The People Take Antitrust Into Their Own Hands

It’s a very weird political moment for those concerned about corporate power, with mixed signals from the current administration, a confused opposition, and Bernie Sanders launching a ‘Tour against Oligarchy’ to big crowds in Nebraska. But slowly, out of the spotlight, the people’s lawyers, aka the plaintiffs’ bar, and state attorneys general, are litigating antitrust cases against big business, with judges accepting their arguments. And corporate America is noticing.

Two days ago, Verisign, one of the economic termites that we’ve been discussing on BIG, added new risk language to its corporate annual report. Verisign is the government-designated monopolist backed by Warren Buffett that runs the registration of .com addresses. It routinely raises prices, and has operating margins of roughly 70% on $1.5 billion in revenue. Its pricing, Verisign warned, could be challenged through “publicity campaigns, governmental scrutiny, media interest and legal challenges,” which is to say, they believe they are under political and legal threat.

And they are.

There are policies the Commerce Department could undertake to kill their pricing power, there’s also a private antitrust case that someone could bring against this billion dollar monopolist. And while such a legal threat wasn’t significant a few years ago, today there are a greater number of such private cases, with judges increasingly confident in ruling for plaintiffs. Judge Richard Boulware, for instance, forced the Ultimate Fighting Championship to settle with fighters over monopolization claims with a $375 million settlement, and let a different but similar suit go forward against the UFC.

In this issue of BIG, I’m going to briefly touch on five big companies that are now in the hot seat: Equifax, Pepsi, American Express, Corteva, and Syngenta. You’ve likely heard of the first three, the latter two are seed/chemical companies, Corteva is a spinoff of Dupont. Judges are hearing these cases, and reacting favorably to the claims.

#1 Equifax: In 2023, I wrote up an explanation of how the credit reporting giant Equifax had monopolized an important business, which is the sale of information about our salary and income to third parties through a product line called ‘The Work Number.’ If a bank or auto dealer wants to lend someone money to buy a home or car, they need a verification that the person works where he says he works and makes the income he says he makes. Others who might want this information include those validating government assistance claims or immigration status. Medicare, for instance, has a giant billion dollar plus contract with Equifax.

To get this information, third parties buy it from Equifax, which is pretty much a monopolist in this area, and thus can constantly raise prices. Or at least, that’s what its CEO, Mark Begor, keeps telling investors. In 2022, he spoke at a Goldman Sachs investor conference. “We have meaningful pricing power,” he said, because “only Equifax has that income and employment data.” (After I published my piece citing his comments, Goldman appears to have taken down that investor presentation.)

How does it generate its monopoly? Well, that has to do with how Equifax gets the data. The company has deals with payroll companies ADP, Intuit, Paycor, PrismHR, UKG, and many other providers of outsourced payroll services to turn over or sell records. As of 2017, that “75% of the Fortune 500 companies, 85% of the federal government workforce, entire state governments and agencies, courts, colleges, and thousands of small businesses nationwide” handed over data. Facebook, Amazon, Oracle, Google, Wal-Mart, Twitter, AT&T, Harvard Law School, and the Commonwealth of Pennsylvania do too. More importantly, in some or all of these deals, Equifax prohibits these entities from sending records to any rival who might seek to compete with the Work Number. And that, along with a string of acquisitions, is the monopolization problem right there.

In 2024, plaintiff lawyers at a few firms, led by Hausfield, filed a monopolization claim against Equifax on behalf of mortgage lenders that have to pay high prices. Three days ago, Judge John Murphy in Pennsylvania ruled that the antitrust claims are valid, and that Equifax, if the allegations are proven at trial, has broken the law. While there is likely to be a few more years of litigation, and we can’t know the ending, the fact that judges are comfortable stating that certain activities are unlawful is a step change.

