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 CHEAP EXCLUSION
SUSAN A. CREIGHTON
D.
BRUCE HOFFMAN
THOMAS G. KRATTENMAKER
ERNEST A. NAGATA*

A central question for any enforcement program is where to focus

resources to best achieve the program's objectives. The fundamental
purpose of the antitrust enforcement program at the Federal Trade
Commission is to prevent firms from acquiring and exercising market
power to the detriment of consumers. To focus resources on achieving
that purpose, one needs to consider the possible mechanisms for acquir-
ing market power. This article explains the enforcement policy we have
pursued-and toward which we have directed resources-in the area of
exclusionary practices.
Basic antitrust economics teaches that to exercise market power
requires that market output be restrained in order to increase market
price.' To prevent rivals from undermining an output reduction, it is
necessary either to collaborate with them to agree jointly to reduce
output or to exclude them from the market and prevent them from
effectively expanding output at current prices. A sound and sensible
enforcement strategy, then, will be concerned largely with two kinds of
cases and practices: those that involve profitable collusive restrictions on
firms' own output, and those that involve the exclusion of rivals where
that exclusion reduces overall market output.
We believe that the current bipartisan consensus on antitrust policy
and practice has correctly identified the principal elements of a sound

* Ms. Creighton is Director of the Bureau of Competition at the Federal Trade Commis-
sion. Mr. Hoffman, a member of the Florida Bar, was formerly Deputy Director of the
Bureau. Mr. Nagata is Deputy Associate Director, and Mr. Krattenmaker is a staff member,
of the Office of Policy and Coordination in the Bureau of Competition. The views expressed
are the authors' alone and are not necessarily the views of the Commission or any Commis-
sioner. We thank Timothy Muris, Alden Abbott, and other current and former colleagues
at the Commission for helpful comments.
I The converse, of course, is equally true; firms may raise market price and then note
that the market will not absorb previous output levels. For brevity, throughout this article
we refer to output reduction as a necessary condition to raising price.
976 ANTITRUST LAW JOURNAL [Vol. 72

enforcement program directed at market power acquired or exercised

by restricting one's own output through collusion. Horizontal merger
enforcement and scrutiny of price fixing, market division, and practices
adopted to facilitate collusion form the backbone of such an enforcement
program. We have been faithful to that agenda, as illustrated by cases
such as PolyGram,2 Kentucky Movers,3 and North Texas Specialty Physicians,4
and merger cases like Chicago Bridge & Iron.'
It is no less essential to have a sound, focused, and sensible enforce-
ment program with respect to exclusionary practices. 6 This article demon-
strates that we have developed such a policy. In particular, we have
targeted our efforts at practices we believe are helpfully described by
the phrase "cheap exclusion."'7 These "cheap exclusion" cases include
efforts to restrict others' output by agreement (as in South CarolinaBoard
of Dentistry8) and through unilateral conduct (as in Unocal 9).

2 PolyGram Holding, Inc., FTC Docket No. 9298 (July 24, 2003) (Opinion), available at
http://www.ftc.gov/os/2003/07/polygramopinion.pdf, appeal docketed, Dkt. No. 03-1293
(D.C. Cir).
3Kentucky Household Goods Carriers Assoc., FTC Docket No. 9309 (June 21, 2004)
(Initial Decision), available at http://www.ftc.gov/os/adjpro/d9309/040625initialdecision
.pdf, appeal pending before Commission.
I North Texas Specialty Physicians, FTC Docket No. 9312 (Sept. 16, 2003) (Complaint),
available at http://www.ftc.gov/os/2003/09/ntexasphysicianscomp.pdf.
I Chicago Bridge & Iron Co., FTC Docket No. 9300 (Jan. 6, 2005) (Opinion), available
at http://www.ftc.gov/os/adjpro/d9300/O50106opionpublicrecordversion9300.pdf.
6 By "exclusionary practices," we mean just what the Supreme Court says that term
means in antitrust law-conduct that contributes to the acquisition or maintenance of
market (or monopoly) power by means other than competition on the merits. See Aspen
Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 602 (1985) (the question is
"whether the challenged conduct is fairly characterized as 'exclusionary' or 'anti-
competitive'-to use the words in the trial court's instructions-or 'predatory,' to use a
word that scholars seem to favor."); Verizon Communications, Inc. v. Law Offices of Curtis
V. Trinko, LLP, 540 U.S. 398, 406-08 (2004). We generally use the term "exclusion," but
also use "predation" interchangeably.
7The following discussion of exclusion includes cases involving unilateral conduct and
cases involving collusive conduct. For purposes of determining what constitutes "exclusion-
ary" conduct, there is little or no substantive difference between single and multi-firm
behavior. In this respect, restrictions on others' output are quite different from agreements
by which competing firms agree to restrict their own output. Although a firm's unilateral
decision to restrict its own output is almost never an antitrust concern, agreements whereby
firms collectively agree to restrict their own output are perhaps the most pernicious
form of antitrust violation and are therefore subject to antitrust law's most stringent
proscriptions. In contrast, exclusion typically takes the form of efforts to restrict the output
of competitive firms without reducing the predator's own output (at least until market
power is achieved). This result often can be achieved by either collusive or unilateral
means, but whether that conduct is collusive or unilateral is immaterial to the anticompeti-
tive effect.
8 South Carolina State Bd. of Dentistry, FTC Docket No. 9311 (Sept. 12, 2003) (Com-
plaint), available at http://www.ftc.gov/os/2003/09/socodentistcomp.pdf.
9 Union Oil Co. of Cal., FTC Docket No. 9305 (Mar. 4, 2003) (Complaint), available
at http://www.ftc.gov/os/2003/03/unocalcmp.htm.
20051 CHEAP EXCLUSION

