[Antitrust] (P. 2:) also performs the function of keeping governing power in the hands of politically responsible persons. Power to exclude someone from trade, to regulate prices, to determine what shall be produced, is governing power, whether exercised by public officials or by private groups. In a democracy such powers are entrusted only to elected representatives of the governed, [or to agencies designated by the legislature. We are jealous of our economic freedoms even when elected legislators enact regulation. Much less are we prepared to acquiesce in the wielding of such power by trade groups meeting in private to promote the pecuniary interests of their members. When a monopoly or a trade association succeeds in exacting from the public more than a competitive price, it is in a very real sense exercising the power of taxation without representation. To keep economic power diffuse is to postpone or avoid the day when a resentful public will demand direct political control or nationalization of industry.]

(P. 2:) Antitrust opposition to overwhelming Bigness serves still another purpose. Intellectual and artistic creativeness can be imperilled by the quality of sameness imposed on us when standards of thought and form are delivered into the hands of a few businessmen, [whether they be movie producers, chain broadcasters, auto manufacturers or magazine publishers. It is no accident that really significant changes in design of automobiles and telephone receivers have originated in foreign enterprises which are relatively small. Among American automobile producers the smaller companies have become the daring innovators. Increasing numbers of our people find British and other foreign moving pictures the only escape from the tedium of Hollywood productions geared to a single formula of expensive "stars," lavish sets, plots at the level of teen-age understanding, and simultaneous release in so many hundreds of theatres that the movie goers' effective choice at any given time is fairly limited. The interlocking of newspaper and broadcasting interests has practically deprived us of the benefit of speedier communication inherent in the radio: the radio news commentators read us the headlines from newspapers we have already seen. To come to a question that may mean life or death, what relation is there between our "mass-production" of ideas and the alarming fact that so many of the scientists who gave us atomic energy were foreigners, not nourished in the vaunted laboratories of American industry?

[Everyone recognizes that many modern industrial operations cannot be performed on a small scale. Steel making, petroleum refining, railroad, steamship and air operations call for large business units. But how large? How much larger than technological considerations require? With how much incidental extension of operations into related fields that do not require large scale operation? And to the extent that large size is inevitable the question arises whether industrial giants shoul be free to use economic power devices like merger, exclusive dealing and price-discrimination with the same freedom as smaller units in the trade?

THE PRESENT INDUSTRIAL SCENE AND APPLICABLE LAW

[In the light of the foregoing, let us take note of some salient features of the present industrial scene and the Majority's reaction to the facts.

[A. The Big-Two, Big-Three Pattern-In the country as a whole or in large regions we find] (p. 55:) important industries dominated by a very few corporations. This is true in automobiles, steel, aluminum, tin cans, linoleum, cigarettes, liquor, tires, meats, biscuits and crackers, dairy products, among others. Many of these corporations were created by merger of enterprises that were alreddy fully integrated from a technological point of view. Some of these businesses, e. g., biscuit making, can easily and efficiently be carried on at relatively small scale. We know from a study by the Federal Trade Commission that the merger movement long ago passed the point where integration necessarily pormotes efficiency, for the study showed that medium or small operations were generally the most efficient. (Pp. 40-41:) Economists tell us that when the number of sellers in a market is reduced to two or three, they operate much like a monopoly, even though they have not formally combined into a single leagl unit.

[What, then, is the deficiency in the law which has permitted this condition to continue? It is the rule which says that any corporation, no matter how big, may swallow up another if it has "good business reasons" for doing so, e. g., "to expand," and if the government is unable to show that competition has been so restricted that others are "foreclosed" from a substantial market. This rule is espoused in the Majority Report.] (Pp. 51-52:) The Majority fails to condemn the U. S. Steel decision of 1920, where by vote of 4-3 the Supreme Court sustained the amalgamation of half the steel industry of the country, resulting in 100%

monopoly in some lines. [It views with equanimity subsequent phases of U. S. Steel's program of expansion by merger (Columbia Steel case) despite the avowed purpose of that acquisition to acquire a "firm market"-which in plain talk, means that competing sellers of steel are to be denied a chance to get the business of a previously independent steel processor by offering better prices and service than the great steel trust! The Majority Report reviews without protest a case like Transamerica Corp. v. Board of Governors, holding that acquisition of forty-eight banks, doing 50% of the bank loan business of the Far West, shows no tendency to substantially lessen competition. The Majority apparently approve the old International Shoe case which imported into the Clayton Act the convenient Sherman Act dogma of good business reasons and the absence of prejudice to competition.] (Pp. 127-128:) Pillsbury Mills, a recent decision of the Federal Trade Commission, is hailed for ruling that the industry leader's acquisition of a competitor, which among other things gave Pillsbury 45% of the relevant market, could not be vetoed without a full economic analysis of the Transamerica variety.

