Formulated nearly 130 years ago, at a conflicting time, the Sherman Act could not have envisioned the world of today in which from practically every standpoint, technology holds utmost sway on human society. Thus, the Sherman Act and similar anti-trust acts are outdated in today’s context and in dire need of modernization so that they are able to deal with the modern market and also cater to consumers, especially in an age where every day sees an exponential growth of technology and its consequential impact. In fact, it is today imperative to amend the anti-trust laws, not only because the business landscape has changed but also because, the financial structures that can be put in place are radically different.
Evolvement
Calamitous inflation, anti-competitive nature of businesses like oil, railroad, steel during the 19th century and threat to consumer welfare, all led to the formation of a “ground-breaking piece of legislation” - The Sherman Act of 1890 ("Sherman Anti-Trust Act of 1890", 2021). The act was the very first anti-trust law in the United States of America designed to protect economic welfare, allow healthy competition, eradicate monopolistic and anti-competitive practices, and protect consumers from unfair prices and low-quality products.
The Sherman Act took a hit in 1895 when in United States v. E.C. Knight Company, the Supreme Court voted 8-1 against the government, effectively giving monopolies free reign. Then in the landmark 1911 case of Standard Oil Co. of New Jersey v. United States, the Sherman Act was indeed reframed as a ‘rule of reason’, with the Court saying that the Sherman Act was actually targeted at unreasonable restraints on trade.
This backfired in a way, as it was viewed as a conservative effort to soften the anti-trust laws resulting in Congress passing the Clayton Antitrust Act, (which outlawed creating monopolies through mergers and acquisitions) and the Federal Trade Commission Act, creating the U.S. Federal Trade Commission (FTC) which could prevent anticompetitive practices.
During the Great Depression, the tide started turning in the favour of anti-trust, when the statist nature of anti-trust laws gave away to a structuralist approach. Quite significantly, in the 1940 case of United States v. Socony-Vacuum Oil Co., the Supreme Court refused to apply the rule of reason and the Court began applying per se illegality to other business practices such as tying, something that would come back to bite Microsoft years later.
The structuralist approach lost favour in the 1970s, with prominent Yale and Chicago Law School professors translating economic theory into readily applicable legal principles. The ‘rule of reason’ again found favour.
The Justice Department and FTC lost most of the monopolization cases during this time. Mergers came to be looked at more favourably and in the 1974 United States v. General Dynamics Corp. the federal government lost at the Supreme Court for the first time in many years, demonstrating that anti-trust laws were not being enforced effectively.
Anti-trust laws have indeed not been viewed as written in stone, and various judgements have throughout made significant changes to the ways these laws enforced. Thus, they are definitely open to amendment and adaptation, and though have come a long way, they still have a long way to go.
Gearing Up for the World of Tech
Microsoft was the first ever digital company to face a lawsuit in 1999, for violating Section 1 and Section 2 of the Sherman Act, for monopolization and tying. Ordered to be broken up, Microsoft eventually settled with the government, after an appeal.
Economist Milton Friedman commented this was an indication of increased government intrusion in a field that had hitherto been free from the same adding that this could impede technological progress. Bill Gates, Microsoft’s founder, similarly blamed the case for Microsoft’s failure to enter the smartphone market.
As recently as November 2021, an anti-trust lawsuit was filed against Meta (previously Facebook) by Phhhoto, with the lawyer for the plaintiff calling Mark Zuckerberg the monopolist CEO. There has been a spate of lawsuits against tech companies like Google, Microsoft, Apple, and Facebook operating in a space that had not been envisaged just a few years ago.
The Sherman Act was designed to deal with cartels, but companies could sidestep it by simply ‘merging’ into one another. Targeting such mergers and taking this ability away from firms like Microsoft, Google, Facebook, etc, could possibly deter innovation and technological progress in the digital marketplace thereby restraining the choice customers have.
Though it may seem that major companies absorb start-ups or smaller companies into their fold on regular basis to decrease competition, a lot of start-ups begin with the aspiration to get acquired. Start-ups thrive in their new avatar with the bigger entity providing versatility and financial stability while the process of innovation remains unhampered. The acquisition of WhatsApp by Facebook or LinkedIn by Microsoft or YouTube by Google, indicate that post-merger these companies have actually evolved into stronger players in the market.
Hence, one of the major challenges is to adapt the Sherman Act to the world of technology where the dynamics differ radically from the traditional industries for which it was originally designed.
Legislators should come up with policies that ensure that reducing anticompetitive practices of such companies does not in any way harm start-ups or small firms. According to Fiona M. Scott Morton, “a new digital regulatory authority that would enforce privacy laws and create conditions conducive to competition would improve outcomes in digital markets” could be the way out (Marton, 2020). This authority could conduct careful reviews of even the smallest acquisitions that take place, which could ensure that there are no anti-competitive practices. This way, there would be more healthy competition, which could lead to better quality of products and lower prices, thereby improving consumer welfare.
Other Focus Areas
While the world of tech is the new focus, it is also relevant to bear in mind practices in other markets that have become subject to monopolies, which operate differently to bypass traditional anti-trust legislation. An important aspect that the antitrust laws should hence thrive to do is to effectively take measures to stop anti-competitive practices in various markets, domains or industries and the laws should be given the necessary ‘teeth’ when they are formulated.
A case in point could be Walmart’s dominance in the last few decades has not only harmed consumer welfare, by reducing their freedom of choice, but has also wiped-out local businesses, while “enriching a handful of CEOs, shareholders, and executives” (Constant, 2021).
The terms of the antitrust laws in place only promote efficiency and low prices, instead of competitiveness. According to a report by Stacy Mitchell, there are “fewer and fewer companies that control more and more of our industries” (2021). She states that Walmart was able to tweak the terms of the antitrust laws in the United States to suit its own needs, and through predatory pricing, almost wiped out other small businesses and caused major unemployment in the 1990s and 2000s. While the CFO of Walmart claimed that “the report is flawed'' as it doesn’t consider the reasonable prices the consumers are offered, he unfortunately made no remark on the restricted consumer choice and the loss of jobs (Meyersohn, 2019).
Way Forward
Legislators should amend existing anti-trust laws to make them watertight while ensuring competitiveness is maintained. The focus should be on rightful enforcement. Better legislation “will lower the resource cost of enforcement for conduct and acquisitions that economic research shows are likely to raise competitive problems” (Holland, 2021). This would need to be framed through a rigorous process involving legal, economic, and administrative experts among others.
For adjudication, there could be special designated courts where decisions are made by competent judges. There should be a provision for consultation with the economists, industry experts and legal scholars. This would allow fair enforcement and would also safeguard against potential missteps especially from the standpoint of the market and the economy. As for businesses, they should be able to continue to work in a competitive environment without stifling oversight yet with inbuilt controls that allow for healthy innovation and invention.
While there is no question that antitrust laws need modernization, factors like lobbying, corruption, half-hearted judicial procedures, leading to ineffective enforcement must also be addressed at some point. To be able to actual implement, the US government first needs to take a major step of increasing the economic resources used to fund antitrust enforcement. According to former Assistant Attorney General, Bill Baer, the US government first needs increase the economic resources used to fund antitrust enforcement., “we spend today 18% less than we did in 2000, when on the contrary it is much more needed today” (Baer, 2021). Thus, proper funding is also a critical factor in determining successful anti-trust enforcement.
Like all things, laws especially need to keep pace with changing environments and must be consciously adapted as such. After all, as they say, all failure is failure to adapt, and all success is successful adaptation.