The Challenges of Economic Proof in a The Challenges of Economic Proof in a Decentralized and Privatized European Decentralized and Privatized European Competition Policy System Competition Policy System Presentation by Presentation by Andrew I. Gavil Andrew I. Gavil Professor of Law Professor of Law Howard University School of Law Howard University School of Law Of Counsel, Sonnenschein Nath & Rosenthal, LLP Of Counsel, Sonnenschein Nath & Rosenthal, LLP Forensic Economics in Competition Law Enforcement Forensic Economics in Competition Law Enforcement Amsterdam Center for Law & Economics Amsterdam Center for Law & Economics University of Amsterdam University of Amsterdam Amsterdam, The Netherlands Amsterdam, The Netherlands March 17, 2006 March 17, 2006 Copyright Andrew I. Gavil, 2006
Transcript
The Challenges of Economic Proof in a The Challenges of Economic Proof in a Decentralized and Privatized European Decentralized and Privatized European
Competition Policy SystemCompetition Policy System
Presentation byPresentation byAndrew I. Gavil Andrew I. Gavil Professor of LawProfessor of Law
Howard University School of LawHoward University School of LawOf Counsel, Sonnenschein Nath & Rosenthal, LLPOf Counsel, Sonnenschein Nath & Rosenthal, LLP
Forensic Economics in Competition Law EnforcementForensic Economics in Competition Law EnforcementAmsterdam Center for Law & EconomicsAmsterdam Center for Law & Economics
University of AmsterdamUniversity of AmsterdamAmsterdam, The NetherlandsAmsterdam, The Netherlands
March 17, 2006March 17, 2006
Copyright Andrew I. Gavil, 2006
22
Overview of Presentation – Four PartsOverview of Presentation – Four Parts
1)1) The Role of Economic Evidence in The Role of Economic Evidence in Successfully Successfully Enforcing Competition Laws Enforcing Competition Laws in Europein Europe
2)2) American FrameworkAmerican Framework for Integrating for Integrating Economic Ideas into Antitrust -- Economic Ideas into Antitrust -- Emphasis on Role of Emphasis on Role of Expert TestimonyExpert Testimony
3)3) LessonsLessons from the American Experience from the American Experience4)4) Challenges for Challenges for Public & Private Public & Private
Enforcement inEnforcement in Europe Europe
33
Part IPart I
The Role of Economic Evidence in The Role of Economic Evidence in Successfully Enforcing Successfully Enforcing
Competition Laws in EuropeCompetition Laws in Europe
44
Building Competition Policy “Systems”
DeterrenceCompensation
SubstantiveLegal Rules
Detection
Antitrust Injury and Standing
PenaltiesRemedies
Costs of Enforcement
Deterrence & Compensation: A Complex FormulaDeterrence & Compensation: A Complex Formula
Procedural Rules
Public & Private Rights of Action
55
Current State of Competition Current State of Competition Policy in EUPolicy in EU
ECEC has been has been primary enforcerprimary enforcer– Greater Reliance on Greater Reliance on Economic ReasoningEconomic Reasoning– ECJ & CFI Demand More ECJ & CFI Demand More Economic Reasoning and Economic Reasoning and
– EC Response: EC Response: Office of CCEOffice of CCE
ParadoxParadox: EC is more : EC is more institutionally capableinstitutionally capable, but , but expansion of EU Member Statesexpansion of EU Member States means means EC EC can’t adequately policecan’t adequately police all of EU all of EU
66
The Next Phase of EvolutionThe Next Phase of Evolution
Two Stage ApproachTwo Stage Approach– DecentralizationDecentralization
Regulation 1/2003Regulation 1/2003 of 16 December 2002 of 16 December 2002 Increased Public Enforcement by Member StatesIncreased Public Enforcement by Member States
– PrivatizationPrivatizationGreen PaperGreen Paper on Private Damages Actions on Private Damages ActionsDecember 2005December 2005
Two-fold Purposes:Two-fold Purposes:– Alleviate burden on ECAlleviate burden on EC– Expand EU-wide understanding of and commitment to Expand EU-wide understanding of and commitment to
CompetitionCompetitionMore “stakeholders” with vested interestsMore “stakeholders” with vested interests
77
