Consent Decrees: Necessary Evil, or Just Evil?

Recently, the Department of Justice held a roundtable to discuss the possibility of modifying or terminating a number of the nation's antitrust consent decrees, some of which date back over a century.  This development was predictably met with resounding approval by conservatives and libertarians alike.

As a primer, consent decrees are merely the antitrust lawyer's term for a settlement agreement.  When a party is sued by one of the antitrust enforcement agencies – the Department of Justice or the Federal Trade Commission – for engaging in conduct contrary to U.S. antitrust laws, it has two options.  The party can either pursue the matter in court, which may result in years of litigation, or choose to accept a quick settlement and agree to the terms of the compliance program required by the agency.

Consent decrees have never occupied favorable position in free-market theory.  Their use has been challenged practically since their inception – the first time being in the case of Swift v. U.S., which resulted in the Supreme Court modifying a decree issued against the infamous Beef Trust.  Since then, the antitrust enforcement agencies have provided no shortage of overly burdensome consent decrees that often appear to serve little purpose beyond reinforcing the respective agencies' power over the corporate world.

That said, it is important to understand that the distaste we free market-minded folk share for antitrust agencies' over-enthusiasm should not be aimed at the concept of a consent decree itself – it is nothing more than a tool that the government may use for good or bad.  In fact, consent decrees have also been used for beneficial purposes.

As hard as it may be to believe, consent decrees sometimes operate to restrain government, or to address systemic problems resulting from government-granted monopolies.  A few years ago, before the term "Russian collusion" was trending on Twitter, the government scandal that was occupying the news media's attention was the IRS's targeting of Tea Party groups.  The result of the much publicized congressional investigations that followed was a consent decree imposed against the IRS that is still in effect today.  This consent decree, entered in the True the Vote v. IRS litigation, prohibits the IRS from targeting or discriminating against any entity based on its political affiliation.

Besides that, members of Congress pointed out in a hearing last week that there is a pair of consent decrees that tangentially affect practically everyone in his daily life.  These decrees were issued against the largest performing rights organizations (PROs) in the music industry, ASCAP and BMI, in 1941 and to this day are responsible for achieving Sen. Mike Lee (R-Utah)'s goal of "[ensuring] that prices for music remain competitive for consumers."

PROs are essentially alliances of music publishers that control nearly all the public performance licenses of widely distributed music – including for radio, television, the internet, and public venues, generating billions in royalties annually.  As Sen. Richard Blumenthal noted last week and Antitrust Subcommittee leaders Mike Lee and Amy Klobuchar (D-Minn.) are already aware of, these consent decrees protect songwriters and consumers from abuse in an industry where a free market simply does not exist.

Before the implementation of these decrees, the music collectives colluded to artificially raise market prices.  As songwriter Matt Fitzgibbons explained, this hurt both songwriters and small businesses.  The consent decrees issued against ASCAP and BMI in 1941 put a stop to the PROs' price-gouging and require them to issue licenses for the public performance of music to any party at a reasonable rate.

This may sound to conservative ears like price-fixing, but it is only a practical solution to the problems stemming from music-publishers banding together to capitalize on market-restricting U.S. copyright law, which naturally creates a non-competitive marketplace.  As long as reforming copyright laws remains off the political agenda, these consent decrees provide a necessary stepping stone on which the music industry operates.

The previous examples notwithstanding, the books are rife with consent decrees that antitrust enforcement agencies have used to extract overly restrictive or unnecessary terms for strong market players.

Take for instance the 1956 consent decree issued against IBM.  The terms of the decree prohibited IBM from renting certain machines and imposed regulations on its data-processing business.  This consent decree was largely a failure.  On the one hand, the consent decree had virtually no effect on IBM's market share; on the other hand, the consent decree picked winners and losers in the marketplace by costing the company tens of millions of dollars.  Much to the antitrust regulators' surprise, IBM's dominance naturally came to an end during the modern technological revolution, when it missed the tidal wave that swept the then-current digital device market: the personal computer and the client server.

The lesson to take from all this is that we must not succumb to the elegant simplicity of indiscriminately condemning consent decrees.  Although we frequently decry their use as yet another example of governmental meddling with the forces of the free market, we must still be pragmatic and distinguish between decrees that create problems and those that mitigate effects caused by prior government failures.  Sometimes, even a de facto price-fixing regime in industries lacking free markets may be preferable to unchecked market share created through government-granted power.

These may not be perfect solutions, but in today's political climate, when issues such as copyright reform are far beyond the horizon of the congressional agenda, the Justice Department must take what it can.

Dimitri Hasandras, a freelancer, is an attorney specializing in communications and antitrust law.

