History of competition law
Encyclopedia
The history of competition law refers to attempts by governments to regulate competitive markets for goods and services, leading up to the modern competition
or antitrust
laws around the world today. The earliest records traces back to the efforts of Roman legislators to control price fluctuations and unfair trade practices. Through the Middle Ages in Europe, Kings and Queens repeatedly cracked down on monopolies, including those created through state legislation. The English common law
doctrine of restraint of trade
became the precursor to modern competition law. This grew out of the codifications of United States antitrust
statutes, which in turn had considerable influence on the development of European Community competition laws after the Second World War. Increasingly the focus has moved to international competition enforcement in a globalised economy.
s to stabilise prices or support local production. The formal study of "competition
", began in earnest during the 18th century with such works as Adam Smith
's The Wealth of Nations
. Different terms were used to describe this area of the law, including "restrictive practices", "the law of monopolies", "combination acts" and the "restraint of trade".
around 50 BC. To protect the corn trade, heavy fines were imposed on anyone directly, deliberately and insidiously stopping supply ships. Under Diocletian
, in 301 AD an Edict on maximum prices
established a death penalty for anyone violating a tariff system, for example by buying up, concealing or contriving the scarcity of everyday goods. The most legislation came under the Constitution of Zeno of 483 AD which can be traced into Florentine Municipal laws of 1322 and 1325. It provided for property confiscation and banishment for any trade combinations or joint action of monopolies private or granted by the Emperor. Zeno rescinded all previously granted exclusive rights. Justinian I
also introduced legislation not long after to pay officials to manage state monopolies. As Europe slipped into the Dark Ages, so did the records of law making until the Middle Ages brought greater expansion of trade in the time of lex mercatoria
.
recorded that "foresteel
" (i.e. forestalling, the practice of buying up goods before they reached market and then inflating the prices) was one of three forfeitures that King Edward the Confessor could carry out through England. Concern for fair prices also led to attempts to directly regulate the market. Under Henry III, an Act was passed in 1266 to fix bread and ale prices in correspondence with corn prices laid down by the assizes. Penalties for breach included amercement
s, pillory
and tumbrel
. A fourteenth century statute labelled forestallers as "oppressors of the poor and the community at large and enemies of the whole country." Under King Edward III, the Statute of Labourers of 1349 fixed wages of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. On top of existing penalties, the statute stated that overcharging merchants must pay the injured party double the sum they received, an idea that has been replicated in punitive
treble damages
under US antitrust law. Also under Edward III, the following statutory provision in the poetic language of the time outlawed trade combinations.
Examples of legislation in Europe include the constitutiones juris metallici by Wenceslas II of Bohemia
between 1283 and 1305, condemning combinations of ore traders increasing prices; the Municipal Statutes of Florence in 1322 and 1325 followed Zeno's legislation against state monopolies; and under Emperor Charles V in the Holy Roman Empire
a law was passed "to prevent losses resulting from monopolies and improper contracts which many merchants and artisans made in the Netherlands." In 1553 King Henry VIII reintroduced tariffs for foodstuffs, designed to stabilise prices in the face of fluctuations in supply from overseas. The legislation read here that whereas,
Around this time, organisations representing various tradesmen and handicraftspeople, known as guild
s had been established and enjoyed many concessions and exemptions from the laws against monopolies. The privileges conferred were not abolished until the Municipal Corporations Act 1835.
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Europe around the 15th century was changing quickly. The new world
had just been opened up, overseas trade and plunder was pouring wealth through the international economy and attitudes among businessmen were shifting. In 1561, a system of Industrial Monopoly Licences, similar to modern patent
s had been introduced into England. But by the reign of Queen Elizabeth I, the system was reputedly much abused and used merely to preserve privileges, encouraging nothing new in the way of innovation or manufacture. When a protest was made in the House of Commons
and a Bill was introduced, the Queen convinced the protesters to challenge the case in the courts. This was the catalyst for the Case of Monopolies or Darcy v Allin. The plaintiff, an officer of the Queen's household, had been granted the sole right of making playing cards and claimed damages for the defendant's infringement of this right. The court found the grant void and that three characteristics of monopoly were (1) price increases (2) quality decrease (3) the tendency to reduce artificers to idleness and beggary. This put a temporary end to complaints about monopoly, until King James I
began to grant them again. In 1623 Parliament passed the Statute of Monopolies, which for the most part excluded patent rights from its prohibitions, as well as the guilds. From King Charles I
, through the civil war and to King Charles II
, monopolies continued, and were considered especially useful for raising revenue. Then in 1684, in East India Company v Sandys it was decided that exclusive rights to trade only outside the realm were legitimate on the grounds that only large and powerful concerns could trade in the conditions prevailing overseas. In 1710, to deal with high coal prices caused by a Newcastle Coal Monopoly, the New Law was passed. Its provisions stated that "all and every contract or contracts, Covenants and Agreements, whether the same be in writing or not in writing...[between] persons whatsoever concerned the said Coal trade, for Ingrossing Coals, or for restraining or hindering any Person or Persons whomsoever from freely... disposing of Coals.... are hereby declared to be illegal." When Adam Smith wrote the Wealth of Nations in 1776 he was somewhat cynical of the possibility for change.