Major Premises of Decentralization & Major Premises of Decentralization & PrivatizationPrivatization
There is now a There is now a settled and uniform bodysettled and uniform body of of European-wide European-wide competition lawcompetition law – EC decisions, regulations, and guidelinesEC decisions, regulations, and guidelines– CFI and ECJ decisionsCFI and ECJ decisions
It is It is based on economic reasoningbased on economic reasoning
It is It is bindingbinding on the member States on the member States
It will be It will be appliedapplied by their courts in by their courts in public public and privateand private enforcement actions enforcement actions
88
Green Paper: Specific Impediments to Green Paper: Specific Impediments to Private Actions for DamagesPrivate Actions for Damages
Substantive Law IssuesSubstantive Law Issues– Concepts of FaultConcepts of Fault– Scope of Rights of ActionScope of Rights of Action– Measurement of Amount of Damages & CostsMeasurement of Amount of Damages & Costs
Procedural IssuesProcedural Issues– Access to EvidenceAccess to Evidence– Coordination of Related ActionsCoordination of Related Actions– Jurisdictional ConflictJurisdictional Conflict– Expert Evidence and WitnessesExpert Evidence and Witnesses
99
Green Paper: Invitation to Search for Green Paper: Invitation to Search for SolutionsSolutions
Proposes Various Proposes Various OptionsOptions for Discussion for Discussion to to Facilitate Private ActionsFacilitate Private Actions
GoalGoal: More : More Compensation & DeterrenceCompensation & Deterrence– Supplement EC & Member StatesSupplement EC & Member States– Directly Compensate VictimsDirectly Compensate Victims– Key Key “Promote Culture of Competition, not “Promote Culture of Competition, not
Litigation”Litigation”
1010
Decentralization and Privatization:Decentralization and Privatization:Two Critical QuestionsTwo Critical Questions
Will Will courts of Member Statescourts of Member States demand of demand of public and private parties the public and private parties the same level of same level of economic proof being demanded of ECeconomic proof being demanded of EC??
If they do, will public & private parties have If they do, will public & private parties have the the procedural and evidentiary procedural and evidentiary infrastructureinfrastructure to respond? to respond?– If not, enforcement efforts may failIf not, enforcement efforts may fail
1111
Part IIPart II
American Framework for American Framework for Integrating Economic Ideas into Integrating Economic Ideas into Antitrust -- Emphasis on Role of Antitrust -- Emphasis on Role of
Expert TestimonyExpert Testimony
1212
U.S. Antitrust Evolution: 1975-2006U.S. Antitrust Evolution: 1975-2006
A Period of Significant ChangeA Period of Significant Change::– Past history of unjustifiably Past history of unjustifiably expansive expansive
prohibitionsprohibitions– Increased reliance on Increased reliance on economic conceptseconomic concepts– Increased reliance on Increased reliance on economists and other economists and other
expertsexperts– Ascension of more Ascension of more conservative political and conservative political and
economic ideology economic ideology – courts and agencies– courts and agencies– Fewer public & private casesFewer public & private cases
1313
Access Points for Economic Ideas:Access Points for Economic Ideas:Institutional DifferencesInstitutional Differences
1. Legal Commands (legislation & regulations)2. Ideologies & Intuitions of the Decision-makers 3. Legal and Economic Commentary (“Economic Authority”)4. Parties and Third Parties (Amici before courts)5. Expert Witnesses
Antitrust Agencies Courts
External Sources of Economic Ideas Common to Agencies and Courts
1414
Checks and BalancesChecks and Balances
For CourtsFor Courts– Adversarial Adversarial
ProceedingsProceedings– DaubertDaubert/FRE 702 for /FRE 702 for
Expert WitnessesExpert Witnesses– Court Appointed Court Appointed
Note: It is much more difficult for courts to dislodge errant economics integrated into the law than it is for agencies to alter enforcement policies and priorities.
1515
The Critical Role of Appellate ReviewThe Critical Role of Appellate Review
Public Enforcement(Competition
Agencies)
PrivateEnforcement(Trial Courts)
Appellate Review(Could be > 1 level)
Implication:Economic Evidence Will Be Scrutinized
1616
Developing Economic Evidence Developing Economic Evidence in U.S. Courts Iin U.S. Courts I
What is an “expert” witnessWhat is an “expert” witness??– A witness “qualified…by A witness “qualified…by knowledge, skill, knowledge, skill,
experience, training, or educationexperience, training, or education””– Who possesses “Who possesses “scientific, technical, or other scientific, technical, or other
specialized knowledgespecialized knowledge””– That will “That will “assist the trier of factassist the trier of fact””
What can an What can an expert witnessexpert witness do that a do that a lay lay witnesswitness can not? can not?– Offer Offer opinion testimonyopinion testimony
1717
Developing Economic Evidence Developing Economic Evidence in U.S. Courts IIin U.S. Courts II
Four Stages Four Stages (Interrelated):(Interrelated):– Disclosure Disclosure (FRCP 26(a)(2))(FRCP 26(a)(2))
Identity and Report for Testifying ExpertsIdentity and Report for Testifying Experts
– Discovery Discovery (FRCP 26(b)(4))(FRCP 26(b)(4))Depositions of testifying experts (After Report)Depositions of testifying experts (After Report)
Limits for non-testifyingLimits for non-testifying
– SufficiencySufficiency (FRCP 56 & 50) (FRCP 56 & 50)Meeting a burden of productionMeeting a burden of production
“FRCP” = Federal Rules of Civil Procedure“FRE” = Federal Rules of Evidence
1818
The Intersection of Trends in Antitrust The Intersection of Trends in Antitrust and Expert Evidence: 1993-2006and Expert Evidence: 1993-2006
For Antitrust:For Antitrust:– Greater Greater reliance on economic evidencereliance on economic evidence– Increased Increased demand for economistsdemand for economists– Economists Economists treated astreated as “expert witnesses” “expert witnesses”
For EvidenceFor Evidence::– Uniform Uniform Federal Rules of EvidenceFederal Rules of Evidence - 1975 - 1975– Expanding role of “Expanding role of “expert testimonyexpert testimony””– Increased concern about “Increased concern about “junk sciencejunk science””
1919
DaubertDaubert in the Supreme Court in the Supreme Court
““fit” of methodology fit” of methodology with factswith facts
– Standard of Appellate Review: Standard of Appellate Review: abuse of abuse of discretiondiscretion
2020
Criteria of ReliabilityCriteria of Reliability
DaubertDaubert mentions mentions::– TestabilityTestability– Peer reviewPeer review– Rate of ErrorRate of Error– Existence/Maintenance of StandardsExistence/Maintenance of Standards– General AcceptanceGeneral Acceptance
But….But….flexible and unique to each area of flexible and unique to each area of expertiseexpertise
2121
Revised FRE 702 (2000)Revised FRE 702 (2000)
Incorporates Incorporates DaubertDaubert, , JoinerJoiner & & Kumho TireKumho Tire, but , but goes beyond to goes beyond to reach applicationreach application
A witness “qualified as an expert…may testify …A witness “qualified as an expert…may testify …in the form of opinion or otherwisein the form of opinion or otherwise,” if: ,” if: – (1) the testimony is based upon(1) the testimony is based upon sufficient facts or sufficient facts or
datadata, , – (2) the testimony is the product of(2) the testimony is the product of reliable principles reliable principles
and methodsand methods, and , and – (3) the witness has(3) the witness has applied the principles and applied the principles and
methods reliably to the factsmethods reliably to the facts of the case.of the case.
