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Federally Speaking* by Barry J. Lipson (#57)

Number 57

Welcome to the 57
th
and first issue of the second series of the Federally Speaking Editorial Column, that has appeared since
2001 on http://www.pawd.uscourts.gov/Pages/federallyspeaking.htm, the website of the United States District Court for the
Western District of Pennsylvania (WDPA). New issues starting with #56 (and older ones, too) now appear at:
http://sites.google.com/site/federallyspeaking/Home. From our enriched masthead you can see we are now on the Gold
Standard. Federally Speaking, which is presented for ALL interested in the Federal Scene, was originally compiled for the
members of the Western Pennsylvania Chapter of the Federal Bar Association and all FBA members, and published in the
Lawyers J ournal, the Journal of the Alleghany County Bar Association (ACBA). Its current purpose is to examine, explore and
delve into major Federal trends and significant Federal happenings; give a heads ups on Federal actions and inactions of note;
and/or pursue other Federal legal and related occurrences of note. I ts threefold objective is to educate, to provoke thought, and
to entertain. As always, we dedicate this issue to our Constitution and our Bill of Rights, may they now and forever more
continue to guide and protect us.

LIBERTYS CORNER
Too Big To Be? An Antitrust Quandary.
To be big, or not to be big: that is the quandary:
Whether 'tis nobler to minify, or to suffer
The slings and arrows of outmoded fortunes,
Or to take arms against a sea of gargantuan troubles,
And by opposing end them?
That in a Shakespearean nutshell is the Antitrust Quandary, if a company is Too Big To Fail, should it be
permitted to exist at all? Under the Free Enterprise System a company has the right to fail, indeed, the
duty to die if it cannot compete or function in the marketplace on its own, but it does not have the right to
survive if it cannot compete or function in the marketplace on its own. Survival must be earned by
successfully competing in the marketplace. If a company cannot fail, be it big or small, there is no Free
Enterprise System. Thus, as European born Harvard Economist Joseph Schumpeter (1883-1950) explained,
in the free enterprise system there are always winners and losers, no one is permanently on top. Be it the
world of the job shop or of the mega-company, under the free enterprise system everyone has the "right to
fail."

Historical Prospective

From 1945 to the 1970s it seemed to be accepted Antitrust Policy that Bigness Is Badness. This
pinnacled in 1945 with U.S. v. Aluminum Co. of America (ALCOA), 148 F.2d 416 (2d Cir. 1945), when
the Court held that ALCOA was guilty of "monopolization," in violation of 2 of the Sherman Antitrust
Act, because ALCOA "effectively anticipated and forestalled all competition." And was again confirmed in
1962 when in Brown Shoe Co. v. United States, 370 U.S. 294 (1962), the U.S. Supreme Court stopped the
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Brown and Kinney merger because the Court concluded that it may tend to lessen competition substantially
in the retail sale of men's, women's, and children's shoes in the overwhelming majority of those cities and
their environs in which both Brown and Kinney sell through owned or controlled outlets.

Also in the 1960s the seeds of the University of Chicago School of Conservative Antitrust Economics (the
Chicago School) were being planted, bearing fruit in 1981 with the election of, enter stage right, Ronald
Reagan, and his Attorney General, William French Smith, who proclaimed that: "Bigness Is Not
Necessarily Badness," and thus heralding in the over quarter-century reign of the Chicago School, which
would certainly oppose the reining in of companies too big to fail. This culminated in the immediate
prior Administration primarily shunning Antitrust enforcement, except perhaps in the most basic area of
simplest horizontal price fixing.

Chicago School

Enter stage left, Senator Barack Obama, a University of Chicago Law School Constitutional Law
Professor/Senior Lecturer himself ("Senior Lecturers are considered to be members of the Law School
faculty and are regarded as professors), raining on the Chicago Schools parade by spotlighting the then
current Administration having regrettably what may be the weakest record of antitrust enforcement of
any Administration in the last half century, with not even having brought a single monopolization
case(Antitrust Statement, American Antitrust Institute, September 27, 2007).