The English law of restraint of trade is the direct predecessor to modern competition law. Its current use is small, given modern and economically oriented statutes in most common law countries. Its approach was based on the two concepts of prohibiting agreements that ran counter to public policy, unless the reasonableness
of an agreement could be shown. A restraint of trade is simply some kind of agreed provision that is designed to restrain another's trade. For example, in Nordenfelt v Maxim, Nordenfelt Gun Co a Swedish arms inventor promised on sale of his business to an American gun maker that he "would not make guns or ammunition anywhere in the world, and would not compete with Maxim in any way."
To consider whether or not there is a restraint of trade in the first place, both parties must have provided valuable consideration
for their agreement. In Dyer's case
a dyer had given a bond not to exercise his trade in the same town as the plaintiff for six months but the plaintiff had promised nothing in return. On hearing the plaintiff's attempt to enforce this restraint, Hull J exclaimed:
The common law has evolved to reflect changing business conditions. So in the 1613 case of Rogers v Parry a court held that a joiner who promised not to trade from his house for 21 years could have this bond enforced against him since the time and place was certain. It was also held that a man cannot bind himself to not use his trade generally by Chief Justice Coke
. This was followed in Broad v Jolyffe and Mitchell v Reynolds where Lord Macclesfield
asked, "What does it signify to a tradesman in London what another does in Newcastle?" In times of such slow communications, commerce around the country it seemed axiomatic that a general restraint served no legitimate purpose for one's business and ought to be void. But already in 1880 in Roussillon v Roussillon Lord Justice Fry
stated that a restraint unlimited in space need not be void, since the real question was whether it went further than necessary for the promisee's protection. So in the Nordenfelt case case Lord McNaughton rule that while one could validly promise to "not make guns or ammunition anywhere in the world" it was and unreasonable restraint to "not compete with Maxim in any way." This approach in England was confirmed by the House of Lords in Mason v The Provident Supply and Clothing Co
and after the fall of the Berlin wall
, competition law has gone through phases of renewed attention and legislative updates around the world.
The American term anti-trust
arose not because the U.S. statutes had anything to do with ordinary trust law
, but because the large American corporations used trusts to conceal the nature of their business arrangements. Big trusts became synonymous with big monopolies, the perceived threat to democracy and the free market these trusts represented led passage of the Sherman and Clayton Acts. These laws, in part, codified past American and English common law
of restraints of trade. Senator Hoar
, an author of the Sherman Act said in a debate, "We have affirmed the old doctrine of the common law in regard to all inter-state and international commercial transactions and have clothed the United States courts with authority to enforce that doctrine by injunction." Evidence of the common law basis of the Sherman and Clayton Acts is found in Standard Oil of New Jersey v. United States, where Chief Justice White
explicitly linked the Sherman Act with the common law and sixteenth century English statutes on engrossing. The Act's wording also reflects common law. The first two sections read as follows,
The Sherman Act did not have the immediate effects its authors intended, although Republican
President Theodore Roosevelt
's federal government sued 45 companies, and William Taft used it against 75 companies. The Clayton Act of 1914 was passed to supplement the Sherman Act. Specific categories of abusive conduct were listed, including price discrimination
(section 2), exclusive dealings (section 3) and mergers which substantially lessened competition (section 7). Section 6 exempted trade unions from the law's operation. Both the Sherman and Clayton Acts are now codified under Title 15
of the United States Code
.
and in 1926 France reinforced its basic competition provisions from the 1810 Code Napoleon. After World War II
, the Allies, led by the United States
, introduced tight regulation of cartels and monopolies in occupied Germany
and Japan
. In Germany, despite the existence of laws against unfair competition passed in 1909 (Gesetz gegen den unlauteren Wettbewerb or UWG) it was widely believed that the predominance of large cartels of German industry had made it easier for the Nazis to assume total economic control simply by bribing or blackmailing the heads of a small number of industrial magnates. Similarly in Japan, where business was organised along family and nepotistic ties, the zaibatsu
were easy for the government to manipulate into the war effort. Following World War II and the unconditional surrender of Japan and Germany, tighter controls, replicating the existing American policies and regulations were introduced.
However, further developments were considerably overshadowed by the move towards nationalisation and industry-wide planning in many countries. Making the economy and industry democratically accountable through direct government action became a priority. Coal
industry, railroads
, steel
, electricity
, water
, health care
and many other sectors were targeted for their special qualities of being natural monopolies
. Commonwealth
countries were slow in enacting statutory competition law provisions. The United Kingdom introduced the (considerably less stringent) Restrictive Practices Act in 1956. Australia introduced its current Trade Practices Act
in 1974. Recently however there has been a wave of updates, especially in Europe to harmonise legislation with contemporary competition law thinking.
of nearly half a billion citizens. The European Community is the name for the economic and social pillar of EU law, under which competition law falls. Healthy competition is seen as an essential element in the creation of a common market free from restraints on trade. The first provision is Article 81 EC, which deals with cartels and restrictive vertical agreements. Prohibited are...
