70 Am. U. L. Rev. 75 (2020).

* Ball Professor of Law and Co-Director, Center for the Study of Law and Markets, William and Mary Law School. The author wishes to thank Allison Orr Larson for valuable conversations about this project as well as the participants in a faculty workshop at the William and Mary Law School for their helpful comments. Both the William and Mary Law School and the Center for the Study of Law and Markets provided financial support for this article. Thanks also to the editors of the American University Law Review for their thoughtful edits and diligent efforts.

The U.S. Constitution divides authority over commerce between states and the national government. Passed in 1890, the Sherman Act (“the Act”) reflects this allocation of power, reaching only those harmful agreements that are “in restraint of . . . commerce among the several States.” This Article contends that the Supreme Court erred when it radically altered the balance between state and national power over trade restraints in 1948, abruptly abandoning decades of precedent recognizing exclusive state authority over most intrastate restraints. This revised construction of the Act contravened the statute’s apparent meaning, unduly expanded the reach of federal antitrust regulation, and undermined the regime of competitive federalism that had governed most intrastate restraints.

Drawing from its Commerce Clause jurisprudence of dual federalism, the Court initially employed the direct/indirect standard to allocate regulatory authority over intrastate restraints. Effects were direct if a restraint exercised market power to injure out-of-state consumers. The Sherman Act exerted Congress’s exclusive authority over such restraints, because state regulation might produce self-interested results contrary to the anti-favoritism principle that animated Commerce Clause jurisprudence. States retained exclusive authority over agreements producing indirect impacts on interstate commerce, and a regime of competitive federalism generated the rules governing such restraints. Because states internalized the full impact of such restraints, interjurisdictional competition likely tended to produce optimal legal rules.

Echoing Wickard v. Filburn, the Court jettisoned the direct/indirect standard in 1948, holding that the Act reaches restraints producing a “substantial effect”—even if harmless and indirect—on interstate commerce. This vast expansion of the Act undermined the regime of competitive federalism that had governed most intrastate restraints. This change also enabled application of the statute to local, state-approved restraints, empowering antitrust courts to supervise state regulatory processes, further undermining competitive federalism.

The Court has offered three rationales for rejecting the direct/indirect standard. First, the Court has claimed that Congress meant to reach restraints beyond the authority implied by pre-1890 dual federalism jurisprudence. Second, the Court has contended that the Act properly expands whenever the commerce power expands in other contexts. Third, the Court has treated the substantial effects test as a translation of the Act justified by a changed national economy. The Court has invoked the Act’s legislative history to bolster the first two contentions.

None of these rationales survives scrutiny. First, the phrase “restraint of . . . commerce among the several States” was apparently a term of art drawn from pre-1890 Commerce Clause jurisprudence. That case law employed “restraint” of interstate commerce as a synonym for state “regulation” of such commerce deemed invalid because it directly burdened interstate commerce. Given the prior construction canon, Congress’s invocation of “restraint of . . . commerce” suggests that the Act should condemn only those private agreements that “directly burden” interstate commerce. The Court read the Act exactly this way in the 1890s, repeatedly holding that agreements only restrained interstate commerce if they imposed direct burdens by producing supracompetitive prices for interstate transactions. These near-contemporaneous readings, themselves probative of original meaning, avoided constitutional difficulties that would have resulted from application of the Act to restraints causing no interstate harm.

Second, assertions that Congress chose to exercise whatever power future Courts might grant are speculation. Congress has declined to exercise its entire commerce power when enacting three different post-1890 antitrust statutes. Engrafting the substantial effects test onto the Sherman Act contravened the federal-state balance canon by supplanting traditional state prerogatives over restraints threatening no interstate harm.

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