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: Antitr ust is today viewed almo st exclusively in st rictly economic

terms. Under the nea rly ubiquitous “r ule of reason,” cond uct is condemned or

saved by courts larg ely based on thei r evaluation of the c onduct’s effect on

economic efficiency . But many aspects o f antitrust law ca nnot be explained by

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

considers other val ues that underlie th e antitrust laws, va lues contained in the

allocation of public and private power inherent in the larger constitutional

order. This Article a ttempts to provid e a more comprehen sive understanding of

antitrust as policing th e private exercise of regulatory power.

This Article conside rs both the dominant, efficiency-maximizing approa ch 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 approache s: a recognition that a harm to co mpetition consis ts of both a

harm to efficiency (a “ma rket harm”) and a harm to freed om of choice (a

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

over property separa ted from ownership, this Ar ticle explores the cons titutional

law of private reg ulation—the constit utional prohibiti on against delega tions of

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

principles in the sp ecific context of an titrust and identifies the nature of the right

to choice that th e antitrust laws p rotect. This Artic le then considers specific

implications of rec ognizing the role of reg ulatory harms in an titrust, including

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

the ability to expla in some cases—especia lly in the area of ty ing—often

considered outlie rs when viewed exclu sively through the le ns of economic

analysis, and the po ssibility of a rene wed role for concep ts that have been larg ely

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

the per se rule in antitrust .

∗ Professor of Law, Universi ty 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 L oyola 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

58 IOWA 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 Re straints ..... 97

2. The Limits of Verticality: Exclusi on ....................................... 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 CONSTITUTION 59

INTRODUCTION

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

textile manufacturers and apparel makers were willing to invest cons iderable

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 manufacture rs 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 prote ctions like those adopted by the Guild

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

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

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

it is possible that the limitation on the business of both apparel

manufacturers and retailers outweighe d the benefit of the rules, causing a

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

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

apparel and textile markets, it wo uld be impossible to know whether t he

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.3 We will nev er

know how the Guild’s style protect ion regime would have fared under that

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

Guild, the Supreme Court did not ana lyze the style protection system unde r

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

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

it posed to Congress’s legislative 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. See Mazer v. Stein, 347 U.S. 201, 219 (1954) (recounting the economi c theory of

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

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

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

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

commerce . . . and thus ‘‘trenches upon the power of the national 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. See Wm. 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 i ts members and affiliates was bene ficial, rather than