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                                  [Law and Economics]
                                           ( LCA 20558)
                                           [EC.3750]
                                      [***Spring, 2007***]


Instructor:       Professor Michael Tansey
Classroom:        Conway 003
Meeting Time:      MW 1:20-2:35 pm
Office:           Conway 313
Office hours:     2:00- 4:30 F/S after executive fellows class (Room 204):
                   2:35-5:00 p.m. MW: and by appointment
Telephone:        (Cell phone at 913-485-7550)
E-mail:           michael.tansey@rockhurst.edu
Course Website: cte.rockhust.edu/tanseym
Fax:                    816-501-4693
KEEPING UP-TO-DATE: NO TEXTBOOK … BUT: Class SYLLABUS,
ASSIGNMENTS, NOTES (chapters), CASES, AND POWER POINT SLIDES FROM
LECTURE will be on the website: cte.rockhurst.edu/tanseym under the course “EC3750”
They are continually revised throughout the course depending on the speed of learning of
the class. It will be necessary to reference this site regularly to keep up-to-date on
everything posted.
        The Wall Street Journal will be used for course assignments. Always bring
today’s issue to class. They are available on the first and second floors of Conway in
the main lobby areas. You should also be receiving subscriptions to the Wall Street
Journal (thanks to the generous support of Barnett Helzberg) which should be available
through your Rockhurst e-mail account. That capability will be useful for the
assignments, since all assignments must be sent to the above e-mail address in digitized
form. We will also use the WSJ because the quality of their business reporting is more
reliable than the internet materials for the purposes of the course.

Course Description:
The purposes of government intervention in markets is the focus of the course. The
market failures that government is designed to correct are weighed against government
failures. Industry studies are used to illustrate public choices about regulation,
deregulation, antitrust, and other legal interventions in markets. Students learn the role of
property in our legal system and economic analysis. The structure of the U.S. and foreign
legal systems are examined from an economic perspective. Students learn to read,
interpret, and apply Supreme Court cases to economic analysis of markets.

Learning Objectives:
The most important skill in a job with any organization is communication. This course is
designed to give you practice in using these communication skills: (1) speaking, (2)
writing, (3) solving problems, (4) reading the newspaper, (5) discussing major economic
developments, and (6) interpreting legal cases. After completing you should:
                                                                                                          2




1    Be able to explicate the importance of competitiveness in markets- historically,
     economically, politically, philosophically and legally.
2    Know how to write an industry study.
3    Apply supply and demand theory with numerical and graphical examples of the
     different types of market structure.
4    Know how to use game theory.
5    Analyze legal cases in terms of their economic implications for the economy.
6    Statistically analyze data on markets to recognize structural, conduct, and
     performance trends.
7    Identify market structure, conduct and performance based upon information in legal
     cases, the media, economic reports, and visiting lectures.
8    Understand the theory of technological change and changes in structure of markets,
     as well as how to measure these changes.
9    Recognize and know the tools for measuring the inter-relatedness of different
     markets in the economy.
10   Discuss and explicate basic issues concerning government intervention, emerging
     global technologies, and ethics in the context of regulating different markets.
11   Be able to use statistical packages in Excel, be able to access Power Point, and know
     how to access Word for Windows.
12   Acquire the habit of reading quality media often and critically and to do so using the
     internet and digitized versions of the media.
13   Develop the capability for studying and turning in assignments PAPERLESSLY.

Course Requirements: Think of the teacher as a coach. Think of yourself as being on a
team. In order to win you must learn what you don't know. Once you can tell the coach
what you don't know, he can help you learn the few tricks he knows. For the rest, you must
be resourceful, creative, and willing to share with others what you have learned. In class we
will share and learn together.
       CASE Discussion:
       Each person will discuss two legal cases and be graded on them. If a bad grade is received on such a case it
       may be possible to make up that grade by presenting the case of another student if a student is absent on the
       assigned date.

       Extra Credit Points:
       It is not possible to get an “A” or a “B” without extra credit points. Those points will be awarded for
       (a) excellence (“magis”) in class participation in discussions based on interpretation of the readings and
             understanding of current events as reported in the Wall Street Journal
       (b) correct answers in contests over the material and interpretation of the material from the cases and
             readings.
       (c) Class presentations including case presentations.
       (d) Oral quizzes over the cases and chapter material which will frequently be made in class. Such oral
             quizzes are usually voluntary and will be awarded with points. Particularly good insights and use of
             economic concepts introduced in discussion may also be awarded with points. The best preparation for
             these oral quizzes and discussion is to read the Class Notes chapters that are assigned and to keep
             current with news publications.
       (e) Excellence in performance on class simulations or experiments, particularly those involving use of the
             computer. A simulation of market power will show the difference between competition and monopoly.
                                                                                                              3


             Your performance in understanding the rules of the simulation and the quality of your performance in the
             exercise will provide the basis for these points. This exercise will be done on class when we feel ready.
         (f) A field trip to the futures market. We will visit the Kansas City Futures market on a mutually agreeable
             date and the assignment will be made later if we have time.

         To receive an “A” or a “B” in the class you need to make points through other sources besides tests and
         homework assignments.

         Wall Street Journal
         Bring your Wall Street Journal to the class. From it you will scramble to find articles that illustrate key
         economic concepts that have been covered in the textbook. You are expected to discuss major issues that
         are presented in the media and to explicate economic concepts based on the chapters assigned for the week
                    IN ORDER TO PROMOTE FAIRNESS TO ALL OF THE
         or in previous weeks.
         STUDENTS IN THE CLASS WHO DO NOT HAVE ACCESS TO
         HOMEWORKS OF PREVIOUS STUDENTS, ALL ARTICLES THAT
         YOU USE FOR ASSIGNMENTS MUST HAVE APPEARED IN THE
         MEDIA AFTER THE FIRST DAY OF CLASS DURING THIS
         SEMESTER
         Individual Written Analysis:
         The exams will allow you to show your ability to think clearly under a time constraint. The exam questions
         will come from the homework problems and media assignments.

Evaluation

TWO CLASS PRESENTATION OF A LEGAL CASE (50 POINTS EACH: 100 POINTS MAXIMUM
FOR BOTH).
For each case, be prepared to answer:
1.         The legal facts of the case. For example, how was the case decided at the district level? Who
           appealed the case? What happened in the appellate court? Who appealed from there? How did
           the Supreme court decide the case?
2.         What is the legal basis for bringing the case? What are the precedents are involved in the case?
           Did the case serve as an important precedent?
3.         What about the case does or does not make economic sense? Do Economics and the Law agree?
In the SECOND day of class we will make assignments of the cases to be presented. Following are the options
for the first round of cases:

For a fee (why I didn’t require you to buy a textbook) many of the cases required in this course can be
found at
 http://laws.findlaw.com
                  and
http://laws.lp.findlaw.com/
                  also see
http://www.dal.ca/~wwwlaw/kindred.intllaw/caselinks.html

But if you have the citation, it is quite likely you can get the case for free from the internet.

Most of these cases are available in their entirety under the names indicated at right on the
cte.rockhurst.edu/tanseym site. Some of the early cases have been edited to focus on the major points; these
shortened versions are indicated in Isabel with the same name, but “brf” after the name. Generally you
should only use the brief “brf” on the case if one exists. If you miss the date on which your presentation is to
be given or are not prepared for it, then you will be reassigned any remaining cases that have not yet been
assigned. If there are none, then it will not be possible to make up this assignment.
                                                                                                                4



If you miss the date on which your presentation is to be given or are not prepared for it, then you will be
reassigned any remaining cases that have not yet been assigned. If there are none, then it will not be possible to
make up this assignment.