Article 81(1) EC then gives examples of "hard core" restrictive practices such as price fixing or market sharing and 81(2) EC confirms that any agreements are automatically void. However, just like the Statute of Monopolies 1623
, Article 81(3) EC creates exemptions, if the collusion is for distributional or technological innovation, gives consumers a "fair share" of the benefit and does not include unreasonable restraints (or disproportionate, in ECJ terminology) that risk eliminating competition anywhere. Article 82 EC deals with monopolies, or more precisely firms who have a dominant market share and abuse that position. Unlike U.S. Antitrust, EC law has never been used to punish the existence of dominant firms, but merely imposes a special responsibility to conduct oneself appropriately. Specific categories of abuse listed in Article 82 EC include price discrimination and exclusive dealing, much the same as sections 2 and 3 of the U.S. Clayton Act. Also under Article 82 EC, the European Council was empowered to enact a regulation
to control mergers between firms, currently the latest known by the abbreviation of ECMR "Reg. 139/2004". The general test is whether a concentration (i.e. merger or acquisition) with a community dimension (i.e. affects a number of EU member states) might significantly impede effective competition. Again, the similarity to the Clayton Act's substantial lessening of competition. Finally, Articles 86 and 87 EC regulate the state's role in the market. Article 86(2) EC states clearly that nothing in the rules cannot be used to obstruct a member state's right to deliver public services, but that otherwise public enterprises must play by the same rules on collusion and abuse of dominance as everyone else. Article 87 EC, similar to Article 81 EC, lays down a general rule that the state may not aid or subsidise private parties in distortion of free competition, but then grants exceptions for things like charities, natural disasters or regional development.
(UNCTAD) and the Organisation for Economic Co-operation and Development
(OECD), which is prone to making neo-liberal recommendations about the total application of competition law for public and private industries. Chapter 5 of the post war Havana Charter
contained an Antitrust code but this was never incorporated into the WTO's forerunner, the General Agreement on Tariffs and Trade
1947. Office of Fair Trading
Director and Professor Richard Whish wrote sceptically that it "seems unlikely at the current stage of its development that the WTO will metamorphose into a global competition authority." Despite that, at the ongoing Doha round
of trade talks for the World Trade Organisation, discussion includes the prospect of competition law enforcement moving up to a global level. While it is incapable of enforcement itself, the newly established International Competition Network
(ICN) is a way for national authorities to coordinate their own enforcement activities.
Competition law
Competition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies....
or antitrust
Antitrust
The United States antitrust law is a body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both,...
laws around the world today. The earliest records traces back to the efforts of Roman legislators to control price fluctuations and unfair trade practices. Through the Middle Ages in Europe, Kings and Queens repeatedly cracked down on monopolies, including those created through state legislation. The English common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
doctrine of restraint of trade
Restraint of trade
Restraint of trade is a common law doctrine relating to the enforceability of contractual restrictions on freedom to conduct business. In an old leading case of Mitchell v Reynolds Lord Smith LC said,...
became the precursor to modern competition law. This grew out of the codifications of United States antitrust
Antitrust
The United States antitrust law is a body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both,...
statutes, which in turn had considerable influence on the development of European Community competition laws after the Second World War. Increasingly the focus has moved to international competition enforcement in a globalised economy.
Early history
Laws governing competition law are found in over two millennia of history. Roman Emperors and Mediaeval monarchs alike used tariffTariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
s to stabilise prices or support local production. The formal study of "competition
Competition
Competition is a contest between individuals, groups, animals, etc. for territory, a niche, or a location of resources. It arises whenever two and only two strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For...
", began in earnest during the 18th century with such works as Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
's The Wealth of Nations
The Wealth of Nations
An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith...
. Different terms were used to describe this area of the law, including "restrictive practices", "the law of monopolies", "combination acts" and the "restraint of trade".
Roman legislation
The earliest surviving example of modern competition law's ancestors appears in the Lex Julia de Annona, enacted during the Roman RepublicRoman Republic
The Roman Republic was the period of the ancient Roman civilization where the government operated as a republic. It began with the overthrow of the Roman monarchy, traditionally dated around 508 BC, and its replacement by a government headed by two consuls, elected annually by the citizens and...
around 50 BC. To protect the corn trade, heavy fines were imposed on anyone directly, deliberately and insidiously stopping supply ships. Under Diocletian
Diocletian
Diocletian |latinized]] upon his accession to Diocletian . c. 22 December 244 – 3 December 311), was a Roman Emperor from 284 to 305....
