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Christine A. Varney, the new head of the Department of Justice (DOJ) Antitrust Division, announced last week in speeches delivered to the Center for American Progress and United States Chamber of Commerce that the DOJ was withdrawing its September 2008 report relating to monopolization under the antitrust laws titled "Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act," effective immediately. Consumers, businesses, courts and antitrust practitioners can no longer rely on the 2008 report as the DOJ's antitrust enforcement policy.

The withdrawal signals the Obama administration's restoration of an aggressive enforcement policy against inappropriate conduct by dominant firms. In her remarks, Ms. Varney stated that "vigorous antitrust enforcement under Section 2 of the Sherman Act will be part of the division's critical contribution" to the government's "multi-faceted response to the current market conditions."

Section 2 of the Sherman Act and the 2008 Report
Section 2 of the Sherman Act prohibits a company from monopolizing, attempting to monopolize or conspiring to monopolize. It specifically targets single-firm conduct. Monopolization has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power, as distinguished from growth or development as a consequence of a superior product, business acumen or historic accident. While merely possessing monopoly power is not an antitrust violation, using predatory or exclusionary means to achieve or maintain that power is unlawful, as it harms competition and, ultimately, consumers.

The 2008 report, which was issued by the DOJ after a series of hearings held by the DOJ and the Federal Trade Commission (FTC), formalized a set of policies that had largely been followed by the DOJ, but not by the FTC, during the Bush administration. The 2008 report counseled in favor of a significant limitation of Section 2 enforcement because the DOJ was wary of chilling the aggressive actions that a company may take in order to win business. In a rare split with the DOJ, the FTC did not join or endorse the 2008 report. Indeed, three of the four FTC commissioners issued a statement that the 2008 report, if adopted by the courts, "would be a blueprint for radically weakened enforcement of Section 2 of the Sherman Act" and would "erect a multi-layered protective screen for firms with monopoly or near-monopoly power."

New DOJ Policy Announced

Ms. Varney stated in her remarks last week that the Bush administration policy, as reflected in the 2008 report, "lost sight of an ultimate goal of antitrust laws — the protection of consumer welfare." She rejected the concerns most often argued for caution in the area of Section 2 enforcement — the difficulties enforcers and courts have in distinguishing anticompetitive acts and lawful conduct and the risk that over-enforcement may lead to "over-deterrence" of potentially pro-competitive conduct. Ms. Varney stated that "antitrust enforcers are able to separate the wheat from the chaff in identifying exclusionary and predatory acts."
Reinvigorated Section 2 enforcement will require the DOJ to go back to basics and evaluate single-firm conduct against the tried and true standards set forth in older Section 2 cases. Ms. Varney specifically noted that the DOJ "will need to look closely both at the perceived pro-competitive and anticompetitive aspects of a dominant firm's conduct, weigh those factors, and determine whether on balance the net effect of this conduct harms competition and consumers."

While Ms. Varney did not identify any specific companies in her remarks, several industries may be vulnerable under the new policy, including banking, health care, energy, telecommunications and technologies. In addition, media reports point to agriculture and technology as industries that may face additional scrutiny. As to the effect of difficult economic times, Ms. Varney stated that the Obama administration would not ease antitrust enforcement as a result. She noted that "there is no adequate substitute for a competitive market, particularly during times of economic distress" and that "vigorous antitrust enforcement must play a significant role in the government's response to economic crises to ensure that markets remain competitive."

Potential Effects on Businesses as a Result of the Policy Change

The announcement signals a dramatic change in policy from the Bush-era DOJ, which did not bring a monopolization case under Section 2 during its last seven years. Indeed, DOJ is returning to a Clinton-era approach that led the government to sue Microsoft, contending that it used its dominant position to squelch competition.

The announcement essentially is an invitation to smaller companies to bring their complaints to the DOJ about potentially improper business practices by their large or dominant competitors. Some of the largest antitrust cases in United States history were initiated by complaints made to the DOJ.

The DOJ's position also more closely aligns U.S. antitrust enforcement with that of the European Commission, which fined Intel a record 1.06 billion Euros (approximately $1.45 million) last week over charges that the company unlawfully provided rebates and price reductions to PC manufacturers while pressuring them to avoid doing business with a smaller rival.

As the DOJ moves to a more aggressive position on single-firm conduct, the courts are likely to follow. To the extent a business enjoys a significant market position, it should review its actions internally to ensure that its continued success does not leave open an argument of predatory or exclusive practices. Better management, innovative ideas and savvy sales approaches can properly trump a competitor's efforts. Leveraging market position through exclusives, inappropriate discounting, cutting off inputs and the like have always been suspect, but now, again, will not be so readily dismissed.