Julie Wei | University of California, Davis, School of Law
Q: How did you become interested in antitrust?
A: As a summer associate, I was assigned to the Antitrust Group at Skadden in New York. After completing a few assignments, I realized that I found the substantive law of antitrust fascinating. After returning to law school, I took a bunch of antitrust classes and decided to pursue a specialization in antitrust. After graduation, I became an antitrust associate in Skadden's New York office.
Q: What are the important antitrust laws and which of those are most relevant to your work?
A: Section 1 and Section 2 of the Sherman Act and Section 7 of the Clayton Act are the primary federal antitrust laws I deal with on a day-to-day basis. In addition, there are state antitrust laws such as the Cartwright Act here in California. Finally, other countries also have their own competition laws.
Section 1 of the Sherman Act prohibits contracts, combinations or conspiracies in restraint of trade. When you stop and think about it, any contract could violate Section 1, because any contract, by definition, restrains trade. If I have contracted to sell one million units of a widget to you, I can't sell these one million units to anyone else. Case law has interpreted Section 1 to make unlawful only unreasonable restraints of trade.
Section 2 of the Sherman Act prohibits monopolization and attempted monopolization. Antitrust lawyers commonly understand unlawful monopolization to require the combination of monopoly power, that is, the power to control prices or exclude competition with a measure of deliberateness or intent.
Section 7 of the Clayton Act prohibits transactions that substantially lessen competition or tend to create a monopoly in any line of commerce. Mergers and acquisitions also can violate sections 1 and 2 of the Sherman Act as unreasonable restraints of trade or monopolization or attempted monopolization.
I primarily focus on mergers and acquisitions. It is a relatively small sliver of antitrust law, but it is fun because it is fact specific and there is a lot of room to be creative.
Q: Is there a part of the process that you find particularly interesting?
A: I enjoy the process of learning about and understanding a client's business. In order to give advice about the potential antitrust risks related to a proposed transaction, it's important that I understand how the business works, as well as the client's relative position vis a vis it's suppliers, it's customers and of course, its competitors. Having a solid grasp of the competitive landscape in which the client competes also is essential when it comes to defending that proposed transaction in the face of scrutiny by either the FTC or the Antitrust Division of the DOJ, a state attorney general or a private party.
Q: What is involved in the process of counseling companies through the deal process?
A: After learning as much as possible about the client's business, I can make a preliminary assessment of the seriousness of the competitive risk. Obviously where Company A and Company B compete in totally unrelated markets there should be no real antitrust concern. The majority of proposed deals, however, involve parties that have some overlapping products or services or are in related businesses. There, we try to anticipate the government's likely concerns and craft responses to these concerns based on the facts we've developed and often supplemented by economic theory developed by consulting economists. We take all of this preparatory work and create a pro-competitive story for the proposed transaction. My job then is to tell that story to the FTC or DOJ and convince them that there is no need for them to sue to block the proposed transaction. The process of telling that story might include telephone calls, meetings, submitting persuasive pieces often referred to as "white papers" or presentations with business people or other types of experts. Antitrust lawyers work collaboratively with lawyers from the other party and generally will meet jointly with the staff lawyers.
Q: Can you give an example of how this has played out in your experience?
A: Three or four years ago, Hewlett Packard merged with Compaq Computer. At the time, I think a common reaction was "Wait, how can those guys merge?" If you walked into the PC section of CompUSA, you would see HP, Compaq, and maybe a Sony. You couldn't buy Dell or Gateway at CompUSA. We actually went in and made presentations to the government on different product areas including PCs, and because we were well prepared, we were able to demonstrate to FTC staff that there was no reason for concern. That's what you do when you have a challenging case; you hope to take away the areas that are not going to be an issue - clear away the "underbrush," and focus on what the actual issues will be. We were able to do that. Once we narrowed the FTC's initial concerns down to a small number of areas, we did a deep dive and learned everything about those product areas. We also worked with economists to come up with arguments as to why there would still be competition after combining two moderately large players. At the end of the day we convinced the FTC that in each product market there wouldn't be an antitrust problem. The antitrust laws don't say "big is bad." As long as we can show that there is not going to be a substantial lessening of competition, the parties should be allowed to move forward with their proposed transaction.
Q: A significant portion of your clients are technology companies. What are some of the challenges in applying century old antitrust laws to the rapidly advancing technology industry?
A: We saw, in particular, the rise of the internet in every facet of society in the 1990s. That is how it was in 1999-2000, and literature started to appear proclaiming that the antitrust laws couldn't keep up with society, couldn't keep up with developments in the world, and were outdated. Some even suggested that because the antitrust laws were adopted when this was a hard manufacturing economy, they were, by definition, ill-equipped and couldn't move quickly with the technology and economy. I remember looking at that and thinking, "Wait a minute." I was firmly of the belief then and still am that our antitrust laws are capable of dealing with technology. It is not that the law is ill-equipped to handle the rapid pace of technology; it's that the people that enforce it have to apply the law using slightly different underlying assumptions about how business is done today. And that is not easy to do. As we've already discussed, from the outset of a new project, I spend time with our clients, trying to understand their business. Government lawyers don't always have that luxury. The challenge for antitrust lawyers then, on both sides, is to become technologically savvy enough to keep up with the rapid pace of technological change. This can be a tall order given that things are moving so fast and Silicon Valley entrepreneurs are very intelligent. They're not thinking two steps ahead; they are thinking ten steps ahead. Regulators are not "technologists" and do not want to let a potential monopolist take its few first baby steps, steps which could have a fundamental effect on the competitive landscape many years later before they can figure it out. The key then, for technology companies and their antitrust lawyers, is to be able to explain the rationale behind a proposed transaction and be sure the regulators are relying on the appropriate underlying assumptions.
