Discover more from BIG by Matt Stoller
All Rise: How Judges Rule America
In a case involving Swedish conglomerate Assa Abloy's attempt to dominate smart locks, a Biden judge is acting like an anti-government management consultant. The American judiciary is out of control.
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Today, I’m writing about judges. Most political discourse about the judiciary is partisan, and focuses on the Supreme Court, and the various important policy choices on social questions that body organizes. Of late, Clarence Thomas has been in the crosshairs over gift disclosures. And an obscure conservative activist named Leonard Leo, who picked most of the judges during the Trump administration, is also in the news for receiving a $1.6 billion donation to engage in political advocacy.
But when it comes to judges, a partisan lens obscures more than it illuminates. The truth is, in terms of corporate power, judges from both parties are subverting anti-monopoly policy. To show how, I’m going to focus on a newly appointed Biden judge, Ana C. Reyes, who is right now hearing a case in D.C. that involves a multi-billion dollar merger of two residential hardware tech firms, Assa Abloy and Spectrum Brands. It isn’t a high-profile case, but it is precisely when people aren’t watching that you see how the system works.
“It is the people, and not the judges, who are entitled to say what their Constitution means, for the Constitution is theirs, it belongs to them and not to their servants in office—any other theory is incompatible with the foundation principles of our government.” - Teddy Roosevelt, 1912
Policy vs Judges
The Biden administration, and increasingly both parties, have moved to skepticism towards consolidated corporate power. In 2016, the Republicans and Democrats included commentary about anti-monopoly in their party platforms for the first time in decades. Both Trump and Biden brought ground-breaking antitrust suits against Google, and experts on both sides have come to recognize that there is a serious monopoly crisis in America, with a lack of competition across the board in sectors as diverse as search engines, agribusiness, and airlines. This concentration crisis fosters inequality, damages innovation and productivity, harms incomes, and transforms entire industries into ‘kill zones’ where no one will invest.
A recognition of the problem is shaping policy. In the summer of 2021, the Biden administration issued an executive order making competition a centerpiece of the White House’s economic agenda, with minimal pushback from the GOP. Biden is following a broader social trend of seeing markets as politically constructed.
Last year, Congress moved for the first strengthening of antitrust law in decades, allowing state AGs an easier time to bring cases. It also passed the CHIPS Act, recognizing that semiconductors matter to the U.S., and that the ‘free market’ isn’t a thing. Similar deliberate policy choices are happening in electric vehicles, solar panels, and fossil fuels.
The national security world is a key forum for this debate; military leaders have recognized the devastation that monopolies have wrought on the defense base. Indeed, Jake Sullivan, the head of the National Security Council, offered a death knell to the old philosophy when criticizing America’s old global economic strategy vis-a-vis China. “There was one assumption at the heart of all of this policy,” he said, “that markets always allocate capital productively and efficiently—no matter what our competitors did, no matter how big our shared challenges grew, and no matter how many guardrails we took down… The shocks of a global financial crisis and a global pandemic laid bare the limits of these prevailing assumptions.” Here too there are consequences; the Department of Defense and Federal Trade Commission worked together to block the merger of Lockheed Martin and Aerojet.
And yet, this epiphany, that markets are politically structured and don’t have a will of their own, hasn’t made it to one very important place: the judiciary. The same week Sullivan gave his speech, a panel of three D.C. Circuit Court judges struck down a monopolization case against Facebook on the grounds that markets self-correct. "Many innovations may seem anti-competitive at first but turn out to be the opposite,” wrote the panel, “and the market often corrects even those that are anti-competitive." The D.C. Circuit Court panel was bipartisan, and included Republican appointees Karen L. Henderson and Raymond Randolph, as well as Obama appointed judge Robert Wilkins.
These words undermine Congressional statute, and may devastate the ability to use antitrust law against digital platforms, at least in the D.C. Circuit. The specific procedural question was on the right of state attorneys general to bring an antitrust case over a violation that happened years earlier, as Federal enforcers can. Three judges made a policy decision to disallow that, even as Congress had just passed a law a few months earlier to make it easier for states to participate in antitrust enforcement.
In other words, the power of judges is massive, and judges openly and often thwart the will of Congress. And this power is not necessarily based on partisan or traditional ideological affiliations. Take another case. Last week, in Pennsylvania, a former ACLU lawyer-turned judge named Victor Bolden was hearing a case on wage-fixing. He refused to let the Antitrust Division enter evidence into the record, and then dismissed the case for lack of evidence.
