guests:

Mike Callicrate is a farmer-rancher, business entrepreneur and family farm advocate. Mike formed Ranch Foods Direct in 2000, a branded beef company and retail and online food store in Colorado Springs. His company also operates a regional food hub, helping to collect and distribute locally produced food.

 

 

 

Patrick Robinette’s family has raised high quality, grass-fed cattle for years in North Carolina. In 2012 they formed Micro Summit Processors, with a focus on cattle harvesting and processing. Patrick’s business responds to consumers demand for food transparency.

 

 

 

 

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Market Power and Digital Business Ecosystems: A Discussion of the Impact of Economic and Business Complexity on Competition Analysis and Remedies

In this podcast, AAI President Diana Moss sits down with her two co-authors of the report “Market Power and Digital Business Ecosystems: Assessing the Impact of Economic and Business Complexity on Competition Analysis and Remedies.” Moss, Greg Gundlach, and Riley Krotz discuss competition issues raised by the large digital business ecosystems (DBEs). The report takes a multidisciplinary approach–incorporating economics, law, and business theory and research. It fills an important gap by focusing on the DBEs’ unique business and economic features, takeaways from which should inform the enforcement and legislative debate over reining in their market power. As Moss, Gundlach, and Krotz explain in the podcast, the report reveals important caveats and cautions regarding the application of conventional competition analysis to DBEs, with implications for how competition enforcers and legislators assess market power and design remedies, particularly in the merger and monopolization contexts.

The report was made possible by a grant from the Omidyar Network Fund, Inc.

MODERATOR:
Diana Moss, President, American Antitrust Institute
GUESTS:
Gregory T. Gundlach, Professor of Marketing, Coggin College of Business, University of North Florida
Riley T. Krotz, Assistant Professor of Marketing, Texas Tech University

 

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AAI Introduces Framework for Assessing Antitrust Solutions to Major Problems Caused by Dominant Platforms; Provides Policymakers with Needed Tool for Crafting Constructive Policy Approaches

The American Antitrust Institute published a series of two companion reports designed to give practical guidance to government policymakers on one of the most important and pressing challenges facing our economy and our democracy: combatting the social and economic and social power wielded by dominant digital technology firms.

1. Antitrust, Dominant Firms, And Public Policy Problems: A Framework For Maximizing Success By Minimizing Uncertainty creates a general framework for policymakers to assess potential outcomes when combatting dominant-firm behavior using federal antitrust litigation under existing legal doctrine. It explains that when a single firm achieves dominance in a critical market, it can give rise to complex public-policy problems with economic, social, and political dimensions that call upon government to craft creative solutions using a variety of available tools. The menu of available options includes antitrust law, economic and/or social regulation, intellectual property law, labor and trade policy, tax law, and other legal and regulatory mechanisms. And, it is up to policymakers to choose the right combination of tools and wield them collaboratively and effectively. View the report.

2. Antitrust Law And Dominant-firm Behavior In The Digital Technology Sector: Toward An Actionable Agenda For Policymakers applies the aforementioned framework to eight well-articulated and widely studied public-policy problems involving the major dominant firms in the digital technology sector. The report examines how each of the eight problems is perceived to cause, often in differing proportions, a combination of social, economic, and political ills linked to the large digital technology firms. It then applies the framework, making recommendations to policymakers as to how they should evaluate and consider supplementing an antitrust approach. View the report.

The two reports were authored by Randy Stutz, AAI’s Vice President of Legal Advocacy, and made possible by grant funding from the John S. and James L. Knight Foundation.

Questions or comments regarding either of the reports may be directed to Randy Stutz, Vice President of Legal Advocacy, at rstutz@antitrustinstitute.org or (202) 905-5420.