Recently, the Department of Justice held a roundtable to discuss the possibility of modifying or terminating a number of the nation's antitrust consent decrees, some of which date back over a century.  This development was predictably met with resounding approval by conservatives and libertarians alike.

As a primer, consent decrees are merely the antitrust lawyer's term for a settlement agreement.  When a party is sued by one of the antitrust enforcement agencies – the Department of Justice or the Federal Trade Commission – for engaging in conduct contrary to U.S. antitrust laws, it has two options.  The party can either pursue the matter in court, which may result in years of litigation, or choose to accept a quick settlement and agree to the terms of the compliance program required by the agency.

Consent decrees have never occupied favorable position in free-market theory.  Their use has been challenged practically since their inception – the first time being in the case of Swift v. U.S., which resulted in the Supreme Court modifying a decree issued against the infamous Beef Trust.  Since then, the antitrust enforcement agencies have provided no shortage of overly burdensome consent decrees that often appear to serve little purpose beyond reinforcing the respective agencies' power over the corporate world.

That said, it is important to understand that the distaste we free market-minded folk share for antitrust agencies' over-enthusiasm should not be aimed at the concept of a consent decree itself – it is nothing more than a tool that the government may use for good or bad.  In fact, consent decrees have also been used for beneficial purposes.

As hard as it may be to believe, consent decrees sometimes operate to restrain government, or to address systemic problems resulting from government-granted monopolies.  A few years ago, before the term "Russian collusion" was trending on Twitter, the government scandal that was occupying the news media's attention was the IRS's targeting of Tea Party groups.  The result of the much publicized congressional investigations that followed was a consent decree imposed against the IRS that is still in effect today.  This consent decree, entered in the True the Vote v. IRS litigation, prohibits the IRS from targeting or discriminating against any entity based on its political affiliation.

Besides that, members of Congress pointed out in a hearing last week that there is a pair of consent decrees that tangentially affect practically everyone in his daily life.  These decrees were issued against the largest performing rights organizations (PROs) in the music industry, ASCAP and BMI, in 1941 and to this day are responsible for achieving Sen. Mike Lee (R-Utah)'s goal of "[ensuring] that prices for music remain competitive for consumers."

PROs are essentially alliances of music publishers that control nearly all the public performance licenses of widely distributed music – including for radio, television, the internet, and public venues, generating billions in royalties annually.  As Sen. Richard Blumenthal noted last week and Antitrust Subcommittee leaders Mike Lee and Amy Klobuchar (D-Minn.) are already aware of, these consent decrees protect songwriters and consumers from abuse in an industry where a free market simply does not exist.

Before the implementation of these decrees, the music collectives colluded to artificially raise market prices.  As songwriter Matt Fitzgibbons explained, this hurt both songwriters and small businesses.  The consent decrees issued against ASCAP and BMI in 1941 put a stop to the PROs' price-gouging and require them to issue licenses for the public performance of music to any party at a reasonable rate.

This may sound to conservative ears like price-fixing, but it is only a practical solution to the problems stemming from music-publishers banding together to capitalize on market-restricting U.S. copyright law, which naturally creates a non-competitive marketplace.  As long as reforming copyright laws remains off the political agenda, these consent decrees provide a necessary stepping stone on which the music industry operates.

The previous examples notwithstanding, the books are rife with consent decrees that antitrust enforcement agencies have used to extract overly restrictive or unnecessary terms for strong market players.

Take for instance the 1956 consent decree issued against IBM.  The terms of the decree prohibited IBM from renting certain machines and imposed regulations on its data-processing business.  This consent decree was largely a failure.  On the one hand, the consent decree had virtually no effect on IBM's market share; on the other hand, the consent decree picked winners and losers in the marketplace by costing the company tens of millions of dollars.  Much to the antitrust regulators' surprise, IBM's dominance naturally came to an end during the modern technological revolution, when it missed the tidal wave that swept the then-current digital device market: the personal computer and the client server.

The lesson to take from all this is that we must not succumb to the elegant simplicity of indiscriminately condemning consent decrees.  Although we frequently decry their use as yet another example of governmental meddling with the forces of the free market, we must still be pragmatic and distinguish between decrees that create problems and those that mitigate effects caused by prior government failures.  Sometimes, even a de facto price-fixing regime in industries lacking free markets may be preferable to unchecked market share created through government-granted power.

These may not be perfect solutions, but in today's political climate, when issues such as copyright reform are far beyond the horizon of the congressional agenda, the Justice Department must take what it can.

Dimitri Hasandras, a freelancer, is an attorney specializing in communications and antitrust law.