Populist and Economic v. Feudal: Approaches to Industry Self-Regulation in the United States and England

Populist and Economic v. Feudal: Approaches to Industry

Self-Regulation in the United States and England

Robert Heidt*

English and American courts treat industry
self-regulation very differently. American
courts have been generally slow to acknow-
ledge the legitimacy of self-regulation. Once
they accept the need for some degree of self-
regulation, however, the American courts,
under the growing influence of the Chicago
school, have become increasingly willing to
uphold the regulation on the grounds of eco-
nomic efficiency. The English courts have
had less difficulty recognizing the legitimate
role industry self-regulation plays. In deter-
mining the reasonableness of the regulatory
scheme, however, the English courts adopt a
protectionist approach which favours the sta-
tus quo within the industry. These distinc-
tions, the author argues, reflect fundamen-
tally different attitudes towards both the con-
cept of private rule and the role of the courts
in the economic affairs of the country.

Le traitement reserv6 A l’auto-r~glementation
de l’industrie par les tribunaux differe d’un
pays i l’autre. Les cours am~ricaines se sont
g~n~ralement montr~es r~ticentes A recon-
naitre la IMgitimit6 de ‘auto-r6glementation.
Une fois cela accompli, par contre, les cours
am~ricaines, sous l’influence grandissante de
l’cole de Chicago, ont de plus en plus sou-
tenu la validit6 de rauto-rglementation pour
des motifs d’ordre 6conomique. Les tribu-
naux anglais ont plus rapidement reconnu le
r6le lgitime de l’auto-rglementation. Pour
determiner si les r~glements 6taient raison-
nables, cependant, ils ont adopt6 une vision
protectionniste qui joue en faveur du statu
quo. Ces distinctions, selon l’auteur, d~notent
des attitudes fondamentalement differentes
face A Ia notion de r gle priv~e et aussi face
au r6le des tribunaux dans les questions
6conomiques.

*Charles L. Whistler Professor of Law, Indiana University (Bloomington). I researched this
article while a visiting fellow at the University of Warwick Law School and wish to thank
Indiana University for the financial support which allowed me to accept that appointment.
McGill Law Journal 1989
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I.

Introduction

Synopsis

II. The Initial Approach of Courts Upon Encountering Industry Self-

Regulation
A. The American Approach
B. The English Approach
C. Evaluation

III. Determining the Reasonableness of the Regulations

A. Policy Considerations
B. The English Interpretation of the Restrictive Trade Practises Act
C. The Interpretations of “Unreasonable Restraint of Trade”
D. The Common Law Doctrines

1.
2.
3.
4.

Contract
The Right to Work Doctrine
Inducement of Breach of Contract
Interference with a Business by Unlawful Means

Conclusion

“Such words as [rights] are a constant solicitation to fallacy.” Jackman v.
Rosenbaum Co., 260 U.S. 22 at 31 (1922) per Holmes, J.

“[Plublic interests within [the] doctrine [of restraint of trade] are not concerned
with … considerations [of economic policy throughout an industry]. The doc-
trine grew in earlier years in comparatively simple economic and social con-
ditions. They raised no such abstruse economic considerations …” Texaco Ltd.
v. Mulbery Filling Station Ltd, [1972] 1 W.L.R. 814 at 827, [1972] 1 All E.R.
513, (1971) 116 S.J. 119 (Ch.D) per Ungoed-Thomas, J.

I.

Introduction

This article compares the response of courts in the United States and
England to actions by business groups, undertaken without statutory au-
thority, that disadvantage other businesses, especially business rivals. For
convenience, such extra-governmental activities are referred to as industry
self-regulation. More specifically, the article leaves aside informal self-
regulation such as that routinely practiced in the English banking and se-

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INDUSTRY SELF-REGULATION

curities industries, and focuses instead on formal self-regulation, such as a
jockey club’s refusal to licence a horse trainer’ or a fashion guild’s refusal
to sell to designated retailers.2

The activities under focus here –

concerted action by businesses that
puts another business, often a rival, at a significant competitive disadvantage
fall into a conceptual category that U.S. lawyers will recognize, but that
–
others may find most peculiar: a group boycott. Following American group
boycott analysis, these activities may constitute an unreasonable restraint
of trade in violation of s. 1 of the Sherman Antitrust Act, although other
elements, such as an effect on interstate commerce, must also be present.3
This article deals with a sub-category of group boycotts, a highly general
category, by ignoring purely vertical dealings between franchisers and fran-
chisees, manufacturers and dealers, and sellers and buyers, and by avoiding
the well-worn subject of vertical restraints. Instead, it deals with group ac-
tivity that is at least partly horizontal in that it directly affects a rival of at
least one of the group members who, in turn, often compete amongst them-
selves. Examples of such activities include attempts by standard-setting and
product-testing organizations to certify products, by sporting associations
to regulate their sport, by trade associations to discipline non-conforming
members, and by businesses who have jointly formed important support
facilities, like a trade fair or a real estate multiple listing service, to control
access to those facilities. 4 Perhaps because U.S. courts today, under the
growing influence of the Chicago School of Economics, generally tolerate
vertical restraints, cases challenging horizontal group activities constitute
an increasing share of the U.S. antitrust docket.

Those injured by group activities such as these operate at a competitive
disadvantage which can range from mere disapproval by partisan rivals
whose judgment customers discount, to denial of access to essential facilities,
to de facto exclusion from a profession or industry. Injury to the private

‘Nagle v. Feilden, [1966] 2 Q.B. 633, [1966] 2 W.L.R. 1027, [1966] 1 All E.R. 689 (C.A.)

[hereinafter Nagle].

2Fashion “Originators” Guild ofAm. v. Fed. Trade Comm”n, 312 U.S. 457 (1941) [hereinafter

FOGA].

3Silver v. New York Stock Exchange, 337 U.S. 341 (1963) at 347 [hereinafter Silver]. A
collective action that puts a rival at a significant competitive disadvantage constitutes a per se
violation of s. I of the Sherman Antitrust Act, c. 647, 26 Stat. 209 (1890) as amended by 15
U.S.C. s. 1 unless the action occurs in the context of government regulations. But see Northwest
Wholesale Stationers v. Pacific Stationery and Printing Co., 472 U.S. 284 (1985) [hereinafter
Pacific Stationery]. This decision limits Silver by requiring that the defendants possess market
power or unique access to a business element necessary for effective competition.
4For a more comprehensive definition of the industry self-regulation discussed here, see R.
Heidt, “Industry Self-Regulation and the Useless Concept ‘Group Boycott'” (1986) 39 Vand.
L. Rev. 1507 at 1507-15 [hereinafter Heidt].

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firm may also threaten the interests of the consuming public by retarding
the entry of new firms into the industry, thus reducing both the diversity
of products and services offered the public and the intensity of the rivalry
those in the group face. On the other hand, provided the extra-governmental
group does not fix prices or destroy rivalry between its members, 5 its efforts
can often be conceptualized in economic terms as an efficiency enhancing
integration. For instance, certification efforts may reduce consumers’ search
costs by grading and ranking sellers and identifying non-conforming sellers
and products. Similarly, standardization efforts may widen the market of a
conforming seller by assuring a great many purchasers that standard pro-
ducts will suit their specifications. Denying a rival real estate agent access
to a multiple listing service may improve efficiency by maintaining the ideal
number of agents for the smooth operation of the service, by eliminating
agents whose poor reputation would lower the economic value of the service,
and by preserving optimal incentives for those who undertook the risks and
efforts of creating the service in the first place.6

Faced then with group behaviour that, like normal rivalry, may enhance
efficiency even as it injures rivals, what suits may an injured rival bring and
how will the courts react?

A comparison of the judicial reaction in the two countries is compli-
cated by at least two factors. The first is the large number of more or less
equally promising theories upon which an injured business (hereinafter the
plaintiff) can base its legal arguments in England. In the U.S., in contrast,

51 use the words “output” and “rivalry” rather than “competition” because the word “com-
petition” is so often understood to refer both to the output that results from rivalry between
firms (in contrast to the reduced output that results from a price-fixing cartel, a monopoly, a
successfully coordinated oligopoly, or an industry protected by restrictive occupational licen-
sing) and to the process of rivalry (the process by which more efficient firms take business
from less efficient firms). This article does not emphasize price-fixing cases even though price-
fixing can certainly be seen to regulate industry, in the sense of the everyday usage of that term.
But unlike most self-regulation, price-fixing helps rather than hurts outside rivals by creating
a price umbrella under which they can sell. Of course, a price-fixing case can turn into a self-
regulation case when and if the colluding companies exclude or handicap a rival in order to
keep the rival from disrupting their price-fixing agreement.

Others have compared the U.S. and English approaches to price-fixing. See R. Whish, Com-
petition Law (London: Butterworths, 1985). Although the English, like the Americans, formally
condemn price-fixing, the English have not removed procedural obstacles that disable effective
enforcement of its formal policy. Moreover, the English do not devote significant resources to
ferret out covert price-fixing, and do not impose significant penalties. In effect, the English
accept covert price-fixing as standard business practice. See R. Whish, “The Impact of EEC
Competition Law in the U.K.”, in M.P. Furmston, R. Kerridge & B.E. Sufrin, eds., The Effect
on English Domestic Law of Membership of the European Communities and of Ratification of
the European Convention on Human Rights (The Hague: Martinus Nijhoff, 1983) at 117-18.
6For other benefits and dangers of industry self-regulation, see Heidt, supra, note 4 at 1551-

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43

the plaintiff is almost sure to proceed under s. 1 of the Sherman Antitrust
Act and its prohibition of concerted behaviour in unreasonable restraint of
trade.7 The advantages of using this federal antitrust law rather than state
common law include access to the federal courts and, should the plaintiff
prevail, treble damages plus his attorney’s fees. 8 But in England no legal
theory offers such decisive practical advantages; no legal theory, for example,
offers more than single damages. Thus injured plaintiffs or, in an appropriate
case, the Office of Fair Trading may attack industry self-regulation in Eng-
land through a network of possible legal theories including: (1) acting in
unreasonable restraint of trade; 9 (2) willfully injuring another without jus-
tification;10 (3) interfering with the business of another by unlawful means; 11
(4) interfering with another’s contract;12 (5) injurious falsehood; 13 (6) intim-
idation; 14 (7) interfering with another’s right to work;’5 (8) acting outside

7Supra, note 3. This Act condemns every contract combination or conspiracy in restraint of

trade.

8In the U.S., the prevailing party does not normally recover his attorney fees. S. 4 of the
Sherman Act, supra, note 3, expressly provides, however, that prevailing plaintiffs shall recover
these fees.

9Eastham v. Newcastle United Football Club Ltd, [1964] Ch. 413, [1963] 3 W.L.R. 574, [1963]
3 All E.R. 139; Blackler v. New Zealand Rugby Football League, Inc., [1968] N.Z.L.R. 547.

1oStratfordJ.T & Son Ltdv. Lindley, [1965] A.C. 307, [1964] W.L.R. 541, [1964] 3 All E.R.
102 (H.L.); Lumley v. Gye [1853] 118 All E.R. 749, 2 E & B 216, 22 L.J.Q.B. 463 (Q.B.); Acrow
(Automation) Ltd v. Rex Chainbelt Inc., [1971] 1 W.L.R. 1676 at 1682, [1971] 3 All E.R. 1175,
S. J. 642 (C.A.). This sweeping tort is not universally accepted. See Allen v. Flood, [1898] A.C.
I at 138, [1895-9] All E.R. 52, 67 L.J.Q.B. 119 (H.L.) which argues against a general tort for
unjustifiably causing economic loss.

“Emms v. Brad Lovett Ltd, [1973] 1 N.Z.L.R. 282; Torquay Hotel Co. v. Cousins, [1969] 2
Ch. 106 at 139-40, [1969] 2 W.L.R. 289, [1969] 1 All E.R. 522 (C.A.); Allen v. Flood, supra,
note 10 at 138. But see, Crofter Hand-Woven Harris Tweed Co. v. Veitch, [1942] A.C. 435 at
442, [1942] 1 All E.R. 142, 111 L.J.P.C. 17 (H.L.). Unlike the action for unreasonable restraint
of trade, this action does not require privity of contract. Thus an injured third party, like a
consumer, can sue. Nor is privity required for the actions of interfering with another’s contract
or intimidation. See W.L.H. Rogers, ed., Winfield and Jolowicz on Tort (London: Sweet &
Maxwell, 1984), c. 18; W.R. Cornish, Intellectual Property: Patents, Copyright, Trade Marks
and Allied Rights (London: Sweet & Maxwell, 1981) at 34-37.

12Lumley v. Gye, supra, note 10; Southern Foundries (1926) Ltd and Federated Foundries
Ltd v. Shirlaw, [1940] A.C. 701, [1940] 2 All E.R. 445, 109 L.J.K.B. 461 (H.L.); Temperton v.
Russell, [1839] 1 Q.B. 715, [1891-4] All E.R. Rep. 724, 62 L.J.Q.B. 412 (C.A.); Statnigros v.
Storhang & Partners, [1953] C.L.Y. 3556.

13Hall-Gibbs Mercantile Agency Ltd v. Dun (1910), 12 C.L.R. 84, [1910] S.R. Qd. 333 (Aust.
H.C.); Sungravure Pty Ltd v. Middle East Airlines Airliban SAL (1975), 49 A.L.J.R. 117 at 125;
Debeers Abrasive Products Ltd v. International General Electric Co. of New York, [1975] 1
W.L.R. 972 at 978, [1975] 2 All E.R. 599, 119 S.J. 439 (Ch.); Halsbury’s Laws of England, vol.
45, 4th ed. (London: Butterworths, 1985) para., 1531.

14Rookes v. Barnard, [1964] A.C. 1129, [1964] 2 W.L.R. 269, 108 S.J. 93 (H.L.); Midland
Cold Storage Ltd v. Turner, [1972] I.C.R. 230, 116 S.J. 783, [1972] 3 All E.R. 773 (N.I.R.C.).
But see, Morgan v. Fry, [1968] 2 Q.B. 710, [1968] 3 W.L.R. 506, (1968) 112 S.J. 671 (C.A.);

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the defendant group’s charter;16 (9) acting contrary to natural justice; 17 (10)
breaching the implied contractual obligations owed by an association to
treat each member in accordance with the association’s rules;’ 8 or (11) en-
tering a contract which was registrable and unlawful under the Restrictive
Trade Practices Act.’ 9 This last claim would typically be brought by the
Office of Fair Trading rather than by an injured individual. 20 Although the
Restrictive Trade Practices Act gives a private claim to an individual injured
by an unregistered but registrable agreement, no private action for failure
to register has yet been brought. 21 An injured business in the United King-
dom can also sue in the U.K. courts for a violation of the Treaty ofRome,22

Hadmor Productions Ltd v. Hamilton (1981), [1983] 1 A.C. 191, [1982] 2 W.L.R. 322, [1982]
1 All E.R. 1042 (H.L.).

15Edwards v. Society of Graphical andAllied Trades (1970), [1971] Ch. 354 at 376, 377, 383,

[1970] 3 W.L.R. 713, 114 S.J. 618 (C.A.).