HOMEWORK #1 (100 points): Due ***Jan 31, 2005***. MARKET STRUCTURE PERFORMANCE.
-    LEGAL PROBLEMS: (Group) cover questions to Munn vs. Illinois.***
-    MEDIA ANALYSIS (Do individually, not as a group): After the media assignments you will
     recognize how to analyze demand and supply shifts appearing in the media, and how to categorize
     markets according to their structure, conduct, and performance.

HOMEWORK #2 (100 points): Due ***Jan 31, 2005***. VERTICAL MARKETS
-    LEGAL PROBLEMS: (Group) cover questions to Munn vs. Illinois.***
-    MEDIA ANALYSIS (Do individually, not as a group): After the media assignments you will
     recognize how to analyze demand and supply shifts and categorize markets according to their vertical
     structure, conduct, and performance.

HOMEWORK #3 (100 points):       Due ***Mar. 14, 2005 *** MARKET AND GOVERNMENT
                       FAILURE
-    LEGAL PROBLEMS: (Group).***
-    You will be assigned a book on which to make a book report. The written report is due.
-    MEDIA ANALYSIS (do media analysis individually, not as a group): After the media assignments
     you will recognize how behavior in markets reflects structure of markets and influences the
     performance in those markets.

HOMEWORK #4 (100 points): Due ***April 18, 2005*** POLICY ON COMPETITIVENESS.
LEGAL PROBLEMS: (Group) cover remaining cases.
INDIVIDUAL PROBLEM: Choose an antitrust case and follow it through its legal experience.
       Please allow at least a week for your finished assignments to be graded. Graded
assignments will be sent to your WebCT account, and the Wall Street Journal will be
available through your Rockhurst e-mail account. Late assignments will be graded and
turned back at the end of the semester.

EXAMS (each exam is worth 100 POINTS and the Final is worth 200 Points for a total of 400 points for the
semester): Each exam is based on quizzes, the textbook, the Study guide, problem solving examples presented
in class, and handouts distributed from time to time in class. Exams and the final are open book. Bring a
calculator.

Date of final exam: ***Wed. May 11, 2005 10:30 A.M. TO 12:30 P.M..***

GRADES: The following grades will be matched to point totals for students: A=900+, B=800-899, C=700-
799, & F is below 600. "+" and "-" are used for borderline cases. These limits may be adjusted downward but
will not be adjusted upward.
    1)        Class Cases, Discussion and Exercises (20%): You are expected to be current in
              and to discuss major issues that are presented in the media and to explicate economic
              concepts based on the chapters assigned for the week or in previous weeks. Oral
              quizzes over the chapter material will frequently be made in class. Such oral quizzes
              often be voluntary and will be awarded with points. Particularly good insights and use
              of economic concepts introduced in discussion may also be awarded with points. The
              best preparation for these oral quizzes and discussion is to read the assigned cases,
              update the cases on the internet and to keep current with the media. Also we will
              have in-class exercises. These will often be graded for extra credit. Finally prepare
                                                                                          5


           and update your two assigned cases. To receive an “A”: in the class you need to make
           points through other sources besides tests and homework assignments.
   2)      HOMEWORK (40%): Regular homework exercises will be assigned (check
           cte.rockhurst.edu/tanseym at EC 3750). Your average grade on these assignments
           will be weighted as 40% of the course grade (400 points maximum). Each
           assignment is graded on a percentage basis.

   3)      EXAMS (40%): There are three exams. The first two are worth 10% of the grade
           each. The final is worth 20% of the grade. Your average grade on these exams will
           be weighted as 40% of the course grade (400 points maximum). Each assignment is
           graded on a percentage basis.

Summary Class            Homework         Exam I           Exam II         Final Exam
          Participa-
          Tion,
          Exercises,
          Cases
Percentag 20%       (200 40%    (400      10%     (100 10%(100             20%(200
e         points +)      points           points       points              points
                         maximum)         maximum)     maximum)            maximum)

GRADES: The following grades will be matched to point totals for students: A=90%+,
B=80%+, C=70%+, & F is below 60%. "+" and "-" are used for borderline cases. These
limits may be adjusted downward but will not be adjusted upward. In other words, you
may be able to make a better grade for a given numerical score, but you will not make a
worse grade.

TURNING IN ASSIGNMENTS AND OTHER COMMUNICATIONS:                              The
assignments can be turned in (sent through WEBCT mail (see Appendix I below)). Please
follow the following instructions in sending me this information:
                                                                                         6




    FOR THE PURPOSES OF DEVELOPING A PORTFOLIO TO WHICH YOU WILL
    HAVE ACCESS AT THE END OF THE COURSE, PLEASE SUBMIT YOUR
    ASSIGNMENTS AS FOLLOWS:
       Please name the subject line any e-mail with your included assignment or with any
         communications on the assignments as "LAW07SLastnameASSNi". Where "Lastname"
         should be replaced with your last name. Where "i" should be replaced with the number
         of the assignment that is being turned in. My e-mails are grouped by subject and without
         that name your email will not be found.
       Please also name the files you send as "LAW07SLastnameASSNi"
       If you are allowed to resubmit an assignment then label it as
         "LAW07SLastnameASSNiresubmitj" where “i” is the assignment and “j” indicates the
         number of resubmission. If you do not include “resubmit” at the end of your title and file
         name it will simply out the previous assignment without being graded AND WILL
         APPEAR TO BE LATE BECAUSE OF THE LATER DATE ON THE RESUBMITTED
         FILE
       Always name BOTH the subject line of your e-mail AND the file with
           the same name.
  By following these instructions carefully I will be able to preserve the files you send me in a
  portfolio which will help me to write a recommendation for you anytime in the future. It
  will also allow you in the future to request copies from me of what you have done in the
  class.
All assignments should be sent to me through the e-mail system at WEBCT (see
instructions below in Appendix I). If you send a message to me at my E-mail address
(michael.tansey@rockhurst.edu) make sure the SUBJECT LINE of the e-mail
bears the title “LAW07SlastnameWhateversubject” with whatever subject after your
“lastname”. Otherwise, I can’t be responsible for finding the message. If you wish fast
turnaround then use the WEBCT e-mail system.