, in 301 AD an Edict on maximum prices
Edict on Maximum Prices
The Edict on Maximum Prices was issued in 301 by Roman Emperor Diocletian....
established a death penalty for anyone violating a tariff system, for example by buying up, concealing or contriving the scarcity of everyday goods. The most legislation came under the Constitution of Zeno of 483 AD which can be traced into Florentine Municipal laws of 1322 and 1325. It provided for property confiscation and banishment for any trade combinations or joint action of monopolies private or granted by the Emperor. Zeno rescinded all previously granted exclusive rights. Justinian I
Justinian I
Justinian I ; , ; 483– 13 or 14 November 565), commonly known as Justinian the Great, was Byzantine Emperor from 527 to 565. During his reign, Justinian sought to revive the Empire's greatness and reconquer the lost western half of the classical Roman Empire.One of the most important figures of...
also introduced legislation not long after to pay officials to manage state monopolies. As Europe slipped into the Dark Ages, so did the records of law making until the Middle Ages brought greater expansion of trade in the time of lex mercatoria
Lex mercatoria
Lex mercatoria is the body of commercial law used by merchants throughout Europe during the medieval period. It evolved similar to English common law as a system of custom and best practice, which was enforced through a system of merchant courts along the main trade routes. It functioned as the...
.
Middle ages
Legislation in England to control monopolies and restrictive practices were in force well before the Norman Conquest. The Domesday BookDomesday Book
Domesday Book , now held at The National Archives, Kew, Richmond upon Thames in South West London, is the record of the great survey of much of England and parts of Wales completed in 1086...
recorded that "foresteel
Engrossing
Engrossing, forestalling and regrating were marketing offences in English common law. The terms were used to describe unacceptable methods of influencing the market, sometimes by creating a local monopoly for a certain good, usually food. The terms were often used together, and with overlapping...
" (i.e. forestalling, the practice of buying up goods before they reached market and then inflating the prices) was one of three forfeitures that King Edward the Confessor could carry out through England. Concern for fair prices also led to attempts to directly regulate the market. Under Henry III, an Act was passed in 1266 to fix bread and ale prices in correspondence with corn prices laid down by the assizes. Penalties for breach included amercement
Amercement
An amercement is a financial penalty in English law, common during the Middle Ages, imposed either by the court or by peers. The term is of Anglo-Norman origin , and literally means "being at the mercy of": a-merce-ment .While it is often synonymous with a fine, it differs in that a fine is a fixed...
s, pillory
Pillory
The pillory was a device made of a wooden or metal framework erected on a post, with holes for securing the head and hands, formerly used for punishment by public humiliation and often further physical abuse, sometimes lethal...
and tumbrel
Tumbrel
A tumbrel , is a two-wheeled cart or wagon typically designed to be hauled by a single horse or ox. Their original use was for agricultural work in particular they were associated with carrying manure. Their most notable use was taking prisoners to the guillotine during the French Revolution. They...
. A fourteenth century statute labelled forestallers as "oppressors of the poor and the community at large and enemies of the whole country." Under King Edward III, the Statute of Labourers of 1349 fixed wages of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. On top of existing penalties, the statute stated that overcharging merchants must pay the injured party double the sum they received, an idea that has been replicated in punitive
Punitive damages
Punitive damages or exemplary damages are damages intended to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit...
treble damages
Treble damages
Treble damages, in law, is a term that indicates that a statute permits a court to triple the amount of the actual/compensatory damages to be awarded to a prevailing plaintiff, generally in order to punish the losing party for willful conduct. Treble damages are a multiple of, and not an addition...
under US antitrust law. Also under Edward III, the following statutory provision in the poetic language of the time outlawed trade combinations.
"...we have ordained and established, that no merchant or other shall make Confederacy, Conspiracy, Coin, Imagination, or Murmur, or Evil Device in any point that may turn to the Impeachment, Disturbance, Defeating or Decay of the said Staples, or of anything that to them pertaineth, or may pertain."
Examples of legislation in Europe include the constitutiones juris metallici by Wenceslas II of Bohemia
Bohemia
Bohemia is a historical region in central Europe, occupying the western two-thirds of the traditional Czech Lands. It is located in the contemporary Czech Republic with its capital in Prague...
between 1283 and 1305, condemning combinations of ore traders increasing prices; the Municipal Statutes of Florence in 1322 and 1325 followed Zeno's legislation against state monopolies; and under Emperor Charles V in the Holy Roman Empire
Holy Roman Empire
The Holy Roman Empire was a realm that existed from 962 to 1806 in Central Europe.It was ruled by the Holy Roman Emperor. Its character changed during the Middle Ages and the Early Modern period, when the power of the emperor gradually weakened in favour of the princes...
a law was passed "to prevent losses resulting from monopolies and improper contracts which many merchants and artisans made in the Netherlands." In 1553 King Henry VIII reintroduced tariffs for foodstuffs, designed to stabilise prices in the face of fluctuations in supply from overseas. The legislation read here that whereas,
"it is very hard and difficult to put certain prices to any such things... [it is necessary because] prices of such victuals be many times enhanced and raised by the Greedy Covetousness and Appetites of the Owners of such Victuals, by occasion of ingrossing and regrating the same, more than upon any reasonable or just ground or cause, to the great damage and impoverishing of the King's subjects."