16Dickson v. Pharmaceutical Society of Great Britain, [1967] 2 W.L.R. 718, [1967] 2 All E.R.
558, 111 S.J. 116 (C.A.), aff’d [1970] A.C. 403, [1968] 3 W.L.R. 286, [1968] 2 All E.R. 686
(H.L).
17Cinnamond v. British Airports Authority, [1980] 1 W.L.R. 582, [1980] 2 All E.R. 368, 124
S.J. 221 (C.A.); Posluns v. Toronto Stock Exchange (1964), [1965] 1 O.R. 428, 46 D.L.R. (2d)
210 (O.H.C.).

18Davis v. Carew-Pole, [1956] 1 W.L.R. 833 at 842, [1956] 2 All E.R. 524; Abbott v. Sullivan,
[1952] 1 K.B. 195, [1952] 1 All E.R. 226, [1952] T.L.R. 133 (C.A.); Halsbury’s Laws of England,
vol. 47, 4th ed. (London: Butterworths, 1984) paras 116, 251. A court may also deem the
defendant association’s actions ultra vires or outside the association’s jurisdiction; e.g. Abbott
v. Sullivan, ibid. Although recognized as distinct doctrines, the doctrine condemning the as-
sociation’s breach of the implied contractual obligations owed to its members may overlap
with the doctrine condemning an association from acting outside its group charter; e.g. Dickson
v. Pharmaceutical Society of Great Britain, supra, note 16.

19Re Newspaper Proprietor’s Agreement (1963), [1964] 1 W.L.R. 31, [1964] 1 All E.R. 55, 108
S.J. 13 (H.L.); Daily Mirror Newspapers Ltd v. Gardner, [1968] 2 Q.B. 762 at 768, [1968] 2
W.L.R. 1239, [1968] 2 All E.R. 163 (C.A.); BrekkesLtdv. Cattel(1970), [1972] Ch. 105, [1971]
2 W.L.R. 647, [1971] 1 All E.R. 1031; Restrictive Trade Practices Act (U.K.), 1976 c. 34, ss 1,
9 & 10.

201t is also possible that the Director General of Fair Trading and the Monopoly Commission
will attack instances of industry self-regulation under the Competition Act 1980 (U.K.), 1980,
c. 21, s. 2(1). This possibility seems remote, however. While, in theory, industry self-regulation
may fall within the Competition Act’s condemnation of actions “restricting, distorting, or pre-
venting competition,” in practice the Act has been employed elsewhere. Whish, Competition
Law, supra, note 5 at 84-89.

2 1R. Merkins & K. Williams, Competition Law: Antitrust Policy in the U.K and the EEC
(London: Sweet & Maxwell, 1984) at 444; Whish, Competition Law, supra, note 5 at 150-51.
22Garden Cottage Foods Ltd v. Milk Marketing Board (1983), [1984] 1 A.C. 130, [1983] 3
W.L.R. 143, [1983] 2 All E.R. 770. This case holds that an injured private plaintiff may seek
equitable relief under the Treaty of Rom, it is not clear whether damages may be sought. See
also Bourgoin S.A. v. Ministry of Agriculture, Fisheries and Food (1985), [1986] 1 Q.B. 716,
[1985] 3 W.L.R. 1027, [1985] 3 All E.R. 585. It is unclear whether violation of articles 85 &
86 of the Treaty of Rome, 1957 gives rise to an action for damages. See, Treaty Establishing
the European Economic Community and Connected Documents, 25 March 1957, Publishing
Service of the European Economic Communities, Brussels 1962 for an English translation of
the Treaty of Rome, 1957.

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INDUSTRY SELF-REGULATION

but this article does not discuss the European Economic Community’s ap-
proach to self-regulation.

The comparison is complicated further because U.S. antitrust law is
currently caught in the middle of an unfinished revolution, and I’m not sure
whether to use for this comparison the populist law before the revolution
– which was hostile to any private regulation –
or the liberal, economic
law after it. Put briefly, the Chicago School of antitrust analysis has revo-
lutionized U.S. antitrust law since 1978. It has introduced a simplified and
unified economic approach that focuses solely on maximizing economic
efficiency by balancing allocative and productive efficiency. The Chicago
School approach tolerates almost all industry self-regulation unless it serves
to enforce an agreement to fix prices or to fix other terms or conditions of
sale or purchase.23 In effect the Chicago School would condemn only col-
lusion –
and would tolerate exclusion –
concerted action injuring non-agreeing ri-
vals. But unreconstructed pockets of the populist American antitrust law
remain, a fortuity that may be due only to the inevitable delay before a case
dealing with that part of the law presents itself.

agreements between rivals to limit rivalry between themselves –

This unfinished revolution has left current antitrust law unsettled, un-
predictable, and difficult to state. The Supreme Court’s most recent state-
ment, Pacific Stationery, again embraced the Chicago School’s view that
efficiency alone drives the Sherman Act, and that the mere injury to a rival
business does not implicate the Act as long as sufficient rivals remain to
assure consumers a competitive output.24 But the only two rulings that the
Court was asked to make involved very modest reforms to the edifice of
populist law that had governed. The plaintiff in Pacific Stationery was a
retail stationery store that had been expelled from a joint venture of rivals
whose purpose was to buy stationery supplies in volume to obtain discounts.
The Supreme Court granted the two modest reforms to the existing law
requested by the defendants; namely, that the joint venture must be shown
to possess market power for a violation to be found and that the mere failure
of the defendants to grant the plaintiff a hearing does not warrant the ven-
ture’s condemnation per se. Without any further change to existing law, the
case was then remanded for evaluation under the Rule of Reason. This case
by case approach promises to keep the Chicago School’s revolution unfin-
ished for some years, and bars a confident statement of the steps U.S. courts
are to follow in deciding these cases.

23R.A. Posner, Antitrust Law: An Economic Perspective (Chicago: U. of Chicago Press, 1976)
at 210. National Soc’y of Prof’l Eng’rs v. United States 435 U.S. 679 (1978) [hereinafter
NSPE]; Continental TV, Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977).

24Supra, note 3.

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Despite these complications, some comparisons of the two countries’
approaches may yet be advanced. For some time, U.S. courts initially ap-
proached industry self-regulation with notable hostility, a hostility based on
populist rather than economic grounds. The hostility sprang primarily from
what I call the jealousy impulse of the U.S. courts –
their disapproval of
private firms usurping regulatory power that the courts insisted on reserving
for the government. This traditional hostility still manifests itself in several
aspects of the U.S. approach. It partly explains the continued practice of
requiring the defendants, once a plaintiff has shown that their concerted
action has put him at a significant competitive disadvantage, to satisfy the
court that any self-regulation is justified. The defendant usually tries to
discharge this burden on the ground that the nature of the particular industry
requires self-regulation. Failure to meet this burden probably means im-
mediate condemnation as a “group boycott”. Immediate condemnation also
results, according to some lower courts, where the defendants fail to show
that their action against the plaintiff accomplishes “an end consistent with
the policy justifying self-regulation, is reasonably related to that end, and
is no more extensive than necessary. ’25

Once the defendants satisfy this burden –

and thereby avoid condem-
nation per se –
the courts will adopt the Rule of Reason approach. Since
1978, that approach amounts to an economic analysis which purports to
balance the loss to allocative efficiency from the defendants’ action against
the possible gains to productive efficiency, and to uphold or condemn the
defendant’s action based on the net result for efficiency.26

The English courts do not share their American counterparts’ hostility
towards the concept of industry self-regulation. To the English courts, an
industry self-regulation case is just another type of administrative law case,
to be governed by the same principles that govern judicial review of ad-
ministrative action generally. These principles attempt to define the rights
and obligations of individuals and of individual firms in relation to the
groups whose actions affect them. They seek to protect what the courts see

25Denver Rockets v. All-Pro Management Inc., 325 E Supp. 1049 (D.C. Cal. 1971).
26NSPE, supra, note 23. The courts should merely balance anti-competitive aspects of a
defendant’s action against its pro-competitive aspects and should disregard other factors, such
as public safety, that might support actions that carry a net anti-competitive effect. To be sure,
an attorney could strive to distinguish NSPE on the ground that it involved collusion while
most industry self-regulation cases involve exclusion. By collusion, I mean agreements among
rivals to refrain from competition on some dimensions of trade or purchase, such as the price
or the nature of the product. Exclusion, by contrast, involves concerted conduct to exclude or
handicap a rival. Exclusion cases are governed, so the argument might go, not by NSPE but
by Pacific Stationery, supra, note 3. I believe, however, that Pacific Stationery, properly read,
calls for the same economic approach explicitly demanded in NSPE. The discussion in the
text assumes that this reading will prevail.

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INDUSTRY SELF-REGULATION

as the legitimate expectations and rights of particular businesses against
unnecessary or abusive treatment at the hands of any group, public or pri-
vate. Thus the English administrative law cares much less about whether
the actions of an extra-governmental group reduce industry output or oth-
erwise impair economic efficiency, than it does about the fairness of those
actions in relation to the rival businesses most immediately affected. These
inquiries, in the hands of the English courts, give a distinct advantage to
marginal groups who can make a plausible claim that some “legitimate
interest” of theirs, such as their wish to survive, justifies their actions, and
to the marginal victim who can realistically claim that the self-regulation
threatens its “legitimate interest” in its continued existence. In contrast, the
U.S. courts, once they overcome their threshold hostility towards any in-
dustry self-regulation, seek the best advantage for consumers and tolerate
the destruction of particular firms or groups through industry self-regulation,
fair or not, as part of the competitive maelstrom.

Thus, while the English law does not show the presumptive hostility
towards industry self-regulation of the populist U.S. antitrust law, neither
does it show the tolerance of industry self-regulation that follows from the
commitment to economic efficiency of the post-1978 U.S. antitrust law.
Rather, the English courts are quick to approve attempts at industry self-
regulation, but then review the actual enforcement of self-regulation by
asking such feudal 27 or protectionist questions as whether the self-regulation

27″Feudal” here is used in contrast with “liberal” to characterize two contrasting regimes for
allocating authority. As opposed to the “liberal” regime, the “feudal” regime features a relatively
decentralized allocation of authority between the state and private associations, especially
guilds; a relatively greater role for the private administration of justice and a larger sphere of
private jurisdiction; an unwillingness to determine a person’s status and entitlement solely
through the play of market forces; a judicial preference in favour of preserving existing insti-
tutions threatened by market forces; and the development of an inclusive web of ties of obe-
dience, protection and maintenance which bind together persons of unequal status. “Feudal”
here does not necessarily refer to a system characterized by homage, feudal incidents, honors
and feudal courts, knightly service connected with fiefs, the widespread use of service tenements
instead of a salary, or the use of military tenures for military purposes. Plainly, only my highly
vestigial version of “feudal”, a version far removed from the core concept historians use, could
plausibly characterize a tendency in the judicial approach of the United Kingdom of 1988.

As used in this descriptive article, “feudal” is not a pejorative. In particular it does not
connote the arbitrary exercise of power. On the contrary, this article contends that the English
approach fixes more attention on checking the arbitrary use of private power than does the
economic approach of the Chicago School, for the latter opposes any judicial interference with
powerful private associations except when overall economic efficiency is threatened.

Admittedly, such generalized concepts as “feudal” and “liberal” may not serve the historian’s
goal of understanding the workings of medieval and modem society. For a discussion of feu-
dalism see E. Brown,”The Tyranny of a Construct: Feudalism and Historians of Medieval
Europe” (1974) 79 American Historical Review 1063. As the historian Michael Postan has
written, such generalized concepts may, nevertheless, “help us to distinguish one historical
situation from another, and to align similar situations in different countries and even in different

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“unfairly” or “unnecessarily” threatens the status or “legitimate interests”
of the victim or, on the other hand, protects the status and “legitimate
interest” of the regulators.

The response of courts when industry self-regulation is challenged is
worthy of study as a branch of trade regulation law in its own right. Beyond
that, I suggest that these sharply different approaches to industry self-
regulation reflect fundamental differences in judicial attitudes about the
legitimacy of private rule, the proper role of the courts in the economic
affairs of the country, the extent to which trade regulation law ought to be
devoted to economic efficiency, and the extent to which courts should con-
sider the utilitarian consequences of their rules or, alternatively, limit them-
selves to adjusting the rights and obligations of the immediate parties
towards one another. In Part II, I will compare in greater detail the initial
approaches of the English and U.S. Courts upon encountering examples of
self-regulation. Part III will analyze, from both a comparative and economic
perspective, the approaches.adopted by the courts in determining the legal
status of the self-regulation that survives initial scrutiny.

II. The Initial Approach of Courts Upon Encountering an Instance of

Industry Self-Regulation

A. The American Approach

One of the unreconstructed pockets of the populist antitrust law in the
U.S. concerns the courts’ initial approach towards extra-governmental reg-
ulation. This approach, with its presumptive hostility towards any extra-
governmental rule, is articulated most clearly in Justice Hugo Black’s opin-
ions for the Supreme Court between 1939 and 1971. In Fashion “Origi-
nators” Guild of Am. v. Fed. Trade Comm’n,28 for example, Justice Black,
writing for a unanimous court, condemned a guild of fashion designers that
was attempting to stop style piracy by refusing to deal with both the style
pirates and with the manufacturers and retailers who dealt with them. Justice
Black was willing to assume that style piracy was tortious and that the sole
purpose of the guild’s action was to control this tortious behaviour. However
laudable its goal, he considered the guild’s attempt at industry self-regulation
fundamentally illegitimate:

periods.” M.M. Postan, foreword to M.L.B. Bloch, Feudal Society, xiv (Chicago: U. of Chicago
Press, 1961).

28FOGA, supra, note 2.

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INDUSTRY SELF-REGULATION

[It] is in reality an extra-governmental agency, which prescribes rules for the
regulation and restraint of interstate commerce, and provides extra-judicial
tribunals for determination and punishment of violations, and thus “trenches
upon the power of the national legislature and violates the statute.”29

This concern that a private group was usurping the role of the govern-
ment has doomed other attempts at self-regulation. In American Medical
Ass’n v. United States,30 the AMA’s effort to regulate pre-paid group health
plans triggered treble damage liability on this ground:

Neither the fact that the conspiracy may be intended to promote the public
welfare, or that of the industry, nor the fact that it is designed to eliminate
unfair, fraudulent and unlawful practices, is sufficient to avoid the penalties of
the Sherman Act.

Appellants are not law enforcement agencies; they are charged with no duties
of investigating or prosecuting, to say nothing of convicting and punishing …
Except for their size, their prestige and their otherwise commendable activities,
their conduct in the present case differs not at all from that of any other extra-
governmental agency which assumes power to challenge alleged wrongdoing
by taking the law into its own hands. Although extreme situations may seem
sometimes to have required vigilante action … and although persons who rea-
son superficially concerning such matters may find justification for extra-legal
action to secure what seems to them desirable ends, this is not the American
way of life.3′

Similarly, in Federal Trade Comm’n v. Wallace, a trade association of coal
retailers was condemned for taking concerted action against coal dealers
who sold at short weight, or who misrepresented their coal. Again the court
deemed any attempt at industry self-regulation illegitimate in principle:

It is not a prerogative of private parties to act as self-constituted censors of
business ethics, to install themselves as judges and guardians of the public
welfare, and to enforce by drastic and restrictive measures their conceptions
thus formed.3 2

In effect, the courts limited the methods by which business groups could
legitimately control the behaviour of a rival to suing under existing law and
to lobbying the legislature for new and more favourable laws.

