Discussions on private competition remedies most often deal with questions of optimal deterrence and effectiveness. Lost in conversation is the basic idea that antitrust violations cause economic harm, and that those victimised by that harm should be entitled to damages from those who have violated the law. This is the underappreciated compensatory function of antitrust. Section 4A of the Clayton Act is a powerful, yet historically underused enforcement tool that empowers the United States to obtain treble damages for anticompetitive conduct when the government is itself the victim.
The paper, which can be found here, focuses on whether the US government should not only pursue public enforcement activities, but also engage in private enforcement claims to be compensated for losses as a result of anticompetitive conduct. It examines the limited use of Section 4A, and discusses some possibilities for future cooperation between public and private plaintiffs that could advance the compensatory goal of antitrust. It is structured as follows:
Section I looks at the history of compensation claims by US government entities for competition infringements.
The first suit that the Justice Department ever brought for damages the United States suffered as a result of an antitrust violation was filed nearly fifty years after the passage of the Sherman Act. It was a claim in 1939 for the fixing of the prices of tires sold to the United States. The district court, supported by the appeals’ court, dismissed the complaint on the ground that the United States was not a “person” within the meaning of the private treble-damages provision of the antitrust laws. In effect, the Supreme Court concluded that no one thought the United States could bring a private action for damages under the antitrust laws.
It took Congress nearly fifteen years to act. In 1955, Congress amended the Clayton Act to add Section 4A, allowing the federal government to sue for injury to its business or property, but only for single damages. Despite the passage of this bill, and of a subsequent amendment in 1990 to raise the damages from single to treble, government actions for damages have never been significant. The 1970s were the high-water mark for Section 4A litigation, with the Justice Department bringing sixty-six cases. In the 1980s, however, the Justice Department filed only two cases under Section 4A; in the 1990s, it filed three. Between 1995 and 2012, a period of nearly twenty years, it filed none. In 2012, the DoJ filed one case, the last case before a more recent filing in 2018.
Section I also looks at the logic behind the US government’s reticence to bring private enforcement claims in recent years.
The emphasis on deterrence in Supreme Court’s judgments such as Illinois Brick (1977) and other opinions of the time helped turn the philosophical tide against the compensatory function of antitrust in the late 1970s. Indeed, it may be that this philosophical shift from compensation to deterrence provides the most compelling explanation for the thirty-year drought in Section 4A litigation. As a general matter, many of the most prominent criminal enforcement cases during this period —lysine, vitamins, DRAMs, LCD displays, auto parts— involved upstream products purchased by intermediate manufacturers and incorporated into some other end-user product. If the United States purchased any of these products, it would have been as a purchaser of an end-user product, making the United States an indirect purchaser. Under Illinois Brick, this would mean that the US would lack standing to sue for damages.
However, a focus on deterrence does not mean that the government should rely solely on criminal prosecutions. First, such an approach ignores the possibility that the United States could be injured by antitrust violations that are not criminally prosecuted. As the US Government said in its amicus brief in Illinois Brick, the United States “purchases drugs for use in federal hospitals and pays through Medicare and Medicaid for drugs purchased by others.” Indeed, if there were one area that stands out in the economy for high impact and anticompetitive conduct it would be pharmaceutical drugs. For nearly two decades, there has been extensive litigation by the FTC, the states and private parties over a number of anticompetitive practices by which brand-name and generic pharmaceutical manufacturers have sought to maintain high monopoly prices. None of these cases was prosecuted criminally, because they have not involved traditional hard-core price fixing or bid rigging. Yet, no effort has been made to recover the government’s overpayments through a Section 4A treble-damages suit. Second, such a view reflects a serious misunderstanding of the differences between criminal penalties and civil recoveries. While both pursue deterrence, criminal penalties also reflect society’s judgement that certain behaviour is fundamentally blameworthy. For example, fines in antitrust cases are not based solely on economic harm. By contrast, measures of civil damages in antitrust cases are based on the economic harm that the plaintiff has suffered and have nothing to do with fault.
Section I (which, it must be said, covers two-thirds of the paper) concludes with an analysis of the future of private antitrust enforcement by the US Government.
In 2018, the Department of Justice brought three separate proceedings against three corporate co-conspirators for a bid rigging conspiracy that allegedly lasted more than a decade. One proceeding was a Section 4A claim for damages, the second was a claim for damages under the False Claims Act, and the third was the criminal information that the Department brought against each of the three corporations.
