Other Free Encyclopedias » Law Library - American Law and Legal Information » Free Legal Encyclopedia: Air weapon to Approximation of laws » Antitrust Law - Origins, The Sherman Act And Early Enforcement, Congressional Reform Up To 1950, The U.s. Supreme Court And Evolving Doctrine

Antitrust Law - The U.s. Supreme Court And Evolving Doctrine

vertical economic business efficiency

Vigorous enforcement of antitrust legislation created an immense body of case law. After 1950, U.S. Supreme Court decisions did more than anything else to shape antitrust doctrine. Two competing outlooks emerged. One regarded markets as fragile, easily distorted by private firms, and readily correctable through public intervention. Economic efficiency mattered less, in this view, than the belief in the antitrust doctrine's ability to meet social and political goals. Opponents saw business rivalry as being generally healthy. They doubted that public intervention could cure defects, and they emphasized the self-correcting ability of markets to erode private restraints and private power. This outlook opposed the use of antitrust measures except to stop behavior that clearly harms the efficiency of business.

The most aggressive doctrine was developed under Chief Justice EARL WARREN. The WARREN COURT often saw the need for decentralized social, political, and economic power, a goal that it put ahead of the ideal of economic efficiency. In 1962, its first ruling on the Celler-Kefauver Act, Brown Shoe Co. v. United States, 370 U.S. 294, 82 S. Ct. 1502, 8 L. Ed. 2d 510, held that a merger between two firms that accounted for only five percent of total industry output violated the principal antimerger provision of the antitrust laws. Brown Shoe also reflected the Court's hostility toward vertical restraints (i.e., restrictions imposed in contracts by the seller on the buyer, or vice versa) at that time.

This aggressive approach peaked in 1967 in United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S. Ct. 1856, 18 L. Ed. 2d 1249. Arnold concerned nonprice vertical restraints (i.e., territorial or customer restrictions on the resale of goods). The majority ruled that such restraints were per se illegal—in other words, so harmful to competition that they need not be evaluated. In ensuing years, respected antitrust experts, such as Chief Judge RICHARD POSNER of the U.S. Court of Appeals for the 7th Circuit, criticized the Court's use of "per se" tests to invalidate vertical price agreements between competitors or between sellers and buyers, arguing that such agreements can be efficient.

The U.S. Supreme Court heeded this criticism in State Oil Co. v. Khan, 522 U.S. 3, 118 S.Ct. 275, 139 L.Ed.2d 199 (U.S. 1997). Relying heavily on an appellate opinion penned by Judge Posner, the high court overruled a 29-year-old precedent that declared all vertical maximum price-fixing arrangements to be per se violations of the Sherman Act. Vertical maximum price-fixing arrangements, like the majority of commercial arrangements that are subject to antitrust laws, should be evaluated under the rule of reason, the Court wrote. The rule-of-reason analysis will effectively identify those situations in which vertical maximum price-fixing amounts to anticompetitive conduct, by allowing courts to evaluate a variety of factors, according to the Court. These factors include specific information about the relevant business; the condition of the business before and after the restraint was imposed; and the history, nature, and effect of the restraint.

By the mid 1970s, the U.S. Court backed off its robust interventionism. Two pivotal decisions came in 1977, including the most important since WORLD WAR II, Continental TV v. GTE Sylvania, 433 U.S. 36, 97 S. Ct. 2549, 53 L. Ed. 2d568. In a decisive departure from the previous decade's rulings, the Court abandoned its hostility toward efficiency. Now, for evaluating non-price vertical restraints, it returned to the use of a rule of reason. Per se rules would remain influential, but economic analysis would be the primary tool in formulating and applying antitrust rules. The second powerful change in doctrine was Brunswick Corp. v. Pueblo Bowl-O-Mat, 429U.S. 477, 97 S. Ct. 690, 50 L. Ed. 2d 701. In the Brunswick decision, the Court wrote that antitrust laws "were enacted for the 'protection of competition, not competitors.' " The irony was addressed to private antitrust litigants. If they wanted to sue, the Court wrote, they would have to prove "antitrust injury." This decision discarded the old view that the demise of individual firms was plainly bad for competition. Replacing it was the view that adverse effects to businesses are sometimes offset by gains in reduced costs and increased output. Increasingly, after Brunswick, the U.S. Supreme Court and lower courts would accept economic efficiency as a justification for dominant firms to defend their market positions. By 1986, efficiency-based analysis was widely accepted in federal courts.

Even against this restrictive background, explosive change occurred. The early 1980s saw the dramatic conclusion of a historic monopoly case against the telephone giant American Telephone and Telegraph (AT&T) (United States v. American Telephone & Telegraph Co., 552 F. Supp. 131 [D.D.C. 1982], aff'd in Maryland v. United States, 460 U.S. 1001, 103 S. Ct. 1240, 75L. Ed. 2d 472 [1983]). DOJ settled claims that AT&T had impeded competition in long-distance telephone service and TELECOMMUNICATIONS equipment. The result was the largest divestiture in history: A federal court severed the Bell System's operating companies and manufacturing arm (Western Electric) from AT&T, thus transforming the nation's telephone services. But the historic settlement was an exception to the political philosophy and the level of enforcement that characterized the decade. As the 1980s were ending, the Department of Justice dropped its 13-year suit against International Business Machines (IBM). This lengthy battle had sought to end IBM's dominance by breaking it up into four computer companies. Convinced that market forces had done the work for them, prosecutors gave up.

Throughout the 1980s, political conservatism in federal enforcement complemented the U.S. Supreme Court's doctrine of non-intervention. The administration of President RONALD REAGAN reduced the budgets of the FTC and the DOJ, leaving them with limited resources for enforcement. Enforcement efforts followed a restrictive agenda of prosecuting cases of output restrictions and large mergers of a horizontal nature (i.e., those involving firms within the same industry and at the same level of production). Mergers of companies into conglomerates, on the other hand, were looked on favorably, and the years 1984 and 1985 produced the greatest increase in corporate acquisitions in the nation's history.

As the U.S. Supreme Court strengthened requirements for evidence, injury, and the right to bring suit, antitrust cases became harder for plaintiffs to win. Most decisions during this period narrowed the reach of antitrust. A few rare exceptions, such as Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 105 S. Ct. 2847, 86 L. Ed. 2d 467 (1985), which condemned a monopolist's unjustified refusal to deal with a rival, faintly recalled the tough outlook of the Warren Court. Non-intervention, however, took precedence. In the strongest example, Matsushita Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986), the majority dismissed allegations that Japanese television manufacturers had engaged in a 20-year pricing conspiracy that was designed to drive U.S. electronics equipment manufacturers out of business. The Court discouraged claims that rested on ambiguous CIRCUMSTANTIAL EVIDENCE or lacked "economic rationality," suggesting that lower courts settle these by SUMMARY JUDGMENT.

Antitrust Law - The 1990s [next] [back] Antitrust Law - Congressional Reform Up To 1950

User Comments

Your email address will be altered so spam harvesting bots can't read it easily.
Hide my email completely instead?

Cancel or