For several decades, the Supreme Court employed the direct/indirect standard to police the boundary between mutually exclusive state and federal power over intrastate conduct affecting interstate commerce. Under this regime, Congress possessed exclusive authority over intrastate conduct that affected interstate commerce directly, leaving states with exclusive authority over intrastate conduct that produced only indirect effects. The Supreme Court read the direct/indirect standard into the Sherman Act during the 1890s, holding in United States v. E.C. Knight and other decisions that the statute only reached intrastate restraints that impacted interstate commerce directly. Impacts were direct, in turn, if the restraint exercised market power to the detriment of out-of-state consumers. Intrastate restraints that produced only indirect effects fell within the exclusive authority of the states.
Wickard v. Filburn famously jettisoned the direct/indirect standard in 1942, holding that Congress could reach any conduct that produced a “substantial effect” on interstate commerce, even if such effects were indirect or fortuitous. Later in the same decade, in Mandeville Island Farms v. American Crystal Sugar, the Court read Wickard’s substantial effects test into the Sherman Act, holding that the statute reached purely local restraints producing indirect but “substantial” impacts on interstate commerce.
Wickard offered three critiques of the direct/indirect standard, critiques echoed by Mandeville Island Farms. First, Wickard claimed that the Court had almost always applied the direct/indirect standard when reviewing Commerce Clause challenges to state legislation, only rarely employing the test to invalidate an Act of Congress as exceeding the scope of the Commerce power. Indeed, the Court claimed that only five post-E. C. Knight decisions had invalidated congressional statutes as exceeding the scope of the commerce power, three during a two year period (1935-36). Second, Wickard claimed that the direct/indirect standard was “mechanical” and obscured judicial inquiry into the actual economic impact of the conduct Congress sought to regulate. Third, Wickard claimed that decisions applying the direct/indirect standard during the first third of the 20th Century did so under the sway of the discredited E.C. Knight decision and had co-existed with a parallel set of decisions, beginning with the Shreveport Rate Case, that took a more expansive approach to congressional authority. This alleged doctrinal ambiguity attenuated the precedential force of decisions that had applied the direct/indirect standard.
It is no surprise that Mandeville Island Farms and subsequent Sherman Act decisions drew upon Wickard when discerning the scope of the Sherman Act vis a vis local restraints. This essay “flips the script” and asks “what if” Wickard had looked to Sherman Act precedents for guidance regarding the scope of the Commerce power. The essay contends that the Court’s experience with application of the direct/indirect standard in the antitrust context undermines Wickard’s critiques of that regime. For instance, inclusion of the Court’s antitrust federalism case law more than doubles the number of pre-Wickard decisions that refused to apply a federal statute to conduct generating a substantial economic effect on interstate commerce, thus falsifying Wickard’s claim that only two decisions between E.C. Knight and the New Deal enforced limits on Congressional power. Moreover, the antitrust federalism decisions were not “mechanical” or otherwise insensitive to the actual economic effects of challenged conduct. Instead, each such decision reflected a fact-intensive effort to determine the actual impact of the conduct in question, asking whether the restraint visited harm on citizens in other states. Finally, the Court’s pre-Wickard antitrust federalism decisions rarely cited E. C. Knight, and then only for the purpose of distinguishing or narrowing the decision so as to allow the Sherman Act to reach intrastate transactions producing interstate harm. These decisions were fully consistent with the Shreveport Rate Case, which held that Congress could preempt state regulation of intrastate rates that threatened to “injure” interstate commerce, by “directly interfering” with interstate rates. Indeed and ironically, a thorough understanding of the Court’s pre-New Deal antitrust federalism decisions helps generate a more enduring and plausible rationale for the result in Wickard, a rationale that does no violence to the constitutional order that Wickard repudiated.--Dan Ernst. H/t: Legal Theory Blog