Opinion ID: 1312425
Heading Depth: 4
Heading Rank: 2

Heading: The Sherman Act

Text: (4) The Attorney General cites authorities stating the Cartwright Act is modeled after the Sherman Act. He then asserts that the Sherman Act has been construed as applying to mergers, and concludes that the Carwright Act should be construed as applying to mergers as well. In light of the above discussion, however, the Attorney General's fundamental premise is flawed. Admittedly, in past statements we have suggested that the Cartwright Act is patterned after the Sherman Act. (E.g., Palsson, supra, 16 Cal.3d 920, 925, and cases cited.) As shown above, however, historical and textual analysis reveals that the Act was patterned after the 1889 Texas act and the 1899 Michigan act, and not the Sherman Act. (See ante, fn. 14.) Hence judicial interpretation of the Sherman Act, while often helpful, is not directly probative of the Cartwright drafters' intent, given the different genesis of the provision under review. Nevertheless, even if we were to accept the Attorney General's premise, interpretation of the Sherman Act is unhelpful to the Attorney General's view. As the Attorney General observes, there are cases allowing challenges to mergers under the Sherman Act. The early cases involved large railroads, the mergers of which would have amounted to an actual restraint of competition. As one commentator noted, these decisions hinge on the size of the defendant companies. (4 Kitner, Legislative History of the Federal Antitrust Laws and Related Statutes (1980) § 10.77, p. 291 [hereafter Kitner]; see Northern Securities Co. v. United States (1904) 193 U.S. 197 [48 L.Ed. 679, 24 S.Ct. 436]; United States v. Union Pacific Railroad Co. (1912) 226 U.S. 61 [57 L.Ed. 124, 33 S.Ct. 53]; United States v. Reading Co. (1920) 253 U.S. 26 [64 L.Ed. 760, 40 S.Ct. 425]; United States v. Southern Pacific Co. (1922) 259 U.S. 214 [66 L.Ed. 907, 42 S.Ct. 496]; see also Davies, supra, pp. 98-105.) Defendants respond that these early cases appear to be based on section 2 of the Sherman Act, which section prohibits monopolies. (15 U.S.C. § 2, quoted ante, pp. 1155-1156; see Kintner, supra, pp. 3436-3441, quoting FTC report.) They then cite authorities stating that the Cartwright Act contains no corresponding provision. [17] The high court's most recent word on the subject, however, defeats defendants' attempted distinction. In United States v. First Nat. Bank (1964) 376 U.S. 665 [12 L.Ed.2d 1, 84 S.Ct. 1033], the court cited Northern Securities Co., supra, 193 U.S. 197, and Union Pacific, supra, 226 U.S. 61, and held a bank merger illegal under section 1 of the Sherman Act. (376 U.S. at pp. 669-670 [12 L.Ed.2d at p. 5]; see also U.S. v. Philadelphia Nat. Bank (1963) 374 U.S. 321, 354 [10 L.Ed.2d 915, 939-940, 83 S.Ct. 1715] [The Sherman Act, of course, forbids mergers effecting an unreasonable restraint of trade.].) Still, this line of authority ultimately does not assist the Attorney General's position in this case. (5) The cases allowing challenges to mergers under the Sherman Act require  pursuant to section 1 of that Act  that an actual restraint of trade be proved. (15 U.S.C. § 1, quoted ante, p. 1156.) To the extent the Cartwright Act could be said to be patterned after the Sherman Act, a merger challenge under the state Act would require the same showing, i.e., that the merger effected an unreasonable restraint of trade. The Attorney General, however, has alleged no such thing; as explained above, his complaint is modeled after the FTC's initial complaint in this matter, and both complaints are clearly framed under section 7 of the Clayton Act. (15 U.S.C. § 18.) That latter Act  in contrast to the Sherman Act  allows challenges to incipient threats to competition, i.e., [m]ergers with a probable anticompetitive effect.... ( Brown Shoe Co. v. United States (1962) 370 U.S. 294, 323 [8 L.Ed.2d 510, 534, 82 S.Ct. 1502].) [18] In the present case, the Attorney General has alleged only that the challenged merger poses a threat to competition; he has not alleged the merger has effectuated an unreasonable restraint of competition. We reiterate that, contrary to the Attorney General's view, interpretation of the Sherman Act is not directly probative of the intent of the drafters of the Cartwright Act, given the different genesis of the provision under review. Nevertheless, in light of the above discussion, it appears that the Attorney General's complaint in this case would not state a cause of action under his cited Sherman Act cases. In fact, his view would require expansion of both the Cartwright and Sherman Acts beyond the scope attributed to them by any court. Nothing in the Sherman Act or the cases applying it supports the Attorney General's view that the Cartwright Act was intended to apply to mergers at all, much less mergers that pose, at most, an incipient threat to competition.