By Henry J. Hauser, Tiffany L. Lee, and Thomas G. Krattenmaker. Full Text.
The debate over antitrust reform is reaching a crescendo. Several proposals have been introduced in Congress and state legislatures to expand the scope of substantive antitrust rules governing marketplace behavior. Missing from the current discussion, however, is careful consideration of whether these new rules should incorporate a process for calculating antitrust damages that has remained essentially unchanged for over a century. As legislators grapple with antitrust reform, it is important to examine the implications of importing the existing mandatory treble damages framework to new causes of action. Failure to appreciate these effects creates a serious risk of undermining reformers’ core objectives.
Mandatory treble damages incentivize private antitrust enforcement and deter anticompetitive conduct, but they also produce social and economic costs. We apply simple behavioral models to analyze two effects of mandatory treble damages on firms and judges. First, mandatory trebling can drive overinvestment in filing antitrust cases. Second, it may create a judicial bias against plaintiffs because judges, behaving as rational actors seeking to minimize error costs, have an incentive to avoid triplemagnitude Type I errors (erroneous rulings for plaintiffs) by leaning toward single-magnitude Type II errors (erroneous rulings for defendants).
Section 4 of the Clayton Antitrust Act requires U.S. courts to award successful plaintiffs “threefold the damages” they sustain. This trebling requirement renders U.S. antitrust relief an anomaly in the nation’s legal system and deviates from how other countries deter and punish anticompetitive conduct. Despite the significant impact mandatory treble damages have on antitrust recoveries, there is scant rigorous analysis of their impact on case filings or judicial decisions.
In this essay, we argue that legislators should consider the impacts of mandatory treble damages on filing incentives and judges before importing them from century-old antitrust laws into proposed reforms. Enacting new legislation without considering the implications of repurposing procedural baggage from old laws flouts the ancient adage against pouring new wine into old wineskins. Notably, not all antitrust violations trigger mandatory trebling today. This fact casts further doubt on the wisdom of applying mandatory treble damages to new antitrust causes of action without assessing alternatives. One possibility would be to reframe substantive reforms as amendments to Section 5 of the Federal Trade Commission Act, which does not provide for treble damages.
Part I discusses the rationale and justifications for mandatory treble damages. Part II examines the criticisms of mandatory trebling and various proposals to improve the antitrust damages framework. Part III investigates the effects of mandatory treble damages on law firm incentives and case filings. Part IV analyzes the impacts of mandatory trebling on judges and case outcomes. Part V concludes by recommending that legislators take these effects into account when drafting and enacting antitrust reforms. In striking the right balance between deterring anticompetitive behavior and encouraging procompetitive activity, legislators would be wise to consider the effects that mandatory treble damages have on how legal resources are allocated to maximize returns on investment and how judges decide cases to minimize error costs.
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