Monopolization by Regulated “Monopolies”: The Search for Substantive Standards

• DOI: 10.1177/0003603X7702200304
• Author: Thomas W. Brunner,Keith S. Watson
• Date: 01 September 1977
• Published date: 01 September 1977
• Subject Matter: Article

MONOPOLIZATION

BY

REGULATED

"MONOPOLIES":

THE

SEARCH

FOR

SUBSTANTIVE

STANDARDS

by

KEITH

s.

WATSON·

and

THOMAS

W.

BRUNNER·

Until recently, regulated industries, such as electric

power,

natural

gas, and telephone and telegraph utilities

operated in an

antitrust

"no man's" land. These industries

were never expressly exempted from the

antitrust

laws by

statute

or judicial decree. At the same time, they were typi-

cally marked by monopoly

structure;

that

circumstance ere-

ated the need for regulation and was often both inherent in

each industry's economic characteristics and encouraged or

even mandated by regulatory authorities.

Their

monopoly

status

appeared to leave little room

for

the application of

traditional

antitrust

principles to those industries. Although

their situation was complicated by intermodal competition,

many transportation common carriers seemed similarly situ-

ated.

Consequently, until recent years, few significant

antitrust

cases involved regulated monopolies and, of those

that

did,

most were resolved on threshold grounds unrelated to sub-

stantive

antitrust

principles. The

last

decade has witnessed

a

startling

change in this situation. Regulated industries

(and

their

regulators) have come under increasing

attack

from many

quarters

and

on several grounds. Political

leaders,'

antitrust

enforcement officials"

and

academic ob-

servers" have argued

that

greater

competition should be in.

fused into these industries

..

Antitrust

litigation involving

such industries has become commonplace. Courts have in.

• Wald,

Harkrader

&Ross, Washington, D.C.

AUTHORS'

NOTE:

In

order to preclude

any

appearance of undis-

closed bias, the authors note

that

they have appeared as counsel

to public utilities in

antitrust

proceedings, including Application of

Consumers Power Company, Nuclear Regulatory Commission Docket

Nos. 50-329A, 50-330A. See note 31, infra.

559

560

THE

ANTITRUST

BULLETIN

creasingly admonished regulatory agencies to consider anti-

trust-related issues and have displayed a growing willing-

ness to subject regulated industries to judicial antitrust

scrutiny.'

A common allegation in recent antitrust proceedings in-

volving regulated industries is

that

apredominant

:firm

has

"monopolized" a relevant market in violation of Section 2

of the Sherman AcU Such a charge is contained,

for

example,

in the government's complaint in United States v. American

Telephone and Telegraph Co.8At :first blush, such a charge

appears anomalous: if it is illegal for a regulated

:firm

to

be a "monopoly," nearly every privately owned public utility

and many common carriers would be subject to prosecution

under Section 2 of the Sherman Act.

To date, courts and administrative agencies have usually

resolved cases in which such allegations are made on threshold

issues of

antitrust

immunity or primary jurisdiction and

therefore have seldom squarely confronted the merits of

this seeming anomaly. However, as antitrust activity in this

area expands and the traditional barriers to antitrust attack

continue to fall, judicial and administrative tribunals will

increasingly face monopolization claims requiring resolution

on the merits.

Application of antitrust monopolization proscriptions to

regulated industries may well serve the public interest by

closing regulatory gaps or by supplementing the regulatory

scheme in question. However, the dogmatic transposition of

monopolization concepts from conventional market settings

to regulated industries will produce legal results which are,

almost invariably, unfair to the accused firm and contrary

to both common sense and the public interest. Antitrust en-

forcement is not asubstitute

for

better administrative regu-

lation.

If

antitrust

scrutiny of regulated industries is to be

more than acounterproductive attack on the perceived defl-

ciencies of current regulation or regulators, acareful exami-

nation must be made of the

antitrust

laws' proper application

in this distinctive context. As this article reviews,

that

proc-

REGULATED MONOPOLIES

561

ess necessarily entails reevaluation of antitrust standards

applicable to the unregulated marketplace.

I.

ERODING

BARRIERS:

ANTITRUST

IMMUNITY

AND

PRIMARY

JURISDICTION

When a regulated monopoly is charged with an antitrust

violation, the threshold question ordinarily presented is

whether the regulatory scheme to which the accused

party

is subject precludes or limits the antitrust attack. Recent

Supreme Court decisions concerning both federal and state

regulatory schemes suggest that few regulated industries now

enjoy broad antitrust immunity as a result of regulation.

In

the federal context, the Supreme Court has frequently

held

that

it

disfavors claims of antitrust immunity ''by im-

plication." 7This principle has been recently applied in

Otter Tail Power Co. v. United States,S and Gordon v. New

York Stock Exchange

Inc:

In Otter Tail, the Court found the

Federal Power Commission's regulatory authority over elec-

tric utilities insufficient to preclude antitrust scrutiny of the

defendant utility, while in Gordon the Court held

that

a spe-

cific

conflict between the relevant regulatory scheme and the

otherwise applicable antitrust principle

barred

antitrust at-

tack.

If

these decisions can be reconciled, they teach

that

the mere fact of regulation is not enough. Thus, a particu-

larized showing must be made which demonstrates

that

there

is a significant inconsistency between a congressional purpose

in adopting the regulatory structure and application of the

antitrust laws."

In

most instances,

that

showing will be diffi-

cult to make.

Where the regulatory scheme has been imposed by a state,

the

"state

action" immunity doctrine of Parker v. Brown,u

had long been expansively read by lower courts to immunize

certain conduct of regulated industries." However,

theSu-

preme Court failed for three decades

to

refine the generalized

concepts of Parker v, Brown, and,

in

the

last

two years, the

Court has drastically narrowed the prevailing lower court

interpretations of the

"state

action" immunity doctrine. Thus,