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Antitrust Law And Dominant-firm Behavior In The Digital Technology Sector: Toward An Actionable Agenda For Policymakers

The second of the two reports in a series, Antitrust Law And Dominant-firm Behavior In The Digital Technology Sector: Toward An Actionable Agenda For Policymakers applies the framework of the first report to eight well-articulated and widely studied public-policy problems involving the major dominant firms in the digital technology sector. The report examines how each of the eight problems is perceived to cause, often in differing proportions, a combination of social, economic, and political ills linked to the large digital technology firms. It then applies the framework, making recommendations to policymakers as to how they should evaluate and consider supplementing an antitrust approach.

The eight problems, and AAI’s findings in applying the five uncertainty variables to each, are summarized below.

1. MISINFORMATION AND DISINFORMATION. On both the producer and consumer sides of news markets, there may be a risk that increased competition would be ineffectual in slowing the spread of false and misleading information online. In addition, conduct that facilitates the spread of false and misleading information online may lead to divergent, incommensurable effects. That is, it may lead to increased output at the same time it leads to decreased quality.

2. SELF-PREFERENCING. If a vertically-integrated platform favors its own or its advertising partners’ products in the marketplace, an antitrust plaintiff’s ability to make evidentiary allegations of a discernable wealth transfer from either a producer or consumer to the platform will likely vary depending on the facts. Such plaintiffs sometimes may have to rely solely on qualitative evidence, sometimes may be able to rely on both qualitative and quantitative evidence, and sometimes may have to grapple with evidence suggesting that qualitative non-price effects and quantitative price effects diverge, and are incommensurable.

3. PREFERENCE-SHAPING AND BEHAVIOR MODIFICATION. If a dominant platform employs insights from human behavioral psychology to target the sale of commercial products and services in a socially harmful way, an antitrust plaintiff seeking to deter a harmful competitive effect may struggle to allege causation. Moreover, evidentiary challenges in establishing causation may lead to challenges in creating a viable remedy, particularly if it is unclear whether any non-price effects and price-effects may diverge.

4. THE USE OF ADDICTION SCIENCE IN SOFTWARE DESIGN. When a dominant platform employs principles of addiction science in software design as a means of attracting user attention, an antitrust plaintiff may similarly struggle to allege causation, again creating challenges in crafting  a viable remedy.

5. FREE SPEECH AND VIEWPOINT DISCRIMINATION. When a dominant platform’s algorithm for displaying content cultivates polarized, feedback-driven information flows that fail to expose users to diverse viewpoints, there is a risk that inter-platform competition will fail to solve the problem, particularly if platforms become siloed and users do not multi-home. An antitrust plaintiff seeking to challenge conduct on grounds that it generates harmful viewpoint suppression would be relying solely on qualitative evidence of a non-price effect, and the qualitative and quantitative effects likely are incommensurable and may diverge, creating challenges in crafting a viable remedy if a case could be won.

6. PRIVACY INTRUSIONS AND DATA BREACHES. When a dominant platform’s business model is predicated on making uniquely accurate predictions about human behavior through intrusive collection of user data and sophisticated data analysis, it is unclear whether the introduction of competing, privacy-protective choices in the marketplace will prompt users to switch away from the dominant platform. In addition, an antitrust challenge predicated on privacy harms necessarily would rely on qualitative evidence of a harmful non-price effect, and it may be unclear whether price- and non-price effects from intrusive privacy practices would align or diverge, and whether they would be commensurable, raising questions about the viability of an antitrust remedy.

7. “UNDEMOCRATIC” MARKET STRUCTURES AND THE POLITICAL POWER OF LARGE FIRMS. When a platform’s dominance in a market breeds antidemocratic political pressures, an antitrust plaintiff’s ability to alleviate such pressures through de-concentration measures likely will vary depending on the facts. Consummated merger challenges may offer the potential for de-concentration, but the spin-off of firms that offer complementary products may or may not lead to horizontal competition in a platform’s core market. Monopolization challenges may allow for comparatively more flexible de-concentration remedies, but whether they are likely to succeed in any given case depends on how the break-up remedy would be tailored to the challenged conduct.