You will need send your assignments in Microsoft Word (2000), Microsoft Power Point,
and/or Microsoft Excel.
Policies

     Make-up exams. Any makeup exams will be given immediately after the final exam, will be
      essay (therefore, not necessarily comparable to the exam given in class) and will take into
      account the advantages of taking the exam later than the rest of the class.
     ON-Time Assignments. DUE BY ***THE BEGINNING.(1:20 p.m.) *** OF CLASS:
      NO EXCEPTIONS (HOMEWORK CAN BE TURNED IN EARLIER: 50% OFF IF
      LATER). The deadlines for some assignments may be extended beyond what is shown in the
      syllabus. But such extensions will be announced before the deadline shown in this syllabus
      and can be done only with permission of the professor. In-class experiments, simulations,
      and worksheets may not be made up, emphasizing the importance of regular attendance.
     Individual Effort. Exams, finals, newspaper article homework and quizzes will not be team
      efforts; they must be done alone.
                                                                                                          7


      ADA Statement RU official policy: “Rockhurst University is committed to providing
       reasonable accommodations for students with disabilities. Please contact Sandy Waddell,
       Director, Access Office (Massman Hall Room 7, (816) 501-4689,
       sandy.waddell@rockhurst.edu) to provide documentation and request accommodations. If
       accommodations have already been approved by the Access Office, please communicate with
       the instructor of this course regarding these arrangements by the second week of class in
       order to coordinate receipt of services.”
      Student Contact Information: RU official policy: “Student contact information must be
       kept current in order to receive important notices from Rockhurst University. Your contact
       information is online via your BannerWeb account. Please check your local address, local
       phone number, and emergency contact information on BannerWeb and revise as needed. All
       important University notices will be sent only to your RU email address. Please check your
       RU email account in addition to any other email accounts you may have. Accounts are
       activated at the Computer Services Help Desk (Conway 413).”
      Academic Honesty Policy: Plagiarism and cheating will not be tolerated. The Rockhurst
       University Catalog provides examples of academic dishonesty and outlines the procedures,
       penalties, and due process accorded students involved in academic dishonesty. All infractions
       will be immediately referred to the Dean's office. In your research paper, make sure you
       provide citations for all ideas and information that are not your own.
      Attendance Policy. As stated in the Rockhurst bulletin. Please note the limit of 7 absences.
       Attendance is of great importance. Any student who misses class or deadlines on
       assignments without arranging makeup work with the instructor will receive a lower grade or
       will be administratively withdrawn from the course.
      Professionalism of assignments. Assignments should be submitted as you would submit
       them to a business. All assignments should reflect an air of professionalism that will be
       required in your career. Assignments will be lowered by at least one letter grade if not up to
       those standards.


Topical Outline
        SUBJECT               MNB      OUT              CASES
DATE
                              Notes    LINE

J 17    Law.                           LAW intro.
W

J 22    Supply and Demand See                           Due: 4 choices of cases that you would like. Send to me by WEBCT (if
M                         syllabus,                     you don’t send your choices arbitrary assignments will be made)
                          law
                          handout

J 29    Vertical Markets      Supply                     Marbury v. Madison
M       INTRODUCTION          demand

                                                         McCullogh v. Maryland
J 31    Competition &         01, 17   Monopolization    4 U.S. Steel
W       Monopoly.                                        5 Dupont-Cellophane
        Simulation of Power                              6 Alcoa
        Mkt.
                                                        HWK #1 due
                                                                                                            8



F 5 M Market definition     05         Oligopoly                  7   Socony
                                                                  8   Smyth vs. Ames
F 7 W Performance           10         Regulation                16   American Tobacco
                                                                 17   RJR Nabisco LBO
                                                                 18   Santa Clara
                                                                 19   Bottling Legislation- Coke v. Pepsi
                                       Slides on types of        12   Nebbia
F12    Pricing             13
                                       markets-vertical          13   National league of Cities v. usery
M
                                                                      Garcia v. San Antonio Metropolitan Transit
                                                                 14   authority
                                                                 15   Lingle v. chevron U.S.A. Inc
                                       Intellectual              20   Jerrold electronics
F 14   Innovation, Fairness 08
                                       Property                  21   Microsoft
W
                                                                 22   AT&T,
                                                                 23   WorldCOM, MCI,
                                                                 24   Brand X Internet Services LLC
                                                                 25   Sprint
                                       Monopolization            26   Utah Pie
F 19
                                       and Market                27   American Tobacco
M
                                       Boundary
                                       summary
F 21                                                        EXAM I: Cumulative
W
                                       Regulation &               9   Hope natural Gas
F 26   Price Regulation.    Controls
                                       Price Control, Per        10   Munn vs. Illinois
M
                                       Se Violations
                                                                 11   Madison Gas & Electric
F 28   Objectives, Agency. Mergers Lecture on                    28   Swedenburg v. Kelly No. 03-1274
W      Law &Econ (example          vertical markets,             29   Granholm v. heald
       of exam)                    Mergers                            Michigan Beer and Wine Wholesaleers Association v.
                                                                 30   heald
                                                                 31   Brown Shoe
                                                                 32   Von's grocery
M5     Oligopoly, Risk,                                     HWK #2 due
M      Reward
                           Vertical                              33   Schwinn
M7
                           Market                                34   Illinois Brick
W
                           Examples
       VACATION-
       MIDSEMESTER
       BREAK
                           07,08
M 19 Mergers
M
                           12, 19                           REVIEW
M 21 Vertical Markets
W    Revisited

M 26                                                        Exam 2 cumulative
M
                           17New                                 35   Martha Stewart
M 28 Market,
W    Government Failure                                          36   Arthur andersen v. United States
                                                                 37   Enron
                                                                                      9


                                               38   1971 Price control program
                                               39   Gonzales v. Raich
                                               40   Kelo v. city of New London
A 2 M Price Discrimination 11   Hdout.    HWK #3

A 4 W Externalities             Hdout          41   Lucas
                                               42   Pennsylvania Coal
                                               43   Sturges
                                               44   Bryant
                                               45   Bush v. Gore-
                                               46   Tasini,
       VACATION-                               47   Napster
       EASTER                                  48   Betamax,
                                               49   MGM Studios v. Grokster
                                               50   Robertson (the spotted owl case)
                                               51   Zelman v. Simmons-Harris
A 11 Dynamic Mkt Failure,       Hdout          52   Nevada v. Hibbs
W                                              53   Plyler v. doe
                                               54   Randall v. Sorrell
                                                    League of United latin American Citizens v.
                                               55   Perry.
                                               56   Washington v. glucksberg
A 16 Information, Inequity      Hdout          57   Gonzales v. Oregon
M                                              58   The Patriot Act
                                               59   Rumsfeld v. Hamdan
                                               60   U.S. v. gonzlez-Lopez
                                               61   Blakely
A 18 International, Global,     Handout
W    World govt.

A 23                                      HWK #4
M

A 25
W

A 30
M

       Final, Wed, May 9th

        8:00 A.M. TO
       10:00 A.M..




                                   APPENDIX I
                           BACKGROUND ON WEBCT
                 Instructions for Students Logging into WebCT


WebCT ID and Password
                                                                                 10




     To login to a WebCT course, two pieces of information are required:

            a Rockhurst network account ID (which is the WebCT ID), and
            a password.

     The ID and password can only be obtained by activating the Rockhurst
     network account.

     IF YOU HAVE AN ACTIVE ACCOUNT AND KNOW YOUR LOGIN ID
     AND PASSWORD, YOU ARE READY TO LOG IN TO WEBCT.

     IF YOU DO NOT HAVE AN ACTIVE ACCOUNT OR CANNOT
     REMEMBER YOUR PASSWORD, PLEASE GO TO THE HELPDESK ON
     THE 4TH FLOOR OF CONWAY.

     For students, the WebCT ID is the same login ID as their Rockhurst
     network account. As an example, a student with the name Jonathan
     Wycliff is given a login ID of WycliffJ. On first use the student defines a
     password for their account. The proper login for WebCT is: wycliffj. The
     login ID must be entered in lowercase. The password is the same as
     the one defined and used with the login.

Logging in to WebCT

  Once the student has registered for a course and/or has a Rockhurst network
  account ID, follow the steps below to login to WebCT.