If these proceeding are to be the first step in a revival of Section 4A, however, the Department will need to articulate its enforcement policy more clearly. More than three-quarters of the settlement amount that was announced in these proceedings was actually allocated to recovery under the False Claims Act, which in itself allows the United States to sue for three times the damages caused by fraud on the United States. Only the remainder corresponded to an antitrust claim for damages. Since an action brought under the False Claims Act covers the same conduct and allows for the same level of recovery (treble damages) as a Section 4A claim, it is unclear what this latter claim brings to the table. Second, it is difficult to assess what it would cost the government to litigate this case or what the risk of losing the litigation might be. Thirdly, in a speech discussing Section 4A Assistant Attorney General Delrahim pointed out that those who successfully qualify under the Antitrust Division’s leniency policy will then qualify for de-trebled damages if they cooperate with the Division in its civil damages litigation. It is not clear, however, why this should be so. Damages are de-trebled only for a firm granted amnesty, which occurs only in cases of criminal prosecution for price fixing or bid rigging. Does the speech signal the Division’s intention to seek damages only in criminal cases, or does it merely show that the Division has not considered other types of cases in which the United States has been injured and should seek compensation? Addressing these questions requires sustained attention and future cases.
Section II explores how to bridge the gap between public and private enforcement.
For the past thirty years or more, the general position of US government agencies has been to assert the primacy or superiority of public enforcement over private antitrust litigation. This has led to active interference with private enforcement to protect the leniency program, as well as an amicus program which more often than not has been used to seek to narrow private rights of actions in the antitrust arena.
The authors believe that potential increased use of Section 4A can be the beginning of an expanded public-private partnership for the enforcement of the antitrust laws that will be of great value. To fulfil this promise, the authors suggest a number of steps. To begin, the Department of Justice should enforce the provisions of Section 4A of the Clayton Act allowing private treble damage actions by the United States as a buyer of goods and services. In doing so, the government would develop valuable expertise on issues that are predominately the province of the private bar.
Better cooperation with the plaintiffs’ bar on the part of the DoJ is also desirable. This could take a number of forms. First, if the Division seriously begins to litigate damages claims, it will necessarily pay more attention to developing damages models and competitive impact statements, which it might usefully share with other private plaintiffs. Second, not all injured parties end up filing antitrust damages actions. In addition to express restitutionary provisions in guilty pleas and sentences, the Department could monitor such restitution orders to assure proper distribution. Third, the agencies should develop a model cooperation agreement with the private bar covering the type of non-confidential information sharing issues currently laid out in numerous agreements with foreign enforcement agencies. Fourth, the DoJ also should develop model restitution plans that would provide meaningful single damage restitution by leniency recipients to injured plaintiffs and class members who do not opt out of the follow-on class actions. Fifth, the DoJ may see the benefits of advocacy and filing amici in support of private actions. More generally, the federal agencies should join the major competition law systems around the world in promoting, rather than restricting, private enforcement.
In short, the paper argues that there is no reason to be apologetic about protecting victims of antitrust violations. Compensating victims will help deter violations of the antitrust laws, and this is certainly one policy reason to support private enforcement. However, compensation is also an important goal in its own right, since protecting and compensating victims of antitrust violations distributes back to consumers and taxpayers money that should have been in their hands in the first place.
This dual goal of private enforcement – providing compensation and enhancing deterrence – is a common one across the world. Nonetheless, the authors seem to believe US antitrust enforcers are going against international trends towards promoting private enforcement. Of course, private enforcement is becoming more common around the world. Numerous legislative interventions have been adopted in many areas of the world, even if they are not necessarily enthusiastically supported by competition agencies. However, my personal impression – and I emphasise that it is merely an overall feeling I have, and nothing else – is that the US agencies are still among the most favourable to private enforcement in the world; and that all competition agencies seek to protect public enforcement, if necessary by detracting from private enforcement.
This is not to say that there are no additional synergies between public and private enforcement to be explored in the US, as elsewhere. In effect, it is surprising that public bodies in the US do not engage in private antitrust enforcement more often. If one looks at statistics of damages claims brought following an infringement decision, in many jurisdictions the majority (and in some cases, the vast majority) of cases are brought by public authorities, who see it as their duty to recover the public’s money that has been unlawfully ‘stolen’ by cartelists. This is an additional policy reason for the government to bring such claims, and one on which I would have relied more intensely than the authors do in this piece.