#2 Pepsi: Mark Poe, an antitrust lawyer with expertise in price discrimination rules, filed a case this week on behalf of convenience stores in California alleging a violation of the little used Robinson-Patman Act by Pepsi and its subsidiary Frito Lay, the maker of Doritos, Lay’s, Cheetos, Fritos, Ruffles, Chester’s, Sun Chips, Maui Style, and Funyons.

The RPA used to be known as “the Magna Carta of Small Business,” because it allowed small producers and family owned stores to compete with giants, who otherwise could use their bargaining power to cut sweetheart deals with suppliers to drive smaller rivals out of business. Reviving this law was a core goal of Lina Khan’s attempt to remove the power of middlemen in the economy. Under her tenure, the FTC brought two cases, one against a liquor distributor and one against Pepsi for essentially giving Walmart special deals.

This new complaint alleges that Frito Lay has charged “independent convenience stores far higher net prices for those brands of snack chips than it charges to chain grocery stores such as Albertson’s, Walmart, Target, Safeway, Ralphs, Vons, and others.” A small store could buy wholesale a party-size bag of Ruffles, for instance, at $4.41, while the same item was on sale to consumers at Albertsons for $2.49, or 43% below the acquisition cost of smaller stores. That sounds minor and unimportant, it’s a bag of potato chips. But multiply that across most items, and it means that simple raw size determines whether you can operate as a viable business.

Poe cited Wright Patman floor speech against price discrimination, arguing that one need not “look further than Walmart and the other Chain Groceries to witness firsthand ‘huge chain stores sapping the civic life of local communities with an absentee overlordship.’”

Patman is no doubt smiling from above.

#3 Corteva/Syngenta: It’s time to talk about monopolies on the farm. In 2022, the Federal Trade Commission and 10 states filed a case in North Carolina going after two firms - Syngenta, a Chinese-owned seed and chemical firm, and Corteva, which was the merger of two parts of U.S. firms, Dow and DuPont.

Corteva and Syngenta sell fungicides and herbicides (Azoxystrobin, Metolachlor, Mesotrione, Oxamyl, Acetochlor), which are used to grow corn, apples, peanuts, citrus fruits, pears, carrots, peppers, tomatoes, tobacco, sugarcane, etc. The specific business practices in question are payments to distributors not to carry rival, cheaper products. These are called “loyalty” programs, but in these cases it’s a way of blocking competition and keeping prices high.

The FTC claimed they are violating not only the Sherman Act’s prohibitions against monopolization and restraints of trade, but the little used Clayton Act Section 3 provisions against exclusive dealing. A few months later, the attorney general of Arkansas, Tim Griffin, brought a very similar case in his home state.

Last year, North Carolina judge Thomas D. Schroeder, a Bush nominee, said he’d let the FTC case go to trial, and agreed that the government’s case, if proven, shows lawbreaking. A few days ago, the Arkansas judge, Brian Miller, another Bush nominee, also said he found the allegations amount to possible lawbreaking, and said he’d let Griffin’s case go to trial, which is scheduled for this coming December.

#4 American Express: Last year, a pharmacist, Keaveny Drugs, brought an antitrust arbitration claim against American Express for over-charging merchants. In the U.S., payment cards take 1-3% of every transaction, whereas in most of the rest of the world that amount is far lower. Why?

Well it has to do with the corrupt market structure of our markets. Credit card companies and banks make money by taking a percentage of each transaction from the merchant. A merchant can’t refuse to accept Visa, Mastercard, or American Express from customers, for risk of losing sales.

The complaint is that AMEX has imposed what are called “anti-steering” and “no-surcharge” rules on merchants, which means that a merchant isn’t allowed to ask or give better pricing to a customer who uses, say, Visa instead of American Express. The net result is that these credit card networks don’t have to compete by offering better prices to merchants. Instead, they charge high swipe fees, and use some of that extra money to give reward points to cardholders.

