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Business Rights Watch

Liberty, Antitrust, and the Dental Examiners Case

Can antitrust law ever protect individual rights?

It would seem strange if it could. After all, the fundamental principle of antitrust is antithetical to individual rights: it holds that the government is entitled to organize the market, and that businessmen are merely decentralized planners tasked with deploying resources in order to serve consumers.

Dental Examiners Case Supreme Court antitrust law analysis Federal Trade Commission And yet, the North Carolina Board of Dental Examiners case, which was argued before the Supreme Court today, shows how it might: by restraining crony cartels that use the power of government to drive out their competitors.

North Carolina state law says only a dentist can remove stains on people’s teeth. And "any resident citizen" can sue to enforce the law if a non-dentist provides this service. The Board of Dental Examiners, the state agency that regulates dentists, is also specifically given that power. When teeth-whitening by non-dentists in malls and other such places, using a chemical process that may or may not fall under the prohibition on removing stains, became popular, the board investigated and sent out letters telling the non-dentists to stop. It said they were breaking the law. Naturally, this drove a lot of people out of their arguably illegal—but (otherwise) perfectly moral—business of whitening teeth.

The Federal Trade Commission responded by administratively charging the dental board with an antitrust violation. It argued that because most of the board members were (as state law requires) practicing dentists, they were businessmen conspiring together to drive their competitors out of the market. And that’s true.

But it’s also true that they were members of a state agency enforcing the law their agency was created to enforce (at least according to one plausible reading of that law). And the question before the Supreme Court today was whether the dental board’s action is protected by antitrust’s state action doctrine, which holds that the states are entitled to make and enforce policies that would violate antitrust law if they were established by private agreement.

Under existing precedents, if it treats the dentists on the board as businessmen working together to solve a common problem, the Court will rule against them. If, on the other hand, it treats them like professional bureaucrats telling people to stop producing because of an arbitrary law, the Court will rule in their favor. This illustrates the absurdity of antitrust law—and its moral principle: that government is entitled to run the market, but businessmen may only pursue their own interests in ways it suits governmental purposes to permit. Defenders of licensing boards like the Dental Examiners might invoke the same premise.

And yet, if the Court rules against the dental board, it will strike a blow against the all-too-widespread practice of giving established members of a profession the power to stop newcomers from competing with them. In this sense, it will put antitrust to work in defense of individual rights. For once, the oft-invoked mantra that antitrust protects the free market will have some truth to it.

Nevertheless, those advocates of the free market who are excited about this case should remember: when you rely on unjust laws, you give yourself an incentive not to fight them. And antitrust law is fundamentally unjust.

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Holder Limits One Form of Trial Penalty

Here’s a nice surprise: I recently learned that the day before announcing his plans to resign, Attorney General Eric Holder actually took a step towards restoring the right to a trial. And it wasn't the first time he, or the Justice Department under his leadership, has done such a thing.

Among the ways prosecutors can punish a defendant for insisting on a trial is by filing what’s called a “section 851 information.” This notice tells the court that the defendant has prior convictions—and once it’s filed, the mandatory minimum sentence the judge is required to impose if the defendant is convicted increases. In a memo dated Sept. 24, Holder told his prosecutors that this enhanced sentence “should not be used in plea negotiations for the sole or predominant purpose of inducing a defendant to plead guilty.”

That’s a step towards justice by Eric Holder, though its value is diminished by the memo’s statement that it can be OK to withdraw a section 851 notice if the defendant provides cooperation. So the notice can still be used to encourage defendants to go along with what prosecutors want.

