Duty-Free Competition: The Perils of a Revitalized Antitrust Duty to Deal

Sean Heather
Senior Vice President, International Regulatory Affairs & Antitrust, U.S. Chamber of Commerce

Published

June 20, 2024

As progressive movements continue to push for the revival of antitrust concepts that have long been discredited, one idea has flown somewhat under the radar. Duty to deal — the notion that a company should be required to conduct business on terms favorable to its competitors — is emerging and expanding, in one form or another, around the world.

From Europe’s Digital Markets Act to the introduction of federal and state antitrust bills — and now agency enforcement actions — in the U.S., duty-to-deal policies are not only challenging conventional wisdom around free market dynamics but also opening a Pandora’s box of liability. Against this backdrop, policymakers must consider the many practical reasons companies should be allowed to compete “duty-free.”

The History of Duty to Deal Antitrust Claims

In general, companies are free to do business with whomever they choose, with no antitrust responsibility to help competitors. This default rule is in concert with the basic principles of freedom of contract. Moreover, as the Federal Trade Commission’s website continues to point out, “imposing obligations on a firm to do business with its rivals is at odds with other antitrust rules that discourage agreements among competitors that may unreasonably restrict competition.”

Only rarely have courts imposed a duty to deal. Although the doctrine has evolved and narrowed over time, in 2003, the Supreme Court explained that a duty to deal might attach in only limited circumstances — generally speaking, where the company has no legitimate business rationale for refusing to deal with a competitor other than to harm it, such as if a company forgoes short-run profits or revokes a longstanding history of dealing with the competitor for no obvious pro-competitive reason.

How Duty to Deal Jeopardizes Innovation

The duty’s disuse stems from concerns about innovation and incentives. As the Department of Justice recognized in a lengthy report, which has since been withdrawn, a broad duty to deal would reduce the incentives for companies to invest and innovate by forcing them to share their advantages with competitors. If a company invents a better lawnmower but then is forced to license the lawnmower to rivals, why bother to invest in the next lawnmower? Overly aggressive imposition of a duty to deal could “chill the very conduct the antitrust laws are designed to protect.”

Moreover, the duty to deal also forces the courts to micromanage business decisions. As the Supreme Court explained, “Enforced sharing also requires antitrust courts to act as central planners, identifying the proper price, quantity, and other terms of dealing — a role for which they are ill-suited.”

Any prospective contract, technical update, or logistical change carries with it an infinite number of permutations, all subject to potential negotiation. At what price point should the companies agree to license the lawnmower? What if lawnmower version 2.0 lowers costs but doesn’t work as well with the rival’s blades? A broad duty to deal could effectively turn courts into day-to-day arbiters and middle managers of routine business decisions.

When Antitrust Law Is Divorced from Economic Realities

The Status of Duty to Deal

The duty to deal appears to have risen again, apparently driven by concerns that platforms are using their market power to stifle competition. Europe’s Digital Markets Act requires covered companies to allow third parties to interoperate and obtain data from their platforms. In recent years, certain federal bills targeted platform conduct, including refusals to deal, and various state bills would import European-style “abuse of dominance” concepts that ultimately would require “dominant” companies to assist their competitors. Several recent federal enforcement actions, including the DOJ’s latest suit against Apple, effectively argue that companies have a duty to deal with rivals, such as by tailoring their products to work more effectively with those of other companies.

Even in the context of the digital economy, the duty to deal remains an impractical idea that would reduce innovation. Over time, of course, such a duty would discourage companies from continuing to invest in and improve upon their existing platforms. If any update or improvement could subject the company to antitrust challenge, why bother investing at all?

More immediately, a broad duty to deal would prove impossible to administer. Virtually every software update, algorithm adjustment, or hardware tweak could affect some rival’s ability to compete, even if implemented for purely pro-competitive and pro-consumer business reasons, but every such change could become the subject of an antitrust suit for violation of a duty to deal. Indeed, companies may have to start seeking permission from their rivals before making any updates, lest they face an expensive antitrust suit. Almost certainly, the result would be a reduction in the pace of change, to the detriment of consumers.

What's Next for Duty to Deal

Ultimately, policymakers should recognize that while a broad duty to deal may start with the tech sector, it will not end there. In every sector of the economy, from autos to retail, competitors will seek to expand a duty to deal with their industries. A particular design change might raise costs for a tire manufacturer, while a decision to carry a store brand, rather than a name brand, could be seen as self-preferencing, all in potential violation of a broad duty to deal.

Instead, policymakers should heed the wisdom of the Supreme Court and decades of experience: except in very rare circumstances where a company lacks any legitimate pro-competitive rationale for its decisions, the duty to deal should remain on the shelf.