The Antitrust Constitution

• Author: Thomas B. Nachbar
• Position: Professor of Law, University of Virginia School of Law
• Pages: 57-114

The Antitrust Constitution

Thomas B. Nachbar∗

ABSTRACT: Antitrust is today viewed almost exclusively in strictly economic

terms. Under the nearly ubiquitous “rule of reason,” conduct is condemned or

saved by courts largely based on their evaluation of the conduct’seffect on

economic efficiency. But many aspects of antitrust law cannot be explained by

efficiency analysis. The full sweep of antitrust makes sense only when one

considers other values that underlie the antitrust laws, values contained in the

allocation of public and private power inherent in the larger constitutional

order. This Article attempts to provide a more comprehensive understanding of

antitrust as policing th e private exercise of regulatory power.

This Article considers both the dominant, efficiency-maximizing approach to

antitrust and the “societal” alternatives offered by critics. The two approaches

are more alike than they are different, and gaps in each suggest a missing factor

in both approaches: a recognition that a harm to competition consists of both a

harm to efficiency (a “market harm”) and a harm to freedom of choice (a

“regulatory harm”). After developing a conception of “regulation” as control

over property separated from ownership, this Article explores the constitutional

law of private regulation—the constitutional prohibition against delegations of

governmental power to private parties—followed by a discussion of the same

principles in the specific context of an titrust and identifies the nature of the right

to choice that the antitrust laws protect. This Article then considers specific

implications of recognizing the role of regulatory harms in antitrust, including

changes to how antitrust treats horizontal and vertical restraints and mergers,

the ability to explain somecases—especially in the area of tying—often

considered outliers when viewed exclusively through the lens of economic

analysis, and the possibility of a renewed role for concepts that have been largely

forgotten in the rise of the rule of reason, such as conduct, intent, and the role of

the per se rule in antitrust .

∗Professor of Law, University of Virginia School of Law. I would like to thank Peter

Carstensen, Barry Cushman, Neil Duxbury, Scott Hemphill, Ariel Katz, Ed Kitch, Alan Meese,

Barak Orbach, Barak Richman, Glen Robinson, Rich Schragger, Chris Sprigman, Spencer

Waller, Tim Wu, and the participants of the 13th Annual Loyola Antitrust Colloquium for

helpful comments and suggestions. I am also indebted to Phillip Brown, Reba Mendoza, Jacob

McCloy, and Jed Moody for excellent research assistance.

