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Antitrust Law

Congressional Reform Up To 1950

Dissatisfaction brought new federal laws in 1914. The first of these was the Clayton Act, which answered the criticism that the Sherman Act was too general. It declared four practices to be illegal but not criminal: (1) price discrimination—selling a product at different prices to similarly situated buyers; (2) tying and exclusive-dealing contracts—sales on condition that the buyer stop dealing with the seller's competitors; (3) corporate mergers—acquisitions of competing companies; and (4) interlocking directorates—boards of competing companies, with common members.

Quick to hedge its bets, the Clayton Act qualified each of these prohibited activities. They were only illegal where the effect "may be substantially to lessen competition" or "might tend to create a monopoly." This language was intentionally vague. Despite specifying different tests for violations, Congress still wanted the courts to make the difficult decisions. One important limitation was added: The Clayton Act exempted unions from the scope of antitrust law, refusing to treat human labor as a commodity.

The second piece of federal legislation in 1914 was the Federal Trade Commission Act. Without attaching criminal penalties, the law provided that "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce are hereby declared illegal." This was more than a symbolic attempt to buttress the Sherman Act. The law also created a regulatory agency, the Federal Trade Commission (FTC), to interpret and enforce it. Lawmakers who feared judicial hostility to the Sherman Act saw the FTC as a body that would more closely follow their preferences. Originally, the commission was designed to issue prospective decrees and to share responsibilities with the Antitrust Division of the Department of Justice. Later court rulings would allow it greater latitude in attacking Sherman Act violations.

These laws helped to satisfy the short-term demand for tougher, more explicit action from Congress. Before long, antitrust enforcement would shift with the mood of the country. As WORLD WAR I and the 1920s reversed the outlook of previous years, antitrust policy was characterized by the hands-off policies of President CALVIN COOLIDGE, who declared, "The chief business of the American people is business." Economic trends created and supported this attitude; prosperity seemed a worthwhile reward. In this era, DOJ gave more attention to promoting fairness than it did to attacking restrictive practices and monopoly power. Although activities such as price-fixing still came under attack, other kinds of business cooperation flourished and even received official encouragement during the early years of the NEW DEAL. This pattern lasted for a good 15 years, intensifying after the STOCK MARKET crash of 1929.

Following what historians called the era of neglect, antitrust made a resurgence. In 1935, the U.S. Supreme Court struck down President FRANKLIN D. ROOSEVELT's NATIONAL INDUSTRIAL RECOVERY ACT, which coordinated industrywide output and pricing, in SCHECHTER POULTRY CORP. V. UNITED STATES, 295 U.S. 495, 55 S. Ct. 837, 79 L. Ed. 1570. The decision radically affected New Deal–era policy. The following year, Congress passed the Robinson-Patman Act in an attempt to make sense of the Clayton Act's bans on price discrimination. The Robinson-Patman Act explicitly forbade forms of price discrimination, in order to protect small producers from extinction at the hands of larger competitors. By 1937, economic decline brought federal antitrust enforcement back with a vengeance, as Roosevelt's administration began an extensive investigation into monopolies. The effort resulted in more than 80 antitrust suits in 1940 alone.

One federal court case in this period, United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945) (hereinafter Alcoa), changed anti-monopoly law for years to come. Since the 1920s, the U.S. Supreme Court had looked skeptically on the role of a business's size in judging monopoly cases. In United States v. United States Steel Corp., 251 U.S. 417, 40 S. Ct. 293, 64 L. Ed. 343 (1920), it said, "[T]he law does not make mere size an offense, or the existence of unexerted power an offense. It, we repeat, requires overt acts." The decision weakened the monopoly ban of the Sherman Act. Rather than focus on abusive business conduct, Alcoa emphasized the role of market power. Judge LEARNED HAND wrote for the court, "Many people believe that possession of unchallenged economic power deadens initiative, discourages thrift and depresses energy; that IMMUNITY from competition is a narcotic, and rivalry is a stimulant, to industrial progress; that the spur of constant stress is necessary to counteract an inevitable disposition to let well enough alone." The standard that emerged from this decision applied a two-part test for determining illegal monopolization: The defendant (1) must possess monopoly power in a relevant market; and (2) must have improperly used exclusionary acts to gain or protect that power.

Congress added its last piece of important legislation in 1950 with the Celler-Kefauver Antimerger Act, addressing a weakness in the Clayton Act. Because only anticompetitive stock purchases had been forbidden, businesses would circumvent the Clayton Act by targeting the assets of their rivals. U.S. Supreme Court decisions had also undermined the law by allowing businesses to transfer stock purchases into assets before the government filed a complaint. The Celler-Kefauver amendment closed these loopholes.

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Law Library - American Law and Legal InformationFree Legal Encyclopedia: Air weapon to Approximation of lawsAntitrust Law - Origins, The Sherman Act And Early Enforcement, Congressional Reform Up To 1950, The U.s. Supreme Court And Evolving Doctrine