The memo asserts (quoting a document from earlier in Holder's tenure) that it is “long-standing Department policy that ‘[c]harges should not be filed simply to exert leverage to induce a plea, nor should charges be abandoned to arrive at a plea bargain that does not reflect the seriousness of the defendant’s conduct.’” That sounds grand, and it does mean Holder's DOJ has prohibited a form of plea-bargain bullying before—but it also affirms the kind of thinking Holder displayed in defending Aaron Swartz’s prosecutors: The plea bargain should be the sentence the defendant actually deserves. And that means any greater sentence he’s threatened with if he goes to trial is a sentence greater than the prosecution actually believes his crime justifies. It is, at least when the prosecution seeks it, a trial penalty—a punishment not for the underlying crime, but for demanding a trial. We saw that fairly explicitly in the Raj Rajaratnam case, where the prosecution justified asking for a higher sentence than other defendants who had committed similar crimes on the ground that the other defendants had "accepted responsibility and pled guilty."

Anything that diminishes the trial penalty or limits prosecutors’ power to impose one is a step in the direction of justice—of punishing only the guilty, and of punishing them only for their crimes.

H/T Reason, Families against Mandatory Minimums

I've updated my previous post on Holder's "legacy of injustice," which this mitigates somewhat.

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'The Economist' on Plea Bargaining and Coerced Testimony

End plea bargaining: that’s the radical proposal for America’s justice system given this week by one of the most prestigious magazines in the English-speaking world. The less radical proposal: reform it. The Economist backs up its advice with an article that—quoting two federal judges and BRC contributing writer James J. Treacy—shows how powerful prosecutors have become in a system that is now 95 percent devoid of trials.

Some defendants may plead guilty because they are guilty. But as the Economist explains, some innocent people may do it “because harsh, mandatory-minimum sentencing rules can make such a choice rational. Rather than risk a trial and a 30-year sentence, some cop a plea and accept a much shorter one.” The Innocence Project, the magazine says, lists 30 defendants who’ve been proved innocent by DNA after pleading guilty. The magazine notes Judge Jed S. Rakoff as among those skeptical that all who plead guilty are guilty. (It doesn’t note, but Treacy did in a piece for the BRC, that Judge Rakoff is a defender of giving witnesses incentives to help prosecutors.)

My favorite moment in the article comes from a case that did go to trial:

James Fleishman, a former manager at Primary Global Research, was first approached by FBI agents to help them ensnare his superiors. When he refused to co-operate, insisting he knew of no illegal activity, he became a target himself. His conviction rested on co-operation from two former clients who had been put under immense pressure to be helpful to prosecutors. (They told one they would seek to have him jailed for 50 years if he declined their offer.) In a self-published book, Mr Fleishman argues that the testimony of both was littered with fabrications, including phone conversations that never took place. The co-operators got probation. Mr Fleishman was jailed for 30 months.
There is no way to confirm Mr Fleishman’s version of events. There was, however, an intriguing moment at his trial. During cross-examination Mr Fleishman’s lawyer complained that his opposing number was mouthing words to a co-operating witness who appeared to be going off-script. The prosecutor’s response was: “If I did that, and I’m not disputing what he said . . . I’m sorry.”

But what is most disturbing is not when prosecutors violate the rules, but what is considered within the rules. As the Economist points out in its editorial:

If a defence lawyer offers a witness $100 for a false alibi, he is guilty of bribery. But if a prosecutor offers a co-operating witness something far more valuable—the chance to avoid several years in a cell—that is just fine.

It’s fine according to current law. And it’s fine if the goal is to let the government imprison anyone it wants. But if the goal is justice, it isn’t fine at all. It’s a system suited to produce slanderous testimony and false convictions.

The Business Rights Center has been writing about these issues for some time. Here are some highlights:

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Eric Holder's Legacy of Injustice

Eric H. Holder Jr., who is resigning as U.S. attorney general, has a long and distinguished record as a subverter of justice.

Start with something fundamental: the right to a trial. As attorney general, Eric Holder runs a Department of Justice that rarely bothers holding trials. In the Aaron Swartz case, for example, Holder’s prosecutors threatened a young man with charges that could have sent him to prison for fifty years—all to try to get him to plead guilty and accept a sentence of six months or less for downloading academic articles. Their victim, a young Internet innovator, killed himself. Defending his prosecutors, Holder said there was “never an intention” that Swartz would get a sentence of more than six months. That was a risk Swartz faced only if he insisted on a trial.

