Learned hand, alcoa, and the reluctant application of the sherman act

• Author: Marc Winerman and William E. Kovacic
• Position: Respectively, Member of the New York Bar, and Global Competition Professor of Law and Policy, George Washington University Law School
• Pages: 295-347

LEARNED HAND, ALCOA, AND THE RELUCTANT

APPLICATION OF THE SHERMAN ACT

M

ARC

W

INERMAN

W

ILLIAM

E. K

OVACIC

*

I do not agree by any means that the Sherman Act is of value or that the

Progressive Party should take its position against monopoly. That depends

upon questions of fact which I’m in no position to judge. I have always sus-

pected that there are monopolies possible which depend for their maintenance

wholly upon economic efficiency, and which it would be an economic blunder

to destroy. Whether the great trusts of this country are such or not is quite

beyond my information or ability at the present time. I have never believed in

trust-busting, and I think that the winter’s work of George Rublee is going to

show considerable effect in that respect. The trust-busting definition is at pre-

sent pretty groggy, and the main movement is for a trade commission. Such a

commission would inevitably tend to the licensing of monopoly, either in

whole or part, as the case may be.

—Learned Hand, letter to Amos R.E. Pinchot (May 29, 1914)

1

In conclusion, I want to say a word about the situation viewed, so to speak, as

a whole. Alcoa has had undisputed control of the ingot market from the start;

it has kept it deliberately and indeed in the face of some efforts to break in. If

we hold that it is not a monopoly, deliberately planned and maintained, every-

* Respectively, Member of the New York Bar, and Global Competition Professor of Law and

Policy, George Washington University Law School. Winerman researched a portion of this arti-

cle while he was the Victor H. Kramer Fellow at the University of Chicago Law School. The

authors received helpful comments from James May, Andrew Winerman, and Rajesh James and

other editors of the Antitrust Law Journal.

1

Letter from Learned Hand to Amos R.E. Pinchot (May 29, 1914), in R

EASON AND

I

MAGINA-

TION

: T

HE

S

ELECTED

C

ORRESPONDENCE OF

L

EARNED

H

AND

: 1897–1961, at 48, 48 (Constance

Jordan ed., 2013) [hereinafter S

ELECTED

C

ORRESPONDENCE

]. Hand wrote this letter as Congress

debated the bills that would become the Clayton Act and the Federal Trade Commission Act.

“The trust-busting definition” appears to have been a reference to the former. Hand’s friend

George Rublee was an important advocate for the latter, and played a key role in adding a

provision to the pending legislation to give the FTC adjudicative as well as investigative powers.

See Marc Winerman, The Origins of the FTC: Concentration, Cooperation, Control, and Com-

petition, 71 A

NTITRUST

L.J. 1, 51–68 (2003) [hereinafter Winerman, Origins].

295

296

A

NTITRUST

L

AW

J

OURNAL

[Vol. 79

one who does not get entangled in the legal niceties, and in the incredible

nonsense that has emanated from the Supreme Court, will, quite rightly I

think, write us down as asses. Wherever the line of size should be drawn, it

must include such a company as this, if the Act is to be fully enforced. I

despise this whole method of dealing with a very real and very serious prob-

lem in our industrial life; but this is the way we have chosen, and we ought

not to wince, because of the vagueness of the outlines, when we are faced with

so clear an instance.

—Learned Hand, undated pre-conference memo,

United States v. Aluminum Co. of America (Alcoa)

2

There are two possible ways of dealing with [monopolies]: to regulate, or to

forbid, them. Since we have no way of regulating them, we forbid them. I

don’t think much of that way, but I didn’t set it up; and now the ordinary run

of our fellow-citizens—some, even of the “rugged individualists”—regard the

Sherman Act as the palladium of their liberties.

—Learned Hand, pre-conference memo,Alcoa (Feb. 2, 1945)

3

United States v. Aluminum Co. of America (Alcoa)

4

is antitrust’s closest

equivalent to an epic poem. Though issued nearly 70 years ago, Judge

Learned Hand’s elegantly written opinion still permeates the vocabulary of

antitrust law.

5

It continues to figure prominently in debates about the ends and

means of competition policy,

6

and its symbolic significance extends beyond

2

Pre-Conference Memorandum from Judge Learned Hand to Judges Augustus N. Hand and

Thomas W. Swan at 13–14, United States v. Aluminum Co. of Am. (Alcoa), 148 F.2d 416 (2d

Cir. 1945) (No. 144) (n.d.) [hereinafter Learned Hand Memo 1] (on file in Learned Hand Papers,

Harvard Law School Library, Box 207, Folder 17 [hereinafter Hand Papers]).

3

Pre-Conference Memorandum from Judge Learned Hand to Judges Augustus N. Hand and

Thomas W. Swan, Second Memo on the Question of Monopoly at 8, Alcoa, 148 F.2d 416 (No.

144) (Feb. 2, 1945) [hereinafter Learned Hand Memo 2] (on file in Hand Papers, supra note 2,

Box 207, Folder 17).

4

148 F.2d 416 (2d Cir. 1945).

5

For example, the decision’s portrayal of the dangers of monopoly power and the ill effects

of attacking it too aggressively are well known to most antitrust specialists. On the hazards of

monopoly, the opinion famously observed: “Many people believe that possession of unchal-

lenged economic power deadens initiative, discourages thrift and depresses energy; that immu-

nity 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.”

Id. at 427. On the dangers of punishing firms that gained preeminence through superior perform-

ance, Hand wrote: “A single producer may be the survivor out of a group of active competitors,

merely by virtue of his superior skill, foresight and industry. . . . The successful competitor,

having been urged to compete, must not be turned upon when he wins.” Id. at 430.

