Defeat for Salivating Tort Lawyers, But Milestone Victory for Free Markets

The U.S. Supreme Court this week scored a welcome victory in favor of sanity in antitrust policy, but too many absurdities still abound. 

In Credit Suisse First Boston v. Billing, the Court rejected a typically audacious plaintiffs' lawsuit against major Wall Street investment firms, ruling that regulation of securities markets is better left to the Securities and Exchange Commission (SEC) than to roving bands of salivating trial lawyers. 

In this 7-1 decision, the Court recognized that markets must remain free to perform the type of underwriting activity essential to initial public offerings (IPOs).  To rule otherwise, according to the Court, would create a tangled web of contradictory securities antitrust laws across the country. 

According to Justice Stephen Breyer, who wrote the majority opinion, allowing multitudes of plaintiffs to file lawsuits "in dozens of different courts with different non-expert judges and different non-expert juries" would create vast uncertainty in financial markets.  Because these financial markets require fundamental predictability and legal certainty in order to function, this ruling benefits every American who owns stocks in any amount. 

Never a group prone to sobriety or understatement, the plaintiffs had brazenly - true to their natural demeanor - alleged "an epic Wall Street conspiracy" during the 1990s to drive up certain IPO prices.   According to them, the soaring IPO prices during that market ascent naturally indicated some sort of sinister collusion among deep-pocketed brokers and investors. 

After all, that's how all wealth is created in this country, according to parasitic trial lawyers.  Not through hard work, innovation and entrepreneurship, but rather through greed and conspiracy. 

Even famously liberal Justice John Paul Stevens labeled the plaintiffs' allegations "frivolous," and pronounced that "the prices of newly issued stocks or bonds are determined by competition among the vast multitude of other securities traded in a free market." 

Perhaps Justice Stevens has finally been reading some Milton Friedman in his spare time.  If so, file this under "better late than never." 

Regardless, this ruling accords with a recent Supreme Court trend toward greater protection of free markets against costly and oftentimes frivolous plaintiff lawsuits.  It also follows last year's federal indictment against Milberg Weiss, the nation's once-preeminent class action plaintiffs' law firm.  In that indictment, Milberg Weiss partners were accused of repeated illegal kickbacks and lawsuit manipulation in pursuit of jackpot justice. 

This ruling also provides much-needed predictability and certainty to Wall Street, and everyday Americans' 401(k) accounts can breathe that much easier. 

Across the world and here in America, however, antitrust lawsuit abuses continue to threaten the free market and our economic prosperity. 

For instance, economic titan Google has sued Microsoft in an example of "competition by litigation," alleging that Microsoft unfairly refused to disable its desktop search technology in Windows Vista.  In reality, this merely constitutes an instance of one powerful corporation stampeding to the courthouse steps in order to gain business leverage against a competitor. 

Additionally, the Bush Administration's Federal Trade Commission (FTC) curiously announced that it will sue to prevent Whole Foods from merging with Wild Oats markets on antitrust grounds.  According to the FTC, Whole Foods and Wild Oats aren't just supermarkets competing against thousands of competitors such as Trader Joe's, Safeway, local organic grocers and now even Wal-Mart.  Rather, the FTC defines the market so narrowly that a Whole Foods-Wild Oats merger would somehow traumatize helpless organic food shoppers across the country. 

The FTC conveniently evades the economic truism that any post-merger increase in prices or reduction in service quality would simply erode its customer base and create customers for competing supermarkets. 

This FTC antitrust lawsuit follows another puzzling decision by the Bush Administration, as its Justice Department chose to align with the tort bar in the Credit Suisse First Boston v. Billing case discussed above.  Although the Bush Administration has often demonstrated admirable leadership in advancing free-market principles and tort reform, this choice demonstrates an alarming ideological schizophrenia. 

Across the Atlantic, of course, the European Commission continues its pernicious antitrust crusade, particularly against American companies such as Apple and Microsoft that it would prefer to cut down to size. 

It is unfortunate that the judicial branch plays an increasing role in our national and world economies, which are better left to market principles and democratic oversight.  Nevertheless, this week's Supreme Court ruling provides some welcome relief in a world of frequent antitrust insanity.