I have called the populist notion that only the legislature and the courts
can attempt to control the business conduct of others the “jealousy” impulse
of the U.S. antitrust law. 33 It echoes an underlying theme of Roman law
whose concept of merum imperium centered all rule-making, save for that

29Ibid. at 465.
30130 E2d 233 (D.C. Cir. 1942) aff’d 317 U.S. 519 (1943) [hereinafter AMA].
311bid. at 249.
3275 E2d 733 (8th Cir. 1935) at 737.
33Heidt, supra, note 4 at 1587.

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exercised by the paterfamilias, in the government. 34 But while institutions
intermediate between the family and the government, such as trade asso-
ciations, certification boards, joint ventures, unions, universities and even
single corporations, may have played little role in the Roman world, they
abound today. Private groups routinely judge rivals and act in ways that
put rivals at a competitive disadvantage. Implicit in any joint activity from
a merger, partnership or joint venture to a less complete integration like a
trade association, standard-setting body or multiple listing service is a judg-
ment about rivals which may put some, especially those not included in
the organization, at a competitive disadvantage. 35 Moreover, rivals often
make the best judges of each other, thanks to their expertise and interest,
and to the efficiency with which they can reach and implement their judg-
ments. Thus the “jealousy” impulse seems at war with modern industrial
society.

Fortunately, lower courts have often resisted the “jealousy” impulse
and the presumption against self-regulation in ways that are a tribute to
judicial ingenuity.36 Except for the esteem accorded Justice Black and the
belated judicial awareness of the conflict between the “jealousy” impulse
and the Chicago School’s antitrust analysis, I would see no chance of this
impulse surviving the Chicago School’s revolution. All the same, it may
continue to fall between the cracks of that revolution and to affect U.S.
antitrust law for many years.

B. The English Approach

In England there is no similar presumption against industry self-
regulation. The key word here is presumption. While the English courts may
ultimately review the defendants’ action to determine whether it conflicts
with the right to work, offends natural justice or invades another of the
plaintiff’s legally protected interests, they acknowledge a legitimate role in
society for such “domestic” or “semi-public tribunals”. They respond to
such tribunals with deference, tolerance and gratitude for the important and
necessary work these organizations perform. They do not insist that only

3M.P Gilmore, Argument from Roman Law in Political Thought, 1200-1600 (New York:
Russell & Russell, 1941) at 37-44.
35Heidt, supra, note 4 at 1531.
36Gunter Harz Sports Inc. v. United States Tennis Ass’n Inc., 665 E2d 222 (8th Cir. 1981);
Deesen v. Professional Golfers’ Ass’n, 358 E2d 165 (9th Cir. 1966) cert. denied 385 U.S. 846
(1966); Jacobi v. Bache & Co., 520 E2d 1231 (2d Cir. 1975) cert. denied 423 U.S. 1053 (1976);
Neeld v. National Hockey League, 594 E2d 1297 (9th Cir. 1979); Bartholomew v. Virginia
Chiropractors Ass’n, 612 E2d 812 (4th Cir. 1979) cert. denied 446 U.S. 938 (1980); E.A.
McQuade Tours Inc. v. Consolidated Air Tour Manual Comm’n 467 E2d 178 (5th Cir. 1972)
cert. denied 409 U.S. 1109 (1973); Brown v. Indianapolis Board ofRealtors, 1977-1 Trade Cas.
s. 61, 435 (S.D. Ind.).

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INDUSTRY SELF-REGULATION

51

public bodies may attempt to licence or regulate. In general, they distinguish
less sharply, and much less passionately, between the functions considered
appropriate for public and private bodies. Whether a regulatory body acts
under statutory authority, on the one hand, or merely under industry cus-
tom, on the other, matters fundamentally in the U.S.. but hardly matters at
all in England.

Indeed perhaps an easier way to compare the different approaches is
to note the effect in the two countries of legislation authorizing the private
group to regulate. The existence of legislation giving a private group au-
thority to regulate changes the courts’ approach drastically in the U.S.. Nei-
ther antitrust law,37 nor the common law, can be used to challenge such
authorized regulation. American courts will only review that regulation to
the extent they review any governmental action. In other words, the injured
rival must look to U.S. administrative law, e.g., “the regulator misinter-
preted the statute” or U.S. constitutional law, e.g., “the statute as imple-
mented by the regulator violates the equal protection clause.”

In contrast, when the English government authorizes regulation, either
through a statute or the granting of a royal charter specifying the authority,
many of the legal theories on which a plaintiff may challenge the regulation
remain available. For example, the plaintiff can still prevail by establishing
that the governmentally authorized regulation infringes his right to work,
offends natural justice, or operates as an unreasonable restraint of trade.38

37Parker v. Brown, 317 U.S. 341 (1943). A state law may displace competition with some
other economic regimen, thereby exempting those who comply with the state law from antitrust
scrutiny.
381n deciding whether defendants have violated natural justice, English courts treat public
and private defendants the same. U.S. courts, in contrast, treat them differently in deciding
the similar question of whether defendants have violated due process. The following cases
illustrate the English treatment first of public and then of private defendants. See Ridge v.
Baldwin (1963), [1964] A.C. 40, [1963] 2 W.L.R. 935, [1963] 2 All E.R. 66 (H.L.), where it was
held that the dismissal of a public servant violated natural justice because the servant received
no notice of the charges against him and no hearing was held. Metropolitan Properties Co.
(FG.C.) v. Lannon (1968), [1969] 1 Q.B. 577, [1968] 3 W.L.R. 694, [1968] 3 All E.R. 304 (C.A.)
held that natural justice is violated when a member of a Rent Assessment Committee passes
judgment on an appeal in which he has a conflict of interest. Abouna v. Foothills Provincial
General Hospital Board, (1978), 83 D.L.R. (3d) 333; [1978] 2 W.W.R. 130, reversing in part
[1977] 5 W.W.R. 75, 77 D.L.R. (3d) 220 (Alta. C.A.), held that a public corporation acting in
a quasi-judicial manner has violated the rules of natural justice where a surgeon’s appointment
to a hospital was revoked by the hospital board without the surgeon having an opportunity
to be heard. Cases involving private defendants include: Faramus v. Film Artistes’Ass’n, [1963]
2 Q.B. 527, [1963] 2 W.L.R. 504, [1963] 1 All E.R. 636 (A.C.), aftd. [1964] A.C. 925, [1964]
2 W.L.R. 126, [1964] 1 All E.R. 25 (H.L.). R. v. Gaming Board for Great Britain, [1970] 2 Q.B.
417, [1970] 2 W.L.R. 1009, 114 S.J. 266 (C.A.) held that the natural justice principle of right
to a fair hearing applies to private licensing boards. But see, Enderby Town Football Club Ltd
v. Football Ass’n (1970), [1971] Ch. 591, [1970] 3 W.L.R. 1021, [1971] 1 All E.R. 215 (C.A.)

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The tendency of the English courts to blur the public/private distinction,
to apply administrative law principles to private groups, and generally to
emphasize administrative law concerns highlights their sharply different
attitude to self-regulation.

A few cases from English law illustrate this difference. In the famous
case Nagle v. Feilden,39 a woman sued the stewards of the Jockey Club
because they refused to licence her to train race horses on the sole ground
that she was a woman. Only horses trained by licenced trainers could par-
ticipate in races sanctioned by the Jockey Club. And because the Jockey
Club held a monopoly over races on the flat in Great Britain, their races
were, for all practical purposes, the only races. In exercising its power, the
Jockey Club promulgated and enforced the Rules of Racing. Those who did
not comply faced a fine or exclusion from the sport. Despite the Jockey
Club’s freely confessed power to licence trainers and jockeys –
a function
a U.S. court would consider governmental in character –
it operated with-
out statutory authority and without any other authority from the govern-
ment. Indeed, its only source of authority arose from industry custom.

The English court nevertheless accepted the Jockey Club’s extra-
governmental regulation of the sport with equanimity, just as it had in
previous litigation involving the Club.40 Free from any “jealousy” impulse,
or at least from any doctrine expressing such an impulse, it did not invoke
any presumption against the Jockey Club. While Justice Black decried the
fashion guild for “prescribing rules” ’41 to regulate commerce, the English
court applauded the Jockey Club’s promulgation of rules. As the court said,
those rules tended to limit the Club’s discretion and reduce the chance of
caprice, two priorities of administrative law. The contrast should not be
overstated. In the end the British court, primarily because of the possible
abridgement of the plaintiff’s right to work, reached the same outcome an
American court probably would have and reversed the dismissal of the

which suggested greater deference would be granted to the regulator when regulation is au-
thorized. See also Hughes v. Architects’Registration Council of the United Kingdom, [1957] 2
Q.B. 550 at 557-58, [1957] 3 W.L.R. 119, [1957] 2 All E.R. (D.C.); Buckoke v. Greater London
Council, [1971] 1 Ch. 655 at 675-77, [1971] 2 W.L.R. 760, [1971] 2 All E.R. 254 (C.A.).

To avoid confusion, this article does not discuss the judicial review in the U.K. of acts by
authorized regulators, such as the public tribunals governed by the Tribunals and Inquiries Act,
1958 (U.K.), 6 & 7 Eliz. 2, c. 66. Commentators on administrative law have dealt at length
with the judicial control of such authorized regulation. See B. Schwartz & H.W.R. Wade, Legal
Control ofGovernment: AdministrativeLaw in Britain and the UnitedStates (Oxford: Clarendon
Press, 1972) at 148.

39Nagle, supra, note 1.
40E.g., Russell v. Duke of Norfolk, (1948) 65 T.L.R. 225, [1949] 1 All E.R. 109, 93 S.J. 132

(C.A.).

41FOGA, supra, note 2 at 465.

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INDUSTRY SELF-REGULATION

plaintiff’s suit. But what is being compared here are the courts’ initial re-
actions. Because the British court did not start with any presumption against
the Jockey Club’s extrajudicial rule, the plaintiff would at least need to
shoulder the burden of producing evidence that the reasoning behind the
Jockey Club’s decision, or the procedures through which they reached that
decision, gave her a cause of action. In the U.S., the populist hostility to
extra-governmental rule, reflected in the antitrust decisions of Justice Black,
shifts this burden to the defendants and, in many cases, goes considerably
further.42

Another sporting association case further illustrates the deference
shown extra-governmental rule in England. In Mclnnes v. Onslow Fane, the
plaintiff sued the British Boxing Board of Control for its refusal to grant
him a licence to manage boxers.43 Despite its name, the British Boxing Board
of Control was an unincorporated body with no statutory or other govern-
mental authority. It had long controlled professional boxing in England by
enforcing an elaborate network of rules and by licensing boxers, managers,
promoters, referees, and masters of ceremonies. A licence was essential for
those who wished to participate in any of these occupations. The plaintiff
in Mclnnes sued on the narrow procedural ground that the Board denied
his application without giving him any reasons. The Board’s action therefore
offended natural justice.

In contrast to the U.S. courts’ strident denunciations of extra-
governmental rule, the British court began its decision with a straightforward
recognition of the role that private groups play:

There are many bodies that, though not established or operating under the
authority of statute, exercise control, often on a national scale, over many
activities that are important to many people, both in providing a means of
livelihood and for other reasons. Sometimes that control is exercised, as by
the board, by means of a system of granting or refusing licenses, and sometimes
it is operated by means of accepting or rejecting applications for membership.44

As in Nagle, the British court ultimately reviewed the Board’s denial of the
plaintiff’s application for a licence to see if that denial implicated the right
to work and was therefore subject to minimal requirements of natural justice

42E.g., Denver Rockets v. All-Pro Management Inc., supra, note 25 at 1064-65. In this case
it was held that a professional basketball association is required to show a legislative mandate
or justifying policy for any self-regulation before the merits of the self-regulation will be ex-
amined; even then, the basketball association, in order to avoid per se condemnation of its
industry self-regulation, must show that the regulation: 1) accomplishes an end consistent with
the policy justifying self-regulation; 2) is reasonably related to that end; and 3) is no more
extensive than necessary.

43[1978] 1 W.L.R. 1520, [1978] 3 All E.R. 211, 122 S.J. 844 (Ch.) [hereinafter Mclnnes].
44Ibid. at 1527.

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and fairness. Although the court held that the Board’s actions were subject
to these minimal requirements, it did not think that these requirements
extended to giving the plaintiff reasons for the Board’s refusal or a hearing.

In justifying this conclusion, the English court indicated the wide dis-
cretion legitimately available to the Board and the many goals the Board
may pursue:

There are many reasons why a licence might be refused to an applicant of
complete integrity, high repute and financial stability. Some may be wholly
unconnected with the applicant, as where there are already too many licenses
for the good of boxing under existing conditions. Others will relate to the
applicant. They may be discreditable to him, as where he is dishonest or a
drunkard; or they may be free from discredit, as where he suffers from physical
or mental ill-health, or is too young, or too inexperienced, or too old, or simply
lacks the personality or strength of character required for what no doubt may
be an exacting occupation. There may be no ‘case against him’ at all, in the
sense of something warranting forfeiture or expulsion; instead there may simply
be the absence of enough in favour of granting the licence. 45

At least one aspect of this statement would shock an American antitrust
lawyer. That is the notion that a private group acting without any statutory
authority but with clear monopoly power can legitimately decide, in the
classic tradition of a cartel, that “there are already too many licenses for
the good of boxing under existing conditions”. Apparently the Board is
allowed to restrict the number of licences –
and thus, in economic terms,
output –
solely in order to preserve a monopoly output rather than the
larger competitive output. This is one reason for denying a licence that an
American court would not accept.46 Limiting output, and therefore raising
the price for goods or services above the price that would prevail under
competition, is not considered a legitimate goal for any private group in
the U.S.. Indeed such reduced output, not offset by gains to productive
efficiency, is the very result the U.S. antitrust laws aim to avoid. In contrast,
the English courts casually accept that private groups will try to limit output
in order to maximize (or at least artificially maintain) their revenue and
profits. The English courts fail to distinguish between the legitimate profits
gained by increasing the marketability of the sport, and the illegitimate
profits gained by contriving a scarcity which allows the group’s products or
services to be sold at an artificially increased price.

The Mclnnes court’s most telling statement, however, dealt with the
deference to be accorded the decisions of these private groups, groups inev-
itably more knowledgeable than the courts:

45Ibid. at 1532.
46E.g., Hoover v. Ronwin, 466 U.S. 558 (1984).

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There is a more general consideration. I think that the courts must be slow to
allow any implied obligation to be fair to be used as a means of bringing before
the courts for review honest decisions of bodies exercising jurisdiction over …
activities which those bodies are far better fitted to judge than the courts. This
is so even where those bodies are concerned with the means of livelihood of
those who take part in those activities. … Bodies such as the board which
promote public interest by seeking to maintain high standards in a field of
activity which otherwise might easily become degraded and corrupt ought not
to be hampered in their work without good cause. Such bodies should not be
tempted or coerced into granting licenses that otherwise they would refuse by
reason of the courts having imposed on them a procedure for refusal which
facilitates litigation against them. 47

However sensible such deference might be, it contrasts sharply with the
suspicion, if not cynicism, that greets industry self-regulation in the U.S..

