The Challenges of Economic Proof in a
Decentralized and Privatized European
Competition Policy System
Presentation by
Andrew I. Gavil
Professor of Law
Howard University School of Law
Of Counsel, Sonnenschein Nath & Rosenthal, LLP
Forensic Economics in Competition Law Enforcement
Amsterdam Center for Law & Economics
University of Amsterdam
Amsterdam, The Netherlands
March 17, 2006
Copyright Andrew I. Gavil, 2006
Overview of Presentation – Four Parts
1) The Role of Economic Evidence in
Successfully Enforcing Competition Laws
in Europe
2) American Framework for Integrating
Economic Ideas into Antitrust -Emphasis on Role of Expert Testimony
3) Lessons from the American Experience
4) Challenges for Public & Private
Enforcement in Europe
2
Part I
The Role of Economic Evidence in
Successfully Enforcing
Competition Laws in Europe
3
Building Competition Policy “Systems”
Deterrence & Compensation: A Complex Formula
Procedural
Rules
Public & Private
Rights of Action
Antitrust Injury
and Standing
Penalties
Remedies
Detection
Substantive
Legal Rules
Costs of
Enforcement
Deterrence
Compensation
4
Current State of Competition
Policy in EU
EC has been primary enforcer
– Greater Reliance on Economic Reasoning
– ECJ & CFI Demand More Economic Reasoning and
Economic Evidence
GE/Honeywell; AirTours; Schneider Electric; Tetra Laval
– EC Response: Office of CCE
Paradox: EC is more institutionally capable, but
expansion of EU Member States means EC
can’t adequately police all of EU
5
The Next Phase of Evolution
Two Stage Approach
– Decentralization
Regulation 1/2003 of 16 December 2002
Increased Public Enforcement by Member States
– Privatization
Green Paper on Private Damages Actions
December 2005
Two-fold Purposes:
– Alleviate burden on EC
– Expand EU-wide understanding of and commitment
to Competition
More “stakeholders” with vested interests
6
Major Premises of Decentralization &
Privatization
There is now a settled and uniform body of
European-wide competition law
– EC decisions, regulations, and guidelines
– CFI and ECJ decisions
It is based on economic reasoning
It is binding on the member States
It will be applied by their courts in public
and private enforcement actions
7
Green Paper: Specific Impediments to
Private Actions for Damages
Substantive Law Issues
– Concepts of Fault
– Scope of Rights of Action
– Measurement of Amount of Damages & Costs
Procedural Issues
– Access to Evidence
– Coordination of Related Actions
– Jurisdictional Conflict
– Expert Evidence and Witnesses
8
Green Paper: Invitation to Search for
Solutions
Proposes Various Options for Discussion
to Facilitate Private Actions
Goal: More Compensation & Deterrence
– Supplement EC & Member States
– Directly Compensate Victims
– Key “Promote Culture of Competition, not
Litigation”
9
Decentralization and Privatization:
Two Critical Questions
Will courts of Member States demand of
public and private parties the same level of
economic proof being demanded of EC?
If they do, will public & private parties have
the procedural and evidentiary
infrastructure to respond?
– If not, enforcement efforts may fail
10
Part II
American Framework for
Integrating Economic Ideas into
Antitrust -- Emphasis on Role of
Expert Testimony
11
U.S. Antitrust Evolution: 1975-2006
A Period of Significant Change:
– Past history of unjustifiably expansive
prohibitions
– Increased reliance on economic concepts
– Increased reliance on economists and other
experts
– Ascension of more conservative political and
economic ideology – courts and agencies
– Fewer public & private cases
12
Access Points for Economic Ideas:
Institutional Differences
External Sources of Economic Ideas
Common to Agencies and Courts
1.
2.
3.
4.
5.