The Timken case stands unchallenged although there (p. 356:) the Supreme Court went so far in its solicitude for the right of amalgamation as to preserve interlocking control of international competitors in the very same decree which orders the defendants not to use that control to integrate the operations of the two firms. In other words, the Timken decision finds that the American company's acquisition of control over the British firm was unlawful, assumes that the two firms can function as independent enterprises with no technological necessity for integration, directs that they function as competitors, yet leaves the ownership intact. This is also the pattern of certain consent decrees that purport to require "competition" among members of a family of enterprises under a single financial domination. Such decrees in favor of departmental rivalry lose sight of the true significance of competition. Departmental rivalry, such as prevails, (pp. 35-36:) for example, between the Chevrolet and Buick divisions of General Motors, or the "socialist competition" between the various production ministries of the Soviet Union, looks like competition and may tend to stimulate cost-saving and sellinginitiative. Far-sighted managements encourage decentralized administration and departmental rivalry for this reason. It would never be allowed to go so far as to threaten the profits of the parent enterprise through unrestricted price cutting. In other words, (pp. 356–357:) departmental rivalry is a device employed by management to secure effective control of subordinate divisions. Competition, on the other hand, is an institution designed to subject management itself to the control of a market where others are free to produce and sell. Departmental rivalry would exist if General Motors had an exclusive legal franchise to manufacture all automobiles used in the United States.

(Pp. 35-36:) If the Timken situation, involving common ownership of competing or potentially competitive enterprises, is left undisturbed, how much less is the Court likely to interfere with the type of economic empire which is coming to be known as "conglomerate" consolidation because it embraces subsidiaries engaged in different, though not unrelated, businesses. [The issue is presented in the pending suit challenging the Du Pont hegemony in paint, chemicals, tires, and automobiles. Is an antitrust law adequate which finds this situation unobjectionable so long as the obvious power to influence the flow of trade among these subordinate units remains "unexercised?" I find no intimation in the Majority Report of concern over this type of power concentration.

[To meet the situation described in the preceding paragraphs we need a law requiring advance approval of mergers when carried out by industry leaders, and placing upon the proponent the burden of proof that the transaction has technological justification and serves the public interest. This was proposed by the TNEC fifteen years ago, and nothing less will stem the merger move

ment.

[B. The Apparent Immunity of Dominant Firms.]—(Pp. 127–128:) Anti-merger measures are undermined and rendered almost absurd so long as a number of colossal enterprises remain apparently immune from the law even though they are of greater size than their combining competitors. If the existence of a General Motors is not incompatible with the public interest, it is hard for the courts to veto lesser combines, especially where it can be said that the proposed consolidation will be able to compete more effectively with the dominant company. Conversely, if the combination of Bethlehem Steel and Youngstown may be opposed, presumably on the assumption that they can survive as independents, what is

206 F. 2d 163 (3d Cir. 1953) cert. denied, 346 U. S. 901 (1953).

the justification for a U. S. Steel twice as big as Bethlehem? The logic of the situation calls for a public reexamination of the justification for these very largest multi-billion dollar enterprises. This could be done by a statute putterned on the Public Utility Holding Company Act of 1935, under which the Securities and Exchange Commission simplifies the structures of oversize utility holding companies and confines each system to a technologically justified scope of operation.

(P. 387:) Far from considering that proposal, which was submitted to the Committee, the (p. 357:) Majority Report is even hostile to the breaking up of monopolies when they have been proved to be illegal. Divestiture is to be invoked only as a last resort and only after giving consideration to "the effect of a possible resultant disruption upon the industry . . . public needs in peace and war." [This sounds reasonable enough, until one turns to examine the kind of application such standards have had in the past. For example, when Aluminum Company of America was held to be an unlawful monopoly, the court refused to split it up, principally on grounds that an aluminum company must be huge to compete with the huge steel and copper companies and that Alcoa's research laboratory was vital to national defense. The first ground leaves one to wonder how the very much smaller competitors of Alcoa can expect to survive if the judge correctly gauged the minimal size for survival in today's metal markets. But more important is the implicit notion that no monopolist in the field of structural materials need fear dissolution under the antitrust laws so long as he has U. S. Steel to point to as his surviving competitor. The] (p. 357:) national defense consideration in antitrust relief can be dangerously misleading. The very fact that our national existence can be thought dependent on a single organization, run by fallible human beings, suggests that precisely here private monopoly cannot be tolerated. [Even within the government we do not concentrate military research in a single unit, but enjoy the benefits of rivalry in technological developments between laboratories of various defense units. Furthermore, if aluminum research must be concentrated in a single organization, national defense considerations would suggest that the resulting technological advances should be made available to all producers on equal terms, by divorcing this "national" research enterprise from control of the dominant producer.

