Meanwhile, the FTC is pursuing administrative proceedings on the substance of the alleged §7 violation before Administrative Law Judge Michael Chappell.

Here is the text of the order denying rehearing:

The petition of appellee Whole Foods Market, Inc. (”Whole Foods”) for rehearing en banc was circulated to the full court, and a vote was requested. Thereafter, a majority of the judges eligible to participate did not vote in favor of the petition. Upon consideration of the foregoing and the motion of Whole Foods for leave to file a reply, the opposition thereto, and the lodged reply, it is ORDERED that the motion for leave to file a reply be granted. The Clerk is directed to file the lodged reply. It is FURTHER ORDERED that the petition be denied.

Judge Ginsburg along with Judge Sentelle issued a concurrence to the denial of rehearing which stated:I concur in the denial of rehearing en banc because, there being no opinion for the Court, that judgment sets no precedent beyond the precise facts of this case. See King v. Palmer, 950 F.2d 771, 783 (D.C. Cir. 1991) (en banc) (”without implicit agreement” among a majority of the judges “we are left without a controlling opinion”).

An amended version of the panel decision, also issued today, is here. HT to AT-CONVERSATION listserve.

HT to Olivier. And TGIF.

The facts. LinkLine is an internet service provider (ISP) that sells its customers DSL access. It purchases wholesale DSL services from AT&T California (formerly SBC, formerly Pacific Bell), which is the incumbent local exchange carrier (or ILEC) and required under the Telecommunications Act to provide wholesale DSL services to ISPs. AT&T is vertically integrated and also sells DSL access and ISP services at retail. LinkLine claims that the difference between the price at which AT&T sells wholesale DSL services and the price of AT&T’s retail DSL/ISP is such that LinkLine cannot compete at retail with AT&T. It is the classic price squeeze allegation first formulated in Alcoa. The (so far uncontested) allegation is that at times AT&T’s retail price was below the wholesale price for DSL access charged to LinkLine. (Here is another point that is not developed factually because of the early grant of cert: to what extent are prices for whole sale DSL services and retail DSL access + ISP services comparable?)

Depending on how you look at it, the problem is either that AT&T’s wholesale rate is too high, or that its retail price is too low. The wholesale price is subject to regulation and regulatory oversight. The retail price isn’t; but a retail DSL price that is too low points to a Brooke Group-style predatory-pricing claim. The district court, granting leave to file an interlocutory appeal from its denial of AT&T’s 12(b)(6) motion, certified the following question to the Ninth Circuit:

“The issue before the Ninth Circuit will not be whether Trinko bars price-squeeze claims generally but, more specifically, whether it bars predatory price-squeeze claims (i.e., price-squeeze claims which comply with the Brooke Group requirements).”

The Ninth Circuit affirmed. By the time the Supreme Court granted cert (the Solicitor General was in favor, the FTC opposed), the issue had become broader:

Whether a plaintiff states a claim under § 2 of the Sherman Act by alleging that the defendant—a vertically integrated retail competitor with an alleged monopoly at the wholesale level but no antitrust duty to provide the wholesale input to competitors—engaged in a “price squeeze” by leaving insufficient margin between wholesale and retail prices to allow the plaintiff to compete.

The case raise two issues: Should there be a price squeeze theory of liability under §2? And does Trinko preclude liability in this case because there is regulation in place that controls the wholesale price AT&T can charge as the ILEC?

The Reach of Trinko. The Ninth Circuit, in an elegantly reasoned opinion (pdf), argued that Trinko does not preclude liability. The Trinko decision of course is a bit schizophrenic in its treatment of antitrust in regulated industries. Trinko first acknowledges that the Telecommunications Act explicitly does not replace antitrust liability: “[N]othing in this Act … shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws.” By the end of the Trinko decision, however, the Supreme Court holds that antitrust liability is precluded by the existence of regulation, for two reasons: (1) The claim in Trinko was novel while the TelCo Act did not contemplate an expansion of antitrust liability, and (2) the presence of a regulatory structure designed to deter and remedy anti-competitive harm and the cost of false positives flowing from enforcing §2 counsel against expanding the reach of §2. Applying this test, the Ninth Circuit found that a price-squeeze claim is a traditional antitrust theory of liability going back to Alcoa (thus does not require an expansion of antitrust liability), and that the regulatory structure at work in the LinkLine case is not “designed to deter and remedy anti-competitive harm” of the price-squeeze kind, because the regulation operates only on wholesale level but not on the retail level. Here is a graphic summary of the argument:

