The Other "quick Look"
| Publication year | 2022 |
| Author | Written by Ashish Sudhakaran and Tyler Helms |
Written by Ashish Sudhakaran and Tyler Helms1
The Supreme Court's recent decision in NCAA v. Alston2 will likely have a significant impact on how courts assess restraints of trade challenged under Section 1 of the Sherman Act. Most will focus on Alston's description of the proper framework for a "rule-of-reason" analysis in antitrust jurisprudence. But less obvious in the Court's decision is its approval once and for all of an abbreviated "quick-look" analysis—previously used to presumptively condemn facially anticompetitive restraints—to summarily approve restraints that are facially procompetitive. The NCAA ultimately failed to convince the Court that its conduct should benefit from a "quick-look" stamp of approval, but the Court agreed with the NCAA in principle: a "positive"3 quick look can be used to summarily approve certain restraints of trade under Section 1 when the potential for anticompetitive harm is minimal.
While it remains to be seen just how prevalent the "positive" quick-look approach will be, Alston has three key implications for antitrust litigation. First, Alston suggests that the fact-intensive rule-of-reason analysis is no longer the most deferential standard of scrutiny that may be applied to restraints challenged under Section 1. Rather, Alston suggests that courts might now require plaintiffs to make a threshold showing that a challenged restraint has sufficient anticompetitive effects to even warrant a closer look under the rule of reason. Second, unless plaintiffs can make such a showing, courts may be more likely to entertain and grant early dispositive motions dismissing antitrust cases at the pleading stage. Third, even failing early motions to dismiss, a "positive" quick look militates in favor of courts using certain tools already at their disposal—such as early summary judgment motions and sequenced discovery—to narrow the scope of potentially expensive and protracted antitrust litigation. Accordingly, Alston's pronouncement arguably represents a victory for antitrust defendants, and a caution to plaintiffs and judges against "mistaken condemnations of legitimate business arrangements"4 that are often costly and contrary to the purpose of antitrust law.
A. BIRTH OF THE RULE
The antitrust "rule of reason" has its roots in the Supreme Court's 1911 decision in Standard Oil Co. v. United States, where the Court reviewed a lower court decision ordering the break-up of the Standard Oil "trust."5 The trial court had entered judgment in favor of the government, finding that the Rockefellers and Standard Oil had violated Sections 1 and 2 of the Sherman Act.6 With respect to Section 1, the government contended that "the language of the statute embraces every contract, combination, etc., in restraint of trade, and hence its text leaves
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no room for the exercise of judgment, but simply imposes the plain duty of applying its prohibitions to every case within its literal language."7
The Supreme Court disagreed. Though Section 1 does appear to speak categorically—it prohibits "[e]very contract, combination . . . or conspiracy in restraint of trade or commerce"8—Chief Justice Edward D. White, writing for the Court, thought it "obvious that judgment must in every case be called into play in order to determine whether a particular act is embraced within the statutory classes, and whether, if the act is within such classes, its nature or effect causes it to be a restraint of trade within the intendment of the act."9 Because Section 1 does not "specifically enumerate[] or define[]" the types of restraint to which it applies, the Chief Justice reasoned, the necessary implication was that application of the statute must be "determined by the light of reason, guided by the principles of law and the duty to apply and enforce the public policy embodied in the statute."10 And so the rule of reason was born.
