“Sovereignty” is the quality of ultimate political power; it is the power resting on the use of violence. In a purely free society, each individual is sovereign over his own person and property, and it is therefore this self-sovereignty which obtains on the free market.
--Murray Rothbard, Man, Economy & State.
Arlington, Virginia (October 10, 2008) — The Voluntary Trade Council, Inc. has ceased operations, founder and president S.M. Oliva announced today. Oliva said U.S. antitrust regulators will continue to gain power in the coming years and that there was no reason to maintain a token opposition campaign.
“Six years ago, I established the Voluntary Trade Council to rectify the lack of meaningful antitrust criticism within the public policy community. Along the way, I have met a number of hard-working, creative individuals who found themselves entangled in the criminal misconduct of the Federal Trade Commission and Department of Justice. These people — the real America — are why I kept things going despite a lack of funds or institutional support.
“But now it’s time for me to move on. The fight against antitrust — a small battle in the larger campaign to restore individual rights — cannot be won in Washington DC or through the failed nonprofit ‘think tank’ model. Someday, antitrust will pass into the dustbin of history, but it won’t be today.”
Oliva added that he was grateful to one particular group of individuals. “For the past several years, I have been grateful to the shareholders and supporters of Rambus Incorporated for their contributions and words of encouragement. The FTC’s long-running illegal war against Rambus has offered a glimpse at just how destructive antitrust can be. While I wish Rambus well as it continues its its particular fight — one that it will win — I also recognize that this case is but the first battle in a long war that will inevitably claim billions in capital and the livelihoods of millions of people.”
Unlike the government of the United States, the Voluntary Trade Council ended its run free of debt or other outside obligation. The group’s long-running website, www.voluntarytrade.org/joomla15, will remain open to the public until early 2009. In lieu of future contributions, the Voluntary Trade Council urges opponents of antitrust to support the Ludwig Von Mises Institute, an Auburn, Alabama-based research center devoted to the Austrian School of economics. Mr. Oliva will continue to write on antitrust subjects for the Mises Institute’s weblog at www.mises.org.
Ryan Radia discusses a possible Dish Network-DirecTV merger in the wake of the recent XM-Siruis deal. Radia’s not optimistic about the antitrust community’s response to such a proposal:
A Dish-DirecTV deal would also likely generate a flurry of opposition from cable competitors, worried that a combined Dish-DirecTV would be better positioned to compete in years to come thanks to the cost savings stemming from consolidation. Launching a geostationary orbital satellite isn’t cheap or easy—DirecTV infamously touted plans to carry a hundred high-def channels for what seemed like eons before the satellite needed to provide proclaimed capacity actually went live. Combining Dish Network’s fleet and DirecTV’s would give bandwidth-rich television competitors like Verizon a serious run for their money, and the resulting cost savings would allow Dish-DirecTV to offer better bargains to subscribers.
Still, it would come as little surprise if none of these facts were enough to ward off antitrust officials, who are notorious for winnowing down the definition of a market to the point where practically every firm can be defined as a monopoly. Regulators are struggling for a reason to exist as technological progress continues to erode entry barriers. Intervening in the wealth-creating sector by imposing restrictive conditions on otherwise efficient mergers is a convenient excuse for antitrust watchdogs to stay in the spotlight long after the need for “competition police” has evaporated.
I don’t know if regulators are “struggling for a reason to exist” so much as they’re emboldened by the challenge of destroying new wealth creation. Political support for the antitrust community remains strong despite increasing criticism from economists and free-market advocates. Remember, companies in the “wealth-creating sector” tend to be poor lobbyists, which makes them easy prey for established (but less efficient) firms and their regulatory allies. As long as that dynamic remains, antitrust regulators will never be out of a job.
Tags: DirecTV, Dish Network, Ryan Radia, Sirius, XM
The men’s professional tennis tour (ATP) won a jury verdict in an antitrust challenge to the tour’s rules regarding tournament structure. Rick Karcher of Sports Law Blog writes,
In this case, the ATP was essentially required to prove that its new scheduling format was adopted in good faith. There needs to be a legal standard that allows judges to dismiss antitrust challenges to rules that relate to the governing body’s core functions and purposes. Examples of such rules include rules regarding tournament/event format, scheduling and location, playoff structure, player rankings and playing conditions. When a third party challenges such a rule, it should be deemed to have been adopted in good faith unless the third party presents “clear and convincing evidence” to a judge that the rule was not made in good faith.
