Antitrust's Single-Entity Doctrine: A Formalistic Approach for a Formalistic Rule

Article excerpt

Antitrust law makes a fundamental distinction between "concerted" conduct among multiple entities and "unilateral" conduct of single entities. Under the "single-entity doctrine," § 1 of the Sherman Antitrust Act is inapplicable to the latter. The statutory hook for this distinction is that § 1 only outlaws agreements, and a single entity cannot "agree" with itself. However, it is exceedingly difficult to find a principled basis for deciding which complex business organizations, all of which comprise a number of persons, should qualify as a "single entity" for § 1 purposes. The problem stems from the inescapable fact that the "agreement" requirement of § 1 is itself a formal rule, not an economically meaningful standard. Perhaps because of the tension between such a formalistic requirement and an increasingly economics-based antitrust jurisprudence, the Supreme Court has not articulated a clear and predictable standard for application of the single-entity doctrine over the last century. This Note proposes a solution that embraces the formality of § 1's "agreement" requirement with a formalistic rule for determining business organizations' single-entity status. Under this approach, whether a business constituted a single entity for § 1 purposes would depend entirely on the "form" into which that business was organized. The courts would simply choose the "forms" into which persons must formally organize themselves in order to obtain § 1 immunity and then use antitrust's regulation of mergers to police self-sorting into those forms. This would reduce the indeterminacy of current doctrine, which should appreciably reduce the administrative costs of antitrust litigation without a comparable risk of an increase in error costs.

I. INTRODUCTION

What is the National Football League (NFL)? Is it a single company that sells its product (NFL football)? Or is it a cartel of thirty-two different companies engaging in elaborate collusion, fixing the prices of their respective intellectual properties? This ostensibly quaint question has enormous consequences for this multi-billion dollar industry.1 If the NFL is just a "single entity," its teams are immune from liability under § 1 of the Sherman Antitrust Act, which regulates combinations, contracts, and conspiracies in restraint of trade.2 If not, its teams potentially face millions of dollars' worth of antitrust litigation over the reasonableness of their cooperative activities. This is because of a fundamental distinction in antitrust law between "concerted" and "unilateral" conduct.3 This distinction is the foundation for the "single-entity doctrine," which aims to sensibly divide defendant businesses - all of which comprise multiple persons - into "single entities" immune from § 1 liability and cooperative arrangements among multiple entities subject to § 1 scrutiny.

The Supreme Court recently answered the NFL question in American Needle, Inc. v. National Football League4 - but its opaque reasoning ensures that future disputes over whether defendants qualify as a single entity will continue to complicate litigation and add to the administrative costs of antitrust regulation. The "test" applied by the Court is hardly a test at all. Rather, it is an oft-repeated set of two empty bottles ("control" and "unity of interest") which have so little self-evident meaning or economic relevance. The result is that it is difficult to determine whether (much less why) the next complex business organization will or will not be deemed a single entity. This Note proposes a change in current doctrine aimed at reducing this uncertainty, which should appreciably reduce the administrative costs of antitrust litigation for complex commercial entities, which should have a positive effect on social welfare.

This Note proposes a new formalistic approach to single-entity determinations as a way to clarify current doctrine, simplify complex § 1 litigation, and reduce the administrative costs of antitrust regulation. …