57

58IOWA LAW REVIEW[Vol. 99:57

INTRODUCTION......................................................................................59

I.THE ECONOMIC CONCEPTION OF ANTITRUST........................................61

A.ANTITRUST AS A RULE OF EFFICIENCY.................................................62

B.“SOCIETAL ANTITRUST”....................................................................66

C.MICROECONOMIC EFFICIENCY ANALYSIS AND SOCIETAL ANTITRUST

AS PARALLEL APPROACHES................................................................67

D.ANTITRUST AND REGULATORY HARM................................................69

II.ANTITRUST AND REGULATION................................................................69

A.PROPERTY AND REGULATION.............................................................70

B.THE DISTANCE BETWEEN PROPERTY RIGHTS AND REGULATORY

CONTROL.........................................................................................71

C.CARTELS,MONOPOLIES,AND REGULATORY EFFECTS...........................73

D.PROPRIETARY CONTROL,REGULATORY CONTROL,AND ANTITRUST.....74

E.REGULATORY EFFECTS,REGULATORY HARM,AND PRIVATE

REGULATION.................................................................................... 77

III.THE PUBLIC/PRIVATE DISTINCTION IN MARKET REGULATION...............79

A.THE PRIVATE NONDELEGATION DOCTRINE.........................................79

B.PRIVATE REGULATION AND THE NEW DEAL........................................82

IV.ANTITRUST AS A RULE AGAINST PRIVATE REGULATION..........................88

A.ANTITRUST’S EPILOGUE TO THE NEW DEAL........................................89

B.ANTITRUST AND THE CONFLICT BETWEEN PUBLIC AND PRIVATE

REGULATION OF COMMERCE..............................................................90

C.PRIVATE REGULATION AS A CHALLENGE TO PUBLIC REGULATORS........92

V.THE IMPLICATIONS OF REGULATORY HARM FOR ANTITRUST..................93

A.ANTITRUST AND PUBLIC REGULATION................................................93

B.DISTINGUISHING BETWEEN PROPRIETARY AND REGULATORY

CONTROL.........................................................................................95

C.THE HORIZONTAL/VERTICAL DISTINCTION IN ANTITRUST..................97

1.Market Harm, Regulatory Harm, and Vertical Restraints.....97

2.The Limits of Verticality: Exclusion.......................................98

D.THE ROLE OF CONDUCT AND INTENT IN ANTITRUST..........................105

1.Conduct Generally................................................................105

2.Purchasing Both Property and Control: The Case of

Mergers.................................................................................106

3.Intent.....................................................................................108

E.THE REDISCOVERED ROLE OF THE PER SE RULE................................109

CONCLUSION.......................................................................................113

2013]THE ANTITRUST CONSTITUTION59

INTRODUCTION

The U.S. fashion industry of the late 1930s faced a problem. High-end

textile manufacturers and apparel makers were willing to invest considerable

time and expense in devising the new and distinctive designs consumers

wanted, but those designs were being copied by knock-off manufacturers

shortly after being released, preventing the designers from recouping the

cost of their investment. The industry solved the problem by organizing the

Fashion Originators’ Guild, through which the manufacturers enlisted the

help of apparel retailers in collectively agreeing to refuse to do business with

any apparel maker who copied original designs created by Guild members.1

Normally, intellectual property protections like those adopted by the Guild

are thought to be socially beneficial by making it possible to engage in

creative activity,2and it is possible that the Guild rules increased economic

output and hence consumer welfare for just that reason. On the other hand,

itis possible that the limitation on the business of both apparel

manufacturers and retailers outweighed the benefit of the rules, causing a

net reduction in output and a harm to consumer welfare. Without knowing

more about the nature of the restraints, thefashion industry, and the

apparel and textile markets, it would be impossible to know whether the

Guild rules increased or decreased social wealth.

Antitrust usually deals with restraints that have ambiguous effects on

social wealth by applying the “rule of reason,” which balances the

procompetitive and anticompetitive effects of a restraint to determine its net

effect on economic output and hence consumer welfare.3We will never

know how the Guild’sstyle protection regime would have fared under that

approach, though, because, when the Federal Trade Commission sued the

Guild, the Supreme Court did not analyze the style protection system under

the rule of reason but rather declared the system a “per se” violation of the

antitrust laws, striking the Guild’sstyle protection system more for the threat

it posed to Congress’slegislative power than the threat it posed to

consumers’buying power.4

1. Fashion Originators’ Guild of Am. v. FTC., 312 U.S. 457, 462–63 (1941).

2. SeeMazer v. Stein, 347 U.S. 201, 219 (1954) (recounting the economic theory of

individual incentive and social benefit underlying U.S. copyright law).

3. SeeLeegin Creative Leather Prods., Inc. v. PS KS, Inc., 551 U.S. 877, 886 (2007).

4. SeeFashion Originators’ Guild, 312 U.S. at 465 (“[T]he combination is in reality an

extra-governmental agency, which prescribes rules for the regulation and restraint of inter state

commerce . . . and thus ‘‘trenches upon the power of thenational legislature and violates the

statute.’”).

There is some reason to believe the Guild’s rules would have fared considerably better

under the rule of reason. The Guild successfully defended an antitrust suit brought by a retailer

in which the First Circuit applied the rule of reason. SeeWm. Filene’s Sons Co. v. Fashion

Originators’ Guild of Am., 90 F.2d 556, 560 (1st Cir. 1937). A special maste r found specifically

“that the object of The Guild and its members and affiliates was beneficial, rather than