Around this time, organisations representing various tradesmen and handicraftspeople, known as guild
Guild
A guild is an association of craftsmen in a particular trade. The earliest types of guild were formed as confraternities of workers. They were organized in a manner something between a trade union, a cartel, and a secret society...
s had been established and enjoyed many concessions and exemptions from the laws against monopolies. The privileges conferred were not abolished until the Municipal Corporations Act 1835.
Renaissance developments
New World
The New World is one of the names used for the Western Hemisphere, specifically America and sometimes Oceania . The term originated in the late 15th century, when America had been recently discovered by European explorers, expanding the geographical horizon of the people of the European middle...
had just been opened up, overseas trade and plunder was pouring wealth through the international economy and attitudes among businessmen were shifting. In 1561, a system of Industrial Monopoly Licences, similar to modern patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
s had been introduced into England. But by the reign of Queen Elizabeth I, the system was reputedly much abused and used merely to preserve privileges, encouraging nothing new in the way of innovation or manufacture. When a protest was made in the House of Commons
British House of Commons
The House of Commons is the lower house of the Parliament of the United Kingdom, which also comprises the Sovereign and the House of Lords . Both Commons and Lords meet in the Palace of Westminster. The Commons is a democratically elected body, consisting of 650 members , who are known as Members...
and a Bill was introduced, the Queen convinced the protesters to challenge the case in the courts. This was the catalyst for the Case of Monopolies or Darcy v Allin. The plaintiff, an officer of the Queen's household, had been granted the sole right of making playing cards and claimed damages for the defendant's infringement of this right. The court found the grant void and that three characteristics of monopoly were (1) price increases (2) quality decrease (3) the tendency to reduce artificers to idleness and beggary. This put a temporary end to complaints about monopoly, until King James I
James I of England
James VI and I was King of Scots as James VI from 24 July 1567 and King of England and Ireland as James I from the union of the English and Scottish crowns on 24 March 1603...
began to grant them again. In 1623 Parliament passed the Statute of Monopolies, which for the most part excluded patent rights from its prohibitions, as well as the guilds. From King Charles I
Charles I of England
Charles I was King of England, King of Scotland, and King of Ireland from 27 March 1625 until his execution in 1649. Charles engaged in a struggle for power with the Parliament of England, attempting to obtain royal revenue whilst Parliament sought to curb his Royal prerogative which Charles...
, through the civil war and to King Charles II
Charles II of England
Charles II was monarch of the three kingdoms of England, Scotland, and Ireland.Charles II's father, King Charles I, was executed at Whitehall on 30 January 1649, at the climax of the English Civil War...
, monopolies continued, and were considered especially useful for raising revenue. Then in 1684, in East India Company v Sandys it was decided that exclusive rights to trade only outside the realm were legitimate on the grounds that only large and powerful concerns could trade in the conditions prevailing overseas. In 1710, to deal with high coal prices caused by a Newcastle Coal Monopoly, the New Law was passed. Its provisions stated that "all and every contract or contracts, Covenants and Agreements, whether the same be in writing or not in writing...[between] persons whatsoever concerned the said Coal trade, for Ingrossing Coals, or for restraining or hindering any Person or Persons whomsoever from freely... disposing of Coals.... are hereby declared to be illegal." When Adam Smith wrote the Wealth of Nations in 1776 he was somewhat cynical of the possibility for change.
"To expect indeed that freedom of trade should ever be entirely restored in Great Britain is as absurd as to expect that OceanaThe Commonwealth of OceanaThe Commonwealth of Oceana, published 1656, is a composition of political philosophy written by the English politician and essayist, James Harrington . When first attempted to be published, it was officially censored by Lord Protector Oliver Cromwell...
or UtopiaUtopiaUtopia is an ideal community or society possessing a perfect socio-politico-legal system. The word was imported from Greek by Sir Thomas More for his 1516 book Utopia, describing a fictional island in the Atlantic Ocean. The term has been used to describe both intentional communities that attempt...
should ever be established in it. Not only the prejudices of the public, but what is more unconquerable, the private interests of many individuals irresistibly oppose it. The Member of Parliament who supports any proposal for strengthening this Monopoly is seen to acquire not only the reputation for understanding trade, but great popularity and influence with an order of men whose members and wealth render them of great importance."
Restraint of trade
Reasonable person
The reasonable person is a legal fiction of the common law that represents an objective standard against which any individual's conduct can be measured...
of an agreement could be shown. A restraint of trade is simply some kind of agreed provision that is designed to restrain another's trade. For example, in Nordenfelt v Maxim, Nordenfelt Gun Co a Swedish arms inventor promised on sale of his business to an American gun maker that he "would not make guns or ammunition anywhere in the world, and would not compete with Maxim in any way."
