Donald Turner, Vertical Restraints, and the Inhospitality Tradition of Antitrust

• Author: Mark J. Niefer
• Position: Deputy Chief Legal Advisor?Civil, Antitrust Division, U.S. Department of Justice
• Pages: 389-433

DONALD TURNER, VERTICAL RESTRAINTS, AND

THE INHOSPITALITY TRADITION OF ANTITRUST

M

ARK

J. N

IEFER

*

It began with a public conversation between two friends and scholars.

Speaking before the New York City Bar Association in 1965, Professor

Milton Handler mused aloud about the appropriate treatment of vertical re-

straints under the antitrust laws. Several recent cases suggested some uncer-

tainty about whether courts and agencies would treat territorial restraints

imposed by a manufacturer on distributors under a rule of reason or a rule of

per se illegality. Handler’s friend, Donald Turner, had recently left Harvard

Law School to become head of the Department of Justice Antitrust Division,

and there was great interest in his views on territorial restraints. Handler’s

view was that the new Assistant Attorney General could take one of two ap-

proaches: He could treat the restraints “hospitably in the common law tradi-

tion,” or he could impose so many conditions on their use “as to render them

unavailable save in the most limited circumstances.”

1

Assistant Attorney General Turner responded to Handler a few months later

in a 1966 speech before the New York State Bar Association: “I have a quick

answer to his immediate question. I approach territorial and customer restric-

tions not hospitably in the common law tradition, but inhospitably in the tradi-

* Deputy Chief Legal Advisor–Civil, Antitrust Division, U.S. Department of Justice. I am

grateful to Marc Winerman, Elizabeth Popp Berman, and three anonymous reviewers for helpful

comments. I also would like to thank staffs at the LBJ Presidential Library and the JFK Presiden-

tial Library for their help in my review of the papers of Donald Turner and William Orrick,

respectively. Archivist Allen Fisher was of great help in my review of Turner’s papers at the LBJ

Library. The views expressed do not purport to represent those of the Department of Justice. Any

errors are mine alone.

1

Milton Handler, Eighteenth Annual Review of Antitrust Developments, 20 R

EC

. A

SS

’

N

B.

C

ITY

N.Y. 540, 565 (1965).

389

82 Antitrust Law Journal No. 2 (2019). Copyright 2019 American Bar Association. Reproduced

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Association.

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[Vol. 82

tion of antitrust law.”

2

Thus, the “inhospitality tradition” of antitrust was

born.

3

Turner’s clever turn of phrase now is a part of antitrust lore. The central

thrust of his speech, however, has been lost to history. This is unfortunate

because the term “inhospitality tradition” does little justice to Turner’s views

on vertical restraints, as he protested in his speech. After stating that he ap-

proached restraints on distribution “inhospitably,” Turner continued: “But like

all quick answers, that doesn’t tell you very much, and I shall try to tell you

more by reflecting on some basic antitrust issues that these restrictions con-

front us with.”

4

The rest of his speech shows Turner at his best. He recognized efficiency

justifications for restraints on distribution, leading him to conclude that it was

appropriate to analyze them under a rule of reason. However, a “loose” rule of

reason would not do.

5

Turner believed that one could shortcut a full rule of

reason by asking whether a less restrictive alternative existed that allowed

realization of the efficiencies associated with a restraint. If so, he would deem

the restraint illegal. After suggesting that such an analysis could be a useful

shortcut for assessing restraints on distribution, he went on to argue that one

could apply the analysis fruitfully to other business practices, including tying

and joint ventures.

6

For Turner, the use of a less restrictive alternatives analy-

sis to reduce the burdens of a rule-of-reason analysis was “applying the ‘rule

of reason’ in its finest and most accurate sense, namely in the development of

what Kingman Brewster so happily phrased as ‘reasonable rules.’”

7

Turner’s willingness to consider possible efficiencies arising from non-

price vertical restraints suggests he approached them reasonably, not inhospi-

tably. Unfortunately, commentators sometimes have used the term “inhospi-

tality tradition” so indiscriminately that they improperly taint Turner by

association. Some critics have used the term narrowly to refer to an unduly

hostile approach in the 1960s and 1970s to restraints on distribution; others

have used it to refer to an undue hostility toward contractual restraints; and

2

Donald F. Turner, Some Reflections on Antitrust, 1966 N.Y. S

T

. B. A

SS

’

N

A

NTITRUST

L.

S

YMP

. 1, 1–2 (1966) [hereinafter Turner, Reflections].

3

Stanley Robinson further publicized the “inhospitality tradition” when he repeated Turner’s

statement while introducing a panel discussion in 1968 concerning vertical non-price restraints.

Stanley Robinson, Orderly Marketing, Franchising and Trademark Licensing: Have They Been

Routed by Schwinn and Sealy?, 1968 N.Y. S

T

. B. A

SS

’

N

A

NTITRUST

L. S

YMP

. 27, 29 (1968)

[hereinafter Robinson, Orderly Marketing].