8. WORKPLACE FISSURING AND LABOR EXPLOITATION. When a dominant platform’s behavior serves to depress the wages of employees or other workers or diminish the non-wage terms of employment or other work, whether increased competition will reverse the trend, and whether the platform will be found to have the necessary power to force such a wealth transfer, likely will vary from case to case. The viability of a competition-restoring remedy in the labor market likely also will vary depending on the facts.

The report was authored by Randy Stutz, AAI’s Vice President of Legal Advocacy, and made possible by grant funding from the John S. and James L. Knight Foundation. See http://knightfoundation.org.

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Antitrust, Dominant Firms, And Public Policy Problems: A Framework For Maximizing Success By Minimizing Uncertainty

The first of the two reports in a series, Antitrust, Dominant Firms, And Public Policy Problems: A Framework For Maximizing Success By Minimizing Uncertainty creates a general framework for policymakers to assess potential outcomes when combatting dominant-firm behavior using federal antitrust litigation under existing legal doctrine. It explains that when a single firm achieves dominance in a critical market, it can give rise to complex public-policy problems with economic, social, and political dimensions that call upon government to craft creative solutions using a variety of available tools. The menu of available options includes antitrust law, economic and/or social regulation, intellectual property law, labor and trade policy, tax law, and other legal and regulatory mechanisms. And, it is up to policymakers to choose the right combination of tools and wield them collaboratively and effectively.

Because of modern antitrust law’s technical complexity, non-expert policymakers often struggle to understand how antitrust law can be effectively deployed as part of a broader public-policy strategy. The first report solves for this problem by creating a framework that policymakers can use to assess degrees of uncertainty associated with litigation-based antitrust challenges to dominant-firm behavior under existing legal doctrine. It derives five variables that implicate litigation uncertainty, each of which arises from core areas of policy agreement or disagreement in antitrust law.

The core area of policy agreement that informs litigation uncertainty under existing antitrust law is the idea that antitrust law, as currently constituted, serves to protect and promote competitive markets. The core area of disagreement is over whether antitrust, in the course of protecting competition, should seek to protect and promote consumer welfare as its primary or exclusive goal. Each of these areas has been a flashpoint in recent public policy debates over the adequacy of existing antitrust law as applied to modern digital technology markets. But, importantly, each area also tends to inform the litigation arguments of parties who appear before judges in actual antitrust cases. Consequently, these areas of policy agreement and disagreement tend to shape the contours of applied antitrust law, affecting arguments and outcomes from jurisdiction to jurisdiction and even from case to case.

After a detailed analysis, the report identifies and explains the five uncertainty variables that emerge from an understanding of these key areas of agreement and disagreement, as well as their implications for policymakers:

1. THE THREAT OF MARKET FAILURE. When competition occurs within the context of a market failure, policymakers should recognize that it may exacerbate a given public policy problem rather than cure it. Confronted with a potential market failure, the efficacy of applying a law that promotes competition becomes less certain.

2. THE WELFARE TRADEOFFS CAUSED BY LAWFUL COMPETITION. The lawful competition that antitrust law promotes can sometimes lead to welfare tradeoffs that harm vulnerable constituencies, including consumers, workers, and small business. Policymakers therefore should recognize that other tools, in addition to a tool that promotes competition, may be necessary if their particular goal is to protect vulnerable constituencies from injury rather than to promote open markets.]

3. THE DETECTABILITY OF A WEALTH TRANSFER. To survive the preliminary stages of litigation and thereby obtain meaningful deterrence against socially undesirable behavior (including by spurring settlement discussions), an antitrust plaintiff may have to allege evidence that a powerful firm forced its trading partners to transfer wealth to the firm. Policymakers should recognize that, to the extent such a wealth transfer is difficult to detect, the deterrence value of initiating antitrust litigation may be less certain, as may the prospect of obtaining a competition-restoring remedy should the litigation proceed to summary judgment or trial.

