A Brief History of U.S. Antitrust Law

A Brief History of U.S. Antitrust Law – Part Two

By The Fatty Fish Editorial Team - January 13, 2022

Brief History of U.S. Antitrust Law — One Step Forward, Two Steps Back

In this ongoing series on a brief history of antitrust law, we continue our exploration of U.S. antitrust law, the foundation of which was laid in Part One of this series on U.S. antitrust. Despite the passage of the Clayton Antitrust Act, which outlawed using mergers and acquisitions to achieve monopolies and exempted collective bargaining from antitrust action, and the Federal Trade Commission Act, which created the U.S. Federal Trade Commission (FTC) an independent agency that was to share jurisdiction with the Department of Justice over federal antitrust enforcement, U.S. antitrust enforcement remained weak well into the 1930s.

Influenced by the success of the War Industries Board during World War I, many American government officials, business leaders, and even economists believed that collaboration among business leaders and government officials could efficiently and safely propel the economy forward. Following the Wall Street Crash of 1929, many Americans lost faith in the viability of free market competition altogether. This sentiment, which gained much popularity during the Great Depression, led to the passage of the National Industrial Recovery Act of 1933 and helps explain many of the centralized economic planning programs popular in the early days of the New Deal.

Supreme Court decisions dealing with U.S. antitrust during this time period reflected a somewhat tolerant attitude toward cooperation — and some might say collusion — between competitors.

Enter Structuralism (1930s–1970s)

At the urging of economists such as Frank Knight and Henry C. Simons, President Franklin D. Roosevelt’s economic advisors began shifting away from free market competition once again. Simons especially saw the need for a return to strong antitrust enforcement to once again “de-concentrate” U.S. industries and promote competition. Under his guidance, Roosevelt appointed “trustbusting” lawyers to serve in the Justice Department’s Antitrust Division.

This wind shift was felt even in the Supreme Court, which became less tolerant of cooperation among companies working in the same sectors. U.S. antitrust jurisprudence returned to a more structuralist approach which rejected arguments of economic efficiency over the value of free and fair competition. In its United States v. Socony-Vacuum Oil Co. decision in 1940, the Court marked this shift by refusing to apply the “rule of reason” to an agreement between oil refiners, ruling that price-fixing agreements between competing companies were per se illegal under section 1 of the Sherman Act and would be treated as crimes “even if the companies claimed to be merely recreating past government planning schemes.”

The Court also began applying per se illegality to other business practices, among them exclusive territory agreements for sales, tying, group boycotts, market allocation agreements, and vertical restraints limiting retailers to geographic areas.

The Celler-Kefauver Act of 1950

Federal courts also became more willing to come down hard on dominant companies whenever their business practices appeared to constitute illegal monopolization.

They grew stricter still with regard to mergers under the Clayton Act, due in part to Congress’s passage of the Celler-Kefauver Act of 1950, which banned consolidation of companies’ stock or assets even in situations that did not produce market dominance. Specifically, the Celler–Kefauver Act reformed and strengthened the Clayton Antitrust Act of 1914 by closing a loophole regarding asset acquisitions and acquisitions involving firms that were not direct competitors. (The Clayton Act prohibited stock purchase mergers that resulted in reduced competition but didn’t ban buying up a competitor’s assets. The Celler–Kefauver Act outlawed that practice if it could be found that competition would be weakened or harmed as a result of the asset acquisition.)

Also referred to as the “Anti-Merger Act,” the Celler–Kefauver Act gave the government the authority to prevent vertical mergers and conglomerate mergers to preserve competition.

Pushing this antitrust theory even further, the Supreme Court ruled in its controversial 1962 Brown Shoe Co. v. United States decision that a merger that would have resulted in a company that controlled only 5% of the market was illegal.

The Hart–Scott–Rodino Antitrust Improvements Act of 1976

Like the Celler-Kefauver Act of 1950, the Hart–Scott–Rodino Antitrust Improvements Act of 1976 was also an amendment to the Clayton Act. It primarily required companies to file pre-merger notifications with the Federal Trade Commission and the Antitrust Division of the Justice Department for certain acquisitions.

The Act established waiting periods that had to elapse before these acquisitions could be authorized and empowered relevant enforcement agencies to potentially stay those periods until the companies provided relevant additional information in case of a likelihood that the proposed transaction might substantially lessen competition in violation of Section 7 of the Clayton Act.

The Act also established a filing fee, to be evenly divided between, and credited to, the FTC and the Antitrust Division of the DOJ. The amount of the fee was based on the size of the transaction, with fee tiers to be adjusted annually to account for increases in GDP.

In Part Three of this Brief History of U.S. Antitrust Law, we will focus on the modern era and the return to the rule of reason.

Disclosure: Fatty Fish is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

Image Credit: Investopedia

The Fatty Fish Editorial Team

The Fatty Fish Editorial Team includes a diverse group of industry analysts, researchers, and advisors who spend most of their days diving into the most important topics impacting the future of the technology sector. Our team focuses on the potential impact of tech-related IP policy, legislation, regulation, and litigation, along with critical global and geostrategic trends — and delivers content that makes it easier for journalists, lobbyists, and policy makers to understand these issues.