FAIR AND EFFECTIVE ENFORCEMENT OF THE

ANTITRUST LAWS, S. 1874

FRIDAY, APRIL 21, 1978

U.S. SENATE,

SUBCOMMITTEE ON ANTITRUST AND MONOPOLY,

COMMITTEE ON THE JUDICIARY,

Washington, D.C.

The committee met, pursuant to notice, at 9:35 a.m., in room 2228, Dirksen Senate Office Building, Senator James B. Allen (acting chairman of the committee) presiding.

Staff present: David Boies, chief counsel; Terry Lytle, and Robert Banks, counsel; Emory Sneeden, minority chief counsel; Peter Chumbris, minority consultant; and Garrett Vaughn, minority economist.

Senator ALLEN [acting chairman]. The committee will please come to order.

Senator Thurmond was scheduled to hold this hearing this morning, but he was called to South Carolina and has asked that I fill in for him.

This morning we are continuing the committee's hearings on S. 1874. Other hearings were held on April 7 and April 17. On Monday, April 24, we will hear additional witnesses. At the completion of these hearings, the full committee is scheduled to discuss the bill and its proposed amendment on April 28 or such other date as may be agreed to by other members with a vote 1 week after completing the marking up of S. 1874. This morning we are privileged to have three outstanding witnesses, starting with Mr. Philip A. Lacovara.

We would be delighted to hear from you at this time, Mr. Laco

vara.

STATEMENT OF PHILIP A. LACOVARA, ATTORNEY, HUGHES, HUBBARD & REED, WASHINGTON, D.C.

Mr. LACOVARA. Thank you, Mr. Chairman.

I am pleased to accept the committee's invitation to appear this morning to testify on the retroactivity feature of S. 1874. I have a lengthy statement that I have submitted to the subcommittee. It is in the nature of a memorandum of law. I would offer not to read the statement to the subcommittee, but simply summarize its contents. But for the record, Mr. Chairman, perhaps I should state some basic biographical data since I have not submitted a curriculum vitae.

Senator ALLEN. Without objection, your written statement, in its entirety, will be inserted in the record.

Mr. LACOVARA. I received my law degree from the Columbia University School of Law summa cum laude. I have worked in the Department of Justice as an assistant to the Solicitor General, briefing and arguing cases in the Supreme Court. I was special assistant to the Attorney General, preparing the Government's brief on the constitutionality of the death penalty. I was Deputy Solicitor General of the United States, and then counsel to the Watergate special prosecutor.

I have also taught courses dealing with constitutional law at the Columbia Law School in New York and at Georgetown University Law Center here in Washington. Now I am engaged in the private practice of law.

Senator ALLEN. The subcommittee is quite familiar with your distinguished career. We are delighted to have you come before the subcommittee.

Mr. LACOVARA. Thank you.

The thrust of my statement is that the retroactivity features of S. 1874 are objectionable on both constitutional grounds and policy grounds. Our Constitution reflects a deep and broad aversion to retroactive legislation. There are several constitutional clauses that deal explicitly with the device of retroactivity in legislation. The ex post facto clause, of course, is the one that first comes to mind. Although it has been interpreted as being directly applicable to criminal and other penal legislation, the policy it reflects is quite clear. Of course, to the extent that the treble damage feature of the antitrust laws reflects a penal or punitive character, the ex post facto clause, as policy, has at least an analogous application.

The second major clause that applies to retroactive legislation is the contracts clause of article 1 which generally forbids States to impair the obligations of contracts. This also rather vividly illustrates that our national policy is designed to prevent the legislature from interfering with existing legal relationships defined as contractual relationships. But the law has established that these principles are not restructured simply to the classic types of written contractual offer and acceptance by private parties. The contract clause also applies to other kinds of legal relationships where the parties enter into a transaction under a regime which is established by legislation, imputing certain terms to their relationship, as well as to relationships that are designed exclusively by their own contractual choice.

The primary constitutional clause that applies to Federal legislation that may have retrospective effect is the due process clause of the fifth amendment. The Supreme Court, on a number of occasions, in applying the due process clause, has spoken of the general aversion to retrospective application.

As early as 1801, Chief Justice Marshall, as I quote in my statement, strongly encouraged the courts, as he put it, "to struggle against" giving any legislation a retroactive interpretation that would interfere with existing rights of parties.

That theme has been echoed by the Supreme Court through the ensuing 175 years. Various Justices of various philosophical persuasions have, over and over again, cautioned about the injustice, as

they have called it, of retroactive legislation that interferes with the existing rights, obligations, and expectations of parties to legal relationships or to pending litigation. The various cases that have interpreted these clauses of the Constitution utilized different legal tests for deciding what kinds of legislation having a retrospective effect will be impermissible, and, therefore, will be struck down, and which ones may be tolerated. But there are several basic themes that can be distilled from the cases. One is that there has to be some compelling national policy that justifies retrospective legislation. The Supreme Court noted, just a few months ago, that a justification which may underlie the enactment of prospective legislation may not be sufficient to justify legislation that has a retrospective effect.