        Start a web browser (see next section for web browser information)
         and go to http://webct.rockhurst.edu/
        Click the Login to WebCT link.
        Enter the Rockhurst network ID (in lowercase) and password
        Click the Log in link.
        After logging in, the myWebCT page will be displayed.
         o It is unnecessary to change the password in WebCT.
         o A student may change a password in WebCT by clicking the
             Change Password link and entering a new password. But, it will
             have no effect. The password is defined by the login for the
             Rockhurst network account.)

     Note: Logging out of WebCT may occur from either the myWebCT page
     or within any course. Just click the Log Out link in the upper right-hand
     corner of the window.

WebCT Technical Requirements
                                                                                 11


     Since the student may access WebCT through the internet, the computer
     used must be able to connect to the Internet. While most popular web
     browsers will work, problem may by encountered if a WebCT-approved
     browser is not used or if the settings are not appropriately set for WebCT
     use. For more information about setting up a web browser for use with
     WebCT, go to www.webct.com/tuneup. Follow the instructions given by
     WebCT to check the browser and settings.

Troubleshooting

     If window displaying the Error: Authorization Required message is
     received, check the following:

           make sure the correct WebCT ID (Rockhurst network ID) and
            password was entered
           make sure the WebCT ID is entered using all lowercase
           if the password has been entered correctly (the password is case-
            sensitive)
           if you have forgotten your password, you must contact the
            HelpDesk for a password reset. You should be prepared to provide:
                 o your full name
                 o the Rockhurst email address to which you wish to receive a
                    reply (Because of a Federal law protecting your privacy, only
                    your Rockhurst email account will be used to return any
                    information about your account.)
                 o your course name and section
                 o your instructor's name
                 o the user name and password you are attempting to use
                 o steps you have already taken to resolve the problem or any
                    other information that may be relevant

     If a blank page is displayed after logging into WebCT, then:

           it is possible that the server is temporarily unavailable. Try
            refreshing (or reloading) the page in the web browser (look in the
            View menu).
           it is also possible that the student is "behind a firewall." Rockhurst
            WebCT does not run behind a firewall; it is in the DMZ. The
            student's firewall must allow traffic to and from WebCT. If the
            student is at a business/school/government location, this is a likely
            cause of the problem. The student must contact the local network
            administrator at their location to report the issue and inquire about
            opening the port.
           If you have “pop-up blockers” active, you must disable them when
            using WebCT, not uninstall.

     If no courses are listed on the myWebCT page:
                                                                                12




            the student must contact the course instructor who may in turn
             contact the HelpDesk or the WebCT Administrator.
            if the student has registered late, it may take a few days to get the
             e-mail account set up, which may delay the entry of the student into
             the WebCT course; in this case, the instructor should contact the
             WebCT administrator.


Issued: July 15, 2005
   ALL HOMEWORK SHOULD BE SENT TO ME THROUGH THE WEBCT
   MAIL SYSTEM. After doing your assignment in Word or Excel, get into
   the WebCT mail system, browse for the assignment, and then click the
   button that “attach”es the assignment to your mail message to send it
   in. Without this last step I will get mail without your homework.
                                                                                                             13



APPENDIX II. EXCEL (C-2,C-16) INSTRUCTIONS on
getting CLASS NOTES, media, and instructions
1. Turn on the computer by pushing on the lower button at the center of the panel with the crossed-zero
marking. You may also need to push the button to turn on the monitor (TV screen). If the computer has not
been logged in then log in with STUDENT and PASSWORD. The computer should respond with a screen
with many different “moniker” symbols on the left hand side.

2. Double click the “Microsoft Word” symbol.

3. The computer responds by giving you a blank worksheet with toolbars across the top which contain little
pictures.

4.        Put your diskette into the slot (disk drive) on the computer. The top of the diskette should face to
the right when you put it in a vertical slot or should face upward if you have a horizontal slot. Don't jam it
in.

5. At the top left corner of your screen click "file".
Click “OPEN” in the new menu. In the “OPEN” menu that is presented, there is a little “Look in” box. Hit
the black arrow at the side of the box a new menu will appear.
         Double Click on the “R:\\Vincent\Courses” words
         Wait for the courses to appear.
         Double Click on “Ec310”

6. There will be a set of files beginning with the letters, MPG. Select the one which ends in the chapter
    you are interested in or the file you have been asked to find.

7. You can Print whatever file you have on your screen. Go back to the upper left "File" column on your
    screen and:
                  Click the word, "File".

8. From the resulting menu
          Click "Print".
A Print menu comes up. You can select how many copies and which pages you want to print. After
         making a selection, Click "OK" at the bottom of that menu. Your results should come out at
         the printer.

9. When you are done, go to the upper left hand corner and click the button with the minus sign.
10. If worst comes to worst you can always turn off the computer.


INSTRUCTIONS on getting PowerPoint Slides used in class
(C-2,C-16)
1. See step #1 above.
2. A new menu comes up with the different monikers.
        Double click the “Power Point” symbol.

3. The computer responds by giving you a blank worksheet with toolbars across the top which contain little
pictures.
                                                                                                             14


4.        Put your diskette into the slot (disk drive) on the computer. The top of the diskette should face to
the right when you put it in a vertical slot or should face upward if you have a horizontal slot. Don't jam it
in.

5. At the top left corner of your screen click "file".
Click “OPEN” in the new menu. In the “OPEN” menu that is presented, there is a little “Look in” box. Hit
the black arrow at the side of the box a new menu will appear.
         Double Click on the “R:\\Vincent\Courses” words
         Wait for the courses to appear.
         Double Click on “Ec310”

6. There will be a set of files beginning with the letters, MNB*** (or something similar)and ending with a
    period and “PPT”. Select the one which contains the chapter you are interested in or the file you have
    been asked to find.

7. You can Print whatever file you have on your screen. Go back to the upper left "File" column on your
    screen and:
                  Click the word, "File".

8. From the resulting menu
          Click "Print".
A Print menu comes up. You can select how many copies you want per page and which slides you
         want to print. After making a selection, Click "OK" at the bottom of that menu. Your
         results should come out at the printer.

9. When you are done, go to the upper left hand corner and click the button with the minus sign.
10. If worst comes to worst you can always turn off the computer.
                                                                                          15




                       Chapter 17. The Law and Justice

        The law should never be mistaken for justice. The people who write the laws, the
people who enforce the law, and the people who argue the law may have no conception of
justice. They have little more role in deciding what justice is than anyone else.
        Justice has been viewed in a wide variety of different ways. At the Platonic
extreme it has been considered an absolute, which on inspection people innately
understand and know. Similarly, many religious conceptions of justice suggest that we
can come to know what justice is as God reveals it to us. By contrast, a modern secular
view of justice is that it is a system of unconscious rules that emerge as people interact
with each other. In all of these conceptions, justice requires thought to understand.
Thoughtless laws can easily abridge justice and all laws are continually modified to avoid
contradicting justice.
        Nevertheless, the problem with continually changing laws is that new laws can be
more thoughtless and unjust than the ones they replace. There is a danger of making
changes in the law too easily. To protect against this danger polities place a great weight
on the history of law and make it very expensive and bureaucratic to change the law. In
this semester we will see that the Supreme court generally uses the principle of “stare
decisis” to defer to earlier precedents rather than to make new law. Similarly legislators
make important changes in the law, such as a constitution convention to amend the
constitution, face very high voting hurdles.

                              Why do we Need the Law?

