Carstensen on the Chicago Board of Trade Case

Peter Carstensen, University of Wisconsin Law School, has recently posted a classic study, which previously circulated as a working paper, of a landmark of antitrust history, The Content of the Hollow Core of Antitrust: The Chicago Board of Trade Case and the Meaning of the "Rule of Reason" in Restraint of Trade Analysis:

Louis D. Brandeis (NYPL)

Antitrust law's rule of reason for determining the validity of contracts in restraint of trade is enigmatic at best. A primary source of its contemporary Delphic character is the common understanding of the Chicago Board of Trade decision, one of the few cases in which the Supreme Court has upheld a restraint as reasonable. Using several potential meanings for the rule of reason, this study examines the factual context of the case, the record made by the parties, their legal and factual arguments to the Supreme Court, and the contemporaneous state of the law. The objective is to determine what rule of. reason was being employed in the case. The factual evidence established that the most likely explanation for the restraint was that it was to facilitate and protect from opportunistic exploitation the efforts of the members of the Board who were collectively creating a more efficient market system for certain classes of grain. Moreover, the legal arguments of the parties show that the characterization of the function of the restraint was a crucial issue in the case. Finally, a defense of reasonableness based on the ancillarity of a restraint to some other primary transaction or activity among the parties is entirely consistent with the then existing case law. In combination, these considerations show that the rule of reason employed in the case was not the open-ended balancing test commonly supposed, but a focused inquiry into the function of the restraint and its relationship to the joint productive activities of the parties. Therefore, when read in context of the record, argument and relevant case law, the Board of Trade decision does not provide a basis for making the rule of reason the unstructured hollow core of antitrust law. 

--Dan Ernst