So, it has to be kept in mind that the mere fact that the legislature decides that some new legislative goal should be effectuated, is not itself sufficient to justify the retroactive application of the new policy that Congress wants to define. Apart from the significance of the policy or the national objective that Congress must find compelling in order to make its changed effect retroactive, the courts also insist that the Congress avoid interfering with vested or matured legal rights. The cases, therefore, generally reflect the distinction between changes in substantive rights and liabilities and purely procedural changes which the courts are more willing to say can be applied even to pending disputes or, indeed, to pending litigation.

A final test that has been embroidered into the fabric of the law by the courts over the last 175 years has been that the change in policy has to avoid retrospective application unless there is no feasible alternative that can adequately achieve the objective that Congress has in mind. As I describe in my prepared statement, Mr. Chairman, under any of the various formulations of these tests, established by the Supreme Court, S. 1874 is objectionable in proposing to make the overruling of Illinois Brick and Hanover Shoe retroactive and apply not just to disputes or to transactions that may have occurred before the effective date of the legislation, but indeed to apply to lawsuits which have been pending for over a year, and, therefore, apply to transactions that may have taken place 8 or 10 years ago. That is, the retroactivity feature of this bill would not pass constitutional muster.

The other witnesses will explain more eloquently than I will why no legislation at all is warranted here, but even if the Congress were persuaded that some change in the law should take place, it can hardly be argued seriously that there is a compelling need to make the change retroactive, to change around the rights, the liabilities, and the nature of the plaintiffs who can sue and the nature of the defenses that can be asserted with respect to transactions that have already taken place.

Neither the Congress nor the proponents of this legislation simply can make the case that there is a compelling justification for retroactive application of any attempt to overrule the year-old decision of Illinois Brick and the 10-year-old decision in Hanover Shoe. There are, of course, other alternatives. One is to make the legislation wholly prospective and leave to what have been regarded as the traditional enforcement mechanisms of the antitrust laws

the enforcement of any violations that may have taken place in the past.

As other witnesses before the subcommittee have demonstrated-as Professor Handler most concretely demonstrated-for 60 years we have relied primarily on direct purchasers to enforce the antitrust laws. Despite the hypothetical fears that some people have expressed that direct purchasers may be unwilling to enforce the antitrust laws by suing their suppliers, anyone who looks through the reports of pending cases, or cases that have been filed, can easily satisfy himself that companies dealing directly with companies they believe violated the law have no reluctance to sue them for treble damages. The treble damage remedy is an adequate, and, indeed, attractive inducement to bring a case whenever a direct purchaser believes he has been victimized by an overcharge.

In addition to the due process clause, Mr. Chairman, there is something that is almost unique about this legislation. That is, it is specifically designed, and unequivocally designed to attack specific Supreme Court cases. It is not just an attempt to erect a new policy, but to repudiate what the Supreme Court has said the law has been and the law is Congress is entirely free, of course, to change the law for the future. That is the lawmaking function. But since Marbury v. Madison, a case with which we are all familiar, the courts have appropriately instisted that it is the province of the judiciary to say what the law has been and is. So, an attempt by the Congress to change the law for the past in defiance of what the Supreme Court has unambiguously said the law has been in the past, also implicates the separation of powers doctrine, which is the basic component of our constitutional system.

We discuss in our memorandum the Klein case decided a century ago by the Supreme Court, but a case whose vitality, I think, is underscored by its citation by the Supreme Court in more recent years. The Klein case deals with a quite similar situation in which Congress, dissatisfied with rulings of the Supreme Court, directed the courts to apply a contrary result, not only in future disputes, but even in cases that were already pending. The Supreme Court, with all due deference to Congress, said that Congress, in attempting such a directive, inadvertently overstepped the proper bounds between the judiciary and the legislature. The same argument can be made forcefully, and I think, persuasively, that the retroactivity feature of S. 1874 trenches upon the judicial province in attempting retroactively to say that the law is not, and has not been, what the Supreme Court has said it is and has been, and that the courts must blind themselves to the definitive ruling of the Supreme Court on the questions of statutory interpretation that arise under Illinois Brick and Hanover Shoe.

The third portion of my statement, Mr. Chairman, deals with the policy questions. Even without getting to the ultimate constitutional validity of a retroactive application of any legislation the subcommittee may recommend, it is prudent to do what the Congress has consistently done in the past when it has enacted antitrust legislation. That is, to make it prospective so that when people engage in conduct, they know precisely what the rules are to be and what the contours of any prospective disputes will be.