From Broad Goals to Antitrust Legislative Standards

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Monday, November 19, 2018

Digital Beat

From Broad Goals to Antitrust Legislative Standards

With publication of Louis Brandeis: A Man for This Season by the Colorado Technology Law JournalJon Sallet and the Benton Foundation are offering this new series, Updating Antitrust for a New Age, adapted from that article to demonstrate that progressive competition policy incorporated both the goals and the means that Brandeis believed would provide the strongest tools to fight against the trusts and the monopolies of his day. This series is part of an ongoing examination of how to update Brandeis—and, more importantly, antitrust—for the digital age. Jon presented the key conclusions from his Brandeis article to the Federal Trade Commission, in its hearing on the Consumer Welfare Standard on November 1, 2018 and in an event hosted by the Washington Center for Equitable Growth on November 14, 2018.

Jonathan Sallet
 Jonathan Sallet

The purposes of antitrust law can be broad; the mechanism of antitrust is legal. This is the core of Brandeis’s approach—to find enforceable legal standards that identify harmful industrial conduct in a manner that vindicates social and democratic values through the careful delineation of institutional roles. That job was made easier because Louis Brandeis subscribed to the view that these social and democratic values were all threatened by monopoly; thus by focusing on the practicalities of competition, antitrust statutes could advance broader societal interests as well.

Louis Brandeis was one of America’s fiercest advocates of stronger antitrust laws and governmental action to constrain market power. The impact of his advocacy between 1911 and 1914 helped propel the enactment in 1914 of both the Federal Trade Commission Act (“FTC Act”) and the Clayton Act, which established federal authority to stop unfair methods of competition and empowered federal antitrust agencies to stop transactions before they were consummated. Both laws were animated by Brandeis’s belief that antitrust should be able to stop harm to competition in its incipiency.

Standard Oil v. United States and La Follette-Stanley

In 1911, Brandeis was a key player in legislative responses to the Supreme Court’s decision upholding the government’s action against Standard Oil but, in so doing, ruling that only “unreasonable” restraints of trade were illegal under Section 1 of the Sherman Act.[i] Antitrust proponents of the time believed that the rule-of-reason would give conservative courts too much discretion to decide what conduct violated the Sherman Act. The resulting legislative proposal, authored by Brandeis, gives us specific insight into how Brandeis believed antitrust laws should be constructed to achieve his social and economic goals.

Brandeis worked closely with Senator Robert M. La Follette (R-WI), perhaps the leading Republican progressive of his time, both to understand the implications of Standard Oil and to write a legislative fix known as the La Follette-Stanley Antitrust bill.  The bill never became law, but after the election of Woodrow Wilson in 1912, Congress moved toward the passage of new antitrust laws that drew from this earlier attempt.

The La Follette-Stanley bill would have amended the Sherman Act, identifying three categories of “unreasonable” conduct:

  1. The bill described a series of actions that, in modern antitrust parlance, would be per se unreasonable. The bill’s targets included forms of tying and exclusive dealing, territorial division of markets, and discriminatory rebates. Most broadly, this category included “the use of any unfair or oppressive methods of competition.”
  2. The bill proposed a rebuttable presumption of illegality where the parties to an agreement alleged to be unreasonable controlled more than forty percent of the relevant market share or where the supplier of an input “with a view to competition fixes an unreasonably high price.” (Senator La Follette emphasized that defendants would have the ability to rebut the presumption of unreasonableness.)
  3. As to any other Sherman Act Section 1 action, the defendants would bear the burden of demonstrating that any restraint that appeared to harm competition was, in fact, reasonable.

In Congressional testimony in support of the bill, Brandeis expanded the kind of practices he believed should be considered per se illegal:

Selling in one locality at discriminating prices in order to force out competition; selling one grade or variety at discriminating prices to force out competition; discriminating against producers who will not agree to deal with a rival; imposing terms in leases that lessees shall not buy or lease anything from anyone else; spying on competitors, bribing methods, buying trade secrets; establishing bogus competition.

