Sailing a Sea of Doubt: A Critique of the Rule of Reason in U.S. Antitrust Law

Article excerpt

"It is true that there are some cases in which the courts, mistaking . . . the proper limits of the relaxation of the rules for determining the unreasonableness of restraints of trade, have set sail on a sea of doubt . . . ." William Howard Taft

"Without further elaboration, reasonableness is too vague a standard to guide the businessman's actions or the judge's discretion. Such openness is a mixed blessing. Unbounded by technical limitations, it reaches every evil. But unless disciplined by the purposes of antitrust laws, it is a vagrant standard." Phillip E. Areeda2

INTRODUCTION

Courts resolve antitrust cases by applying various modes of analysis.3 These modes range across a spectrum from so-called "full blown" rule of reason analysis at one end to per se condemnation at the other.4 Per se rules condemn limited categories of conduct by applying a conclusive presumption of net anticompetitive effects, while rule of reason analysis requires a court to engage in case-specific evaluation of evidence bearing on actual or predictable competitive effects.5 Although the per se rules have obvious advantages of clarity, administrability, and predictability, the sorts of conduct falling under these rules have been narrowed in recent years as courts have become more wary of condemning legitimate competitive conduct.6 For example, although vertical price restraints and certain vertical non-price restraints were per se illegal for roughly 100 years, recent cases have established that all vertical price and non-price restraints are to be evaluated based upon some degree of analysis of the defendant's market power or ability to affect market competition, as well as a contextual review of the competitive effects of the challenged conduct. Thus, the rule of reason now applies to all antitrust matters other than hard-core cartel cases involving horizontal price fixing or market allocations.7 Although horizontal group boycotts and tying arrangements remain nominally subject to per se condemnation, even these offenses are evaluated more cautiously under a hybrid approach in which the court engages in market power analysis or an evaluation of proffered business justifications.8

At the same time, the broadening role for rule of reason analysis has been accompanied by Supreme Court decisions that have obscured the meaning and proper application of the rule, leaving lower courts with no clear standards.9 Indeed, the rule of reason is no rule at all, but rather a set of vague and inconsistent objectives that a court should set for itself in evaluating conduct under an antitrust challenge.10 That is, the "rule" merely directs the court to condemn conduct only where doing so will achieve certain purposes, such as protecting marketplace competition." The various objectives are supposed to be achieved by balancing harms against benefits to competition and weighing such ineffables as the corporate purpose behind the conduct, its history, the marketplace context, and the experience of courts with similar restraints.12 Furthermore, it is now explicit that the rule of reason provides no set boundaries around the depth or rigor of the legal and economic analysis required to decide an antitrust case. Instead, a court presented with an antitrust claim must decide for itself how much analysis is appropriate for the case before it: "What is required ... is an enquiry meet for the case, looking to the circumstances, details, and logic of a restraint."13 Courts and agencies are frequently overruled for having selected a level of inquiry that the reviewing court later deemed to be too deep or too shallow. The reasons offered for these reversals in many cases offer little guidance for future cases.

The rule of reason evolved away from its former dichotomy with per se rules as courts became persuaded that economics should entirely supplant other values, such as marketplace fairness, wealth distribution, political concerns, and individual freedom, and at the same time grew concerned that the certainty and predictability of the per se mies are often outweighed by their potential to condemn legitimate competitive conduct. …