It’s hard to tell just how much harsher a sentence is likely to be after trial than after a plea bargain—plea offers are not a matter of public record. But the fact that 97 percent of federal convictions come from pleas and the fact that Holder found Swartz’s treatment perfectly acceptable strongly suggest that defendants are routinely being bullied into pleading guilty

All this undermines the right to a trial. Yet the right to a trial is the practical form of the right not to be punished for a crime you didn’t commit. Granted, plea bargaining has been an established practice in this country for many years; Holder didn’t invent it. But Holder is the head of the Department of Justice, and if he had wanted to pursue justice, he would have done something about it instead of defending bullying prosecutors. [Update: After posting this, I learned that Holder has in fact put some limits on how prosecutors can pressure defendants to take pleas.]

One of the most important rights that support the right to a trial is the right to a lawyer. Holder himself has celebrated this right. Yet a theme of his career has been getting between criminal defendants and the lawyers they trust.

In 1999, as deputy attorney general, he issued the infamous Holder Memorandum on prosecuting corporations. In that document, he said the factors the government considers in deciding whether to press charges against a corporation should include its cooperation with prosecutors. Cooperating could include revealing what an individual suspect had told a lawyer the company employed. And paying for an individual's lawyer could be considered uncooperative. (After some constitutional pushback, DOJ retreated on these points -- but consider this more recent case, fought by Holder's DOJ.)

During Holder's term as attorney general, DOJ defended its power to stop you from paying your own lawyer in certain cases. And it won. Under Kaley v. United States, which the Supreme Court decided in February, if you are indicted and the government says your money comes from your crime, that money can be frozen before trial—without your having a chance to argue that your actions were not a crime. And then, having deprived you of the money you need to pay the lawyer you trust, the government can spend as much as it likes trying to convict you.

So good riddance to Eric Holder. Let’s hope he’s not replaced with worse rubbish.

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Prosecutor Sides with Climate Criminals

Last May, two environmentalists tried to shut down a power plant by preventing a boatload of coal from reaching it. Last week, a Massachusetts district attorney compounded their crime: He denied the victims justice because he agreed that their business—coal power—was a menace.Bristol County District Attorney Samuel Sutter

“Climate change is one of the gravest crises our planet has ever faced,” said Bristol County District Attorney Samuel Sutter, who has expressed an interest in higher office. “In my humble opinion, the political leadership on the issue has been gravely lacking.”
 
In May 2013, Ken Ward and Jonathan “Jay” O’Hara used Ward’s lobster boat to try to stop the Energy Enterprise from bringing its 40,000-ton load of coal to the Brayton Point Power Station in Somerset, Mass. They succeeded in delaying it by one day. They were to have gone on trial last week, but Sutter dropped the criminal charges against them, demanding only that, as penalty for civil infractions, they pay restitution for some police overtime—as if the only wrong here worth doing anything about were placing an extra burden on the government.
 
Whether climate change is settled science, utter fraud, or anything in between—a matter on which Ward, O’Hara, and Sutter are certainly entitled to express their opinion—blocking the Enterprise was not just an expression of opinion. It was an initiation of physical force. It violated the rights of the owners of the ship and the power plant to transport property and do business.
 
By announcing that he will not prosecute them criminally for it because he agrees with them, Sutter is declaring that he will not defend the rights of people in the power business because he disapproves of their work. That means he is painting a target on them. He is saying: Go ahead and commit crimes against these people; the government will not give them the protection it gives to people it likes—or people Samuel Sutter likes.
 