It is notable that the conduct discussed in the La Follette-Stanley bill is generally, or at least mostly, within the lexicon of current antitrust discussion, even where a proposed approach has not been adopted or, under prevailing standards, would not even be favored. Thus, the antitrust agencies have formulated a structural presumption[ii] based on market share that courts agree will satisfy the government’s burden to establish a prima facie case in a merger challenge. Merging parties have the burden of producing evidence in response to the government’s prima facie case in order to demonstrate the procompetitive benefits that would likely arise from the transaction. Similarly, in conduct cases, courts have adopted burden-shifting processes under the rule-of-reason and so-called “quick look” doctrine.[iii]

Sen La Follette
  Sen La Follette

The La Follette-Stanley treatment of per se offenses is significantly broader than the current jurisprudence, but issues identified by the bill, including tying and the use of discounts and exclusive contracts, have continued to be important in contemporary litigation, especially where firms exercise the kind of market power that Brandeis may have taken as a given in legislation targeting trusts. (Indeed, separate from the legislation, Brandeis objected to per se treatment for resale price maintenance, a position that the Supreme Court did not endorse until 2007, and that reflected Brandeis’s support for small merchants.[iv])

Other People’s Money, the FTC Act, and the Clayton Act

In late 1913 and early 1914, Brandeis authored a series of articles in Harper’s Magazine calling for antitrust reform, focusing on investment banks.[v] Brandeis argued strongly for prohibiting interlocking directorates and called for an end to the “control so exercised by the investment bankers over railroads, public-service, and industrial corporations, over banks, life insurance and trust companies...”

A few days after the publication of Brandeis’s last article, President Wilson proposed legislation that would ban interlocking directorates[vi] and establish an interstate trade commission. Brandeis thereafter engaged in discussions with both President Wilson and members of Congress that led to passage of the final legislation.

Changing his mind, Brandeis specifically counseled Wilson that it would not be feasible to draw up the kinds of specific categories of conduct featured in the La Follette-Stanley bill. Rather, Brandeis came to conclude that a general standard administered by an independent commission would be the better course. And that was the approach that Congress wrote into the FTC Act’s prohibition of “unfair methods of competition” and the Clayton Act’s prohibition of transactions whose effect “may be to substantially lessen competition, or to tend to create a monopoly.”

In enacting the FTC Act, Congress took two new steps:

  1. It empowered the Federal Trade Commission to act “before any act should be done or condition arise violative of the” Sherman Act in order to achieve the “prevention of diseased business conditions...”
  2. With reference to the prohibition on “unfair methods of competition,” “[i]nstead of undertaking to define what practices should be deemed unfair, as had been done in earlier legislation, the act left the determination to the commission.”[vii]

The standard of “unfair methods of competition” included in Section 5 of the FTC Act bears more than a passing resemblance to the language of the La Follette-Stanley bill that prohibited “any unfair or oppressive methods of competition.”


In my next article, I will discuss how protection of competition informs the way that government and the judiciary should enforce the antitrust laws.

Jonathan Sallet is a Benton Senior Fellow. He works to promote broadband access and deployment, to advance competition, including through antitrust, and to preserve and protect internet openness. He is the former-Federal Communications Commission General Counsel (2013-2016), and Deputy Assistant Attorney General for Litigation, Antitrust Division, US Department of Justice (2016-2017). 

Updating Antitrust for a New Age

[i] Standard Oil v. United States, 221 U.S. 1, 66 (1911). In Standard Oil, the Supreme Court introduced the rule of reason when it concluded that Section 1 of the Sherman Act only bars contracts and other agreements that constitute an “undue restraint” of commerce.

[ii] A “structural presumption” is a proposition in antitrust law standing for the typical illegality of mergers that would combine rival firms with large shares of the same market.

[iii] “Under the rule of reason, the plaintiff must show power and an initial case of anticompetitive effect. The burden shifts to the defendant mainly for defenses. By contrast, the ‘quick look’ gives the plaintiff a smaller set of burdens up front and places heavier burdens on the defendant.” HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY 336 (5th ed. 2016).

[iv] Brandeis supported resale price maintenance, arguing that an advantage of resale price maintenance was that it provided a way for a manufacturer to control retail prices without having to vertically integrate downstream, which would have ended the ability of independent retailers to exist.

[v] This collection of articles was published in 1914 as the volume OTHER PEOPLE’S MONEY.

[vi] This strategy refers to membership on the boards of directors of two or more firms by the same individual.

[vii] Brandeis addressed the common concern that certainty was the better course, concluding that “experience with existing laws had taught that definition, being necessarily rigid, would prove embarrassing and, if rigorously applied, might involve great hardship.” Additionally, “an enumeration, however comprehensive, of existing methods of unfair competition must necessarily soon prove incomplete, as, with new conditions constantly arising, novel unfair methods would be devised and developed.” The debate over certainty and flexibility in law and regulation continues today.

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By Jonathan Sallet.