The Foundation of Antitrust Law

Lewis A. Noonberg
Partner
Piper Rudnick LLP

Understanding the Antitrust Laws

Early Trends Understanding the antitrust laws today and making some reasonable predictions about their future require three things: One, some knowledge of the purposes of the antitrust laws as expressed in Congressional debates 113 years ago; two, some knowledge of how courts have interpreted the sweeping language of Section 1 of the Sherman Act as well as other statutory provisions over the last 35 years ; and three, some chutzpah. ^[63]

The original purposes of the antitrust laws enacted in 1890 were to (a) break up the trusts that had evolved by the late 1800s (like the Oil Trust and the Sugar Trust) which were controlling large segments of industry; (b) protect small business against the perceived ravages of the owners of these trusts; and (c) protect the consumer. In 1890, no one considered that there might be inconsistencies in promoting these three goals. Moreover, economic power resided upstream in 1890. There were no Wal Marts at the turn of the 19th century “ not even any A&Ps “ so the effort was to curb the power of manufacturers and to protect those businesses downstream, i.e., wholesalers and retailers. It was assumed that what was good for wholesalers and retailers was also good for the consumer. Perhaps the epitome of this assumption is found in the Supreme Court s Schwinn decision (388 U.S. 365 (1967)) holding that once a manufacturer conveyed title and dominion over a product, it was a per se violation of the antitrust laws to restrict the purchaser s ability to resell it by restricting who the purchaser could resell to, where the purchaser could resell it, or the price at which the product could be resold.

However, shortly thereafter, economic and academic writings severely criticized these rules as protecting the status quo and actually harming the consumer. In the seminal work by Judge Robert Bork, entitled The Antitrust Paradox , published in 1978, he persuasively argued that prohibition of these types of vertical restraints (i.e. restraint by seller on its purchaser s right to resell) were standing the antitrust laws on their head, and ignoring the fact that real competition did not exist between a buyer and a seller (a vertical relationship), but rather between two sellers or even between two buyers (a horizontal relationship) and restraints on resales imposed by a manufacturer on its wholesale or retail dealer might actually enhance competition between two different manufacturers of the same type of product (referred to as inter brand competition, as opposed to intra brand competition, which is competition between or among sellers of the same product.) The Supreme Court recognized this explicitly in the Continental TV case in 1977 (433 U.S. 36) going out of its way to overrule Schwinn . In Continental TV , the court held that non-price vertical restraints imposed by a manufacturer on its dealers were not per se illegal. (Subsequent cases have recognized that absent monopoly power in the seller, non-price vertical restraints were unlikely to violate the antitrust laws, per se or not.) Despite the logical inconsistencies, price related vertical restraints remained per se violations. ^[64]

^[63] Commonly-used Yiddish word meaning something like foolishly fearless.

^[64] Subsequently, in State v. Oil Co. v. Kahn, 118 S.Ct. 275 (1997), the Supreme Court held that price related vertical restraints that put a cap on the maximum amount a purchaser could charge in the resale transaction were not per se violations, and might even be pro-consumer.