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Wall Chair in Corporate Law and Governance
University of Missouri Law School

Thomas A. Lambert is the Wall Chair in Corporate Law and Governance and Professor of Law. Professor Lambert’s scholarship focuses on antitrust, corporate and regulatory matters.

Antitrust

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Antitrust Superprecedent

Shubha Ghosh, of the Antitrust & Competition Policy Blog, is predicting that the Supreme Court will not overrule the 1911 Dr. Miles decision, which holds that “vertical minimum resale price maintenance” (i.e., a manufacturer’s imposition of minimum resale price for his goods) is per se illegal. Ghosh explains:

[T]he grant of cert in Leegin is not surprising. Whether the Court will overrule Dr. Miles is another matter. My sense is that Dr. Miles is superprecedent, to quote the Chief Justice, in the area of antitrust, and I do not see much academic or practitioner pressure to overturn the 1911 decision. Furthermore, the argument has been to distinguish maximum from minimum resale price maintenance with the per se rule making sense in the latter case but not in the former.

I must respectfully disagree.

Contrary to Ghosh’s suggestion, Dr. Miles has been the subject of gobs of academic criticism, primarily because it ignores the substantial procompetitive benefits vertical minimum price-fixing may confer (most notably, the elimination of free riding among dealers). Moreover, as I explain in this post, the set of circumstances in which minimum resale price maintenance may be anticompetitive is both narrow and fairly easy to identify, suggesting that a more probing rule of reason analysis is appropriate.

I will eat my hat if the Court does not overrule Dr. Miles.

Ghosh’s post does, though, raise an excellent question: What is the proper role of stare decisis in antitrust jurisprudence, particularly that related to Section 1 of the Sherman Act?

For the uninitiated, Section 1 prohibits contracts that “unreasonably” restrain trade. To determine whether a restraint is reasonable, courts typically employ a “rule of reason” whereby they look at things like market structure and the nature of the restraint to assess the restraint’s effect on competition. For some trade-restraining practices, though, no significant investigation is required because the courts have had enough experience with the practices to know that they are nearly always output-reducing. Those practices are said to be “per se” illegal, and they are condemned automatically. Naked price-fixing by competitors, for example, is per se illegal.

In general, courts apply the per se rule only after they have had enough experience with a practice to conclude that the practice is almost always output-reducing. As the Court stated in the Topco decision, “It is only after considerable experience with certain business relationships that courts classify them as per se violations….” Thus, the courts should begin analyzing practices under the rule of reason and proceed to the abbreviated per se rule only after having determined — based on significant experience — that the practice at issue is nearly always anticompetitive.

When the Court does decide that per se treatment is appropriate, stare decisis considerations (i.e., the fact that the practice at issue has received rule of reason treatment in the past) are irrelevant. That’s exactly how it should be, for the entire point of this method of analysis is that the judicial inquiry into reasonableness should be only as probing as required. As the Court explained in the California Dental decision, “What is required … is an enquiry meet for the case, looking to the circumstances, details, and logic of a restraint. The object is to see whether the experience of the market has been so clear, or necessarily will be, that a confident conclusion about the principal tendency of a restriction will follow from a quick (or at least quicker) look, in place of a more sedulous one.”

But what role should stare decisis play when the Court determines after lots of experience, academic analysis, etc. that the per se rule is too restrictive — i.e., that a practice once deemed per se illegal is, in fact, procompetitive in many situations? Unfortunately, the Court has in the past considered itself to be “bound” by stare decisis concerns. Take tying, for example. Most academics agree that the practice, once condemned under the now-discredited leverage theory, may be procompetitive or competitively neutral in many situations and ought to be judged under the rule of reason. In the 1984 Jefferson Parish decision, though, the Court declined to jettison the outmoded per se rule against tying, announcing that “[i]t is far too late in the history of our antitrust jurisprudence to question the proposition that certain tying arrangements pose an unacceptable risk of stifling competition and therefore are unreasonable ‘per se.’” In other words, the Court found itself bound by stare decisis.

This asymmetric approach to stare decisis (ignore the doctrine when moving from the rule of reason to a per se rule, but honor it when pressed to move in the opposite direction), is troubling. As Prof. Hovenkamp recently pointed out in The Antitrust Enterprise: Principle and Execution (pp. 118-19):

Stare decisis has effectively created a ratchet effect for the per se rule, permitting courts to move in one direction but not the other. But knowledge about the competitive effects of business practices must be regarded as a two-way street. Just as increased judicial experience with a practice can lead judges to conclude that it is virtually always anti-competitive and can be disapproved after a truncated inquiry, judicial experience can also reveal the opposite.

To alleviate this unfortunate ratchet effect, Hovenkamp wisely argues that courts should afford stare decisis treatment to judgments regarding the method of analyzing restraints and not to individual conclusions about the reasonableness of particular restraints.

It will be interesting to see what the Court does with Dr. Miles. As noted, I’m almost sure the precedent will be overruled. Hopefully, the Court will also use the occasion to rethink the Jefferson Parish approach to stare decisis. We really don’t need anymore antitrust superprecedents.