Former FTC Chair and Professor Bob Pitofsky of Georgetown Law School, does not mourn the end of the
reign of the Chicago School, but may well be envisioning a bright new morn because of its fall. He faults
the Chicago School with "overshooting the mark" by relying on the free market to regulate itself, thus
resulting in an enforcement approach that ignores numerous practices that are traditionally considered
anticompetitive causing higher prices, lower quality, diminished innovation, and, arguably, our current
economic problems, all to the disadvantage of competition and the consumer. See Pitofsky, How the
Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust
(Georgetown 2008). Some would say Attorney General Smith and the Chicago School started us down the
slippery slope sliding right into todays sea of gargantuan troubles.

One of these soothsayers, Robert B. Reich, is currently Professor of Public Policy at the Goldman School
of Public Policy at the University of California at Berkeley, and formally Secretary of Labor during the
Clinton Administration (D), Director of the Policy Planning Staff of the Federal Trade Commission (FTC)
during the Carter Administration (D), Assistant to the Solicitor General, Department of Justice (DOJ),
during the Ford administration (R), and Faculty Member, Harvard University Kennedy School of
Government.

Professor, Secretary, FTC Policy Planner, DOJ Attorney Reich should certainly have some inkling of the
bigness and badness quandaries of Antirust Policy. He does and sees it this way:

We used to have public policies to prevent companies from getting too big. Does anyone remember
antitrust laws? They were used on behemoths like the Standard Oil Trust at the start of the last
century, and subsequently AT&T. They broke up giant concentrations of economic and political
power. We seem to have forgotten that the original purpose of antitrust was also to prevent
companies from becoming too powerful -- not just in the narrow sense of keeping consumer prices
too high, but too powerful in a larger sense. Too powerful in that so many other companies depended
on them, so many jobs turned on them, and so many consumers or investors or depositors needed
them --, that the economy as a whole would be endangered if they failed. Too powerful in that they
could wield inordinate political influence --, of a sort that might gain them extra favors from
Washington. Pardon me for asking, but if a company is too big to fail, maybe --, just maybe--, its too
big, period.


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Post-Chicago School

How will the reining in of the Chicago School occur? President Obama has pledged to take seriously our
responsibilities to enforce the antitrust laws so that all Americans benefit from a growing and healthy
competitive free-market economy (ALI Antitrust Statement, supra.). Accordingly, he has elevated FTC
Commissioner Jon Leibowitz, formerly the Democratic Chief Counsel and Staff Director of the U.S. Senate
Antitrust Subcommittee, to FTC Chair. At least one FTC practitioner anticipates "an increasingly
aggressive FTC as Leibowitz aggressive stance has led many insiders to anticipate that a Leibowitz-
headed FTC will be a more aggressive FTC, pushing for more regulation and stiffer monetary payments for
offenders" (The Lustigman Firm Blog, March 2, 2009). And as to bigness and badness, Leibowitz
observed on January 12, 2009, at NYU Law School's Public Interest Forum, the Chicago School made "too
much defense of large dominant corporations, which is probably where we are now."

Then too, President Obama has nominated Christine Varney as Assistant Attorney General in Charge of the
Antitrust Division, who pledged, at her March 10, 2009 Senate Confirmation Hearing, "robust" and
"strong antitrust enforcement and respect for our competition statutes [which] are the primary safeguard of
our distinctive free enterprise system.... In these tough economic times, more than ever, it is important to
remember that clear and consistent antitrust enforcement - protecting competition and thus consumers
while being conscious of the need for economic stability - is essential to a growing and healthy free market
economy.... I will work diligently and act decisively to thwart those who would reduce competition and
harm American consumers.

