After Trinko: Could a Little Regulation be a Dangerous Thing? Howard Shelanski U.C. Berkeley Conference: “The Enduring Lessons of the Breakup of AT&T: A Twenty-Five Year Retrospective,” University of Pennsylvania Law School, April 18, 2008

Three Interpretations of Trinko Trinko can be interpreted in a number of ways, depending on whether one reads the case narrowly or broadly. I will discuss 3 possible readings and their implications: Trinko as barrier to expansion of antitrust law by regulatory statutes Trinko as presumption against “strong” application of antitrust in regulated industries Trinko as presumption against any antitrust enforcement in regulated industries

Trinko as Barrier to Regulatory Expansion of Antitrust Law A narrow reading of Trinko is that regulatory statutes cannot, without express provision by Congress, broaden the scope of conduct for which antitrust imposes liability. Antitrust imposes no duty to deal with competitors except as in Aspen, so plaintiff, stating no Aspen claim, cannot use the 1996 telecom Act’s mandatory duties to deal as grounds for liability against defendant under Section 2 of the Sherman Act. This seems perfectly sound. Congress should not be deemed in one statute to unwittingly or implicitly alter the scope of other statutes.

Cont’d But, this narrow reading is hard to square with other parts of the Court’s opinion. The Court goes on to say more about the way that antitrust should apply in regulated industries.

Trinko as Limiting “Strong” Antitrust Enforcement in Regulated Industries The Court notes that antitrust must consider the particular circumstances of an industry, and states that regulation is an important factor in that consideration. This could mean only that courts should be especially wary of “undue expansion” of liability where there is regulation that affects competition in an industry. So interpreted, the Court is saying that regulated industries are not the place to add to the scope of conduct for which antitrust will impose liability. So in this case, regulation means that there should be a presumption against adding to the “few existing exceptions from the proposition that there is no duty to aid competitors.”

Cont’d This interpretation limits the use of cases in regulated industries to move antitrust in a particular pro-enforcement direction; i.e. as settings for “strong” antitrust enforcement that goes beyond the established scope of liability existing at the time of the case. The implication, however, would be that courts can still apply antitrust to its full, pre-existing extent. This would mean in this case that, had antitrust law already recognized broader duties to deal with rivals, courts should recognize those duties even if plaintiff’s claim were “at or near the outer boundary” of liability. Just as regulation shouldn’t add to antitrust law, it shouldn’t contract it either. This is consistent with the text of the 1996 Act’s antitrust savings clause.

Trinko as Strongly Limiting Antitrust Enforcement in Regulated Industries Under this interpretation, Trinko imposes a general presumption that courts should be particularly modest in their application of antitrust law in regulated industries. Not only should courts refrain from adding to antitrust liability, but they should presume against separate antitrust liability in regulated industries.

Cont’d The implication is that antitrust plaintiffs should know going into a case involving a regulated industry that their burden will be especially high. The Court’s discussion of the costs of section 2 enforcement suggests that, in rule-of-reason balancing, the fact of regulation should lead courts to emphasize the costs and discount the marginal benefits of antitrust enforcement, thus potentially leading to a decision against liability for the same conduct that might have led to liability in a non-regulated context.

Which Interpretation is Right? The narrowest interpretation, Trinko as barrier to regulatory expansion of antitrust law, is a key part of the story but the opinion clearly goes further. The choice is really between interpretations 2 and 3: Trinko as barrier to strong antitrust claims, or as strong barrier to any antitrust claims, in regulated industries. The opinion is ambiguous, but to my reading tilts toward the broader interpretation: in the regulated industry context, courts should presume not only against extending the scope of antitrust liability, but against applying antitrust as already clearly established because of the cost/benefit balance of section 2 enforcement.

Implications for Antitrust Enforcement Generally Rule-of-reason cases usually focus more on the costs and benefits of the conduct at issue than those of enforcement. Trinko moves enforcement costs to center stage, at least in regulated industries. But the Court says nothing about the costs of regulation. Why should antitrust’s costs cause it to retreat in regulated industries, without balancing the costs of antitrust against the costs of regulation? The Court is more expressly and generally concerned with the costs of antitrust than in past cases; see its discussion of false positives. While antitrust cases have long cautioned against barring conduct we don’t understand, Trinko moves in a more expressly skeptical direction. Opinions may differ on whether these observations are accurate or reveal good or bad developments. A topic for future discussion.

Trinko and Antitrust in Regulated Industries: Open Questions When is an industry sufficiently regulated to trigger Trinko’s presumption against antitrust enforcement? The Court cites precedent involving “pervasive” regulation But the Court also refers more generally to the mere existence of regulation as relevant

Cont’d A fair reading of the opinion suggests the Court’s presumption should apply only when a particular kind of regulation exists: “One factor of particular importance is the existence of a regulatory structure designed to deter and remedy anticompetitive harm.” There must be something “built into the regulatory scheme which performs the antitrust function” (quoting Silver).

Open questions, cont’d Does the competition-focused regulation have to be actively enforced, or is its mere existence on the books sufficient? This is a key question, perhaps the key question, after Trinko. If a presumption against antitrust can apply absent active enforcement of a regulatory statute that ostensibly “performs the antitrust function,” then a little regulation could be a dangerous thing for competition enforcement in regulated industries.

Open questions, cont’d The opinion suggests that the Court found it relevant that the FCC was actively enforcing the statute, citing examples of the FCC’s section 271 proceedings and enforcement of ILEC unbundling obligations. But the Court also talks about the statute’s pro-competition provisions as being “enforceable” as opposed to actually “enforced”, so there may be an open question here. Moreover, suppose an agency does not issue regulations to implement a competition-focused statute. Should Trinko’s presumption still apply or should some reasoned agency decision (either to regulate or not) be required?

Implications for Antitrust in Regulated Industries My interpretation of Trinko so far is that it creates a presumption against antitrust enforcement in regulated industries, even for conduct that would trigger liability in the non-regulated context, where: the regulatory statute addresses the competition concerns of antitrust, and, the statute provides for continuing oversight and enforceability by the authorizing agency.

Implications, cont’d The implications for actual cases will depend on how broadly courts choose to enforce the presumption under these conditions. Should Trinko apply: Where the statute is merely authorizing as opposed to mandating competition enforcement? Where the agency is passive versus aggressive in pursuing its mandate or exercising its authority? Where the statute establishes competition standards or requirements that are weaker than those of antitrust? The Court is silent on the above questions, leaving a zone of discretion for lower courts that could result in more or less restrictive consequences for antitrust enforcement in regulated industries. Look for further development through case law. Credit Suisse (2007) suggests the Supreme Court will take a broad view of the preclusive effects of regulatory statutes on antitrust.

Conclusions Trinko goes further in restricting antitrust in regulated industries than previous cases did and establishes a fairly broad presumption against enforcement, but without altogether closing the door. There are enough open questions about when Trinko’s presumption applies to leave courts some discretion. The case raises some risk that merely nominal regulation could displace antitrust enforcement in regulated industries, but language of opinion hints otherwise. Whether a little regulation could be a dangerous thing for antitrust will depend on lower court interpretations of Trinko and related cases like Credit Suisse. Congress, courts, and agencies should pay attention to ensure a good balance between antitrust and regulation.