While I am sympathetic to the Ninth Circuit’s argument, I doubt that the Supreme Court will buy it. It’s an antitrust commonplace these days that putting courts in the position of setting or approving prices is a bad idea. This will be grounds enough for the Supreme Court to further tighten the Trinko holding, I believe. The Court will hold that even incomplete regulation precludes antitrust liability and that it is the regulator’s duty to make sure that regulated wholesale price is low enough not to enable the vertically-integrated monopolist to use a price squeeze. This approach is problematic: The LinkLine case shows that price regulation at only the wholesale level provides an opportunity for the vertically-integrated monopolist to distort competition to the detriment of its competitors, whose costs it at least partially controls. That is not to say that I am entirely comfortable with a court imposing §2 liability here. I also would rather avoid thrusting the courts in a position of approving prices. But wouldn’t the threat of §2 liability, even imperfectly administered, have a salutary effect on the behavior of vertically-integrated monopolists?

The Price Squeeze. The second issue is the price squeeze. The theory flows from United States v. Aluminum Co. of America [Alcoa] (1945) and Town of Concord v. Boston Edison Co. (1990). Judge Learned Hand in Alcoa identified four elements of a price squeeze claim: (1) monopoly power; (2) the monopolist charges a wholesale price that is higher than a “fair price;” (3) the monopolist competes downstream (that is, is vertically-integrated); and (4) the monopolist’s downstream or retail price is so low that competitors cannot match it and still earn “a living profit.” Two things about this test are problematic. First, the thought that courts will need to adjudicate what a “fair” wholesale price is, and second that the Alcoa test is not connected to the question whether the monopolist has a duty to deal with its competitors. It seems obvious that, if the monopolist has no duty to deal at all with a (downstream) competitor, it cannot have a duty to deal at a particular price if it chooses to sell to the downstream competition. Charging “high” wholesale prices is economically equivalent to an outright refusal to deal, and it should not lead to liability absent a duty to deal at the wholesale level.

The duty to deal is also the point of departure for the DoJ in its brief favoring reversal of the Ninth Circuit: AT&T had no antitrust duty to deal with LinkLine. True, there was a regulatory duty to deal under the TelCo Act, but since that wasn’t an antitrust duty to deal, it should be ignored and the case decided as if there were no duty to deal at all, according to the DoJ. This line of reasoning has a certain logical elegance, and it builds on some previous cases (like Covad), but it isn’t satisfying. The TelCo Act, after all, created the system of ILECs and CLECs and duties to deal in order to create competition with the ILECs. If antitrust law (which the TelCo Act by its own terms did not impair or supersede) ignores the regulatory duty to deal, and the TelCo Act regulation doesn’t address the price squeeze because it reaches only the wholesale level, the public policy underlying the TelCo Act is undermined. The mandate that there be competition with the ILECs has lost its teeth.

The conclusion reached by the DoJ is that price squeezes, absent (antitrust) duty to deal at the wholesale level, can’t state a claim. (And it doesn’t help that the Ninth Circuit was unable to formulate a really practicable test for a price-squeeze claim, withdrawing instead to an intent requirement “so serve monopolistic purposes” drawn from the Ninth Circuit’s City of Anaheim decision.) According to the DoJ, price-squeeze theories boil down to a claim that retail pricing is so low as to harm competition. Antitrust liability for price squeezes is therefore justified only, according to the DoJ, if the Brooke Group standard for predatory pricing is met. This in effect abolishes the price squeeze as a theory of antitrust liability, because no additional elements of the squeeze are necessary if prices are below cost and there is a prospect of recoupment.