The plaintiff’s request in Mclnnes for reasons and a hearing will remind
American lawyers of a similar request in the famous case Silver v. New York
Stock Exchange.48 Silver was a broker who was refused wire connections
with member brokers by the Exchange. The plaintiff sued the Exchange
under the antitrust laws and prevailed on summary judgment. The Supreme
Court’s opinion differs markedly from Mclnnes. The Supreme Court said
first that were it not for the statutory authorization given the Exchange
under the Security and Exchange Commission Act of 1934,49 the Exchange’s
action against the plaintiff would have constituted a per se violation of the
antitrust law, with no defense or justification possible.5 0 In the absence of
statutory authority, the Exchange would be liable merely because its action
(being a concerted action by, among others, the plaintiff’s rivals) put the
plaintiff at a significant competitive disadvantage. Even with its statutory
authority, the Exchange could only take that action that it could show was
necessary to make the statute effective, and even then it must give the
plaintiff procedural protection.5 ‘ In Mclnnes, as previously stated, the Board
had no statutory or other governmental authority; yet it was allowed to
control licences in order to achieve a wide variety of ends (including the
restriction of output), the choice of which was largely left to its discretion.
Furthermore, the Board was held to have no obligation to give the plaintiff
reasons or a hearing.

The English courts have also deferred to private groups less ancient
and less well-established in British culture than the Jockey Club and the
Boxing Board of Control. In Re Association of British Travel Agents, Ltd

47McInnes, supra, note 43 at 1535.
48Silver, supra, note 3.
49Securities Exchange Act of 1934, 15 US.C. s. 78a (1970).
50Ibid. at 347.
5SIbid at 360-61.

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Agreement,52 a recently created trade association of travel agents promul-
gated elaborate rules and regulations for each of its members. Moreover,
the association enforced the regulations not only by excluding those who
did not comply, but by enforcing a “stabilizer” restriction against them. This
restriction prohibited members from selling, displaying or booking tours
organized or promoted by any non-member, and from selling their own
tours through any non-member agencies. Because a large percentage of travel
agents and operators were members, membership in the trade association
had become a defacto licence to trade. Accordingly, the regulations of the
association were as mandatory as the regulations of a government licensing
authority in the United States. Yet, like the Jockey Club, the trade associ-
ation operated without any statutory authority.

When the Office of Fair Trading brought the trade association before
the Restrictive Trade Practices Court, the court was not troubled in the least
by the ABTA’s assumption (some might say presumption) that it should
attempt to control its industry. Nor was the court troubled by the fact that
some of the travel agents affected had never consented to the trade asso-
ciation’s authority. Instead, the court directly addressed the merits of the
trade association’s regulatory regime.

Once again, caution is needed lest the contrast be overstated. After all,
trade associations certainly abound in the United States, and they assess
dues and impose other requirements for members, which they enforce by
excluding those who do not comply. To some extent, the judicial acceptance
of these trade association rules suggests how unrealistic and inappropriate
were the implications of Justice Black’s extreme language. Perhaps then, a
more meaningful comparison is not between the stated legal approach of
the two countries but between the actual practice in both countries, on the
one hand, and Justice Black’s language, on the other. Nevertheless, the tra-
dition represented by Justice Black plainly leaves its mark. The trade as-
sociation rules commonplace in the United States tend to be far more
perfunctory and far less ambitious than those of the British travel associ-
ation. 53 They do not manifest the goal of controlling an entire industry, a
goal which their British counterparts take for granted. A U.S. antitrust court
would be troubled much more than was the Restrictive Trade Practices
Court by the far-reaching character of the ABTA regulation, by the ABTA’s
capacity not merely to assist those who comply, but to exclude those who

Ct.) [hereinafter ABTA ].

52Re Association of British Travel Agents, Ltd Agreement, [1984] I.C.R. 12 (Rest. Practices
53Moore v. Boating Industry Ass’n, 754 E2d 698 (7th Cir. 1985); Hatley v. American Quarter
Horse Ass’n, 552 E2d 646 (5th Cir. 1977). The trade association’s rules may not go beyond
what is necessary to keep the trade association operative and may not limit rivalry between
the members.

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INDUSTRY SELF-REGULATION

did not, and, in general, by the resemblance of the ABTA’s activity to gov-
ernment regulation. This concern would arise in the U.S. irrespective of the
court’s view of the ultimate merits of particular regulations or particular
enforcement efforts.54

C. Evaluation

I do not know why “the jealousy impulse” against extra-governmental
rule has affected the U.S. courts so much more than their British counter-
parts. The explanation cannot lie in the text of the U.S. antitrust law, for
England has likewise long condemned contracts in unreasonable restraint
of trade. My guess is that the U.S.’s relatively recent lawless past helped to
produce a judicial preoccupation with suppressing vigilantes and other man-
ifestations of private rule. The fear of large private groups, such as the Ku
Klux Klan, exercising what amounts to sovereign powers and challenging
the rule of the government may have loomed larger in the United States. 55
The American belief that private groups should not perform governmental
functions may also reflect the influence of its constitution, for that consti-
tution emphasizes the distinct and, to some extent, mutually exclusive roles
of the government and the people, with large private groups being included
with the “people”.

In contrast, the “corporatist” tradition that recognises a legitimate role
for institutions intermediate between the individual and the State, has ex-
ercised greater influence not just in England, but in Europe generally. More-
over, the tendency to blur the public/private distinction and to allow guilds
a share in rule-making is often associated by historians with late feudalism.56
The U.S. attitude could then be attributed, as have so many other features
of its culture, to the relative absence in the U.S. of a feudal tradition.57
Perhaps a sociologist also would look for explanation in the closer social
and educational ties between individuals in British ruling circles. Because
of those ties, English judges may be more willing to concede authority to

54E.g., Denver Rockets v. All-Pro Management, Inc., supra, note 25. The court refused to
consider the wisdom of the NBA’s rule, finding that the NBA had failed to satisfy the threshold
requirements for avoiding per se condemnation.

55Without exception, scholars identify vigilantism to be a uniquely American phenomenon.
PB. Nolan, Vigilantes on the Middle Border (New York: Gorland Publishing Inc., 1987) at 1.
56J. Williams, Book Review of Public Property and Private Power: The Corporation of the
City of New York in American Law, by H. Hartog, (1985) 64 Tex. L. Rev. 225. English guilds
sanctioned by a town or by the Crown possessed authority to enact and enforce legislation.
American guilds never possessed such authority, which was reserved to the state legislatures,
the political subdivisions the legislatures so empowered, and the Congress. To be sure, the
English guilds’ authority to legislate has gradually passed to Parliament.
57L. Hartz, The Liberal Tradition in America: An Interpretation ofAmerican Political Thought

Since the Revolution (New York: Harcourt Brace, 1955) at 3-32.

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former schoolmates now controlling private groups, even when that au-
thority has not been sanctioned by an official government measure. Spec-
ulating further, one could attribute the different attitudes to the greater
deference to authority, public or private, generally displayed by the English
courts, and to their greater reluctance to voice and enforce their own views
of social policy. A radical might also speculate that the “jealousy” impulse
stems from and, in turn, helps to maintain a distinctively American illusion;
namely, the illusion that all rulers are elected, directly or indirectly. This
illusion distracts attention from the reality of entrenched private rule and
a non-elected ruling class. English law, on the other hand, makes no attempt
to obscure the reality of a non-elected ruling class, perhaps because that
reality has long been accepted.

Whatever the explanation, the British courts appear much more sensible
in accepting extra-governmental rule, in avoiding any presumption about
its illegality, and in focusing immediately on the substance of the rule. Legal
pluralism is a fact of modern life. That is, a variety of private rule-making
and rule-enforcing bodies perform governing functions that parallel the gov-
ernment’s own. Compared to the government, private groups will often
prove more efficient, knowledgeable, and interested rulers. As explained
previously, private rule can often be seen in economic terms as an integration
aimed at enhancing efficiency by increasing demand, lowering costs, or ov-
ercoming market imperfections such as free-rider problems and informa-
tional asymmetry.

Efficiency concerns plainly do not support Justice Black’s sweeping pre-
sumption against self-regulation. Indeed, the sweeping language of the po-
pulist cases such as FOGA and AMA condemned much concerted conduct
that was irrelevant in terms of economic efficiency. To be sure, economic
efficiency would have been threatened in those cases if the defendants had
been fixing prices or had been engaged in any other “output restraining”
conduct, for output restraining conduct, by definition, does threaten effi-
ciency. The defendants’ action against the plaintiff could have been used to
maintain such price-fixing or other output restraining conduct by disciplin-
ing or eliminating a rival who threatened to upset their organization. In
these types of situations, therefore, the defendants’ conduct could threaten
efficiency and could have been condemned on that ground. 58 But the Court
did not attempt such an economic defence for its rule, nor was such a defence
feasible. On the contrary, the defendants in those cases presumably contin-
ued to compete among themselves despite their joint action against the
plaintiff and, by that rivalry, should have yielded a competitive output and
price. Moreover, the defendants’ formation of their private association, as

58R. Posner, Antitrust Law, An Economic Perspective, supra, note 22 at 211.

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INDUSTRY SELF-REGULATION

well as their action against the plaintiff, may have enhanced efficiency. Ac-
cordingly, while Justice Black’s populist approach protected competitors, it
was not tailored to protect economic efficiency.

The British approach allows courts to address non-economic concerns
on a case by case basis and to begin to indicate how private groups ought
to act towards members and outsiders. Efficiency concerns aside, this evolv-
ing common law gives some guidance to private groups and to those with
whom they deal. The English approach also allows guidelines to be fashioned
context by context: for example, the court may require the defendants to
give reasons for their injury to the plaintiff only in those contexts where the
reasons are easily available and where the plaintiff’s interest in reasons is
particularly acute. Other procedural requirements, such as whether the
plaintiff may have an attorney represent him, also can be determined context
by context. Wisely or not, the English courts can impose different require-
ments on defendants in forfeiture cases (where the defendants upset the
plaintiff’s status by revoking his licence or expelling him from an associa-
tion) than in expectation cases (where the defendants have created only an
expectation that the plaintiff’s application will be granted) or in mere ap-
plication cases (where the plaintiff has neither an existing status nor an
expectation). 59

In contrast, the American approach wastes a good deal of time and
energy on the threshold issue of whether there is some compelling policy
that allows the defendants to engage in any industry self-regulation in the
first place. And because the American courts are construing an antitrust law
that seems to apply to all concerted conduct that puts a rival at a competitive
disadvantage, they tend to decide cases at much too high a level of generality.
That is, the U.S. courts cannot frame different guidelines for standard-setting
bodies that evaluate products than they can for multiple listing services that
exclude applicants or for sporting associations that discipline athletes. In-
stead, all types of industry self-regulation tend to stand or fall depending
on such elusive criteria as the effect on interstate commerce, 60 the presence
of a Sherman Act agreement, 61 or the presence of “market power”. 62 Specific

59Mclnnes, supra, note 43 at 1529. See, e.g., Hughes v. Architects’ Registration Council of
the United Kingdom, [1957] 2 Q.B. 550, [1957] 3 W.L.R. 119, [1957] 2 All E.R. 436 (Div. Ct.)
(forfeiture); Breen v. Amalgamated Engineering Union, [1971] 2 Q.B. 175, [1971] 2 W.L.R.
742, [1971] 1 All E.R. 1148 (C.A.) (expectation); Nagle, supra, note 1 (application).

60Cardio-Medical Ass’n v. Crozer-Chester Medical Center, 552 E Supp. 1170 at 1176-1204
(E.D.Pa 1982), rev’d, 721 E2d 68 (3d Cir. 1983); Note, “Sherman Act ‘Jurisdiction’ in Hospital
StaffExclusion Cases” (1983) 132 U.Pa. L. Rev. 121.

61Cooper v. Forsyth County Hosp. Auth., 604 E Supp. 685 (M.D.N.C. 1985), aff’d 789 E2d

278 (4th Cir. 1986); Pontius v. Children’s Hosp., 552 E Supp. 1352 (W.D.Pa 1982).

62Pacific Stationery, supra, note 3; United States v. Terminal R. R. Ass’n, 224 U.S. 383 (1912).

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context by context guidelines to help groups conform their behaviour to the
law do not emerge.

While the British approach may give better guidance to private actors
engaged in, or affected by, industry self-regulation, the goal of the British
courts lies elsewhere. That goal is to define and protect the supposed rights
and obligations of the regulator and the injured individual or firm toward
each other. This mere adjusting of private grievances, divorced from any
grander public policy mission, generally has disappeared from U.S. trade
law and especially from U.S. antitrust law. In the U.S., even so-called private
law, such as tort and contract law, is increasingly driven by larger public
policy concerns. 63

III. Determining the Reasonableness of the Regulations

A. Policy Considerations

Those defendants who survive the initial hostility of the U.S. courts
will find that those courts are often more pro-defendant than are the English
courts in dealing with the merits of the particular instance of self-regulation.
In the U.S., the Chicago School approach dominates this stage of the lawsuit
and calls for interference with the defendants’ actions only when those ac-
tions produce a net welfare loss to consumers, i.e., a net loss in efficiency.64
Since National Society of Professional Engineers v. United States,65 the U.S.
courts are directed, under the Rule of Reason, to balance the pro-competitive
effect of the defendants’ action (the gain to productive efficiency), against
its anti-competitive effect (the loss to allocative efficiency). Concerted be-
haviour is upheld or condemned based solely on whether that trade-off is
likely to be positive or negative. Expressed graphically, U.S. courts are to
ascertain the larger of area D, the loss in output from the defendants’ col-
laboration, or area C, the cost saving achieved by the defendants’
collaboration. 66

63B.A. Ackerman, Reconstructing American Law (Cambridge, Mass.: Harvard University

Press, 1984) at 6-45.

s. 1.32, at 45-59.

64W. Liebeler, Antitrust Advisor, 2d ed. (Colorado Springs: Shepard’s / McGraw Hill, 1983)
65Supra, note 23.
66Although no opinions have yet reproduced this famous graph, it appears throughout U.S.
antitrust scholarship as an illustration ofNSPE’s rule: W.J. Liebeler, “Intrabrand ‘Cartels’ Under
GTE Sylvania” (1982) U.C.L.A. L. Rev. I at 13-16 [hereinafter “Intrabrand Cartels”]. A mo-
nopoly, or any collaboration of rivals which allows the group to reduce rivalry and create an
artificial scarcity, tends to reduce output from Q1 to Q2 and to allow price to rise from PI to
P2. It also, however, may make possible cheaper production, lowering the average cost of
production from ACI to AC2. The lost output, D, represents a societal loss since the goods
not produced are valued at a price greater than their cost of production. On the other hand,

1989]

INDUSTRY SELF-REGULATION

FIGURE A:

Pi

I

l

DEMAND

0

0,

QUANTTY

I

The Chicago School approach does not consider non-economic factors such
as whether the injury to the plaintiff was “fair”. 67

The English courts, in contrast, will interfere with the defendants’ ac-
tions even when those actions do not reduce economic efficiency. They will
interfere in order to protect a plaintiff’s right to work, to rectify injuries
that offend natural justice, or to achieve other non-economic goals. To be
sure, the English emphasis on these non-economic factors, and especially
the emphasis on protecting the defendants’ existing status, may sometimes
aid defendants. If, for example, the defendants show that their action was
necessary as a means of defending their very existence or some other “le-
gitimate interest”, the English courts will almost certainly uphold it.

