Nowhere is the 1 Percent Court’s bias in favor of the wealthy and powerful more blatantly revealed than in its radical rewrite of antitrust laws. Totally ignoring more than a century of clear and consistent legislative enactments, the Court’s right wing has made the task of enforcing these laws very difficult except in the most egregious cases. In the process, these justices have ignored the reasons the laws were enacted and the goals they were intended to achieve.
As Jefferson emphasized two centuries ago, political democracy presupposes economic democracy. Although we are no longer a nation of farmers and small tradesmen, Jefferson’s truth still holds, as the legislators who enacted our antitrust laws understood.
The first major antitrust law, the Sherman Act, which condemned agreements in restraint of trade and attempts to create a monopoly, was enacted in 1890 because, as former President William Howard Taft later explained, many “great and powerful corporations…intervened in politics and through use of corrupt machines and bosses threatened us with a plutocracy.” Similar reasons were the impetus for the 1914 Clayton and Federal Trade Commission acts, which struck at abusive distribution practices, corporate mergers and other unfair trade practices. And in 1950, after government investigations revealed that industrial concentration was growing dangerously, Congress passed the Celler-Kefauver Act, strengthening the Clayton Act’s anti-merger provisions.
Of equal concern, in 1890 and since, has been the preservation of small-business independence. The 1936 Robinson-Patman Act, which prohibited sellers from unfairly discriminating in price among competing customers, was adopted for that purpose. It was also one reason that, in 1975 and 1984, Congress reinforced a ban on resale price maintenance (an agreement between a seller and a customer on the price at which the latter could resell a given item), which was first announced by the Supreme Court in 1911. As Judge Learned Hand wrote in U.S. v. Aluminum Co. of America (1945), Congress was not “actuated by economic motives alone. It is possible, because of its indirect social or moral effect, to prefer a system of small producers, each dependent for his success upon his own skill and character, to one in which the great mass of those engaged must accept the direction of a few.”
This is not to say that the law’s authors had no interest in economic goals such as lower prices, reduced costs and product innovation. It was assumed, however, that these would be achieved naturally if huge concentrations of economic power were prohibited and free competition encouraged. But it was also made clear by Congress and the courts that, as the Supreme Court said in 1897, “corporate aggrandizement [is] against the public interest,” even if it produces economic benefits—and until 1977, this view prevailed.
In interpreting and applying these laws, the courts have followed two tracks. The first is the “per se rule”: imposing a flat ban on certain activities considered illegal on their face, so that the only issue is whether the activity in question took place. The other is the “rule of reason,” which calls on the court to balance the benefits of a restraint on business against the harms, taking into account the history and nature of the industry, the purpose and effect of the restraint, the nature and effect of the proposed remedy and much else that economists consider relevant. Prediction and guesswork are inevitably involved.
Since 1890, antitrust enforcement has waxed and waned in accordance with the political views of the incumbent administration and the courts. The 1960s were the high point: the Warren Court invoked the Celler-Kefauver Act to strike down virtually every merger that came before it. At the same time, the Court adopted per se rules barring exclusive distribution territories, concerted refusals by manufacturers to deal with a particular retailer and collusive arrangements between retailers. As the Court explained, the judiciary is ill-equipped to deal with competing theories by economists about complicated economic issues in what are usually long and very expensive cases. Clarity of the law is also important, so that businesses need not guess at what they can or cannot do, or invoke ambiguous, uncertain and often confusing rule-of-reason rulings to evade the law.
That era ended in the 1970s. As William Yeomans writes on page 14 of this issue, in August 1971 Lewis Powell, a corporate lawyer, wrote a memorandum to the US Chamber of Commerce in which he urged big business to fight back against consumer activists, environmentalists and their “leftist” allies by “balancing” university faculties and supporting scholars who “do believe in the system.”
The memo fell on fertile ground. The balancing process had already begun with the growth of the “law and economics” movement at the University of Chicago, which promoted so-called free-market principles governing the production and distribution of virtually everything. Then-professors Richard Posner and Robert Bork, both antitrust law specialists, attacked almost all government regulation and urged that per se rules be abandoned in favor of the rule of reason except for naked price-fixing and market allocation. The legality of every restraint was to depend solely on an economic analysis—which in their writings was usually theoretical and often speculative—of the costs and benefits of a particular arrangement. The social and political effects of concentration and the harm to small business were not relevant—only the maximization of “consumer welfare” in terms of lower costs and prices.
In his memo, Powell also urged using the courts as “the most important instrument for social, economic and political change.” More than anyone else, Powell was to make this happen: he joined the Supreme Court in January 1972, and during the 1973–74 term, three mergers were upheld—the first such favorable decisions in many years. Powell joined the majority in all three rulings.
