Categorical Analysis in Antitrust Jurisprudence
| Author | Mark A. Lemley; Christopher R. Leslie |
| Position | Professor, Stanford Law School; Visiting Professor of Law, N.Y.U. School of Law |
| Pages | 01 |
Page 1210
+ © Copyright 2008 Mark A. Lemley & Christopher R. Leslie.
William H. Neukom Professor, Stanford Law School; of counsel, Keker & Van Nest LLP.
Visiting Professor of Law, N.Y.U. School of Law (Spring 2008); Professor, Chicago- Kent College of Law.
Yes, we are aware of the irony of writing a taxonomy of the problems with taxonomies.
We thank John Allison, Tim Bresnahan, Michael Carrier, Dan Crane, Rose Hagan, Herb Hovenkamp, and Tony Reese for insightful comments on earlier drafts of this paper. Remaining mistakes and omissions are our responsibility.
In the Scientific Revolution during the Age of Enlightenment, scientists and natural philosophers sought to understand the world by categorizing it. Specimens of rocks, plant life, and animal life were collected and sorted into groups based on perceived similarities and differences. For example, animals were cataloged as vertebrates or invertebrates based on whether they had backbones. Ultimately, each living organism was categorized into a kingdom, phylum, class, order, family, genus, and, finally, species. This process of categorizing the natural world represented a milestone in man's intellectual development. However, the limitations of this period of scientific progress became apparent as over time it became clear that some categories made little sense, some individual classification decisions were inaccurate, and some species-notably the duck-billed platypus-defied classification altogether.1 As a result, the classification schemes had to adapt both as new species were discovered and as old categories proved to be ill-conceived.2
The classification schemes pursued during the Enlightenment and the lessons learned during these early attempts at categorization are surprisingly similar to the evolution of the common law of antitrust. But there is an important difference: in law, categories have real consequences. Calling a platypus a mammal doesn't change the fact that it lays eggs.3 But calling a particular competitive practice by one name or another often has dramatic consequences for whether or not the law permits it. In this Article, we suggest that the Enlightenment enthusiasm for taxonomy has run amok in antitrust law, with pernicious consequences. Page 1211
Legal doctrines vary in the extent to which they apply either detailed, categorical rules or broad, open-ended standards that allow for case-specific adjudication. We can put legal doctrines on a spectrum from rules to standards. Think of the tax code as the paradigmatic example of specified rules, and of the common law development of doctrines such as negligence as the paradigmatic example of case-specific standards. Other laws fall somewhere in between: the securities laws and the patent laws mix specific rules governing some aspects of doctrine with broader standards such as Rule 10b-5 in securities fraud or the doctrine of obviousness in patent law.
Antitrust law is generally thought of as inhabiting the standards end of this spectrum.4 The basic enabling statutes offer only vague proscriptions against "monopoliz[ation]" or any "contract, combination . . . , or conspiracy, in restraint of trade . . . ."5 Antitrust's rule of reason in particular gives courts the power and responsibility to weigh the costs and benefits of a particular defendant's conduct. And numerous courts and scholars identify (and often lament) the uncertain, open-ended nature of the basic rule of reason inquiry.6
In fact, however, despite the generality of the enabling statutes, antitrust law is rife with categorical distinctions. In Part I, we explore not only the well-known distinction between conduct that is per se illegal and conduct judged under the rule of reason, but also a number of categorical distinctions the courts draw, either to help delineate the scope of the per se rule or to create distinctions within the scope of the rule of reason itself. By and large these rules don't come from the antitrust statutes. They are created by courts, who are in effect converting case-specific standards en masse into categorical rules.
In Part II, we identify a number of problems with these distinctions. One problem is administrative: courts spend a great deal of time trying to parse conduct in order to put it on one side or another of the lines they have created. Indeed, in many cases courts spend more time on categorization than they do on actual economic analysis of the case itself. Second, judicial antitrust categories are subject to manipulation. Parties go to great lengths to fit into a box that will give them more favorable treatment, sometimes by legal argument, sometimes by restructuring a transaction, and sometimes by concealing or misrepresenting the facts of that transaction. Third, a number of the categories the courts have created make no sense, whether because they have lost their meaning over time, because their boundaries have eroded, because they actually tell us very little of relevance to the competitive effects of the transaction, or because they are Page 1212 simply dumb. The net result is a mess. Categories have become conclusions, displacing the fact-specific economic analysis in which antitrust law is supposed to be engaging.
In Part III, we argue that there is a better way. We evaluate the costs and benefits of the judicial creation of categories, and contend that the complex of antitrust boxes the courts have created today does more harm than good. We don't mean to suggest there is no value to categories and that everything must be thrown into a pure cost-benefit analysis. Some rules (the per se rule against price fixing, for instance) make sense. Rather, the important thing is to make sure that the categories we use have empirical support, and that they are communicating valuable information to courts about the competitive effects of a general practice. We think the courts have gone too far in the creation of rules in a variety of cases. Finally, we suggest that courts make more use than they do of certain tools-the doctrine of direct economic effect and empirical evidence-as powerful filters for distinguishing good from bad antitrust claims.
Section 1 of the Sherman Act is notoriously vague. The statute provides, in relevant part, that "[e]very contract . . . in restraint of trade . . . is declared to be illegal."7 Read literally, the sweep of the language outlaws contracting entirely, as every contract restrains trade in some way.8 Resort to legislative history does little to inform our interpretation, as it demonstrates only that Congress intended the courts to translate section 1's overreaching wording into a workable legal doctrine. Naturally unwilling to interpret section 1 as broadly as written, the Supreme Court reasoned that section 1 condemns only unreasonable restraints of trade.9 The task for antitrust courts then became how to determine whether a particular agreement was, in fact, unreasonable.
Courts have approached this overarching reasonableness determination through a process of categorization. There are two primary forms of categorical analysis in antitrust jurisprudence. First, the Sherman Act itself distinguishes between unilateral and concerted conduct, treating the former under section 2 of the Sherman Act and the latter under section 1. Second, the Supreme Court categorized challenged restraints as being either subject to per se illegality or analyzed under the rule of reason. Beyond these two basic distinctions, courts characterize individual restraints along a series of Page 1213 categorical vectors, in large measure to determine which mode of analysis to apply.10
Federal courts have developed three modes of analysis for determining whether a particular agreement unreasonably restrains trade: the per se rule, the rule of reason, and an abbreviated rule of reason.
The per se rule provides the most direct mechanism for a plaintiff to establish that a challenged restraint of trade is unreasonable. The Supreme Court has explained that "there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue...
To continue reading
Request your trial