I am continuing my research and writing a paper for the Antitrust, Unfair Competition and Privacy Section of the California Bar Association.  Below is an excerpt on an issue I am trying to think through.

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Section 1 of the Sherman Act states, “[e]very contract, combination . . . , or conspiracy, in restraint of trade or commerce . . . is declared to be illegal.”[1]  The Supreme Court has said: “the problem presented by the language of Section 1 of the Sherman Act is that it cannot mean what it says.”[2] I submit the Sherman Act can mean exactly what it says because a pro-competitive (or neutral) agreement does not restrain trade. To restrain is “to limit”; “to hold back.”[5]  If an agreement is procompetitive, it does not restrain trade in the most natural meaning of the word.  The “trade” the Sherman Act was concerned with was clearly not the trade such as a contract between Standard Oil Company and a customer buying a barrel of oil.  That contract restrains trade only when given a very literal meaning; that the customer is not free to buy that barrel from another vendor.  Today we would say that such contracts generally are pro-competitive, or at worst neutral—-i.e. they allow and expand trade.  There is no indication in the legislative history, or common sense, that the Sherman Act intended to literally outlaw every commercial contract.  So, no—not every contract restrains trade in the meaning of the Sherman Act.  Congress was concerned with the agreements/trusts that made Standard Oil the only oil company.   The great trusts of the day: the Sugar Trust, Oil Trust, Banking Trust[6] restrained trade.  It is clear that Congress used the term “trade” in the way current antitrust case use “market.”

Unfortunately, the Supreme Court took a wrong turn and dealt with the perceived drafting problem by amending the Sherman Act and adding “unreasonable.”  In the the famous Standard Oil[3] case of 1911, the Supreme Court introduced the “rule of reason,” declaring that only unreasonable restraints of trade are illegal.  In a dissent, Justice Harlan objected that the Court, rather than Congress, amended the legislation. Justice Harlan wrote that the Court “has now done what it then said it could not constitutionally do. It has, by mere interpretation, modified the act of Congress.”[4]

Adding “unreasonable” to the Sherman Act was, however, “harmless error” since the modification was redundant. The real mischief was the Supreme Courts’s precedent of rewriting the Section One of the Sherman Act because a literal interpretation was non-sensical.  The rule of reason was soon followed by the per se rule.  Over its history, the Supreme Court has created per se rules for vertical price fixing, maximum resale price maintenance, vertical non-price restraints, boycotts and tying.  The point is, there was no need, nor basis, for the Supreme Court to create and dissolve per se rules.  The text of the statute has not changed.  The inquiry under the Sherman Act Section 1 must always be whether an agreement (if one is proved) constitutes a restraint of trade because that is what the statute prohibits.

The article I am writing will argue: 1) from a textualist point of view, there is no basis for reading a per se rule into Section One of the Sherman Act; and 2) using a per se rule in a criminal case takes the question away from the jury of whether the agreement was a restraint of trade and as such, is a violation of the defendants’ Fifth and Sixth Amendment rights.

Bob Connolly. bob@reconnollylaw.com

PS.  The comments tab on my blog is not working.  I do, however, really appreciate any comments and other perspectives.

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[1]  15 U.S.C Section 1.

[2] National Soc’y of Prof. Engineers v. United States, 435 U.S. 679, 687 (1978).

[3]  Standard Oil v. United States, 221 U.S. 1 (1911).

[4]  Id. at 99.  (Justice Harlan dissenting). For more detail and color, see, William Kolaksy, Chief Justice Edward Douglass White And the Birth of the Rule of Reason, Antitrust, Vol. 24, No. 3, p. 77, (On the bench, Harlan was even harsher. Those present in the courtroom reported that Harlan “[h]aving refreshed himself with whiskey . . . denounced his colleagues from the bench in impro- vised language that is said to have made them blush.”)

[5]   Merriam Webster Dictionary: 1a: an act of restraining the state of being restrained

b(1): a means of restraining a restraining force or influence (2): a device that restricts movement., available at https://www.merriam-webster.com/dictionary/restraint.

[6]   “Technically, a trust is a legal device used to coordinate multiple property owners through a unified management structure. Business owners combine their interests into a single legal entity—the trust. The various owners appoint a trustee (or multiple trustees) to act in the interest of the collective owners, and the individual owners retain dividend shares in the trust. A trust can be established within a single firm—a form known as a voting trust—to unite majority shareholders for the purpose of controlling management decisions. Alternatively, a trust can be set up to coordinate multiple, separately owned firms, operating like a combination or cartel. In 1882 S. C. T. Dodd, an attorney for John Rockefeller’s Standard Oil Co., created a trust to facilitate a tight combination of oil refiners that could dictate price and supply while also avoiding state-level taxes and corporate regulations. The use of trusts for industrial consolidation multiplied throughout the 1880s, and in response, several states and the federal government passed antitrust laws to regulate business competition, focusing on coordination among firms and business tactics used to monopolize industries.” Laura Phillips Sawyer, US Antitrust Law and Policy in Historical Perspective, Harvard Business School Working Paper, 19-110 )2019) available at   https://www.hbs.edu/faculty/Publication%20Files/19-110_e21447ad-d98a-451f-8ef0-ba42209018e6.pdf.

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