To consider whether or not there is a restraint of trade in the first place, both parties must have provided valuable consideration
Consideration
Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from...
for their agreement. In Dyer's case
Dyer's case
Dyer's case 2 Hen. V, fol. 5, pl. 26 is an old English contract law case concerning restraint of trade and the doctrine of consideration.-Facts:...
a dyer had given a bond not to exercise his trade in the same town as the plaintiff for six months but the plaintiff had promised nothing in return. On hearing the plaintiff's attempt to enforce this restraint, Hull J exclaimed:
"per Dieu, if the plaintiff were here, he should go to prison until he had paid a fine to the King."
The common law has evolved to reflect changing business conditions. So in the 1613 case of Rogers v Parry a court held that a joiner who promised not to trade from his house for 21 years could have this bond enforced against him since the time and place was certain. It was also held that a man cannot bind himself to not use his trade generally by Chief Justice Coke
Edward Coke
Sir Edward Coke SL PC was an English barrister, judge and politician considered to be the greatest jurist of the Elizabethan and Jacobean eras. Born into a middle class family, Coke was educated at Trinity College, Cambridge before leaving to study at the Inner Temple, where he was called to the...
. This was followed in Broad v Jolyffe and Mitchell v Reynolds where Lord Macclesfield
Thomas Parker, 1st Earl of Macclesfield
Thomas Parker, 1st Earl of Macclesfield PC, FRS was an English Whig politician.-Youth and early career:He was born in Staffordshire, the son of Thomas Parker, an attorney at Leek. He was educated at Adams' Grammar School and Trinity College, Cambridge...
asked, "What does it signify to a tradesman in London what another does in Newcastle?" In times of such slow communications, commerce around the country it seemed axiomatic that a general restraint served no legitimate purpose for one's business and ought to be void. But already in 1880 in Roussillon v Roussillon Lord Justice Fry
Edward Fry
Sir Edward Fry GCB, GCMG, PC, FRS , was a judge in the British Court of Appeal and also an arbitrator on the International Permanent Court of Arbitration. He was a Quaker, son of Joseph Fry and Mary Ann Swaine....
stated that a restraint unlimited in space need not be void, since the real question was whether it went further than necessary for the promisee's protection. So in the Nordenfelt case case Lord McNaughton rule that while one could validly promise to "not make guns or ammunition anywhere in the world" it was and unreasonable restraint to "not compete with Maxim in any way." This approach in England was confirmed by the House of Lords in Mason v The Provident Supply and Clothing Co
Modern age
Modern competition law begins with the United States legislation of the Sherman Act of 1890 and the Clayton Act of 1914. While other, particularly European, countries also had some form of regulation on monopolies and cartels, the U.S. codification of the common law position on restraint of trade had a widespread effect on subsequent competition law development. Both after World War IIWorld War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
and after the fall of the Berlin wall
Berlin Wall
The Berlin Wall was a barrier constructed by the German Democratic Republic starting on 13 August 1961, that completely cut off West Berlin from surrounding East Germany and from East Berlin...
, competition law has gone through phases of renewed attention and legislative updates around the world.
United States antitrust
Trust (19th century)
A special trust or business trust is a business entity formed with intent to monopolize business, to restrain trade, or to fix prices. Trusts gained economic power in the U.S. in the late 19th and early 20th centuries. Some, but not all, were organized as trusts in the legal sense...
arose not because the U.S. statutes had anything to do with ordinary trust law
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
, but because the large American corporations used trusts to conceal the nature of their business arrangements. Big trusts became synonymous with big monopolies, the perceived threat to democracy and the free market these trusts represented led passage of the Sherman and Clayton Acts. These laws, in part, codified past American and English common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
of restraints of trade. Senator Hoar
George Frisbie Hoar
George Frisbie Hoar was a prominent United States politician and United States Senator from Massachusetts. Hoar was born in Concord, Massachusetts...
, an author of the Sherman Act said in a debate, "We have affirmed the old doctrine of the common law in regard to all inter-state and international commercial transactions and have clothed the United States courts with authority to enforce that doctrine by injunction." Evidence of the common law basis of the Sherman and Clayton Acts is found in Standard Oil of New Jersey v. United States, where Chief Justice White
Edward Douglass White
Edward Douglass White, Jr. , American politician and jurist, was a United States senator, Associate Justice of the United States Supreme Court and the ninth Chief Justice of the United States. He was best known for formulating the Rule of Reason standard of antitrust law. He also sided with the...
explicitly linked the Sherman Act with the common law and sixteenth century English statutes on engrossing. The Act's wording also reflects common law. The first two sections read as follows,
"Section 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine....
Section 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine...."
The Sherman Act did not have the immediate effects its authors intended, although Republican
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
President Theodore Roosevelt
Theodore Roosevelt
Theodore "Teddy" Roosevelt was the 26th President of the United States . He is noted for his exuberant personality, range of interests and achievements, and his leadership of the Progressive Movement, as well as his "cowboy" persona and robust masculinity...