But I have my doubts that Brooke Group fits in these situations: on the one hand, the predatory-pricing test ignores the existence of a regulatory duty to deal (as I’ve discussed), since it only compares retail prices with some measure of cost of the monopolist—it is blind to the wholesale level. On the other, the Brooke Group standard, with its recoupment test, is particularly tough to meet. This toughness is generally justified because antitrust law should be wary of enforcing higher prices; low prices prima facie enhance consumer welfare. In other words, the risk of false positives is particularly high where liability is based on prices that are allegedly too low. The tough standard is much less justified if, as in the price-squeeze cases, the defendant monopolist controls the cost of a significant input of its competitors. In LinkLine, AT&T controls the price of DSL wholesale services, which we can assume will make up the largest item in LinkLine’s cost of delivering DSL retail services. This fact diminishes significantly the concern of false positives. A tough standard for predatory pricing is justified where there is a danger of protecting the less-efficient competitor. It is much less justified where it is in the power of the low-price vertically-integrated monopolist to raise the cost of its retail competitors.

Update: The American Antitrust Institute, a private think tank that filed an amicus brief in LinkLine,  has been given time at oral argument. It is highly unusual or even unprecedented for public-interest organizations to be given oral argument time in antitrust cases, although the state AGs have appeared in oral argument before (for example in State Oil v. Khan and Leegin). HT to the AT-CONVERSATION listserve.

The AP (via the Washington Post) reports:

The Justice Department approved a $52 billion beer buzz Friday, allowing Belgian-based InBev SA to buy out Anheuser-Busch and create the world’s largest brewer.

But InBev’s buzz comes with a slight hiccup: it must sell subsidiary Labatt USA before regulators let the merger go through.

That’s because Anheuser-Busch Cos. Inc. brews Budweiser and Bud Light compete directly with Labatt Blue and Labatt Blue Light in upstate New York. Without the sell-off condition, the Justice Department said beer prices would increase in metropolitan Buffalo, Rochester, N.Y., and Syracuse, N.Y.

DOJ has also issued a press release.

Three leading flat-screen producers — LG Display of South Korea, Sharp of Japan and Chunghwa Picture Tubes of Taiwan — pleaded guilty and agreed to pay a total of $585 million in criminal fines for their role in fixing the price of liquid-crystal display panels.

LG is paying the most: a $400 million fine, the second-highest criminal fine ever imposed by the Justice Department’s antitrust division. …

The settlement, legal experts say, is unlikely to be the end of the flat-panel case. Under the settlement, the three companies have agreed to cooperate with the Justice Department’s continuing investigation.  Thomas O. Barnett, assistant attorney general in charge of the department’s antitrust division, pointed out at a news conference on Wednesday that the American investigation involved the coordinated efforts of enforcement officials in Europe and Asia, as well as the United States.

Government investigations, legal specialists said, are under way in Europe, Japan and South Korea. In the United States, private class-action suits have already been filed seeking damages for companies that purchased flat-panel screens, and for consumers who bought flat-panel-equipped products.  Some of the private suits, if successful, could provide a way for consumers to benefit, though the compensation for any individual would probably be slight.

DOJ has also issued a press release and Thomas Barnett’s statement is also online.

the Department of Justice’s (DOJ) report on Section 2 of the Sherman Act, titled “Competition and Monopoly: Single-Firm Conduct under Section 2 of the Sherman Act.” 

Although the DOJ has stated that the Report reflects the substance of hearings on Section 2 that were conducted jointly with the Federal Trade Commission (FTC) throughout 2006, the FTC has refused to endorse the report. 

What is particularly attractive about this seminar is that two of the three panelists are Kenneth L. Glazer (Deputy Director, Bureau of Competition, Federal Trade Commission) and James J. O’Connell, Jr. (Deputy Assistant Attorney General, Antitrust Division, Department of Justice).  With luck, there will be fireworks.