What is cheap exclusion? We will discuss this concept at some length,

but for now we stress that we mean exclusionary conduct that is "cheap"
in two distinct ways. First, by "cheap," we mean conduct that costs or
risks little to the firm engaging in it, both in absolute terms and when
compared to the gains (or potential for gains) it brings, and that is,
therefore, attractive for an aspiring monopolist. Our hypothesis here is
a simple one: firms may choose to engage in "expensive" predation
(predatory pricing being our archetypal example), but will opt for a
cheap form of exclusion if one is available. Because market (or monop-
oly) power is a desirable goal for a rational firm, and because rational
firms are likely to prefer low-cost strategies to achieve their goals, we
expect that cheap exclusion would be relatively more common, at least
as compared to other forms of exclusionary conduct and, thus, deserve
closer enforcement scrutiny.
Second, when talking about "cheap exclusion," we mean a particular
kind of low-cost exclusionary strategy, namely, one that does not raise
any cognizable efficiency claims; that is, "cheap" in that it has little positive
value. When considering collusive arrangements, it is commonplace to
distinguish between those that lack any cognizable efficiency and can
be quickly condemned, such as naked price fixing, and those that raise
potentially cognizable and plausible efficiency benefits and, hence,
require a more searching factual analysis. It is our view that the same
distinction can be drawn among different forms of exclusionary conduct.
For example, exclusive dealing arrangements may sometimes (as in
monopoly maintenance cases) be profitable for a firm even in the short
term and, therefore, in some circumstances might be a cheap (and
relatively less risky) form of exclusion. From an enforcer's perspective,
however, because exclusive dealing arrangements generally have legiti-
mate, efficiency-enhancing justifications, a detailed factual analysis is
necessary in a particular case to determine whether the arrangement in
fact is anticompetitive.
By comparison, there are many varieties of cheap exclusionary conduct
that do not even arguably raise cognizable efficiency justifications. In
other words, they are not only inexpensive, but also "cheap" in the
sense of "lacking any redeeming qualities." 10 To take one example, fraud
perpetrated on the government plainly is not susceptible to any cogniza-
ble efficiency justification-that is, it cannot be explained in terms of
the defendant's effort to increase output or improve product quality,
innovation, or service. As with per se collusive arrangements, proof
that the alleged anticompetitive conduct actually occurred might prove
difficult to establish as a question of fact. Once accomplished, however,
0
MERRIAM-WEBSTER'S COLLEGIATE DICTIONARY 194 (3d ed.).
 ANTITRUST LAW JOURNAL [Vol. 72

and assuming all other elements are satisfied (such as proof of monopoly
power in a Section 2 case), the antitrust analysis is at an end.
It is these forms of "naked" exclusionary conduct that we have labeled
"cheap exclusion," and that have been the focus of our enforcement
efforts. Indeed, in our view, "cheap exclusion" should be at the core of
an enforcement agenda that challenges exclusionary conduct, in the
same way that actions against naked collusive agreements are a necessary
part of an antitrust enforcement program that challenges collusive con-
duct. In the efficient allocation of always-scarce enforcement resources,
exclusionary conduct that is likely to be common (relative to other forms
of exclusion), and lacks any legitimate competitive benefit, makes an
attractive target. Put differently, when fishing, the best place to fish is
where the fish are plentiful, and the things you catch are likely to be fish.

I. CHEAP EXCLUSION AND THE SEARCH FOR

MONOPOLIZATION STANDARDS
Many recent cases involving efforts to restrict rivals' output were
brought under Section 2 of the Sherman Act, which states that firms
shall not "monopolize" or "attempt to monopolize." Despite this bare
language, as the Supreme Court recently reiterated in Verizon v. Trinko,
" [i] t is settled law that this offense requires, in addition to the possession
of monopoly power in the relevant market, 'the willful acquisition or
maintenance of that power as distinguished from growth or development
as a consequence of a superior product, business acumen, or historic
accident."" 12 Thus, "the possession of monopoly power will not be found
unlawful unless it is accompanied by an element of anticompetitive
conduct." 13
Much of the "long, and often sorry, history of monopolization in the
14
courts"' has been devoted to attempting to provide an answer to the
question at the center of the Supreme Court's formulation-that is, when
is monopolizing conduct "anticompetitive." This question has proven
particularly challenging because, unlike many of the conspiracies and
agreements between horizontal competitors that make up the core of
Section 1 enforcement, 5 the behavior at issue in cases alleging monopoli-

"115 U.S.C. 2.
12 Trinko, 540 U.S. at 406-07 (quoting United States v. Grinnell Corp., 384 U.S. 563,
570-71 (1966)).
'3 Id. at 407.
14Timothy J. Muris, The FTC and the Law of Monopolization, 67 ANTITRUST L.J. 693,
723 (2000).
15Sherman Act 1, 15 U.S.C. 1.
2005] CHEAP EXCLUSION

zation by exclusion of competitors necessarily will often be quite difficult

to distinguish from the vigorous rivalry that antitrust law seeks to pro-
mote. 16 Thus, legal tests for exclusionary conduct require a careful focus
on the balance between over-deterrence and under-enforcement. 7
The effort to find that balance is chronicled in scholarly writings
and court decisions over several decades. One particularly noteworthy
chapter of this history was written in the 1970s and early 1980s as scholars
and the courts attempted to "solve" the "problem" of predatory pricing,
with perhaps the most important contribution arriving in 1975 with the
publication of an article on predatory pricing by Professors Areeda and
Turner. 8 Although the article is perhaps best known for the particular
test the authors advocated-pricing below some measure of incremental
cost-the authors more generally described predation as involving an
element of profit sacrifice:

[P]redation in any meaningful sense cannot exist unless there is a

temporary sacrifice of net revenues in the expectation of greater future
gains. Indeed, the classically-feared case of predation [predatory pric-
ing] has been the deliberate sacrifice of present revenues for the pur-
pose of driving rivals out of the market and then recouping the losses
through higher profits earned in the absence of competition. 19

16 See, e.g., Frank H. Easterbrook, When Is It Worthwhile to Use Courts to SearchforExclusionary

Conduct?, 2003 COLUM. Bus. L. REv. 345 (2003) ("Aggressive, competitive conduct by any
firm, even one with market power, is beneficial to consumers. Courts should prize and
encourage it. Aggressive, exclusionary conduct is deleterious to consumers, and courts
should condemn it. The big problem lies in this: competitive and exclusionary conduct
look alike.").
17This balance can also be described in terms of weighing the risks of Type I vs. Type
II error (a concept adopted from the field of statistics). A Type I error (also called a
false negative) occurs when the analysis incorrectly concludes that the conduct is not
anticompetitive (or that it is efficiency-enhancing), when the opposite is true. A Type I
error results in under-enforcement. A Type II error (also called a false positive) occurs
when the analysis incorrectly concludes that the conduct is exclusionary (anticompetitive),
when in fact it is not harmful. A Type II error results in over-deterrence and can chill
efficiency-enhancing conduct. The possibility of Type IIerror is a particular concern when
the competitive effects of the conduct are ambiguous, as they are in many forms of alleged
monopolization or attempted monopolization. See Trinko, 540 U.S. at 414 ("Under the
best of circumstances, applying the requirements of 2 'can be difficult' because 'the
means of illicit exclusion, like the means of legitimate competition, are myriad.' ... The
cost of false positives counsels against an undue expansion of 2 liability.") (quoting
United States v. Microsoft Corp., 253 F.3d 34, 58 (D.C. Cir. 2001)).
18Phillip Areeda & Donald F. Turner, PredatoryPricing and Related Practices Under Section
2 of the Sherman Act, 88 HARV. L. Rxv. 697 (1975).
19Id. at 698. Some years later, Robert Bork described predation more generally as
conduct that
would not be considered profit maximizing except for the expectation either
that (1) rivals will be driven from the market, leaving the predator with a market
share sufficient to command monopoly profits, or (2) rivals will be chastened
 ANTITRUST LAW JOURNAL [Vol. 72