        Because people have different conceptions of how just or unjust our laws are,
society must require people to follow certain agreed rules of conduct- in other words,
law- regardless of whether they are just or not. The important issue is that laws be
followed until they are overturned by a legal process. That legal process is enshrined in a
constitution. In the U.S. the focus of the whole judicial system is to ensure that the legal
process is followed. Issues of merit are determined at the district court level – often by
juries. Any appeals of the jury decision is made on the grounds of violation of legal
procedure, not the merits of the case. Time and again in the cases we read this semester,
we will find that the appellate and supreme courts may disagree with the merits of a case,
but they will focus decisions on simply the technical issue that legal procedure has been
followed.

                              What does the Law Cover?

        If we lived in the Garden of Eden, presumably none of us would need laws.
Peoples’ selfishness and acquisitiveness when there are scarcities can be expected to
interfere with their sense of justice. While Economics studies ways to optimize our goals
given resource constraints, the law sets constraints on behavior. Hume (in his Treatise of
                                                                                               16


Human Nature, being an Attempt to Introduce the Experimental Method of reasoning into
Moral Subjects) believes there are three “fundamental laws of nature”1:
   (1) The stability of possession. In other words, people have a right to be secure in
        their papers, persons and effects.
   (2) Transference of property by consent. People can transfer their property to others
        and anyone who tries to take it from them without their consent is violating the
        law
   (3) Performance of Promises. If you write a contract promising some kind of
        performance then you must perform according to the terms of the contract.
To the extent that government is viewed as fairly promulgating law and enforcing it, it
may be viewed as just, even when there are great injustices being done by the law.

                            The Relation between Economics and the Law

       A key focus of our course is that Law and Economics do not necessarily agree on
many of the most fundamental concepts such as competition, market power, the
mechanisms for controlling market power, and the basis for government intervention.
We will want to understand why the two disciplines have diverged and why they have
converged at different times historically.

                            Government and the Law

        The formal structure of government control over corporations is codified in laws
promulgated by the Legislative Branch of government, is enforced by the Executive
Branch of government, and is interpreted by the Judicial Branch of government. The
Constitution of the United States set up these three branches to keep each other under
control by a system of checks and balances. For example, the court system is a part of the
Judicial Branch of the U.S. government which is quite distinct from the other two
branches, the Congressional and Executive Branches of government. However, the
system of checks and balances between the three branches of government have led to
agencies and committees that interact with the Judicial Branch. For example, the
Executive Branch of the federal government, which is headed by the President of the
United States, has a Justice Department which can bring cases before the court system of
the Judicial Branch of government. Also the Senate Judiciary Committee which belongs
to the Congressional Branch may hold hearings on enforcement of laws by the Executive
Branch or the functioning of the Judicial Branch. However, these agencies are quite
distinct in their functions. It is useful to see how they have each functioned to contribute
to the present legal environment that business faces.

                   A.       The Legislative Branch: the Makers of Law

         There were two ways to control corporations- through their charters and through
their treatment as “persons under the law”. The “charter approach” was a method suited
to a form of government dominated by a monarch. Treating corporations as people has
been a method favored more by a democratic state.
1
    F. A. Hayek, Studies in Philosophy, Politics and Economics. U Chicago Press 1967 p. 113.
                                                                                         17




                              1.      Charters

        Before the United States even existed, the king of Great Britain granted corporate
charters to large companies such as the British East India Company to develop new
colonies. To make such charters worthwhile special privileges and monopolies to trade
were granted. The King granted such charters with the expectation that a company was to
serve the interest of Great Britain and often restricted how trade was to be carried out.
Such privileges and restrictions were among the burdens that the American colonists
would rebel against.

         When the colonists overthrew the power of Great Britain, they nevertheless
adopted the institution of corporate charters. However, they were quite restrictive in how
these charters were to be used. Corporations were often required to state the purpose they
would serve and would be held to that purpose. The charters were often granted for a
restricted period of time. They were often restricted from owning each other or having
any special legal ties to each other. Sometimes the corporations were given price
limitations on what could be charged. Some states held stockholders personally liable for
debts of the company. There were many other kinds of restrictions on governance of the
company and the ways that they issued stock, the way they paid dividends, and the kinds
of records they needed to keep. However, each state issued its own rules. Even to this
day, corporations seek the state with the most favorable rules. Sixty percent of
incorporations are done in Delaware, even though the headquarters of these corporations
are in other states.

       Because charters could be revoked, corporations had to be careful in the 19th
century to serve the public interest as specified in their charters. By the mid nineteenth
century charter revocations were frequent. For example in 1832 Andrew Jackson revoked
the charter of the Bank of the United States which was owned by the Biddle family of
Philadelphia and which had monopolized the banking services for the U.S. government.
By the 1870s 19 states had amended their constitutions to allow revocation of charters.

        However, in the last thirty years of the 19th century the courts began to issue
rulings that limited the limits on corporations and corporate property. Some of the most
important changes included:

1.     Private Corporations as “Persons.” In Santa Clara County v. Southern Pacific
Railroad [118 U.S. 394] the Supreme Court decided that a corporation was a “natural
person.” This meant that they were accorded the right, given in the 14th amendment to
the U.S. Constitution, to due process under the law. The courts then created the concept
of “substantive due process” which proscribed governments from taking property from
corporations. As a result and as we will see in the discussion of regulation, it would take
extensive legal battling before the courts interpreted the Constitution to give the federal
government the authority to limit prices. This ruling had the effect of placing corporations
on an equal footing competitively with other private businesses and individuals, such as
farms and partnerships (which faced more strict legal restrictions and liabilities).
                                                                                        18




2.      Redefining the “Common Good.” Rather than defining the purpose of the
corporation in terms of what was decided by elected officials, the common good was
interpreted more narrowly to be what was in the interest of the Corporation’s
stockholders.

3.      Eminent Domain. Corporations could take private property with very little
reimbursement to those who lost the property. The courts often set the reimbursements at
levels favorable to the corporations.

4.     Right to Contract. The government was proscribed from interfering with the way
Corporations contracted for labor. Today “right to work” legislation continues to be a
major legislative agenda item; where enacted it would allow employees to contract with a
corporation without going through their labor unions.

By the twentieth century charter revocation fell into disuse. Only very recently and in a
few limited circumstances have states actually revoked charters for corporations that have
failed to carry out their responsibilities under their charters. Nevertheless there are
frequent calls, particularly as a result of scandals such as Enron and Global Crossing, for
the states to use their chartering authority or for the Federal Government to take over
corporate chartering.

                                     2. Congress

       The Constitution of the United States provides Congress with the power to make
the laws for the United States within very important limitations. After the Revolutionary
War, the states unified under the weak Articles of Confederation in 1781 which preserved
so much power for the States that the finances of the new government fell apart. It was
necessary in the new Constitution of 1788 to give more power to the federal government,
but an attempt was made to preserve the power of the states and to restrict the new
Federal Power. However, once the Federal government was created its powers gradually
increased. The Civil War ended any illusion that states would have the ability to
withdraw from the Union that had been created.