6

See, e.g., Jeffrey L. Harrison, An Instrumental Theory of Market Power and Antitrust Pol-

icy, 59 SMU L. R

EV

. 1673, 1686–89 (2006); Louis Kaplow, Market Share Thresholds: On the

Conflation of Empirical Assessments and Legal Policy Judgments, 7 J. C

OMPETITION

L. & E

CON

.

243, 243–44 (2011); Alan J. Meese, Debunking the Purchaser Welfare Account of Section 2 of

the Sherman Act: How Harvard Brought Us a Total Welfare Standard, and Why We Should Keep

It, 85 N.Y.U. L. R

EV

. 659, 686–708 (2010); Richard Schmalensee, Thoughts on the Chicago

2013]

L

EARNED

H

AND AND

A

LCOA

297

the specific holdings in the case.

7

No decision teaches more about the U.S.

antitrust experience.

8

Legacy in U.S. Antitrust,in H

OW THE

C

HICAGO

S

CHOOL

O

VERSHOT THE

M

ARK

11, 17 (Robert

Pitofsky ed., 2008).

7

One indication of Alcoa’s symbolic significance (and its power to provoke debate) appears

in the papers of Justice Harry Blackmun concerning the Supreme Court’s deliberations in East-

man Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992). Justice Anthony Ken-

nedy provided the crucial fifth vote for the formation of what became the Court majority. (When

Justice Kennedy revealed his intentions, Chief Justice William Rehnquist joined the majority to

provide the 6-3 margin in the case.) Justice Kennedy informed Justice Blackmun of his position

in a memorandum dated February 26, 1992: “I would be pleased to join your opinion, if you

could accommodate one request.” Memorandum from Justice Anthony M. Kennedy to Justice

Harry A. Blackmun, Kodak, 504 U.S. 451 (No. 90-1029) (Feb. 26, 1992) (on file in the Harry

Blackmun papers in the Library of Congress, Box 588, Folder 4 [hereinafter Blackmun Papers]).

Kennedy explained that he questioned the draft opinion’s citation of Alcoa for what Kennedy

believed to be an unduly expansive statement of Section 2’s limits on dominant firm conduct.

Kennedy observed: “While the language that you quote was indeed used by the Court in earlier

days, I think that more recent cases have imposed a somewhat less stringent requirement on

defendants.” Id. Kennedy requested changes to the text and its accompanying citations. He con-

cluded: “The two references to the ALCOA case could be deleted.” Id. In a memo dated Febru-

ary 27, 1992, Blackmun replied favorably: “Dear Tony: Thank you for your letter of February

26. I shall be pleased to accommodate your request and have done so in the third draft circulated

today. I think this will meet your concerns. Sincerely, Harry.” Memorandum from Justice Harry

A. Blackmun to Justice Anthony M. Kennedy, Kodak, 504 U.S. 451 (No. 90-1029) (Feb. 27,

1992) (on file in Blackmun Papers, supra, Box 588, Folder 4). On the same day, upon reading

Blackmun’s February 27 note to Kennedy, Justice John Paul Stevens informed Blackmun of his

displeasure with Alcoa’s disappearance from the decision: “While I agree with Tony’s suggested

changes in the text of your opinion . . . I do not understand why it is either necessary or appropri-

ate to eliminate the citations to the ALCOA case. That is a classic opinion by a great judge who in

the peculiar circumstances of that case was writing an opinion for the court of last resort. . . .

Although I obviously will not withdraw my join simply because you omit a citation of a case, I

think it would be most unfortunate to ignore it completely in this opinion.” Memorandum from

Justice John Paul Stevens to Justice Harry A. Blackmun, Kodak, 504 U.S. 451 (No. 90-1029)

(Feb. 27, 1992) (on file in Blackmun Papers, supra, Box 588, Folder 4). Later that day, after

reading the Stevens note to Blackmun, Kennedy clarified his own request to Blackmun: “In

response to John’s note, I have no objection if you would like to retain a citation to the ALCOA

case. It was only the quoted language which I found troublesome.” Memorandum from Justice

Anthony M. Kennedy to Justice Harry A. Blackmun, Kodak, 504 U.S. 451 (No. 90-1029) (Feb.

27, 1992) (on file in Blackmun Papers, supra, Box 588, Folder 4). Blackmun then resolved the

disagreement by toning down the text, but retaining (after initially removing) two citations to

Alcoa. Draft Decision (third) at 27–28, Kodak (Feb. 27, 1992) (on file in Blackmun papers,

supra, Box 588, Folder 2) (modifying language and dropping Alcoa cite); Draft Decision (fourth)

at 27–28, Kodak (Feb. 27, 1992) (on file in Blackmun Papers, supra, Box 588, Folder 3) (restor-

ing Alcoa cite).

8

See Spencer Weber Waller, The Story of Alcoa: The Enduring Questions of Market Power,

Conduct and Remedy in Monopolization Cases,in A

NTITRUST

S

TORIES

121 (Eleanor M. Fox &

Daniel A. Crane eds., 2007). As Meese observes, “It would be difficult, if not impossible, to

examine the development of monopolization law without discussing Learned Hand’s famous

Alcoa decision.” Meese, supra note 6, at 686; see also Robert A. Skitol, The Shifting Sands of

Antitrust Policy: Where It Has Been, Where It Is Now, Where It Will Be in Its Third Century, 9

C

ORNELL

J.L. & P

UB

. P

OL

’

Y

237, 243 (1999) (“Hand’s opinion resonates with provocative albeit

contradictory ramifications for antitrust policy to this day.”).