THE PRESENT NEW ANTITRUST ERA.

AuthorOrbach, Barak
PositionSpecial Issue on Antitrust Law

TABLE OF CONTENTS INTRODUCTION 1441 I. PAST ANTITRUST ERAS 1444 A. The Formative Era, 1890-1911 1444 B. The First Rule of Reason Era, 1911-1935 1448 C. The Fairness Era, 1935-1975 1450 D. The Second Rule of Reason Era, 1975-? 1454 II. THE PRESENT ERA 1458 CONCLUSION: THE VIRTUES OF MODERATION 1462 INTRODUCTION

Three conflicting visions have shaped the evolution of antitrust law--fairness, laissez faire, and technocracy. (1) I examine the evolution of antitrust law through the changes in the popularity and influence of these visions over the years. I argue that a new antitrust era with distinctive characteristics has been forming in recent years.

The fairness vision builds on a collection of ideas that condemn business size and portray profit-seeking commercial activities as a source of undesirable distributive effects. (2) Louis Brandeis's essays about trusts and combinations epitomize this line of thinking. (3) Donald Turner famously described the fairness attitude as "in-hospitability in the tradition of antitrust law." (4)

The laissez-faire vision recognizes that, in theory, restraints of trade may harm competition, but emphasizes the potential costs of antitrust enforcement and skepticism of the plausibility and viability of anticompetitive restraints. (5) Frank Easterbrook's influential formulation of antitrust's false positives typifies this line of thinking. (6) Easterbrook hypothesized that, in antitrust, "judicial errors that tolerate baleful practices are self-correcting, while erroneous condemnations are not." (7) The Supreme Court adopted this conjecture as a guiding principle for antitrust law. (8)

The technocracy vision provides that the exercise of government functions by experts insulates policies from ideological influences and populist sentiments, such as fairness and laissez-faire fads. (9) Antitrust technocracy rests on two beliefs. First, "antitrust law has had and still has some undesirable features that the courts or Congress should correct." (10) Second, the "proper approach [for] government enforcement agencies [is] not to bring cases solely on the basis that they would be upheld because of past precedents." (11) Rather, the government should bring cases because "they should be upheld," including "for the purpose of persuading the Supreme Court to reverse precedents." (12) Beliefs that antitrust expertise reached some plateau protected by a broad consensus among experts have resurfaced several times since the enactment of the Sherman Act. These beliefs have always been somewhat aspirational and much exaggerated. A technocracy hype during the 1920s and 1930s inspired the idea of antitrust technocracy. (13) Then, antitrust technocracy struggled with incoherent and conflicting policies. (14)

In 1964, when the fairness vision dominated antitrust law, Richard Hofstadter argued that with the "growing public acceptance of the large corporation," antitrust had "lost its role in our society" and became "the almost exclusive concern of a technical elite of lawyers and economists." (15) Similarly, in 1979, as the laissez-faire vision was ascending, Richard Posner claimed that "a shift from disagreement over basic premises, methodology, and ideology toward technical disagreements" built a "growing consensus" among antitrust experts. (16) In the past two decades, however, many antitrust experts argued that the decline of the Chicago School in the 1990s allowed professional technocracy to replace antitrust ideology, contributing to nuanced and balanced antitrust enforcement. (17) Nonetheless, the present technocracy has been facing an ideological jurisprudence that has persistently narrowed the substantive scope of antitrust law. (18) Since the Great Recession, antitrust enforcement has been facing growing criticism for its permissible standards and neglect of the rising concentration in the economy. (19)

The digital revolution, which began in the mid-1970s, gave new life to old fears of large businesses and beliefs that antitrust law should address the wealth effects caused by a rapid technological change. (20) These sentiments grew considerably in the aftermath of the Great Recession. (21) Commentators with varying degrees of expertise and understanding of antitrust law reintroduced the public to old beliefs that antitrust law could resolve many economic problems. Resentments of the new economic elite and its impact on society, as well as criticism of the technocracy that allegedly neglected the changes in the economy, offered political capital for attacks on the establishment and various elites. While it is far from clear that these sentiments and the recent populist surge will dramatically influence antitrust policies, they demand revaluation of antitrust law. Examined in the context of the evolution of antitrust law, the recent developments, I argue, account for the beginning of a new antitrust era.

