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The Treatise That Has Misled Antitrust Lawyers for Decades


Sandeep Vaheesan (@sandeepvaheesan) is the legal director at the Open Markets Institute.

Andy Fitch is a 3L at Columbia Law School and was the Louis Brandeis Fellow at the Open Markets Institute in Summer 2023.

Imagine you’re a federal judge, or clerking for a judge, anxiously hearing your first antitrust case. A manufacturer alleges that a larger rival has marginalized it in the relevant market by entering into exclusive arrangements with all its distributors. To determine whether this action violates the law, you need to figure out what share of market foreclosure, or the percent of distribution channels tied up by the defendant in this case, is necessary to violate Section 3 of the Clayton Act. Thankfully, you’ve got “The Treatise” — Antitrust Law: An Analysis of Antitrust Principles and Their Application — by Herbert Hovenkamp and the late Philip Areeda. Treated as the gold standard of antitrust analysis, retired Supreme Court Justice Stephen Breyer has declared that “most practitioners would prefer to have two paragraphs of [the Areeda-Hovenkamp] treatise on their side than three Courts of Appeals or four Supreme Court Justices.” Legal scholar Rebecca Haw Allensworth notes that the treatise was cited by over 700 federal court decisions between 1989 and 2015.

You crack open this fount of antitrust wisdom and discover, in paragraph 1821, Hovenkamp’s 30% presumption: exclusive dealing that forecloses competitors from less than 30% of a market should be presumed legal. You apply this 30% test to your defendant’s share in the relevant market and voila, there is no violation. Pretty simple. For good measure, you paste Hovenkamp’s judicial record — the footnote lists 21 cases! — offering copious proof that you’ve faithfully followed the law. And you still can make happy hour.

The scene painted above, which has played out in literally hundreds of chambers, represents a travesty of antitrust law. Despite the treatise’s renown and influence, digging deeper into the treatise suggests not an impartial review of the law, but a volume that appears to be closer to a defense-side brief clothed in academic garb. For this post, we examined just two topics — thresholds for substantial exclusive-dealing foreclosure and an efficiencies defense for mergers — and found misleading accounts of the law in both. Based on a review of other treatise topics and Hovenkamp’s extra-treatise commentary, we doubt that these are two isolated aberrations. Accordingly, we believe the treatise has had a pernicious influence on antitrust law for decades, and the time has come for lawyers in the field to do their own research again.

The Foreclosure Threshold

Let’s return to Hovenkamp’s analysis of exclusive-dealing law. Paragraph 1821c says:

Picking the correct number is somewhat arbitrary, but in the absence of conduct evidence independently indicating sufficient power[,] single-firm foreclosure percentages of less than 30 percent in a properly defined market would seem presumptively harmless to competition. The exception would be when the evidence indicates upstream collusion or oligopoly using exclusive dealing as an entry-deterrence device.34

The supporting footnote that lists 21 cases packs an authoritative wallop, seeming to provide abundant support for Hovenkamp’s claim about the 30% figure.

Unfortunately, when one actually reads the cases Hovenkamp cites, they don’t support the 30% presumption. Hovenkamp’s own case descriptions, for example, rarely present a fact pattern approaching his 30% threshold. Moreover, upon reading the cited opinions themselves, the judicial record looks significantly worse for this 30% threshold. The treatise text and the footnoted material omit, for instance, critical distinctions between exclusive-dealing claims brought under the Clayton Act versus the Sherman Act. While Section 3 of the Clayton Act only covers the marketing of commodities, Congress designed this section to stop exclusive dealing in its “incipiency” — before it “substantially lessen[s] competition” — or “tend[s] to create a monopoly.” Congress indeed passed the Clayton Act to remedy perceived deficiencies in judicial interpretations of the Sherman Act. Though the treatise elsewhere admits that a “likely majority” of cases treat Section 3 as substantively broader in scope than Section 1 of the Sherman Act, 10 of 21 cases here offer no relevant Section 3 analysis, yet Hovenkamp never acknowledges their limited applicability as precedents in Section 3 suits.

Overall, this treatise’s statement that foreclosure shares below 30% “would seem presumptively harmless” proves itself to be misleading and inadequately substantiated, in multiple respects:

  • 0 of 21 cases that Hovenkamp’s footnote cites addressed a Section 3 claim in which foreclosure greater than 22% was found legal.
  • 15 of 21 fact patterns did not meet nor do these opinions express endorsement of Hovenkamp’s 30% threshold.
  • 8 of 21 cases involved foreclosure of 10% or less.
  • 2 of 21 cases expressly provided a presumptive legality threshold well below 30%.
  • 4 of 21 opinions rejected the plaintiff’s market definition, and as such did not need to decide what level of foreclosure is necessary to establish a violation.

On closer examination, what appears to be a straightforward description of the judicial record is a subtle fudge — based on misrepresentation of the case law — to raise the legal burden on plaintiffs in exclusive-dealing cases. By relying on the treatise and its inaccurate presentation of the law, a judge may incorrectly exonerate a firm for using exclusive dealing. This is not a theoretical worry either. Firms across the economy have been accused of improper exclusive dealing with trading partners as a means of maintaining their market power.

This does not appear to be a one-off rewriting of the law.

