Coordinating Private Class Action and Public Agency Enforcement of Antitrust Law

• Author: David Rosenberg and James P. Sullivan
• Pages: 47-79

47

COORDINATING PRIVATE CLASS

ACTION AND PUBLIC AGENCY

ENFORCEMENT OF ANTITRUST LAW

David Rosenberg* and James P. Sullivan†

A. INTRODUCTION

But whether antitrust policy is sound depends on the enforcement

machinery as well as on legal doctrine. It is not enough to have good

doctrine; it is also necessary to have enforcement mechanisms that

ensure, at reasonable cost, a reasonable degree of compliance with the

law. Antitrust is deficient in such mechanisms.1

In this essay, we sketch a new approach to ameliorating the problem

of coordinating the disparate array of public and private enforcers of

American antitrust law.2 Our focus is on the mainspring of the federal

* Lee S. Kreindler Professor of Law, Harvard Law School.

† John M. Olin Fellow in Law and Economics, Harvard Law School; B.A., Rice

University (2003); J.D., Harvard Law School (expected 2006). For helpful

comments on presentations and earlier drafts of this article, the authors wish

to thank Edward Iacobucci and the other participants at the symposium on

competition class actions sponsored by the Faculty of Law at the University

of Western Ontario, and also our colleagues at Har vard Law School: David

Abrams, David Cope, Morgan Hector, Kenneth Reinker, Kathleen Saunders,

John Scanlon, Hal Scott, Steven Shavell, and Mark Veblen. James Sullivan also

thanks the John M. Olin Center for Law, Economics, and Business for financial

support.

1 Richard A. Posner, Antitrust Law, 2d ed. (Chicago: University of Chicago Press,

2001) at 266 [second emphasis added].

2 The basic federal antitrust law is comprised of the Sherman Act, 15 U.S.C. §§

1 et seq., enacted in 1890; the Clayton Act, 15 U.S.C. §§ 12 et seq., enacted in

1911; and the Federal Trade Commission Act, 15 U.S.C. §§ 41 et seq., enacted in

1911. In distinguishing between “public” and “private” enforcers we focus on

the salient functional features of the source of enforcement funds and the situs

of discretion over the scale, scope, and intensity of enforcement investment

and effort. In particular, public enforcers generally rely on public tax and other

sources of funding and lodge prosecutorial discretion in government agents.

48 LITIGATING CONSPIRACY: AN ANALYSIS OF COMPETITION CLASS ACTIONS

enforcement mechanism: the “tag team” consisting of public policing,

conventionally through criminal sanctions and injunctive remedies, by

the Federal Trade Commission (FTC) and the Antitrust Division of the

Justice Department (DOJ), and of privately litigated class actions primar-

ily seeking treble damages.3 Characteristic of a general American enforce-

ment strategy, the antitrust system enlists the “entrepreneurial” incentives

and resources of private enforcers as a counterpoise and a complement

to public enforcement efforts. Thus, private antitrust class actions not

only provide an efficient means for augmenting public enforcement and

overcoming its structural, financial, and other limits. They also serve as a

hedge against the potential (real or perceived) for under-enforcement by

public agencies vulnerable to bureaucratic slack and stagnation, political

and personal conflicts of interest, and chronic under-funding.4 However,

Private enforcers tap private sources of financing civil litigation and determine

the scale, scope, and intensity of their enforcement investment and effort based

on rational choice of the most profitable course of action.

