Monday, May 25, 2020
Robert H. Lande, University of Baltimore - School of Law and Richard O. Zerbe, University of Washington - Daniel J. Evans School of Public Affairs; University of Washington - School of Law advocate The Sherman Act is a No-Fault Monopolization Statute: A Textualist Demonstration.
ABSTRACT: Section 2 of the Sherman Act was designed to impose sanctions on all monopolies and attempts to monopolize regardless whether the firm had engaged in anticompetitive conduct. This conclusion emerges from the first ever textualist analysis, a form of statutory interpretation vigorously championed by Justice Scalia, of the language in Section 2. This article analyzes contemporaneous dictionaries, legal treatises, and cases, and demonstrates that when the Sherman Act was passed, the word “monopolize” simply meant that someone had acquired a monopoly. The term was not limited to monopolies acquired through anticompetitive conduct. A textualist analysis therefore demonstrates that Section 2 was designed to impose sanctions on all monopolies and attempts to monopolize.
A textualist approach to statutory construction does not imply or create unstated exceptions. Since Section 2 of the Sherman Act contains no explicit exception for a monopoly acquired without proof of anticompetitive conduct, none should be implied or created. Current case law requiring plaintiffs to prove the corporation involved had engaged in improper conduct must be overturned.
This article then briefly analyzes the practical economic implications likely to follow from adopting a “no-fault” approach to monopolization law. The overall economic effects will be shown to be uncertain, and to depend upon empirical issues whose net effect is speculative or ambiguous. They nevertheless are likely to be beneficial on the whole, and they provide some support for the no-fault position, and a fortiori demonstrate that the article’s textualist conclusions should be implemented.
Imposing sanctions on all monopolies could improve economic welfare in many ways. It should increase innovation and international competitiveness. It should prevent the allocative inefficiency effects of monopoly pricing and the form of exploitation that arises when monopolies acquire wealth from consumers. It would be likely to decrease the inefficiencies that result from monopolies enjoying a “quiet life”. It should avoid the waste that can arise as a firm struggles to attain and protect its monopoly, and some of the time and cost of Section 2 litigation. It should tend to improve privacy and decrease income inequality.
The new standard would admittedly also cause some costs and difficulties. For example, imposing sanctions on all monopolies could sometimes send a confusing or perverse signal to firms engaging in hard but fair competition, especially as a firm’s market share neared the ambiguous level required for a violation. It could enable competitors to file baseless lawsuits. The transaction costs involved in imposing sanctions on monopolies could be significant. It also could lead to difficult remedy issues in cases involving natural and patent monopolies. We believe, however, that the benefits of no-fault are likely to outweigh the costs.
In recent years there have been many calls, from very different parts of the political spectrum, for imposing sanctions on, and even breaking up, monopolies without inquiring whether they engaged in anticompetitive conduct. This issue has not, however, been analyzed seriously either from a legal or an economic perspective in roughly a half century. The purpose of this article is not to resolve all the relevant questions. Rather, its goal is to re-kindle debate about the legal and economic issues involved in imposing sanctions on all monopolies and attempts to monopolize under the Sherman Act and also, a fortiori, under Section 5 of the FTC Act. And to demonstrate that the textualist conclusion also constitutes a reasonable policy option.