A lawyer who has not studied economics and

“ A lawyer who has not studied economics and sociology is very apt to become a public enemy. ” Louis D. Brandeis Law 552 - Antitrust - Instructor: Dwight Drake

Contact Info – Office Hours • Email: djdrake@u. washington. edu • Phones: 425. 281. 1493, 425. 222. 5988, 360. 778. 1862 • Guaranteed Office Hours: - Thursday 11: 30 a. m. to 1: 00 p. m. - By Appointment. Open Door - Whenever you can catch me! Course URL: http: //faculty. washington. edu/djdrake/Antitrust/index. shtml Law 552 - Antitrust - Instructor: Dwight Drake

Course Objectives • Survey history, scope, impact of Antitrust. • Focus on Three Dimensions of Antitrust: - Neighborhood - National - World • Internalize Antitrust “flags”. • Enhance fundamental lawyer skills: - Analytical, creative thinking - Communication Skills Law 552 - Antitrust - Instructor: Dwight Drake

America’s Privately-Owned Businesses • 29 Million • 99 % of all employers • 75% of all new jobs • 53% of private workforce • 70% of all first jobs • 50% of all sales • 14 times more patents • Largest client base for professionals • Badly under-serviced by Bar Law 552 - Antitrust - Instructor: Dwight Drake

The Lawyer’s Role as an Advisor to Business Owners, Professionals and Entrepreneurs Flash Presentation (20 Min. approx) by Dwight Drake Law School Website-Career-Students-Job Resources-Career Tools-Flash Note: It takes a few minutes to load Law 552 - Antitrust - Instructor: Dwight Drake

What Course Is Not! • Hide the flags. • Hunt for the flags. • Memorize the flags. • Wave flags on exam – score! Law 552 - Antitrust - Instructor: Dwight Drake

Grade Criteria • Seven Case Memos (Each 7 Pts) - 49 pts (25%) • Key Team Case Presentation • Take Home Final 21 pts (10%) 130 pts (65%) Total 200 pts Note: Law School Curve Policy in effect. Law 552 - Antitrust - Instructor: Dwight Drake

Final Opt-Out Option • Turn in all seven case observation memos • No more than one memo late • Participate in team case study • Attend class regularly • Guaranteed Grade B Law 552 - Antitrust - Instructor: Dwight Drake

Case Study Game • Number of Weekly Case Studies - 8 • Case Study Teams (5 + persons) - 8 • Key Team for Week has until Friday 5 p. m. to make single email request for additional specific facts • New facts will be provided to Key Team via email within 24 hour of request • Key Team ( two players max) give oral “partner briefing” on following Tuesday (12 Minutes Max). Plus, must provide written memo in Key Player format for entire class. • All others may submit optional written memo in Observer Format. Although optional, there is grade impact. Observer Memo individual, but team dialogue encouraged. Law 552 - Antitrust - Instructor: Dwight Drake

Different Fact Game Economic analysis determines: - What facts are relevant - What facts need to be ascertained - When ascertained, how facts impact or alter economic theory - How best to interpret facts The Challenge: Be good enough to get and apply the right facts! Law 552 - Antitrust - Instructor: Dwight Drake

Memo Presentation Format – Key Team • New facts – The stuff you found • Statement of the key issues • Summary of your conclusions and related rationale • Analysis • Short summation close Law 552 - Antitrust - Instructor: Dwight Drake

Memo Presentation Format -Observers • Desired additional facts • Statement of issues • Preliminary analysis of issues predicated on discovery of additional facts Law 552 - Antitrust - Instructor: Dwight Drake

Writing Basics • • • Four “C”s – Concise, Credible, Confident, Convincing Keep it tight, real tight. No needless words. Use strong, precise verbs. Avoid overstated adjectives. 100% Intellectual honesty – no finessing. Preferred max sentence length: 20 words. Avoid multiple negatives. No “shall”, “provisos”, “and/or” and other drafting jargon. Write for the normal reader, not the intellectual. End sentences emphatically. Organize, then draft. Edit, edit. Law 552 - Antitrust - Instructor: Dwight Drake

US Businesses Projected Revenues 2007 Corporations $ 21. 58 Trillion (84. 2%) Sole Proprietorships $ 1. 23 Trillion (4. 8%) Partnerships $ 1. 35 Trillion (5. 3%) Limited Liab. Companies $ 1. 45 Trillion (5. 7%) Total Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning. com $ 25. 61 Trillion Law 552 - Antitrust - Instructor: Dwight Drake

Corporate Players Employees Hire Officers Elect Directors Elect Shareholders Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning. com Law 552 - Antitrust - Instructor: Dwight Drake Reg. Agents Appoint