Enforcement Cooperation

But during the immediate prior Administration there appears to have been a breakdown in cooperation
between the Department of Justices Antitrust Division and the FTC. For example, after joint DOJ/FTC
hearings, the DOJ on September 8. 2008 unilaterally issued its Monopolization Report entitled:
Competition And Monopoly: Single-Firm Conduct Under Section 2 Of The Sherman Act. The same
day, FTC Commissioners Leibowitz (now the new FTC Chair), Harbour and Rosch shot back, claiming the
DOJ "overstates the level of legal, economic, and academic consensus regarding Section 2" and expressing
their strong dissent to the DOJ's anti-consumer, pro-business stance whereby the DOJ shows that it "is
chiefly concerned with firms that enjoy monopoly power or near-monopoly power, and prescribes a legal
regime that places these firms' interests ahead of the interests of consumers," resulting in the DOJ
"adopt[ing] law enforcement standards that would make it nearly impossible to prosecute a case under
Section 2 of the Sherman Act." Even the then Republican FTC Chair Kovacic postulated that the DOJ
concern "that U.S. antitrust doctrine and policy today expose dominant firms to significant, systematic risks
attributable to over-inclusive liability rules" may be misplaced.

And after such history will these two Antitrust enforcement agencies be able to overcome the failures of
"collaboration between the Antitrust Division and the FTC, whose policies and processes have
unfortunately diverged too frequently in recent years?" As Christine Varney pointed out at her
Confirmation Hearing, "we need renewed collaboration.... Policy disputes and jurisdictional squabbles
between agencies with overlapping enforcement mandates lead to uncertainty for consumers, business, and
for overseas' antitrust enforcers who look to the US for consistent guidance.... I will approach the
challenges we face from my unique vantage point as a former FTC Commissioner, which I believe will
help me to bridge the gap that exists between the antitrust enforcement agencies on several crucial
substantive and procedural issues." With new FTC Chair Leibowitz having attended her Confirmation
Hearing, after acknowledging at NYU earlier in 2009 that even under the prior Administration the FTC has
been very aggressive on Antitrust cases, and with what will be the Antitrust Divisions re-commitment to
Antitrust enforcement under Obama and Varney, the prognosis looks good.

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And what of International Cooperation? One of the main areas Varney stressed at her Confirmation
Hearing was that we must continue our cooperation with worldwide antitrust authorities, discussing our
differences with international enforcers respectfully and engaging with emerging antitrust regimes such as
China and India as they implement new antitrust laws.

Sub-Prime America

As was discussed in Federally Speaking No. 56 under Corporate Responsibility Musings, we do not in
reality embrace the pre-revolutionary concept of democracy, which was then defined as rule by the
mob; we do endorse, export and strive to embrace American Democracy, which is Rule by the Majority
with due regard to the Minority at least thats what we have been taught in School. Likewise, we do not
endorse laissez faire capitalism (from the French to leave alone); which doctrine in its purest form
excludes government from interfering in anyway with the free market.

The Chicago School tends to advocate the shunning of Antitrust enforcement in favor of laissez faire
capitalism. But Enterprises must, while certainly working to earn exemplary returns for their
shareholders/investors, operate with due regard to the society/public that gives them life(corporations are
merely artificial entities), their employees who enable them to live and earn, and their
customers/consumers/clients who are their life blood. Thus, the necessity of governmental supervision,
with adherence to the Rules of the Game to assure that our free market does not become sub-prime.

You want proof? It is observable in our sub-prime (certainly far below optimal) present woeful economy,
the culmination of years of no regulation, de-regulation, elevation of Chicago School thinking and the
shunning of Antitrust enforcement, as reported daily in the news. See, for example, the effects of
unregulated speculation on oil and gas prices; the effects of deregulation on the quality, quantity, price and
scope of air service; and the effects of the laissez faireregulation of sub-prime lending (which refers
substantially to the practice of making loans to sub-par borrowers on sub-standard collateral, with the
intention of selling them off to sub-intelligent third parties, and with the hope that they will not come
back to bite you in your subterraneous regions).