I don’t mean to say judges are always hostile. Bush appointee Judge John Bates ruled in favor of the FTC on a monopolization case earlier this year against Surescripts. Similarly, Obama-appointed Judge Florence Pan blocked the consolidation of the book industry in a high-profile trial, and she was just elevated to the circuit court. A Federal judge in Virginia, Leonie Brinkema, is moving along the Google adtech antitrust suit in a very timely manner.
But by and large, judges today have become unmoored from the populace at large, circulating within elite groups of well-heeled academics and lawyers, and rarely exposed to democratic feedback from ordinary people.
Where do these judges come from? Mostly, they are drawn from a pool of corporate lawyers. Republicans and Democrats choose differently. While Republican judges are picked out of the Federalist Society, an ideologically coherent group of conservatives, Democrats tend to get picked by committees of fancy lawyers that give names to their Senators. Bolden, for instance, was pushed by Senators Joe Lieberman, Richard Blumenthal, and Chris Murphy, on recommendations by Yale Law professor Amil Akhil Reed Amar, among others. Biglaw types usually feature prominently on these panels, new thinkers about antitrust, not so much. Reyes, the newest D.C. district court judge, comes from big law firm Williams and Connolly, whose clients include Google, The Carlyle Group, Eli Lilly, and even Elizabeth Holmes of Theranos.
In the early 1980s, Reagan put a whole bunch of Chicago School judges, like Robert Bork and Douglas Ginsburg, on the circuit courts. But Biden has not done the same for the modern anti-monopoly movement, largely because antitrust advocates have overlooked the actual mechanics of the judiciary. Still, as we watch Biden policies get tested in court, it’s only a minor overstatement to note that much of the Biden agenda rests on whether judges decide to accept the executive branch as a legitimate executor of policy. And not just at the Supreme Court, but across the board.
The nice thing about this problem is that judges make their decisions on corporate power in public settings, such as antitrust trials. So I decided write one up. (If you want to go to a trial, you should. There’s a list with dates and locations of upcoming antitrust trials on the DOJ website.)
Judges and Antitrust Trials Are Really Weird
In the one I chose, which started last week, the government is trying to prevent Swedish conglomerate Assa Abloy from buying the business of its main rival, Spectrum Brands, in a $4.4 billion transaction. The product markets at hand are for residential locks, with brands like Yale, Kwikset, and August. To avoid allegations of monopolization, Assa Abloy is also selling off some of its own businesses to a third party, Fortune Brands. Assa Abloy is getting bigger, but don’t worry, its attorneys argue, it isn’t getting too much bigger.
The D.C. district court is in a large imposing building, rich with history and symbols of authority. Inside, the names of judges are etched on ornate panels, with alumni of the circuit having prominently gone on to the Supreme Court. Historic episodes that took place in the D.C. district court - like the breakup of AT&T - are relayed on displays in the lobby.
Like most of America, court cases are split by class. There are a lot of normal trials going on, with working class people milling about, but the court room for the corporate stuff is full of standard D.C. types wearing expensive, and often ill-fitting, suits. I dressed slightly nicer than business casual, but I felt out of place, like showing up to a black tie event wearing a t-shirt and sandals.
The reason it’s uncomfortable, I came to learn, is that antitrust trials are attended by bags of money disguised as human beings. While some trials, like the merger contest between Penguin-Simon and Schuster, draw a broad audience and are widely covered, the only people who attend most trials, especially ones involving multi-billion dollar firms that make boring products, are government attorneys, wealthy or soon-to-be wealthy people from law firms and hedge funds, administrative staff for the court, and a smattering of journalists who write for highly specialized expensive outfits, like Law360. One person in the audience, who I learned worked for a hedge fund arbitrage outfit, kept shaking her head angrily whenever the government attorneys spoke. She then button-holed people in the halls during breaks, and they all knew her and either agreed about the lunacy of the government challenging a merger, or merely humored her.
In other words, the atmosphere was one of polite hostility, like a country club for those who are on their way to great wealth, but haven’t yet made it. The experts and witnesses and lawyers are generally all in the same social class of high-achieving strivers.
The weirdness of the trial was compounded by the ideology of the players in the court. The defense lawyers spoke about how mergers are innately good, that moving assets from one owner to another is merely an efficient way to maximize the value of those assets. “The free market is good,” I heard a bunch of times, echoing the conventional wisdom of 1998.
These lawyers expressed outrage at the audacity that the GOVERNMENT might dare to stop a $4 billion transaction, without any recognition that all corporations are publicly chartered and all markets are politically structured. And it’s not that the defense lawyers were making a contested claim. They were, in this context, restating a truism that everyone in this world of cloistered lawyers seemed to believe was self-evidently true, despite all the evidence and bipartisan consensus against it.