Tags: ATP, Rick Karcher, tennis
The D.C. Circuit’s decision in the Whole Foods-Wild Oats case leaves a number of open questions. One is who will ultimately try the case if it is returned to the FTC for “administrative” proceedings.
To clarify the situation (as best one can): There are two separate but related cases. The first is the FTC’s administrative complaint challenging the now-completed Whole Foods-Wild Oats merger as a violation of the Federal Trade Commission Act. This complaint is heard under an administrative process. This case has been stayed pending the outcome of the second case, which involved an FTC petition to the U.S. district court in Washington asking for a stay of the merger before it had been completed. The district court denied that injunction. Last month’s D.C. Circuit decision said the district court erred and it returned the injunction case for further proceedings. The district court may now attempt to fashion some sort of post-merger injunction that would establish the condition of Whole Foods during the administrative trial of the first case.
But who will try the first case? Up until this year, the FTC would have appointed an administrative law judge to preside over a trial where FTC-appointed staff prosecutors would present evidence. Earlier this year, however, the FTC abandoned this process in the Inova Health System-Prince William Health System case when it named a member of the Commission, J. Thomas Rosch, to sit as ALJ. As I wrote at VoluntaryTrade.org:
In a two-page order, the FTC explained that ‘based on his 40 years of experience as a trial lawyer, predominantly in the context of complex competition law cases,” Rosch was “the best available candidate to sit as a trier of fact in this case.”
FTC rules do allow a commissioner to act as an ALJ, but there is no recent precedent for such an action. There is, however, a recent history of the FTC’s chief administrative law judge, Stephen J. McGuire, ruling against the FTC and its staff in key cases. In 2002 McGuire dismissed the FTC’s monopolization complaint against Rambus Incorporated. And last year, McGuire dismissed the FTC’s complaint against a Michigan real estate brokerage group in a challenge to the Commission’s efforts to impose new regulations on multiple-listing services. The FTC also faced a setback last year when a district court refused to grant a preliminary injunction that would have stopped Whole Foods Markets acquisition of Wild Oats Markets.
Without further explanation from the FTC, it’s reasonable to infer that the Commission did not want to risk losing a merger challenge before an independent ALJ or an uncooperative district judge. Rosch is a career antitrust lawyer whose interests coincide with those of the FTC staff. It’s hard to imagine a scenario where he dismisses a complaint brought by the staff he oversees and approved by his three fellow commissioners. In contrast, Judge McGuire and the Article III judges who have ruled against the FTC are not members of the antitrust community; they possess a modicum of independence that somewhat levels the playing field for defendants.
If Rosch was the most qualified person to hear the Inova case — and he wasn’t, McGuire was — then by the FTC’s reasoning he’d also be the most qualified person to hear the Whole Foods case. Judge McGuire’s recent retirement would seem to strengthen the idea that Rosch will be appointed ALJ in Whole Foods. (This would also explain why the FTC didn’t appoint an ALJ last year before the case was stayed.)
And it’s a foregone conclusion that “Judge” Rosch would uphold the FTC’s complaint against Whole Foods. After all, he supervised the staff investigation into the case; he approved the complaint and the litigation strategy to date; and he’s made numerous public speeches claiming new and broader powers for the FTC in merger review cases. Which ultimately means the administrative trial will be a sham.
Whole Foods CEO John Mackey has been a forceful and eloquent opponent of the FTC to date, but I suspect his board won’t let him spend shareholder dollars on several additional years of litigation where the outcome — at least at the FTC level — has been predetermined. If the D.C. Circuit decision isn’t overturned by the court itself on rehearing or the Supreme Court (and I think there’s a better-than-even chance one of those things will occur), Whole Foods may be forced to “settle” by selling off some stores to an FTC-selected buyer.
