A victory for executive power

July 4, 2007 9:31 PM by S.M. Oliva | Other posts by S.M. Oliva | Comments (1)

Last week Lew Rockwell said, “the Supreme Court did the right thing,” in Leegin Creative Leather Products, Inc. v. PSKS, Inc., a decision reversing the Court’s century-long condemnation of “resale price maintenance” (RPM) as a per se violation of the Sherman Act. Many academic critics of the prior RPM rule—invented by the Court in Dr. Miles Med. Co. v. John D. Park & Sons Co. (1911)—also hailed the decision as a victory for modern economic analysis. But Leegin was no victory for consumers, retailers, or manufacturers. The only beneficiaries are the same gaggle of lawyers, mainstream economists, and affiliated professionals who make their living off the federal welfare program called antitrust.

The Court did not “legalize” RPM or even acknowledge the right of manufacturers to sell their products through voluntary contract. Instead the Court eliminated the special status of RPM as a “per se” violation and declared all future challenges to the practice subject to the same “rule of reason” governing most antitrust litigation. Leftists criticize this as too “pro-business”. This is misleading. After all, the actual litigation here was not between business and consumers, or even business and regulators, but between a manufacturer and a retailer. (If anything, leftists who oppose Wal-Mart and other “Big Box” retailers should welcome a decision that gives manufacturers greater pricing power.) It’s difficult to grasp why the Court would swing “pro-manufacturer.”

Meanwhile, conservatives take heart in the court’s partisan breakdown—the two George W. Bush appointees joined the three more conservative justices to eek out a 5-4 victory. This too is misleading, because the court merely substituted one statutory interpretation for another. The Court did not mount a campaign on behalf of free trade or private property, principles that conservatives claim to revere.

The problem is that Leegin has several threads, not all of which relate to antitrust. Front and center in the Court’s opinion, authored by Justice Anthony Kennedy, and the dissent, authored by Justice Stephen Breyer, is the importance of stare decisis. The justices have fought this battle on many non-antitrust fronts beforee. Some commentators expressed surprise that Breyer, who likes to apply mainstream economics to regulation, took the lead in dissent. But Breyer was more concerned that the majority’s opinion will serve as a Trojan horse to undermine other precedents (say, Roe v. Wade). His dissent explains that there’s simply no compelling reason to overturn a century of precedent, especially on a matter of statutory construction where Congress could easily intervene. If Congress hasn’t changed the rule in the past century, why should the Court?

Justice Kennedy’s answer comes down to, “the economists told us to!” The majority and its backers claim all mainstream economic opinion goes against a per se RPM ban. That’s not true. At least one prominent pro-antitrust group argued just the opposite, and two FTC commissioners refused to join the agency’s brief endorsing that view. Moreover, as Justice Breyer retorts, the courts are not obliged to follow the whims of people who happen to call themselves economists:

Economic discussion, such as the studies the Court relies upon, can help provide answers to these questions, and in doing so, economics can, and should, inform antitrust law. But antitrust law cannot, and should not, precisely replicate economists’ (sometimes conflicting) views. That is because law, unlike economics, is an administrative system the effects of which depend upon the content of rules and precedents only as they are applied by judges and juries in courts and by lawyers advising their clients. And that fact means that courts will often bring their own administrative judgment to bear, sometimes applying rules of per se unlawfulness to business practices even when those practices sometimes produce benefits. (Italics in original.)

It’s also disingenuous for the majority to imply that good economics will guarantee good law. If that were so, the minimum wage would have been struck down long ago. Indeed, the antitrust law themselves wouldn’t have lasted over a century!

Economics is merely a sword that Justice Kennedy and his cohorts brandished to attain their preferred outcome. Leegin strikes down precedent almost as an end itself. Still, there’s more to the story. As noted above, the FTC and Justice Department filed a brief supporting the argument against the per se rule. This should give libertarians pause. If overruling Dr. Miles was truly a step towards commercial freedom, why would the Bush administration support it? Again, the leftist retort is that the Republicans are pro-business (in this case, pro-manufacturer) and anti-consumer. The dissent of the two Democratic-appointed FTC commissioners might support this theory, as would the amicus briefs filed by self-declared “consumer” groups.