The EU’s antitrust chief on Wednesday fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel.

France’s Compagnie de Saint-Gobain SA must pay 896 million euros ($1.14 billion) - more than any other company has been fined before.

The European Commission said the four companies control 90 percent of the glass used to make European cars, a market worth 2 billion euros in 2003.

EU Competition Commissioner Neelie Kroes said the companies fixed prices over a period of five years. She said the fines were high because European industry had to “learn the lessons the hard way.”

…

The EU said it increased Saint-Gobain’s fine by 60 percent because the company was a cartel repeat offender. It was fined last year for an EU-wide window glass cartel, following earlier fines for a Belgian flat glass cartel in 1988 and a similar cartel on the Italian market in 1984.

The statement of Neelie Kroes can be found here.

The real world, however, does not reflect this hopeful (or plainly ideological) Platonism. As Max Weber pointed out, economic institutions and the theories reflecting them, are largely the product of political history, religion, and geography. For example, French and to a somewhat lesser extent German competition law still clearly reflect the administrative tradition, which has a longer history in centralized France than in decentralized Germany, where an expert government bureaucracy ensures that capitalistic enterprise remains alinged with the public good. Given the a priori embeddedness of the market in the broader body politic, the market never comes into view as a fully separate, autonomous system. As a result, there is no real need for a theory of the market as a self-regulating and self-stabilizing process, which is the defining feature of the perfect competition model. The perfect competition model describes, above all, a stable dynamic, a process moving towards equilibrium without any outside intervention. It is the theoretical justification for laissez faire, for why governments can, in fact, afford to leave businesses (and, not coincidentally, the rich) alone. The perfect competition model is expressly designed to explain why ideal free markets simply cannot spiral out of control.

In France and Germany, the market has always been (at least in part) a tool to be deployed by the state in furtherance of public good (however determined). The market is not an end in itself, as it contains no universal truth about human affairs, or at least no truth that, normatively, the body politic should necessarily encourage or embrace. Rather, the ends of the market process are expressly defined in political, not economic terms, and they include competing values beyond productive efficiency, such as predictable growth, limited inflation, and full employment. (Obviously, having those goals is one thing, achieving them is quite a different matter.) Similarly, competition as a key ingredient of the market process is “managed competition,” as opposed to unlimited competition in a hypothetical natural state. The same is true for property in rivalrous goods, another necessary ingredient of the market process. Property in critical sociatal infrastructure such as transportation, energy, and telecommunication, has never been an entirely private affair, irrespective of who created, planned, or financed the infrastructure, which is reflected both in the constitutional definitions of property (e.g., in Germany) and, in practice, in the still significant state ownership of such industries.

In other words, economic institutions and the building blocks of economic theory reflect in significant part the political structure of the society of which the economic system is a part. In the history of philosophy, countless Platonisms have turned out to be little more than theoretical universalizations of unquestioned contingent beliefs. Antitrust economics would greatly benefit from a more explicit historic and comparative perspective. Competition law certainly has.

Google Inc. and Yahoo Inc. have scrapped their Internet advertising partnership, abandoning attempts to overcome the objections of antitrust regulators and customers who believed the alliance would give Google too much power over online commerce.

…

The Justice Department signaled it was considering a legal challenge to the deal in September when it hired veteran antitrust lawyer Sanford Litvack to review the case.

The Wall Street Journal reported Monday that Google and Yahoo had proposed restrictions on the deal — capping the amount of search ads Yahoo could outsource to Google — in a late bid to win favor. Google’s statement Wednesday indicated the idea didn’t fly.

[I]f you can take a number a statistics and you can either halve it or double it and it’s still shocking then you can use it.

The proposed merger between Verizon Wireless and rural carrier Alltel to create the nation’s largest wireless company moved a step closer to reality yesterday after the Justice Department signed off on the deal.

