Making Sense of the Rule of Reason: A New Standard for Section 1 of the Sherman Act

For most of the twentieth century, the federal courts have assumed that they must choose between two extreme methods of analyzing conduct under Section 1 of the Sherman Act:' a per se rule that deems certain conduct illegal on its face; or, a rule of reason that inquires into all conceivable circumstances before determining the legality of a particular restraint. Until the 1970s, the courts were enamored of the clarity, simplicity, and deterrent effects of per se rules. As they have become more knowledgeable about economic theory in the last fifteen years, however, the courts have grown disillusioned with the absolutism of the per se rule and have been more inclined to consider efficiency justifications for competitive restraints. As a result, the courts have narrowed the scope of the per se rule and expanded applications of the rule of reason.

Unfortunately, however, the modem rule of reason has no substantive content. Although the rule of reason has been characterized as the "prevailing standard of [Section 1] analysis," it is curiously lacking in definition. Indeed, the federal courts have had little experience in applying the standard. Rule of reason trials were rare from the early part of the century through the 1960s because the per se rule dominated Section 1 analysis.

Even in recent years, plaintiffs have been reluctant to bring a rule of reason case because its evidentiary hurdles are so difficult to meet. It is particularly burdensome for a plaintiff to provb that a defendant has sufficient market power to adversely affect competition in the relevant market.