Tags: FTC, J. Thomas Rosch, John Mackey, PWHS, Whole Foods, Wild Oats
The Wall Street Journal reported today that China’s State Council published new rules on Monday to enforce the country’s new antitrust law. Among the rules are minimum thresholds to trigger “pre-merger” review. (In most antitrust regimes, governments force companies to “report” mergers over a certain value before they can be completed.) Interestingly, China’s thresholds are far less onerous then those impose by U.S. antitrust authorities. Chinese pre-merger review will be triggered when the merged firms’ combined revenue exceeds approximately $1.5 billion. That’s more than ten times the U.S. threshold, which can apply to firms with combined revenues of just $110 million.
Tags: China, premerger review, Wall Street Journal
If you thought internet censorship was just for Olympic-hosting Chinese communists, consider this ominous paragraph at the former Road to Healing website:
Due to threatened Federal Trade Commission legal action we have had to close this web site. We did not understand the legal distinction between “treating cancer” which it appears may only be done by a licensed physician using standard medical practices, and offering of nutritional products for general well being and support of normal structure and function, including for individuals who had been diagnosed with cancer. Any customers who need to contact us may do so at: contact@roadtohealing.com or 318-449-9494. We are no longer offering the dietary supplements we provided but believe that they are available from other sources. We apologize for any inconvenience this may cause.
This appears to be part of the FTC censorship campaign that tried to snare Native Essence.
Tags: China, FTC, Native Essence, Road to Healing
Stephen J. McGuire, one of two administrative law judges assigned to the Federal Trade Commission, retired from government service today after a combined 31 years as an ALJ with a number of federal agencies. McGuire has accepted a position as vice president for compliance and ethics at the University of Louisville Hospital.
McGuire’s major FTC legacy will be his initial decision in the Rambus case. In a masterful opinion topping 300 pages, McGuire credibly dismantled every factual and legal antitrust allegation against Rambus. The FTC overruled McGuire on appeal — going so far as to change McGuire’s assessment of individual witness credibility — but the D.C. Circuit’s opinion earlier this year vindicated McGuire’s skepticism towards the agency’s weak evidence and novel antitrust theories.
Ultimately, McGuire’s Rambus legacy may weaken his successor. Several FTC officials, notably Commissioner John Thomas Rosch, have publicly attacked McGuire and his fellow ALJ, D. Michael Chappell, for exercising independent judgment as non-antitrust experts over the work of FTC staff attorneys. Rosch, who spent four decades as an antitrust litigator, has argued only career antitrust lawyers should hear FTC antitrust cases. To that end, the FTC bypassed McGuire and Chappell (in violation of the agency’s rules) and appointed Rosch to act as ALJ in the case against the now-abandoned Inova/Prince William Hospital merger. Maybe McGuire took the hint and realized he’d never be allowed to preside over a major antitrust case again.
It’s ironic that McGuire will now advise a hospital on ethics and compliance after the FTC went out of its way to keep McGuire out of the Inova hospital case. Of course, McGuire was no free-market champion: He also upheld a post-merger challenge to an Illinois hospital merger that could have had disastrous consequences had his initial decision been affirmed as written.
Tags: D.C. Circuit, FTC, hospitals, J. Thomas Rosch, Rambus, Stephen J. McGuire
Manfred Gabriel has a lengthy analysis of the Whole Foods decision at Antitrust Review. His conclusion: “The Whole Foods opinion is a step backward and it runs counter to the strong trend in recent Supreme Court jurisprudence for economic rigor and clear standards to guide businesses and the agencies.”
Tags: FTC, Manfred Gabriel, Whole Foods
Russia wants to adopt the U.S. policy of imprisoning people for talking about the prices of their own products:
The Federal Anti-Monopoly Service said Thursday it would soon propose amendments to the Criminal Code that would introduce criminal liability for company executives responsible for price collusion and monopolistic activities in key sectors of the economy.
The proposal, which would make violation of anti-monopoly rules punishable by up to 10 years in jail, was backed by Prime Minister Vladimir Putin at a Wednesday meeting with anti-monopoly service chief Igor Artemyev.
“You must do what you must to protect the consumer, as well as to promote economic development because cartel collusion can lead to stagnation,” Putin said, Interfax reported.
The proposal is part of an effort to curb rampant price collusion and combat the formation of cartels, Yelena Nagaichuk, a spokeswoman for the service, said Thursday.
