ANTICOMPETITIVE OR HYPERCOMPETITIVE: AN APPLICATION OF FOREIGN AND DOMESTIC ANTITRUST POLICY TO THE RULING IN FTC V. QUALCOMM.

• Author: Lawton, William

1. Introduction

   The idea that every American will have the opportunity to achieve their socioeconomic dreams is deeply rooted within our nation's history. (1) Shortly after the American Revolution, a wave of innovation sparked America's Industrial Revolution. (2) The Industrial Revolution led to many entrepreneurs amassing wealth through the creation of new industries. (3) This consolidation of wealth led to a fear amongst Americans that these powerful groups could start to form oligarchies. (4)

   In response to this combination of fear and larger corporations' questionable business practices in the late 1800's, Congress passed the Sherman Antitrust Act of 1890 ("Sherman Act"). (5) In addition to the Sherman Act, the Clayton Antitrust Act of 1914 ("Clayton Act") also aimed to curb specific types of unfair business practices and limit the power of large corporations within particular economic markets. (6) Additionally, Congress enacted the FTC act of 1914, which ultimately created the Federal Trade Commission ("FTC") to enforce the Sherman Act and Clayton Act. (7) Since enacting the Sherman and Clayton Acts, as well as the FTC as an enforcement agency, the government has prosecuted oppressive monopolistic behavior with varying success. (8)

   In light of litigation trends within the United States ("U.S."), American courts are more likely to side with corporations and trusts, while courts in other nations are more likely to side with consumers and competitors. As this trend continues, domestic courts should adjust their statutory analysis to correspond with the foundational concepts of early American antitrust litigation, and those ideals of modern foreign antitrust litigation, to better serve American consumers. A discussion of the policy rationales and legislative intent behind the Sherman and Clayton Acts affirms Congress's intent to curb behavior that place restraints on trade or have the potential to become monopolistic. (9) Furthermore, foreign antitrust trends highlight that foreign courts are much more likely to deem restraints on trade as anticompetitive behavior, even when there is no direct impact on consumers. (10) As massive companies like Qualcomm, Apple,

   Facebook, and Google continue to develop a larger share of their respective markets, the U.S. must employ effective antitrust policy techniques to stop these companies from placing illegal restraints on trade that harm the competitive equilibrium of the economy. Early antitrust litigation and foreign antitrust policy make clear that Qualcomm's business practices should be viewed as monopolistic behavior because they place restraints on trade in violation of the Sherman Act. (11)

2. History

   1. The Founding of America & Early Economic Systems

      The original settlers of the U.S. came from England in the early 1600's for two reasons: entrepreneurial opportunity and escaping religious persecution. (12) Early settlers attempted to mirror the feudal system of England, however, by the 1800's, the American North and the American South had developed their own distinct economic systems. (13) These distinct economic systems, divided by issues relating to slavery and state rights, led to the Civil War between the North and South. (14) The North went on to overpower and defeat the South, thereby emancipating all slaves and setting the stage for a new economic agenda. (15) As a result of the war, members of the Union grew wealthy and strengthened the North's economic foundation, while the Southern economy crippled. (16) Following the War, industrialization and production began to increase in the North, which allowed affluent entrepreneurs to garner significant economic influence within particular markets. (17)

   2. The Formation of Capitalism and Large Corporations

      Capitalism is an economic system where the means of production are controlled by private individuals or corporations. (18) Following the North's lead, progressive Southerners began industrializing the South in an attempt to rebuild the economy. (19) The Industrial Revolution in the North and South led to the creation of large corporations, comprised of small groups of individuals holding much of the wealth, with capitalism serving as a foundational pillar of American economics in the post-Civil War era. (20) Notably, James Duke and John D. Rockefeller were entrepreneurs who fortuitously employed capitalist ideologies to create large corporations during the late 1800's. (21) Shortly thereafter, other large corporations, such as J.P. Morgan's U.S. Steel Corporation ("U.S. Steel"), began to form by utilizing capitalist ideologies as a foundational business model. (22)