Although thorough scholarly investigation of exclusion came early in

the context of predatory pricing, that does not mean that predatory
pricing should be the paradigm for all exclusion cases. In fact, care is
warranted in applying more generally tests for predation derived from
predatory pricing. This is so because, in our view, predatory pricing may
be the quintessential example of what mightbe termed "costly" exclusion:
exclusion that is expensive (often more expensive for the predator than
for the victims), difficult to accomplish and sustain, and difficult to
distinguish from efficient, socially valuable competition on the merits
(because, at least in the short run, it often produces undeniable benefits
to consumer welfare). Predatory pricing is not "cheap" in either sense
of that term. In that context, asking whether conduct makes economic
sense absent exclusion of a competitor (and, in some circumstances,
whether it entails a profit sacrifice) is a sound analytical approach.
In general, however, there is no reason to expect that all successful
exclusionary strategies are especially costly, or that firms are likely to
prefer to adopt costly predation strategies. In fact, because profit-
maximizing firms consider the cost of an investment as well as the
expected returns, the reverse is more plausible: the least likely anticom-
petitve strategies may well be those that are costly and require substantial
sacrifice of short-run profits.20 Put simply, costly predation, as the label
suggests, is a risky and expensive road to monopoly.

sufficiently to abandon competitive behavior the predator finds inconvenient

or threatening.
ROBERT H. BORK, THE ANTITRUST PARADOX 144 (1978, rev. 1993). Bork's definition makes
clear what was intuitive in the Areeda-Turner formulation-that it is economically irrational
for a firm, which is presumed to be a profit maximizer, to engage in behavior that requires
it to forgo profits, unless it has a realistic expectation that it will be able to reap even
greater profits at a later date. Thus, in this framework, profit sacrifice can be used as
evidence of economic irrationality, and conduct that may appear to be economically
irrational in the short run may have a predatory design and, thus, be "anticompetitive."
20Similar criticisms of predatory pricing theory led some to shift their focus to theories
of nonprice predation-theories that presumably involve lower up-front costs and present
less serious problems of recoupment. See, e.g., Thomas B. Leary, Commissioner, Federal
Trade Commission, The Need for Objective and Predictable Standards in the Law of
Predation, Speech Before the Steptoe & Johnson and Analysis Group/Economics 2001
Antitrust Conference (May 10, 2001), available athttp://www.ftc.gov/speeches/leary/leary
needforobjecandpredic.htm. Commissioner Leary has noted that these new models and
theories challenged the theoretical assumptions regarding predation in two ways. First, a
predator need not incur high up-front costs; a lower-cost predation strategy, such as raising
rivals' costs, changes the cost calculation model. Second, some models address the other
side of the cost equation and raise the possibility of a higher level of recoupment and/
or a more certain recoupment, as when the predating firm seeks to build a reputation
for aggressiveness. As the Department of Justice recently noted in its brief on appeal in
Dentsply, exclusionary conduct is not necessarily particularly costly, but can in fact be
profitable at all times. See Brief for the United States, United States v. Dentsply Int'l, Inc.,
Dkt. No. 03-4097 (3d Cir. May 14, 2004), available at http://www.usdoj.gov/atr/cases/
f202100/202141.pdf.
20051 CHEAP EXCLUSION

From an enforcer's perspective, in considering where to devote

resources in searching for possible targets for antitrust enforcement, it
makes sense to consider the circumstances under which one would expect
to find exclusionary conduct aimed at reducing others' output. Far from
choosing expensive predation, it seems logical to expect that rational
firms would prefer, all else equal, exclusionary strategies that are both
low-cost and that provide a strong upside, including the opportunity to
acquire relatively durable market power.

If inexpensive rather than costly conduct can be hypothesized as a

more likely strategy for firms seeking to restrict others' output, the
question remains whether we can identify conduct that also is "cheap"
in the sense of lacking redeeming qualities-that is, conduct that, in
the words of the Supreme Court, is "exclusionary" and does not constitute
"competition on the merits." 21 To be "exclusionary," and therefore sub-
ject to antitrust condemnation, it is not enough that conduct results in
market power: it must also exclude rivals on some basis other than
efficiency, 22 as opposed to excluding by, e.g., generating a "superior
product," employing greater "business acumen" (perhaps in willingness
to take or avoid risks, or innovation, or management of costs and effi-
2
ciency), or by the fruits of "historic accident.
24
Although this formulation has been criticized for ambiguity, it is
useful in highlighting what we believe to be a second crucial characteristic
of "cheap exclusion" strategies: that is, they cannot even arguably be
claimed to "further competition on the merits" by advancing efficiency.
In this respect, what we have identified as cheap exclusion differs from
other types of exclusion that may (sometimes) be inexpensive and that
have been the subject of much recent discussion, such as different forms
of bundling and exclusive dealing. From an enforcer's perspective, what
is most distinctive about these forms of conduct is the difficulty distin-
guishing in a particular instance between exclusionary and procompeti-
tive conduct. Accordingly, although forms of exclusion that may have

2 E.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 n.32 (1985)
(citing 3 PHILIP E. AREEDA & DONALD F. TURNER, ANTITRUST LAW 78 (1978)).
22Aspen Skiing Co., 472 U.S. at 605 (citing BORK, supra note 19, at 138).
23United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). In other words, the
standard by which conduct is to be judged is shaped by a sense that some kinds of conduct
provide certain kinds of benefits as part of the process of seeking and obtaining a monopoly,
while other kinds do not. These benefits-superior products, greater efficiency, and so
forth-could be viewed as by-products or externalities. One point that should be immedi-
ately apparent from that formulation is that the profitability or costliness of the behavior
is not obviously dispositive of any inquiry framed in these terms, and may not even be
relevant. See Einer Elhauge, Defining Better Monopolization Standards, 56 STAN. L. REv. 253,
268-93 (2003).
24 See, e.g., Elhauge, supra note 23, at 261-68.
 ANTITRUST LAW JOURNAL [Vol. 72

plausible efficiency defenses, such as exclusive dealing, should be chal-

lenged where appropriate, 25 there is no reason from an enforcement
perspective to give priority to such claims while neglecting claims of
"cheap exclusion."

