U.S. Antitrust Law From The Robber Barons To The Clinton Years

Click here for an article entitled Antitrust Law from West's Encyclopedia of American Law, which defines antitrust law as

Legislation enacted by the federal and various state governments to regulate trade and commerce by preventing unlawful restraints, price-fixing, and monopolies, to promote competition, and to encourage the production of quality goods and services at the lowest prices, with the primary goal of safeguarding public welfare by ensuring that consumer demands will be met by the manufacture and sale of goods at reasonable prices.

Some excerpts:

Premised on the belief that free trade benefits the economy, businesses, and consumers alike, the law forbids several types of restraint of trade and monopolization. These fall into four main areas: agreements between competitors, contractual arrangements between sellers and buyers, the pursuit or maintenance of monopoly power, and mergers.

Antitrust law originated in reaction to a public outcry over trusts, which were late-nineteenth-century corporate monopolies that dominated U.S. manufacturing and mining. Trusts took their name from the quite legal device of business incorporation called trusteeship, which consolidated control of industries by transferring stock in exchange for trust certificates. The practice grew out of necessity. Twenty-five years after the Civil War, rapid industrialization had blessed and cursed business. Markets expanded and productivity grew, but output exceeded demand and competition sharpened. Rivals sought greater security and profits in cartels (mutual agreements to fix prices and control output). Out of these arrangements sprang the trusts. From sugar to whiskey to beef to tobacco, the process of merger and consolidation brought entire industries under the control of a few powerful people. Oil and steel, the backbone of the nation's heavy industries, lay in the hands of the corporate giants John D. Rockefeller and J. P. Morgan. The trusts could fix prices at any level. If a competitor entered the market, the trusts would sell their goods at a loss until the competitor went out of business and then raise prices again. By the 1880s, abuses by the trusts brought demands for reform.

In 1890, Congress took aim at the trusts with passage of the Sherman Anti-Trust Act, named for Senator John Sherman (R-Ohio). It went far beyond the common law's refusal to enforce certain offensive contracts. Clearly persuaded by the more restrictive view that saw great harm in restraint of trade, the Sherman Act outlawed trusts altogether.

After the turn of the twentieth century, federal enforcement picked up speed. President Theodore Roosevelt's announcement that he was a "trustbuster" predicted one important aspect of the future of antitrust enforcement: it would depend largely on political will from the executive branch of government. Roosevelt and his successor, President William Howard Taft, responded to public criticism over the rapid merger of even more industries by pursuing more vigorous legal action, and steady prosecution in the first decade of the twentieth century brought the downfall of trusts.

After the demise of the robber barons, the industrial climate changed:

As World War I and the 1920s reversed the outlook of previous years, antitrust policy was characterized by the hands-off policies of President Calvin Coolidge, who declared, "The business of America is business." Economic trends created and supported this attitude; prosperity seemed a worthwhile reward. In this era, the Justice Department gave more attention to promoting fairness than it did to attacking restrictive practices and monopoly power.

A more permissive business climate initially stymied some of FDR's antitrust efforts, but by 1940 Roosevelt's arguments had largely won the day and stronger antitrust legislation was securely in place. That era reached its high-water mark in the early 1980s with the breakup of AT&T, which was found to have impeded competition in long-distance telephone service and telecommunications equipment.

The result was the largest divestiture in history: a federal court severed the Bell System's operating companies and manufacturing arm (Western Electric) from AT&T, transforming the nation's telephone services.

In the Reagan years, though, the pendulum started to swing back. One landmark case was the Justice Department's 13-year suit against IBM, ultimately dropped.

Throughout the 1980s, political conservatism in federal enforcement complemented the Supreme Court's doctrine of nonintervention. The administration of President Ronald Reagan reduced the budgets of the FTC and the Department of Justice, leaving them with limited resources for enforcement. Enforcement efforts followed a restrictive agenda of prosecuting cases of output restrictions and large mergers of a horizontal nature (involving firms within the same industry and at the same level of production). Mergers of companies into conglomerates, on the other hand, were looked on favorably, and the years 1984 and 1985 produced the greatest increase in corporate acquisitions in the nation's history.

A conservative Supreme Court "strengthened requirements for evidence, injury, and the right to bring suit," and "antitrust cases became harder for plaintiffs to win. Most decisions in this period narrowed the reach of antitrust."

After the Reagan years, antitrust attitudes sharpened in Washington, D.C. The administration of President George Bush adopted a slightly more activist approach, reflected in joint guidelines on mergers issued in 1992 by the FTC and the Justice Department. In following the trend away from strict Chicago school efficiency standards, the guidelines looked more closely at competitive effects and tightened requirements. But understaffed government attorneys generally lost court cases. President Bill Clinton took this activism further. Anne K. Bingaman, his appointee to head the Department of Justice's Antitrust Division, beefed up the division's staff with sixty-one new attorneys, declaring her organization the competition agency. The Antitrust Division filed thirty-three civil suits in 1994, roughly three times the annual number brought under Reagan and Bush. It won some victories without going to court, in one instance compelling AT&T to keep a subsidiary private, but it lost a major lawsuit claiming that General Electric had conspired with the South African firm of DeBeers to fix industrial diamond prices.

Under President Clinton, the most important antitrust action involved a federal probe of the computer software giant Microsoft Corporation. In its potential for far-reaching action, this was the biggest antitrust case since those involving AT&T and IBM. Competitors complained that Microsoft used illegal arrangements with buyers to ensure that its disk operating system would be installed in nearly 80 percent of the world's computers. In-depth investigations by the FTC and the Department of Justice followed. In mid-1994, under threat of a federal lawsuit, Microsoft entered a consent decree designed to increase competitors' access to the market. All the parties involved---the original complainants, Microsoft, and the government---expressed relative satisfaction. But in early 1995, a federal judge rejected the agreement, citing evidence of other monopolistic practices by Microsoft. In a highly unusual move, the Justice Department and Microsoft together appealed the decision. The uncertain future of the case carried the threat of further action against the nation's fifth-largest industry.

The article ends there, abruptly and rather unsatisfyingly. How did the Microsoft case turn out? What developments to antitrust law took place during the Bush II and Obama years? We'll have to look elsewhere for the answers to those questions. in place.