Present at antitrust's creation: consumer welfare in the Sherman Act's state statutory forerunners.

Author:Dameron, Charles S.
 
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NOTE CONTENTS INTRODUCTION I. STATE ANTITRUST LEGISLATION AND THE SHERMAN ACT, IN PARI MATERIA A. The Legislative Conversation Between the Senate and the States B. Federal-State Jurisdiction and the Sherman Act II. THE STATES' CONSUMER-WELFARE POLICY A. Prohibition of Restraints on Output and Prices B. Reference to Particular Commodities and Articles of Commerce C. Mens Rea Requirement III. APPLYING THE ORIGINAL CONSUMER-WELFARE POLICY A. Rejection of Dueling Efficiencies and Williamson's "Naive Tradeoff' B. Protecting Competition on Behalf of Consumers Alone C. Narrowing the Applicability of Per Se Rules Under Section 1 CONCLUSION INTRODUCTION

In an age of ever more complex congressional enactments, the Sherman Act stands out as an unusual piece of legislation. The 125-year-old core of American antitrust law remains powerful and ubiquitous: between 2012 and 2014, it gave rise to prosecutions generating $3.4 billion in criminal fines across a range of industries. (1) Yet it was drafted with semantic economy, rendering its meaning elusive. In just ninety-six words, section 1 of the Act prohibits all agreements "in restraint of trade or commerce among the several States." (2) Section 2 of the Act, in eighty-two words, imposes criminal penalties on "[e]very person who shall monopolize, or attempt to monopolize ... any part of the trade or commerce among the several States." (3) The law's Delphic language, together with Congress's infrequent modification of the federal antitrust regime, has led some to conclude that "[t]he Sherman Act set up a common law system in antitrust." (4)

Notwithstanding occasional invocations of the judiciary's "common law" authority over the Sherman Act, federal courts have, since the Act's earliest days, expended great energy attempting to divine the legislative purpose behind it. (5) If the Sherman Act were truly a blanket grant of common lawmaking authority to federal courts, they would hardly need to undertake such searching inquiries. The Supreme Court's and lower courts' close attention to the Sherman Act's language and legislative history indicates that they have sought to abide by their constitutional role as interpreters of federal statutes. (6)

It is therefore more precise to say that the judiciary enjoys an especially wide authority to fill statutory gaps when interpreting the Sherman Act due to the Act's ambiguous language, its constancy over time, and the fact--peculiar in light of many modern regulatory regimes--that Congress did not assign rulemaking authority to an administrative agency. These traits do not imply that federal courts may pursue whatever antitrust policy they find most desirable or wise; courts are obliged to follow the statute's contours to the extent that they can perceive those contours. (7)

The judiciary's evolving understanding of the Sherman Act has dramatically affected the scope of antitrust law in the United States. The Supreme Court first purported to strictly construe the Act's prohibition of "every contract ... in restraint of trade," noting that "no exception or limitation can be added without placing in the act that which has been omitted by Congress." (8) The Court later set aside the statute's plain meaning (9) and seized upon the statute's use of common-law language to derive a common-law "rule of reason" prohibiting only those agreements that "unreasonably" restrained trade. (10)

In the middle of the twentieth century, the dominant reading shifted. In the legislative history of the Sherman Act courts found a congressional intent to preserve competition for the benefit of other producers. In his famous Alcoa opinion, Judge Hand wrote that "Congress ... was not necessarily actuated by economic motives alone. It is possible, because of its indirect social or moral effect, to prefer a system of small producers, each dependent for his success upon his own skill and character." (11) He cited the Congressional Record for the proposition that the Sherman Act was designed "to put an end to great aggregations of capital because of the helplessness of the individual before them." (12) In cases like United States v. Von's Grocery Co., the Supreme Court invoked Congress's general fear of "concentration," and adopted the view that the purpose of the Sherman Act was "to prevent economic concentration in the American economy by keeping a large number of small competitors in business." (13)