Legal Commands (legislation & regulations)
Ideologies & Intuitions of the Decision-makers
Legal and Economic Commentary (“Economic Authority”)
Parties and Third Parties (Amici before courts)
Expert Witnesses
Antitrust Agencies
Internal Sources
Political Appointees
Staff Economists
Courts
Internal Sources
Judges/Justices
Clerks
Juries
Court Expert (FRE 706)
Guidelines (Judicial & Agency)
13
Checks and Balances
For Courts
– Adversarial
Proceedings
– Daubert/FRE 702 for
Expert Witnesses
– Court Appointed
Expert (FRE 706)
– Appellate Review
but not for SCT
– Legislative Review
For Agencies
– May not always have
adversarial
proceedings
– No Daubert-type
Requirement
– Permanent Staff of
Economists
– Internal Review
– Judicial Review
– Legislative Review
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.
14
The Critical Role of Appellate Review
Public
Enforcement
(Competition
Agencies)
Private
Enforcement
(Trial Courts)
Implication:
Economic Evidence
Will Be Scrutinized
Appellate Review
(Could be > 1 level)
15
Developing Economic Evidence
in U.S. Courts I
What is an “expert” witness?
– A witness “qualified…by knowledge, skill,
experience, training, or education”
– Who possesses “scientific, technical, or other
specialized knowledge”
– That will “assist the trier of fact”
What can an expert witness do that a lay
witness can not?
– Offer opinion testimony
16
Developing Economic Evidence
in U.S. Courts II
Four Stages (Interrelated):
– Disclosure (FRCP 26(a)(2))
Identity and Report for Testifying Experts
– Discovery (FRCP 26(b)(4))
Depositions of testifying experts (After Report)
Limits for non-testifying
– Admissibility (FRE 104 & 702)
“Daubert Challenges” – qualification, relevance & reliability
– Sufficiency (FRCP 56 & 50)
Meeting a burden of production
“FRCP” = Federal Rules of Civil Procedure
“FRE” = Federal Rules of Evidence
17
The Intersection of Trends in Antitrust
and Expert Evidence: 1993-2006
For Antitrust:
– Greater reliance on economic evidence
– Increased demand for economists
– Economists treated as “expert witnesses”
For Evidence:
– Uniform Federal Rules of Evidence - 1975
– Expanding role of “expert testimony”
– Increased concern about “junk science”
18
Daubert in the Supreme Court
Daubert (1993); Joiner (1997); Kumho
Tire (1999)
– Admissibility Standard:
relevant
reliable methodology; and
“fit” of methodology with facts
– Standard of Appellate Review: abuse of
discretion
19
Criteria of Reliability
Daubert mentions:
– Testability
– Peer review
– Rate of Error
– Existence/Maintenance of Standards
– General Acceptance
But….flexible and unique to each area of
expertise
20
Revised FRE 702 (2000)
Incorporates Daubert, Joiner & Kumho Tire, but
goes beyond to reach application
A witness “qualified as an expert…may testify
…in the form of opinion or otherwise,” if:
– (1) the testimony is based upon sufficient facts or
data,
– (2) the testimony is the product of reliable principles
and methods, and
– (3) the witness has applied the principles and
methods reliably to the facts of the case.
21
Common Contested Areas in Antitrust
Involving Expert Testimony
Conspiracy
Market Power & Market Definition
Causation
Exclusionary Conduct (Price & Non-price)
Competitive Effects
Efficiency
Damages & Other Remedies
Class Certification Issues
22
Efficacy of Daubert Motions
Largely a defense tool (FTC Exception)
Motions In Limine -- most fail
Enough succeed and serve a useful screening
function (termination of case typically follows)
Some Evidence of Judicial Error/Poor Drafting:
– Conflating admissibility and sufficiency
– Elevating Judicial View of Economics Over Record
– Elevating Burden of Production
23
Part III
Lessons from the American
Experience: Integrating
Economics into Law
24
Limits of Economic Evidence
Increased reliance on economics has vastly improved
antitrust analysis
– objective benchmarks; flexibility; fewer false positives
Three cautionary notes:
– Lack of Comprehension
Adopting standards that are difficult to comprehend raises burden of
production and may tend to over or under-deter
– Lost in Translation
Adopting standards that are sound in theory and comprehensible,
but difficult to implement owing to limitations on data and expense
also can over or under-deter
– Lack of Credibility and Mistranslation
Legonomists: Lawyers and judges who don’t know their limits
Professional Witnesses: the “adversarial standoff”
25
Some Examples
Conspiracy – Blomkest & Williamson
– Circumstantial evidence ever enough?