       The Constitution gave Congress the authority “to make all laws which shall be
necessary and proper for carrying into Execution the foregoing Powers, and all other
Powers vested by the Constitution in the Government of the United States.” With the
help of three key, interpretive cases by the Judicial Branch.2 One key clause of the

2
  McCulloch v. Maryland which states “Let the end be legitimate, let it be within the
scope of the Constitution, and all means which are appropriate, which are plainly adapted
to that end, which are not prohibited, but consistent with the letter and spirit of the
Constitution, are constitutional.”, 4 Wheaton 316 (1819). The police power of the
Federal government was enhanced in the cases: Brown v. Maryland, 12 Wheaton 419
(1827); and Charles River Bridge v. Warren Bridge, 11 Peters 420 (1837).
                                                                                           19


Constitution, commonly referred to as the Commerce Clause became a major vehicle for
the expansion of federal power within the United States. It read:

       The Congress shall have power… to regulate commerce with foreign nations, and
       among the several states, and with the Indian tribes.

While Congress was reluctant to provide new powers to the government except in times
of war and economic hardship, the Judicial Branch of government would extend the
powers of the federal government simply by interpreting more and more forms of
“commerce” to be within the federal government’s jurisdiction. Where conflicts between
Federal and State governments existed the Federal law had supremacy over the state law.

        Congress was very slow to pass new legislation to limit business. It was not until
the monopsony and monopoly powers of the railroads made themselves felt extensively
throughout the West that governments began to regulate businesses explicitly to limit
their market power. Businesses were beginning to merge into Trusts which monopolized
industries like Oil, Tobacco, and Sugar. The states initiated some of the first antitrust
laws. In 1890 Congress finally passed the Sherman Antitrust Act.

        The Sherman Antitrust Act of 1890 is the nation's oldest antitrust law. It prohibits
various forms of cooperation among competing firms. Section 1 of the Sherman Antitrust
law states:
        Every contract, combination in the form of trust or otherwise, or conspiracy, in
        restraint of trade or commerce among the several States, or with foreign nations, is
        hereby declared to be illegal.i
To contract, combine, or conspire requires two people or two firms. It does not take much
of an agreement to come into violation of this clause if the effect of the agreement impedes
competition. Furthermore, the agreement is not restricted simply to decisions about prices
or output; it can apply to any aspect of managerial discretion including advertising, merging,
contracting, and other managerial tools. Price fixing, dividing up markets, and boycotts are
examples of cooperative behavior prosecuted under Section 1 of the Sherman Act.

        In addition the Sherman Antitrust Act prevents some forms of behavior which are
extremely uncooperative. When a firm tries to eliminate its competitors it may come in
violation of Section 2 of the Sherman Antitrust Act:
        Every person who shall monopolize, or attempt to monopolize, or combine or
        conspire with any other person or persons, to monopolize any part of the trade or
        commerce among the several States, or with foreign nations, shall be guilty...ii
"Monopolizing" is an activity which is intended to eliminate other firms or potential
competitors in a market. Obviously a firm can only monopolize when there is another party
to be eliminated. Firms that already have a monopoly are not likely to engage in the kind of
behavior prevented by Sherman Section 2. However, dominant firms in an oligopolistic
market which use their power to eliminate rivals or even potential rivals are likely to find
themselves in violation of Section 2. The Sherman Act has been applied to the
interdependent behavior- both cooperative and uncooperative- that occurs in oligopolies,
                                                                                               20


not monopolies. The laws made the conduct in oligopoly illegal, not the market structure
we call monopoly.

        Subsequent law and court cases have become more specific about the types of
interdependent behaviors that are illegal. The Clayton Act of 1914Clayton Act of 1914
made the following practices illegal:
(a)     Price DiscriminationPrice Discrimination. With later amendment by the Robinson-
        Patman Actiii, Section 2 of the Clayton Act stated:
        It shall be unlawful for any person engaged in commerce, in the course of such
        commerce, either directly or indirectly, to discriminate in price between different
        purchases of commodities of like grade and quality.... and where the effect of such
        discrimination may be substantially to lessen competition or tend to create a
        monopoly in any line of commerce...
However, it is still possible to charge different prices to different customers if the difference
can be justified by differences in the cost of producing an item. Later, such differentials
were permitted to meet a competitor's prices. However, the practice of charging different
prices based upon what the market will bear is illegal if it lessens competition. This section
has subsequently been amended.

(b) Tying and Exclusive Dealing. Tying Tying occurs when the purchase of one good
requires that another good be purchased from the same supplier. Exclusive dealing
Exclusive dealing prevents customers from purchasing from competitors. Section 3 of the
Clayton Act prevents both practices:
        It shall be unlawful for any person... to lease or make a sale... on the condition... that
        the lessee or purchaser thereof shall not use or deal in the goods.... of a competitor
        or competitors of the lessor or seller, where the effect of such ... condition... may be
        to substantially lessen competition or tend to create a monopoly in any line of
        commerce.
A computer firm may exchange the sole right to distribute a product in a geographic area to
a franchise that is willing to buy only (exclusively) the firm's computer product. Such a
cooperative effort may violate Clayton Section 3 if there are less restrictive ways to
accomplish the firm's goal in distributing the product.

(c) Acquisitions and mergers of competing companies. Section 7 of the Clayton Act had to
be amended by the Celler-Kefauver Antimerger Activ to make the prohibition of horizontal
mergers effective. As amended the prohibition reads:
                No corporation engaged in commerce shall acquire, directly or indirectly, the
       whole or any part of the stock or other share capital and no corporation subject to
       the jurisdiction of the Federal Trade Commission shall acquire the whole or any part
       of the assets of another corporation engaged also in commerce, where in any line of
       commerce in any section of the country, the effect of such acquisition may be
       substantially to lessen competition, or to tend to create a monopoly.
Horizontal acquisitions and mergers can be the ultimate cooperative effort, but here such
cooperation is directly and indirectly prohibited.
                                                                                             21


        This prohibition has been translated by the Federal Trade Commission into merger
guidelines which indicate the specific market conditions under which mergers will be
challenged (see Economist's Tool Box in Appendix 1 to Chapter 11)

(d) Interlocking DirectoratesInterlocking Directorates. Section 8 of the Clayton Act
prevents directors from serving on the boards of competing firms. A director sitting on the
board of two competing firms could facilitate communication and coordination between the
firms thus leading to an erosion of competition. The antitrust laws acquire meaning in our
legal system through the cases that are brought before the courts based on the laws.
        For example, in the above quotations of the law, notice how often the following
phrase appears:
        ..."may be to substantially lessen competition or tend to create a monopoly in any
        line of commerce."
Court cases provide a set of precedents of situations in which behavior may "substantially
lessen competition or tend to create a monopoly". Even more importantly court cases have
gradually defined what a "line of commerce" is. In fact, market and product boundaries
which are the basis for determining a "line of commerce" are a very important part of the
arguments presented in many antitrust cases. Acceptable procedures for establishing these
boundaries have gradually evolved through court cases.v A major part of the impact of
Antitrust laws therefore comes through interpretations in subsequent litigation.