4. THE NATURE OF EVIDENTIARY ALLEGATIONS OF AN ANTICOMPETITIVE EFFECT. As currently applied, antitrust law holds that it protects against not only harm caused by inflated prices and reduced output (“price effects”), but also against harm caused by diminished product quality, reduced choice, and reduced innovation (“non-price effects”). However, cases premised solely on harmful non-price effects are sometimes harder to support with proof, particularly when the effects are unquantified or unquantifiable. Policymakers therefore should recognize that cases premised on unquantified, non-price effects may be more difficult to maintain and win than cases premised on quantified price or output effects, or both kinds of effects.

5. THE COMPATIBILITY OF ANY “INCOMMENSURABLE” COMPETITIVE EFFECTS. It is common for challenged conduct to generate both quantified price/output effects and unquantified non-price effects. When the two kinds of effects are both present and both harmful, antitrust law has comparatively little difficulty policing the conduct that generates them. However, when the competitive effects diverge, meaning conduct is beneficial in one sense but harmful in the other, courts often struggle to impose remedies. Policymakers therefore should recognize that conduct that creates divergent price and non-price effects, such as lower prices but also reduced innovation, or higher prices but also higher quality, may be difficult to remedy using antitrust law under existing legal doctrine.

The report was authored by Randy Stutz, AAI’s Vice President of Legal Advocacy, and made possible by grant funding from the John S. and James L. Knight Foundation. See http://knightfoundation.org.

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AAI Amicus Briefs Help Deliver Back-to-Back Wins in U.S. Supreme Court and D.C. Circuit

On June 21 and June 22, 2021, the U.S. Supreme Court and D.C. Circuit delivered critically important victories for student-athletes and natural gas customers, each aided by an AAI amicus brief.

In NCAA v. Alston, the Supreme Court ruled 9-0 in favor of the plaintiffs, affirming a district court opinion holding that the NCAA’s restrictions on the education-related benefits that schools may make available to student-athletes violate Section 1 of the Sherman Act. AAI’s amicus brief argued two important points. First, the NCAA and its member institutions made a non-cognizable argument throughout the litigation—that harm to competition in a labor market for athletes’ services should be tolerated for the sake of promoting competition in a product market for college sports contests. Second, AAI argued that the NCAA’s formalistic claim that “product-design” decisions cannot be challenged under Section 1 contravenes antitrust law’s commitment to examining the economic realities of collaborative business activity.

The Supreme Court accepted both arguments. First, citing and quoting from AAI’s brief, the Court expressly disclaimed that its affirmance of the district court’s holding should be construed as tolerance for so-called “multi-market balancing.” This carve out from the Court’s opinion is especially important, because as the case came before the Court on appeal from the Ninth Circuit, the NCAA and its member institutions had waived any argument that their compensation restrictions promoted competition in the labor market; they argued only that the restrictions benefitted competition in a product market. If the Court had blessed the NCAA’s litigation approach, it would have risked sending an especially dangerous message to the judiciary and the defense bar.  Indeed, in making the flawed arguments, the NCAA may have wrongfully assumed it could do so based on the Court’s failure to draw the necessary distinction in its 1984 decision in NCAA v. Board of Regents. However, the NCAA, in its litigation approach, also failed to appreciate why its multi-market balancing arguments lost in that case.

The Court also rejected the NCAA’s “product-design” argument as flatly inconsistent with a long line of precedent. Citing two cases that the AAI brief cited in support of the same proposition, the Court explained that it regularly refuses “requests from litigants seeking special dispensation from the Sherman Act on the ground that their restraints of trade serve uniquely important social objectives beyond enhancing competition.” The Court held that the question whether a restraint violates the Sherman Act presumptively turns on an application of a rule-of-reason analysis rather than a “judicially ordained immunity.”

