BYU Law Review Volume 1999 | Issue 4 Article 4 11-1-1999 The Real Rule of Reason: Bridging the Disconnect Michael A. Carrier Follow this and additional works at: https://digitalcommons.law.byu.edu/lawreview Part of the Antitrust and Trade Regulation Commons Recommended Citation Michael A. Carrier, The Real Rule of Reason: Bridging the Disconnect, 1999 BYU L. Rev. 1265 (1999). Available at: https://digitalcommons.law.byu.edu/lawreview/vol1999/iss4/4 This Article is brought to you for free and open access by the Brigham Young University Law Review at BYU Law Digital Commons. It has been accepted for inclusion in BYU Law Review by an authorized editor of BYU Law Digital Commons. For more information, please contact [email protected]. CAR-FIN.DOC 4/5/00 7:24 AM The Real Rule of Reason: Bridging the Disconnect Michael A. Carrier∗ INTRODUCTION .......................................................................1267 I. NONBALANCING UNDER THE RULE OF REASON: THE SURVEY .........................................................................1272 A. Vertical Restraints .................................................1273 1. Territorial, customer, and other restrictions....1274 a. The results ...................................................1275 b. Three instances of balancing.......................1276 2. Refusal-to-deal cases.........................................1277 a. The results ...................................................1278 b. Two instances of balancing .........................1278 c. Instances of burden-shifting........................1279 3. Exclusive dealing..............................................1280 a. The results ...................................................1280 b. One instance of balancing ...........................1281 c. Instance of burden-shifting .........................1281 4. Tying.................................................................1281 a. The results ...................................................1282 b. One instance of balancing ...........................1283 B. Horizontal Arrangements ......................................1283 1. Unfair competition............................................1283 a. The results ...................................................1284 b. Four instances of balancing ........................1284 c. Instances of burden-shifting........................1287 2. Trade association rules and activities..............1288 a. The results ...................................................1288 b. Nine instances of balancing ........................1289 c. Instance of burden-shifting .........................1292 ∗ Associate, Covington & Burling, Washington, D.C. B.A. 1991, Yale; J.D. 1995, Michigan. I would like to thank Stephen Calkins, Tom Kauper, and Gregg Levy for helpful comments on an earlier draft of this Article and Harold Chen, Ken Drexler, Gary Mendelsohn, and Steve Teplinsky for useful discussions. Even more important, I would like to thank my wife, Sharri Horowitz, for her patience and understanding. 1265 CAR-FIN.DOC 4/5/00 7:24 AM 1266 BRIGHAM YOUNG UNIVERSITY LAW REVIEW [1999 C. Survey Results .......................................................1293 II. THE PROPRIETY OF THE RULE OF REASON FACTORS .........1294 A. The Sources............................................................1294 1. The legislative history of the Sherman Act.......1294 2. Common law.....................................................1298 a. English common law ...................................1299 b. American common law ................................1301 3. Chicago School of Economics ...........................1303 4. Post-Chicago School .........................................1305 5. Applying the sources.........................................1307 B. Anticompetitive Effect............................................1308 1. Legislative history.............................................1308 2. Common law.....................................................1313 3. Chicago School .................................................1314 4. Post-Chicago School .........................................1315 C. Procompetitive Justifications ................................1316 1. Legislative history.............................................1316 2. Common law.....................................................1317 3. Chicago School .................................................1318 4. Post-Chicago School .........................................1319 D. Reasonable Necessity or Less Restrictive Alternatives............................................................1320 1. Legislative history.............................................1320 2. Common law.....................................................1321 3. Chicago School .................................................1322 4. Post-Chicago School .........................................1323 E. Balancing...............................................................1324 1. Legislative history.............................................1324 2. Common law.....................................................1325 3. Chicago School .................................................1326 4. Post-Chicago School .........................................1327 III. THE CAPACITIES OF COURTS ............................................1328 A. Anticompetitive Effect............................................1329 1. Output...............................................................1329 2. Price ..................................................................1330 3 Other factors .....................................................1331 B. Procompetitive Justifications ................................1333 C. Reasonable Necessity or Less Restrictive Alternatives............................................................1336 1. Less restrictive alternatives ..............................1336 CAR-FIN.DOC 4/5/00 7:24 AM 1265] THE REAL RULE OF REASON 1267 2. Reasonable necessity.........................................1341 D. Balancing...............................................................1346 1. Theory ...............................................................1346 2. The cases...........................................................1349 E. Taking Stock..........................................................1357 1. Anticompetitive effect........................................1358 2. Procompetitive justifications ............................1358 3. Reasonable necessity/less restrictive alternatives .......................................................1358 4. Balancing..........................................................1359 IV. CONSEQUENCES OF THE DISCONNECT AND THE MODIFICATION ..............................................................1360 A. Parties....................................................................1360 1. Fewer cases .......................................................1360 2. More focused litigation .....................................1362 B. Courts.....................................................................1363 V. CONCLUSION ......................................................................1364 INTRODUCTION The most famous doctrine in antitrust law is the “Rule of Reason.” And anyone who knows anything about the Rule of Reason knows that courts and juries applying the Rule balance the anticompetitive effects of the antitrust agreement at issue against its procompetitive effects.1 Any antitrust practitioner can explain that whichever side of the scale weighs heavier de- termines the outcome: if the court finds that the anticompeti- tive effects predominate, it invalidates the agreement; if the procompetitive effects win out, it upholds the agreement. Guess what? Everyone is wrong. This Article takes a new look at the Rule of Reason. It sur- veys all of the Rule of Reason cases in the modern era and finds that, in reality, courts rarely conduct the balancing for which the Rule is known. The Article concludes that in an astonishing 1. This Article will henceforth refer to and consider balancing only by courts. Instances in which courts have balanced anticompetitive and procompetitive effects or have passed upon the validity of jury verdicts can be discovered by traditional research tools; jury balancing cannot. That juries may play a marginally more significant role than can be pinpointed does not affect the conclusions drawn by this Article. CAR-FIN.DOC 4/5/00 7:24 AM 1268 BRIGHAM YOUNG UNIVERSITY LAW REVIEW [1999 96% of Rule of Reason cases, courts do not balance anything.2 Instead, many recent courts have engaged in an exercise of burden-shifting, typically dismissing the case at any one of three stages that precedes the ultimate balancing.3 In the ini- tial stage, the plaintiff must show a significant anticompetitive effect resulting from the restraint.4 The plaintiff can clear this threshold by demonstrating either an actual adverse effect, such as a reduction of output or an increase in price, or a po- tential adverse effect, which requires proof of market power.5 If the plaintiff cannot make this showing, the court will dismiss the case. In 84% of the cases, the lawsuit is disposed of at this stage. If the plaintiff can demonstrate an anticompetitive effect, the burden shifts to the defendant to demonstrate a legitimate procompetitive justification for the restraint.6 The defendant’s failure at this step will lead to the invalidation of the restraint; this happened in 3% of the cases surveyed. If the defendant 2. This conclusion