Shifting the Burden of Proof in Competition Law

The House Committee on the Judiciary recently released a report on the state of competition in the digital marketplace. The report, which was the result of a 16-month-long investigation, describes itself as "an attack on how America has approached antitrust for the past 40 years."

The House Committee on the Judiciary recently released a report on the state of competition in the digital marketplace that was the result of a 16 month long investigation. The report describes itself as being “an attack on how America has approached antitrust for the past 40 years.” One of the recommendations in the report involves inverting the evidentiary burden of proof and shifting it away from the plaintiff to the defendant, particularly in civil mergers challenges.

Burden-shifting provisions that would require a company to prove it is not a monopoly would signify a return to the highly interventionist pre-1970s antitrust jurisprudence. Furthermore, many argue that shifting the burden to the defendant offends our sense of due process and fairness, and would diminish the role of the federal judiciary. 

In this episode, Ashley Baker lays out the current framework used in U.S. courts for meeting the burden of proof in competition law cases, the role of presumptions in antitrust litigation, and the implications of shifting the burden to the defendant. 

Featuring: 

• Ashley Baker, Director of Public Policy, Committee for Justice

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Podcast Transcript:

Automated:
elcome to the Regulatory Transparency Projects Fourth Branch Podcast series. All expressions of opinion are those of the speaker.

Nathan Kaczmarek:
Hello, this is Nate Kaczmarek, Vice President and Director of the Regulatory Transparency Project for the Federalist Society. Today we're pleased to have Ashley Baker with us. Ashley, how are you today?

Ashley Baker:
Hi. I'm great, Nate. How are you?

Nathan Kaczmarek:
I'm very good, and all the better for having you with us. Ashley, as most of you probably know, is the Director of Public Policy for the Committee for Justice where her focus areas include the Supreme Court, technology and regulatory policy, and judicial nominations. Her full bio is, of course, available at our website, regproject.org, that's regproject.org.

Nathan Kaczmarek:
Today, Ashley is here to explain some recent developments in the antitrust world, and we're grateful for that. Ashley, specifically, there's been a lot of talk around shifting the burden of proof in antitrust cases. Where has this been proposed recently? Give us the landscape. What are the proposals that people have set forth?

Ashley Baker:
Sure, and thank you for having me, Nate. Right now, one of the more, I would say, radical proposals out there regarding how we should or should not change our antitrust laws to adapt to the digital economy is a proposal to shift the burden of proof from the plaintiff to the defendants in antitrust cases, and specifically in civil merger challenges. So, the House Committee on the Judiciary, about a little over a month ago in early October, came out with this report. It was about 450 pages, and it had a whole host of recommendations in there, had many, many recommendations. It never really identified the problem, but it gave a lot of recommendations.

Ashley Baker:
One of the more, as I said, radical proposals that were in there was to shift the burden of proof away from the government or the plaintiff and to the defendant or lending company. This is something that also would affect a lot more than just the tech industry. This would affect mergers and acquisitions across the board. So this would be a really impactful proposal, both in its practical impact and just for our judicial system as a whole.

Nathan Kaczmarek:
I see. So we're talking about a discrete area of, I think it's over a 400-page report, but it's an important concept. Maybe you could just lay out at a basic level, before this proposal would go into place or before it'd be accepted by anyone, what is the current burden for the government and why is the current setup so important?

Ashley Baker:
Sure. So the government pending current framework as for the burden of proof as to who must prove the case, case law has held that under Section 7 of the Clayton Act that the government must, one, propose the proper relevant markets, that's market assession, and two, also show the effect of the merger in that market is likely to be anti-competitive or cause anti-competitive harm.

Ashley Baker:
So if the government can meet these two prongs, the burden then switches to the defendant to provide evidence that the case inaccurately predicts the transaction's probable effect on competition, or that the government does not accurately predict anti-competitive harm. However, there's one other way in which the defendant could rebut the case with evidence of pro-competitive efficiencies or synergies as they're called, it will create by the merger, and then the burden of proof then rests with the defendant to prove those pro-competitive justifications.

