Sailing A Sea Of Doubt: A Critique Of The Rule Of Reason In U.S. Antitrust Law

Fordham Journal of Corporate & Financial Law Volume 17, Number 3 2012 Article 1 Sailing A Sea Of Doubt: A Critique Of The Rule Of Reason In U.S. Antitrust Law Jesse W. Markham Jr.∗ ∗ Copyright c 2012 by the authors. Fordham Journal of Corporate & Financial Law is produced by The Berkeley Electronic Press (bepress). http://ir.lawnet.fordham.edu/jcfl Sailing A Sea Of Doubt: A Critique Of The Rule Of Reason In U.S. Antitrust Law∗ Jesse W. Markham Jr. Abstract “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 Taft1 “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 KEYWORDS: anti trust ∗ Marshall P. Madison Professor of Law, University of San Francisco School of Law. The author wishes to thank the many colleagues and friends who provided thoughtful suggestions, comments and encouragement. Professor Josh Davis and the faculty at the University of San Francisco Law School endured my early presentation of the central idea behind this article and gave me useful guidance. The law school also provided generous economic support. The University of Luxembourg Faculte de Droit, d’Economie et de Commerce, especially Professors Mark Cole and Stefan Braum, also provided a valuable opportunity to air my thoughts in a vibrant session with scholars, jurists and European practitioners. The University of Chicago Loyola’s School of Law and Professor Spencer Waller’s Antitrust Colloquium afforded me a similar opportunity on this side of the Atlantic. 1. United States v. Addyston Pipe & Steel Co., 85 F. 271, 283-84 (6th Cir. 1898). 2. PHILLIP E. AREEDA, ANTITRUST LAW ¶ 1500 (1986). VOLUME XVII 2012 NUMBER 2 FORDHAM JOURNAL OF CORPORATE & FINANCIAL LAW SAILING A SEA OF DOUBT: A CRITIQUE OF THE RULE OF REASON IN U.S. ANTITRUST LAW Jesse W. Markham, Jr. SAILING A SEA OF DOUBT: A CRITIQUE OF THE RULE OF REASON IN U.S. ANTITRUST LAW Jesse W. Markham, Jr.* “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 1 . . . .” 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 2 laws, it is a vagrant standard.” Phillip E. Areeda TABLE OF CONTENTS INTRODUCTION .................................................................................... 593 I. THE EVOLUTION AND EXPANSION OF THE RULE OF REASON ..... 599 A. EARLY DEVELOPMENT OF THE RULE OF REASON .................... 600 B. BOARD OF TRADE ..................................................................... 604 C. THE DEVELOPMENT OF PER SE CATEGORIES ........................... 606 * Marshall P. Madison Professor of Law, University of San Francisco School of Law. The author wishes to thank the many colleagues and friends who provided thoughtful suggestions, comments and encouragement. Professor Josh Davis and the faculty at the University of San Francisco Law School endured my early presentation of the central idea behind this article and gave me useful guidance. The law school also provided generous economic support. The University of Luxembourg Faculte de Droit, d'Economie et de Commerce, especially Professors Mark Cole and Stefan Braum, also provided a valuable opportunity to air my thoughts in a vibrant session with scholars, jurists and European practitioners. The University of Chicago Loyola's School of Law and Professor Spencer Waller's Antitrust Colloquium afforded me a similar opportunity on this side of the Atlantic. 1. United States v. Addyston Pipe & Steel Co., 85 F. 271, 283-84 (6th Cir. 1898). 2. PHILLIP E. AREEDA, ANTITRUST LAW ¶ 1500 (1986). 591 592 FORDHAM JOURNAL OF CORPORATE & FINANCIAL LAW [Vol. XVII D. THE “QUICK LOOK” RULE OF REASON AND THE COURT’S EMERGING DISSATISFACTION WITH CATEGORICAL ANALYSIS ............................................................................... 607 E. CAL. DENTAL AND THE DISINTEGRATION OF THE CATEGORICAL MODES OF RULE OF REASON ANALYSIS........... 609 F. EXPANSION OF THE RULE OF REASON ..................................... 610 II. AN ANALYTICAL CRITIQUE OF THE RULE OF REASON ............... 613 A. BOARD OF TRADE AND ITS CRITICS .......................................... 613 B. A CRITIQUE OF CAL. DENTAL ................................................... 616 1. Cal. Dental’s “Competition Doesn’t Work” Analysis ..... 616 2. Expanded Litigation Burdens and Social Costs .............. 619 3. The Empty Promise of Stare Decisis ............................... 623 4. Aggravation of the Board of Trade Relevancy Problems .......................................................................... 625 5. Impairment of Settlements ............................................... 626 6. Anti-Plaintiff Bias ............................................................ 627 7. An Analytical Critique of the Rule of Reason – Gaps and Inconsistencies .......................................................... 629 C. UNDER WHAT CIRCUMSTANCES DOES THE FULL-BLOWN RULE OF REASON APPLY? ....................................... 630 1. Full-Blown Rule of Reason in Supreme Court Cases ...... 632 a. Facially Anticompetitive Naked Restraints ............... 633 b. Ancillary Restraints: The Absence of Economic ...... 635 Integration Related to the Challenged Restraint .............. 635 c. Questionable Economic Self-Interest ........................ 635 2. Is Market Power an Essential Element of a Rule of Reason Case?................................................................... 638 3. Theoretical or Actual Effects as a Business Justification Defense? ............................................. 648 III. THE FTC’S ATTEMPT AT REFORM – THE “INHERENTLY SUSPECT” FRAMEWORK ...................................... 650 IV. A PROPOSAL FOR REFORM .......................................................... 654 A. ABANDONING BOARD OF TRADE .............................................. 654 B. OVERRULING CAL. DENTAL ..................................................... 655 C. RESTRUCTURING THE RULE OF REASON .................................. 657 1. A Partial Response to Lemley and Leslie ........................ 660 CONCLUSION .................................................................................. 664 2012] SAILING A SEA OF DOUBT 593 INT (...truncated)