Rule of Reason

• Author: Leonard W. Levy
• Pages: 2298-2299

Page 2298

The rule of reason was a statutory construction of the SHERMAN ANTITRUST ACT by the Supreme Court. Nothing better illustrated JUDICIAL POLICYMAKING than the rule of reason, which held that the Sherman Act excepted from its scope "good trusts" or "reasonable restraints of trade." The statute expressly declared illegal "every" contract, combination, and conspiracy in restraint of trade, and as a result the Court in several early cases rejected the argument that "every" did not mean what it said. The Court also denied that the statute should be construed in the light of the COMMON LAW, which had recognized the legality of certain ancillary restraints of trade on the ground that they were reasonable. For example, in UNITED STATES V. TRANSMISSOURI FREIGHT ASSOCIATION (1897) the Court rejected the proposition that "Congress, notwithstanding the language of the [Sherman] act, could not have intended to embrace all contracts, but only such contracts as were in unreasonable restraint of trade." Said Justice RUFUS PECKHAM for the Court: "[w]e are, therefore, asked to hold that the act of Congress excepts contracts which are not in unreasonable restraint of trade." To read that rule of reason into the statute, Peckham answered, would be an exercise of JUDICIAL LEGISLATION.

That remained the Court's view until 1911, when it ignored its PRECEDENTS, the text of the statute, and the views of the Senate and the President. In 1909 the Senate had rejected a bill that proposed to amend the Sherman Act by incorporating the rule of reason. "To amend the antitrust act, as suggested by this bill," declared a subcommittee of the Senate Judiciary Committee, "would be to entirely emasculate it, and for all practical purposes render it nugatory as a remedial statute." In 1910 President WILLIAM HOWARD TAFT in a message to Congress had argued that no need existed to amend the scope of the Sherman Act. Yet in 1911, in two major antitrust cases, UNITED STATES V. STANDARD OIL COMPANY OF NEW JERSEY and United States v. American Tobacco Co., Chief Justice EDWARD D. WHITE, who had dissented from earlier opinions repudiating the rule of reason, explicitly adopted it for an 8?1 Court. The sole dissenter, Justice JOHN MARSHALL HARLAN, echoing the Trans-Missouri Freight case, assaulted "judicial legislation"?the usurpation by the Court of a congressional function. The Sherman Act, Harlan insisted, included "every" restraint of trade, even a...