The flaw with this reasoning is that it confuses the interests of the White House with those of the FTC and DOJ. They are not synonymous. When the White House directly intervenes in private litigation, it’s politically transparent (see Terry Schiavo). Yet Bush has expressed no interest in the direction of antitrust policy. That’s reflected in his appointments to the DOJ and FTC. All five FTC commissioners and the head of the DOJ’s antitrust division are career antitrust lawyers with no obvious partisan ties. Indeed, Bush even allowed Senate Democrats to pick two of the commissioners, something that prior White Houses never did. This hardly suggests a massive Republican conspiracy to undermine “consumer protection”.

That said the question remains why career antitrust lawyers would support a case that, superficially, seems to reduce the scope of antitrust regulation. Lew Rockwell wrote:

The good news here is that this ruling will have an immediate impact on the marketplace. Producers might start to offer deeper discounts on their products. This way, retailers can save money in other aspects of their business. It could result in some restructuring that will benefit everyone from workers to consumers. It's true that the marketplace has found workarounds to these rules in the past, but not without the high cost of regime uncertainty.

Yet “regime uncertainty” is a consequence of the Court’s decision, not the other way around. Despite its name, the “rule of reason” is neither a rule nor based on reason. It’s simply an invitation for judges to solicit the input of so-called experts before doing whatever the heck they feel like. Antitrust is the antithesis of the rule of law, and thus cannot be applied with any consistency. Justice Breyer has a more positive view of antitrust, but he also said that uncertainty is the likely product of the majority’s decision. He noted that courts and lawyers have relied on Dr. Miles for nearly a century, and that in its absence, the judiciary would now have to invent new rules on a case-by-case basis.

The discounts and restructuring that Rockwell speculates might happen will take place in a claustrophobic environment where manufacturers must spend even more on antitrust lawyers and “experts” to guess how the courts might react to a legal challenge. At least Dr. Miles told firms what they couldn’t do. Leegin can’t even offer that assurance.

All this uncertainty is music to the ears of the DOJ and the FTC majority. Dr. Miles is a judge-made rule that makes life easier for courts (a point Justice Breyer conceded.) Leegin invites the Executive Branch regulators—as the nation’s top “experts”—to cherry pick what types of RPM to allow or ban. The FTC in particular has morphed into a grotesque “think tank” that enjoys holding endless hearings on what the antitrust laws ought to mean (because after more than a century, how can you really be sure?) Leegin is another log on the endlessly burning fire that keeps a slew of economists and lawyers employed by the state.

Returning to the court, the majority’s decision, for all its swooning over economists, comes down to executive power. In recent years, the court has generally sided with the DOJ and FTC in antitrust cases (see my paper on this subject.) More broadly, the Leegin majority includes a lineup heavily influenced by their cumulative experiences in the executive branch—John Roberts, Antonin Scalia, Clarence Thomas, and Samuel Alito each spent substantive portions of their careers working for Republican presidents. This creates a strong bias in favor of unchecked executive power. Put another way, had the FTC and DOJ opposed overturning Dr. Miles, it wouldn’t have mattered if every economist in the country thought otherwise; the per se rule would have stood.

This leaves the final conflict—the internal division among the FTC’s members. Pamela Jones Harbour and Jon Leibowitz were the dissenting commissioners. Harbour took the unprecedented step of filing her own ex parte brief with the Court explaining why her colleagues were wrong for wanting Dr. Miles overruled. Harbour spent the majority of her career as an antitrust enforcer for the New York attorney general’s office. This is important because a number of state attorneys general also filed an amicus brief in support of Dr. Miles. This means there’s also a division between state and federal regulators on the subject.

What accounts for this? As discussed above, Leegin puts federal regulators in the driver’s seat in making future decisions regarding RPM. State regulators preferred the per se status quo, presumably because a bright-line rule makes it easier to shakedown manufacturers for large fines (or campaign contributions.) Unlike top federal regulators, who generally resume private practice after a few years to cash in on their regulatory work, state AGs are generally elected officials who want to maintain power or move into another elected office. They’re less interested in the academic side of antitrust. They need antitrust tools they can deploy now.

There’s also a more basic principle at stake. The DOJ and FTC majority made a strategic decision to abandon the per se rule for RPM, anticipating a greater welfare bounty down the road. The FTC dissenters are horrified that their colleagues would ever make any admission, no matter how small, that antitrust doctrine is something less than infallible. This mirrors an observable schism within the antitrust establishment. The FTC majority believes that antitrust is the equal of voluntary trade and both means should be used to direct the market. The dissenters view antitrust—and by extension, violence—as a superior means of market organization. This “violence first” school sees overruling Dr. Miles as heresy. In that sense, and perhaps only that sense, can Leegin be viewed as a small victory for commercial freedom.