This justification will even excuse defendants, like the travel agents in
the ABTA case discussed above, who agree to refrain from certain dimen-

the cost savings means that those goods which are produced are produced more cheaply, saving
resources in the amount of C.

Although no one claims that courts can undertake this welfare calculus with anything like
precision, it is nonetheless a profoundly pro-defendant approach: horizontal restraints will not
reduce output, i.e., will not produce any D, as long as the defendants continue to engage in
rivalry with each other, or as long as other rivals or potential rivals can expand their output
when defendants attempt to create an artificial scarcity.
67The Chicago School approach suffers from several shortcomings. A particularly serious one
is the practical difficulty, if not impossibility, of measuring the welfare tradeoff between the
loss in allocative efficiency and the gain in productive efficiency in each particular case. E H.
Easterbrook, “The Limits of Antitrust” (1984) 63 Tex. L. Rev. 1 at 11-14; but see, O.E. Wil-
liamson, “Economics as an Antitrust Defense Revisited” (1977) 125 U. Pa. L. Rev. 699 at 726-
29. He argues that such a tradeoff must be attempted. See also, O.E. Williamson, “Economics
as an Antitrust Defense, The Welfare Tradeoffs” (1968) 58 Am. Econ. Rev. 18.

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sions of rivalry. Such agreements, which are closely akin (and analytically
identical) to price-fixing, would never be upheld in the U.S., as they are in
England, on non-economic grounds. In NSPE,68 for example, a trade as-
sociation of engineers adopted an ethical canon requiring that its members
wait to negotiate prices with customers until after the customer had ten-
tatively selected an engineer. The U.S. Supreme Court accepted that the
canon “was adopted by members of a learned profession for the purpose
of minimizing the risk … of … inferior engineering work endangering the
public safety.” In ruling against the engineers, the Court deemed this concern
for public safety illegitimate in principle. Concern for safety would never
justify even this modest tampering with the Sherman Act’s policy of price
competition:

[The engineers’] attempt to [justify this restraint] on the basis of the potential
threat that competition poses to the public safety and the ethics of its profession
is nothing less than a frontal assault on the basic policy of the Sherman Act.

The Sherman Act reflects a legislative judgment that ultimately competition
will produce not only lower prices, but also better goods and services. 6 9

In contrast, the English courts surely would acknowledge this justification,
especially if the engineers could also allege that the restraint preserved their
existence or protected some other legitimate interest.

Other authors have shown that the English courts weigh factors unre-
lated to economic efficiency more heavily than do their U.S. counterparts. 70
After all, the Restrictive Trade Practices Act establishes gateway consider-
ations that expressly direct attention to matters other than the economic
efficiency of a registrable joint activity.71 In evaluating whether a practice
constitutes an unreasonable restraint of trade, offends natural justice, or
interferes with the right to work, the British courts plainly look to factors
other than efficiency.72

But this article maintains that the differences between the English and
the American courts go beyond the mere evaluation of gateways or of
whether some legally protected interest unrelated to efficiency is implicated.
The English courts simply do not care what the market is saying. They do
not draw any inferences from the results which the market produces. For
example, they do not draw any inference from a market’s failure to produce

68NSPE, supra, note 23.
691bid. at 695.
70R. Joliet, The Rule of Reason in Antitrust Law: American, German and Common Market
71Restrictive Trade Practices Act (U.K.), c. 34, s. 19.
72See, infra, text accompanying notes 76-101.

Laws in Comparative Perspective (The Hague: Martinus Nijhoff, 1967) at 5-7, 59-66, 71-73.

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INDUSTRY SELF-REGULATION

the same result that the defendants’ joint activity seeks to impose. That
consumers through the marketplace have not called for anything resembling
the regulation the defendants are seeking to enforce does not provide any
signal of interest to the English courts. Rather, these courts routinely ignore
the possibility that consumers could easily opt for the protection that the
defendants’ joint activity forces them to take. Unlike the U.S. courts, the
English courts do not feel obliged to identify market imperfections that keep
the market from yielding the efficient result, and that the defendants’ joint
activity may be attempting to overcome. The English courts do not recognize
the underlying liberal assumptions about the role of the market and the
proper spheres of private management and the courts. Instead, the English
courts resort to the most blatant paternalism and uphold or condemn private
regulations without regard to the choices of consumers, but with regard to
the courts’ own view of whether the regulations are fair or unfair, appropriate
or inappropriate.

In deciding whether concerted conduct unreasonably restrains trade,
the English courts display a bias in favour of protecting the existing status
of the parties that is flatly contrary to the indifference to the status quo
inherent in an economic approach. 73 The resulting jurisprudence smacks of
feudalism, of a protective attempt to ensure that well-established parties,
efficient or not, are never seriously hurt and, though not in so many words,
of an attempt to determine the “just price”. 74 Whether willfully or un-
knowingly, the English courts do not merely override the voices of con-
sumers in favour of some goal of their own; they seem not to hear those
voices to begin with. They take upon themselves the task of redefining the
parties’ rights and obligations toward each other, as if the restraint of trade
doctrine and the Restrictive Trade Practices Act contemplated nothing more
than the most private of private law considerations.

73E Easterbrook, “Foreword: The Court and the Economic System” (1984) 98 Harv. L. Rev.
4. It is inefficient for courts in a competitive system to show any bias for existing firms over
possible replacements, or to concern themselves with whether particular firms survive. See L.
Kaplow, “An Economic Analysis of Legal Transitions” (1985-86) 99 Harv. L. Rev. 509 at 531
n. 60; D. Wittman, “First Come, First Served: An Economic Analysis of Coming to the Nuis-
ance” (1980) 9 J. Legal Stud. 557; R.C. Ellickson, “Alternatives to Zoning: Covenants, Nuisance
Rules, and Fines as Land Use Controls” (1973) 40 U. Chi. L. Rev. 681 at 758, n. 260 These
three articles all emphasize that efficiency calls for putting land to its most valuable use, and
that the first use will by no means be the most valuable.

74Before 1967, the Restrictive Trade Practices Court had come close to admitting explicitly
that it felt able to determine the “just price”. In Re Water-Tube Boilmakers’Agreement, [1959]
1 W.L.R. 118, [1959] 3 All E.R. 257, 103 S.J. 695, the court upheld a price-fixing agreement
on the ground that it yielded only a “reasonable profit”. Indeed, Gateway (d) of s. 19 of the
Restrictive Trade Practices Act calls for upholding agreements which are necessary to secure
“fair terms”. Of course even agreements satisfying Gateway (d) may yet be condemned under
the tailpiece provision to the Act.

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The refusal of the English courts to pursue efficiency goals may stem
from their relative reluctance to involve themselves in any public policy
mission. In contrast, the U.S. courts, having interpreted the Sherman Act
as a congressional mandate for efficiency, do not hesitate to accept that
mandate and intervene in private regulation as that mandate directs. The
attitude of the English courts may also stem from uncertainty about Par-
liament’s own commitment to efficiency. If so, the courts’ attitude may be
altered by a statute that embraces efficiency more expressly than did the
Restrictive Trade Practices Act and clearly calls on the courts to assist in
implementing its policy. More likely, however, the tradition against an active
judicial role in economic management would still prevail.

B. The English Interpretation of the Restrictive Trade Practices Act

The ABTA case,75 mentioned above, illustrates the English courts’ cav-
alier disregard of the market. The case was brought by the Office of Fair
Trading, which alleged that the restrictions imposed by the defendants’ trade
association were unlawful under the Restrictive Trade Practices Act.

One should note at the outset that the Restrictive Trade Practices Act
shows a greater commitment to competition and efficiency than do the
doctrines of unreasonable restraint of trade or the various tort actions, such
as interference with contract or infringement of the right to work. In dealing
with these other actions, English courts will occasionally explain their refusal
to address efficiency considerations by claiming that those considerations
are instead the province of the Restrictive Trade Practices Act. 76 In short,
the Restrictive Trade Practices Act resembles the Sherman Act in that effi-
ciency concerns play a more dominant role in its interpretation than in the
interpretation of any other doctrine in the respective countries. This sim-
ilarity only serves to underscore the discovery that the Restrictive Trade
Practices Court does not attempt to employ an efficiency-based analysis,
does not use the grammar of an economic approach, and does not seem to
be aware of the implications of such an approach. 77

At issue in the ABTA case were a variety of restrictions imposed by the
trade associations on all of its tour operators and retailer members. Also at

75ABTA, supra, note 52. See text accompanying notes 52-54.
76Texaco v. Mulberry Filling Station, [1972] 1 W.L.R. 814 at 828-29, [1972] 1 All E.R. 513,
(1971) 116 S.J. 119 (Ch.) [hereinafter Texaco]. Economic considerations should affect decisions
only of the Restrictive Trade Practices Court.

77Occasionally, the Restrictive Trade Practices Court pays less attention to economic con-
siderations than do the English courts of general jurisdiction. Compare ABTA with Dickson v.
Pharmaceutical Society of Great Britain, supra, note 13 , in which the Court of Appeal struck
down an agreement among jbharmacists to refrain from certain methods of rivalry on the ground
that consumers in the marketplace should decide the wisdom of these methods.

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INDUSTRY SELF-REGULATION

issue was the association’s “stabilizer” enforcement device which required
members to refuse to deal with non-members. As previously noted, retailers
were prohibited from selling the tours of non-member tour operators. Tour
operators were prohibited from accepting bookings placed by non-member
retailers.

Other restrictions plainly reduced the ability of the members to compete
with each other. For instance, tour operators agreed not to attempt to sell
directly to the public, or to distribute their tour packages in any way other
than through member retailers. Retailers agreed not to operate part-time
and not to attempt certain cost-cutting devices, such as reducing the number
of employees, that might give them a competitive edge. The restrictions not
only limited rivalry between members; they also severely dampened rivalry
from foreign tour operators, for few foreign operators belonged to the
ABTA. 78

Many of the restrictions were ostensibly aimed at eliminating any pos-
sibility of a traveller being stranded overseas by the financial collapse of his
retailer, tour operator or charter airline. Thus, members were required to
post a bond equalling 5% of their annual turnover. They were also required
to carry insurance to protect the travelling consumer, even though the trav-
eller could easily buy insurance himself. Members were also required to
supply a great deal of financial information to the ABTA, again ostensibly
in order to enable the ABTA to assure itself of the member’s continuing
financial viability.

78Admittedly, my characterization of ABTA, supra, note 52, as an industry self-regulation
case is open to question. Unlike the other cases discussed in this paper, the complaining party
was not an excluded or disciplined firm. Moreover, insofar as the case involves the elimination
of some dimensions of rivalry between firms, rather than the exclusion or handicapping of
non-complying firms, the case more resembles price-fixing than industry self-regulation. Never-
theless, I treat it as an industry self-regulation case because of the agreement’s obvious tendency
to handicap or exclude non-complying firms.

The Restrictive Trade Practices Court has shown the same disregard for the market in its
price-fixing cases that it showed in ABTA. Thus, the Court has upheld price-fixing agreements
on the ground that the set price saved customers the cost of shopping around; e.g. Re Black
Bolt and Nut Association of Great Britain’s Agreement, [1960] 1 W.L.R. 884, [1960] 3 All E.R.
122, 104 S.J. 665. They have also upheld price-fixing agreements on the grounds that they kept
prices at a lower than competitive level; e.g. Re Cement Makers’Federation’sAgreement, [1961]
1 W.L.R. 581, [1961] 2 All E.R. 75, 105 S.J. 284. Price-fixing has been held to encourage the
sharing of knowledge among producers, as in Re Permanent Magnet Association’s Agreement,
[1962] 1 W.L.R. 781, [1962] 2 All E.R. 775, 106 S.J. 492. It was held to have facilitated the
modernization of an industry; e.g. Re Distant Water Vessels Development Scheme, [1967] 1
W.L.R. 203, [1966] 3 All E.R. 897, 110 S.J. 905. The current Restrictive Trade Practices Court,
however, might not accept such justifications for price-fixing. See generally Whish, Competition
Law, supra, note 5 at 136-39.

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The ABTA imposed these requirements despite previous parliamentary
action directed at the problem of the stranded traveller. Several years before,
Parliament had enacted legislation to protect travellers against a financial
collapse either of charter airlines or of tour operators working with charters.
Indeed, as the Restrictive Trade Practices Court found, “the major propor-
tion of the total volume of foreign holiday travellers fall within the statutory
protection”. 79 Nevertheless, the ABTA continued its additional restrictions.
The fact that the ABTA included 95% of all tour operators and retailers
would have been of great importance to a U.S. court. Thus, the association
could not be characterized as an integration by a few sellers, in a market
of many sellers, to take advantage of economies of scale in selling and
marketing heightened reliability. If such a characterization was possible, that
is, if consumers could easily patronize agents and operators not subject to
these restraints, then consumers acting through the market could determine
whether this heightened reliability was worth the increase in the price it
obviously entailed. Instead, the ABTA denied consumers any choice in the
matter and operated as a de facto licensing agency that limited entry to
particularly stable firms and that necessarily raised the cost of entry and of
doing business for all.80

The defendants took the forthright position that the Restrictive Trade
Practices Court should deem these restrictions on rivalry, including the
“stabilizer” restriction, to be in the public interest 8′ because they benefited
consumers of travel services. The defendants were saying, in effect, that
rivalry in this area ran against the interest of consumers, a claim that the
American court in NSPE had deemed illegitimate in principal.8 2 But the
Restrictive Trade Practices Court, far from thinking this claim out of
bounds, accepted it as the key issue in the case.8 3

The most striking feature of the Restrictive Trade Practices Court’s
approach in ABTA lay in the sequence of steps it followed to determine

79ABTA, supra, note 52 at 21.
80Ibid. at 20-2 1. In contrast, no association of travel agents in the U.S. would try to do openly
what the ABTA attempted. At most, a U.S. counterpart would try to give a special certification
to those travel agents who joined together to offer added insurance against stranding travellers.
Letter from Charles E Rule, Assistant U.S. Attorney, to Burton J. Ruben, General Counsel,
American Society of Travel Agents (April 25, 1988) Washington, D.C.. The letter approved
special certification of agents offering added safety if participation was voluntary.

that competition is unreasonable.”

81NSPE, supra, note 23.
82Ibid. at 686-96. “[T]he Rule of Reason does not support a defense based on the assumption
83No doubt the court was influenced by the language of s. 19(l)(a) of the Restrictive Trade
Practices Act which directs the court to consider whether the restriction is reasonably necessary
to protect the public against injury in its use of the services involved. Restrictive Trade Practices
Act (U.K.), 1976, c. 34, s. 19(l)(a).