And as I watched the trial, it got weirder.
Merger cases don’t have juries, they are ‘bench trials.’ The judge is not only making all forms of rulings on procedural motions, but is the decider of the case as well. And thus, except for the vague possibility of an appeal, the judge becomes all-powerful, able to reorganize industries almost based on gut feel.
As a result, the entire social dynamic is organized around the judge, who sits physically above everyone else on a raised platform. Every joke from the judge is hilarious, every story is charming, and every command is obeyed instantly. Everyone stands when the judge enters or exits, and anyone saying anything to the judge uses ‘his honor’ or ‘her honor’ at all times. If the judge wants brown M&Ms, fifteen lawyers paid $1 million apiece will reach out their hands holding a bag their junior associates spent all night sorting.
While I can’t say this for certain, I imagine that this kind of ruthless hierarchy is bad for both the lawyers and the judge. Lawyers learn an extreme form of deference to power, and judges come to think lightly of making policy masquerading as legal interpretation. Judges in a bench trial involving billions are in total control of everyone around them. And that kind of power will go to their heads. They don’t know if someone is telling the truth, or just kissing their ass, unless it’s a fellow judge.
And the deference is itself bizarre. The millionaire defense attorneys are in seemingly subordinated positions, but the judge is paid far less, and gets his or her salary from the power that comes with the job. There were several jokes, inappropriate ones, from the judge about her low relative salary and the shabby materials of the courts. This isn’t her fault. We live in radically unequal society. And the inequality has led to a bizarre dynamic, where lower paid judicial elites are bossing around millionaires while also being jealous of them.
It was also odd to see such strident elitism, more rigid than anything I have ever witnessed anywhere. It’s not that the elitism of the judiciary is totally new, but it’s more extreme today. Practical local lawyers and elected leaders used to be elevated to the judiciary, but today the path is all about serving as a clerk for a judge after law school, doing a stint at a big law firm, and then getting celebrated by the fanciest Yale law professor or Federalist society icon. The Supreme Court has never been so packed with Harvard and Yale law grads as it is today. Supreme Court clerks regularly get half a million dollar signing bonuses when they move to corporate law, whereas clerks for ordinary judges get $100k or so.
The net effect is that over time judges, and their proteges in big law, tend to lose touch with the real world. For instance, a few weeks ago, I had a conversation with an old Chicago School judge named Frank Easterbrook, who has been on a circuit court since the 1980s. In his comments at a public event, Easterbrook said, “I assume everyone here agrees that Robinson-Patman is a terrible law,” unaware that this law is now being resurrected because of a lot of recent discourse on how small town America has been devastated after that law stopped being enforced. After his talk, I went up to him and privately pointed out that he made a factual error in one of his public comments. He scoffed, annoyed, but also surprised that anyone might challenge him. He was unaware of recent debates over monopoly, and immensely confident in his views and ability to set policy from the bench.
The judge in the Assa Abloy trial isn’t quite like Easterbrook. Reyes is a new Biden appointee, a Harvard Law grad, who came from the corporate bar, and this is in fact her first trial after being confirmed. Her left-wing bona fides comes from her pro bono work helping refugees seek asylum.
Her comments in the pre-trial hearings were reported as hostile to the government. But I watched her, she was polite, thoughtful, and generally asked reasonable questions. That said, this case should be a slam dunk for the government. And it’s not, because Reyes is acting like the corporate lawyer she was trained as, and not as an actual judge familiar with antitrust law or recent arguments about monopolization. It doesn’t seem like she noticed that the Live Nation-Ticketmaster deal was a disaster, or that merging parties in T-Mobile-Sprint and AT&T-T-Mobile made fools of their respective judges by promising things and then immediately backtracking.
The Case Itself
The case involves the global lock industry, which is undergoing a rapid technological shift. Normally, merger cases are pretty simple. Two companies want to merge, and the judge has to figure out if the merger will lead to less competition. But this merger case itself is kind of odd. Because there’s a spinoff, or ‘divestment,’ of certain lines of the merged company’s business, to a third company.
Assa Abloy is a massive global producer and distributor of “residential door hardware”, and the third biggest in the U.S. Its big rival, Spectrum, is the biggest domestic producer. Both Assa Abloy and Spectrum are themselves roll-ups, with Assa Abloy buying more than 300 businesses in 27 years and Spectrum’s businesses being consolidated in the late 2000s. Even before this merger, it’s hard to find great selection, because of the roll-ups over years.
