Select Page

Antitrust Law
University of California, Berkeley School of Law
Dibadj, Reza

UC Berkeley School of Law
R. Dibadj
Antitrust Law 2015
Antitrust as Law and Political Economy
Competition law: regulates competition among firms
Statutes are terse and vague => federal common law, largely articulated by Supreme Court 

“Big case” law and judicial rhetoric
Political economy
Window on American economic history and policy

Less vigorous antitrust enforcement, especially since 1980s
Centerpiece of “law and economics” movement 

Beyond simplistic dichotomies: market vs. state 

State as providing mechanisms to ensure robust markets?
Institutional tensions
Historical Overview
US pioneers antitrust law with Sherman Act in 1890  – to protect trade and commerce against unlawful restraints and monopolies  
Reaction to “trusts” that emerged during the Industrial Revolution holding various subsidiaries
Heavy industries agreed to restrain competition (essentially formed cartels) by taking actions such as fixing pricing and dividing territories on the theory that they wanted to increase their business and avoid competition. The companies formed a Trust that controlled all of them (to keep them acting in the interest of the cartel and stop any of them from cheating), colluding behind the veil of the Trust. The argument behind it is that it was efficient, as prices were effectively lowered and benefitted the consumer, as the market ultimately regulates itself. However, there was concern that the restraints imposed on trade and preclusion of competition out-weighted the benefits.
Rather than simply forming cartel, each corporation retains its charter, but turns over its stock to an 
unincorporated “trust” (e.g., railroads, steel, oil, electric power and other public utilities industries)
Railroad in the late XIX century- the root of the problem were trusts that held various subsidiaries -which were in fact competitors-, virtually creating monopolies. The ownership was transferred to trusts with limited liability to make the decisions such as price-fixing, leading to “disguised” Cartel/Monopoly situations (legal fiction). Trusts are no longer used with these purposes, but the term has stayed.
Ostensibly, to avoid “ruinous competition” 

The railroads—the nation’s first ‘‘big business,’’ according to Alfred Chandler—were first to confront the problem of ruinous competition. Railroads required a high initial investment for construction of fixed assets and their maintenance. To offset the high capital and operating costs, railroad companies vied for a large volume of business at low rates. Often, railroads set differential rates, lowering prices for large volume shippers and long hauls. Responding to low-priced competition, railroads formed pools or cartels. These were loosely structured combinations of competitors and became regionally dominant systems.
Floor debate illustrates lofty rhetoric about protecting the public interest 

§§ 1 and 2 of Sherman Act (15 U.S.C. §§ 1, 2) are foundational
§ 1 “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, (1m) or by imprisonment not exceeding (10) years, or by both said punishments, in the discretion of the court.” 

§ 2 “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $(1m) or by imprisonment not exceeding (10) years, or by both said punishments, in the discretion of the court.” 

Many ambiguities and controversies with the interpretation of the terms which are not defined in the act so they are left to interpretation by the Courts
Text: e.g., what is “contract, combination”? “restraint of trade”? “monopolize”?
Policy: Are fines and other criminal sanctions appropriate? 

Administration: who and how to enforce? 

US v. Trans-Missouri (US 1897 – 7 years after the Sherman Act)
Facts: The railroad companies, which were competitors, agreed to meet monthly and set rates for freight traffic. The rates were to be ‘‘reasonable’’. All parties were to be bound unless they gave written notice within 10 days from the time a change was agreed. Price cutting not in good faith to meet competition was subject to fines. The United States sued to have the agreement set aside as void and the association dissolved. The railroad companies argued that if they did not have the agreement, the prices would be so low that they would ruin competition (Economic argument – if we don’t put reasonable rates, everyone will be bankrupt).
Issue: what is the meaning of the language “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce” mean? Is it confined to a contract or combination which is only in unreasonable restraint of trade or commerce or does it include all contracts of that nature?
Majority: Looks at “the plain and ordinary of the statute” which prohibits all restraints of trade are prohibited, not just “unreasonable” ones. This broad prohibition, however, does not necessarily encompass sale of a business with a limited covenant (K) not to compete. Such a covenant ‘in effect is collateral to such sale, and where the main purpose of the whole contract is accomplished by such a sale, the contract might not be included within the letter or spirit of the statute’. The intent alleged is not necessary to be proved; the relevant question is one of law, whether the agreement restrains trade or commerce in any way so as to be in violation of the act.
The agreement o

astern competitors, and compelling the public to pay the increase over what the price would have been. This power was acquired through the defendants’ agreement to sell only at fixed prices.
Comment: At turn of the century, cartels (all agreements among competitors (horizontal) that had the ‘‘direct and immediate’’ purpose and effect of restraining trade) were banned by Section 1 of the Sherman Act, whereas agreements reasonably collateral to legitimate business transactions were not. The Taft opinion in Addyston Pipe convincingly argues that this development is generally consistent with the American common law tradition, to which Congress was apparently pointing. And as we saw, a divided Court had rejected the view that all agreements—even price-fixing agreements—must be tested by a standard of reasonableness. Taft outlined a functional distinction between combinations established specifically to eliminate competition, and those that happened to restrict trade en route to efficient production.
Northern Securities v. US (US 1904) 

Facts: In 1904, Hill (president of & the largest stockholder in the Great Northern Railway) won the financial support Morgan and attempted to take over CBQ railroad which served a traffic-rich region of the Midwest and Great Plains and was quite profitable. Hill's strategy was for his railroad and Morgan's Northern Pacific Railway to jointly buy the CBQ, but Harriman (president of the Union Pacific Railroad and the Southern Pacific Railroad) also wanted to buy CBQ.‪ Harriman demanded a 1/3rd interest in the CBQ, but Hill refused.‪ Harriman then began to buy up Northern Pacific's stock, forcing Hill and Morgan to counter by purchasing more stock as well.‪ Northern Pacific's stock price skyrocketed, and the artificially high stock threatened to cause a crash on the New York Stock Exchange.‪ Alarmed by Harriman's actions, Hill created a holding company—the Northern Securities Company—to control all three of the railroads. The public was greatly alarmed by the formation of Northern Securities, which threatened to become the largest company in the world and monopolize railroad traffic in the western United States.‪ President William McKinley, however, was not willing to pursue antitrust litigation against Hill.‪ McKinley was assassinated, however, and his progressive Vice-President, Theodore Roosevelt, ordered the United States Department of Justice to pursue a case against Northern Securities.‪