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whether the “public interest” supported these restrictions. That sequence
of steps suggests, to use the U.S. vocabulary, that “public interest” meant
neither consumer welfare (as used in antitrust law) nor consumer protection
(as public interest and consumer protection groups use the term), but rather
the interests of the dominant sellers in the industry. For the court began its
inquiry by questioning whether the stabilizer restriction was necessary to
protect the ABTA control over the industry.84 If so, the restriction was prob-
ably lawful. Apparently, the court was assuming that the public interest
called for ABTA’s continuing control.

What a startling and inexplicable assumption! Whether powerful pri-
vate trade associations retain their status, power and viability is a matter
of supreme indifference under an economic approach. Why should the court
care about the ABTA’s status and continued control of the industry? Why
should the court assume that one large trade association ought to control
the industry, and that the ABTA ought to be the one? Why should the court
apparently prefer the existing association over the association or associations
likely to replace it? Why should the court assume that those who are no
longer members of the ABTA, or who develop rival trade associations, will
want to mistreat consumers or will be less interested in responding to con-
sumer desires?

Once the issue in ABTA became whether the stabilizer was needed for
the association to retain its influence, a great deal of evidence became rel-
evant that would be irrelevant in a similar case in the U.S.. The court
explored such matters as whether small operators, who were especially dis-
advantaged by the bonding and insurance requirements, would leave the
ABTA without the stabilizer rule. Experts were asked to offer predictions
on the matter. Those opposed to the ABTA’s position speculated that the
attractions and advantages of the ABTA, such as its prestige and its standing
with the government, would induce operators and retailers to remain even
without the stabilizer rule. Thus the stabilizer rule was unnecessary; ABTA
would retain its control over the industry even if the Court struck down
the rule. Those defending the ABTA argued, in effect, that it did not offer
any efficiency-enhancing advantages to its members. Without the stabilizer,
therefore, members might abandon the ABTA. Accordingly, its legitimate
interest in self-preservation justified the stabilizer rule.

84This interpretation of “public interest” by the Restrictive Trade Practices Court approxi-
mated the interpretation of public interest used in applying the common law restraint of trade
doctrine. See, e.g., Greig v. Insole, [1978] 1 W.L.R. 302, [1978] 3 All E.R. 449, 122 S.J. 163
(Ch.). No reason for incorporating this interpretation into the Restrictive Trade Practices Act
appears. See R.O. Wilberforce, A. Campbell & N. Elles, The Law ofRestrictive Trade Practices
and Monopolies, 2d ed. (London: Sweet & Maxwell, 1966) at s. 218.

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Once again, an economist would say the court was foolishly trying to
answer a question the market should be allowed to answer. Why not let the
consumers, through their patronage, “vote” on whether they want the
heightened reliability that one association of travel firms offers and adver-
tises? If consumers “vote” for the heightened reliability given by a group
like ABTA that uses the stabilizer enforcement rule, other travel firms will
no doubt want to join ABTA or develop associations with similar rules. If
consumers “vote” against heightened reliability, without some suggestion
of a market failure, then their “vote” provides powerful evidence that the
ABTA restrictions are not in their interest. And, of course, the way to allow
consumers to vote is to strike down the compulsory restriction of this mo-
nopoly, while allowing travel firms to advertise their heightened reliability
and to join with other travel firms that do the same.

The court next discussed the gravity of a financial failure by retail agents
or operators,8 5 but plainly seemed more concerned with the welfare of the
travel service providers than with the welfare of consumers. For the dis-
tinctive harm of a financial failure, in the court’s view, was the dispropor-
tionate publicity received by stranded travellers, publicity that tarnished the
responsible operators and retailers as well as the ones whose collapse pre-
cipitated the incident.

An American court could have conceptualized this injury to the re-
sponsible operators and retailers in economic terms as an external cost
produced by the irresponsible. Such an externality is a classic market failure
and in extreme cases may justify constraining the irresponsible in order to
provide optimum incentives for investment in heightened reliability. This
externality may explain why the ABTA sought to control all travel firms
and not merely to form a small group that would sell heightened reliability.
But, of course, the Restrictive Trade Practices Court was not using the jargon
or grammar of an economic approach.

Had the ABTA court focused only on protecting consumers, it might
have been more influenced by the fact that the Civil Aviation Authority
licensing program safeguarded more travellers than did the ABTA restric-
tions. Because this licensing program was aimed at tours involving travel
by chartered aircraft, more travellers were at risk in those travel sectors
protected by the legislation than in those protected only by the ABTA re-
strictions. Despite this fact, the court concluded that the severe harm from
an agent or operator failure called for an unusual degree of protection for
the consumer.86

85ABTA, supra, note 52 at 27-33.
S6Ibid. at 31.

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Again, what the ABTA court did not consider spoke the loudest. At no
point did the court consider the cost of avoiding the risk of financial failure
or the possibility of a market imperfection that could justify its intervention.
These considerations would arise instantly in a court versed in an economic
approach. After all, those consumers wishing to incur the cost of avoiding
the risk could buy the readily available insurance. Some travellers would
conceivably prefer to pay less and run the small risk of their agent or op-
erator’s financial collapse. Far from finding a market imperfection, the ABTA
court assumed that the traveling consumer had the normal shopping ability
and the normal resistance to exploitation of any buyer. The closest the court
came to finding a market failure was its statement, which was not based on
any apparent evidence, that “the majority of purchasers are not directing
their minds or having their minds directed to [the risk of failure] when
engaged in the process of choosing where they wish to tour”. 87

Instead of letting the market decide the value of the ABTA protection,
the Restrictive Practices Court displayed a heavy-handed paternalism. It
concluded that the grave impact on the individual traveller caused by a
failure demanded the protection that the ABTA was offering. Moreover, the
court concluded that insurance would not be adequate protection because
it could only offer financial compensation, and would still leave a traveller
facing cancelled hotel rooms, impounded baggage, the loss of his return
flight, and a generally negative experience. The ABTA policy provided more
complete protection because it was aimed at allowing the traveller to com-
plete his holiday in the place of his choice and to return on the date due.
In response to evidence indicating that the insurance agencies could soon
offer protection equal to that offered by the ABTA, the court concluded that
the implementation of this protection would take too long, and that ABTA’s
access to its members’ airline seats gave it too great an advantage for the
insurance company to overcome. The court’s belief that it could anticipate
the costs that private enterprises would incur and could confidently set limits
on what those enterprises could achieve presumes a judicial capacity to
identify and articulate all the possible cost-saving methods available, a ca-
pacity that no economist would claim. For decades, economists studying
the theory of the firm, for example, have pointed out that many cost-savings,
especially those achieved by crafting governance structures to reduce trans-
action costs, remain unidentified and impossible to articulate, even with
hindsight.88

87Ibid. at 29.
88R.H. Coase, “The Nature of the Firm” (1937) 4 Economica 386. 0. Williamson, Markets
and Hierarchies, Analysis and Antitrust Implications: A Study in the Economics of Internal
Organization (New York: Free Press, 1975). A willingness to predict whether private actors
will be able to improve efficiency appears throughout the British government and civil services.
The authors of a famous report on restrictive practices in the professions presume to conclude

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Thus, the court upheld the bonding requirement, the information dis-
closure requirement, the ABTA’s insurance plan and the stabilizer enforce-
ment device. 89 It suggested that those unhappy with these requirements
should appeal to the ultiniate decision maker within the ABTA.

This approach provides the parties involved with no rudder and leaves
them with no benchmark. To determine whether such horizontal restrictions
on rivalry should stand or fall, one can refer only to the particular judge’s
sense of whether the restriction is wise. This case gives no hint that another
judge ought to be heard, if not deferred to. This judge is the combined
choice of consumers acting through the marketplace.

C. The Interpretation of “Unreasonable Restraint of Trade”

The different attitudes of the courts in England and the U.S. are also
reflected in the different interpretations given the notion of an agreement
in “unreasonable restraint of trade”. Participating in unreasonable restraint
of trade offends the laws of both countries: in the U.S., s. 1 of the Sherman
Act and in England, the Common Law. But in the two countries this doctrine
is interpreted to mean very different things. 90 Even the aims of the rules
differ: in the United States the aim is to secure the ultimate economic
advantage to consumers, 9′ while in England the aim is to assure each firm
of the freedom to trade with whomever it wishes. 92 In fact, the claim of
unreasonable restraint of trade in England often arises when the plaintiff
has voluntarily agreed with another to limit his trading in some manner,

that “in some professions an increased scale of operations seems likely to offer scope for
economies and improved efficiency. In others there would be little or no advantages in this
respect.” Based in part on this conclusion, the authors were opposed to allowing surgeons,
architects, or veterinarians to operate under corporate or various other organizational forms.
Their opposition was also based on the belief that these organizations would endanger the
personal relationship that should exist between the professional and his client. There was no
thought given to the possibility that rivalry between professionals using various forms would
produce, or at least produce evidence of, the forms consumers most preferred. Report on the
General Effect on the Public Interest of Certain Restrictive Practices So Far As They Prevail in
Relation to the Supply ofProfessionalServices, (Oct. 1970) Cmnd 4463. Similarly the Monopoly
Commission routinely feels competent to say, for example, that proposed mergers have a
negligible chance of leading to improved efficiency; e.g., Monopoly Commission Report on
Proposed Merger of the United Draperies Stores Ltd and Montague Burton Ltd, Cmnd 3397
(Sept. 1967).

89ABTA, supra, note 52 at 29-34.
9OThe British requirement that a plaintiffbe in contractual privity with a defendant generally
prevents the British restraint of trade doctrine from serving consumers. See C. Yuen, “Exclusive
Purchasing at Common Law and Under Anti-Trust Law: A Reexamination of the Restraint
of Trade Doctrine” (1987) 16 Anglo-Am. L. Rev. I at 13.

91E.g., NSPE, supra, note 23.
92E.g., Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co Ltd, [1894] A.C. 535 at

565, [1891-94] All E.R. Rep. I at 18 [hereinafter Nordenfelt].

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and subsequently invokes the court’s paternalistic instincts in order to have
that agreement nullified.93 Unlike their U.S. counterparts, the English courts
seem not to have recognized that every agreement restrains trading in this
sense, and that such restraints often enhance efficiency.94 Thus, the English
restraint of trade doctrine still reflects its origin during the labour shortage
created by the Black Death, when it was used by courts to nullify agreements
that kept badly needed workers idle.95

The doctrine is also used in England to subsidize or defend businesses
threatened by rivalry even, if necessary, at the expense of consumers. In the
U.S., this would be considered a goal more appropriate to a social security
law for private firms than to an antitrust law. The embrace of this goal
results from the tendency of the English courts to ignore public interest and
to focus only on the interests of the private parties. Indeed, the English
courts equate the interests of the public with the interests of the parties.
Occasionally, an English court will admit explicitly that its notion of un-
reasonable restraint of trade has nothing to do with any wider public interest,
such as economic efficiency.96

These different goals naturally lead the English courts to consider dif-
ferent factors in determining whether a restraint is reasonable. The English
courts typically begin by asking whether the defendants’ action was necessary
to achieve its legitimate interests. In fact, this inquiry appears throughout
British trade law. It even seems to dominate the Restrictive Trade Practices
Court’s determinations of whether agreements are unlawful within the mean-
ing of the Restrictive Trade Practices Act. 97 Thus the English courts consider,
for example, how severe a restriction on a person’s right to work is imposed
by the agreement. Courts look to the types of work and geographical areas
for work that are foreclosed to the person restrained. On the other hand,
the greater the benefits given the person restrained, the more reasonable the
restraint appears. The cases also display concern for other factors relating

93Eastham v. Newcastle United Football Club, Ltd, supra, note 9. In this case, a player signed
with a club and when his transfer request was denied under club rules, he successfully claimed
restraint of trade.

94For instance, restrictive covenants may enhance efficiency by assuring optimum incentives
for a business to invest in and develop firm-specific goodwill. Without the restraint, the seller
of a business may not be able to realize the benefit of his bargain.

Even if the U.K. goal were interpreted not as the protection of the supposed right to trade
but instead as the protection of the process of rivalry (against practices like exclusive dealing
arrangements that would replace rivalry with administrative fiat), the goal would still collide
with economic teachings that explain why the suppression of rivalry will often enhance
efficiency.

95M. Handler & D. Lozaroff”Restraint of Trade and the Restatement (Second) of Contracts”

(1982) 57 N.Y.U.L. Rev. 669 at 721-27.

96Texaco, supra, note 76 at 828.
97See ABTA, supra, note 52.

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to the plaintiff’s personal welfare. These include the degree of injury inflicted
on the parties, or, in other words, whether the restraint hurts some partic-
ipant or some third party too much for the court’s liking.

A closely related concern is whether the restraint may actually destroy
a firm or organization. This concern can arise in at least two contexts. A
restraint may be deemed reasonable because a participant needs it in order
to preserve himself as a going concern. 98 More commonly, a restraint may
be deemed reasonable because it does not injure others to such a degree
that their existence is threatened.

Another factor unrelated to efficiency is whether the plaintiff has in
some way agreed to the restraint, say, by joining the defendant association
with the knowledge that the association might impose the restraint. Thus,
an association member who has long operated under the association’s “ju-
risdiction” arouses less judicial sympathy than a foreclosed applicant who
has never “consented” to the association’s jurisdiction. 99 Indeed, by vol-
untarily submitting to the association’s jurisdiction, the member may be
deemed to have waived any action in the courts. Another related factor, but
one rarely defended on any ground other than a feudalistic wish to preserve
the status quo, is whether the restraint is customary for the business.1 00 The
more customary it is, the more likely it is to be deemed ancillary to the
defendants’ legitimate interests.

The classic statement of the doctrine of unreasonable restraint of trade
in England resembles the corresponding statement in the U.S.’ 0 and does
not reflect the different meaning that was ultimately adopted:

98There is a fundamental difference between asking whether the defendant needs a restraint
in order to assure optimum incentives for investment or to otherwise promote efficiency and
asking whether the defendant needs the restraint merely to defend its own viability. Restrictive
covenants barring the seller of a business from competing against the buyer exemplify a restraint
needed to assure optimum incentive for investment in goodwill, customer lists, and other
assets, the value of which would be greatly diminished absent the restraint. Such restraints
protecting investments by the seller enhance efficiency by, in effect, recognizing a more complete
specification of property rights and by overcoming the market imperfection that would result
if the seller could not transfer an exclusive right to the goodwill and other assets to the buyer.
P. Reubin and P. Shedd, “Human Capital and Covenants Not To Compete” (1981) 10 J. of
Leg. Stud. 93. But the English courts apparently do not distinguish between restraints that
enhance efficiency and those that do not. Instead they simply ask whether the restraint is
needed to keep the defendant financially viable.

99D. Lloyd, “Natural Justice And The ‘Warned Off’ Bookmaker” (1963) 26 Mod. L. Rev.
412 (citing, for example, Demera Turf Club v. Phang, [1961] 3 W.I.R. 454 (S. Ct. of British
Guiana)).

100Halsbury’s Laws of England, vol. 47, 4th ed. (London: Butterworths, 1984) paras 10, 22.
101Chicago Board of Trade v. U.S., 246 U.S. 231 (1918); Standard Oil Co. v. US., 221 U.S.

1 (1911).