's federal government sued 45 companies, and William Taft used it against 75 companies. The Clayton Act of 1914 was passed to supplement the Sherman Act. Specific categories of abusive conduct were listed, including price discrimination
Price discrimination
Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider...
(section 2), exclusive dealings (section 3) and mergers which substantially lessened competition (section 7). Section 6 exempted trade unions from the law's operation. Both the Sherman and Clayton Acts are now codified under Title 15
Title 15 of the United States Code
Title 15 of the United States Code outlines the role of the commerce and trade in the United States Code.Notable legislation in the title includes the Federal Trade Commission Act, the Clayton Antitrust Act, the Sherman Antitrust Act, the Securities Exchange Act of 1934, the Consumer Product Safety...
of the United States Code
United States Code
The Code of Laws of the United States of America is a compilation and codification of the general and permanent federal laws of the United States...
.
- United States v. Workingmen's Amalgamated Council, 54 Fed 994 (CCA 5th 1893)
- United States v. E. C. Knight Company, 156 U.S. 1 (1895)
- United States v. Trans-Missouri Freight AssociationUnited States v. Trans-Missouri Freight AssociationUnited States v. Trans-Missouri Freight Association, 166 U.S. 290 , was a United States Supreme Court case holding that the Sherman Act applied to the railroad industry, even though the U.S...
, 166 U.S. 290 (1897) - Northern Securities Co. v. United StatesNorthern Securities Co. v. United StatesNorthern Securities Co. v. United States, 193 U.S. 197 , was an important ruling by the U.S. Supreme Court. The Court ruled 5 to 4 against the stockholders of the Great Northern and Northern Pacific railroad companies, who had essentially formed a monopoly, and to dissolve the Northern Securities...
, 193 U.S. 197 (1904) - Loewe v. LawlorLoewe v. LawlorLoewe v. Lawlor, is a United States Supreme Court case concerning the application of antitrust laws to labor unions. The Court's decision had the effect of outlawing secondary boycotts as violative of the Sherman Antitrust Act, in the face of labor union protests that their actions affected only...
, 208 U.S. 274 (1908) - Duplex Printing Press Co. v. DeeringDuplex Printing Press Co. v. DeeringDuplex Printing Press Co. v. Deering, 41 S. Ct. 172 is a United States Supreme Court case which examined the labor provisions of the Clayton Antitrust Act and reaffirmed the prior ruling in Loewe v. Lawlor that a secondary boycott was an illegal restraint on trade...
, 254 U.S. 443 (1921)
Post war consensus
It was after the First World War that countries began to follow the United States' lead in competition policy. In 1923, Canada introduced the Combines Investigation ActCombines Investigation Act
The Combines Investigation Act was a Canadian Act of Parliament, implemented in 1910, passed in 1923 by MacKenzie King, which regulated certain corporate business practices that were anti-competitive. It prohibited monopolies, misleading advertising, bid-rigging, price fixing, and other means of...
and in 1926 France reinforced its basic competition provisions from the 1810 Code Napoleon. After World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, the Allies, led by the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, introduced tight regulation of cartels and monopolies in occupied Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
and Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
. In Germany, despite the existence of laws against unfair competition passed in 1909 (Gesetz gegen den unlauteren Wettbewerb or UWG) it was widely believed that the predominance of large cartels of German industry had made it easier for the Nazis to assume total economic control simply by bribing or blackmailing the heads of a small number of industrial magnates. Similarly in Japan, where business was organised along family and nepotistic ties, the zaibatsu
Zaibatsu
is a Japanese term referring to industrial and financial business conglomerates in the Empire of Japan, whose influence and size allowed for control over significant parts of the Japanese economy from the Meiji period until the end of World War II.-Terminology:...
were easy for the government to manipulate into the war effort. Following World War II and the unconditional surrender of Japan and Germany, tighter controls, replicating the existing American policies and regulations were introduced.
However, further developments were considerably overshadowed by the move towards nationalisation and industry-wide planning in many countries. Making the economy and industry democratically accountable through direct government action became a priority. Coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
industry, railroads
Rail transport
Rail transport is a means of conveyance of passengers and goods by way of wheeled vehicles running on rail tracks. In contrast to road transport, where vehicles merely run on a prepared surface, rail vehicles are also directionally guided by the tracks they run on...
, steel
Steel
Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...
, electricity
Electricity
Electricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...
, water
Water law
Water law is the field of law dealing with the ownership, control, and use of water as a resource. It is most closely related to property law, but has also become influenced by environmental law...
, health care
Health care
Health care is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health care is delivered by practitioners in medicine, chiropractic, dentistry, nursing, pharmacy, allied health, and other care providers...
and many other sectors were targeted for their special qualities of being natural monopolies
Natural monopoly
A monopoly describes a situation where all sales in a market are undertaken by a single firm. A natural monopoly by contrast is a condition on the cost-technology of an industry whereby it is most efficient for production to be concentrated in a single form...
