Academic journal article Harvard Law Review

Deception as an Antitrust Violation

Academic journal article Harvard Law Review

Deception as an Antitrust Violation

Article excerpt

Company A and Company B compete in the market for drugs that treat a particular disease. Company A created the market by inventing Drug A and soon realized significant sales. Shortly thereafter, Company B entered the market by introducing Drug B. Drug B was cheaper and had fewer side effects than Drug A, and Company B claimed that Drug B's therapeutic capability was equal to that of Drug A. Not surprisingly, Drug B steadily gained a greater share of the market until Company B was on the cusp of monopoly and Company A was on the cusp of financial ruin.

This story seems like a classic example of competition in the American free enterprise system. The two firms competed on equal terms, and Company B won out. Company B seemed destined to achieve monopoly because of its "superior skill, foresight and industry" (1): that is, by developing a quality product at a lower price than its competitor did.

There is only one problem: Drug B didn't work. Drug B's ability to alleviate the disorder was speculative at best. Yet Company B dominated the market by willfully deceiving the Food and Drug Administration (FDA) and subsequently deceiving the patients who bought the drug. Had Company B's customers been aware of the deception, most would have bought Drug A instead. Patients who used Drug B were at risk of unhealthful outcomes after taking the ineffective drug.

Clearly, Company B's deceptions raise concerns across several legal regimes. The deceptions may constitute common law fraud (2) and may violate state unfair competition statutes, (3) the federal Lanham Act, (4) and FDA regulations. (5) But are they an antitrust concern? Do these deceptions constitute exclusionary conduct that forms the basis of an offense for monopolization under section 2 of the Sherman Act? (6) More generally, does deception cause the kind of anticompetitive harms that the antitrust laws are designed to combat?

Several courts have found antitrust violations or allowed antitrust claims based on deception, (7) and even the Supreme Court has suggested that deception can constitute an antitrust violation under certain circumstances. (8) Professor Maurice Stucke has advocated a standard that would make it relatively easy to classify deception as a monopolization offense, arguing that a prima facie violation exists when a court determines after a "quick look" that a monopolist's deception appears reasonably capable of significantly contributing to monopoly power. (9) However, a number of scholars and commentators have suggested that deception and other business torts do not generally cause anticompetitive harm and are not within the proper purview of antitrust law. In particular, Professors Phillip Areeda and Herbert Hovenkamp have advocated for a nearly insurmountable presumption against recognizing deception as an antitrust violation, (10) a presumption that many courts have adopted. (11) Given these conflicts, the current status of deception in antitrust law is confused and indeterminate.

This Note proposes a framework for determining when courts should consider deception as an antitrust violation, offering a middle ground between Stucke's approach and Areeda and Hovenkamp's approach. Part I presents the arguments for and against recognizing deception as an antitrust violation. Deception can cause a myriad of anticompetitive harms to both economic efficiency and consumer welfare, with no countervailing procompetitive justifications. However, much deception does not cause meaningful anticompetitive harm; allowing antitrust claims and their accompanying treble damages too broadly could lead to the proliferation of barely colorable yet costly antitrust litigation, thus overdeterring truthful and procompetitive speech.

Part II proposes a framework for determining when to consider deception as an antitrust violation that aims to mediate these competing policy concerns. In the context of monopolization, deception would constitute a prima facie antitrust violation when the plaintiff can show that the deception was reasonably capable of contributing significantly to the defendant's monopoly power. …

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