Efficiencies Defense for Presumptively Illegal Mergers

Consider another antitrust topic of importance and a subject of current debate, particularly now with the release of new draft merger guidelines from the Department of Justice and the Federal Trade Commission. Can a merger between rivals that is presumptively illegal, due to the firms’ substantial market shares, be excused because it will create productive efficiencies, such as economies of scale, and potentially lower prices for consumers? Here the treatise reads more like a brief on behalf of merging corporations. Hovenkamp writes:

[P] reventing an efficient merger is likely to be futile. Neither the statutory language nor the legislative history forecloses the defense, and the judicial opinions intimating or stating the contrary are internally contradictory or otherwise unpersuasive.

If the government stopped an efficiency-enhancing merger, Hovenkamp suggests, an incumbent firm would simply expand, or new entrants would pursue significant scale, thereby potentially increasing market concentration. According to Hovenkamp’s logic, let’s assume that either new entry or construction of new capacity would take place in the wake of a blocked merger. Either development would be different from, and socially superior to, the acquisition of existing capacity. Entry and internal expansion augment collective productive capabilities and can involve the adoption of new production methods, as discussed below. Hardly a story of futility.

What about the statutory text? On its surface, Section 7 of the Clayton Act is silent about efficiencies and appears to provide little guidance one way or another. But the fact that Section 7 includes no such efficiencies or cost-justification provision suggests Congress did not intend for merger law to include an efficiencies defense. Look at the Clayton Act more broadly: In Section 2(a) of the statute, Congress included a cost-justification defense against price discrimination claims. Federal legislators were aware of operational efficiencies and included such a defense elsewhere in the Clayton Act.

The courts have also disapproved of an efficiencies defense. In the 1960s, the Supreme Court rejected such a defense in three cases involving three distinct fact patterns and efficiency claims. In a 2016 merger decision, the Third Circuit cited these precedents and wrote, “[W] e are skeptical that such an efficiencies defense even exists.” In the 1967 case FTC v. Procter & Gamble, the Supreme Court stated, “Possible economies cannot be used as a defense to illegality,” which the D.C. Circuit in 2017 described as the decision’s “the clear holding.”

In contrast to the D.C. and Third Circuits, Hovenkamp tries to minimize the import of the older Supreme Court decisions. For instance, he describes Procter & Gamble as only rejecting “possible economies” as a defense, while leaving open economies that can be verified as a justification. Whereas the D.C. Circuit saw a “clear holding” in the Procter & Gamble Court’s rejection of an efficiencies defense, Hovenkamp finds ambiguity, which he uses to advance a defendant-friendly interpretation of the law. As Hovenkamp notes, some lower courts, including the D.C. Circuit itself, have formally recognized an efficiencies defense, notwithstanding the Supreme Court case law. He elevates these decisions over Supreme Court precedent and validates the lower courts’ insubordination toward the highest court in the land.

Ignoring the Supreme Court precedent and the skepticism expressed by multiple lower courts, Hovenkamp eschews the nuance one would expect from a treatise. He asserts, “While relatively few decisions have found efficiencies alone to be sufficient to offset a prima facie case of illegality, they have been unanimous in recognizing an efficiency defense in principle.” Notably, the footnote does not support his claim about the efficiencies defense being successfully invoked on a few occasions: None of the cases he cites involved efficiencies overcoming a prima facie case of illegality for a merger. Contrary to Hovenkamp’s statement, in October 2020, a district judge wrote, “The Court is not aware of any case, and Defendants have cited none, where the merging parties have successfully rebutted the government’s prima facie case on the strength of the efficiencies.” Once again, Hovenkamp distorts the record.

Hovenkamp’s merger analysis outside the treatise further reveals a zealous academic ally of the corporate defense bar, a posture not consistent with his standing as a dispassionate treatise writer. In a June tweet, he likened Brown Shoe v. United States, a landmark antitrust case decided by the Supreme Court in 1962, to the Court’s infamous decision in Plessy v. Ferguson. He subsequently deleted the tweet. More than an oddly inflammatory stray remark that’s wrong on the point of law itself (Brown Shoe remains good precedent), Hovenkamp engages in a grotesque, funhouse-mirror reimagining of the antitrust laws. Per his take, a strong anti-merger decision, which aimed to honestly interpret an egalitarian statute, becomes akin to a ruling that reinforced and advanced white supremacy.

Or consider Hovenkamp’s criticism of the new proposed merger guidelines. He questioned the Brown Shoe Court’s and the agencies’ stated preference for internal expansion vis-à-vis growth through mergers and acquisitions. Among his other claims: “New entry requires the addition of new assets into a market, and the possible ruin or waste of older ones.” As a general matter, is the displacement of older production methods by newer, more efficient ones now an antitrust evil? By way of example, is the loss of market share by older, energy-intensive steel mills to newer plants using cleaner or more efficient techniques something to lament? Turning to a matter of global importance, Hovenkamp’s claim, taken literally, means the growth of zero-carbon electricity at the expense of coal-fired power generation is undesirable. That is an odd perspective for a leading light in a field that is hyper-focused, at least rhetorically, on the promotion of investment and innovation. It’s similarly odd, as we’ve shown, for Hovenkamp to substitute his own values in for those of actually authoritative sources.

* * *

Antitrust practitioners should stop treating the Hovenkamp treatise, which covers seemingly every antitrust topic, as a “straight description” of the law. Rather, just like every other legal document, it should be read with a critical eye. In its subtle reinventions of the case law and in its omissions, the treatise appears to function as a brief for the defense bar. Lawyers and judges should bear that in mind when they next think of relying on the treatise as a go-to legal authority that precludes the need to dig deeper into the underlying statutory law and judicial precedents. We encourage other lawyers and law students to identify other topics on which the treatise may be leading us astray.