In Environmental Defense Fund v. FERC, a unanimous panel of the D.C. Circuit Court of Appeals vacated and remanded a FERC order approving the construction of a new segment of natural gas pipeline in the midwestern United States, accepting AAI’s argument that the approval was arbitrary and capricious for failing to account for market realities that called into question whether the construction was supported by genuine market need.  FERC did not consider whether the proposal instead was based on a desire on the part of the pipeline owner to evade rate regulation through a vertically integrated affiliate.

The Environmental Defense Fund petitioned the D.C. Circuit for review of FERC’s order issuing a Certificate of Public Convenience and Necessity (Certificate of Need) to Spire STL Pipeline LLC (Spire STL), a subsidiary of a midwestern utility holding company, Spire Inc. (Spire), to authorize the new pipeline.  In approving Spire STL’s application, FERC relied exclusively on Spire STL’s affiliate precedent contract with another of Spire’s vertically integrated subsidiaries, Spire Missouri, as evidence of need. Although no shippers in the region, including Spire Missouri, required new capacity to meet demand, and no unaffiliated shippers bid on any of the new capacity, and all parties conceded that demand in the region was flat for the foreseeable future, Spire argued that sufficient evidence of need should be found based on Spire Missouri’s subscription of 87% of the new pipeline’s capacity. And FERC held that the agreement, standing alone, was sufficient to allow the new pipeline project to go forward.

AAI’s amicus brief argued that FERC’s order was arbitrary and capricious because the affiliate precedent contract alone is ambiguous as evidence of need. Without more, FERC could not draw a reasonable inference that the contract was procompetitive rather than anticompetitive, consistent with the Natural Gas Act’s goals. Among other things, AAI’s brief emphasized that, whether an affiliate precedent contract is more likely to reflect need or more likely to reflect a vertically integrated monopolist’s anticompetitive incentive to evade rate regulation depends on market conditions that FERC failed to address. To reasonably infer that Spire’s affiliate precedent contract is likely to create procompetitive benefits rather than anticompetitive harms, FERC needed to evaluate, at a minimum, the implications of flat demand for new capacity in the region, the absence of buy-side competition for new capacity, and the state utility commission’s ability (or inability) to detect inflated transfer prices. Here, those factors foreclosed a reasonable inference of need based solely on Spire’s precedent contract with a vertically integrated affiliate.

The D.C. Circuit agreed. The Court noted that it could find no judicial authority endorsing a FERC-issued Certificate of Need “in a situation in which the proposed pipeline was not meant to serve any new load demand, there was no Commission finding that a new pipeline would reduce costs, the application was supported by only a single precedent agreement, and the one shipper who was party to the precedent agreement was a corporate affiliate of the applicant who was proposing to build the new pipeline.” It added that the absence of supporting authority “is hardly surprising because evidence of ‘market need’ is too easy to manipulate when there is a corporate affiliation between the proponent of a new pipeline and a single shipper who have entered into a precedent agreement.”

The Court also cited to a 2009 FERC case that identified the same concern about inflated transfer pricing that AAI identified. Namely, “that a utility affiliate contract could shift costs to captive ratepayers of the affiliate and subsidize the…  project inappropriately, and the lack of transparency that would surround the arrangement.”

AAI’s amicus program is a key component of fulfilling AAI’s mission of promoting competition that protects consumers, businesses, and society. Comments on AAI amicus briefs or suggestions for AAI amicus participation should be directed to Randy Stutz, rstutz@antitrustinstitute.org, (202) 905-5420.

 

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AAI Tells Multilateral Task Force That FTC Pharma Merger Policy Needs an Overhaul: Speaks at Future of Pharma Workshop and Submits Comments Citing AAI Report

AAI’s Diana Moss spoke at the Federal Trade Commission’s (FTC’s) Future of Pharma workshop on Concentration Levels in the Pharmaceutical Sector on June 14, 2022. Moss’s remarks unpacked comments submitted by AAI in the FTC’s Pharmaceutical Task Force, Docket No. FTC-2021-0025 proceeding.