…

Public interest groups have criticized the plan to join Verizon, the nation’s second-largest carrier, and Alltel, the fifth-largest carrier, saying the unified company would stifle competition and consumers would be have fewer choices among cellphone network operators.  A combined Verizon-Alltel would create the largest wireless operator with 83.8 million subscribers. AT&T would be second with 74.9 million subscribers, followed by Sprint Nextel with 51 million and T-Mobile with 30.8 million.

…

To assuage those fears, the Justice Department is requiring Verizon to sell spectrum in 15 more areas than it had previously demanded. Verizon earlier had agreed to divest spectrum in 85 markets.

“The divestitures required are necessary to protect wireless customers and are among the most extensive required by the Department in a wireless case,” said Thomas O. Barnett, head of Justice’s antitrust division.

The Department of Justice’s press release can be found here and the [proposed] Modified Final Judgement can be found here (.pdf).

After a thorough, six-month investigation, during which the Division obtained extensive information from a wide range of market participants — including the companies, other airlines, corporate customers and travel agents — the Division has determined that the proposed merger between Delta and Northwest is likely to produce substantial and credible efficiencies that will benefit U.S. consumers and is not likely to substantially lessen competition.

p

The two airlines currently compete with a number of other legacy and low cost airlines in the provision of scheduled air passenger service on the vast majority of nonstop and connecting routes where they compete with each other. In addition, the merger likely will result in efficiencies such as cost savings in airport operations, information technology, supply chain economics, and fleet optimization that will benefit consumers. Consumers are also likely to benefit from improved service made possible by combining under single ownership the complementary aspects of the airlines’ networks.

Roughly speaking, there are four steps to every decision. First, you perceive a situation. Then you think of possible courses of action. Then you calculate which course is in your best interest. Then you take the action.

The owl of Minerva spreads its wings only with the falling of the dusk.

Modern antitrust law is global antitrust law. Driven by economic globalization and trade liberalization, antitrust laws have proliferated around the globe. At the same time, antitrust as a discipline has imported neoclassical price theory as its core analytical framework. The result is a vibrant, multi-faceted discipline, organized around a common core of analytical principles, yet reflective of the different cultural, political, and legal contexts in which government enforcement and litigation ultimately take place. In this course, we will focus on the common economic grammar of virtually all modern antitrust regimes as well as on their distinctive differences. Having a firm grasp of both is critical for building a modern, global antitrust case. Specifically, we will focus on:

• Cross-border mergers and joint ventures
• Monopolization and abuse of dominance
• Global cartels

Using recent cases as a basis for discussion, we will cover topics such as extraterritoriality (e.g., Empagran), institutional design (why does the U.S. have two agencies that enforce the antitrust laws, not to mention the States?), and the economics of mergers, exclusion, and innovation. We will focus specifically on the U.S., the European Union, and China. Many of our cases will involve high-technology firms that deal in tangible and intangible goods and services (e.g., Microsoft, Google, Oracle, Apple, etc.). Along the way, we will discuss legal and cultural aspects of globalization and various flavors of capitalism, and analyze the different functions that antitrust laws play in large (e.g., the U.S.) and small (e.g., Israel), rich and poor economies. The textbook for the course is: E. Elhauge & D. Geradin, Global Antitrust Law and Economics, Foundation Press (2007).

UPDATE (10/28/08): Here is a draft syllabus, which is still a work in progress. Any suggestions are welcome.

Last November, consortium members — 3M, France Telecom, Hewlett-Packard, LG Electronics, Motorola, ThingMagic and Zebra Technologies — formed a limited liability partnership to jointly license their RFID-related patents using “reasonable and nondiscriminatory terms,” the DOJ said. The companies requested the DOJ conduct a business review to determine that the partnership didn’t break any U.S. antitrust laws.

Under the consortium plan, an independent licensing agent will offer nonexclusive licenses to other companies interested in adopting RFID.

The patents address a UHF RFID standard endorsed in 2006 by the International Organization for Standardization (ISO). The so-called Generation-2 standard was originally created by EPCglobal, a private RFID standards group.

DOJ’s letter (with all 50 footnotes) is available online, as the press release.