Ever since graduating from Harvard Law School in 1961, Donald Baker has been immersed in antitrust law – teaching at Cornell Law School, leading the Antitrust Division in the mid 1970s, and practicing law with his firm Baker & Miller in Washington, D.C.
How is the antitrust scene different today than it was 40 years ago when you headed the Antitrust Division?
“The Antitrust Division isn’t as vigorous in dealing with monopolies as we were,” Baker told Corporate Crime Reporter in an interview last week. “It’s a little less vigorous on mergers. But bear in mind, in the forty years since I left, there have been a number of Supreme Court decisions which have narrowed the scope of antitrust liability, both in terms of substantive rules, but also in terms of exemptions.”
“One of the biggest cases that I worked on was the monopoly case that ultimately broke up AT&T. Now you would have a question of whether an FCC regulated monopolist was exempt from the antitrust law because the Court has crept in to allow broader exemptions.”
Is it fair to say that on the merger monopoly side, antitrust enforcement is less strong, but on the criminal cartel side it’s stronger?
“It is. The famous leniency program has been a huge success. One of the reasons it has been a huge success is that foreign companies have been allowed to come in and seek leniency. When the program was first announced, people wondered whether Japanese or German companies, to take two examples, would be active participants. And the answer is – yes indeed, they have been active. I have worked on cases where the complainant to the government have been foreign companies.”
You spoke of the populists earlier. They portrayed themselves as consumer advocates. And they embedded within the antitrust laws a consumer welfare test. Most consumers love Amazon. Amazon is responsive. They have great customer service, they have low low prices. By that test, Amazon is wonderful.
I picked up a book from my corporate crime library. It’s called the Closed Enterprise System by Mark Green. It came out in the late 1960s. The book quotes Supreme Court Justice William O. Douglas from the Alcoa decision in 1935 as saying – “We have been speaking only of the economic reasons which forbid monopoly. But there are others, based upon the belief that great industrial consolidations are inherently undesirable, regardless of their economic results.”
If Justice Douglas’ view took hold over the consumer welfare test, we would have had a vastly different antitrust landscape today.
“We would have quite a different one,” Baker said. “But the consumer welfare test actually comes out of Robert Bork. And it’s somewhat controversial now. And it is becoming more controversial. It suggests that as long as consumers are better off there is nothing to worry about. The Europeans don’t quite agree with that. The critics of the big tech companies are not so sure they agree.”
“Something I developed in the course of teaching might be quite helpful. In broad strokes, there are two kinds of monopoly. One is what I would call a facilities based monopoly like a telephone network. It’s a monopoly because it has large scale, it’s not particularly economic to duplicate it, and that gives it leverage. The other kind of monopoly is an innovation based monopoly. That is something like Google or Amazon. There, they become a monopoly because they have invented a mousetrap that is so much better than anybody else’s mousetrap that they dominate the field.”
“It’s not clear that the doctrines that we developed on facilities based monopolies like telephone companies, stock exchanges and harbors, necessarily work very well in the innovation space. There is a huge amount of confusion going on at the moment. We clearly have companies like Google that have more market power than I have seen in most of my fifty year career.”
“On the other hand, they are using their market power for consumers. They are two sided platforms. Google is providing information to the public for free and financing it by either selling advertising or using consumer information as a proprietary weapon. It is a subject I’m trying to think through and work through. But I haven’t gotten any good answers.”
What about Justice Douglas’ concern – that we should embed the question of corporate power into antitrust doctrine?
“I was at the Justice Department when we actively backed off from some of that and put a lot more emphasis on economics. I think economics is important in antitrust. I don’t think I agree with Douglas. But on the other hand, we probably have to be more mindful than we have been in our merger policy about creating bigger corporations.”
“Take for example the merger between DuPont and Dow, which DuPont didn’t particularly want. Those are two big companies, each of which had a lot of research capability, had different chemicals, some overlapped some didn’t. The government let the merger go through, although I couldn’t see much efficiency benefit in the merger. The government let it go through because they didn’t think the law was there to stop it.”
“In baseball, we have a rule that the tie goes to the runner. In antitrust, in a close case, involving a big merger, the merging parties should bear the substantial burden of showing that the merger will result in more efficient operations.”
New antitrust groups are rising – like Open Markets. Are we seeing a resurgence of the populist movement of more than 100 years ago?
“I believe we are. I’ve been in this field since 1961. We had one period like this in 1973 to 1976 where there was populist ferment for stronger antitrust. It was being driven by a combination of the OPEC cartel and Watergate. During those three years, we had the only substantive antitrust legislation in my career. The Sherman Act was made a felony. Pre merger notification was established. A few other things were done.”
“Now we are seeing the biggest wave of pro-antitrust populist concern that I have seen. There is a lot of serious talk. There are law professors, like Tim Wu, making names for themselves writing about antitrust. These platforms have so much market power.”
“American corporations by and large do a decent job of antitrust compliance. The compliance materials I’ve seen picture the threat of jail as the central message.”
Under the Antitrust Division’s leniency program, in the vast majority of these cases, first in the door gets a pass. Every other company caught up in the cartel is forced to plead guilty and pay the fine. Now the Justice Department has come in with a new proposal.
“Yes. And they say that in order to incentivize the companies even more to have rigorous compliance programs, they are going to consider the compliance program not only at the sentencing stage, but at the charging stage. I find this whole thing very confusing. As far as American companies are concerned, we have very good compliance.”
Are you saying that the vast majority of the companies caught up in these criminal cartel cases are foreign companies?
“Yes. And I have a list of Sherman Act violations yielding fines of $10 million or more. And the list is overwhelmingly foreign companies engaged in international activity.”
Under the new policy, the Justice Department is saying – if you don’t come in first, you don’t have to plead guilty. Now, under this new policy, you can get a deferred prosecution agreement.
“As far as I know, the Antitrust Division hasn’t used deferred prosecution agreements. The idea is mentioned in Assistant Attorney General Delrahim’s NYU talk. But it isn’t mentioned in the government’s press release on the new policy. And it isn’t mentioned in the longer documents released the next day. The important news is that the Antitrust Division is willing to consider deferred prosecution agreements based on compliance.”
“Let’s look at the grand jury. Suppose you have a traditional grand jury situation. Under this new policy, is the government going to tell the grand jury that they are not going to recommend an indictment of the corporation because they think the corporation has a good compliance program? Are the government attorneys going to use grand jury witness time to inquire into how good a compliance program the corporation has? I don’t know. There is no mention of the grand jury in any of the materials that were released last week.”
[For the complete q/a format Interview with Donald Baker, see 33 Corporate Crime Reporter 30(13), Monday July 29, 2019, print edition only.]