That’s not just wrong because the power industry, which provides energy for human achievement, ought to be valued. It’s wrong because the function of government is to protect everyone’s rights. When a prosecutor declares someone out of his protection, he is attacking the principle that everyone is entitled to the equal protection of the law. And when he thinks doing that is a good political move, that suggests that the voters he’s trying to please have forgotten that they need prosecutors to protect everyone from criminals.
 
And that puts everyone at risk.
 
 
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Do Special Exemptions Protect Businesses' Freedom?

It’s good to see businesspeople fighting back against destructive regulations. But sometimes what they’re fighting for is less than glorious.

Take banker John Buhrmaster, from the village of Scotia in upstate New York. Three-quarters of what he does as CEO of a small bank there is now compliance, according to the Albany Business Review. “Since 2008, regulations have been popping up like crazy,” he complains. He wants to spend less time and money on rules and more on his depositors and borrowers. So he wants the government to get off his back.

So far, so good. But instead of arguing that banking regulations violate his rights and ought to be repealed, he’s asking for special exemptions for small banks. As chairman of a group called Independent Community Bankers of America, he’s backing “tiered regulation.” That means big banks and small banks would have different rules. They have “two different business models,” he argues.

Or take cigar maker Eric Newman, president of the last cigar company with a factory in Tampa. His employees make cigars on hand-operated machines, and he’s concerned that the FDA’s proposal to regulate cigars like cigarettes would put him out of business. His old-fashioned equipment would face scrutiny (remember what the FDA tried to do to cheese makers?). And in an industry that has come to rely on new products, he’d have to put every new product through 5,000 hours of tests.

So is he pushing to deregulate tobacco, arguing that people have the right to make and sell whatever recreational substances they want? Ha! He’s apparently not even trying to stop the FDA from regulating cigars. What he and local congresswoman Kathy Castor are seeking is to get Newman’s cigars included in a regulatory exemption for premium cigars. Nearly 300 comments, many using the same text, have been submitted to Regulations.gov specifically mentioning Newman’s company. Fifty of them, mostly anonymous but some signed by named individuals, call the factory a “working museum.”

So what are we to make of these efforts, morally speaking? Frankly, I’m not sure. There are things to be said for and against them.

It’s understandable why (relatively) small businesses like Buhrmaster’s bank and Newman’s cigar company would seek special protections instead of standing on the principles of rights: the administration obviously doesn’t respect the principles of rights, but it might be convinced to have mercy on small, community-based businesses.

And yet in the long run, special niches are vulnerable. The government can come along at any time and change them. If you want security, you need the principles of rights, and arguing for special privileges makes it harder to advocate those principles.

The pursuit of special exemptions is troubling because equality under the law is an important value. Exempting one business from an unjust law that harms another makes matters worse for the law’s victims, because they have to compete with a business that doesn’t share the handicaps imposed on them. And especially when an exemption is grounded in a business’s historic character, it amounts to treating some citizens as more important than others, which is proper for individuals to do but dangerous for governments to do. The greatest protection individual rights can have is the recognition that when the government violates one citizen’s rights, it threatens all our rights, and special exemptions undermine the recognition of this principle.

Yet unjust laws that nominally treat businesses equally can have unequal impacts. An additional paperwork burden for a big bank may be a matter of adding another lawyer, which, in its context, may be a small cost; for a small bank the same paperwork may take a large chunk of the CEO’s time. A testing requirement for new products may be little burden on a big cigarette manufacturer whose customers want to keep buying identical cigarettes, but a tremendous burden for a cigar company whose customers like trying new and interesting cigars. This is one reason big companies often support regulations: They can withstand them more easily than their smaller competitors.

More fundamentally, adding an exemption means some people don’t get their rights violated (in certain ways) who otherwise would. In that respect, exemptions are clearly good. Yet they are troubling because of the legal inequality involved.

Exemptions reflect the fundamental injustice of the regulated economy. When the law does nothing but uphold individual rights, there is no case to be made for special exemptions. Rights are the principles we need the law to uphold for each of us equally.