AAI commended Commissioner Slaughter for jump-starting the task force in her capacity as Acting Chair and encourages Chair Khan to pursue this vitally important initiative with all of its intended vigor and thoroughness. AAI’s comments address a key topic posed by the Multilateral Pharmaceutical Task Force request for public comment: effective remedies for anticompetitive mergers of branded and generic pharmaceutical companies.

In September 2020, AAI issued the widely-cited report: From Competition to Conspiracy: Assessing the Federal Trade Commission’s Merger Policy in the Pharmaceutical Sector (AAI Pharma Report). AAI’s comments in the proceeding are based on the empirical research, analysis, and recommendations contained in the report. The analysis highlights the fading promise of competition, in both branded pharmaceutical R&D and generic drug markets, for ensuring the provision of accessible, affordable, essential drugs to U.S. consumers.

The AAI Pharma Report highlights the FTC’s long-term policy of settling virtually all challenged drug mergers subject to divestitures, the effect of which has been the “swapping” of pharmaceutical assets within a shrinking group of increasingly powerful drug manufacturers. Moreover, many of the very firms that were the most active in M&A, and as purchasers of divestiture assets, have been named as defendants in private, state, and federal non-merger antitrust litigations and in federal criminal indictments.

AAI offers a variety of recommendations to re-vamp the FTC’s merger policy to promote competition and protect consumers. These include: (1) abandoning the current merger policy of not seeking injunctions, (2) automatically seeking injunctions to stop generic “mega-mergers, (3) discouraging further M&A by “serial acquirers,” (4) banning certain antitrust “violators” from purchasing divested assets, (5) requiring reporting on claimed efficiencies, and (6) monitoring the “turn-around” sales of divested assets.

AAI has a more than a 20-year history of research, education, and advocacy on the importance of vigorous antitrust enforcement and constructive competition policy in the pharmaceutical sector. AAI has provided legal, economic, business, and institutional analysis of the adverse effects of consolidation and concentration on competition, consumers, and innovation. AAI is uniquely positioned to provide insight into the structure of pharmaceutical markets, strategic anticompetitive practices, anticompetitive abuse of regulatory processes, remedies that fully restore competition, and policies that promote competition and the protection of consumers and innovation. The integrity and stability of the healthcare system is a matter not only of competition and consumer welfare, but also of national wellness, safety, and security.

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AAI Encourages USDA to Take More Aggressive Role in Crafting Competition Policies to Combat Concentration and Supply Chain Instability in Food and Agriculture

The American Antitrust Institute filed comments in the U.S. Department of Agriculture (USDA), Agriculture Marketing Service (AMS) proceeding Supply Chains for the Production of Agricultural Commodities and Food Products (Docket: AMS-TM-21-0034). The integrity and stability of the food system is a matter of national health, safety, and security. Disruption of any food and agriculture supply chains is potentially catastrophic, as became apparent during the COVID pandemic. As the economic recovery puts increased pressure on demand for agricultural commodities and food products, those risks remain very real.

AAI’s comments in the USDA proceeding highlight a lack of competition as a major cause of instability and lack of resilience in U.S. food supply chains. They address the harmful effects of rollbacks of important regulations under the Trump administration, pervasive “bottlenecks” in the food supply chains that result from concentration, and challenges facing public and private enforcement in policing anticompetitive mergers and conduct in the food system. AAI suggests four areas where USDA can be more proactive in addressing concentration and supply chain problems in food and agriculture, including interagency coordination, facilitating price transparency, working to limit or prohibit vertical integration, and food labeling to foster competition on quality and consumer choice.

AAI has a more than 20-year history of research, education, and advocacy on the importance of vigorous antitrust enforcement and constructive competition policy in the food and agricultural sectors. AAI has provided legal, economic, business, and institutional analysis of the adverse effects of consolidation and concentration on producers, consumers, independent business, and the stability and security of the food supply chains. This work spans various sectors, including agricultural inputs such as fertilizer, crop traits, and seed; protein and grain processing; food manufacturing; broadline food distribution; and retail grocery.