The Court's adoption of this flexible standard was cold comfort to Standard Oil; Chief Justice Wright wrote that the lower court's judgment that Standard Oil violated Section 1 was "clearly appropriate," and that its remedy was warranted.11
B. DEVELOPMENT OF THE RULE OF REASON
1. A FACT-INTENSIVE ANALYSIS
The Supreme Court further expounded on the rule of reason seven years later, in Chicago Board of Trade v. United States.12 In that case, the government challenged a rule adopted by the Board of Trade of the City of Chicago—an exchange for trading grain.13 The "call" rule, as it was known, prohibited the Board's 1,600 members "from purchasing or offering to purchase, during the period between the close of the call"—"calls" were special trading sessions held immediately after the close of regular sessions—"and the opening of the session on the next business day, any wheat, corn, oats or rye 'to arrive' at a price other than the closing bid at the call."14 (Sales "to arrive" referred to agreements to deliver on arrival grain that was already on its way to Chicago or which was to be shipped within a specified time.15) In practical terms, the rule meant that "bids had to be fixed at the day's closing bid on the call until the opening of the next session."16 Prior to the rule's adoption, the Board's members were free to fix bids throughout the day at whatever prices they deemed appropriate.17 According to the government's suit, the "call" rule was an unlawful agreement in restraint of trade.18
In response, the defendants asserted that the rule's "purpose was not to prevent competition or to control prices, but to promote the convenience of members by restricting their hours of business and to break up a monopoly in that branch of the grain trade acquired by four or five warehousemen in Chicago."19 The government successfully moved to strike the defendants' allegations concerning the purpose of the "call" rule, and in trying the case, "made no attempt to show" that the rule had any actual anticompetitive effects.20
The Supreme Court held that the district court had erred in "striking from the [defendants'] answer allegations concerning the history and purpose of the call rule and in later excluding any evidence on that subject."21 Writing for a unanimous Court, Justice Louis Brandeis gave a now-famous explanation for the rule of reason:
Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting
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the particular remedy, the purpose or end sought to be attained, are all relevant facts.22
In the decades since Standard Oil and Chicago Board of Trade were decided, the rule of reason has embedded itself in antitrust jurisprudence as "the default mode of analysis" for restraints of trade challenged under Section 1 of the Sherman Act.23 Consequently, outside of claims challenging horizontal price fixing, market allocation, or bid rigging—conduct that is considered per se illegal24—"most [Section 1] antitrust claims are analyzed under a 'rule of reason.'"25
Though the rule of reason's end goal may seem simple enough—determining whether a challenged restraint is, on balance, anticompetitive26—the analysis, as Justice Brandeis's formulation suggests, is "fact intensive."27 That reality has invited both judicial28 and scholarly criticism.29
2. A BURDEN-SHIFTING FRAMEWORK
Perhaps in an effort to bring structure and discipline to the rule of reason, the courts in recent decades have coalesced around a burden-shifting framework, whereby (1) "the plaintiff has the initial burden to prove that the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market"; (2) if the plaintiff makes that showing, "then the burden shifts to the defendant to show a procompetitive rationale for the restraint"; and (3) if the defendant bears its burden, "then the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means."30
Even under this framework—which the Supreme Court has twice endorsed in recent years31—questions remain. (For example, is a showing of market power required?32 And when, if at all, does balancing come into play?33)
Nonetheless, the rule of reason remains a mainstay in modern antitrust law. Since the mid-1970s, the Supreme Court has only expanded the rule of reason's role, holding in a series of decisions that vertical nonprice restraints, vertical maximum resale price maintenance agreements, and vertical minimum resale price maintenance agreements should be evaluated under the rule of reason rather than the per se rule.34
C. AN ALTERNATIVE TO THE RULE OF REASON: THE "QUICK LOOK" TO CONDEMN PRESUMPTIVELY ANTICOMPETITIVE RESTRAINTS
Ever since 1927, when the Supreme Court first recognized horizontal price fixing as per se illegal under Section 1 of the Sherman Act,35 the Court has largely "divided antitrust analysis into two modes, the per se rule and the rule of reason."36 According to Herbert Hovenkamp, the "large amount of empty space" between these two "silos," combined with "[t]he high cost and indeterminacy of antitrust litigation under the rule of reason[,] led to exploration of that empty space for useful shortcuts."37 The Antitrust Law treatise proposed an "alternative view": namely, that "the modes of antitrust analysis represent a continuum, or 'sliding scale,' with different fact finding requirements for different...
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