  1. PAST ANTITRUST ERAS

    Antitrust law has evolved through four primary phases: (1) the formative era (1890-1911); (2) the first rule of reason era (1911-1935); (3) the fairness era (1935-1975); and (4) the second rule of reason era (1975 to some point in recent years). Each phase began and ended gradually, rather than through events that established sharp turns in the direction of antitrust law. Thus, references to the beginning and end of each period are somewhat imprecise. Correspondingly, descriptions of transition points in the literature are not uniform, yet hardly present meaningful disagreements among scholars.

    1. The Formative Era, 1890-1911

      Antitrust's formative era took place from the 1890 enactment of the Sherman Act to the 1911 adoption of the rule of reason. During this period general antitrust norms formed through judicial interpretations of the Sherman Act. These norms utilized public restraints on businesses to protect the vitality of markets from private restraints of trade. The process produced debates and controversies over the constitutionality and reach of the Sherman Act. (22) Standard Oil (1911) and American Tobacco (1911) concluded the core controversies. (23) In each case, the Court ordered the dissolution of a massive trust, demonstrating that the Sherman Act may be used to impose meaningful restrictions on businesses. (24) At the same time, the Court used both decisions to soften the sweeping language of the Sherman Act, ruling that only "unreasonable" restraints of trade violate the Sherman Act. (25)

      The impetus for the enactment of antitrust legislation in the United States was the Second Industrial Revolution that took place from 1870 to 1914. (26) New technologies enabled, for the first time in history, the development of mass production and mass distribution in many industries. (27) Industrial giants emerged and displaced small businesses, automation eliminated numerous jobs, and tensions between capital and labor soared. (28) The enactment of the Sherman Act responded to growing public demands to address the influence of large businesses on the economy, then known as the "trust problem." (29) Nonetheless, the Sherman Act was a "curious phenomenon." (30) A Republican Congress supportive of the trusts passed antitrust legislation. (11) When the Sherman Act was drafted and debated, the Republican Party controlled the White House and Congress. (32) The party was "dominated... by many of the very industrial magnates most vulnerable to real antitrust legislation." (33) The idea of antitrust measures, thus, had a broad public support but was not a high priority for the Republican Party. Rather, under a Republican leadership, Congress focused on tariffs that protected American monopolies from competition. (34) As a result, the Sherman Act was anything but well-considered legislation. (35)

      During antitrust's formative era, courts developed general standards for the interpretation of antitrust law. Most importantly, the Supreme Court ruled that the Sherman Act prohibits only unreasonable restraints of trade, not all restraints, (36) and that restraints of trade may include mergers and restraints on production. (37) Notably, the Supreme Court also adopted a per se rule--a ban on resale price maintenance (RPM). (38) In a nonantitrust case, New York Central Railroad (1909), the Supreme Court held that corporations might be criminally liable for acts committed by employees acting within the scope of their employment. (39) This ruling is one of the most consequential decisions of the Court, establishing a path for criminal prosecution of businesses.

      Many scholars have pointed out that the formative era of antitrust law and the formative era of laissez-faire constitutionalism overlapped. (40) The formative era of laissez-faire constitutionalism was longer, stretching from The Slaughter-House Cases (1873) to West Coast Hotel (1937), (41) with Lochner (1905) symbolizing the era and its spirit. (42) It began before the enactment of the Sherman Act and defined the Supreme Court's jurisprudence long after the formative era of antitrust law ended. The overlap accounts for the limited effectiveness of the fairness vision during antitrust's formative era. Rising antitrust sentiments pressured politicians across the political spectrum to condemn large businesses. (43) The Supreme Court, however, was captured by laissez-faire sentiments. (44) Importantly, in Santa Clara (1886), the Court declared that the Equal Protection Clause of the Fourteenth Amendment intended to protect corporations, not only "natural persons." (45) But, as Justice Black pointed out (decades after Santa Clara), "[n]either the history nor the language of the Fourteenth Amendment justifies the belief that corporations are included within its protection." (46)

      The far-reaching effects of this constitutional interpretation continue to shape national economic policies. (47)

    2. The First Rule of Reason Era, 1911-1935

      Antitrust's first rule of reason era took place from 1911 to the 1935 invalidation of the...

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