William Howard Taft, the Origin of the Rule of Reason, and the Actavis Challenge

Abstract

The origin of the Rule of Reason can be traced to the notable decision of United States v. Addyston Pipe & Steel Co. (1898), which was written by William Howard Taft during his tenure on the Sixth Circuit Court of Appeals. There, Judge Taft distinguished between restraints that were mainly or entirely designed to restrain trade and those that are ancillary to a procompetitive main purpose. That fundamental distinction, drawn at the dawn of Sherman Act jurisprudence, forms the basis of the Rule of Reason that currently informs antitrust case law. This Article describes the context in which the Rule of Reason was debated and defended both in public discourse by President and Professor Taft and in the landmark Supreme Court decisions of Standard Oil Co. of New Jersey v. United States (1911) and United States v. American Tobacco Co.(1911). This Article then follows the development of the Rule of Reason through Board of Trade of City of Chicago v. United States (1918) to the modern era of antitrust jurisprudence. Finally, this Article describes the application of the Rule of Reason to reverse-payment settlements in the pharmaceutical sector, one of the most challenging contemporary antitrust issues. It does so through a discussion of the Supreme Court case FTC v. Actavis (2013) and the Third Circuit’s application of Actavis in In re Wellbutrin Xl Antitrust Litig. Indirect Purchaser Class (2017). This Article provided the foundation for, and introduction to, the remarks of Professor Michael A. Carrier and Mr. Saul Morgenstern that were delivered at the New York State Bar Association Antitrust Law Section’s William Howard Taft Lecture on September 28, 2017. Those remarks are reprinted in article form in this volume of the Columbia Business Law Review.