Change came yet again in 1966. Robert Bork, then an antitrust professor at Yale, delved into the Senate debates over the Sherman Act and concluded that Congress's legislative intent in enacting the Sherman Act was to "maximiz[e] ... consumer welfare," without regard to the interests of competitors. (14) Within a decade, lower federal courts began signing on to this proposition. (15) In 1979 the Supreme Court unanimously concluded, "Congress designed the Sherman Act as a 'consumer welfare prescription.'" (16) The Court has since repeatedly affirmed that interpretation. (17)

Putting aside the modern judicial consensus, the statutory underpinnings of the consumer-welfare theory remain shaky. The text of the Sherman Act, of course, says nothing about "consumer welfare," (18) and there is a general sense within the legal academy that Bork reached his conclusions by cherry-picking from a complex and contradictory legislative history. (19) Subsequent studies of the Sherman Act's legislative history revealed other policies, including producer welfare, (20) protection of consumers and small suppliers, (21) and prevention of an accumulation of "excessive social and political power" in the hands of monopolists. (22) Barak Orbach summarizes a widespread view: "The legislative history of the Sherman Act has been studied thoroughly during the past century. There is broad agreement today, if not consensus, that the record does not support the historical claims that led to the adoption of the consumer welfare standard." (23) Reflecting

on the scholarly debate, one introductory antitrust casebook advises students, "[Y]ou ... may be tempted to try to ascertain the congressional intent underlying [the Sherman Act], No matter how much you research the history of the Act ... you are unlikely to find convincing answers." (24)

This Note proposes that convincing answers can be found outside the immediate legislative history of the Sherman Act, in a body of pre-Sherman Act state law. In particular, thirteen state antitrust statutes and five state constitutional antitrust provisions--adopted while Congress debated the Sherman Act between 1888 and 1890--shed light on the policy underlying the Sherman Act.

Consulting state legislation may seem like an odd way to derive the meaning of a federal statute as foundational as the Sherman Act. But, as Part I argues, it follows an old canon of statutory interpretation, in pari materia, which advises courts to read related statutes in harmony where the statutes are part of an "integrated scheme" of regulation. (25) Though the legislative history of the Sherman Act contains few sure answers, there is wide agreement that Congress intended the Act to work in concert with state antitrust law, providing a federal forum for targeting the anticompetitive combinations that were already illegal in the states. (26)

Part II explores the text of the state statutes and constitutional amendments and finds a clear pattern among them. Far more detailed than the Sherman Act, these statutes and constitutional amendments articulated the states' original consumer-welfare policy. This policy had three major features. First, it emphasized the principle of allocative efficiency. In other words, most state statutes prohibited only arrangements that had the effect of raising prices for consumers by restricting productive output. Second, this policy protected consumers not by reference to overall social output, but by reference to industrial output in discrete product markets. Third, it incorporated a mens rea requirement, making antitrust liability contingent on an actual intent to harm consumers through restrictions on output.

Part III brings the original consumer-welfare policy into the present day, briefly explaining how the approach embodied in the early state antitrust statutes would address some of the unresolved questions in modern antitrust law. It first explores how the original consumer-welfare policy differs from competing standards advanced by scholars, such as "total welfare" and "competition" standards. It then explains why the original consumer-welfare policy is consistent with the Supreme Court's present consumer-welfare approach, which has generally moved antitrust law away from per se liability standards and toward individualized assessments of consumer harm. The federal courts' current focus on consumer welfare should be understood not as a modern contrivance, but as a faithful application of the Sherman Act as it was written.

  1. STATE ANTITRUST LEGISLATION AND THE SHERMAN ACT, IN PARI MATERIA

    A long-established principle of statutory construction holds that "if divers[e] statutes relate to the same thing, they ought all to be taken into consideration in construing any one of them, and it is an established rule of law, that all acts in pari materia are to be taken together, as if they were one law." (27) Although "the rule's application certainly makes the most sense when the statutes were enacted by the same legislative body at the same time," (28) the Supreme Court and other federal and state courts have treated related federal and state statutes in pari materia where it is clear that one statute is intended to work in concert with the provisions of another. (29)

    Statutes that work in pari materia might not say so on their face, and courts--including those favoring textualist interpretive approaches--make use of legislative history to determine whether one statute is intended to incorporate the provisions of another. (30) As Caleb Nelson...

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