The Durability of Formalism in Antitrust

• Author: Barak Orbach
• Position: Professor of Law and the Director of the Business Law Program, the University of Arizona College of Law
• Pages: 2197-2222

2197

The Durability of Formalism in Antitrust

Barak Orbach

ABSTRACT: Antitrust formalism consists of commitments to interpretations

of the antitrust laws that require courts to discount and even disregard

relevant competitive effects. The phenomenon is more known as the use of

rigid rules resting on premises that are correct under some circumstances but

not all. Examples of antitrust formalism include per se rules, the analysis of

collusion, the interpretation of the distinction between horizontal and vertical

restraints, the “direct-purchaser” doctrine, and Twombly’s pleading

standard. Competition-law rules that downplay competitive effects appear to

run afoul of the goals of antitrust and, as such, antitrust formalism is

counterintuitive. Antitrust formalism, however, has been a fixture in

antitrust policy to which both liberal and conservative antitrust experts—

lawyers and economists—have contributed since Congress enacted the

Sherman Act. One way to describe antitrust formalism is that many

individuals believe that their beliefs should define the law and that, in every

generation, some individuals have the power or ability to promote such beliefs.

This Essay explains the durability of formalism in antitrust law and policy

through some of the key facets of the phenomenon.

 Professor of Law and the Director of the B usiness Law Program, the University of Arizona

College of Law. This Essay greatly benefited from comments and suggestions from Daniel Sokol,

the participants at the Symposium Honoring Herbert Hovenkamp, and from the editors of the

Iowa Law Review.

2198 IOWA LAW REVIEW [Vol. 100:2197

I. INTRODUCTION ........................................................................... 2198

II. SUBSTANTIVE ANTITRUST ........................................................... 2203

A. PRELIMINARIES ............................................................... 2203

B. THE LEGAL FORM: SINGLE FIRM VS. SEPARATE FIRMS ............ 2206

C. CONSPIRACY: CONCERTED ACTION VS. INDEPENDENT OR

INTERDEPENDENT CONDUCT .............................................. 2211

D. DISTRIBUTION ARRANGEMENTS: HORIZONTAL VS. VERTICAL

RESTRAINTS .................................................................... 2213

III. PROCEDURAL GUIDANCE ............................................................ 2214

A. PRELIMINARIES ............................................................... 2214

B. PROCEDURAL REASONABLENESS: THE RULE OF REASON VS.

PER SE .......................................................................... 2216

C. STANDING ...................................................................... 2217

D. MATSUSHITA VS. TWOMBLY: INFORMATION BEFORE AND AFTER

DISCOVERY ..................................................................... 2218

IV. CONCLUSION .............................................................................. 2221

I. INTRODUCTION

“Antitrust formalism” consists of commitments to interpretations of the

antitrust laws that require courts to discount and even disregard relevant

competitive effects. Examples of antitrust formalism include the per se rule

against price fixing1—and per se rules in general,2 the Structure-Conduct-

Performance (“SCP”) paradigm that inferred competitive conduct from

market structures and considerably influenced antitrust policy in the 1950s

and 1960s,3 the “direct-purchaser” doctrine,4 Twombly’s pleading standard,5

1. See United States v. Trenton Potteries Co., 273 U.S. 392, 398–99 (1927) (declarin g

price-fixing agreements among competitors per se unlawful).

2. See 2A PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 305, at 60 (3d ed.

2007) (“The so-called per se rules are the most ‘formal’ [though less than] might appear at first

blush or in conventional usage.”). See generally Thomas G. Krattenmaker, Per Se Violations in

Antitrust Law: Confusing Offenses with Defenses, 77 GEO. L.J. 165 (1988).

3. See Herbert Hovenkamp, United States Competition Policy in Crisis: 1890–1955, 95 MINN.

L. REV. 311, 350–66 (2009). See generally Kenneth G. Elzinga, New Developments on the Cartel Front,

29 ANTITRUST BULL. 3 (1984).

4. The direct purchaser doctrine provides that only direct purchasers have standing to

bring an antitrust lawsuit under section 4 of the Clayton Act. See infra Part III.C.

5. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007) (holding that a complaint alleging

agreement in restraint of trade must include enough “factual matter” to justify proceeding to

discovery); see also infra Part III.D.