As we discuss in more detail below, cheap exclusion frequently involves

opportunistic or otherwise harmful behavior in both public and private
settings-behavior that unambiguously fails to enhance any party's effi-
ciency, provides no benefits (short or long-term) to consumers, and in its
economic effect produces only costs for the victims and wealth transfers to
the firm(s) engaging in the conduct (apart from its contribution to
market power). Indeed, what is often most striking about "cheap exclu-
sion" is how often the only defenses (apart from factual issues relating
to whether the conduct actually occurred) lie entirely outside the market-
place consumer welfare sought to be advanced by antitrust. For example,
a defendant may claim that the conduct is protected by state action2 6 or
Noerr-Pennington.27 In this respect, cheap exclusion is similar to naked
collusive arrangements, where defenses generally rest either on a dispute
regarding the underlying factual claim, or on nonsubstantive grounds
(such as immunities, jurisdiction, or statutes of limitations).28
Put differently, in order to employ the likely efficiency of conduct as
a useful screen for cheap exclusion, it is necessary to consider that
potential efficiency from an ex ante standpoint. Although the presence
or absence of efficiencies is important in the ultimate vindication or
condemnation of any allegedly exclusionary practice, an enforcement
policy that relies on a detailed assessment of a particular practice's
actual efficiency in determining where to place investigative emphasis
will conserve few, if any, resources. Thus, cheap exclusion focuses on
practices that are facially unlikely to generate efficiencies, such as oppor-
tunistic rent seeking, or deceptive or fraudulent conduct, rather than
practices that are facially likely to generate efficiencies (even though

25 See, e.g., United States v. Dentsply Int'l, Inc., 399 F.3d 181 (3d Cir. 2005), rev'g 277
F. Supp. 2d 387 (D. Del. 2003).
26 See Parker v. Brown, 317 U.S. 341 (1943).
27 See Eastern R.R. Presidents Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961);

United Mine Workers of Am. v. Pennington, 381 U.S. 657 (1965).

28 Ironically, it may be the absence of substantive antitrust defenses that has made some

antitrust observers view cheap exclusion as less central to a proper enforcement agenda
than claims based on behavior, such as bundling or other vertical distribution arrange-
ments, that may produce efficiencies. But just as the asserted efficiency claims raised in
defending a challengedjoint venture arrangement generally are more complex than those
raised in defense of a price-fixing claim, efficiency defenses raised in defending a bundling
claim generally may be more complex than those asserted in a cheap exclusion case. In
neither case does the difference thereby imply that the practice more often accompanied
by efficiencies warrants a greater commitment of agency resources.
 20051 CHEAP EXCLUSION

they may turn out to be inefficient in particular cases) such as exclusive

dealing, bundling, and price cutting.
In the following diagram, in which cost (representing the inverse
of expected frequency) constitutes one axis, and the possibility of an
efficiency defense constitutes another, cheap exclusion cases occupy the
29
lower left quadrant:

Cognizable, Exclusive Exclusive Dealing;

Potentially Dealing Predatory Pricing
Plausible Efficiency
No Cognizable Cheap Excessive
Efficiency Exclusion Input Purchases
Inexpensive Costly Strategy
Strategy

Cheap exclusion as defined here does not raise the same concerns
about distinguishing procompetitive behavior that arise with other possi-
ble forms of behavior. Moreover, these cases are not likely to be rare
outliers in firms' exclusionary efforts, but rather, because they are cheap
(or even profitable) whether or not they generate market power, will be
relatively more common than types of costly predation (such as predatory
pricing) that have been treated more extensively in the literature. And
the stakes are high: in the cases that follow, the alleged consumer harm
often has run into the hundreds of millions of dollars annually.

II. CHEAP EXCLUSION: TWO CASE STUDIES

AND SOME PRINCIPLES
After three years of investigation and litigation, we believe we can
identify numerous examples of cheap exclusion. A few examples may
help illuminate the principles that are common to this category of cases.
One such example can be found in some of the Commission's so-
called Orange Book cases, which challenge attempts to "game" the Hatch-
Waxman Act's regulatory framework 30 for the approval of generic drugs

2 Exclusive dealing may or may not be inexpensive, depending on the circumstances.

By "excessive input purchases" we mean buying inputs that the purchaser will not use,
solely to deny those inputs to the purchaser's competitors.
30 Drug Price Competition and Patent Restoration Act of 1984, Pub. L. No. 98-417, 98
Stat. 1585 (1984) (codified as amended at 21 U.S.C. 355 (2000) and commonly referred
to by the names of its principal sponsors as the Hatch-Waxman Act).
 ANTITRUST LAW JOURNAL [Vol. 72

in order to extend the period of patent exclusivity for the branded

product. Hatch-Waxman requires, in part, that branded drug manufac-
turers file information with the FDA, specifying the patents that claim
the drug products they intend to market. 31 Once the drug product is
approved, the FDA lists the patents in an agency publication widely
known as the Orange Book.3 2 A drug manufacturer wishing to enter the
market with a generic version of a branded drug must provide the FDA
with certain information, including certifications regarding each patent
listed in the Orange Book.3 3 A "Paragraph IV certification" asserts that
the patent in question is invalid or not infringed and that the generic
applicant seeks entry prior to the patent's expiration. If a patent holder
brings an infringement suit against the generic applicant, the filing of
the suit triggers an automatic thirty-month stay of FDA approval of the
generic drug. 4 Unless the patent litigation is resolved in favor of the
generic drug manufacturer, it cannot enter the market during this
period.
Until recent legislative changes, a branded manufacturer could manip-
ulate this system to delay generic entry by listing numerous patents in
the Orange Book (sometimes seriatim) as claiming its branded product
and then filing an infringement action against a generic entrant to
trigger an automatic thirty-month stay of FDA approval of the generic
drug. If the patent listings do not meet the statutory and regulatory
requirements for inclusion in the Orange Book, the listing may constitute
5
an unlawful restraint on competition.

The Commission's complaint and consent order in Biovail Corp.

involved this abusive Orange Book tactic.3 6 The complaint alleged that
Biovail illegally acquired an exclusive patent license and wrongfully listed
that patent in the Orange Book and made misleading statements to the
FDA for the purpose of blocking generic entry pursuant to the Hatch-
Waxman Act. The Commission also challenged improper Orange Book

31 The filing is technically called a "New Drug Application" or NDA.

32The official title of the book is "Approved Drug Products with Therapeutic Equiva-
lence." See http://www.fda.gov/cder/orange/supplement/cspreface.htm.
3 The filing is technically called an "Abbreviated New Drug Application" or ANDA. The
purpose of the ANDA is to establish the bioequivalence of the genetic drug with the
branded drug.
34If the patent holder does not bring suit within 45 days, the FDA must approve the
ANDA immediately, if other regulatory conditions are fulfilled. 21 U.S.C. 355(c) (3) (c).
35See In re Buspirone Patent Litig./In re Buspirone Antitrust Litig., 185 F. Supp. 2d 363
(S.D.N.Y. 2002) (holding that the Orange Book listings are not protected petitioning
under the Noerr doctrine).
36Biovail Corp., FTC Docket No. C-4060 (Oct. 2, 2002) (consent order), available at
http://www.ftc.gov/os/2002/06/biovailelanagreement.pdf.
2005] CHEAP EXCLUSION

listings in Bristol-Myers Squibb,37 in which the Commission alleged that

Bristol-Myers wrongfully listed patents and made misleading statements
to the Patent Office and FDA in connection with two anti-cancer drugs
and the anti-anxiety drug BuSpar. As a result of the stays that Bristol-
Myers was able to obtain, blocking generic entry in these markets, the
Commission alleged that consumers paid hundreds of millions of dollars
in higher drug prices.
The allegations in the Unocalcase3" provide a second example of cheap
exclusion. The complaint in the case alleges that Unocal made false
representations to the California Air Resources Board (CARB) and to
other refiners in connection with CARB's adoption of regulations relat-
ing to reformulated gasoline. According to the complaint, Unocal falsely
represented that certain technology was nonproprietary and in the public
domain. After CARB incorporated the technology into its regulations
and the other refiners configured their operations to comply with those
regulations, Unocal announced that it in fact held patents on the technol-
ogy at issue and sued the refiners for patent infringement. Unocal's
infringement actions sought royalties of approximately five cents a gallon
for virtually all gasoline sold in California during the summertime. The
complaint alleges that Unocal, by deceiving CARB and the other refiners
into adopting Unocal's patented technology into a binding standard,
acquired monopoly power-the power to raise market prices for a
sustained period of time-in a well-defined antitrust market.
These two examples illustrate common themes underlying cheap
exclusion. First, the conduct in both cases was low-cost. The cost of the
false Orange Book filing is nominal; the cost of making misrepresenta-
tions to CARB and to the refiners' organizations was likely even less. In
fact, in Unocal the cost may have been particularly low because Unocal
would have had other incentives to participate in CARB's processes and
in the refiners' organizations and would have, therefore, already incurred
whatever costs that participation entailed.3 9

17Bristol-Myers Squibb Co., FTC Docket No. C-4076 (Apr. 14, 2003) (consent order),
available at http://www.ftc.gov/os/2003/03/bristolmyersconsent.pdf.
8 Union Oil Co. of Cal., FTC Docket No. 9305 (Mar. 4, 2003) (Complaint), available
at http://www.ftc.gov/os/2OO3/O3/unocalcmp.htm. Our comments are limited to the alle-
gations of the complaint because the case is in litigation.
39These examples of cheap exclusion underscore the problem with attempting to use
a "profit sacrifice" test as a necessary (rather than sufficient) standard for all forms of
predation. In determining whether conduct should be deemed exclusionary, it is often
helpful to try to ascertain whether it appears to be "economically irrational" but for its
exclusionary effect, and more narrowly, whether the conduct appears unprofitable (except
for the profits gained by exclusion). But profitability, economic rationality, or cost may
not be very useful metrics for cheap exclusion, either because costs are low, zero, or
 ANTITRUST LAW JOURNAL [Vol. 72

Indeed, as is often the case in instances of cheap exclusion, the costs

were highly asymmetric. The effects of a false Orange Book filing cannot
be undone directly and, instead, require expensive litigation. According
to the complaint, undoing the effects of Unocal's deception of GARB
and the refiners, short of an antitrust suit, would require regulatory
change and a vast expenditure of resources in reconfiguring refineries
designed to produce GARB-compliant summertime gasoline. Thus, a
small expense by the predators required much larger expenditures by
victims seeking to avoid exclusion (or to avoid paying monopoly rents).
Moreover, the conduct at issue is not "competition on the merits" in
the sense described above. False Orange Book listings advance no one's
efficiency. Deceiving a governmental regulatory agency and private
standards-setting and trade organizations-the conduct alleged in
Unocal-islikewise plainly not efficiency-enhancing. In fact, as discussed
in more detail below, the conduct that occurred in the Orange Book
listing cases and that was alleged in Unocal matches the definition of
"opportunistic behavior," as that term is employed in the academic
40
literature.
Finally, a particular reason for concern with respect to "cheap exclu-
sion" is that, as these cases illustrate, the potential for creating durable
market power often is very high. Orange Book listings exclude by the
force of law once a relatively low additional investment (the filing of
the patent infringement lawsuit) is made. The same is true of GARB's
regulations. 41 And these exclusionary effects are not only probable, but

indeterminate, or because the "profits" involved may not result from efficient conduct.
Indeed, the well-worn phrase "legitimate business reason or justification" used to describe
appropriate forms of conduct implies that not all business reasons or justifications are
legitimate.
Thus, false Orange Book certification or other false regulatory filings that have exclusion-
ary effects due to the operation of extrinsic legal schemes may have minimal costs (certainly
relative to the exclusionary impact). But false regulatory filings can be profitable even if
they do not create or maintain monopoly power, by harming competitors and generating
profits for the filing firms without bestowing monopoly power. Yet this "profitability" tells
us nothing about whether the false filing is efficiency-enhancing. This situation can be
even more pronounced when the costs of regulatory participation are largely sunk, as
may have been the case in Unocal. For example, if the firm would have engaged in the
regulatory activity in any event, the "exclusionary" component of the cost may be very
small, if even measurable.
40This discussion draws on the analysis in Timothy J. Muris, Opportunistic Behavior and
the Law of Contracts, 65 MINN. L. REv. 521 (1981), and the literature discussed therein.
SeealsoBenjamin Klein, RobertG. Crawford &ArmenAlchian, VerticalIntegration,Appropria-
ble Rents, and the Competitive ContractingProcess, 21 J.L. & EcON. 297 (1978); Oliver William-
son, Transaction Cost Economics: The Governance of Contractual Relations, 22 J.L. & EcON.
233 (1979).
41The refiners could perhaps have avoided the exclusionary effect of Unocal's deception
of CARB had they not been similarly misled.
2005] CHEAP EXCLUSION

also durable: again, in the case of the Orange Book, by force of law,
and in the case of CARB, by the force of law combined with the costs
and time required to undo the damage Unocal inflicted. Indeed-and
this appears to be a common characteristic of cheap exclusion that preys
on governmental processes-the very factors that made the exclusionary
strategy cheap, i.e., the existence of regulatory structures vulnerable to
inexpensive gaming, also tend to make the resulting monopoly power
durable.

III. WHERE DO WE FIND CHEAP EXCLUSION?

Anticompetitive conduct that is "cheap" in both senses-low-cost, and
without cognizable efficiencies-can be found in a number of areas of
potential antitrust interest. These areas, we note, are not limited to abuse
of governmental processes or to classic rent seeking. Further, the topics
discussed below are not exhaustive but, rather, illustrative examples of
where cheap exclusion tactics may yield harmful monopoly power.

A. OPPORTUNISTIC BEHAVIOR
(E.G., ABUSE OF A STANDARD-SETTING PROCESS)

Opportunistic behavior that confers market power is an important

potential form of cheap exclusion. Very generally speaking, opportunistic
behavior occurs when a party to a relationship (like a contract) engages
in behavior designed to transfer wealth from the other participants in
the relationship, where the behavior is contrary to the other parties'
legitimate expectations but not necessarily to the precise rules governing
the arrangement.42 Such behavior generates no efficiency benefits, and
not only transfers wealth but also raises transactions costs by compelling
wasteful investments in protecting against future opportunism.43 It is, in
short, inefficient on its face. Because such behavior is inefficient even
if it does not produce market power after the fact, it can have no claim
to legitimacy under an antitrust regime.
An area in which the risk of opportunistic conduct has come to the fore
is in the private standard-setting process. Opportunism in the standard-
setting process may be viewed as roughly analogous to a partner in a
productjoint venture taking actions that defeat the very purpose of the
venture, without necessarily violating the precise terms of the agreement.
In Allied Tube & Conduit Corp. v. Indian Head, Inc., 44 for example, Allied

42See Muris, supra note 40, at 555.

