New Draft Paper on Section 7 of the Clayton Act
A Meticulous Analysis of What its Words Mean and What Congress Intended
In a new draft paper titled Toward a Merger Enforcement Policy That Enforces the Law: The Original Meaning and Purpose of Section 7 of the Clayton Act, my co-author Basel Musharbash and I meticulously analyze, over the course of 100+ pages, the key terms and phrases within Section 7 of the Clayton Act. Section 7 of the Clayton Act is a cornerstone of antitrust law in the United States, specifically restricting mergers. Our analysis outlines considerations for identifying mergers that violate the law and those that are permissible, in accordance with the original wording and Congress's intent.
Section 7 has a long history and was originally enacted as part of a comprehensive legislative package in 1914 to bolster inadequacies with the Sherman Act of 1890. However, in the 1920s and 1930s, in combination with some poor drafting choices from Congress, the Supreme Court effectively nullified the law. In 1950, Congress comprehensively overhauled the law, giving it a new textual structure. As it currently reads, the essential phrases of Section 7 are:
No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital… or any part of the assets[,] of one or more person engaged in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition…may be substantially to lessen competition, or to tend to create a monopoly.
In our paper, we assert that Congress specifically chose these words and structure because they had a well-defined meaning (both in the ordinary sense and jurisprudentially) to effectuate a specific kind of political economy centered around firms using fair methods of competition, economic liberty, democratic control of the economy, firms being responsive to the needs and input of their community, and the protection of small businesses.
Specifically, we analyze both the dictionary definitions of the words Congress used and the controlling jurisprudence that sharpened the meaning of the words prior to the enactment of the 1950 amendments. We conclude that the dictionary definitions and jurisprudence are harmonious, and Section 7 should be interpreted and enforced according to those meanings. The legislative history of the 1950 amendments further supports this conclusion.
We also assert that the change in the grammatical structure of Section 7 from 1914 to 1950 involved a purposeful change from Congress as to what the words in the law should mean. For example, consider the position of the word “substantially” in the law’s text. At the time of the enactment of the 1950 amendments to Section 7, we assert that lawmakers had a real choice to determine where “substantially” should be placed in the law’s text, which would invariably affect what the word means.
The choice was significant. If lawmakers placed “substantially” in a similar position to that of the Robinson-Patman Act of 1936 (itself an amendment to Section 2 of the Clayton Act), which prohibits price discriminations of commodities with the phrasing “may be substantially to lessen competition…,” its meaning would be tied to the interpretations the Supreme Court provided in cases like Corn Products (1945) or Morton Salt (1948). If lawmakers placed “substantially” in a similar position to that of Section 3 of the Clayton Act, which prohibits tying arrangements and exclusive deals of commodities with the phrasing “may be to substantially lessen competition…,” its meaning would be tied to interpretations provided by the Supreme Court in International Salt (1947) and Standard Stations (1949). When Congress opts for different language in different parts of the same statute in this manner, “we normally presume that Congress did so to convey a different meaning.”1 This interpretative cannon is particularly true when Congress has already had experience amending the law at issue—in this case, the Clayton Act—as it did in 1936 with the enactment of the Robinson-Patman Act.
The position of “substantially” in Section 7, as amended in 1950, is parallel to that of the Robinson-Patman Act. This means, as the Supreme Court interpreted that phrasing before the 1950 Amendments and in accordance with ordinary rules of grammar that inform us of the meaning of its textually restricted position, that “substantially” only modifies “may be” rather than “to lessen competition” or “to tend to create a monopoly.” Thus, “substantially” does not mean “significant.” Instead, it means to have a “substance in reality” that is “not imaginary, unreal, [or] only apparent.” This means that to bring a successful claim, plaintiffs, to adhere to this requirement of the law, only need to show a merger violates Section 7 in a way that is only reasonably possible in a real and actual way but not necessarily in a great or significant way. We engage in a similar analysis for all the key terms and phrases in Section 7.
To make the paper a little more accessible, below is a summary of our major claims. A PDF of the chart can be downloaded here.
We ardently believe that our paper supports, by post-1980s standards, aggressive applications of Section 7 that nevertheless remain well within the boundaries of Congress's intent and help bring America’s current merger wave and subsequent merger waves to a halt. Doing so would not only heavily restrict this notoriously unfair method of competition but also channel business conduct to more socially desirable activities, such as firms building out their productive capacity or increasing worker wages.
We are currently submitting the paper to various law journals and welcome any feedback. The paper can be downloaded here. The abstract is reprinted below.
Abstract of Toward a Merger Enforcement Policy That Enforces the Law: The Original Meaning and Purpose of Section 7 of the Clayton Act
The corporate merger has been the single most important vehicle for the consolidation of economic power and control in America since the late 19th century. In response, Congress has repeatedly sought to restrain the role of corporate mergers in American economic life, passing sweeping anti-merger laws three separate times between 1890 and 1950. Since the 1980s, however, the full force of these laws has not been felt in our economy. It has been crippled by administrative fiat. From Reagan and Clinton through Obama and Trump, the federal agencies tasked with enforcing the antitrust laws adopted antitextualist enforcement policies that wholly discarded the original meaning and intent of the laws Congress passed to constrain mergers.
Today, the consequences have become too clear to ignore. The concentration of economic power has reached extremes unsurpassed in living memory. Oligopolies have become entrenched across our economy. Dominant firms have increased mark-ups for consumers, depressed wages for workers, and squeezed farmers and other suppliers. What the FTC once called the “dead hand of corporate control” has all but eliminated the “unseen hand of competition” in many of the nation’s basic industries, while roll-ups and other monopolistic acquisition strategies are fast displacing competition in the industries where it remains a vital force.
In this article, we seek to point judges and enforcers back to the text and purpose of the core antitrust law governing mergers — Section 7 of the Clayton Act. Part II of the article provides the framework for our analysis, describing the textualist paradigm shift that has swept the federal courts over the past three decades and summarizing the key precepts of current statutory interpretation doctrine. Using this framework, in Part III we interpret Section 7 of the Clayton Act like a normal statute. First, we rigorously analyze the key terms of Section 7 to identify their plain meaning. Then, we delve into the legislative history of the Sherman, the Clayton, and the Celler-Kefauver Acts to confirm that Section 7’s text is consistent with legislative intent, and to show that Section 7’s plain meaning is not absurd. Finally, we bring all of this together in a comprehensive statement of the test of illegality under Section 7 and a discussion of the types of mergers it necessarily prohibits and necessarily permits. We conclude the article with Part IV, where we rebut certain counterarguments and gesture toward a future where the Celler-Kefauver Act of 1950 is earnestly and faithfully enforced.
Image credit: PDPics via Pixabay.
Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, 578 U.S. 374, 398 (2016).