Initiation into the Sacred Mysteries of Antitrust Law


On Friday District Judge Naomi Reice Buchwald of the Southern District of New York filed an order dismissing most of the civil complaint filed by several groups of people injured by the LIBOR manipulation scandal. The Judge says that the plaintiffs did not suffer an “antitrust injury”, meaning an injury from the collusion of the bank defendants that couldn’t have been incurred if they just acted individually. Antitrust law is a subspecialty of law, mostly incomprehensible to non-practitioners including me, so I can’t say much about the merits of the decision. Assuming that the Judge got the law right, however, it is yet another demonstration that legislation designed to prevent conduct harmful to the economy is eaten away by court decisions.

The statute in question is the Sherman Act:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony….

Citizens are given the right to enforce this law, by § 4 of the Clayton Act:

…[A}ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee.

Sacred Deities of Antitrust Understanding


We haven’t been initiated into the mysteries of Antitrust Law, so we naively read this statute to say that if you are damaged by someone because they violated the antitrust laws, courts will force the lawbreakers to pay for your losses, together with treble damages and reasonable attorney’s fees. Not so. The Supreme Court has decided that the phrase “injured in his business or property by reason of anything forbidden in the antitrust laws” means a “loss [that] stems from a competition-reducing aspect or effect of the defendant’s behavior.” Quoting Atlantic Richfield Co. v. USA Petroleum Co., 495 US 328, 334 (1990). Judge Buchwald explains why:

The rationale, of course, is that the Clayton Act’s rich bounty of treble damages and attorney’s fees should reward only those plaintiffs who further the purposes of the Sherman and Clayton Acts, namely, “protecting competition.”

The plaintiffs say that the banks colluded to set LIBOR at an artificial level, causing them injury. But, says the judge, the practice of setting LIBOR was not intended to be competitive. It was supposed to be a cooperative action of the banks. They were provide estimates of their cost of borrowing to an independent third party, which would then announce an interest rate index.

The judge then explains that each bank could have done this on its own, and plaintiffs would have suffered the same injury. Decision at 34. The Judge says that the incentives facing the banks pushed them to cheat, because that would enable them to look healthier and to pay lower interest rates on their own debt that was based on LIBOR. The banks argue, in effect, why would you trust us? We are mere animals, unable to control our urge to grab as much money as we can. Violating laws and cheating people is our stock in trade. Right you are, says Judge Buchwald. Silly plaintiffs, no recovery for you.

In the face of this decision, why would you assume that passing laws matters? What is your recourse? I suppose you could try to pass another law, something like “No, we really meant that part about letting people sue”.

Let’s pretend your elected representatives agreed to pass some such law. It would be larded with provisions requiring the Federal Trade Commission to enact rules defining the forbidden conduct, sort of like Dodd-Frank. Then the lobbyists descend on the regulators and get the rules written to suit them. Then they appeal the rules to the DC Court of Appeals on the grounds that the regulators didn’t adequately consider some of the economic burden created by the rules, or some other equally laughable argument.

That court is dominated by conservatives who agree that any economic burden is too great to bear. President Obama can’t appoint judges of a different economic perspective to that court because Harry Reid and his spineless Democratic party allow the Republicans to filibuster appointments.

These banks aren’t guilty of crimes either, according to Lanny Breuer, who as head of the Criminal Division of the Department of Justice decided not to prosecute.

Judge Buchwald knows that uneducated people like you and me might find this decision “unexpected”. But we have rules, don’t you know, about who can invoke the laws in this democracy. But that’s not a problem because

The broad public interests behind the statutes invoked here, such as integrity of the markets and competition, are being addressed by ongoing governmental enforcement. Decision at 160.

Lanny Breuer is laughing all the way to the banks represented by his old buddies at Covington and Burling.