[The Majority cite with approval the Supreme Court's dictum in the National Lead case, where divestiture was refused in part because there was "no showing that four major competing units would be preferable to two, or . . . that six would be better than four." Far from supporting the Majority's admonition for judicial restraint in divestiture, this remark demonstrates the opposite: that the] (p. 357:) Court is not sufficiently aware of the nature of oligopoly or the importance of multiple-seller competition in framing its antitrust judgments. [Size,] then, can make itself appear indispensable; one has only to monopolize enough of an important technology and the courts will fear to lay hands on the structure. And size begets size; the hugeness of the leaders of one industry will save the monopolist in another industry from dismemberment. [This contagious quality of bigness manifests itself in many ways in today's economy. Banks merge because only giant banks can handle the financing of giant industry. But a very large bank must make large loans and therefore courts big industry with special favor. Suppliers and customers are driven to integrate, if only to achieve the "countervailing power" upon which some economists have now been driven to rely in place of competition. Only big newspapers and broadcasting chains can provide the advertising coverage required by the great selling combines, and only the latter can pay the rates. The upshot is clear: integrate or disappear. Moreover, there has appeared an irrational psychology of competition among managements to be "Number One," "the Biggest," even if this is accomplished by buying out unprofitable firms. The same psychology is reflected in a stock market phenomenon: the invariably bullish character of any merger announcement, without regard to underlying business factors.]

(P. 357:) Only intervention by the legislature can roll back the tide of monopoly. [The nature of the intervention has already been indicted.] There must be a

5 Cf. the answer once given by the Civil Aeronautics Board to the suggestion that national interest would be best promoted by having a single American-flag air carrier in international air transportation:

"To restrict international air transportation to one carrier would place upon one small managerial group responsibiilty for handling matters having tremendous national importance. To conclude that the public convenience and necessity require only one company In international air transportation would result in placing that company in a position of power which might enable it to interfere with public policies unacceptable to the management." North Atlantic Route Case (6 CAB 319, 325 (1945)).

legislative investigation of the justification for our very largest aggregations of financial and industrial control, probably followed by a statute authorizing an appropriate agency to bring these enterprises into some reasonable relationship with technological requirements.

[C. Restrictions on Entry.The American businessman has lost a considerable amount of his freedom to go into the trade of his choice. Certain businesses have been officially removed from the area of free entry. [This subject is further explored under the heading of exemptions. It suffices here to note that although trucking is a classic example of an industry which should be governed by competition, it is now closed to anyone who cannot persuade a regulatory agency that there is "need" for more service, and, in addition, that existing carriers are unable or unwilling to supply the need. As if such legal barriers were not enough, the would-be entrepreneur who believes that he can meet these requirements faces years of litigation and delay simply because the undermanned agencies cannot keep up with their dockets, to say nothing of the opposition of those already certificated. In the seventeen years that the Civil Aeronautics Act has been in existence, not one new operator has received a permanent certificate to engage in domestic trunkline passenger service. [With regard to the mass of existing regulation restricting entry the Majority can agree to say only that further moves to substitute restricted entry in place of free competition should be taken only with "full recognition" of anticompetitive effects. We can be quite sure that the Majority's admonition will be followed. The proponents of these measures do invariably recognize fully the effect on competition. They expressly intend to displace it. Such things as safety regulation, navigation rules, etc. which are unquestionably proper subjects of regulation need not, however, be accompanied by restrictions on the right of entry. Nor can the necessary restriction of broadcasting on the same frequency justify a system of economic regulation which accords many of the available frequencies to the same or affiliated interests.

[In so-called] (pp. 54–55:) “unregulated” business, entry is restricted by private control of raw materials or by existing sellers' domination of the channels of distribution. [In this connection one need only consider the difficulties facing a man who would like to go into the business of manufacturing automobiles. Assume that he has a better car and the manufacturing resources to produce it cheaply. He nevertheless faces an insuperable marketing problem since almost all auto dealers are tied to the present producers by exclusive contracts or equivalent arrangements. A dealer might like to try his hand at selling this attractive new car, but he fears to lose his "franchise." It is obviously impossible to build a parallel nationwide dealer system. The new or foreign car therefore dribbles slowly into a few metropolitan areas. No one knows how much faster they might win acceptance if all auto dealers felt genuinely free to take a second line, or how much more rapid progress domestic autos would make if such a potential competition were unleashed.]

"RULE OF REASON" AND CERTAINTY-CONFLICTING DEMANDS ON ANTITRUST

ADMINISTRATION

(Pp. 390-392:) One of the major issues which the Committee had to face was the powerfully supported proposal to reorient antitrust administration to give greater scope to the "rule of reason" and, by the same token, to cut down or eliminate the classes or restraint prohibited as illegal “per se.” The Majority Report fortunately does not call for a general expansion of the “rule of reason:" but some of its specific proposals and the heavy emphasis placed on "full economic investigation" 100 n that direction. Furthermore, the plausible “rule of reason” argument for relaxing the antitrust laws is so likely to be pressed on Congress, the Courts, the Department of Justice and the administrative agencies that the precise significance of the proposal should be made crystal clear.