In 2018, an identical version of this complaint went to the Supreme Court, which ruled for the credit card companies. The court said that while the anti-steering provisions might appear unfair and illegal, the plaintiffs erred by only considering the cost to merchants, without also considering the benefit to cardholders. In such “multi-sided markets,” antitrust must consider the totality of all effects of a restraint of trade. It was an absurd ruling, and it has been narrowed somewhat. In this complaint, the plaintiff alleges she has evidence tallying the cost to merchants and the benefits to cardholders, finding a net unfair effect.

If she prevails, it could restructure payment markets.

Ok, So What?

These kinds of cases, winding slowly through the courts, might seem irrelevant, as they don’t easily slot into any news flow about politics or business. But these cases represent the tectonic plates of commerce, slow-moving but setting the fundamental basis of the rules.

Here’s why.

When a judge seeks to see whether a case should go to trial, he or she first has to go through the painstaking work of analyzing antitrust law and see if the alleged conduct is unlawful. The decision, which is technically on what’s called ruling on a “motion to dismiss,” is often what creates legal precedent. The motion to dismiss order, along with the final decision, is when the judge says what the law is. After all, if a judge dismisses a case, that’s the final decision. But if a judge allows a case to go to trial, there’s often a settlement, so there’s also no final decision.

Until the last five years or so, judges read antitrust law in a very narrow way, seeking to get rid of these costly and annoying cases that economists agreed were silly. Why risk going through years of litigation, and then get overturned by a higher court anyway? So someone might file an antitrust claim, the defendant would ask for the case to be dismissed, and judges would usually say, “yup, that’s not monopolization, it’s just tough competition, case dismissed without a trial.” That’s pretty much how things were from the early 2000s until the late 2010s. And that dynamic meant that CEOs could do what they wanted, usually with permission from their antitrust counsel. But that’s changed. Now, competent antitrust lawyers are advising CEOs to be more careful in how they structure business practices such as exclusive deals and mergers.

So why are we in a different moment? Well, it has to do with something I noted on Tuesday, when we got some good news when the Trump administration ratified that the merger guidelines from the Biden administration are a fair reading of the law. On Counter Points, Ryan Grim and Emily Jashinsky interviewed former Biden Antitrust chief Doha Mekki to lay out what happened, and why there’s a bipartisan consensus to move beyond the old monopoly friendly model.

One of the most common questions in response to the rise of a new consensus is to ask whether the Trump enforcement regime is sincere about their views. I think they are, but it doesn’t mean their enforcement priorities are the same. That said, I can’t convince anyone of sincerity. And in some sense, sincerity doesn’t matter. The point has always been to make a long-term persuasion case that we should enforce the law as the statutes were written, based on the policy Congress enacted at the time.

That persuasion case has succeeded.

Now, are there reasonable questions about the priorities of any particular government enforcer? Obviously, yes. For example, Donald Trump is trying to personally broker a merger between LIV Golf and the PGA Tour, which would be an illegal merger to monopoly. It’s hard to imagine Trump’s own Antitrust Division standing in the way of something Trump is personally trying to make happen.

But just as we shouldn’t overlook such obvious conflicts of interest and corruption, we also shouldn’t overlook the broader changes as private and state-level antitrust enforcement cases move in the courts. Both Democratic and Republican enforcers now believe that antitrust law has a certain interpretation. And judges hearing those private cases do as well.

Thanks for reading!

And please send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation and democracy. And consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member.

cheers,

Matt Stoller

P.S. Oh, and as for Verisign, they are trying to protect themselves from the Trump administration, which has price-setting control over their business, by removing their diversity, equity, and inclusion provision from their annual report. But the company still has well-known Democratic operative Jamie Gorelick on the board. And the corporate code of conduct is littered with things that I find reasonable but that conservatives won’t like, such as protections for people based on “hair texture, hair type, and protective hair styles, gender identity, and gender expression.”

Who knows if that will matter? I certainly don’t think it should, but then, my side lost the election.