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Hobby Lobby: Corporations' Rights Protect Individuals' Rights

Pursuing a profit does not mean giving up your other values, not even if you do it by means of a corporation. That’s the most important meaning of today’s Supreme Court decision in Burwell v. Hobby Lobby.

And it is an important point. Business is part of life. Indeed, using your mind to produce the values that sustain you is of the essence of a human life.

In the Hobby Lobby case, three businesses owned by Christian families objected to Obamacare’s requirement that they pay for employee health plans that include (what they regard as) forms of contraception that can cause abortions. The business owners believe—wrongly—that abortion is immoral.

Under the Religious Freedom Restoration Act, the federal government may not “substantially burden” a person’s ability to practice his religion unless it’s the “least restrictive” way to serve a “compelling” government purpose. That religious practice includes following religion-based moral strictures, such as the one these Christians believe forbids them to pay for abortions. (The RFRA does not protect those of us who get our moral convictions from reason and reality, but that’s Congress’s fault, and it wasn’t at issue in today’s case.)

The contraception mandate did not literally and directly apply to the individual Christians who own Hobby Lobby and the other businesses involved: it applied to the businesses, which are corporations. So one of the questions the Court had to address today was whether the RFRA applies to corporations.

Justice Ruth Bader Ginsburg said it did not. Corporations, she said, quoting Justice Stevens’s opinion in Citizens United, “have no consciences, no beliefs, no feelings, no thoughts, no desires.”

The thing is, however, the people who own and run them do. And every act of a corporation is ultimately an act of human beings.

Justice Samuel Alito recognized that—and his was the majority opinion. “A corporation,” he wrote for the Court, “is simply a form of organization used by human beings to achieve desired ends... When rights... are extended to corporations, the purpose is to protect the rights of these people.”

The moral principle that individual rights apply in the business context is much broader than the contraceptive mandate. And it’s broader than the RFRA, though that law is all the Court was considering today. It covers the right to free speech and the right to property. It covers the right to make your products by your own standards and organize your business your way. It is, most simply, the right to live a productive human life.

Organizing your business as a corporation does not mean giving up the right to live your life.

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Take-Aways from When FDA Tried to Take Away Your Cheese

The FDA recently said it was illegal to age cheese on wooden boards; in the face of an outcry, it retreated -- kind of. It still says it plans to "engage with the artisanal cheese-making community to determine whether certain types of cheeses can safely be made by aging them on wooden shelving," which means it still might determine that they can't. Cheese fans beware: the threat still looms.

Writing at Forbes, Greg McNeal calls it a victory and a lesson:

When government officials make pronouncements that don’t seem grounded in law or policy, and threaten your livelihood with an enforcement action, you must organize and fight back.  While specialized industries may think that nobody cares, the fight over aged cheese proves that people’s voices can be heard.

But Walter Olson of Overlawyered points out that fine cheese has a particularly articulate and influential constituency interested in its product and knowledgable about it -- and not all industries have that resource. 

Sometimes fighting back over a particular product is successful. Sometimes, as we were recently reminded by the Buckyballs case, it isn't. And sometimes even a victory in one forum leaves regulators to fight in another, as when the IRS surrendered to the Institute for Justice in its court battle over licensing tax preparers, only to ask Congress to grant it the power the agency had claimed it already had.

In the long run, only a principle of individual rights can protect everyone. When we recognize that everyone has an interest in everyone else's freedom -- including everyone else's freedom to buy and sell products we ourselves don't want to make or use -- we know that we have reason to care about the issue even when the product in question doesn't interest us. If most people recognized that, the government would know it had to respect freedom, even in the case of products without influential constituencies. 

