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Monday, November 3, 2008

The Misuse of the Less Restrictive Alternative Inquiry in Rule of Reason Analysis

Posted by D. Daniel Sokol

Gfeldman1 Gabe Feldman (Tulane Law) has just posted The Misuse of the Less Restrictive Alternative Inquiry in Rule of Reason Analysis.

ABSTRACT: The rule of reason articulated by the Supreme Court in 1918 in Chicago Board of Trade has long been the target of scorn and ridicule by scholars and judges. The rule, which is used to determine the legality of restraints under Section 1 of the Sherman Act, instructs courts to identify and balance a restraint's competitive effects - restraints that are net procompetitive are legal. Critics argue that the rule is easy to state but impossible to apply, as it asks courts to identify the unidentifiable and balance the unbalanceable. Despite the steady criticism, the rule has remained the exclusive rule of reason approach of the Supreme Court for nearly a century.

Yet, perhaps in an attempt to improve the test, each of the federal circuits has incorporated the less restrictive alternative inquiry as an independent and dispositive prong of the rule of reason. Under this newly created test, a restraint that achieves a net procompetitive benefit - and thus is legal under the Supreme Court standard - is illegal if the procompetitive benefits could have been attained by a less restrictive alternative. Surprisingly, the new test has not only avoided much criticism, but has received widespread support from scholars across the ideological spectrum.

Rather than improve the rule of reason, however, use of the less restrictive alternative inquiry as a dispositive factor transforms an already difficult analysis into a virtually unworkable multi-tiered balancing adventure. It adds a new level of confusion and opacity to Section 1 analysis and threatens to change the role of antitrust law from an ex ante deterrent of net anticompetitive behavior to an ex post regulator of net procompetitive business decisions.

This Article examines the historical use of the less restrictive alternative inquiry and its emergence in the modern rule of reason analysis. The Article argues that use of the inquiry in the modern rule of reason is both theoretically and practically flawed. The Article concludes that proof of less restrictive alternatives should be used solely as proof of anticompetitive intent, which in turn should only be used as one factor to aid courts in balancing the competitive effects of a restraint of trade. Such use of the search for less restrictive alternatives is consistent with nearly one hundred years of Supreme Court precedent and maintains the proper focus of the antitrust laws on the competitive impact of the restraint.

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