Private Antitrust Suits • Treble damages - deterrence and greed • Uniquely American • High watermark late ’ 70 s – 20 to 1 • Today – 10 private to 1 government • Tougher now – fairness, efficiency values; standing, injury, causation issues • The debate continues Law 552 - Antitrust - Instructor: Dwight Drake

Antitrust Lingo Nail the Glossary NOW! Pages 1 -13 of Supplemental Materials Law 552 - Antitrust - Instructor: Dwight Drake

Horizontal Manufacturer (“OEM”) Distributor Wholesaler Vertical Jobber Retailer Consumer Law 552 - Antitrust - Instructor: Dwight Drake

Overriding Goal of US Antitrust Preserve, protect and maintain public confidence in free market system by deterring and eliminating economic oppression. Law 552 - Antitrust - Instructor: Dwight Drake

Social Goals of U. S. Antitrust • Efficient allocation of goods and services • Prevent “deadweight loss” • Stop “wealth transfer” from market power • Promote innovation – “dynamic efficiency” • Two fading-fast goals: - Protect market entry for individual firms - Decentralize economic power Law 552 - Antitrust - Instructor: Dwight Drake

Antitrust Statutes • Broad statements, ala constitution • Courts have huge interpretive freedom • Courts used “charter of freedom” to gradually define what we call “Antitrust law” • An ever evolving process – at varying speeds and often in varying directions • Tangled with microeconomic analysis that cries out for commentators and experts • Cases heavily fact driven Law 552 - Antitrust - Instructor: Dwight Drake

Sherman Act Section 1 • Every “contract, combination, conspiracy” • In “restrain of trade or commerce” • Justice Hughes in 1933 – a “Charter of Freedom” ala constitution provisions • First two approaches – “Rule of Reason” and “Per Se” doctrines. • Middle ground approach since ’ 78 – “Truncated Rule of Reason” Law 552 - Antitrust - Instructor: Dwight Drake

Sherman Act Section 2 Three criminal offenses: - To monopolize - To attempt to monopolize - To combine or conspire to monopolize Not unlawful to just be a monopolist There must be offensive conduct Separate elements of each offense Law 552 - Antitrust - Instructor: Dwight Drake

Robinson-Patman §§ 2 -3 • Price discrimination unlawful • Must show “substantially lessen competition”, “tend to create monopoly” or “injure, destroy or prevent competition” • No monopolization showing required • Overlap with Sherman 2 where price discrimination in seller’s own market • Burden of proof shift • Exclusive dealing, tying Law 552 - Antitrust - Instructor: Dwight Drake

FTC Act Section 5 • Makes unlawful “unfair methods of competition” and “unfair and deceptive acts and practices” • Empowers FTC • Gives FTC broad power to wade in • Monopolization enforcement heavily influenced by Sherman 2 interpretations Law 552 - Antitrust - Instructor: Dwight Drake

FTAIA of 1982 • Bottom line: Foreigners not protected • Export commerce to foreign nations excluded. • Other foreign commerce included if “direct, substantial, reasonable effect” on: - Non foreign commerce - Import commerce - Injury to export business in US Law 552 - Antitrust - Instructor: Dwight Drake

H. R. 1086 – June 22, 2004 • Increased Sherman Act criminal penalties - $10 mill to $100 mill for corporations - $250 k to $1 mill for individuals - Jail time from 3 to 10 years • Civil penalty drop for squealers – single damages only, no joint and several • Easier on Standard Dev. Orgs – Single damages only, rule of reason applied • Tougher Tunney Act; Approval of consent decrees – Notice and comment period Law 552 - Antitrust - Instructor: Dwight Drake

The Players • Congress • Feds, DOJ & FTC – up and down • The courts – off and running after commerce clause boom of mid-’ 30 s • Academic commentators • State Attorney General Offices • Private antitrust bar Law 552 - Antitrust - Instructor: Dwight Drake

Fed Ups and Downs • • • Vigorous during Taft years (1909 -1913) Slow down in the roaring ‘ 20 s. Hit all time low in depression years 30 -35 FDR’s 1 st term cartel experiments FDR’s 2 nd term started hard-nosed action Enforcement peaked during ’ 60 s Commentators triggered slow down in ’ 70 s Reagan accelerated slow down in ’ 80 s Bush One cranked up a little Clinton turned up more, but nothing like ’ 60 s Bush two more than expected. Obama tough talk – Big Guys Beware Law 552 - Antitrust - Instructor: Dwight Drake

Academic Commentators • Traditionalists – industrial organization economists • Chicago School of Antitrust • Post-Chicago Players Law 552 - Antitrust - Instructor: Dwight Drake

Industrial Org. Economists • Big impact players during ’ 50 s and ‘ 60 s • Structuralists – Number of buyers and sellers and entry barriers were ball game • Assumed market concentration was always anticompetitive • Efficiency no big deal – to tough to prove • Focus was on “Concentration trends” and “Concentration ratios” • Fed and plaintiffs had an easier job Law 552 - Antitrust - Instructor: Dwight Drake