It comes just days after Putin attacked the country’s biggest coking coal producer, Mechel, calling for law enforcement agencies to investigate the firm over purported illegal price-fixing and transfer pricing. Putin’s comments and subsequent probes into Mechel caused its stock price to fall by nearly half in less than a week.
[ . . . ]
Sergei Voitishkin, a corporate and M&A partner at Baker & McKenzie, said the existing anti-competition law contained sufficient penalties.
“The new rules appear to be part of the ongoing government effort to clamp down on companies with a dominant position in the market to keep prices in check,” Voitishkin said. “However, the provision for 10 years’ imprisonment for an economic crime such as forming a cartel may be way too tough.”
Voitishkin said the country also needed to address the issue of laws “being applied selectively,” especially in cases where they could be abused by overzealous state officials.
Putin’s proposal is the direct consequence of lobbying from U.S. antitrust officials to adopt their approach to criminal enforcement. (In 2004, Congress increased the maximum imprisonment term for Sherman Act violations from three to ten years.) But if it were me, I’d reconsider my policy when Vladimir Putin rushes to embrace it.
One more thing: In recent years the Justice Department has been targeting non-U.S. individuals for harsher treatment in Sherman Act cases. Expect Putin to follow that same example against non-Russians.
Tags: cartels, price fixing, Russia, Vladimir Putin
Tim Beyers, writing at the Motley Fool, offers some interesting explanations for the FTC’s ongoing pursuit of Whole Foods.
Tags: FTC, Motley Fool, Tim Beyers, Whole Foods
Stolt-Nielsen Transportation Group and its law firm, White & Case, continue their winning ways against the Justice Department’s Antitrust Division. Last week the D.C. Circuit Court of Appeals reinstated an old Stolt-Nielsen lawsuit demanding to see the Division’s “amnesty agreements” under the Freedom of Information Act.
Tags: DOJ, FOIA, Stolt-Nielsen
Today the FTC violated the property rights of McCormick and Company. The FTC whined and complained that McCormick’s acquisition of two product lines from Unilever N.V. would undermine competition in a vital market:
[T]he relevant product market in which to assess likely competitive effects is the manufacture and sale of branded seasoned salt products inthe United States. Branded seasoned salt includes products that are composed of several different kinds of spices, including seasoned salt, garlic salt, and reduced-sodium varieties. According to the FTC, the U.S. market for branded seasoned salt is highly concentrated, with McCormick’s Season-All and Lawry’s products comprising most of the $100 million in annual sales. McCormick and Lawry’s have strong brand followings, and evidence indicates that if faced with a five to ten percent increase in the prices of branded seasoned salt, consumers would not switch to other spice blends or seasoned salt products.
So the FTC forced McCormick to sell one of its seasoned salt lines to rival Morton International Inc. It’s great for Morton — why compete in a free market when the FTC can simply hand you a competitor’s product? But it’s not so good if you’re a McCormick shareholder or, I dunno, a fan of private property rights in general.
Jeffrey Schmidt, the lying sack of shit in charge of the FTC’s antitrust unit, patted himself on the back for another job well done: “With Morton taking ownership of the Season-All brand, the Commission is ensuring that vibrant competition in the seasoned salt market will continue.” It seems to me that Schmidt, not Morton, is the real owner of the Season-All brand, since Schmidt has already made it clear that he — and neither McCormick nor Morton — ultimately controls the use of the product.
Tags: Jeffrey Schmidt, lying sack of shit, McCormick, Morton, salt
Douglas A. McIntyre argues that a successful FTC “undoing” of the Whole Foods-Wild Oats merger would actually benefit Whole Foods:
If Wild Oat has to be spun back out, it would need to re-brand it stores, add expensive management, and undertake its own marketing, In other words, it would be a severely weakened competitor for Whole Foods instead of a thorn in the side of WFMI shareholders.
Shares in WFMI are off well over 40% this year. Stocks in many other major food retailers are closer to flat. Part of the may be due to the concern that premium products do poorly in a recession. But, part may have to do with the fact that Wild Oats stores were considered weaker as a group than the original Whole Foods chain.