       B.      The Executive Branch & Independent Agencies: the Enforcers of the Law

        The Executive Branch consists of a large number of agencies with specific mandates
for specialized tasks for intervening in the economy. We will focus here on the antitrust
agencies to give a flavor of what the Executive Branch does. There are two federal antitrust
agencies- the Justice Department and the Federal Trade Commission, which was established
by the Federal Trade Commission Act of 1914Federal Trade Commission Act of 1914.vi
The Justice Department goes through the normal appeal channels of the District Court,
Appeals Court, and Supreme Court, the Federal Trade Commission has its own procedure.
The Federal Trade Commission's appeal procedure must be exhausted before a case ever
reaches the courts; this can prove costly in time and money. However, many firms will drag
out the appeals process as long as possible when the results of the antitrust actions appear to
be going against them.
        The antitrust agencies design the strategy of enforcement of the antitrust laws. The
antitrust agencies have two kinds of remedies for antitrust violations. They can punish
individuals for past conduct through criminal penalties criminal penalties or they can alter
the structure of a firm through civil suitscivil suits. Civil suits allow injunctions to prevent
mergers, acquisitions, or other actions that might lessen competition in the market place.
Because changes in the structure of a market are believed to result in changes of conduct,
such civil suits have the greatest potential for preventing the reoccurrence of illegal conduct
in the future. If the case involves a criminal case, which is an action brought against a
specific person for a criminal act that may involve a jail sentence, then it may involve as
many as twelve jurors. However, in a civil case, which involves the correction of a right
such as a property right, a judge will normally decide the case and the penalties generally
involve a financial or property penalty. While civil penalties usually involve punishment
                                                                                             22


for past acts, civil actions usually involve prescriptions from future behavior. Both civil
and criminal procedures are costly in terms of money and time. While Section 4 of the
Clayton Act allows a plaintiff plaintiff (the one who has the complaint and brings the case
against the defendantdefendant) to recover legal costs, such recovery only occurs when the
plaintiff wins the case. Furthermore, the financial condition of the defendant may prevent
the recovery not only of the legal costs but also the recovery of the damages. To avoid such
costs a plaintiff and a defendant may elect to settle out of court. Settling out of court
confers benefits on a defendant by preventing an undesirable precedent from being set, and
by preventing damaging information from becoming public record. It also subjects a firm to
less damage to its image and lower damages than those that would be awarded if a trial
were lost.

        Antitrust violations can carry penalties significantly greater than the financial gain
that might have been achieved by violating the law. Section 4 of the Clayton Act states:
        ...any person who shall be injured in his business or property by reason of anything
        forbidden in the antitrust laws may sue therefor ... and shall recover threefold the
        damages by him sustained, and the cost of suit, including a reasonable attorney's fee.
"Treble Damages" means that the results of collusive effort can be made negative.
Nevertheless, because some violators may never be detected, treble damages do not take
away all of the incentive to break the law.

        Managers frequently feel uncomfortable with the antitrust mind set. While
managers operate in an atmosphere in which maximizing market share is a desirable goal,
few managers are caught announcing their success in achieving greater market share in
testimony on an antitrust case. Many goals and values held by managers within the firm,
must be modified when managers face the community outside of a firm, particularly the
antitrust agencies. Advertising which prevents potential entrants from entering a market
may be a wonderful tool in the mind of a manager, but proclaiming such a strategy in an
antitrust case would suggest anticompetitive effects and barriers-to-entry. High profitability
may be the ultimate goal of a manager's strategy, but "excessive" profits in an antitrust case
may provide evidence of market power. Market share has a close relation to the measures
(concentration and the Herfindahl index) which are used by the federal agencies as
measures of market power which might help to convict a firm of an antitrust violation.

       A manager must learn the language and the point of view of the government, must
design a strategy for complying with the antitrust law, and must effectively direct a firm to
conform to this strategy. In fact a manager may have to learn to argue different points of
view. For example, in trying to merge with another firm, a manager might wish to define
market boundaries very narrowly so that the firm will not be viewed as a competitor of its
proposed partner in "any line of commerce." On the other hand, such narrow market
boundaries might make the market appear to have a high concentration ratio and the firm
appear to have significant market share which could be interpreted as significant market
power.

        A manager must also keep abreast of continuous evolution of the law. In some
areas such as the legality of vertical territorial restraintsvii, tying, and mergers, the courts
                                                                                          23


have reversed themselves on what is legal behavior. Congress has written amendments to
the antitrust laws and has used its budget making authority to change antitrust enforcement
efforts. Each new president alters the policy and enforcement efforts of the antitrust
agencies.

               C. The Judicial Branch: the Interpreters of the Law

                       1.      The Hierarchical Structure of the Courts

       The court system consists of a hierarchy of three levels of courts. Court cases
usually enter at the District Court level, which is the first step of the Judicial hierarchy.

                                Flood v. Kuhn
                            316 F. supp. 271 (1970)
Such cases involve a plaintiff, who brings the case against a defendant. Typically a case
will be named with the plaintiff’s name first and the defendant’s name listed second. So,
for example, if we read

we know that Flood is the plaintiff and Kuhn is the defendant. By the way, the “v.”
stands for “versus. We know the case was argued in 1970 at the district court level. We
can find the case at 316 F. supplement 271 in 1970. This case happens to be the case that
made baseball’s reserve system unlawful, and we can go to the supplement which
contains the rulings of the judges in this case.

        Whoever loses at the District Court level can appeal the case and is referred to as
the appellant. The party against whom the appeal is brought is called the respondent or
appellee. The appellant’s name now appears first and appellee’s name appears after the
“v.” The Appeals Court (Court of Appeals or Appellate Court) grants certiorari (“to
make sure” in Latin) if it decides to take the case. In the Appeals Court, no new evidence
is provided on the case. The only issue is the question of whether or not due process was
followed in the lower court. Due process requires fairness in the procedures used in a
court such as fair hearings, adequate notice of deadlines and court dates, impartial
officers, a high standard of evidence, recording of findings of law, and opportunities for
appeal. Due process concerns only the procedure that was followed in the District Court,
not issues of merit.

         The Supreme Court is at the top of the hierarchy in the court system. The loser in
the Appeals Court may appeal to the Supreme Court. Once again, the only basis for such
appeal is violation of due process. The Supreme Court does not handle new evidence nor
does it supposedly address the merits of a case. When the court does appear to make
decisions on the merits of an issue, it comes under criticism, even from the justices
themselves as in the Gore v. Bush case. Generally a Supreme Court case is reported with
all earlier court actions. Following is the citation for one of the most important antitrust
cases that will be read:
                                                                                         24




                                U.S. Supreme Court

           STANDARD OIL CO. OF NEW JERSEY v. U S, 221 U.S. 1 (1910)

                             221 U.S. 1

The “U.S.” in “221 U.S. 1” tells us that the case went all the way to the Supreme court.
Standard Oil is listed first so that it is appealing the earlier court (Court of Appeals)
judgment.

        In private suits the court hierarchy is strictly adhered to. However, when the
government brings a case, there may be an important exception. Often government
agencies set up procedures or hearings that people take issue with. In such cases, the
District Court may not be involved and a case may go directly to the Appeals Court to
examine whether or not due process has been followed. Nevertheless, some cases
involving government agencies do go through District Courts. As we shall see, the
Supreme Court has increasingly deferred to the judgment of government agencies.
Whether going through District Court or not, the Supreme Court’s role is to ensure that
due process has been achieved in the legal system, not to judge the merits of the issues.
        The Supreme Court does not speak with a unanimous voice. The Supreme Court
Justices often are at odds with each other and several books have been written by court
watchers describing the dynamics of the Supreme Court on important issues. At the end
of the majority opinion in a Supreme Court case, dissenting opinions from the majority
opinion are presented. Besides sharpening the understanding of the majority position,
the dissenting opinions are particularly important if the minority of justices is large. For
example, if four justices agree to one dissenting opinion, it might take only one
replacement of a Supreme Court judge to lead to a reversal of the original decision.
However, even if the balance of justices changes, they are very reluctant to reverse earlier
decisions. Such reversals lead to uncertainty and confusion about the law which can
undermine the legal system. So the legal system, embodied in precedents set by the
Supreme Court (and sometimes lower courts), intentionally slows down the rate at which
laws are changed the Supreme Court.