Ashley Baker:
And then after that, the burden once again shifts to the plaintiff and the government to show that these pro-competitive deficiencies could be reasonably achieved through anti-competitive means. But I'll point out that for that second pathway, only one defendant has ever successfully prevailed on an efficiency's events in a litigated case ever. So that's a path that's rarely explored, and that shows how hard it is when you shift the burden to the defendants as a whole.

Ashley Baker:
So under this current framework where the presumption really favors plaintiffs whenever the type of conduct at issue is likely to harm consumers and then when the type of conduct at issue is likely to have a beneficial or neutral effect on consumers, the presumptions favor defendants.

Ashley Baker:
So right now, we have a system that's working pretty well already. And in cases where the presumptions do favor the plaintiffs, for example, if there is conduct that is known to always, or almost always reduce market output or raise prices to consumers, the passing rule of illegality applies just like it would in any other case. These are in cases like price fixing and things other than just straight outright merger cases. So when you have that sort of behavior, it's not just weighing efficiencies, but in that scenario, the presumption does obviously favor the plaintiff in those types of cases.

Ashley Baker:
So the pros would essentially, I wouldn't say ban mergers, but effectively, it would make all mergers illegal. There would be a presumption of illegality and you would have to, as the defendant, prove that the merger is legal.

Nathan Kaczmarek:
From your perspective, it sounds like you indicated that the current framework works pretty well already. What is the reasoning behind this proposal? What is the desire by those who are putting it forward to change the framework? Why do they view it as advantageous?

Ashley Baker:
Well, to get at some of the root problems with the proposal first, I would point out that shifting the burden to the defendant does offend our basic sense of due process as Americans and the way that our justice system works now, and just the sense of fairness. It promotes the notion that all mergers are unlawful with no showing from the government at all places. And it puts the agency, the DOJ or the FTC, as a super regulator and that everything is already presumed illegal. You have to prove that it's not.

Ashley Baker:
A lot of this, though, it's based on this assumption that agencies are having a hard time proving they have a high burden to meet in the antitrust cases, which is a little bit ridiculous because agencies almost always win these mergers cases. I think you can see the [inaudible 00:06:56] cases of these types developed three times, at least three or four times in the past decade. So it's not that they are losing cases, and that's not really a nation problem. So that problem, it's hard to fix a problem that really doesn't exist. So that's one of the false premises that it rests on, that agencies cannot and do not win in court, but that's obviously false. They have proper authority to bring cases. They do bring cases and win those cases most of the time.

Nathan Kaczmarek:
So this would in fact, then give them an even greater advantage than they, at least from your perspective, a greater advantage than they already enjoy.

Ashley Baker:
Yes, a greater advantage than they already enjoy. And also agencies already have the benefit of having a rebuttable presumption of you illegality for horizontal mergers resulting in a firm from having more than a 30% market share under a case on Philadelphia National Bank, the PNB presumption is, some refer to a Oak Lilly. So there's already in a lot of cases, a presumption of illegality for horizontal mergers, at least.

Ashley Baker:
The broader implications of this I think are really largely, it can stifle innovation obviously, and as it would, the incorporations are dis-incentivised to merge for fear they might not be able to, down the road, prove that there are competitive efficiencies to their merger, to the satisfaction of the court. So these are things that are going through the heads of people who are running these businesses as they're making these decisions. So it affects decision making on a day-to-day level that would definitely have a trilling effect. And it would also really eliminate the need for the enforcement agency to precisely measure or even allege into competitive effects because the burden is on the defendant to do exactly the opposite. So what is the agency measuring? It has a lot of practical consequences there as well.

Nathan Kaczmarek:
I see. And I guess from the agency's perspective, they would be gaining a greater advantage and maybe pushing out some of the court's impact or role in these sorts of cases. Is that fair?

Ashley Baker:
Right, it does diminish the role of the judiciary, absolutely, you're right.

Ashley Baker:
And one other fault premise that this relies on the report as a whole relies on to. It acts as if there's been this huge mergers and acquisitions buying spree in the tech industry. Sure, there are a fair number of MNAs in the industry, and that is how the industry functions, how our startup economy functions when these businesses are started and then they're acquired by a larger company or they merge, a lot of them start for that reason, but even looking at the data and the reports, the majority of staff points out that since 1998, the four digital platforms that were examined in the report were able to require more than 500 other companies. But if you really do the math and break that down, then this is only an average of less than six mergers or acquisitions per company per year. So this is hardly a big buying spree that's going on here.