   3. The Sherman Act & Early Supreme Court Antitrust Litigation

      As corporations like U.S. Steel, Standard Oil, and American Tobacco grew larger and larger, public outcry erupted as a result of the prices of goods set by these companies. (23) In response to the techniques used by these companies to set high prices for their goods, which were viewed by many as restraints on trade, Congress passed the Sherman Act of 1890. (24) The Sherman Act was the first piece of legislation passed by the U.S. Congress which aimed to reduce contracts, combinations, or agreements on restraint of trade, as well as the monopolization or attempted monopolization of a trade or service. (25) Following the enactment of the Sherman Act, there was a serious disagreement between members of Congress about the meaning of the term "restraint on trade." (26) One rhetorical camp, taking a literalist approach, interpreted the Act's language to prohibit all restraints of trade, while the other, following the common law approach of the term "restraints on trade," argued that the language should only be applied to unreasonable restraints of trade. (27)

      Northern Securities Corp. v. U.S was one of the first cases where the Supreme Court interpreted and applied the Sherman Act. (28) Northern Securities Corporation was a holding company that possessed over ninety percent of Northern Pacific Railroad Company's stock, in addition to seventy-five percent of Great Northern Railroad Company's stock. (29) The two railroad tracks, one beginning from the Great Lakes, and the other from the Mississippi River, ran parallel to one another all the way to the Pacific Ocean. (30) The government brought suit alleging that Northern Securities Corporation violated [section] 1 of the Sherman Act because it combined two railroad companies' stock into a single holding company and restrained trade. (31) The Supreme Court affirmed the circuit court's decree which broke down the holding company. (32) This type of trade restraint was the very thing that the Sherman Act aimed to prevent. (33) The Supreme Court further stated that the Sherman Act was aimed at "all direct restraints" of trade imposed by contracts and combinations, not just those that were unreasonable in their nature. (34)

      In the 1800's, cigarette manufacturing became a more effective industry largely due to the overwhelming influence from large corporations entering into agreements with competitors to obtain market control. (35) Cigarette production was centered in New York where inefficient operations hampered the output of the product. (36) As time passed, machines began to replace inefficient humans in cigarette manufacturing which allowed for greater levels of production at lower costs. (37) In 1907, the U.S. brought an action against The American Tobacco Company for continued violations of the Sherman Act because it controlled five subsidiary companies, and over fifty-nine accessory companies, all involved in the tobacco industry. (38) The Supreme Court reasoned that the American Tobacco Company was in violation of [section][section] 1-2 of the Sherman Act because its agreements with subsidiary and accessory companies created a market with no competition. (39) American Tobacco's contracts and combinations restrained trade in violation of [section] 1 and created a company so large based on its contracts and stock options with subsidiary and accessory companies that it created a monopoly in violation of [section] 2. (40) The Court granted a permanent injunction that would break down the infrastructure of the American Tobacco Company, therefore eliminating the monopoly. (41)

      Another landmark Supreme Court decision came in Standard Oil Co. of New Jersey v. U.S.. (42) The government filed an action against Standard Oil claiming that its use of trusts and combinations in the petroleum industry were a direct violation of [section][section] 1-2 of the Sherman Act. (43) The Supreme Court reasoned that Standard Oil's combinations of petroleum businesses into massive trusts and holding companies were restraints on trade within the petroleum market in violation of [section] 1 and created a monopoly in violation of [section] 2. (44) Between 1870 and 1882, defendants that were associated with Standard Oil Company purchased significant amounts of stock and entered into various agreements with other companies engaged in purchasing and transporting oil throughout the U.S. (45) By 1882, close to ninety percent of the petroleum industry, from manufacturing to delivery, was put into a trust and controlled by the defendants. (46) The Supreme Court affirmed the ruling of the trial court by highlighting that Standard Oil placed a restraint on trade and was a monopoly in violation of the Sherman Act. (47) The Supreme Court reasoned that, based on the sheer size of Standard Oil, and their power within the market, Standard Oil restrained trade and constituted a monopoly. (48) However, in their decision, the Supreme Court modified the interpretation of the Sherman Act to include only contracts and combinations that placed undue restraints on trade in violation of the Sherman Act. (49)

      In response to the ambiguous language of the Sherman Act, Congress enacted both the Clayton Act and Federal Trade Commission Act ("FTCA"), as part of a two-prong antitrust bill...