Predatory Pricing -- AMR & Spirit Airlines
– Is the “below cost” standard operable?
Causation – Microsoft
– Conduct and Effects on Nascent Competition
Unilateral Effects of Mergers –Oracle
– What level of certainty is needed when making
predictions?
Efficiencies – Heinz (Baby Food)
– Can efficiency rebut the structural presumption?
26
Reliance on Economics
Some advocate even greater reliance
– Certainty
– Rationality
Others urge caution -- over-dependence
– Indeterminate Standards
– Increased Costs (economists are charging lawyers’
rates!)
Defense Bar sees bright lines and filters
Plaintiff’s Bar sees moving targets and hurdles
27
Some Questions
How do we translate economics into operable
legal standards?
– Amenable to accessible proof?
– Consistent with burdens of production/proof?
How much and what kind of economic evidence
is “enough”?
– Always complex and costly? No
In defense of bright line rules where warranted
– Always easy and certain? No
In defense of careful and thoughtful application
28
Beyond Relevance & Reliability
An Economic Analysis of Economic Evidence:
– Does the marginal value in terms of economic
certainty outweigh the costs of demanding additional
economic evidence?
Add proportionality standard to Daubert
analysis?
– Three Part Inquiry:
Is the additional evidence reasonably available?
If so, at what cost?
How much additional certainty will it bring?
29
Part IV
Challenges for Public & Private
Enforcement in Europe
30
The Major Premise
Following lead of CFI and ECJ, Courts of
the Member States will demand rigorous
economic proof in competition cases.
– Many cases may be easy, but…
– Some may involve difficult judgment calls, and
hence significant economic study
31
Challenges for Public Enforcers:
Capacity Building
Competition Agencies
– Will public enforcers have the institutional
resources and expertise to meet the
challenge?
Need to replicate EC’s own experience?
– Will Courts be competent and receptive?
Judicial training?
Procedural reform?
32
Challenges for Private Actions
Will private parties have the tools and
institutional infrastructure necessary to
successfully litigate a competition case?
– Access to economic proof
– Autonomy in collection and presentation of
evidence, including expert evidence
– Reasonable burdens of production and proof
– Procedural devices for filtering out weak
evidence, claims, and defenses
33
Green Paper Limitations
Options 1-5 on Disclosure & Production
– No discussion of expert-specific issues
– No contemplation of party-experts
Limited Direct Discussion of Economic
Proof (¶¶ 255-60)
– Notes variations in lay/expert witness
practices among Member States
Distinction between party-proffered and courtappointed experts
34
Option 35
Three Pronged Approach:
– Court-Appointed Expert
– Judicial Training
– EC as Amicus
Rationale for Rejecting Party Experts?
– Lower evidentiary value
– Increased litigation costs
35
Option 35 – Some Questions
Does Option 35 Understate Likely Party Use of Their
Own Experts?
–
–
–
–
Prepare case
Respond to opposition
Scrutinize court-appointed expert
Satisfy burdens of production and proof
Without testifying Party-Experts, will parties be
adequately equipped to meet evidentiary burdens?
– If not, will the Green Paper goal of facilitating private damages
actions be frustrated?
– If frustrated, is the “problem” the level of economic evidence
being demanded or the inadequacy of the tools available to
present it?
36
The End!
37