Ashley Baker:
So there's faulty data there. There's also just as I said, the fundamental problem of switching the burden of proof. And surprisingly so, after the report came out or as the report came out, there was a secondary report led by representative Bob, three other congressmen signed onto, and it was from the minority members, it was from the Republican, they were all four Republican members. And the first area of overlap between his report in Siciliny's report, which she says, yes, we absolutely agree with the majority is on burdens thing, which is not something that I think would sell very well as conservatives, or certainly shouldn't given what it does to our sense of due process and fairness in our judicial system.

Nathan Kaczmarek:
Interesting. And are there insights from Buck's report, are there specific reasons why he and others indicated that they feel like this is a supportable element of the majority report?

Ashley Baker:
So one of the major rationale is that there's third way report, which is what Buck's report is called. Gibbs, he says, of course, many of these deals were either pro-competitive or competitively benign. But the important point here is that we have no real way of knowing what their competitive effect was because they were not reviewed by the antitrust cops. I point out though that however, under current antitrust law, enforcers to have plenty of adequate power to intervene in mergers and acquisitions. And as I said, that TCL and DOV have only lost a handful of cases in the past decade. We have the fact that private litigants tOo continue to bring monopolization claims. And then outside the courtroom as well, you have plenty of mergers and acquisitions that are prevented out of fear of government action. They never take place. So obviously you don't have data on that.

Ashley Baker:
One alternative to shifting the burden, they could give the agencies more funding to pursue these cases. To pursue legitimate cases, I don't see that as necessarily being problematic, and a more sensible way to go about doing this, but this would be really a big upheaval of how our current framework works. Although it doesn't say this explicitly, and it's never explicitly acknowledged, this is an in run around work, consumer welfare standard. It takes those principles behind the consumer welfare standard and really turns them over owner head when it comes to litigation. And that's something that I think that has not really been realized yet.

Nathan Kaczmarek:
I see. That's very interesting. And you suggested alternatives. Are there any other alternatives, at least at this point that come to mind that would be more prudent from, as you say, from the conservative perspective to follow, rather than this burden shifting process?

Ashley Baker:
Aside from, like I just mentioned, they could allocate more funds to DOJ or FTC to pursue these types of cases. And our current system is working perfectly well. So it's really a solution in search of a problem. It's really silly to suggest that the government is having problems winning cases.

Nathan Kaczmarek:
Got it. Well understood. And in terms of other thoughts or reflections about this topic and area, is there anything else that... I think you've really covered the landscape and where things are at currently, are there other things you'd like to share with our audience before we conclude?

Ashley Baker:
Well, I couldn't cover all that's in the report if you gave me an hour or five hours. This kind of in a narrow combines this topic. I think that this sort of proposal, it would shut us back to the pre 1970s world of antitrust litigation. You have great quote from and justice Potter Stewart in a case in which she says, "The only certainty in antitrust litigation is that the government always wins. And knowing the [inaudible 00:14:37] wins most of the time, but we were certainly be going back to an era where the government does when all cases all the time."

Ashley Baker:
I would say that this specific proposal, it is one of the more radical ones. And it is one of the ones I think is lacking more in popular support. And I don't know if the members of Congress don't necessarily realize that yet, and it shouldn't be lacking in popular support for obvious reasons, notion of fairness, and just seeing broad overlay of industries that this would affect. This will go far beyond tech. It's not as if all in many cases are from the tech industry either. So you would see this in lots of other industries as well. So I would just emphasize how broad-reaching this really is and how broad-reaching some of the proposals in the report as a whole are as well. This is really not just about tech news, antitrust proposals really affect all sectors.

Nathan Kaczmarek:
Yeah, I think that's really the case. And I think you've done a really good job of helping our audience to understand this concept here. And certainly there'll be more discussion to be had later, but for now, Ashley, thank you very much for joining us. We look forward to our next opportunity to talk.

Ashley Baker:
Thank you.

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