2222
Common Contested Areas in Antitrust Common Contested Areas in Antitrust Involving Expert TestimonyInvolving Expert Testimony
ConspiracyConspiracyMarket Power & Market DefinitionMarket Power & Market DefinitionCausationCausationExclusionary Conduct (Price & Non-price)Exclusionary Conduct (Price & Non-price)Competitive EffectsCompetitive EffectsEfficiencyEfficiencyDamages & Other RemediesDamages & Other RemediesClass Certification IssuesClass Certification Issues
2323
Efficacy of Efficacy of DaubertDaubert Motions Motions
Largely a Largely a defense tool (FTC Exception)defense tool (FTC Exception)
Motions Motions In LimineIn Limine -- -- most failmost fail
Enough succeed and serve a Enough succeed and serve a useful screening useful screening functionfunction (termination of case typically follows) (termination of case typically follows)
Some Evidence of Some Evidence of Judicial Error/Poor DraftingJudicial Error/Poor Drafting::– Conflating admissibility and sufficiencyConflating admissibility and sufficiency– Elevating Judicial View of Economics Over RecordElevating Judicial View of Economics Over Record– Elevating Burden of ProductionElevating Burden of Production
2424
Part IIIPart III
Lessons from the American Lessons from the American Experience: Integrating Experience: Integrating
Economics into LawEconomics into Law
2525
Limits of Economic EvidenceLimits of Economic Evidence
Increased reliance on economics has vastly improved Increased reliance on economics has vastly improved antitrust analysisantitrust analysis– objective benchmarks; flexibility; fewer false positivesobjective benchmarks; flexibility; fewer false positives
Three cautionary notes:Three cautionary notes:– Lack of ComprehensionLack of Comprehension
Adopting standards that are Adopting standards that are difficult to comprehenddifficult to comprehend raises burden of raises burden of production and may tend to production and may tend to over or under-deterover or under-deter
– Lost in TranslationLost in TranslationAdopting standards that are sound in theory and comprehensible, Adopting standards that are sound in theory and comprehensible, but difficult to implement owing to but difficult to implement owing to limitations on data and expenselimitations on data and expense also can also can over or under-deterover or under-deter
– Lack of Credibility and MistranslationLack of Credibility and MistranslationLegonomistsLegonomists: Lawyers and judges who don’t know their limits: Lawyers and judges who don’t know their limitsProfessional WitnessesProfessional Witnesses: the “adversarial standoff”: the “adversarial standoff”
Predatory Pricing -- Predatory Pricing -- AMRAMR & & Spirit AirlinesSpirit Airlines– Is the “below cost” standard operable?Is the “below cost” standard operable?
Causation – Causation – MicrosoftMicrosoft– Conduct and Effects on Nascent CompetitionConduct and Effects on Nascent Competition
Unilateral Effects of Mergers –Unilateral Effects of Mergers –OracleOracle– What level of certainty is needed when making What level of certainty is needed when making
predictions?predictions?
Efficiencies – Efficiencies – HeinzHeinz (Baby Food) (Baby Food)– Can efficiency rebut the structural presumption?Can efficiency rebut the structural presumption?
2727
Reliance on EconomicsReliance on Economics
Some advocate even Some advocate even greater reliancegreater reliance– CertaintyCertainty– RationalityRationality
Defense Bar sees Defense Bar sees bright lines and filtersbright lines and filters
Plaintiff’s Bar sees Plaintiff’s Bar sees moving targets and hurdlesmoving targets and hurdles
2828
Some QuestionsSome Questions
How do we How do we translatetranslate economics into operable economics into operable legal standards?legal standards?– Amenable toAmenable to accessibleaccessible proof? proof?– Consistent withConsistent with burdens of production/proof? burdens of production/proof?
How much and what kind of economic evidence How much and what kind of economic evidence is “is “enoughenough”? ”? – Always Always complex and costlycomplex and costly? No? No
In defense of bright line rules where warrantedIn defense of bright line rules where warranted
– Always Always easy and certaineasy and certain? No? NoIn defense of careful and thoughtful applicationIn defense of careful and thoughtful application
An An Economic AnalysisEconomic Analysis of of Economic EvidenceEconomic Evidence::– Does the Does the marginal valuemarginal value in terms of in terms of economic economic
certaintycertainty outweigh the outweigh the costscosts of demanding additional of demanding additional economic evidenceeconomic evidence??
