Recently, we discussed in prior articles the antitrust legacy of Neil Gorsuch, currently a judge on the U.S. Court of Appeals for the Tenth Circuit and nominee for the Supreme Court of the United States. Gorsuch has significant antitrust experience, both in private practice and on the bench. While at Kellogg, Huber, Hansen, Todd, Evans & Figel, Gorsuch defended “Baby Bell” SBC Communications, a company formed after the Federal Trade Commission’s breakup of AT&T, and prosecuted (to a jury verdict) what is widely considered to be one of the largest private antitrust awards in Conwood v. United States Tobacco. As a judge on the Tenth Circuit, Gorsuch has written several high-profile antitrust opinions, among them Novell v. Microsoft, a case in which the Tenth Circuit concluded Microsoft had no duty under the Sherman Antitrust Act to share its intellectual property with rival software-developer Novell. Indeed, during Gorsuch’s four-day Senate confirmation hearing last week, Democratic Sen. Amy Klobuchar called Gorsuch as an antitrust expert.
Despite Gorsuch’s antitrust experience, the 20 senators on the Judiciary Committee gave Gorsuch a virtual pass on his antitrust views after two days of testimony. Only one senator asked him any antitrust-related questions during a few short minutes of his over 20 hours of testimony. In the one isolated instance, Sen. Klobuchar questioned Gorsuch about: the uptick in merger reviews by the Federal Trade Commission and the Department of Justice, the president’s comments about the proposed merger of AT&T and Time Warner, a 2008 Department of Justice report on monopolization and the Federal Trade Commission’s criticism (as Klobuchar put it) of that report as “too lenient on monopolization, which would hurt consumers,” and recent Supreme Court decisions that “have made antitrust enforcement too difficult.” She also asked Gorsuch about pay-for-delay cases, “where prescription drug companies actually pay generic drug companies to keep their cheaper drugs out of the market.”
Perhaps as the best example of the cursory softball questioning and not particularly elucidating responses from the nominee, Klobuchar asked Gorsuch for his thoughts on recent Supreme Court decisions that have made it difficult to enforce the federal antitrust laws, Gorsuch responded with a rather formulaic explanation of the dangers of monopolies: “Well, the real problem at the end of the day is … lack of competition between competitors. And then of course that filters down to the consumer level. And what that yields are higher prices and lower output, a dead-weight loss to the economy, a loss of production.” Klobuchar then asked Gorsuch about his views on Federal Trade Commission v. Activis, where the Supreme Court’s seminal decision adopted a rule-of-reason standard in reviewing pharmaceutical pay-for-delay arrangements. Gorsuch ducked the Activis question, explaining instead, “one lesson we’ve learned in antitrust law over the years is to be cautious about per se rules either direction before you have some experience. And that you learn from—from the economics as you go.” On Klobuchar’s question regarding the Department of Justice’s 2008 important report on monopolization, Gorsuch ostensibly refused to answer: “Oh, senator, I—there’s no way you’re gonna get me to,” at which point Klobuchar just changed the subject. On what might have been a more revealing path, no questions were asked of Gorsuch about his prior antitrust experiences in private practice, including his successful work in the Conwood case where he truly represented a little guy “David” against a big guy “Goliath” competitor who had used multiple predatory tactics against his client.
Even when Klobuchar asked Gorsuch about his significant decision in Novell v. Microsoft, which we covered in our February column, Gorsuch simply replied that he had “attempted to apply the Supreme Court’s teaching in Trinko and Aspen Skiing … as faithfully as he could.” Of course, that is not to say that Gorsuch’s statement was inaccurate. Indeed, his Novell decision drew heavily on the Supreme Court’s decisions in Aspen Skiing v. Aspen Highlands Skiing, 472 U.S. 585 (1985), and Verizon Communications v. Law Offices of Curtis V. Trinko, 540 U.S. 398 (2004). But as with all Gorsuch’s answers, it failed to reveal his own antitrust jurisprudence.
In Aspen Skiing, the Supreme Court was called on to decide whether Aspen Skiing, a monopolist in the Aspen downhill skiing market, violated Section 2 of the Sherman Act by refusing to deal with its competitor, Aspen Highlands. Aspen Skiing (which owned three out of four ski slopes in the area at the time) had, for a number of years, agreed with Aspen Highlands (which owned the fourth slope) to offer customers an all-access pass to both companies’ slopes. Years into the arrangement, Aspen Skiing pushed Aspen Highlands to accept an increasingly lower percentage of the profits from the joint venture. According to Justice Paul Stevens, Aspen Skiing’s offer was “considerably below Aspen Highlands’ historical average profit based on usage.” When Aspen Highlands rejected the unfavorable offer, Aspen Skiing refused to participate in the venture any longer, causing significant financial harm to the Aspen Highlands.