41Id. at 555 n.91, 552-72.
44486 U.S. 492 (1988).
 ANTITRUST LAW JOURNAL [Vol. 72

Tube & Conduit packed a meeting in order to defeat a proposal to

include plastic conduit in industry standards. That activity, strictly speak-
ing, did not violate the organization's code of conduct, and the regulation
adopted by the vote was held to be duly promulgated. But the virtual
dictation by one firm of an exclusionary standard was completely inconsis-
tent with the expectations of the parties to the arrangement, and with
the terms that made the organization efficient for all its members and
for the public.
Similarly, American Society of Mechanical Engineers, Inc. v. Hydrolevel
Corp.45 involved an exclusionary interpretation of the standard by an
agent of a standards organization who had a financial interest in exclu-
sion. The conduct in Hydrolevel, such as misusing the organization's
letterhead and other materials to exclude a competitor, was even more
egregious than that in Allied Tube, although again not clearly in violation
of the explicit rules. 46 Finally, in Rambus, currently pending before the
Commission, the complaint asserted that the defendant acted in a way
that was knowingly inconsistent with the parties' expectations, as well as
with the terms of the arrangement that made the standards development
process efficient for the participants, even if those actions were not
47
expressly forbidden by those terms.

Opportunistic conduct in the context of private standard-setting cases

reflects the typical characteristics of cheap exclusion.48 First, in each

45456 U.s. 556 (1982).

46Hydrolevelalso illustrates the substantive similarity between single and multi-firm efforts
to exclude rivals. Though ultimately decided as a Sherman Act 1 conspiracy case, the
"conspiracy" in Hydrolevel was purely formalistic. The exclusion at issue was perpetrated
by a single competitor, which instructed its employees occupying important positions in
a standards organization (the American Society of Mechanical Engineers, or ASME) to
misuse ASME's processes and name to exclude another competitor. The "conspiracy"
existed only because ASME, itself a collective enterprise, was held liable for the misconduct
of those employees under an apparent authority theory, though in reality ASME had no
knowledge of their conduct and derived no benefits from it. In substance, the exclusion
was unilateral.
47The Administrative Law Judge dismissed the Rambus complaint after trial on a variety
of grounds. Rambus Inc., FTC Docket No. 9302 (Feb. 23, 2004) (Initial Decision dismissing
complaint), available at http://www.ftc.gov/os/adjpro/d9302/040223initialdecision.pdf,
appeal docketed before Commission. The case is currently on appeal to the Commission. One
of the authors (Susan Creighton) is recused in Rambus, and so no further discussion of
the case is included (and no position taken on the merits of the case).
4 By highlighting these cases, we do not mean to state or imply that standard-setting
organizations always behave procompetitively so long as they are not tricked into doing
otherwise. These organizations can and have been used to collude against newcomers and
to exclude more efficient competitors. See, e.g., Am. Soc'y of Sanitary Eng'g, 106 F.T.C
324 (1985). Such behavior, like that described below regarding the South CarolinaDentists
case, see supra note 8, involves collective or collusive exclusion and may also be "cheap
exclusion" as we employ that term.
2005] CHEAP EXCLUSION

of those cases, the alleged conduct did not create wealth but simply
transferred it, and so had no possible claim to efficiency. Second, the
conduct was cheap (in some cases, almost costless) to the firm engaging
in it. Third, the returns from successfully transforming the exclusionary
conduct into monopoly profits were large in proportion to the costs of
trying. In Allied Tube, for example, the opportunistic forum-packing cost
the defendant only $100,000 to recruit 155 new members, and other
steel interests similarly recruited and paid for the expenses of another
75 new voters. In contrast, the jury awarded $3.8 million in damages
(before trebling).
Finally, the cheap exploitation of opportunism occurred where a
handy source of durable market power already existed. In Allied Tube
and Hydrolevel (and as alleged in the complaint in Rambus), respected
private standard-setting organizations had the power to confer market
power by choosing one party's processes or by excluding another's. Thus,
the opportunistic behavior was not only cheap to the excluding firm
and inefficient in the marketplace, but had a great ability to inflict real
harm to consumer welfare.

B. TORTIOUS CONDUCT (E.G., FRAUD OR DECEPTION)

Tortious conduct is another form of abusive behavior that can, in

certain circumstances, constitute an element of a Sherman Act claim
and can sometimes be "cheap." 49 In the Microsoft case, for example, the
court found that Microsoft sought to limit Java's threat to its operating
systems monopoly by engaging in deception to damage Java's ability to
function across different platforms. Microsoft deceived Java developers
by representing that the Java programming tools provided by Microsoft
would allow the programmers to develop Java programs that were com-
patible with multiple platforms, when, in fact, those tools were Windows-
specific and could not create such "cross-platform" compatible
50
programs.

4"See, e.g., United States v. Microsoft Corp., 253 F.3d 34, 76-77 (D.C. Cir. 2001) (decep-
tion aimed at blocking development of a competing product).
-0 See also Int'l Travel Arrangers, Inc. v. Western Airlines, Inc. 623 F.2d 1255 (8th Cir.
1980) (false, misleading, and deceptive advertising). See also Elhague, supra note 23, at
280-82 (collecting authorities); Brookside Ambulance Serv., Inc. v. Walker Ambulance
Serv., Inc. 39 F.3d 1181 (table), No. 93-4135, 1994 WL 592941 at * 8 (6th Cir. Oct. 26,
1994) (providing false information); Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768 (6th
Cir. 2002) (misrepresentations, destroying competitors' facilities, abuse of trust by misusing
category manager position); Taylor Publ'g Co. v. Jostens, Inc., 216 F.3d 465, 480-82
(5th Cir. 2000) (tortiously inducing rivals' employees to violate non-compete clauses);
Caribbean Broadcasting Sys., Ltd. v. Cable & Wireless PLC, 148 F.3d 1080 (D.C. Cir. 1998)
(misrepresentations, sham objections to competitors' license applications).
 ANTITRUST LAW JOURNAL [Vol. 72

Of course, while claims of tortious conduct are frequently heard, the

elements of actual monopolization under Section 2 (where the conduct
is usually unilateral) are considerably more difficult to establish. The
antitrust plaintiff must prove that the alleged predator has acquired
monopoly power and that the effect of the conduct is anticompetitive
exclusion, not simply the imposition of costs on a competitor. 51 That a
competitor has been harmed can justify a tort suit by that competitor,
if the other relevant elements of the tort are established, but to show
an antitrust violation one must prove harm to competition. But the point
remains that when all the elements of monopolization, including injury
to competition, are present, tortious conduct-rarely, if ever, an effi-
ciency-enhancing form of "competition on the merits"-can be a cheap
52
form of exclusion.