3 See Stephen Calkins, “An Enforcement Official’s Reflections on Antitrust Class

Actions” (1997) 39 Ariz. L. Rev. 413 at 440. The FTC exclusively enforces the

provisions of the Federal Trade Commission Act and primarily pursues injunc-

tive remedies. The DOJ is authorized to seek penalties of imprisonment and

fines, and also injunctive remedies. The remedial options available to private

enforcers include injunctive relief and divestiture as well as treble damages. As

Posner points out, policy makers and commentators typically err by analyzing

the public and private components of the amalgamated antitrust enforcement

mechanism: Posner, above note 1 at 47. The error is to evaluate each com-

ponent separately. Rather, the enforcement mechanism must be judged and

designed in the aggregate. The performance of any system of law enforcement

must be considered and shaped functionally according to the way its opera-

tion will and properly should affect the behaviour of enforcement targets. In

particular, firms “aggregate the expected punishments and discount (multiply)

them by the probability of their imposition to determine the expected punish-

ment”: ibid. It follows that the effectiveness of the antitrust legal regime must

be judged and reformed from an aggregate perspective; that is, in terms of how

all of the various public and private pieces can be fit and operated together to

achieve the optimal joint level of enforcement.

4 These conditions can also, by design or effect, produce excessive public

enforcement. High-profile prosecutions, especially those that may capture

public attention or pander to its fears, can lead to higher budgets and enlarged

jurisdiction, promotions within bureaucratic ranks, and political, judicial, and

private-sector career opportunities. See generally Daryl J. Levinson, “Empire-

Building Government in Constitutional Law” (2005) 118 Harv. L. Rev. 915.

While our proposal does not directly address the coordination problem of over-

zealous public enforcement, it will, as we note in concluding remarks, likely

have a salutary effect on incentives for such personal and bureaucratic “empire-

building.”

COORDINATING enforcement of antitrust law 49

a basic flaw in this system of checks and balances is its one-sided nature.

It not only ignores the danger of deficient private enforcement that results

from economic or legal impediments to the effective use of class actions,

but it also fails to check the potential for excessive private enforcement.

Indeed, there is significant risk of class actions over-enforcing anti-

trust laws. A major reason is that many antitrust class actions merely

“piggy-back” on public enforcement outcomes and work product.5 These

class actions usually add little or nothing new to the existing public

enforcement effort, while their threat of treble damage awards signifi-

cantly magnifies sanctions.6 It is an empirical question whether, in any

given case or on average, these class actions adequately supplement or

grossly overshoot the amount of private enforcement needed to achieve

the optimal enforcement level overall. More generally, recent increases

in maximum criminal fines and prison terms also may have reduced the

need for the supplementar y deterrent from trebled class action damages.

Supplementation may also be undesirable in many cases as public enforc-

ers place greater reliance on programs and strategies of trading leniency

for agreement by firms and individuals to confess, cease, and remedy

their illegal conduct and to provide evidence and otherwise cooperate in

the prosecution of claims against others.7 Further, as modern economic

5 See Thomas E. Kauper & Edward A. Snyder, “An Inquiry into the Efficiency of

Private Antitrust Enforcement: Follow-on and Independently Initiated Cases

Compared” (1986) 74 Geo. L.J. 1163.

6 The problematic nature of follow-on class actions results in part from the fact

that private enforcers often benefit from the presumption, established by sec-

tion 5(a) of the Clayton Act, that mandates treating a final criminal or civil

judgment obtained by the United States as “prima facie evidence” against the

same defendant in a private civil action. In recent years, private enforcers have

also been able to invoke offensive collateral estoppel against such a defendant.

Compare Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322 (1979). Of course,

courts could exert some useful control over unnecessary follow-on class actions

by adjusting class counsel fees to reflect the actual social value added by the lit-

igation effort. However, as a practical matter, courts lack the resources needed

to carry out this function effectively. The high cost of providing them with

relevant information includes determining the optimal investment class counsel

should make in relation to the optimal investment the public enforcer should

make and did make.

7 The leniency program used by DOJ to police international cartels is described

by the Director of Criminal Enforcement, Antitrust Division, in Scott D.

Hammond, “Detecting and Deterring Cartel Activity through an Effective

Leniency Program” (paper presented to the International Workshop on Cartels,

November 2000), online: United States Department of Justice .usdoj.gov/

atr/public/speeches/9928.pdf>.