. Commonwealth
Commonwealth of Nations
The Commonwealth of Nations, normally referred to as the Commonwealth and formerly known as the British Commonwealth, is an intergovernmental organisation of fifty-four independent member states...
countries were slow in enacting statutory competition law provisions. The United Kingdom introduced the (considerably less stringent) Restrictive Practices Act in 1956. Australia introduced its current Trade Practices Act
Trade Practices Act 1974
The Competition and Consumer Act 2010 is an act of the Parliament of Australia. On 1 January 2011 the Trade Practices Act 1974 was renamed the Competition and Consumer Act 2010. The act provides for protection of consumers and prevents some restrictive trade practices of companies. It is the key...
in 1974. Recently however there has been a wave of updates, especially in Europe to harmonise legislation with contemporary competition law thinking.
European Union law
In 1957 six Western European countries signed the Treaty of the European Community (EC Treaty or Treaty of Rome), which over the last fifty years has grown into a European UnionEuropean Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
of nearly half a billion citizens. The European Community is the name for the economic and social pillar of EU law, under which competition law falls. Healthy competition is seen as an essential element in the creation of a common market free from restraints on trade. The first provision is Article 81 EC, which deals with cartels and restrictive vertical agreements. Prohibited are...
"(1) ...all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market..."
Article 81(1) EC then gives examples of "hard core" restrictive practices such as price fixing or market sharing and 81(2) EC confirms that any agreements are automatically void. However, just like the Statute of Monopolies 1623
Statute of Monopolies 1623
The Statute of Monopolies was an Act of the Parliament of England notable as the first statutory expression of English patent law. Patents evolved from letters patent, issued by the monarch to grant monopolies over particular industries to skilled individuals with new techniques...
, Article 81(3) EC creates exemptions, if the collusion is for distributional or technological innovation, gives consumers a "fair share" of the benefit and does not include unreasonable restraints (or disproportionate, in ECJ terminology) that risk eliminating competition anywhere. Article 82 EC deals with monopolies, or more precisely firms who have a dominant market share and abuse that position. Unlike U.S. Antitrust, EC law has never been used to punish the existence of dominant firms, but merely imposes a special responsibility to conduct oneself appropriately. Specific categories of abuse listed in Article 82 EC include price discrimination and exclusive dealing, much the same as sections 2 and 3 of the U.S. Clayton Act. Also under Article 82 EC, the European Council was empowered to enact a regulation
European Union regulation
A regulation is a legislative act of the European Union that becomes immediately enforceable as law in all member states simultaneously. Regulations can be distinguished from directives which, at least in principle, need to be transposed into national law...
to control mergers between firms, currently the latest known by the abbreviation of ECMR "Reg. 139/2004". The general test is whether a concentration (i.e. merger or acquisition) with a community dimension (i.e. affects a number of EU member states) might significantly impede effective competition. Again, the similarity to the Clayton Act's substantial lessening of competition. Finally, Articles 86 and 87 EC regulate the state's role in the market. Article 86(2) EC states clearly that nothing in the rules cannot be used to obstruct a member state's right to deliver public services, but that otherwise public enterprises must play by the same rules on collusion and abuse of dominance as everyone else. Article 87 EC, similar to Article 81 EC, lays down a general rule that the state may not aid or subsidise private parties in distortion of free competition, but then grants exceptions for things like charities, natural disasters or regional development.
International enforcement
Competition law has already been substantially internationalised along the lines of the US model by nation states themselves, however the involvement of international organisations has been growing. Increasingly active at all international conferences are the United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and Development
The United Nations Conference on Trade and Development was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues....
(UNCTAD) and the Organisation for Economic Co-operation and Development
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...
(OECD), which is prone to making neo-liberal recommendations about the total application of competition law for public and private industries. Chapter 5 of the post war Havana Charter
Havana Charter
Havana Charter was the charter of the defunct International Trade Organization . It was signed by 53 countries on March 24, 1948. It allowed for international cooperation and rules against anti-competitive business practices. The charter ultimately failed because the Congress of the United States...
contained an Antitrust code but this was never incorporated into the WTO's forerunner, the General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...
1947. Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
Director and Professor Richard Whish wrote sceptically that it "seems unlikely at the current stage of its development that the WTO will metamorphose into a global competition authority." Despite that, at the ongoing Doha round
Doha round
The Doha Development Round or Doha Development Agenda is the current trade-negotiation round of the World Trade Organization which commenced in November 2001. Its objective is to lower trade barriers around the world, which will help facilitate the increase of global trade...
of trade talks for the World Trade Organisation, discussion includes the prospect of competition law enforcement moving up to a global level. While it is incapable of enforcement itself, the newly established International Competition Network
International Competition Network
The International Competition Network is an informal, virtual network that seeks to facilitate cooperation between competition law authorities globally...
(ICN) is a way for national authorities to coordinate their own enforcement activities.