The "rule of reason" says that a restraint of trade is illegal only if it is likely to be harmful to the public. The per se doctrine says that some restraints are so generally harmful that they are prohibited outright, without trying to determine whether in the particular case there may be more good than harm in the practice. The Sherman Act seems to say that all restraint of trade is hurtful to the public and therefore prohibited, but the courts soon restricted the prohibition to "unreasonable" restraints. The first twenty years of experience under the Sherman Act demonstrated that certain restrictive practices of large corporations could not be stopped under a rule of reason approach. Congress therefore supplemented the Sherman Act with the Clayton Act of 1914 which

made certain practices illegal-mergers, tying and exclusive dealing, price discrimination--where the effect "may be" to substatnially lessen competition. This test moves far in the direction of per se violation and has been judicially declared to render unnecessary in some cases the wide economic investigation appropriate to Sherman Act controversies. In addition, the Courts themselves began to hold that some restraints were illegal per se under the Sherman Act, particularly agreements to fix or influence prices, to divide markets among competitors, or to drive a trader out of business by boycott.

The first thing to be observed about this distribution of antitrust prohibitions between rule of reason and per se illegality is that rule of reason affords an opportunity to justify the restraint in a particular case as harmless or even beneficial, but by the same token makes it difficult to forecast how the courts will judge the balance of pros and cons. In other words, the "uncertainty" of the antitrust laws, about which certain business groups complain, derives from the rule of reason and is inherent in it. "Per se" rules, in contrast, are quite certain just because they do prohibit absolutely and without a chance of justification, a situation which likewise aggrieves the critics of the antitrust laws. It is impossible to meet both these complaints. One can have more uncertainty and fewer per se rules, or less uncertainty and more per se rules. Antitrust critics will have to make a choice.

The second thing worth noting is that rule of reason is not merely a standard for judging lawfulness; it has procedural consequences of vast importance. It makes relevant the entire history of the industry, all evidence bearing on the good and bad purposes and consequences of the restraint, political and military exigencies possibly accounting for the restraint, conflicting expert testimony to explain phenomena like price matching, etc. This has two consequences: (1) It makes the proceedings intolerably long and expensive, putting a drag on enforcement and real burden on defendants; and (2) It operates differentially in favor of powerful defendants as against smaller units, since only the powerful can afford that kind of defense. In a per se case, on the other hand, inquiry should stop when the restraint has been identified.

Thirdly, one can discern a suggestion in some recent decisions that certain practices should be illegal per se when engaged in by companies dominant in their fields. This development is one that the Committee might well have endorsed, and it is perhaps ripe for legislative declaration. The most powerful corporations should hardly find it necessary to bulwark their positions by exclusive dealing and requirements contracts. On the other hand, the small new producers may safely be permitted to establish footholds in the market by these means since those with whom they deal are under no great pressure to accept the restraint. Similarly, mergers of minor units of the industry may have no general significance, even if they have been competitors in some degree, and should be justifiable under the rules of reason, whereas the absorption of one of these units by a dominant firm may signal the doom of the other unit and constitute another step in the process of "creeping monopoly."

Recognition of the exceptional circumspection which great corporations must observe when it is a question of employing specially dangerous business power devices would not be a radical departure from modern standards of corporate obligation. Adolf Berle and other have already pointed out that our great corporations must and have begun to behave like agencies with public responsibilities, rather than mere private business aggregations.

ADMINISTRATION AND ENFORCEMENT

[The] (p. 388:) chapter of the Majority Report dealing with Administration and Enforcement offers as clear a demonstration as any that the Majority operate on the undeclared assumption that we have had too much rather than too little antitrust enforcement. As elsewhere in the report, we are presented with an excellent technical analysis and a series of proposals many of which standing alone would seem unreasonable enough. But when they are all added together the total effect of the recommendations is clear: to restrict the Antitrust Division's power of investigation, to curtail use of criminal prosecutions, to slow up the

But cf. U. S. v. Morgan (The Investment Bankers Case) F. Supp. 1954).

(S.D.N.Y.

7 See, for example, Dictograph Products, Inc. v. FTC, U. S. Ct. of App for the Second Circuit, December 15, 1954, 23 LW 2293. This in my opinion is the real basis also for Standard Oil Co. v. U. S., 337 U. S. 293.

8 Some of the proposals are unequivocally worthwhile, e. g., the inclusion of the United States among those who can recover damages for an antitrust violation. I agree also that criminal prosecution should not be used to test novel applications of the antitrust law.