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The $68,486,679 Question: Is Capitalism Alive?
[October 31, 2002]

By S. M. Oliva

Capitalism itself was on trial on Wednesday, when the ten-judge U.S. Court of Appeals for the Third Circuit heard arguments on whether to give $68 million to a company that couldn’t beat its chief marketplace competitor. The court’s decision in LePage’s v. 3M could further frighten businessmen already reeling from the Microsoft antitrust case and recent government witch hunts against alleged corporate wrongdoers.

3M is one of capitalism’s great success stories. Founded in 1902 as Minnesota Mining and Manufacturing, 3M is a leading producer of consumer products such as Scotch brand tape. 3M’s dominance of the transparent tape market is the subject of this lawsuit. LePage’s, a competitor, has for years offered a cheaper brand of transparent tape, producing store brands for retailers like Staples and Walgreen’s. 3M responded to this competition by taking advantage of their well-known Scotch brand. The company offered retailers rebates based on the number of different 3M product lines they sold, all tied to Scotch tape. In other words, 3M used their dominance in the transparent tape market to create efficiencies across the office supply market by offering price discounts to large retailers. 3M benefits, the retailers benefit, and consumers benefit.

The only people who didn’t benefit was LePage’s, which lacked the resources and brand-name popularity of 3M. This left the company with only one alternative—a lawsuit. In 1997, LePage’s filed a federal antitrust claim against 3M, claiming they “monopolized” the tape market, and used that monopoly to “unfairly compete” against LePage’s. Four charges were presented to the jury, which found for LePage’s on two of them: monopolization and attempted maintenance of an illegal monopoly. The trial judge reversed the jury’s verdict on the attempted maintenance charge, but awarded $68,486,679 on the monopolization claim.

Every dollar of LePage’s award is a dollar they could not earn fairly and ethically. If not for the grace of 12 jurors and a vague, non-objective antitrust law, that $68 million would remain in the hands of 3M, the company that earned it.

But what’s most disturbing is the Third Circuit’s actions. After the panel vacated the verdict and entered judgment for 3M, the full court decided to review this matter en banc. Presumably, the court heard the call of Circuit Judge Dolores Sloviter, the dissenting judge on the panel, who angrily demanded a full-court review. Judge Sloviter, it seems, was upset by the potential impact of the panel majority’s decision on future antitrust cases. The opening paragraph of her dissent tells you everything you need to know about the state of businessmen in America today:

In overturning the jury’s verdict for LePage’s…the majority applies reasoning that would weaken [Section] 2 of the Sherman Act to the point of impotence. While that may be a consummation greatly to be desired by the behemoths of industry, such as Microsoft or 3M, it would be an incalculable loss to business generally and to the consumer. Section 2, the provision of the antitrust laws designed to curb the excesses of monopolists and near-monopolists, is the equivalent in our economic sphere of the guarantees of free and unhampered elections in the political sphere. Just as democracy can thrive only in a free political system unhindered by outside forces, so also can market capitalism survive only if those with market power are kept in check. That is the goal of the antitrust laws. The alternative, government control of markets and regulation of prices, is unacceptable to most of us (emphasis added).

Judge Sloviter clearly doesn’t understand what capitalism means. She’s certainly not defending capitalism by making such anti-business statements from the bench. Her comparison of capitalism to democracy is misplaced and dangerous. “Market power” is not the same thing as “political power.” The latter represents the use of force, the former the use of reason and voluntary exchange. Government has a monopoly on political power, but no business can ever have a true monopoly on market power. The only exception to this rule is when there is government intervention. When judges and legislators claim for themselves the power to dictate the structure of the marketplace, you have monopoly actors, rather than a free market, deciding economic outcomes.

The choices are not, as Judge Sloviter puts it, between having antitrust laws and having “government control of markets.” They’re one in the same. Coke and Pepsi have more discernible differences. The only distinction between antitrust laws and government control is that the former allows private individuals to use the state’s coercive power, as was the case here. LePage’s used antitrust laws as an alternative to competition.

The “excesses” Judge Sloviter decries are not coercive acts on 3M’s part, but the mere fact 3M dared to earn profits at the expense of a less-able, less-efficient competitor. Antitrust theorists are constantly in search of the “perfect competition” model, a market where hundreds of competitors maintain low consumer prices while no firm is ever allowed to obtain dominance. It’s an egalitarian utopia of government-enforced mediocrity, where reason and individual achievement are banished. For this world to ever take hold, companies like 3M must be destroyed, and antitrust laws are the weapons of mass destruction.

It’s ironic that this case was heard at the federal courthouse in Philadelphia, just across the street from Independence Hall, the birthplace of American government. The delegates to the Constitutional convention would stage another revolution if they saw the naked assaults on businessmen being perpetrated by the antitrust laws. They would correctly recognize that political freedom—the basis for democracy—cannot exist without economic freedom. And economic freedom does not come at the barrel of an antitrust gun, but through the individual efforts of businesses free to succeed—or fail—in the marketplace of ideas.

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