C. ABUSE OF GOVERNMENTAL PROCESSES

One of the most effective ways for a firm to acquire or maintain market
power is to use the rules of government against its competitors. While
such conduct often is perfectly legitimate, it can be unlawful if market
power is achieved by abusing governmental processes. As Judge Bork
has noted, "[m] isuse of courts and governmental agencies is a particularly
effective means of delaying or stifling competition."5 3 Obtaining a patent

51See, e.g.,David T. Scheffman & Richard S. Higgins, 20 Years of Raising Rivals' Costs:
History, Assessment, and Future (discussion paper), available at http://www.ftc.gov/be/
RRCGMU.pdf.
52 Take, for example, a hypothetical in which competitor A has its agents destroy competi-
tor B's product displays at the point of sale. This may be very cheap for competitor A.
The behavior also may be profitable without reference to any contribution to monopoly
power. Assume that A and B each have a 10% share of an unconcentrated market, and
A's conduct succeeds in transferring one quarter of B's sales to A and one quarter to all
other competitors. A's market share rises to 12.5%-hardly the stuff of which a monopoly
claim is made. And the conduct is profitable. It is profitable because it transfers some of
B's sales to A, but that is true of all successful competitive conduct. It adds nothing to
the analysis to say that in determining whether A's conduct "makes economic sense" we
should discount the profits A receives because the manner by which it transferred B's
profits is wrong. That requires a normative judgment concerning whether A's form of
competition is "appropriate" by some standard unrelated to either its profitability or its
contribution to monopoly. And if we can make that judgment, what does assessing profit-
ability add? The more important fact here is that A's conduct is unambiguously anticompeti-
tive in the sense that no one's efficiency is enhanced, no benefits-short or long-term-
flow to consumers, and the only economic effects are that wealth is transferred to A, and
B either loses wealth or has to expend resources unproductively in preventing or remedying
A's conduct.
Antitrust law should not, of course, come into play under this hypothetical, because
antitrust condemns monopolization and that is not threatened here. But if A's conduct
actually succeeds in monopolizing, or poses a "dangerous probability" of such success,
the fact that A also made money by destroying its competitor's displays should not shield
A's conduct from antitrust liability.
3 BORK, supra note 19, at 159.
2005] CHEAP EXCLUSION

by perpetrating fraud on the Patent Office, for example, is a well-known

54
example of such abuse that may constitute unlawful monopolization.
The Orange Book and Unocal cases, described above, also involve abuse
55
of governmental processes to obtain market power shielded by law.
In all those cases, the market power was protected, in part, by patents.
There are, however, many other areas in which governments-for a host
of reasons-impose barriers to entry. While such barriers may serve
important public purposes, they are often rife with opportunities for
exclusionary conduct by incumbent competitors. 56 For example, "certifi-
cate of convenience and need" (CON) requirements, government fran-
chising or permitting requirements, and other government-imposed
exclusionary standards or rules can be costly for entrants or rivals to
overcome but cheap for incumbents to invoke. The proceedings often
associated with such requirements may provide numerous opportunities
for incumbents to delay entry or raise the entrant's costs by, among
other tactics, filing objections to applications, invoking rights to "public"
hearings, challenging the sufficiency of information provided by appli-
cants, forcing applicants to provide confidential business information
that incumbents can then misuse, and other techniques limited only by
the incumbents' creativity. Potentially problematic cost asymmetries can
be imposed by seemingly even-handed governmental regulations. 57
Some governmental processes not only provide opportunities for
incumbents to object to or otherwise delay and raise the costs of rivals'
entry but actually place incumbents in a position to exercise directly
government's power to exclude. Such scenarios often involve industry-
dominated regulatory boards. These boards may provide valuable exper-
tise, but that expertise is often accompanied by obvious exclusionary
motives-and, because the vehicle of exclusion operates through the
machinery of the state, its cost to the prospective predator or predators
may well be effectively zero.

51See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965);
see also Am. Cyanamid Co., 72 F.T.C. 623, 684 (1967) (respondent's conduct before the
patent office at the very least amounted to "unclean hands," "inequitableness" and "bad
faith"), aff'd, Charles Pfizer & Co. v. FTC, 401 F.2d 574 (6th Cir. 1968).
55See supra Part II.
56 See generally IMPROVING HEALTH CARE: A DOSE OF COMPETITION, A REPORT BY THE

FEDERAL TRADE COMMISSION AND THE DEPARTMENT OF JUSTICE (July 2004), available at
http://www.ftc.gov/reports/healthcare/O40723healthcarerpt.pdf
11For an example of research in this area, see Thomas W. Hazlett & George S. Ford,
The Fallacy of Regulatory Symmetry: An Economic Analysis of the "Level Playing Field" in Cable TV
FranchisingStatutes, 3 Bus. & POL. 21 (2001) (arguing that "level playing field" requirements
contained in some cable TV franchising statutes can cause entrants to bear higher burdens
than did the incumbent).
 ANTITRUST LAW JOURNAL [Vol. 72

The Commission's recent complaint in South CarolinaDentistsdescribes

this form of alleged abuse of a regulatory process, in this case by collec-
tive, rather than unilateral, action. 58 The complaint alleges that the
Board, a creation of the South Carolina legislature established to super-
vise the practice of dentistry and dental hygiene, unlawfully restrained
competition in the provision of preventive dental care. Assertedly, the
Board did so by promulgating a regulation that unreasonably restricted
the ability of dental hygienists to deliver preventive services, including
cleanings, sealants, and fluoride treatments, on-site to children in South
Carolina schools. The complaint charges that the Board's action was
undertaken by self-interested industry participants with economic inter-
ests at stake, was contrary to State policy, and was not reasonably related
to any countervailing efficiencies or other benefits sufficient to justify
its harmful effects on competition and consumers. Almost all of the
Board members are dentists, and the preventive care in question involves
services that both dentists and dental hygienists are trained to perform.
The allegations of this case describe cheap exclusionary behavior and
the creation of an effectively insurmountable barrier to entry. The cost
to the dentists was effectively zero because the state of South Carolina
would bear the cost of enforcement against hygienists violating the regu-
lation. The cost to the hygienists was very high: complete exclusion unless
the regulation was overturned, which, in turn, would require expensive
and uncertain litigation or, perhaps, legislative change. Taking as true
the complaint's allegation that there was no health-related justification
for the regulation, its effect-a straightforward and significant output
reduction-was plainly anticompetitive with no efficiency rationale.