4

Turner, Reflections, supra note 2, at 2.

5

Id. at 3.

6

As an academic, Turner had advocated the use of less restrictive alternative analysis to help

identify classes of ties deserving of per se treatment. See Donald F. Turner, The Validity of Tying

Arrangements Under the Antitrust Laws, 72 H

ARV

. L. R

EV

. 50, 62 (1958).

7

Turner, Reflections, supra note 2, at 9.

2019]

D

ONALD

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URNER AND

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ESTRAINTS

391

yet others have used it more broadly to refer to courts and policy makers that

were unduly hostile to efficient business practices they did not understand.

8

At

times, critics have associated a broad reading with Turner and his views, leav-

ing one with the impression that Turner was an unsophisticated antitrust ana-

lyst who was hostile toward efficiency-enhancing business practices,

especially non-price vertical restraints.

9

In fact, Turner took a sophisticated

approach to vertical restraints—and antitrust more generally—throughout his

career as an academic, policymaker, and advocate.

In this article I reconsider Turner’s approach to antitrust law and policy

through the lens of three cases that defined the Supreme Court’s evolving

approach to non-price vertical restraints on distribution: White Motor,

10

8

See, e.g., D. Daniel Sokol, The Transformation of Vertical Restraints: Per Se Illegality, the

Rule of Reason, and Per Se Legality, 79 A

NTITRUST

L.J. 1003, 1006 (2014) (“Antitrust jurispru-

dence and economic analysis in the 1950s and 1960s was hostile to procompetitive interpreta-

tions of vertical restraints. Starting with Donald Turner, some have called this antitrust’s

‘inhospitality tradition.’”); Oliver E. Williamson, Economics and Antitrust Enforcement: Transi-

tion Years, A

NTITRUST

, Spring 2003, at 61, 64 (arguing that the government’s position in United

States v. Arnold, Schwinn & Co. reflected misconceptions about economics leading it to view

customer and territorial restraints “‘not hospitably, in the common law tradition, but inhospitably

in the tradition of antitrust’”); Alan J. Meese, Price Theory, Competition, and the Rule of Rea-

son, 2003 U. I

LL

. L. R

EV

. 77, 124 (2003) (arguing that the inhospitality tradition of antitrust

“manifested itself in the form of extreme hostility toward any contractual restraint on the free-

dom of individuals or firms to engage in head-to-head rivalry”); Frank H. Easterbrook, The

Limits of Antitrust, 63 T

EX

. L. R

EV

. 1, 4 (1984) (“Donald Turner once described the ‘inhospital-

ity tradition of antitrust.’ The tradition is that judges view each business practice with suspicion,

always wondering how firms are using it to harm consumers.”); Richard Schmalensee, Thoughts

on the Chicago Legacy in U.S. Antitrust, in H

OW THE

C

HICAGO

S

CHOOL

O

VERSHOT THE

M

ARK

:

T

HE

E

FFECT OF

C

ONSERVATIVE

E

CONOMIC

A

NALYSIS ON

U.S. A

NTITRUST

11, 18 (Robert Pitof-

sky ed., 2008) (arguing that the inhospitality tradition, which applied to non-standard or unfamil-

iar contracting practices, not just territorial and customer restrictions, was “destroyed . . . in

academic circles” by the Chicago School (citation omitted); Daniel A. Crane, A Neo-Chicago

Perspective on Antitrust Institutions, 78 A

NTITRUST

L.J. 43, 47 (2012) (“Oliver Williamson once

referred to an antitrust ‘inhospitability tradition,’ roughly coincident with the Warren Court,

which ‘attributed anticompetitive purpose and effect to novel or nontraditional modes of eco-

nomic organization.’”); Joshua D. Wright & Douglas H. Ginsburg, The Goals of Antitrust: Wel-

fare Trumps Choice, 81 F

ORDHAM

L. R

EV

. 2405, 2423 (2013) (criticizing consumer choice

standard for antitrust as “a revival of the long ago repudiated inhospitality tradition in antitrust”).

9

See, e.g., Barak D. Richman, The Antitrust of Reputation Mechanisms: Institutional Eco-

nomics and Concerted Refusals to Deal, 95 V

A

. L. R

EV

. 325, 359–60 (2009). Richman argues

that Turner was an adherent of “Joe Bain’s structure-conduct-performance approach to industrial

organization, which suggested that vertical restraints were evidence of market power.” Id. at 359.

Richman believes the inhospitality tradition “reached its zenith” under Turner, “culminat[ing] in

the Department of Justice’s 1968 merger guidelines, which forbade mergers between parties with

nominal market power.” Id. at 359–60.

10

White Motor Co. v. United States, 372 U.S. 253 (1963).