It is observable in the paying of unjustifiable, and indeed outrageous, salaries, bonuses and creative
compensation packages to insiders and other good old boys. Indeed, can any one employed by a public
company, whether for profit or not for profit, truly be worth, or justify earning, a total annual
compensation of say $646 million (a real earnings figure)? Couldnt the company buy the same services
for $500 million, $100 million, $50 million, or even $10 million or less? (Federally Speaking No. 56,
supra).

And what about paying such windfalls to persons who caused the problems in the first place, who sold
financial products they did not fully understand; or doling out such uber-prime gravy payments while the
company is being bailed out by the taxpayers, while it is asking others for concessions or withholding
dividends, while the company is in trouble, while it has negative earnings, while the prices being charged
to the public are going through the roof, and/or while justified claims against it are being vigorously denied
or contested (Federally Speaking No. 56, supra)? Permitting such most certainly gives rise to a Sub-
Prime America, which was not acceptable to our founding fathers, and is not now acceptable to us.

The Real America and Antitrust

Well over a decade ago, in CorplawCommentaries, your columnist cautioned that the Antitrust laws are
of continuing serious concern to all persons engaged in business, whether they be engaged in small or large
businesses, whether they be corporations, partnerships, joint ventures or sole proprietorships. The
Antitrust laws were compared to the Marquis of Queensbury Rules, or playing the game According to
Hoyle, explaining that the purposes and objectives of these laws are to preserve, protect, and facilitate the
operation of our free enterprise system by providing the Rules of the Game or necessary checks and
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balances for the business community, and protecting and benefiting consumers (Lipson, Corplaw
Commentaries No. 28, Antitrust Lives!!! Advice For Potential Defendants And Plaintiffs, 1996).

The year 1776, the year of our Declaration of Independence, was when Adam Smith wisely warned in
his Wealth of a Nation that: People of the same trade seldom meet together, even for merriment and
diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise
prices. Hence, as should be clear from above, the real America necessitates governmental supervision.
This basically takes one of two forms, either:

a) Regulation by the Antitrust Laws:
Being regulated by the Antitrust Laws, which are the Rules of the Game with regard to private
enterprises, where the company sets its own prices and practices, so long as it does not do so in concert
with any other industry members or otherwise contravene public policies, and earns or suffers losses based
on market factors and its ability to compete; or

b) Becoming a Regulated I ndustry:
Where a company is regulated as part of a regulated industry and its individual or industry prices and
practices set/approved by the regulatory authority (with a fair return normally built into the regulatory
scheme).

But be cautious! Society (or the industry desiring to be regulated, by petition to the government) must
make this choice; the enterprises involved must strictly abide by the rules governing this choice; and the
regulators themselves must resist the clouding of their efforts because of the hope of future employment
within the industry being regulated. Deregulation of industries that apparently in the public good should be
regulated, such as airlines because of the public interest and need to affordably service all areas of the
Country, appears to have been disastrous as prices rise and service deteriorates. A company or industry can
not have the benefits of both or avoid the responsibilities and liabilities of the choice applicable to it. See
Federally Speaking No. 56, supra.

Please remember in the real America: Strong antitrust enforcement and respect for
our competition statutes are the primary safeguard of our distinctive free enterprise
system (Varney, supra.).

To Be Not Too Big! An Antitrust Quelling.
To be, but not to be too big: that is the quelling!
I ndeed 'tis nobler to minify, and suffer not
The slings and arrows of outmoded fortunes,
To take arms against a sea of gargantuan troubles,
And by opposing end them!!!


You may contact columnist Barry J . Lipson, Esq., former FBA Third Circuit Vice President, at CorpLawCenter,
by E-Mail ( bjlipson@gmail.com ) . The views expressed are those of the persons they are attributed to and are not
necessarily the views of the author or any other person or entity, and in many instances are to provoke thought.
This Column is dedicated to the preservation of the U.S. Constitution & the Bill of Rights.
Copyright 2009 by Barry J. Lipson