One wouldn’t normally think companies who make locks are in the tech industry, but they are. The market encompasses both premium mechanical locks, which are luxury locks, as well as smart locks, which are internet-enabled and let people lock or unlock their doors from anywhere. Smart locks are taking over the market, and these present a major set of security challenges because they have embedded software. A monopolized market wouldn’t just increase prices, but could also jeopardize the security of millions of homes with subpar software. Despite the heavy consolidation, there is competition in the market; Spectrum and Assa Abloy vie for market share. Since 2019, smart lock output nearly doubled, and prices dropped by 9%.
And from Assa Abloy’s perspective, that’s the problem. The firm is trying to buy Spectrum’s lock business to acquire market power. Originally, the company justified the merger by noting that, as a result of the transaction, one of its residential door hardware brands would be “in a better pricing negotiation position and can expect to increase prices.” Such an acquisition would ordinarily be illegal, a near-merger to monopoly.
Under a different administration, enforcers may not have tried to stop such a merger, but under this one, they did. So Assa Abloy decided, after realizing they’d face a challenge, to sell their existing lock business to a third party named Fortune Brands. In other words, they are swapping out their #3 ranking for the #1 ranking, and setting up a brand new competitor to placate the antitrust authorities.
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So the case comes down to whether Fortune Brands would be a viable competitor. Did the divestiture make sure that there’s still the same amount of competition in the market? It’s a difficult question. But historically, such attempts usually fail. Economist John Kwoka has shown that when mergers happen in concentrated markets, prices go up, regardless of whether there’s a divestiture. And there are plenty of examples. During a merger involving Albertsons-Safeway in 2014, for instance, the supermarket chain spun off some stories to a chain that collapsed instantly. Something similar happened with the Hertz and Dollar Thrifty merger. When Live Nation bought Ticketmaster, there was a spinoff of a third party ticketing platform. You probably didn’t know this, and why would you? It failed.
In this case, it seems likely that a divestiture would eliminate some competition. Assa Abloy is a global firm that designs and manufactures its products all over the world, and pulling out just one piece isn’t likely to deliver as vibrant competition as currently exists, largely because Assa Abloy would want the new competitor to be weak. There are many indications. For instance, Assa Abloy’s main factory is in Vietnam, and it will have to essentially share that production platform with Fortune for a period of time. It has a provision of its contract where it may be able to kick Fortune out of its Vietnamese factory. Similarly, it will share common software, and will even supply Fortune with certain types of locks that Fortune won’t be getting as part of the divestiture, through a supply agreement. Many customers want a full suite of lock products, and so Assa Abloy’s ability to deny them products in a product line could be problematic. These kinds of dependencies and entanglements give Assa Abloy significant power over an ostensible competitor.
The counter-argument is that Fortune Brands isn’t stupid, and they also negotiated for what they wanted to make this new business viable. For a variety of reasons, it’s unlikely that Fortune will be as aggressive a competitor as Spectrum was, but that’s not actually the question at hand.
Litigating the Fix
The legal issue is who has to prove that a divestiture can restore the same amount of competition in the market as the original formulation. This is known as the ‘litigating the fix’ problem. If the government has to show that a divestiture won’t work, that is very pro-merger. If the merging parties have to do that, it is consistent with existing law. The law is clear, as former Antitrust Division chief Bill Baer, and among others Georgetown law professor Steve Salop noted. In 1961, the Supreme Court ruled that “all doubts as to the remedy are to be resolved in [the government’s] favor.” A bunch of cases, from FTC v. Sysco Corp in 2015 to the FTC v. Staples in 2016 to United States v. Aetna, Inc in 2017 to Illumina-Grail in 2023, followed this precedent. In a recent case, the UnitedHealth v Change merger, the judge simply ignored the Supreme Court’s precedent, but did not definitively rule on the underlying question.
The reason for the deference to the government is pretty simple. Merging parties always have more information than the government, and have no incentive to set up a strong competitor in the market. Either they want a competitor to fail, or they want a weak competitor that will follow their lead on price hikes. And that’s why nearly all divestitures fail. There are lots of ways to characterize this dynamic, from ‘entanglements’ where competitors are reliant on the leading party to mutual forbearance. But the point is, it’s not up to the judge whether a divestiture will restore competition. All doubts are to be resolved in the government’s favor.
