Justice Scalia and Sherman Act Textualism

40 Pages Posted: 7 Jan 2019

Date Written: June 1, 2017

Abstract

Some scholars have claimed that Justice Scalia’s account of the Sherman Act, which treated the Act as banning only those restraints that harmed consumer welfare, contradicted his professed interpretive methodology of “original public meaning.” In particular, some claim that application of the term of art canon, which the Justice invoked in other contexts, would require courts to ban all agreements that were unenforceable at common law, whether or not such an agreement reduced consumer welfare. These scholars reason that the phrase “in restraint of trade” had its origins in the common law of contracts, with the result that the content of that body of law as of 1890 supplies the meaning of the statutory text and defines the boundary between lawful and unlawful agreements. These same scholars also take issue with the Justice’s conclusion that Sherman Act doctrine can evolve in light of changed economic understandings regarding the impact of particular practices. These critics focus particular attention upon the Justice’s opinion in Business Electronics v. Sharp Electronics Co., 485 U.S. 717 (1988). There the Justice opined that the per se rule only condemns those agreements that always or almost always “restrict competition and reduce output” and that “[t]he Sherman Act adopted the term ‘restraint of trade’ along with its dynamic potential. It invokes the common law itself, and not merely the static content that the common law had assigned to the term in 1890.” Such a dynamic interpretive approach, it is said, cannot be squared with an original meaning approach. Indeed two scholars have claimed that such a dynamic approach to applying the Act helps render the Sherman Act a “super statute” with different attributes from ordinary legislation.

This essay rebuts these critiques. For one thing the approach outlined in Business Electronics was a faithful implementation of Standard Oil Co. v. United States, 221 U.S. 1 (1911), a decision the critics do not mention. After a lengthy exegesis of the common law, Standard Oil announced a dynamic Rule of Reason oriented toward consumer welfare, a result the informs Section 1 jurisprudence to this day. While the Standard Oil Court also invoked liberty of contract to support its account of the Act, subsequent decisions invoked the absurdity canon, concluding that Congress could not have taken the absurd step of banning reasonable restraints. Of course Justice Scalia would likely not invoke liberty of contract as a valid source of statutory meaning. Moreover, the statutory language “in restraint of trade or commerce” does not satisfy the standards the Justice articulated for application of the absurdity canon.

This leaves the common law as the final possible support for Standard Oil’s Rule of Reason. Critics of Justice Scalia’s approach implicitly reject Standard Oil’s account of the common law. However, evaluation of Justice Scalia’s account does not require an adjudication between different accounts of the pre-1890 common law of contracts. The common law was not the only body of law relevant to the meaning of the term “restraint of trade or commerce among the several states.” Instead, this term appeared several times in the Court’s Commerce Clause jurisprudence during the 1880s. That is, the Court employed this term as a synonym for (state) “regulation” of commerce among the several states, regulation that Congress had implicitly preempted under what we now call the Court’s “dormant Commerce Clause” jurisprudence. According to that well-developed body of law, a state statute was such a “restraint or regulation” of commerce among the several states if it “directly” burdened or “directly obstructed” interstate commerce. Regulations that imposed so-called “indirect restraints” of such commerce, by contrast, fell within states’ exclusive authority to impose.

This Commerce Clause jurisprudence and its distinction between direct and indirect restraints provides a potent source of meaning for the term “restraint of trade or commerce.” That is, the term “restraint of trade or commerce” could refer to those contracts or agreements that “directly” obstruct or burden trade and thus, like analogous state statutes, impermissibly regulate commerce and fall within Congress’s authority for that reason. This definition, of course, would exclude so-called “indirect” burdens or obstructions from the reach of the Act, leaving such agreements exclusively within the jurisdiction of the states, even if such agreements were otherwise unenforceable according to the common law of 1890.

Identification of this new possible source of meaning does not thereby exclude other possibilities, including the common law. The choice between the common law and Commerce Clause jurisprudence seems relatively straightforward, however. The 1890 Congress had no general authority to generate a common law of private contracts in 1890. Moreover, the direct/indirect formulation was not merely linguistic but instead placed limits on Congress’s affirmative authority to regulate. Finally, certain types of agreements subject to the common law, such as an agreement to limit production, would seem to be beyond the scope of Congress’s power as a categorical matter under the direct/indirect test. It is thus no surprise that the Supreme Court itself chose the Commerce Clause jurisprudence and not the common law. In five different decisions in the 1890s, the Court repeatedly held that the Act reached only direct restraints of commerce among the several states, leaving all indirect restraints, including those incidental to the formation of partnerships and corporations, exclusively to state authority, regardless of whether such restraints were enforceable at common law. Moreover, the Court defined as “direct” only those restraints that interfered with interstate free trade by reducing rivalry and exercising market power to the detriment of consumers, thereby employing a fact-based standard to discern the status of a challenged restraint. Such a standard, of course, was susceptible to evolving economic conceptions. Indeed, Standard Oil itself had instanced the direct/indirect test as an example of the sort of workable standard it was announcing in the form of the Rule of Reason. Thus, Congress’s embrace of the phrase “restraint of trade of commerce among the several states” appears entirely consistent with Justice Scalia’s embrace of a dynamic Sherman Act, focused on advancing consumer welfare.

Keywords: Justice Scalia, Sherman Act, Original Public Meaning, Commerce Clause, Statutory Interpretation, Super Statutes

JEL Classification: K21, L41

Suggested Citation

Meese, Alan J., Justice Scalia and Sherman Act Textualism (June 1, 2017). Notre Dame Law Review, Vol. 92, No. 5, 2017, Available at SSRN: https://ssrn.com/abstract=3307954

Alan J. Meese (Contact Author)

William & Mary Law School ( email )

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P.O. Box 8795
Williamsburg, VA 23187-8795
United States
757-221-1609 (Phone)
757-221-3261 (Fax)

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