Add Add proportionalityproportionality standard to standard to DaubertDaubert analysisanalysis??– Three Part InquiryThree Part Inquiry::
Is the additional evidence Is the additional evidence reasonably availablereasonably available??
If so, at what If so, at what costcost??
How much How much additional certaintyadditional certainty will it bring? will it bring?
3030
Part IVPart IV
Challenges for Public & Private Challenges for Public & Private
Enforcement in EuropeEnforcement in Europe
3131
The Major PremiseThe Major Premise
Following lead of CFI and ECJ, Courts of Following lead of CFI and ECJ, Courts of the Member Statesthe Member States will demand will demand rigorous rigorous economic proofeconomic proof in competition cases. in competition cases.– Many cases may be Many cases may be easyeasy, but…, but…– Some may involve Some may involve difficult judgment callsdifficult judgment calls, and , and
hence hence significant economic studysignificant economic study
3232
Challenges for Public Enforcers: Challenges for Public Enforcers: Capacity BuildingCapacity Building
Competition AgenciesCompetition Agencies– Will Will public enforcerspublic enforcers have the have the institutional institutional
resourcesresources and and expertiseexpertise to meet the to meet the challenge?challenge?
Need to replicate EC’s own experience?Need to replicate EC’s own experience?
– Will Will Courts Courts be be competent competent andand receptive receptive??Judicial training?Judicial training?
Procedural reform?Procedural reform?
3333
Challenges for Private ActionsChallenges for Private Actions
Will Will private partiesprivate parties have the tools and have the tools and institutional infrastructureinstitutional infrastructure necessary to necessary to successfully litigate a competition case?successfully litigate a competition case?– Access to Access to economic proofeconomic proof– Autonomy Autonomy in collection and presentation of in collection and presentation of
evidence, including evidence, including expert evidenceexpert evidence– Reasonable Reasonable burdens of productionburdens of production and proof and proof– Procedural devices for Procedural devices for filtering out weak filtering out weak
evidence, claims, and defensesevidence, claims, and defenses
3434
Green Paper LimitationsGreen Paper Limitations
Options 1-5 on Options 1-5 on Disclosure & ProductionDisclosure & Production– No discussion of expert-specific issuesNo discussion of expert-specific issues – No contemplation of party-expertsNo contemplation of party-experts
Limited Direct Discussion of Economic Limited Direct Discussion of Economic Proof Proof ((¶¶ 255-60)¶¶ 255-60)– Notes Notes variationsvariations in lay/expert witness in lay/expert witness
practices among Member Statespractices among Member StatesDistinction between Distinction between party-proffered and court-party-proffered and court-appointed expertsappointed experts
3535
Option 35Option 35
Three Pronged ApproachThree Pronged Approach::– Court-Appointed Expert Court-Appointed Expert – Judicial TrainingJudicial Training– EC as AmicusEC as Amicus
Rationale for Rejecting Party ExpertsRationale for Rejecting Party Experts??– Lower evidentiary valueLower evidentiary value– Increased litigation costsIncreased litigation costs
3636
Option 35 – Some QuestionsOption 35 – Some Questions
Does Option 35 Does Option 35 Understate Likely Party Use of Their Understate Likely Party Use of Their Own ExpertsOwn Experts??– Prepare casePrepare case– Respond to oppositionRespond to opposition– Scrutinize court-appointed expertScrutinize court-appointed expert– Satisfy burdens of production and proofSatisfy burdens of production and proof
Without Without testifyingtestifying Party-Experts, will parties be Party-Experts, will parties be adequately equipped to meet evidentiary burdensadequately equipped to meet evidentiary burdens??– If not, will the If not, will the Green Paper goalGreen Paper goal of facilitating private damages of facilitating private damages
actions be actions be frustratedfrustrated??– If frustrated, is the “problem” the If frustrated, is the “problem” the level of economic evidencelevel of economic evidence
being demanded or the being demanded or the inadequacy of the tools available to inadequacy of the tools available to present itpresent it??
