The Law of the Corporation as Environmental Law.

Author:Light, Sarah E.
Position::III. Corporate and Business Law as Environmental Law A. Mandates 2. Antitrust Law through Conclusion, with footnotes and tables, p. 171-213

Part 2 of 2

  1. Antitrust law

Antitrust law offers a second example of how business law can mandate or prohibit environmentally positive behavior by firms. While several scholars have identified a conflict between antitrust law's goal of promoting competition and the environmental norms of promoting conservation, (149) the relationship between the two is more complex. Before this Article turns to how antitrust law prohibits and creates disincentives for certain forms of industry environmental cooperation, (150) this Subpart first offers a narrative of confluence, describing how antitrust law can advance the goals of environmental protection by prohibiting anti-environmental collusion.

Antitrust law has long been said to serve many purposes, including promotion of "efficiency" in markets; (151) promotion of justice; (152) protection of consumers from monopoly firms' ability to increase prices; (153) and protection of competitors, especially small businesses, from "larger, more efficient firms." (154) But antitrust statutes adopted after the Sherman Act, (155) including the Clayton Act (156) and the Federal Trade Commission Act, (157) focused more squarely on the notion of promoting market competition and targeting anticompetitive behavior. (158)

Section 1 of the Sherman Act prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce." (159) There are certain kinds of actions that are per se illegal under the antitrust laws, rendering antitrust law an absolute bar. (160) Such actions include price fixing, horizontal boycotts, and output limitations. (161) Courts apply the per se rule when firms aim to "disadvantage competitors by 'either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle.'" (162) In the per se unreasonableness context, the plaintiff need not show anticompetitive effect, as harm to competition is presumed. (163)

Before the enactment of the Clean Air Act, the federal government invoked antitrust law to end a collusive agreement among major automakers and their industry association to keep pollution control technology from reaching the California market. By 1952, authorities addressing air pollution in Los Angeles County had accepted scientific findings that motor vehicle emissions were the major source of the smog that blanketed the Los Angeles basin. (164) Local officials began to reach out to the major automobile manufacturers about research on emissions-control technology. (165) In 1953, the Automobile Manufacturers' Association (AMA), an industry trade group, began a campaign to study the issue and committed to funding research. (166) In 1955, several automobile manufacturers, including the four major manufacturers-General Motors, Ford, Chrysler, and American Motors--entered into a formal cross-licensing agreement to share technological information and data on the development of emission-control technology, (167) an action that later became the subject of antitrust litigation. (168) They announced their decision publicly, garnering some praise for addressing the smog problem. (169)

In 1960, California passed the California Motor Vehicle Pollution Control Act. (170) The Act mandated that manufacturers of new cars install emissions-control devices; however, the mandate was only triggered once such devices had been certified by the newly created Motor Vehicle Pollution Control Board. (171) By 1964, the Board had certified four emissions-control devices as meeting the state's standards, triggering the mandate under the Act. (172) Independent firms, rather than the major automakers, had developed these devices. (173) Shortly after the state certified these devices, the major automakers announced that they, too, had developed their own emissions-control technology, (174) arguably so that they would not be required to license technology from other firms. This sequence of events led some officials in California to conclude that the major automakers had conspired to delay making their own technologies publicly available. (175) After Los Angeles County officials asked the U.S. Attorney General to investigate possible collusion, a grand jury was convened. (176)

Although the Department of Justice did not file criminal charges, in January 1969 it filed a civil antitrust suit against the AMA and the four major automakers, alleging that the defendants had conspired among themselves and with smaller motor vehicle manufacturers "to eliminate competition in the research, development, manufacture and installation of motor vehicle air pollution control equipment, and in the purchase from others of patents and patent rights, covering such equipment," in violation of section 1 of the Sherman Act. (177) In response to the complaint, the defendants argued that their cooperation had actually accelerated the development of emissions-control devices and noted that collaboration was required to ensure that all manufacturers would be able to comply with the increasingly stringent standards. (178) After the lawsuit was filed, a partner in the law firm representing the AMA penned an article (179) explaining that individual consumers had been "unwilling to spend the additional small amount" necessary to purchase vehicles equipped with emissions-reducing devices. (180) Thus:

So far as the installation of devices was concerned, therefore, the manufacturers had a substantial and legitimate interest in cooperating. No company wanted to incur a cost disadvantage, either in terms of an increase in sales price or an adverse effect on vehicle driveability, without some assurance that all manufacturers were incurring similar disadvantages in the marketplace. (181) Arguably, this was as much a problem of the interaction between corporate law and antitrust law in competitive markets as it was one of antitrust law alone. If firms had a broader mandate beyond profit maximization, including to contribute to the public interest, perhaps they would have been more willing to incur a short-term cost disadvantage, even in a competitive market, rather than enter into an agreement to limit competition.

The parties resolved the suit by entering into a consent decree, which required the defendants not to conspire to delay the development of emissions-control devices and to make available without royalties both patent licenses and data on the emissions-control devices they had developed. (182) However, the decree did not require the defendants to admit liability or pay monetary penalties or damages for environmental harm; nor did it require the retrofitting of vehicles. (183) Despite the lack of damages or penalties, in this case antitrust law served as a mandate to promote environmental goals, preventing collusion in the market when firms feared that developing an environmental product would put them at a competitive disadvantage.

A second, more recent example of antitrust law serving as an environmental mandate comes from the European Union, not the United States, but the example offers a similar lesson about the potential confluence, rather than conflict, between antitrust principles and environmental goals. In 2011, the European Commission fined two consumer products firms, Unilever and Procter & Gamble, more than 300 million euros combined for entering into an agreement to maintain prices for laundry detergent while the firms switched to selling a more concentrated, environmentally preferable formulation. (184) The firms switched to the more environmentally friendly formulation as a result of their participation in a voluntary industry initiative called the "Code of Good Environmental Practice for Household Laundry Detergents," (185) a classic example of private environmental governance. The voluntary initiative included reducing the amount of detergent needed for each load of laundry, as well as overall product weight and packaging. (186) The industry initiative appropriately did not include any commitments regarding price fixing. (187)

However, the firms privately "agreed to keep the price unchanged" when the "products were 'compacted'" in a way that might appear to a consumer that he would be able to wash fewer loads of laundry than the compacted product was capable of cleaning. (188) In addition, they engaged in other forms of price collusion, including "restrict[ing] their promotional activity" and "decid[ing] not to pass the benefit of cost savings (reduced raw materials, packaging and transport costs) on to consumers." (189) The firms further agreed on direct price increases and "exchanged sensitive information on prices and trading conditions, thereby facilitating the various forms of price collusion." (190)

In this case, just as in the case of the automakers, antitrust law enforcement served as an environmentally positive mandate. Relying on antitrust law, the European Commission fined these firms for seeking to avoid passing cost savings from an environmentally beneficial product onto consumers. The motivations of the consumer products firms mirrored those of the automakers: In both cases, the firms feared that being the first to market an environmentally preferable product would reduce profits or create a competitive disadvantage vis-a-vis other firms in the marketplace. This example likewise suggests the importance of viewing antitrust law in connection with other fields, such as corporate law. Firms driven by a profit motive experience that motive in the context of a competitive environment. (191)

  1. Prohibitions and Disincentives: The Antitrust Per Se Rule and the Rule of Reason

    While antitrust law can serve as an environmental mandate by prohibiting collusive behavior that keeps environmentally preferable goods from the market, there is also conflict between antitrust law's goals of promoting competition and environmental law's goals of promoting conservation...

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