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All interference with individual liberty of action in trading and all restraints
of trade of themselves … are contrary to public policy and therefore void. That
is the general rule…. It is a sufficient justification, and indeed it is the only
justification, if the restriction is reasonable –
reasonable, that is, in reference
to the interest of the parties concerned and reasonable in reference to the
interest of the public, so framed and so guarded as to afford adequate protection
to the party in whose favour it is imposed, while at the same time it is no way
injurious to the public. 0 2

It is the insistence that the restraint be reasonable with reference to the
interest of the public that has tempted U.S. scholars, especially Judges Bork
and Posner and others associated with the Chicago School, to claim that
the doctrine aims to aid consumers by promoting economic efficiency.103
The English courts, however, simply do not agree.

The refusal of the English courts to acknowledge issues of economic
efficiency was explicitly stated in Texaco Limited v. Mulberry Filling Station,
Ltd. 0 4 In this case, the British court deemed irrelevant expert economic
evidence about whether the tying arrangement at issue might yield economic
advantages and disadvantages to the public. “Such abstruse economic con-
siderations” are “of a different order altogether” from the question of
whether a restraint is reasonable.10 5 The interest of the public concerned
only the individual traders’ economic liberty, not economic efficiency:

But what is meant by reasonableness with reference to the interest ofthe public?
It is part of the doctrine of restraint of trade which is based on and directed
to securing the liberty of the subject and not the utmost economic advantage.
It is part of the doctrine of the common law and not of economics. So it must,
of course, refer to interests as recognizable and recognised by law. 06

Saying that the public interest must “refer to interests as recognizable
and recognised by law” amounts to saying, in terms familiar to a U.S. lawyer,
that one must find in private law that the plaintiff has some legally protected
interest that the agreement infringes. The public’s interest does not concern
the best balance of allocative and productive efficiency, the raison d’6tre of
trade law for the Chicago School. Such economic considerations are also
inappropriate, the court continued, because a court of law is ill-adapted to
assess them and because such considerations “lack sufficiently specific for-
mulation to be capable of judicial, as contrasted with unregulated personal
decision and application”.107

‘O2Nordenfelt, supra, note 92.
103R. Bork, Antitrust Paradox: A Policy at War with Itself(New York: Basic Books, 1978) at

36-37.

04Texaco, supra, note 76.
‘
’05Ibid at 827.
‘061bid.
107Ibid.

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Indeed, about the only public interest actually recognized in restraint
of trade cases in England is in the personal ability of traders to trade. The
Chicago School may argue that the only logical reason for the public to care
about a person’s ability to trade is because of the public interest in economic
efficiency, but the English courts do not usually bother to explain in utili-
tarian terms why the trader’s ability to trade serves the public interest. Their
key desideratum, and their focus of attention, is the trader’s ability itself,
and not the ultimate economic conditions such as competitive price and
output that the trader’s ability to trade may produce. To a U.S. court, this
emphasis on the liberty of an individual trader smacks of protecting com-
petitors and not competition, a goal U.S. courts and commentators have
long denounced. 10 8 As Judge Posner has emphasized, the situation of the
individual trader is not an important concern of U.S. antitrust laws:

Now there is a sense in which eliminating even a single competitor reduces
competition. But it is not the sense that is relevant in deciding whether the
antitrust laws have been violated…. The consumer does not care how many
sellers of a particular good or service there are; [the consumer] cares only that
there be enough to assure him a competitive price and quality.109

Under English law, however, concern for the single competitor remains the
focus of the court’s approach.

What I am calling the social security aims (“welfare” having become
an economic word) of the English restraint of trade doctrine are illustrated
by the judicial approach in another sporting case, Greig v. Insole. 10 In this
case, some cricketers who had played in matches sponsored by World Series
Cricket Pty. Ltd. (WSC) attacked the recently created rules of the Interna-
tional Cricket Conference (ICC), and the Test and County Cricket Board
(TCCB) banning World Series Cricket players from international test
matches and county cricket matches. The WSC claimed that the ICC and
TCCB ban unreasonably restrained trade. Predictably, the court, invoking
the “liberty to trade” notion, found a clear restraint of trade because the
ban sought “to substantially restrict the area in which a person may earn
his living in the capacity in which he is qualified to do so.””‘ Because of
this infringement on the liberty of traders, the defendants ICC and TCCB
had to justify their actions by proving that the ban was reasonable.

In the U.S., the issue would instead have been whether the ban threat-
player’s services,

ened to reduce the output of the product in question –

08Brown Shoe Co. v. United States, 370 U.S. 294 (1962) at 344. It is competition, not

competitors, that the Sherman Act protects.

’09Products Liability Ins. Agency v. Crum and Forster Inc., 682 E2d 660 (7th Cir. 1982) at

663-64.

HoSupra, note 84.
“‘Ibid. at 345.

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cricket events and related paraphernalia –
to an extent not warranted by
any gain to productive efficiency.” 2 Unilateral conduct rarely, if ever,
threatens output.’ ‘3 Under the Chicago School approach, therefore, the ICC
and TCCB would easily have prevailed.

The English court in Greig, however, began by asking what, if any,
interest the ICC and TCCB were entitled to protect. 1
“4 This question, which
dominates much of British trade law, plainly calls for a normative judgment
unrelated to efficiency. It is not an economic question in any respect. From
an economic perspective, all parties are entitled to maximize their profits
as long as they do not unduly restrain output in the process. By asking what
interest the defendants were entitled to protect, the court was implicitly
limiting the defendants’ freedom of action and authorizing greater judicial
interference with the defendants’ action than an economic approach would
allow. Asking that question, however, accords fully with the English courts’
mission of defining (and redefining) each party’s rights and obligations to-
wards each other, case by case.

Ultimately, the British court reached a conclusion that its American
counterpart would confidently take for granted, namely that the legitimate
interest of ICC and the TCCB entitled them to act to preserve themselves
as financially viable bodies. But this conclusion was justified only on the
ground that the ICC and TCCB “were in a sense custodians of the public
interest”.” 5 That is, the court recognized a public interest in the game of
cricket being “properly organised and administered.”‘ ” 6 Without explana-
tion or discussion, the court also decided that the defendants (rather than
the WSC) were the custodians of that interest. Apparently, whether an or-
ganization is entitled to exist and to act in self-preservation depends on

112 “Intrabrand Cartels”, supra, note 66 at 13-19.
nI3Ibid.
114The inquiry as to whether the defendants’ act seeks to achieve “legitimate interests” has
become a cornerstone of the restraint of trade doctrine. Bridge v. Deacons, [1984] 1 AC 705
(PC.H.K.). As others have emphasized, the inquiry leads to highly formalistic distinctions,
allows the parties by their customary behavior to create their own legitimate interest, and
favors established firms over new entrants. C. Yuen, supra, note 90 at 16-17.

The emphasis on whether the defendants’ action furthers their “legitimate interests”, or
impairs the plaintiff’s “legitimate interests”, traces back to the origin of the restraint of trade
doctrine in contract law. The notion seems to be that the courts should apply the usual principles
of contract interpretation to determine each party’s expectations about the contract at the time
he entered it. Those expectations constituted his legitimate interest. Other legitimate interests,
such as a party’s right to trade, stem not from expectations but from past judicial determinations
of every person’s rights and obligations.

The legitimate interests inquiry seems to have nothing whatever to do with the effect of the

defendants’ action on economic efficiency. See, generally, Yuen, ibid., at 16-19.

“5 Greig v. Insole, supra, note 84 at 347.
1I6lbid

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whether the court believes it serves a public interest. And that determination
may turn on whether the court approves of its product. Cricket yes, jai alai,
maybe not. The court never thought of relying on the self-interest of the
organizers to assure that the games were organized and administered in line
with consumer desires. Nor did the court entertain the notion that a firm’s
survival should depend not on the court’s approval, but on the choices of
consumers acting through the marketplace.

Having decided that, as custodians of the public, the ICC and TCCB
were entitled to preserve themselves, the question in Greig became whether
the ban was necessary for this end. This question bears a superficial resem-
blance to the question a U.S. court might ask once it found that the de-
fendants’ ban threatened to reduce oUtpUt. 117 At that point, the U.S. court
might ask whether the defendants’ ban might help to achieve productive
efficiency gains that would offset the reduction in output. The U.S. court
would look at whether the ban helps consumers by lowering the costs of
the product being produced, by producing a better product (in other words
by increasing the demand), or by overcoming a market imperfection, such
as the free-rider problem, that prevents the market from responding to
consumer desires. For instance, the ban would help internalize the gain to
the ICC and TCCB created by their past efforts to increase the market value
of the players. Thus, the ban prevented others, like the WSC, from free-
riding on defendants’ past efforts. By mitigating the free-rider problem, the
ban created better incentives for sporting associations to undertake these
efficiency-enhancing efforts. The value of increased efficiency, which would
be encouraged by allowing the ban, would be balanced against the loss, if
any, in the value of the output of the player’s services. In short, the U.S.
courts would look at the effect of the ban on the generic product market.
A U.S. court would never be concerned, however, with whether the ban
preserved the viability of the ICC or the TCCB, or of any organization in
particular. That judges should decide whether certain organizations are
worthwhile, and then assist them by justifying those actions necessary for
their survival, is more appropriate to a feudal tradition than to a liberal
one. It is not a notion an American court would accept.

In the hands of the English court, the question of whether the ban was
necessary for the protection of the defendant organizations meant that the
social security aims of the English restraint of trade doctrine would domi-
nate. Those social security aims led the court to its ultimate embarrassment,
at least in the eyes of an economist –
penalizing a firm for successfully
engaging in the very rivalry which a competitive system nurtures and cher-

117This is not to suggest that the ban in Greig v. Insole actually would reduce output. See
“Intrabrand Cartels”, supra, note 66, at 24 which suggests that no unilateral action is likely to
reduce output. I am merely illustrating the steps of an economic approach.

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ishes. Incredibly, the likelihood that the demand for WSC events would be
great, thus threatening to divert the defendants’ fans and diminish defend-
ants’ income from their events, was held against the WSC. This put the
WSC in the absurd position of having to argue that it had not met consumer
desires well enough to detract from the financial success of the defendants’
events. Thus, the more the WSC increased consumer satisfaction by intr6-
ducing a product consumers enjoyed, the worse its treatment at the hands
of the court. The WSC satisfied the court that it did not present a serious
immediate threat to test-play cricket in the United Kingdom, Pakistan, New
Zealand and India. But as for Australian cricket, WSC’s success in respond-
ing to consumers spelled its doom:

Accordingly, I accept that World Series Cricket, both by removing star players
and by providing a competing attraction, is on the balance of probabilities
likely to diminish the receipts of the Australian Cricket Board … and thus to
be detrimental to the financial interests of … Australian cricket as at present
organised.” 8

The court then went on to find that the WSC presented a long term threat
to all test-playing countries:

first because other players might thereafter join World Series Cricket, secondly,
because it was theoretically possible that its programme might be extended
beyond the projected three years, and thirdly because other private promoters
might conceivably be encouraged to follow [the WSC’s] example.'” 9
The approach adopted by the U.K. courts also punishes a business for
doing well economically by making an action’s legality turn on the firm’s
financial strength. If the ICC was financially marginal and needed the ban
to survive, the ban would be reasonable. As the ICC needs the ban less, the
ban becomes less reasonable.

Since the Chicago School revolution, the U.S. courts are implicitly en-
joined to emphasize marginal rather than average effects and to approach
unreasonable restraint of trade cases ex ante rather than expost. An ex ante
approach requires that the courts should attempt to influence future be-
haviour; they should not treat the parties’ circumstances as fixed and then
try to apportion gains and losses fairly. Emphasizing marginal returns means
that courts must look at how their decisions affect incentives on the margins,
for behaviour is influenced by changes in marginal returns, not in average
returns. An ex ante marginal approach would ask in Greig “what is the
effect of our decision on the incentive to organize cricket matches and to
run them most efficiently (i.e., in a way that will maximize their value and
lower their costs)?” An ex ante marginal approach would never ask, as the

” 8Greig v. Insole, supra, note 84 at 352.
“19lbid.

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court did in Greig, whether the ICC and the TCCB would survive without
the ban. Such a question would only be asked by those looking at average
rather than marginal returns, by those trying to be “fair” rather than to
influence future conduct, or by those willing to suppress rivalry in order to
protect the inefficient. Indeed a court that would raise such a question would
probably decide whether a copyright holder deserves to be protected from
a particular type of use by asking whether that copyright holder would make
“a lot” of money or a “fair profit” without the copyright protection. Such
an ex post perspective, according to the economic view, inevitably yields
sub-optimal incentives for the creators of new ideas or new products, the
principal sources of economic growth. The ex ante approach would try to
resolve the dispute in a way that maximizes efficiency. This approach would
balance the need to establish optimum incentives for invention against the
need to avoid monopoly restrictions on use. The case would not be treated
as a squabble over who should get the benefit from existing copyrighted
works.

The difference between American and English approaches to the re-
straint of trade doctrine may reflect fundamentally different views about
the nature of the economic system. As Frank Easterbrook, a proponent of
the Chicago School, has written:

The degree to which fairness or other ex post arguments dominate in legal
decision-making is directly related to the court’s assumptions about the nature
of the economic system. Judges who see economic transactions as zero-sum
games are likely to favour ‘fair’ divisions of the gains and losses. If the stakes
are established in advance and will not be altered by courts, why should judges
harshly require one party to bear the whole loss or allow another to take the
gain? Yet, if legal rules can create larger gains (or larger losses), the argument
concerning fairness becomes weaker. The judge will pay less attention to today’s
unfortunates and more attention to the effects of the rules.

[W]hether the Justices take an ex ante or an ex post perspective in analyzing
issues … will depend, in part, on the extent to which they appreciate how the
economic system creates new gains and losses. 20
Because WSC cricketers presented a serious threat to test match cricket,
the court suggested the ban would be reasonable if imposed prospectively.
But then, almost as an afterthought, the court concluded that the retro-
spective ban on players who had already signed with WSC was not reason-
able. The primary reason for this decision was that the players who signed
with the WSC without knowing of the ban did not “deserve” to be banned;
the ban was “unfair” to them. Under the economic approach, of course,
120EH. Easterbrook, “Foreword: The Court and the Economic System”, supra, note 73 at

11-12.

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fairness to the players has little to do with economic efficiency or with the
concept of unreasonable restraint of trade under the antitrust laws. 121

Another reason offered for condemning the retrospective ban shows the
willingness of English courts to substitute their own judgment for the judg-
ment of private firms –
even on the issue of how those firms should best
maximize revenue from their operations. The court in Greig criticized the
ban on the grounds that it would decrease the defendants’ own gate receipts
from ICC and TCCB test matches, at least in the short run. The defendants
naturally protested “that it was necessary to make that sacrifice to safeguard
the present and long-term interest of international cricket”, 122 but the court
derided the defendants’ judgment as “at most, speculative”. 23 The court
refused to acknowledge the backdrop assumption of economic liberalism
which maintains that the defendants – being more familiar with and more
keenly interested in their own economic situation – know better than the
courts how best to maximize their revenue. Nor did the court acknowledge
the normal presumption that defendants are free to decide for themselves
how best to maximize revenue, with society relying on the market to correct
defendants’ errors. Once again, the liberal backdrop assumptions about the
respective roles of the market, private actors and the courts are either ig-
nored or never considered in the first place. If the British courts at least
recognized and discussed these backdrop assumptions and only then over-
rode them, the approaches of the two countries would differ less
dramatically.