Q: How does antitrust legislation in the technology industry interact with other areas of the law, such as the intellectual property issues that we tend to associate closely with technology companies?
A: IP issues come up all the time and they will by definition; a patent is a government granted monopoly. The antitrust laws actually favor licensing because it will disseminate technology and that is good for society and good for the economy. I think it's a natural area for tension as well because you have competitors or even companies that you otherwise would never think of as competitors, but if one of them or both of them owns some IP that the other one could use or needs, suddenly there is an area where they compete. A cross-license is a good thing, but what happens if you don't cross-license someone else? This could violate Section 2 of the Sherman Act. For example, Company A takes a license from you to produce something, but Company B wants to produce that product too and also needs access to your license. If you don't give Company B a license, you could be artificially affecting the competition between A and B. We work with IP counsel a lot and again there is that natural tension.
Typically in IP litigation where one company sues another alleging infringement, it's almost automatic for the defendant to bring an antitrust claim against the plaintiff, claiming it is tying to monopolize a market. It's important for plaintiffs, especially IP infringement plaintiffs, to keep that in mind if someone brings an antitrust counterclaim against them, that it could open up a whole other piece of litigation that can become expensive. Antitrust cases take a lot of time and require the production of volumes of business documents. Every company has "noise" in its business documents and the other side will use anything there is as a settlement leverage point or a pressure point. Another potential negative consequence of an antitrust counterclaim is that if the antitrust plaintiff wins it is entitled to treble damages and attorneys fees. That's a pretty strong incentive for a defendant in a patent infringement case to pursue an antitrust counterclaim. In school, you can sort the subjects each on their own, but when you get out in the field, nothing is really on its own. Everything has tentacles somewhere else, and that's especially true for intellectual property and antitrust. The Supreme Court is considering whether market power should be presumed based solely on the existence of a patent.
Q: The telecom industry has gone through a number of changes in recent years, with the burst of the bubble in 2000, ensuing bankruptcies, and a more recent move toward major consolidation. What are your reactions and insights regarding recent changes in this industry?
A: With the SBC-AT&T and the Verizon-MCI deals, it seems like Ma-Bell is being put back together. The Telecommunications Act of 1996 was designed to make it clear that telecom is in fact subject to the federal antitrust laws. I think every so often there is some cry for more regulation. Do I think that we need more regulations? I think probably not, because we are seeing competition from more than one place. We are seeing internet communications. We are seeing text and data communications with instant messaging and email. Not just the telephone and not just what we used to call "land line," but more robust wireless technology and it seems that more and more spectrum is being released by the FCC. All of this technology creates additional methods of communication which will provide incentives for more people to enter the market, which is a good thing because it should translate into more alternatives for consumers.
Q: What are some of the other elements of your job, beyond the transactional work that you have described?
A: A part of the job which I am finding I like more and more is regular antitrust counseling to clients. We focus on daily business interactions: How do our clients interact with other companies? How do they interact with other people -- with vendors who sell to them, with customers to whom they sell, and with their competitors? It is an element of antitrust that is actually terribly important. Antitrust lawyers try to convince clients what they need to do before anyone threatens a lawsuit, to hopefully prevent a lawsuit. We can help them accomplish their business goals by helping them to navigate through the landmines. The key again, is preparation. But it can be a challenge to get the business people to carve out the time for us. Most business people view antitrust lawyers as the ones who throw the brakes on everything that they want to do. Antitrust also can be a hard sell because a lot of companies believe themselves to be relatively young in the life cycle of a company. Their view is always that they are fighting every day to stay alive, not so much that they are dominating anyone, anything or any sector. When I first meet with emerging companies, I tell them that I understand that all they have had a chance to think about is staying alive for the last few years, but ask them to take a look and tell me about the history of the marketplace and who else is in their space. Then they might tell me about some competitor, but their funding dried up, so that competitor disappeared and now there are only two companies. In antitrust, an industry of two is one where it is easy to collude and reach terms of coordination, whether it's allocating markets, allocating customers, or allocating territories. You become ripe for the government to keep its eye on you. Particularly on the deal side, too often companies get the antitrust lawyers involved very late in the process.
Q: Do you have a final message for our readers?
A: I counsel companies that they should try not to make decisions about what they do with their business based on what they are afraid might happen. I get a lot of questions from clients, potential clients, and investment bankers about the current "regulatory climate" in D.C. and whether it's a good or bad time to try to do a deal. My feeling is that if the right decision for the business is to make an acquisition, to sell, or to do a merger, the client should not be afraid of going after that.
Usually, I am not asked how to get a deal done, but just if there is or isn't a deal-stopper. But I really need to understand what is important, what is the real jewel of the deal. Once that is determined, we ask if we could divest this, sell this to someone else, or license this away. Cutting out the nonessential elements can sometimes help make a deal go through. That is, if the deal itself is not going to raise a problem. The government will not let a problem go through, regardless of how much you cut away. As a practical point, antitrust lawyers can add a great deal of value to their clients because they can help them anticipate and navigate through potential landmines. If an antitrust lawyer is involved early in the process, and can understand what it is the client really wants to do, he or she can help propose possible alternatives. But antitrust lawyers can't give advice without the context or facts. I encourage business people to be upfront and not be afraid of their antitrust lawyers. I think antitrust lawyers can play a positive role in helping clients accomplish what they want to do, within reason, of course. It's easier said than done.