Harmful Remedies: Optimal Reformation of Anti-Competitive Contracts
44 Pages Posted: 4 May 1999
Date Written: May 22, 2000
Current law and economics literature identifies two main types of errors courts can make in applying antitrust law. Courts may erroneously label a conduct as anti-competitive although competition is not harmed. Alternatively, courts may fail to identify anti-competitive conduct and thus fail to attack it. This article focuses on a third possible error where a court identifies, correctly, anti-competitive conduct but its mode of interference, its proscribed remedy, harms competition. It analyzes such error in the context of anti-competitive contract reformation. Such error occurs, for example, where a court has chosen a reformation option that is less efficient and effective than an alternative reformation option. Accordingly, this article identifies a set of clear and coherent principles for contract reformation in order to eliminate, or at least reduce, the occurrence of the third error. The analysis moves beyond the received wisdom that contract reformation should simply sever the anti-competitive parts of a contract if so doing does not alter the nature of the contract, and suggests that in most cases courts should invalidate the contractual relationship in its entirety.
Note: This paper was formerly titled Reformation of Anti-Competitive Contracts-A Case for Economic Balancing.
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