Three years later, Powell completely changed the course of antitrust law. In Continental T.V., Inc. v. GTE Sylvania, Inc. (1977), he led a 7-2 majority (Justices William Brennan and Thurgood Marshall dissented) in overturning a 1967 Warren Court precedent that made it per se illegal to have exclusive territorial retail-franchise agreements barring retailers from selling outside their specified locations. Applying Chicago School economics and the rule of reason, Powell suggested possible benefits from the territorial restrictions, such as encouraging dealer promotions and preventing other dealers from “free riding” on these promotions. On that basis, he upheld the restrictions.
Powell also noted in a footnote that “competitive economies have social and political, as well as economic, advantages…but an antitrust policy divorced from market considerations would lack any objective benchmarks.” With that one sentence, he rewrote a century of antitrust law that had placed political considerations and protections for small business in the forefront, ignoring the consistent and unequivocal Congressional intent underlying all antitrust legislation since 1890.
Although Powell’s economic reasoning soon came under heavy fire from economists and lawyers not affiliated with the Chicago School, the Court didn’t waver. During the next thirty years, per se rules covering other so-called vertical relationships were consistently overturned by the Court in favor of rule-of-reason analyses that usually produced a victory for the defendants.
The last holdout was the ban on resale price maintenance first announced by the Supreme Court in a 1911 case, Dr. Miles Medical Co. v. John D. Park & Sons Co. Hundreds of federal and state decisions had relied on the precedent. In the Sylvania decision, Powell had sharply distinguished vertical price fixing from nonprice restrictions such as exclusive franchises, noting that the former almost invariably results in reduced competition between brands and facilitates anti-competitive agreements. Federal Trade Commission and other studies have also shown that resale price maintenance always produces higher prices, costing consumers billions.
None of that troubled the Roberts Court 1 percenters. In Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007), the majority—resurrecting the “free rider” theory and dismissing the prospect of higher prices—adopted a rule-of-reason approach and upheld the resale price restraint. Justice Anthony Kennedy, writing for the majority, also dismissed the nearly century-long line of precedent since the Dr. Miles case, even though he had written in an earlier case that the rule of stare decisis (i.e., following previous decisions) should have “special force in the area of statutory interpretation, for here…the legislative power is implicated.”
The other major area of antitrust law—corporate mergers—has produced few decisions, probably because the Court as well as the Reagan/Bush Justice Departments and Chicago School law professors and economists have all opposed vigorous anti-merger enforcement.
The Court has also made antitrust enforcement through suits by private parties more difficult with burdensome procedural requirements. In 1977, the same year it decided the Sylvania case, it barred indirect purchasers from suing in Illinois Brick Co. v. Illinois. And in Bell Atlantic Corp. v. Twombly (2007), the Roberts Court imposed more stringent standards on the facts that plaintiffs must include in their complaints, overturning fifty years of precedent. Since then, many antitrust cases have been dismissed before they were able to get started.
Powell’s mission has succeeded. The antitrust statutes still exist, their words virtually unchanged, but their contents have been radically hollowed out and the intent of those who enacted them has been explicitly dismissed. As antitrust experts like Robert Pitofsky have noted, rule-of-reason cases are “very difficult for a plaintiff (either the government or a private party) to win.” During Powell’s fifteen years on the Court, corporate defendants in antitrust suits won forty-two of sixty-eight cases. In the last ten years, plaintiffs have lost almost every substantive antitrust case decided by the Court, and since Chief Justice John Roberts took over in 2006, defendants have won eight out of nine cases (the ninth was sent back for trial).
What the Supreme Court has done in the last thirty-five years since Sylvania raises fundamental questions about its proper role. The Constitution does not authorize the Court to rewrite what Congress enacted, even if the law is broadly written—especially if Congress has consistently made its political and social concerns and intentions as clear as it has in the antitrust laws. Indeed, not only has the Court made economic considerations its sole concern; the economics it has chosen promotes the very concentration and harm to small-business independence that Congress feared.
What the Court has done to antitrust laws is more than judicial activism—it is judicial usurpation.
ALSO IN THIS FORUM
Bill Moyers and Bernard A. Weisberger: “The 1 Percent Court”
William Yeomans: “How the Right Packed the Court”
Jamie Raskin: “Citizens United and the Corporate Court”
Dahlia Lithwick: “One Nation by and for the Corporations”
Michael Greenberger: “The Roberts Court and Wall Street”
Craig Becker and Judith Scott: “Isolating America’s Workers”
Sherrilyn Ifill: “A Court Out of Touch”
Nan Aron: “The Way Forward”