Chicago School • Emerged in ’ 50 s, kicked-in late ’ 70 s • Pioneers from University of Chicago • Rejected “structure” – lead to bad decisions that hurt competition, efficiency • Focus on price theory, efficiency – assumptions of how firms and markets behave • Few prohibitions of ’ 50 s and ’ 60 s were objectionable to Chicago School • Profit maximizing plus efficiency equal “consumer welfare” • Music to ears of conservative political tide Law 552 - Antitrust - Instructor: Dwight Drake

Post Chicago Analysis • Emerged in mid ’ 80 s • Focus – efficiency and wealth transfer • Unlike Chicago, look hard at game theory and strategic conduct of situation • Work inductively from broad inquiry of facts of particular case • New empirical tools for spotting strategic interactions • Biggest impact in “exclusion” cases and new merger guidelines Law 552 - Antitrust - Instructor: Dwight Drake

State AG Offices • May enforce Fed law on behalf of citizens • Treble damages plus attorneys fees • No claim for injury to economy • May sue to stop mergers • 19 states and DC joined Fed in Microsoft litigation Law 552 - Antitrust - Instructor: Dwight Drake

Economic Globalization • A process of integrating national economies through trade, investment, and capital, technology and labor flows • Pre-WWI Globalization: Steam engine, railroad, telegraph • War periods – complete retrenchment • Post WWII actions – IMF, World Bank, ITO, GATT, WTO Law 552 - Antitrust - Instructor: Dwight Drake

Globalization Driving Forces • Technology, innovation • Evolution of money markets • Failure of import-substitution countries • End of Berlin Wall and Soviet Union • Boom ’ 90 s – Near universal buy-in • Proliferation of multinationals • Spread of democracy Law 552 - Antitrust - Instructor: Dwight Drake

Shared Fears • More risks, anxieties from new unknowns, more and different competitors • Spreading gaps between Have and Have-nots, Skilled and Unskilled • New roles for many governments – referee, trainer, safety net • Deadly opposing forces • Environment and oil • Preservation of free market competition Law 552 - Antitrust - Instructor: Dwight Drake

Major U. S. Free Market Challenges • America’s huge oil advantage – Cap and Trade? • Healthcare reform? • Unfathomable, unsustainable deficits • America’s dismal savings capacity • America’s fundamental transformation • Terrorism - the “war”, the cost, the hate Law 552 - Antitrust - Instructor: Dwight Drake

Scenario 1: Basic Facts • Year: 1893 • Location: Cleveland, Ohio • Two major cement contractors – Smith and Jones • They contract: Smith handles all north town business; Jones handles all south business • Goal: To protect their businesses • Larson – Large building contractor in south end doesn’t like Jone’s south-end monopoly Law 552 - Antitrust - Instructor: Dwight Drake

Scenario 1 • In 1893, what would have been best arguments on behalf of Smith and Jone’s position? • In 1893, what would have been best arguments on behalf of Larson’s position? Law 552 - Antitrust - Instructor: Dwight Drake

Questions re: Trans-Missouri Freight • Is price fixing ever good? • Did railroad rate case make it harder for majority? For dissent? • What are liberty of contract, freedom of trade? What are the sources of these rights? • What is protectionism? Is it part of antitrust? Should it be? Law 552 - Antitrust - Instructor: Dwight Drake

Scenario 2: Basic Facts • Year: 1900 • Smith – Jones division contract expanded to four states • Smith – Jones shared a portion of profits, made joint investments and rose to the level of a common law partnership Any new arguments? Law 552 - Antitrust - Instructor: Dwight Drake

Questions: Addyston Pipe & Steel • What percent of market? • Did they set unreasonable prices? Was this relevant to decision? • What is the difference between primary and ancillary restrain, per Taft? • What was impact of common law? • What is impact of public interest factor? Law 552 - Antitrust - Instructor: Dwight Drake

Scenario 3: Basic Facts • Year 1904 • Smith-Jones form New Jersey holding company • Smith-Jones consolidate through holding company. • Smith-Jones acquire 10 other firms through holding company • Divide market in 15 states Law 552 - Antitrust - Instructor: Dwight Drake

Scenario 3 • In 1904, what would have been best arguments against Smith/Jone’s position? • In 1904, what would have been best arguments in support of Smith/Jone’s position? Law 552 - Antitrust - Instructor: Dwight Drake

Standard Oil (1911) • Rockefeller’s Oil Trust – The “Mother of all Trusts” • How bad were the actors? • How significant was common law? • White for majority: Was he consistent with his prior views? • What is “undue restraint”, “standard of reason”? Law 552 - Antitrust - Instructor: Dwight Drake