Many fans of fine cheese are progressives, and I hope they learn something from this: When the government looks out for your safety and not your freedom, it may try to take away things you value. Even if you fight back, you may lose, and even if you seem to have won, you may lose soon thereafter. And even if the fans of fine cheese succeed in protecting it, there is probably some other product you like that doesn't have so many influential fans. If you want to protect the things you value, you need the principles of freedom.

(H/T Walter Olson)

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The Buckyballs Settlement: A Loss All Around?

Craig Zucker, the Buckyballs CEO who fought back irreverently when the Consumer Product Safety Commission went after his product, has settled the case. The CPSC says the settlement’s "intended to protect children and teenagers." Zucker says he hopes the CPSC has learned a lesson. Both sides want us to think they’ve won. But Zucker lost, and so did the rest of us.

The CPSC was pursuing Zucker personally, perhaps because he publicly fought back, perhaps because he closed his company and it wasn’t available as a target anymore. Zucker claimed the agency had no business going after him individually—it was his company that had sold Buckyballs—but the settlement requires him to pay for a recall. And it requires him to give up any claims he had against the CPSC.

It’s tempting to say the CPSC lost too. The amount of money the settlement requires Zucker to pay is remarkably low: $75,000 for publicity, and up to $300,000 for paying and processing consumer refunds. It’s not even enough money to refund one in a hundred Buckyballs purchases. Zucker said the litigation cost more than the settlement.

But the CPSC is not a private plaintiff looking to strike it rich by suing a business. The agency has gotten away with destroying Zucker’s business, and it has proved that it can force an individual businessman to pay for selling products the CPSC later decides it doesn’t want on the market. If the agency wants to expand its power, or if it wants to drive products on which someone might possibly injure himself off the market, this is a win for the CPSC.

As for the rest of us, we lost in several respects. We lost the ability to buy Buckyballs, toys that many people liked—and we may have lost products we don’t even know exist because this case may scare other people out of bringing them to market. We lost because the fact that Zucker ended up personally on the hook may deter other businessmen from fighting back against product recalls. And we lost because, yet again, a federal agency has demonstrated that it doesn’t need to prove that the facts and the law are on its side: it can drive people out of business, force them to settle, and even declare products illegal, all without ever making its case in court.

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Let Tesla Compete, Say FTC Officials

Is the Federal Trade Commission for a free-market economy? A recent blog post by three of its top officials could almost make you think so. The directors of the FTC’s Office of Policy Planning, Bureau of Competition, and Bureau of Economics have a message for state regulators: Let Tesla compete!

Tesla Model STesla sells its cars directly to consumers, challenging the traditional model of selling cars through franchised dealerships. States such as New Jersey and Texas have made that illegal, and North Carolina’s state senate tried to do the same. The FTC blog post argues that these laws restrict consumer choice for no good reason. Tesla, it says, should get to use the business model it thinks best—and in the long run, what business models are used should depend on the same “competitive process” that determines which car models succeed. Let different businesses try different ideas, and the market will make its choices. The FTC staffers support their case by pointing to some of the great business achievements of the Internet age. You might well mistake these bureaucrats for free marketeers, and indeed, they defend the free-market view on this specific question: No, they say, governments should not stop Tesla from selling its cars directly to consumers.

Although the FTC, which has the power to enforce antitrust laws, can crack down on many anticompetitive measures, there's very little it can do about these regulations: there's an exception to antitrust for state laws. The blog post must be viewed as a sort of moral exhortation. Let us consider what moral code it displays. 

If you read the post with an eye toward its basic premises, you’ll notice that the whole case rests on the authors’ judgment of consumers’ best interests. Regulations that protect consumers are OK, they assume, it’s just that these particular regulations make consumers worse off. The rights of the producers don’t enter into it.

What we see in the post is the perspective of economic managers—the perspective of antitrust law. Often, as here, such a perspective shows reasons for the government to get out of a producer’s way. But if we accept that this is the perspective from which the economy should be governed, we accept that all our productive activities are subject to government management. Sometimes that management will be permissive. But not all the time.

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