As the FTC noted in its Illumina-Grail decision, failure to defer to this standard will be quite harmful, and “create a perverse incentive for merging parties to propose so-called fixes that leave some portion of competitive harm unremedied, requiring the government to keep up with shifting proposals that change, as this one did, in the midst of litigation, and forcing the public to live with partial remedies that do not fully restore competition.”
And yet, Judge Reyes, despite the law, the evidence, and common sense, seems to want the government to show that the divestiture won’t work. "Fortune is being advised by very smart people,” she asked. “Why would they do this if it's going to be unprofitable?" There are many reasons Fortune might do so. They probably want some lines of business, and not others. Additionally, the price they are paying is quite low, so if the business fails, it’s not that big a deal. No one from the industry was willing to do the deal, which should tell us something. That’s very much a doubt.
I watched a number of examinations and cross-examinations. Last week, Martin Huddart, a senior vice president at Assa Aboy who looked like a shorter less goofy Rowan Atkinson, testified. Huddart’s goal was to try and persuade the judge that Assa Abloy isn’t a globally integrated manufacturing company, but could spin off its Yale and August brands to a viable competitor. It was hard not to like Huddart, but he was also an untrustworthy figure. For instance, Huddart seemed to be hiding his communications from investigators, using his personal and not work email to communicate with the CEO about projections involving whether a divestment to avoid antitrust scrutiny could deliver. He found that a divestment would not work, though there were significant questions about the assumptions behind his work. Another doubt.
And it also seems like Assa Abloy is an integrated firm. In 2021, the board accepted the combination of various lines of business, to "leverage volume, increase negotiation power, consolidate to common supply base in Vietnam, lower cost." I couldn’t really tell whether the spinoff would work, and some of the witnesses, like those from Home Depot and Wyze Labs, testified in closed court. But it’s clear that there is substantial doubt among key players in the marketplace that a divestment would in fact preserve competition.
The judge sat throughout, asking good questions, but the kind of questions you would ask if you were a McKinsey consultant trying to figure out if the divestment would be profitable. That might be an important question, but it’s not what an antitrust trial should be about. Indeed, Reyes said at one point that the key issue in the trial is whether pulling out a piece of Assa Abloy and making it independent is viable. That did not sound like she is adhering to Supreme Court precedent that all doubts are resolved in favor of the government.
Yesterday, one of the government’s expert witnesses, economist Keith Waehrer operated as a sounding board for the judge’s views, which increasingly just seem to be those of a Williams and Connolly big law attorney. At one point, Reyes got annoyed at Waehrer, telling him that she simply did not believe that there was an incentive to find a weak buyer. At another point during the day, she seemed to agree that subsidiaries of the same company, because they have separate accounting systems for profits and losses, compete with one another. “That makes sense to me,” she said. That kind of view of how corporations function would make antitrust a dead letter law. It would, for instance, mean that the acquisition of Albertsons by Kroger wouldn’t matter, because the company has subsidiaries with separately branded supermarkets.
Unfortunately, Reyes’s pronouncements matter. Aside from the real-world implications involving construction and home security, the outcome could have significant impacts on merger law involving all acquisitions, like those in the pharmaceutical and big tech space. And judges have a wide berth to write decisions that are hard to appeal. They are vested with immense power, and we offer them no scrutiny. So Reyes has no incentive to actually cabin her policy instincts.
All of that said, I truly hope I am wrong about Judge Reyes, as she’s going to be on the court for a long time. She seems smart and ambitious, and capable of learning a lot very quickly. Maybe I’m misreading her, and she’ll write an opinion that is much more guarded than her commentary suggests. In truth, this problem isn’t about her, but a system that is designed to thwart the ideals of justice animating the American experiment.
It’s time for Congress to start paying attention to the decisions these judges are making. And I don’t just mean judges making high-profile policy choices, like overturning Roe vs Wade. Why isn’t any elected leader speaking out about the three judges on the D.C. Circuit Court asking them about why they are twisting the Sherman Antitrust Act regarding Facebook? Why aren’t Democrats or Republicans who oppose big tech dominance noticing that their own judges are thwarting their agenda? Where’s the scrutiny of judicial nominees on antitrust?
I think they will get there. It will just take time to get over the deference liberals have to fancy academics and judges. And frankly, it periodically happens that judges get outside of the bounds of the public will. Complaints about judges was a causal factor in Bacon’s rebellion in 1676, it was listed in the Declaration of Independence, and Abraham Lincoln, Teddy Roosevelt, and FDR all fought back against bad judging. We’ll probably have to do it again. Ultimately, though, judges are just people, and they can be drawn back to the real world. We just have to remind them of the oath they swore.
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