If WFMI gets to rid itself of the company it got in the buy-out, its shares might get back from $22, near their 52-week low, to the $30 to $40 range.
Well that couldn’t be what the FTC intended.
Tags: Douglas A. McIntyre, FTC, Whole Foods
Legal Times quotes an antitruster who thinks Whole Foods must surrender:
“Rather than trying to unscramble the eggs and saying the two chains can’t merge, the district court may focus on specific locations where there are only two stores and require the chains to sell off one store to a third party,” says Jane Willis, a partner in Ropes & Gray’s antitrust practice in Boston.
“It wouldn’t surprise me if they came to a settlement instead of further litigating the matter,” she adds.
The combined companies have almost 300 stores. Willis says there are 18 cities where the FTC contends divesting some stores may be required to avoid creating a monopoly.
According to Willis, the D.C. Circuit opinion places an unusual emphasis on the stores’ core customers, who would presumably continue to frequent the premium natural and organic food stores even if their prices rose, instead of their marginal customers, who would seek out alternatives if Whole Foods increased its prices.
Willis dubs this the major takeaway from the opinion: “With respect to market definition, people historically think about the marginal customers and where they go in the event of price increases. This marks an increased emphasis on the core customers.”
Geoffrey Manne, writing at Truth on the Market, criticizes this emphasis on “core customers”:
Yes, throw out 30-odd years of antitrust economics and the very concept of the marginal consumer. Here’s the court’s theory: If a bunch of inframarginal consumers really like products X and Y but not similar-but-slightly-different-and-cheaper product Z, a merger between X and Y would enable the combined firm to gouge the inframarginal consumers, regardless of the effect on the marginal folks. Sure the marginal guys will shop at Safeway if the price rises too much–but who cares? There’s always a “core” of super premium and organic supermaket addicts to take advantage of–folks who just can’t resist all those free samples and faux-wood floors!
OK. Except–correct me if I’m wrong–if price discrimination were possible before the merger as well as after (and there’s no reason why this would change), the core folks were already being gouged! Effective product differentiation may make the market price higher for a subset of goods–but this higher market price would prevail even with lots of competition.
The court here claims that the real damage will occur in prices of perishables, because organic produce bought at a Whole Foods is qualitatively different than organic produce bought at Safeway, and this is what the core shoppers bought at the premium stores. But if that were true post-merger, it would be tru pre-merger, as well, right? There aren’t any merger-specific effects that I am aware of. Again–correct me if I’m wrong–but I don’t think any of the evidence in the case suggested that there could be a significant non-transitory effect on the price of “PNO” produce. Yes, some evidence suggests produce prices are higher at PNOS’s than at typical grocery stores, but is there evidence that the price could be even higher if Wild Oats exited a market? The concurrence points to the FTC’s supposition that enough people would be diverted from Wild Oats to Whole Foods to sustain a 5% price increase, but I’m not sure that there was any evidence to support this claim (particularly since the FTC’s economist didn’t look at prices, but rather at profit margins).
Rob Plaza adds:
Let’s put Whole Foods’ market position into perspective. If Wal-Mart allocated just 10% of its grocery sales (or about 3 aisles per store) to selling organic foods, its sales from organic foods would exceed that of Whole Foods. Now, that’s market power. It’s time to let this case go away.
Randy Picker of the University of Chicago wonders how the FTC can “unscramble the eggs”:
The next steps forward should be interesting, first as to whether the FTC can actually make out its case and then what to do if the merger is found to violate Section 7 of the Clayton Act. I assume—but don’t know to be sure—that large parts of the overall corporate structure of running Wild Oats have vanished and wouldn’t be readily rebuilt.
A commenter at Wash Park Prophet worries that the FTC’s efforts to “protect” him may backfire:
My main interest is in preserving the Washington Park Wild-Oats-now-Whole-Foods. Originally I was fearful that the merger would end in its closure due to the proximity of the Cherry Creek Whole Foods. Now that the physical conversion of the Wash Park location to Whole Foods is nearly complete, I fear a cancelation of the merge would introduce additional costs to physically revert back to Wild Oats, threatening its existence once again.
Finally, you can read the official Voluntary Trade Council press release at this link.
Tags: FTC, Whole Foods