Author: Steven J. Cernak
As I prepare again to teach an antitrust survey course, part of the preparation involves rereading some of the classic foundational U.S. antitrust cases. Many of them make some sweeping statements about how the Sherman Act embodies a national policy to order our entire economy through competition. “The heart of our national economic policy long has been faith in the value of competition” comes from Standard Oil in 1911. The Court went even further in 1958 in Northern Pacific Railway:
The Sherman Act … rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.
Twenty years later in Professional Engineers, the Court described an argument that asserted competition might be unethical as “nothing less than a frontal assault on the basic policy of the Sherman Act.”
Were such broad statements true then? Do they remain true now? Is the Sherman Act “the Magna Carta of free enterprise” as the Court asserted in Topco in 1972? After all, we have had exemptions, both legislative and court-made, for decades. But even beyond those official exceptions, there are plenty more examples of our frequent desire for experts, not the competitive process, to supersede market outcomes.
One personal anecdote helps illustrate the point. I have been involved in the ABA Antitrust Law Section for decades. The ABA, like any good trade association of competitors, has its own counsel to ensure that it does not run afoul of the antitrust laws. Years ago, however, when my day job was in-house antitrust lawyer at General Motors and my ABA assignment involved antitrust aspects of trade associations, I was asked by the Section to lead a compliance presentation for another ABA group consisting of several law school admission deans.
Our presentation started with the antitrust basics for trade associations: The antitrust laws want to preserve competition among competitors, Sherman Act Section 1 is suspicious of agreements among competitors, trade associations are gatherings of competitors where such agreements can be reached, and law schools compete with each other in various ways, including to attract students.
After about fifteen minutes, one of the deans raised his hand and posed this hypothetical: Some students change schools between first and second year. Such transfers are not good for the student – usually, any issues leading to a transfer go beyond a particular school and the student should try to get help with any underlying concerns. But the transfers also hurt the law schools – after all, we have spent considerable time, effort, and money to make that student one of ours and transfers destroy that investment. So, could this ABA group make it unethical for law schools to solicit, or even accept, most transfer students?
My fellow presenters were taken aback and silent for a few seconds. Had this dean not been listening when we had said a few minutes earlier that agreements not to compete among competing members of a trade association were antitrust violations? Finally, I broke the silence. I did a facepalm and said “D’oh! What a great idea! Why didn’t we think of that? We could have gone to Toyota thirty years ago and said ‘you know, we spent considerable time, effort, and money to make those current Chevy owners ours and you selling to them will just destroy that investment. How about we agree that you will only market to folks who have never purchased a car?’”
It took a few seconds but then the lightbulbs went off over the heads of the audience: Yes, the competitive processes for legal education might be a little different than those for motor vehicles, but that competition still exists and antitrust law is designed to protect it. Any agreements to short-circuit that process by having experts at the competitor-suppliers determine the customer’s best interest would be at least suspect. My GM clients would have understood that my Toyota hypothetical was an antitrust problem. Why didn’t this law school dean?
Was it because the deans saw themselves as “professionals” and so in some way exempt from the need to compete? Perhaps, although the Court made clear in Professional Engineers that any hint of an antitrust exemption for professionals that some saw in Goldfarb was incorrect. Professionals might compete in different ways but the antitrust laws still protect that competition to yield the best results for customers.