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Rules Versus Standards in Antitrust Adjudication

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Rules Versus Standards in Antitrust Adjudication. Daniel A. Crane Benjamin N. Cardozo School of Law University of Michigan Law School June 25, 2009. Rules vs. Standards. Rule: liability hinges on small number of binary factors. 50 km/hour speed limit Per se rule for price fixing

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Rules Versus Standards in Antitrust Adjudication

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  1. Rules Versus Standards in Antitrust Adjudication Daniel A. Crane Benjamin N. Cardozo School of Law University of Michigan Law School June 25, 2009

  2. Rules vs. Standards • Rule: liability hinges on small number of binary factors. • 50 km/hour speed limit • Per se rule for price fixing • Standard: liability hinges on a balance of multiple factors or an open-ended norm. • Drive reasonably under the circumstances • Rule of reason for joint venture agreements

  3. Vast Literature in Jurisprudence and Economics • Kaplow, Rules Versus Standards: An Economic Analysis (1992) • When a legal command will be applied frequently, minimize decisional costs by formulating as a rule • When a situation comes up infrequently, employ the greater precision a standard allows.

  4. Three Claims • (1) In U.S. law there has been a movement from rules to standards in the last two decades. • (2) The specification of the norm as rule or standard matters, but not always in obvious ways. • (3) The optimal specification depends on five factors.

  5. The Movement Toward Standards • Obvious cases • Resale price maintenance • Other vertical restraints • Presumption of market power in patent tying cases (rule of per se illegality for tying?) • Less obvious cases • Kodak (1992): “Legal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law. This Court has preferred to resolve antitrust claims on a case-by-case basis, focusing on the ‘particular facts disclosed by the record.” • Monopoly broth theories • Rejection of cost-based tests for loyalty or bundled rebates • Real teeth to the rule of reason (Visa/Mastercard) • Colgate doctrine is hanging by a thread

  6. Does It Matter? • Classic example: "No vehicles in the park." • Tricyles? • Airplane crashes? • Antitrust example: "No price fixing." • Cases where no prices were fixed (Socony Vacuum) are "price fixing." • Cases where prices were literally fixed (ASCAP) are not "price fixing." • Rejects rule-literalism • Adds "characterization" stage to restraints of trade analysis

  7. Over Time, Categories Erode • Quick Look (NCAA 1984) • Poylgram (2005): Law has has not moved "from a dichotomy to a trichotomy;” the question is always “whether ... the challenged restraint enhances competition." • Continuum rather than set of categories.

  8. But It Does Matter • Rules narrow the range of reasonably contestable issues. • i.e., no ruinous competition defenses • Outcomes under rules are more predictable than outcomes under standards, and therefore enhance predictability • Rules invite trial judges to employ procedural screens. • Standards tend to delegate decisional authority to decision-makers low in the legal hierarchy. • Standards elevate the importance of economists; rules elevate lawyers.

  9. Decisional Factors

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