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Monopolies and Antitrust Law

Monopoly Cases

For monopoly cases, the Court has used vastly different yardsticks. Early on, the majority in United States v. U.S. Steel Corp. (1920) wrote "[T]he law does not make mere size an offense, or the existence of unexerted power an offense." Only abusive practices by a dominant business, the Court found, were evidence of illegal monopolization. This outlook changed in United States v. Aluminum Co. of America (2d Cir. 1945), where a federal appeals court shifted the focus of consideration from abuses to market share, holding that "immunity from competition is a narcotic." Justice Learned Hand's opinion led to the creation of a standard two-part test. Companies acted illegally when they possessed monopoly power in a relevant market, and when they excluded competitors to gain or protect that power. Still in use, the test has yielded somewhat in recent decades as lower courts have given dominant businesses more room to legally increase their market share.

The legality of mergers, too, has varied from one period to another. Corporations merge for economic gain, and this is not always harmful to competition. Yet in the antitrust heyday of the late 1960s, the Court regarded with alarm a merger between two companies that had only a combined five percent output in their market, ruling in Brown Shoe Co. v. United States (1967) that such a merger violated the Celler-Kefauver Act. Little over a decade later, the popularity of deregulation and the Court's own relaxed views led to an explosion of corporate mergers that has continued through the late 1990s. Not all mergers are evaluated in the same way, however, since special circumstances pertain to certain industries. The federal Bank Merger Act and Bank Holding Company Act, for instance, provide for close scrutiny of mergers between banks.

Much antitrust case law emerges from the Sherman Anti-Trust Act's ban on "[e]very contract, combination . . . or conspiracy in restraint of trade . . . " Restraint of trade cases concern business contracts and agreements. Some of the century's most aggressive antitrust law evolved in this area, led by the Warren Court in the 1960s. By defining certain practices as illegal in all circumstances, the Court struck widely at cooperative business deals that limited productive output, restrictions placed by manufacturers upon dealers, and "tying" arrangements in which purchase of a given product was required in order to purchase another product. In the 1970s and 1980s, the Court, altering its stance under the influence of academic arguments, embraced the so-called doctrine of economic efficiency. Holding that some restraint of trade actually was beneficial to the economy, its rulings set higher standards for antitrust litigation and made winning more difficult for those prosecuting antitrust cases. In Brunswick Corp. v. Pueblo Bowl-O-Mat (1977), the Court retreated from its long-held stand that the failure of individual companies was bad for competition, accepting instead that reduced competition would be offset by reduced costs and increased output on the part of successful firms. By the 1990s, the efficiency doctrine showed signs of waning.

While some anticompetitive practices are judged harshly, others receive more tolerance. Courts generally condemn price-fixing, for instance. But another questionable practice, the refusal of one business to deal with another, is evaluated according to a variety of factors. Antitrust law acknowledges that sellers may select their own customers. Thus some individual refusals to deal are legal. However, a refusal may be illegal if the seller has monopoly power, intends to monopolize, or uses the refusal as part of an otherwise illegal restraint of trade. Group boycotts are unlawful. Also sometimes illegal are agreements requiring a customer to deal exclusively with a seller, particularly if they harm the chances of competitors in the market.

Several exceptions exist throughout all levels of antitrust law. Unions have been exempt from antitrust law since passage of the Clayton Act, which disregarded human labor as a commodity. Uniquely among professional sports, major league baseball also enjoys an exemption. The Supreme Court ruled early on that baseball is a sport and not a business in Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs (1922). The Newspaper Preservation Act of 1970, passed amid economic pressures which threatened the existence of multiple newspapers in communities, allows mergers and joint operation by publishers that otherwise would be illegal under antitrust law.

States have closely modeled their antitrust statutes on federal law. They prosecuted antitrust cases extensively before World War I, but were largely inactive in antitrust litigation until the 1970s. A period of resurgence saw the passage of new state laws and the Supreme Court's recognition that states, under a doctrine called parens patriae, had the right to bring certain antitrust lawsuits under federal law, too. In response, state attorneys general pursued antitrust cases on a wide variety of fronts, notably banking. This reinvigoration was also evident in the most controversial antitrust action of the 1990s, when, in 1998, 20 states joined the federal government in its long-running case against computer software giant Microsoft.

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Law Library - American Law and Legal InformationGreat American Court CasesMonopolies and Antitrust Law - Historical Background, Federal Law, Antitrust Enforcements, Monopoly Cases, Further Readings