Antitrust Federalism and State Restraints of Interstate Commerce: An Essay for Herbert Hovenkamp

I. INTRODUCTIONProfessor Hovenkamp has made important and insightful contributions to the literature on antitrust federalism, antitrust history, and the influence of evolving theories of political economy on antitrust doctrine and constitutional law. This Essay builds upon these contributions, particularly as they relate to the appropriate federal antitrust response to state regulation that unreasonably restrains interstate commerce. Under modern constitutional law, states may restrain interstate commerce by imposing restrictions on price or banning reasonable, wealth-creating restraints. Congress could preempt such restraints, but the Supreme Court has repeatedly held that the Sherman Act does not nullify such legislative interference with free competition. The Court has justified these results by invoking considerations of "federalism" and "state sovereignty." Thus, the Court has imputed to Congress a refusal to exercise the full scope of its commerce power out of deference to state regulatory prerogatives.As Professor Hovenkamp has explained, however, such congressional intent is entirely fictional. During the 1890s, the constitutional regime of "dual federalism" enforced by judicial interpretations of the Commerce Clause prevented the overlap between federal and state regulation that makes preemption possible. This Essay elaborates upon this (correct) conclusion, clarifying the nature of dual federalism during antitrust's formative era. The Essay also suggests that due process protection for liberty of contract prevented states from banning reasonable private restraints of intrastate commerce, restraints that facilitated the operation of interstate markets. The Congress that passed the Sherman Act would have assumed that states had no authority to regulate commerce subject to the Sherman Act or reasonable intrastate restraints beyond the scope of Congress's power.Of course, the constitutional framework in place during antitrust's formative era collapsed in 1937, when the Supreme Court abandoned liberty of contract and ceased placing meaningful limits on Congress's commerce power. At the same time (and this is less well-known), the Court "unshackled" the states, weakening the Dormant Commerce Clause and allowing states to impose restraints on interstate commerce that pre-1937 case law would have condemned.The simultaneous expansion of Congress's commerce power and relaxation of Dormant Commerce Clause standards created overlapping regulatory authority and thus opened the door to Sherman Act preemption of state restraints. Professor Hovenkamp has signaled openness to such preemption, at least where state restraints produce interstate spillovers. This Essay briefly reviews the strong case for such preemption as well as the counterarguments against it. The Essay also offers an alternative approach that would void restraints that produce meaningful spillovers, avoid Sherman Act preemption of much state law, and eliminate much of the overlap between state and federal jurisdiction that gives rise to the federalism concerns that preemption opponents invoke.Part II of this Essay reviews modern doctrines governing the Sherman Act's treatment of state-imposed restraints. Part III discusses the constitutional landscape that Congress faced when it passed the Sherman Act in 1890, particularly dual federalism and liberty of contract. This Part also examines how these principles informed antitrust doctrine during antitrust's formative era. Part IV details the collapse of this constitutional regime during the 1930s. Part V frames the interpretive questions posed by this collapse and articulates the competing arguments for and against Sherman Act preemption. This Part then offers an alternative approach that would nullify state restraints that produce significant spillovers, while minimizing federalism concerns.II. THE STATUS OF STATE-IMPOSED RESTRAINTS UNDER THE SHERMAN ACTThe Sherman Act forbids contracts and other arrangements that unreasonably restrain "trade or commerce among the several [s]tates. …