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The Case of Monopolies

Sam's post this morning--and related posts about the horrible 1998 Master Settlement Agreement in which the states set up cash cows for themselves and trial lawyers by formally cartelizing the tobacco industry--brings to mind for me The Case of Monopolies, a/k/a Darcy v. Allein, the 1603 decision from the King's Bench that is the first case studied for many beginning antitrust students. In that case, the court held invalid Queen Elizabeth's grant of a license to Edward Darcy to import all playing cards into England. As reported by Edward Coke, The Case of Monopolies is deemed significant for its early exposition of the advantages of competitive markets over monopolies. Classical economists, before the industrialization of the late nineteenth century led to today's antitrust law, focused their anti-competitive case on just such Darcy-style state-conferred monopolies.

Which is what makes the 1998 Tobacco Master Settlement Agreement so perverse: as we've pointed out on several occasions, our editor as far back as 1999 on overlawyered, the MSA effectively makes the states partners in a government-authorized and -enforced cartel. (See some of our earlier commentary and reporting here, here, here, and here.) Critics of the tobacco deal have become more outspoken, and include state leaders from Colorado and South Carolina, a former chief economist at the Federal Trade Commission, and even my old torts prof Guido Calabresi, certainly no strong antagonist of the plaintiffs' bar. The following exchange at oral argument, as relayed by Forbes, sums it up nicely:

Lawyer from New York AG's office: To believe the states had sold out to Big Tobacco, you would have to assume that 46 attorneys general are liars.

Judge Calabresi: That's tempting. It may be that when the states were offered a stake in a monopoly, they took it.

(Note: In the case in question, Freedom Holdings, Inc. v. Spitzer, the Second Circuit, in a decision authored by Judge Jacobs, affirmed the district court's denial of a preliminary injunction because the MSA nonsignatories could not show that they were irreparably harmed by placing payments into an escrow account pending the outcome of litigation on the merits. See 408 F.3d 112 (2d Cir. 2005). The case is now on remand.)

Because the cartel arrangement is porous, nonsignatories to the MSA have been able to carve out a growing market share, just as one would expect. How the states respond will be interesting to watch: Will they honor their contracts with Big Tobacco and accept reduced cash payments? Just how committed are the states to their golden geese, and how much, if at all, are they committed to the public health?



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.