D. The Common Law Doctrines

The many other doctrines used by the English courts to control industry
self-regulation pay no greater attention to efficiency. Even a brief description
of those doctrines will illustrate their different and narrower goals. The
doctrines aim to control the power of the defendant groups in relation to
the plaintiff, not the power of the defendants to restrict output to consumers.
They aim to rectify unfair treatment of the plaintiff at the hands of the
defendants. They aim to protect the plaintiff’s reasonable expectations and
opportunity to work in an occupation for which he has trained. They do
not seek to break up concerted behaviour that restrains rivalry and reduces
output.

1’2 Liebeler, supra, note 64.
‘2Greig v. Insole, supra, note 84 at 354.
l23Ibid.

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1.

Contract

One contract doctrine available to English plaintiffs holds that a mem-
ber’s entry into an association gives rise to a contract (or many separate
contracts) binding all members to follow the rules of the association.124 Thus,
restrictive actions taken by the defendant association in violation of its own
rules can be viewed as a breach of contract. The contract notion applies to
social clubs and other associations of little economic import, as well as to
trade associations. At one time this notion of contract was the primary basis
for giving courts jurisdiction over such disputes.125 It also provides a basis
for justifying the defendant association’s power over the plaintiff. Thus,
association action that conforms with the association’s rules cannot be re-
viewed by the courts on any other grounds, a position that nicely illustrates
the English courts’ reluctance to let public policy concerns dominate “pri-
vate law” disputes. One of the many difficulties with the notion of contract
is its failure to indicate the defendant association’s rights and obligations
vis-A-vis non-members, such as applicants or prospective participants in the
association’s events. The courts have swung between the poles of denying
any obligation to non-members, on the one hand, and allowing no justifi-
cation for injuring non-members, on the other.126

A second doctrine, closely related to the first, is provided by Dawkins
v. Antrobus.127 According to this doctrine, an expelled member becomes
entitled to relief by showing: (a) the rules and proceedings of the association
are contrary to natural justice; (b) the expulsion is not in accordance with
the association’s rules; or (c) the proceedings are not free from malice (bad
faith). Again, this doctrine, which could be categorized under either the law
of torts or that of private associations, applies to all types of associations

124Davis v. Carew-Pole, supra, note 18; Abbott v. Sullivan, supra, note 18; Halsbury’s, vol.
47, supra, note 18, paras 116, 251. See also the discussion of this principle in the dicta of Nagle,
supra, note 1 at 650-51.
125For many years in England, an individual’s acceptance of the offer to become a group
member was said to create an implied contract with the group obliging that group to follow
its own rules and observe the requirements of natural justice. Absent the contract, the member
could not sue the tribunal in court unless one of the few torts recognized in the early common
law was committed. In return, the contract gave the domestic tribunal jurisdiction to disqualify
or fine the member, or warn him off to others. But a domestic tribunal’s power to act against
a non-member with whom no contract existed was in doubt. Some scholars suggested that a
group might be liable when it injured a non-member, regardless of whether its action was
reasonable. Lloyd, supra, note 79 at 414-15.

126A modem remnant of this reliance on the notion of contract arises when a member of a
club voluntarily submits his dispute to the club before approaching the courts. English courts
may hold that the earlier approach to the club waived the member’s rights before the court;
e.g., Enderby Town Football Club Ltd v. Football Ass’n (1970), [1971] Ch. 591 at 607, [1970]
3 W.L.R. 1021, [1971] 1 All E.R. 215 (C.A.).

127(1881) 17 Ch. D. 615 (C.A.).

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including social clubs. And again, the doctrine arises primarily when a de-
fendant association attempts to expel a member.

2.

The Right to Work Doctrine

The right to work doctrine, closely associated with Lord Denning,
emerged as a means of circumventing the requirement of privity of con-
tract.128 This doctrine may also have developed as a basis upon which to
justify judicial review of those domestic tribunals whose actions affected
employment without extending jurisdiction over more benign domestic tri-
bunals such as social clubs. It is triggered by a judicial finding that the
defendant association’s action forecloses the plaintiff from a line of work.
Once triggered, the doctrine asks not only whether the defendants’ action
offends natural justice, but also whether it is reasonable in light of the
objectives of the parties. 29 This latter test tends to be more demanding
than the natural justice test, which often focuses solely on the procedures
afforded the plaintiff. It allows the court to explore possible alternative
actions the defendants might have taken that would have injured the plaintiff
less while still achieving the defendants’ goals. For obvious reasons, the
right to work doctrine threatens the closed shop and, more generally, the
sovereignty of labour unions over their members and over the determination
of union membership. To limit the doctrine, the courts have emphasized
that it only seeks to prevent arbitrary action.130

On economic grounds, private actions that affect the right to work do
not necessarily merit greater judicial interest and scrutiny than do similar
actions that advantage or disadvantage products. The ability to work in a
chosen field, like the ability to market any product, would normally be
governed by market forces and by individual employers acting under market
constraints. To be sure, the notion that English courts should protect the
right to work stretches back at least to the Case of the Tailors of Ipswich in
1614.131 It reflects an attitude that Marx derided as “feudal socialism”, the

128Lee v. Showmen’s Guild of Great Britain, [1952] 2 Q.B. 329 at 343, [1952] 1 All E.R. 1175,

[1952] TL.R. 1115 (C.A.).

129Nagle, supra, note 1 at 644-47.
30R.W. Rideout, “Upon Training An Unruly Horse” (1966) 29 Mod. L. Rev. 424.
131(1614), 11 Co. Rep. 53A, 77 Eng. Rep. 1218 (K.B.).

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belief that feudalism’s protection of a person’s working status should survive
in a capitalist world. 132

3.

Inducement of Breach of Contract

Certain efforts at self-regulation may also give rise to the tort of in-
ducement of breach of contract. The elements of this tort in England are:
1) direct interference with a contract or indirect interference combined with
unlawful means; 2) knowledge of the contract; 3) intent to interfere; 4) special
damages; and 5) lack of justification for the interference. 133 Once again, a
similar tort exists in the United States but is rarely used because of the
decisive practical advantages of relying on antitrust law. In the U.S., more-
over, a broader view of justification is taken to ensure that the tort cannot
be based on normal competitive rivalry. Nevertheless, Chicago School com-
mentators severely criticize the U.S. tort on efficiency grounds. Professor
Perlman has argued that facilitating a breach of contract will often be
efficient:

If allocative efficiency is the objective of contract law, legal rules should en-
courage persons to search for and to take advantage of more highly valued
uses for resources under their command. In efficiency terms, there is no reason
why formation of one contract should bring the process to a halt or prevent
third parties from inducing non-performance of inefficient contracts. Contract
rules seem designed to facilitate breach where efficiency gains result; [tort rules]
in contrast, [seem] designed to reduce the number of such breaches and thus
[run] counter to a plausible objective of contract doctrine. 34

Perlman also describes how tort liability impairs the inducer’s ability to
negotiate with the party better able to take advantage of the alternate op-
portunities. He claims that tort liability creates inefficient search and salvage
incentives and increases transaction costs. 135 As inefficient as the U.S. tort
may be, the English tort is substantially worse. The Greig cricket case il-
lustrates why. In Greig, a tort was found based on the announcement by

‘ 32K. Marx & E Engels, The Communist Manifesto, ed. by L. Fever (Garden City, N.Y.:
Anchor Books, 1959). In Marx’s view, spokesmen for English aristocracy – most notably
Disraeli, Carlyle, ahd the “Young England” movement –
“took up” the vocation of indicting
bourgeois society in the interest of preserving working class entitlement. He described their
efforts as follows at 23:

feudal socialism: half lamentation, half lampoon; half echo of the past, half menace
of the fiture; at times, by its bitter, witty and incisive criticism, striking the bourgeoi-
sie to the very heart’s core, but always ludicrous in its effect, through total incapacity
to comprehend the march of modem history.

See also B. Disraeli, Sybil, or The Two Nations (London: Oxford University Press, 1941).

’33Greig v. Insole, supra, note 84 at 332.
’34H.S. Perlman, “Interference With Contract and Other Economic Expectancies: A Clash
‘351bid. at 82-85.

of Tort and Contract Doctrine” (1982) 49 U. Chi. L. Rev. 61 at 82-83.

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INDUSTRY SELF-REGULATION

the defendant ICC that it would ban players under contract with the WSC
from test matches. The announcement itself was found to be sufficient direct
interference. Intent to induce a breach of contract was easily supplied by
the notion that the defendants made the announcement knowing a breach
was a natural and probable consequence of their act. And the court took
an extraordinarily narrow view of possible justifications. It saw no merit in
claims by ICC that this was a normal course of rivalry or that the ban was
needed to prevent the WSC from, in effect, free-riding on the past efforts
of the ICC to increase the value of the players’ reputations. Rather, the court
took an approach that effectively barred from consideration any justification
based only on the social desirability of defendants’ action. Instead, defend-
ants were required to justify their action vis-A-vis the WSC.

Apparently, the court was requiring that the ICC show some past dealing
between it and the WSC which gave it an equitable claim to retaliate by
means of the ban. The English court’s extraordinarily cramped view of
possible justifications seems shockingly at odds with an economy supposedly
committed to competition. It illustrates the extent to which public policy
considerations such as economic efficiency may still fail to affect, much less
dominate, English trade law.

4.

Interference with a Business by Unlawful Means

A possible but rarely used theory by which an injured person may resist
self-regulation is the English tort of interference with a business by unlawful
means. This tort can reach self-regulation that does not induce an actual
breach of contract. It may extend to self-regulation that merely drives away
possible future business which is not yet the subject of any contract. The
sole element, apart from the injury itself, is the defendant’s use of unlawful
means. Past cases illustrate the means deemed unlawful: 1) intimidating the
plaintiff’s employers into refusing to hire the plaintiff;136 2) inducing the
plaintiff’s employees to refuse to handle specified future work, such as un-
loading particular barges; 137 and 3) complying with unlawful orders from a
supplier not to sell to the plaintiff.138 The order not to sell may be unlawful
because it is in breach of a contract or in violation of a court order. The

136Rookes v. Barnard, supra, note 14. The tort of intimidation may also be alleged in a
restraint of trade case. Halsbury’s Laws of England, 4th ed., vol. 45, s. 1524. The tort is most
commonly used in the context of labour and trade union disputes, where it seeks to control
the methods of unions in such disputes. The tort has never been said to contain an efficiency
component; e.g., Midland Cold Storage Ltd v. Turner, supra, note 14; Cory Lighterage Ltd v.
Transport and General Workers’ Union, [1973] 1 W.L.R. 792, [1973] 2 All E.R. 341, 117 S.J.
266 (Ch.); Rookes v. Barnard, ibid.

137Stratford (J.T) & Son Ltd v. Lindly, supra, note 10.
’38Torquay Hotel Co. v. Cousins, supra, note 11 at 139-40.

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[Vol. 34

most common unlawful means may be “blacking” the plaintiff, provided
the “blacking” is not in furtherance of any trade dispute between the plaintiff
and defendant.139 Because “blacking” is a common means of self-regulation,
and indeed arises implicitly whenever a plaintiff is refused a licence or a
necessary membership, this tort should, in theory, provide a widely available
vehicle for controlling self-regulation. The tort seems to be a reaction against
methods deemed improper on moral grounds, rather than a manifestation
of commitment to efficiency.

At no point in their treatment of industry self-regulation, therefore, do
the courts of England give efficiency concerns a dominant role. In their
solicitude for existing institutions and for fair treatment of the parties, they
adopt an approach infected with a feudal ethos. Nor do the English courts
display awareness of the language or grammar of economic analysis. Instead,
they dispose of these cases without any economic discussion and without
any apparent consciousness of the contrast between their approach and the
approach a liberal economic order would seem to prescribe.

Conclusion

Until the triumph of the Chicago School, the treatment of industry self-
regulation in the United States reflected a populist hostility towards the
exercise of any power by private associations. Any self-regulation not man-
dated by the government, or at least any that seemed to usurp the rule-
making and rule-enforcing functions of the government, was presumptively
illegal. In England, by contrast, industry self-regulation received a much
warmer reception. Even when an injured plaintiff could get the courts to
review unauthorized self-regulation, rather than leave him to the mercy of
the regulators, the courts accepted the legitimacy of the attempt to regulate
and required the plaintiff to show something plainly amiss with the partic-
ular treatment afforded him.

against the anti-competitive features -the

When the courts in the two countries get beyond their initial reactions,
however, the comparison changes. The U.S. courts strive to balance the pro-
competitive features of the regulation –
the likely gain to productive ef-
ficiency –
likely loss to allo-
cative efficiency. While the difficulty of this calculus may render the
approach incoherent, the approach forces the courts to look at the regulation
ex ante, to consider marginal effects, and to focus exclusively on economic
efficiency. It also leads the courts to begin to employ the grammar of an
economic approach. The English courts, on the other hand, show little if
any movement towards an economic approach. They show no appreciation
for the market’s ability to decide questions they take it upon themselves to

I39ibid.

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decide. Even the Restrictive Trade Practices Court, the closest equivalent
to an “efficiency court”, upholds or condemns regulations based on its sense
of the regulation’s fairness and propriety, without any more objective bench-
mark. The English Rule of Reason bears no resemblance to an efficiency
calculus. Rather, it aims to protect a party’s personal ability to trade (despite
his past commitments) and to protect the economic security of existing
firms. Similarly, the other English actions that might check self-regulation
focus on whether businesses behave fairly and reasonably toward each other,
rather than on whether their behaviour helps or hurts consumers.

Those scholars who emphasize the importance of a feudal tradition, or
more commonly, the importance of the feudal tradition’s absence in the
United States, offer a compelling explanation for both comparisons. 140 They
point out that the liberal tradition of the U.S. contained an atomistic, po-
pulist aspect that looked upon any enforcement of associational power as
suspect and “un-American”. Of greater importance, however, is the fact that
the tradition was so purely liberal. It was liberal in its subjectivity of values,
in its commitment to running the Lockian race, in its relative willingness
to accept the judgment of the market, and in its indifference to protecting
entitlement based on status. It was also liberal in its blindness to social
oppression, especially the oppression suffered by losers of the Lockian race.
In England, on the other hand, liberalism has never held the field alone.
One prominent challenge comes from “feudal socialism” which lashes out
at liberalism in the spirit of Disraeli and Carlyle in order to protect feudal
entitlement and existing institutions. 141 The failure of economic analysis to
gain a foothold among the English courts can perhaps be attributed to this
feature of the English tradition, a tradition that has been described as a
“marvelous organic cohesion of feudal, liberal and socialist ideas”. 42

140Hartz, supra, note 57; R. Bellah, Habits of the Heart: Individualism and Commitment in

American Life (Berkeley: University of California Press, 1985) at 114.

141Hartz, ibid.; B. Disraeli, supra, note 132; T. Carlyle, Chartism (London, 1941).
142Hartz, ibid. at 10.