In concluding that Aspen Skiing violated Section 2 of the Sherman Act, Justice Stevens (who, like Gorsuch, practiced antitrust law and tried cases before joining the bench) explained that, while the Sherman Act generally does not oblige a company to deal with its competitors, Aspen Skiing’s conduct was clearly anticompetitive. Initially, because Aspen Skiing had participated in the all-access pass for a number of years, “its decision to terminate the all-access pass was … a decision by a monopolist to make an important change in the character of the market.” Moreover, Aspen Skiing’s decision resulted in a lower quality of service—evidence adduced at trial showed that skiers preferred the convenience and flexibility of the all-access pass. Finally, Aspen Skiing failed to prove at trial that its conduct was “justified by any normal business purpose.” Justice Stevens noted that Aspen Skiing’s decision did not make financial sense, at least in the short term, because there was evidence that the all-access pass provided significant financial benefits over an unbundled pass. Therefore, Stevens concluded, the jury could have concluded that Aspen Skiing “elected to forgo these short-run benefits because it was more interested in reducing competition in the Aspen market over the long run.”
In Trinko, the Supreme Court considered whether Aspen Skiing extended to the highly regulated telecommunications industry. Pursuant to the Telecommunications Act of 1996, Verizon Communications, a communications company classified as an incumbent local exchange carrier, was required to share its communications network with competitors, giving them equal access on an “unbundled basis.” When Verizon allegedly failed to meet its obligations, the FCC opened an investigation and eventually signed a consent decree with Verizon subjecting it to “new performance measurements and new reporting requirements … with additional penalties for continued noncompliance.” In Trinko, however, the late Justice Antonin Scalia writing for the majority of the court concluded that Verizon’s failure to provide open access to competitors did not violate the Sherman Act, noting that the Aspen Skiing decision “is at or near the outer boundary of Section 2 liability.” Distinguishing Aspen Skiing’s conduct from Verizon’s, Scalia explained that Verizon had not voluntarily agreed to deal with its competitors in the first place. Rather, the Telecommunications Act of 1996 mandated that it share its network with others. Moreover, the court noted that Verizon’s actions, while potentially unlawful under the Telecommunications Act, made rational business sense because sharing a network with competitors was considerably expensive and ostensibly provided no benefit to Verizon. In sum, Trinko clarified the scope of refusal to deal cases by requiring: a voluntary course of dealing between rivals and “the unilateral termination of that … course of dealing in a manner that suggests a willingness to forsake short-term profits to achieve an anticompetitive end.”
What can be said, but was not pressed in the committee hearings, is that Judge Gorsuch’s application of Aspen Skiing to his decision in Novell v. Microsoft closely followed Scalia’s reasoning in Trinko. In Novell, he acknowledged that Microsoft had, in the past, maintained a cooperative relationship with Novell. In fact, Microsoft had “freely offered its … rivals, including Novell, access to its software.” Therefore, Novell met the first prong of Aspen Skiing, as applied in Trinko. But Novell proffered “no evidence from which a reasonable jury could infer that Microsoft’s discontinuation of [its relationship with Novell] suggested a willingness to sacrifice short-term profits, let alone in a manner that was irrational but for its tendency to harm competition.” Therefore, Gorsuch concluded, Novell failed to prove that Microsoft’s refusal to deal was anticompetitive.
Gorsuch’s testimony that he has “attempted to apply the Supreme Court’s teaching … as faithfully as he could” is, to a large extent, an accurate assessment of his jurisprudence to date. As a judge of the Tenth Circuit, he was obligated to apply the standards handed down in Aspen Skiing and Trinko. But as a Supreme Court justice, he may have the opportunity to leave his own mark on the antitrust laws, as did Justice Stevens. Notwithstanding the Senate Judiciary Committee’s failure to peg Gorsuch on the significant and pressing antitrust issues confronting consumers and facing Corporate America, the Senate has scheduled a vote for April 7. Stay tuned.
Reprinted with permission from the March 31, 2017 issue of The Legal Intelligencer. Copyright 2017. ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.