Today, the California Law Revision Commission (CLRC) will begin a series of meetings to explore potential changes to antitrust law. A few weeks ago, we discussed how moving away from California’s current antitrust framework threatens the state’s innovation economy. Today, our topic is one of seven specific areas of antitrust law that the CLRC is considering revising: single-firm conduct, or conduct that a company takes by itself to grow market power. 

To prepare for its meeting on single-firm conduct, the CLRC commissioned a working group report that recommends possible legislative changes. The report wisely advises against the speculative prohibitions that are gaining traction worldwide. However, its suggested changes would still undermine the evidence-based antitrust approach that has protected competition and consumers for decades.

The report acknowledges that antitrust evaluations are hard, and searching for quick anticompetitive “tells” is a dangerous way to judge businesses.

Evaluating anticompetitive conduct “involves a potentially difficult balancing of benefits and harms,” the report’s authors explain. 

— Antitrust law must identify and stop anticompetitive conduct without suppressing normal competitive practices. For example, the law does not punish a business practice that weakens competitors if it makes offsetting contributions to lower prices, greater choice, or better quality—because that practice on the whole benefits a healthy, competitive market. 

— These situations where courts have to weigh benefits and harms are not uncommon. Courts can “find conduct that both weakens the competitive discipline of rivals and is reasonably necessary to provide benefits to trading partners,” the report’s authors write. “These issues are inherently complex, in part because there are many forms of anticompetitive and procompetitive conduct and many distinct market settings in which they arise.”

Federal and California law ensures judges strike this balance by using a rigorous, evidence-based approach. 

— Using what is called an “ex-post” approach, a judge decides on legality only after the facts of the case are available, and he or she has enough information to weigh the positive and negative effects of the practice. This process is known as the “rule of reason.” 

— This approach ensures that unclear evidence or unwarranted assumptions do not lead to inappropriate antitrust actions that harm competition and consumers, University of Southern California antitrust expert Jonathan Barnett explains in his study for the CLRC.

— Another benefit of the rule of reason framework is that only relevant issues are taken into account. The report’s authors explain: “[B]roader social and political goals are not directly considered when individual antitrust cases are adjudicated” and instead addressed “much more directly” in other policy areas. This means that judges can focus on making their best possible assessment of anticompetitive conduct without adding additional considerations to an already difficult job.

New antitrust frameworks are far less rigorous and could harm consumers and workers, the report finds.

The alternative antitrust framework used in Europe replaces the rule of reason with an approach that prohibits conduct without any showing of harm. 

— Without the evidence required to make a thorough assessment, this “ex-ante” approach risks banning practices too broadly to the ultimate detriment of competition. It “could end up prohibiting procompetitive conduct when applied in the wrong context,” Evalusion’s Kay Jebelli warns. 

— Some of these ex-ante laws single out characteristics like company size—and do not allow enforcers to consider the offsetting beneficial effects scale can provide, like lower prices. 

— These laws stop looking out for the everyday people whom antitrust laws and the economy should help. Writing about a European-style antitrust bill in New York, the authors state: “These provisions seem intended to protect competing businesses, even at the expense of consumers and workers. We therefore do not believe that the New York bill provides a good model for California.”

Though the report warns against the new antitrust approach, its own suggested antitrust changes still leave competition and consumers worse off.

The report’s proposals would defeat the purpose of the evidence-based approach its authors defend.

— Even though the report’s authors express opposition to ex-ante laws, they suggest that California adopt a watered-down version, where the legislature instructs judges to watch for several single-firm practices that “can be anticompetitive, depending on the circumstances.” They also muse that “the California Legislature could instruct the courts to err on the side of enforcement when the effect of the conduct at issue on competition is uncertain.”

— If the effect of a practice is uncertain, this is all the more reason for courts to apply a rule of reason analysis that focuses on the facts in the particular case. Pointing enforcers and judges to look for certain behaviors that aren’t per se illegal risks drawing focus away from the effect of the conduct: does it actually harm competition?

— Current antitrust law increases the probability of appropriate action by allowing judges to carefully consider evidence and follow the facts. Inserting legislative suggestions into the law would make reaching correct antitrust judgements harder, not easier. It would push judges to take action even when the evidence does not warrant it and weigh legislative “suggestions” over hard facts. 

— “Creating a rigid statute mandating consideration of certain factors… undercuts the adaptability of antitrust doctrine and, just as worryingly, removes fact-specific decision-making authority from judges and adjudicators best equipped to weigh competing interests. Over-prescription is poor medicine, particularly for a doctrine that does not need to be cured,” Beatriz Mejia, Dee Bansal, and Alexander Kasner write about a similar proposal in the journal “Competition.”

The best way to support pro-competition, pro-consumer outcomes is to continue the approach that courts have honed for decades.

Courts have developed a system to apply antitrust law to tech practices.

— In his study of antitrust law, Jonathan Barnett notes that it is “puzzling” to say that the realities of the tech age require a solution outside of the current antitrust framework, because previous cases have already found one. He explains: “While adapted for the digital context, [the] template [courts have developed] represents an extension of the fact-intensive, case-specific analysis that [Supreme Court Justice Louis] Brandeis had pioneered almost a century earlier.” 

— A CCIA white paper breaks down how courts have successfully used the ex-post antitrust framework. They 1) applied the test for illegal monopolization, 2) determined a methodological way to identify anticompetitive conduct, 3) employed the rule of reason balancing analysis, and 4) decided whether illegal monopolization had harmed competitors with “no procompetitive justification.”