D. ABUSIVE LITIGATION

A closely related form of relatively cheap predation involves filing (or

threatening) lawsuits for the sake of exclusion, rather than on the mer-
its. 59 These actions can be more costly for the victim than the predator,

58 South Carolina State Bd. of Dentistry, FTC Docket No. 9311 (Sept. 12, 2003) (Com-
plaint), available at http://www.ftc.gov/os/2003/09/socodentistcomp.pdf. Our comments
are limited to the allegations of the complaint.
59See Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986 (9th Cir. 1979) (en banc) (bad-faith
prosecution of infringement actions); AMERCO and U-Haul Int'l, Inc., 109 F.T.C. 135
(1987) (Consent Order; complaint alleged that U-Haul and its parent AMERCO attempted
to monopolize the market for rental moving equipment by engaging in a series of anticom-
petitive acts against a competitor in a Chapter 11 reorganization proceeding). Claims of
Noerr immunity are a potential obstacle to antitrust prosecution in some of these cases,
but immunity should not be available to abusive repetitive litigation or similar conduct.
See California Motor Transport Co. v. Trucking Unltd., 404 U.S. 508, 512-13 (1972);
PrimeTime 24 Joint Venture v. NBC, 219 F.3d 92, 100-01 (2d Cir. 2000); USS-POSCO
 20051 CHEAP EXCLUSION

and can cause costly delay that harms the rival. For example, there are
substantial cost asymmetries in repetitive sham litigation; the incremental
cost of filing an additional sham complaint is negligible, but the cost
of defending against the complaint is high in comparison. 0 The cost
asymmetry may be particularly acute when the sham litigation is against
a rival's customers, who may lack both the resources and the incentives
necessary to defend against the suit. In nonrepetitive sham litigation
cases, costs borne by the two parties may be roughly comparable, but
they will nevertheless usually be proportionally larger for the victim in
relation to its share of market or expected profits from entry.
Further, strategies of this sort can work well-from the predator's
perspective-in conjunction with a strategy to abuse government entry
barriers, e.g., by commencing litigation following, or in anticipation of,
the eventual authorization of entry. This can be effective even if limited
to threats (thus avoiding the cost of litigation), and may be particularly
effective if directed at the government entity, such as a licensing board
that maintains the entry barriers rather than the prospective entrant
(especially if the government entity involved is small or resource-
constrained). The reason for targeting the government is to take advan-
tage of the resulting cost/benefit asymmetries: such lawsuits (or threats)
cause the government agency in question to incur potentially significant
costs, in a setting where it will likely have no direct stake in the outcome.

IV. SOME RECURRING ISSUES

A. WHY ANTITRUST?
One may question the role antitrust law should play in cheap exclusion
cases, given that other legal theories, such as contract or tort, often will
provide some form of redress (at least to some potential victims). The
fact that such conduct often violates other laws, however, in our view is
neither surprising-illegal behavior is, by definition, conduct that "lacks
any redeeming qualities"-nor appropriate grounds for finding antitrust
immunity. Indeed, by that same logic, criminal antitrust claims would
be viewed with more skepticism because the conduct also often consti-
tutes mail or wire fraud. It simply seems backwards to say that conduct
is less of an antitrust concern because it lacks any plausible efficiency
claim. Put differently, just because conduct lacks any efficiency benefit
does not mean that it cannot violate the antitrust laws.

Indus. v. Contra Costa County Bldg. & Constr. Trades Council, 31 F.3d 800, 810-11 (9th
Cir. 1994). We discuss Noerr in some more detail infra at Part IV.
60 See Michael J. Meurer, Controlling Opportunistic and Anti-Competitive Intellectual Property
Litigation, 44 B.C. L. REv. 509, 515-16, 521-25 (2003).
 ANTITRUST LAW JOURNAL [Vol. 72

Antitrust advances certain policy goals and vindicates certain interests,

notably the interest in protecting the competitive process and thereby
garnering economic benefits for consumers. It is not at all clear that
the business tort and other remedies potentially available in the cases
described above are well-designed to protect those interests and advance
those goals. Nor is it clear that the parties in a position to pursue those
remedies possess the right incentives or motivation. For example, in
the standards-setting arena described above, numerous issues including
collective action and free-rider problems, the availability of defenses
such as a "reasonable" reliance burden that would not apply to a govern-
ment enforcement action, and the opportunity to pass hold-up costs
through to consumers, all render standard-setting participants, victims
though they may be, imperfect substitutes for government antitrust
enforcement. 61

B. THE ROLE OF EXEMPTIONS

An understanding of how cheap exclusion threatens antitrust goals

helps to explain the importance to our enforcement program of the62
Commission's close scrutiny of antitrust exemptions, notably the Noerr
and Parker63 defenses. Although the Commission's efforts in this regard
(including the State Action Report 6 4 and the numerous consents and liti- 65
gated cases the Commission has pursued) have been widely discussed,
their importance to antitrust enforcement generally may not be well
understood. Firms seeking cheap exclusion strategies are likely to focus
on areas in which conditions are ripe for inexpensive, high-benefit gam-
ing. As the foregoing discussion demonstrates, governmental activities
designed to advance entirely different policy goals may create such condi-
tions. And market power obtained by exploiting inadvertently created
flaws in governmental systems is by that very fact often stubbornly resistant
66
to market correction and is, therefore, likely to be durable.

1For a more detailed analysis of the mismatch in incentives, motives, and remedies
between standard-setting organizations hold-up victims and consumers, see Alden F. Abbott
& Theodore A. Gebhard, Standard-SettingDisclosure Policies:EvaluatingAntitrust Concerns in
Light of Rambus, ANTITRUST, Summer 2002, at 29.
62See Eastern R.R. Presidents Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961);
United Mine Workers of Am. v. Pennington, 381 U.S. 657 (1965).
63See Parker v. Brown, 317 U.S. 341 (1943)
64
FEDERAL TRADE COMMISSION, OFFICE OF POLICY AND PLANNING, REPORT OF THE

STATE ACTION TASK FORCE (Sept. 2003), available at http://www.ftc.gov/opa/2003/09/

stateaction.htm.
0 See, e.g., TimothyJ. Muris, Looking Forward: The Federal Trade Commission and the Future
Development of U.S. Competition Policy, 2003 COLUM. Bus. L. REv. 359, 367-79.
66For example, if the government restricts entry, high prices will not generate entry to
correct them.
20051 CHEAP EXCLUSION 995

Thus, limiting Noerr's and Parker's effect to the core articulated by the
Supreme Court is crucial to an effective strategy for antitrust enforcement
directed against cheap exclusion. If, as we believe, cheap exclusion lies
at the center of a proper enforcement agenda, the undue expansion of
these immunities (as documented, for example, in the State Action
Report) is not simply a concern at the periphery of antitrust, but rather
goes directly to the heart of the agencies' ability to engage in effective
antitrust enforcement.

V. CONCLUSION
Antitrust enforcement policy should have, as one of its key premises,
the understanding that "cheap" forms of exclusion-if not deterred
by vigilant, effective antitrust enforcement-are particularly attractive
vehicles for acquiring or maintaining market power, either by a single
firm or a group of firms acting collectively. The preceding examples
from the Commission and the federal courts show that "cheap" exclusion
is far from an isolated occurrence. To the contrary, we believe it is likely
far more common than more costly, financially risky forms of exclusion.
If our experience of the past three years is a guide, the FTC has been
fishing in fertile waters.