================================================================
EXAMPLE: See If You Can Tell What Happened Just By Reading The Title of a Case
                                                                                       25


Here is another important Antitrust case. Just by looking at the title of this case you
should be able to tell what happened to the case as it went through the court hierarchy:

                               U.S. Supreme Court

             U. S. v. SOCONY-VACUUM OIL CO., 310 U.S. 150 (1940)

                            310 U.S. 150

                        UNITED STATES
                           v.
                    SOCONY-VACUUM OIL CO., Inc., et al.

                    SOCONY-VACUUM OIL CO., Inc., et al.
                           v.
                        UNITED STATES.

                          Nos. 346, 347.
                        Argued Feb. 5, 6, 1940.
                        Decided May 6, 1940.
Notice something funny about the order of the names? Let’s see if the summary at the
beginning of the Supreme Court decision is helpful:

 Respondents1 were convicted by a jury2 (United States v. Standard Oil Co., D.C., 23 F.Supp.
 937) under an indictment charging violations of 1 of the Sherman Anti-Trust Act,3 26 Stat.
 209, 50 Stat. 693. [310 U.S. 150, 166] The Circuit Court of Appeals reversed and remanded
 for a new trial. 7 Cir., 105 F.2d 809. The case is here on a petition and cross-petition for
 certiorari, both of which we granted because of the public importance of the issues raised. 308
 U.S. 540, 60 S.Ct. 124, 84
 …The judgment of the Circuit Court of Appeals is reversed and that of the District Court
 affirmed. It is so ordered.

The change in the order of the government and Socony shows that the District Court
judgment against Socony was reversed (i.e. “thrown out”) by the Court of Appeals. But
the information in the summary shows the Supreme Court reversed the action of the
Court of Appeals. Notice that the Appeals Court here is cited as “7 Cir,” which stands for
the “seventh circuit” Court of Appeals and identifies which specific Appellate Court is
involved. This is the kind of citation you should expect for an Appeals Court, as distinct
from the “U.S.” that appears on Supreme Court Cases. At the end of the case the
dissenting opinions are presented.
================================================================

                                     2. Interpretation of the Law

      Laws must be applied to the facts of a specific case. The court system is set up to
make such interpretations. Unfortunately, such interpretations generally occur after, not
                                                                                          26


before, events occur. Only after someone believes that a law has been violated and has
sued for some form of redress is it precisely known how the law applies. Even then a
court may not resolve a case but will fail to take it or decide it upon a technicality that
avoids the fundamental issues raised by a case.

        The most important aid to the interpretation of cases is the past history of cases to
which the law has already been applied. In Latin stare decisis means the courts abide by
past precedents set in earlier court cases. To make this system work it is necessary to
have law reporters which index the salient features of earlier cases and record how the
earlier cases were decided. It is also necessary to have such information readily available.
With the internet, several different reporters provide cases for free (eg. findlaw.com).
Lawyers uses these sources of information on legal precedents to craft a story which
makes their “case.” The story generally presents the evidence required by a law or legal
precedents in a way that logically leads to a conclusion about the guilt or innocence of
the defendant in the case.

        A lawyer’s skill depends centrally on the ability to hunt down the strongest
possible legal precedents that fit the fact situation in a case. Ironically, strong legal
precedents often are the Supreme Court cases where (a) a conviction has been made on
very weak, borderline, indirect, or disputable facts or (b) a conviction has been overturned
even though the strong facts of a case seem overwhelmingly to indicate guilt. Since
precedents usually differ significantly from the fact situation of a lawyer’s case, the
lawyer must be able to argue the applicability of any precedent that the lawyer uses in a
“brief” on a case.

       Besides choosing strong precedents a lawyer must find evidence with which to
back up the lawyer’s arguments on a case. In applying the law to a given situation a
lawyer faces the fundamental problem of determining what “the facts of the case” might
be. There are many forms of evidence that the court may not allow to be used in a case:

          immaterial evidence to a case may not be permitted in order to avoid slowing
           a court case down
          evidence which is hearsay- i.e. information not directly witnessed but heard
           from someone else- may be inadmissible in a court proceeding because it is
           too indirect and fallible.
          Evidence coerced through misrepresentation, ignorance, threats or torture is
           unacceptable because people may be willing to say anything to relieve the
           stress of a circumstance.

These are only a few of the kinds of information that a judge might prevent from
prejudicing the outcome of a case. The court is attempting to set a high standard for the
quality of the facts that are used to bolster a case.

        The prosecutors or plaintiffs who bring cases have different standards of proof
that they must meet. In cases such as capital punishment where the consequences are
severe, the standard of proof is set “beyond a reasonable doubt”, which is an extremely
                                                                                              27


difficult standard to meet. A prosecutor must not only try to find a fool proof explanation
of the facts, but must be able to rebut any plausible alternative explanation that the
defendant might make. On the other hand, many civil cases involve a standard that
requires only “a preponderance of the evidence.” Under this standard, a reasonable
interpretation of the facts may be enough to win a case. For example, it was not
inconsistent that the football player, O.J.Simpson, was convicted in a civil case involving
the murder of his ex-wife while not being convicted in a criminal case. The Civil Case
required only a preponderance of the evidence while the criminal case required “beyond a
reasonable doubt.” A judge has the responsibility to educate a jury about the differences
between these different standards of proof.

         Particularly in the antitrust cases, the law typically sets out what must be proved
in a case. If the law specifically prohibits a type of behavior then that behavior is called a
per se per se violation of the law. The only issue is whether there is enough evidence to
show that such behavior occurred. However, in 1911 the Supreme Court established a
concept referred to as the rule of reason rule of reason in its Standard Oil judgment.viii
Some violations require a rule of reason to be applied in which the effects of an action
must be weighed. The rule of reason standard is a much more difficult case to make both
for prosecuting and defending attorneys. The biggest problem with the rule of reason is
that it may not be possible in advance to determine what is legal and what is not legal.

         When a firm goes to court and the rule of reason standard is applied, the issue
becomes more than just the evidence to prove a firm committed illegal behavior. Under the
rule of reason, the court must also weigh whether the behavior is illegal in light of the firm's
intent and other mitigating circumstances. Predicting the court's judgment is not a game a
manager can hope to play very successfully. Some decisions by a manager may simply
purchase a lottery ticket with respect to future antitrust litigation. Because the antitrust laws
are evolving and involve after-the-fact judgments which are inherently unpredictable, a firm
often is left with uncertainty about what behavior is permissible and what is prohibited.



i.
       26 Stat. 209 (1890); 15 U.S.C., Sec. 1-7
ii.
        See previous footnote
iii.
        49 Stat. 1526 (1936); 15 U.S.C. Sec. 13.
iv.
       64 Stat. 1125 (1950); 15 U.S.C. Sec. 18
v.
     For example the case , U.S. v. E.I. duPont de Nemours &
Co. (351 U.S. 377 (1956) establishes cross price elasticities
as a basis for defining market boundaries.
vi.
       38 Stat. 717 (1914); 15 U.S.C. Sec. 41-58
vii.
        The Supreme court has reversed itself on the issue of
                                                              28




vertical territorial restraints, setting down a tough
precedent in the Schwinn case and reversing itself later in
the Sylvania case.
viii.
        Standard Oil Company of New Jersey v. United States

								
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