Yesterday, I sent my post on the antitrust implications of an agreement between BMW, Ford, Honda, Volkswagen, and the State of California to John Newman, my former Antitrust Law professor to whose recent column in The Atlantic on the agreement I was critiquing, and he graciously responded (also, he joined Twitter this week, which is the last thing I ever would have expected from a guy who still proudly carries a flip phone*):

https://twitter.com/johnmarknewman/status/1174078102734950400

https://twitter.com/johnmarknewman/status/1174079213004967936

https://twitter.com/johnmarknewman/status/1174079640182255617

https://twitter.com/johnmarknewman/status/1174079770872537088

https://twitter.com/johnmarknewman/status/1174082811340316675

Missouri v. Nat’l Org. of Women, 620 F.2d 1301 (8th Cir. 1980), like Claiborne, was a case about a politically motivated concerted boycott.  Upset with the lack of forward progress in efforts to ratify the Equal Rights Amendment, the National Organization for Women organized a boycott among its chapters, refusing to hold conventions in states that had not ratified the ERA.  The State of Missouri, worried about the financial impact of losing NOW’s convention traffic and dollars, filed an antitrust lawsuit to challenge the boycott.  Unlike the Supreme Court in Claiborne, the Eighth Circuit distinguished Noerr on its facts, recognizing, and this is John’s point, that,

[k]eeping in mind that what we are discussing is the applicability of the Sherman Act to the facts, and the intent of the Congress to cover such situations, the difference in the content of the legislation–if anything–makes it more clear that NOW’s efforts to influence the legislature’s action on the ERA are beyond the scope and intent of the Sherman Act.  A social piece of legislation and the efforts involved in influencing the legislature’s actions on such legislation is further afield from the central focus of the Sherman Act than a commercial piece of legislation and the petitioning efforts associated therewith.

Again, I defer to John on how broadly the principles espoused in these cases apply, but it still seems, to me, like a stretch to say that politically motivated boycotts designed to effect legislative or constitutional change are sufficiently analogous to a combination of competitors designed to ameliorate a market failure that implicates no fundamental rights based on immutable characteristics of the people who bear its costs for this exception to antitrust liability to apply here.

In addition to John’s response, Professor Herbert Hovenkamp, a preeminent antitrust scholar to whom John was a research assistant when he was in law school, weighed in on the agreement last week (I didn’t see his analysis until today) concluding that it “would almost certainly survive antitrust scrutiny under the rule of reason.”

Doctrinally, Hovenkamp argues that the “state action” exemption to antitrust law, which permits anticompetitive conduct that is ordered by the state and adequately supervised by a neutral state authority, may apply to this agreement, depending on whether the State of California is a party to the agreement or merely an emissions-standards setter.  Candidly, I do not know enough about the agreement to know whether this exemption would apply.  If the state action exemption does not apply, and a court must reach the merits of an antitrust claim, then Hovenkamp still isn’t worried because only when standard-setting agreements facilitate collusion or enable monopoly profits, which was the case in N.C. State Bd. of Dental Examiners v. FTC, 135 S. Ct. 1101 (2015), has antitrust law intervened.  The state action exemption did not shield the North Carolina Board of Dental Examiners from antitrust liability when the Board imposed dental practice certification requirements on professional teeth whiteners because the Board was made up of active incumbent market participants–the very dentists who would benefit by making it harder for teeth whiteners to make their living–not neutral, financially disinterested monitors of state policy.  In contrast, Hovenkamp argues that, although BMW, Ford, Honda, and Volkswagen are active incumbent market participants (large firms, at that), and they are agreeing to set a fuel efficiency and/or emissions standards, even when combined they control roughly only 26% of the market for new car sales in California and throughout the United States.  So any standard set as a result of this agreement is not likely give any of them monopoly power or harm their competitors.

As for another economic argument against antitrust liability for this agreement, according to Hovenkamp, standard-setting agreements between private parties are ubiquitous throughout the economy (indeed, as a lawyer, I had to pass the Tennessee Bar Exam, which was established by lawyers to ensure a minimum level of competency in newly admitted practitioners).  He writes that standard-setting agreements among private parties “perform in just the opposite way from price fixing agreements:  they increase complying firms’ costs, not their prices.”  That seems at least to be an empirical question, the answer to which may be informed by the practical reality that firms tend to pass increased costs on to consumers in the form of higher prices, and Hovenkamp does not discuss this claim further.  Nonetheless, as John notes, if people are not buying green energy vehicles because of higher prices, the manufacturers’ aggregate profits are sure to suffer relative to their costs after this agreement.

John and Hovenkamp’s economic points about the automakers’ increased costs relative to likely profits following this agreement are well-taken, and I think this is the better argument against antitrust liability.  As I said initially, I was pretty sure the conclusion in John’s syllogism was correct, but I stand by my claims that mere altruism isn’t (and shouldn’t be) what controls when it comes to measuring the impact of anti-competitive conduct on consumer welfare–similarly, I don’t think that what feels good should animate public policy.

And now, I’m off to get the oil changed in my internal-combustion-engine gasoline-powered car before heading to the Gulf coast this weekend!

*John’s Flip Phone

On an unrelated note, John gave a great talk, “Free: The World’s Most Dangerous Price,” at the TEDx conference in Memphis in 2018 that is very much worth eleven minutes of your time.  His (in)famous flip phone makes a cameo: