Law School Outline - Antitrust - NYU School of Law - Fox

I. A. Introduction ........................................................................................................................................................................................ 1 General ........................................................................................................................................................................................... 1 1. Actions brought by State Attorneys General .............................................................................................................................. 1 2. Private Actions ........................................................................................................................................................................... 1 a. Damages ................................................................................................................................................................................. 1 b. Antitrust Injury....................................................................................................................................................................... 2 1) Low Prices ......................................................................................................................................................................... 2 c. Standing ................................................................................................................................................................................. 2 1) 5 Factors to Consider ......................................................................................................................................................... 2 2) Standing for competitors of parties to a merger ................................................................................................................. 2 3) Standing for target companies ............................................................................................................................................ 2 3. Boundaries of Antitrust Laws within the US ............................................................................................................................. 3 a. Interstate Commerce .............................................................................................................................................................. 3 b. Exemptions from Federal antitrust laws................................................................................................................................. 3 c. States Regulation/Action as Potentially Anticompetitive Actions ......................................................................................... 3 d. States‟ Antitrust Laws ............................................................................................................................................................ 3 e. Municipalities......................................................................................................................................................................... 3 f. Private Parties ........................................................................................................................................................................ 4 4. Right to petition for government action (Supp 96) .................................................................................................................... 4 International Concerns ................................................................................................................................................................... 4 General ....................................................................................................................................................................................... 4 Alcoa Doctrine/Effects Doctrine (from US v. Aluminum Co. of American) ............................................................................. 4 a. LIMITATIONS to Alcoa Doctrine: ....................................................................................................................................... 4 B. 1. 2. C. Statutes ........................................................................................................................................................................................... 5 Sherman Antitrust Act (15 USC §1 + §2) .................................................................................................................................. 5 Clayton Act ................................................................................................................................................................................ 5 a. Celler-Kefauver Amendment ................................................................................................................................................. 5 b. Robinson-Patman Act ............................................................................................................................................................ 5 3. Federal Trade Commission Act.................................................................................................................................................. 6 1. 2. II. Early Sherman Act Cases = “Cartel Cases” ....................................................................................................................................... 7 US v. Trans-Missouri Freight Association – S.Ct. (37) ................................................................................................................. 7 US v. Addyston Pipe & Steel – 6th Cir (45) .................................................................................................................................. 8 1. Addyston Pipe & Steel v. US ..................................................................................................................................................... 8 C. US v. Joint Traffic Association (51) .............................................................................................................................................. 8 D. Standard Oil Co v. US (1911) (75) ................................................................................................................................................ 9 1. General ....................................................................................................................................................................................... 9 2. Robber Barons Essay ................................................................................................................................................................. 9 3. The Case (75) ............................................................................................................................................................................. 9 4. Justice White Holding ................................................................................................................................................................ 9 a. General ................................................................................................................................................................................... 9 b. standards for determining whether a contract violates §1 ...................................................................................................... 9 5. Justice Harlan‟s Partial Concurrence and Dissent .................................................................................................................... 10 6. Aftermath of Standard Oil........................................................................................................................................................ 10 A. B. III. Economics of Competition........................................................................................................................................................... 11 IV. A. Merger Guidelines - Potential Adverse Competitive Effect of Mergers (Supp 116) ................................................................... 11 Different theories of antitrust economic....................................................................................................................................... 11 1. Pre 1980 economic system ....................................................................................................................................................... 11 2. Post 1980 and Chicago School ................................................................................................................................................. 11 3. Post Chicago School of Thought.............................................................................................................................................. 11 4. Game Theory (?) ...................................................................................................................................................................... 11 5. Other view ................................................................................................................................................................................ 11 6. Other Countries ........................................................................................................................................................................ 12 1 2 ways to Undermine Efficient Allocation and violate antitrust laws .......................................................................................... 12 Tasks of Cartelists ........................................................................................................................................................................ 12 1. if firms are trying to cartelize, they have to do the following: ................................................................................................. 12 D. Dept of Justice Merger Guidelines ............................................................................................................................................... 13 1. Cartels ...................................................................................................................................................................................... 13 2. Reduction of Competition Through Coordinated Interaction................................................................................................... 13 3. Reduction of Competition through Unilateral Efforts .............................................................................................................. 13 B. C. I. Elements of §2 violations................................................................................................................................................................. 14 Elements of cause of action for monopolization .......................................................................................................................... 14 Elements of cause of action for attempt to monopolize ............................................................................................................... 15 1. Swift v. US (161) cause of action for attempts to monopolize ............................................................................................. 15 C. Claim of Combinations and Conspiracies to Monopolize under §2 ............................................................................................. 15 1. American Tobacco Company v. US (162) ............................................................................................................................... 15 A. B. II. Structuralism and the Definition of Monopolization .......................................................................................................................... 16 A. General ......................................................................................................................................................................................... 16 B. US v. Aluminum Co of America (114) stands for holding that you have to define the market................................................ 16 1. US v. Alcoa (125) decision re remedies ............................................................................................................................... 17 C. US v. E.I. Du Pont De Nemours (128) tells you how to determine “relevant market”............................................................. 17 D. Eastman Kodak v. Image Technical Services single brand market .......................................................................................... 18 E. US v. Grinnell (160)..................................................................................................................................................................... 18 F. Merger Guidelines point 1 defining the market ........................................................................................................................ 18 V. A. B. C. Innovation v. Restraint and Product Predation................................................................................................................................. 19 EI Du Pont case (195) no obligation to license ........................................................................................................................ 19 AT&T case (202) – leveraging (remember Microsoft case) ........................................................................................................ 19 IBM case (214) product predation case .................................................................................................................................... 20 1. Different tests for product predation ........................................................................................................................................ 20 VI. A. B. C. Price Predation ............................................................................................................................................................................. 22 Robinson-Patman Act (Appendix p. 885) .................................................................................................................................... 22 TransAmerican Computer v. IBM (227) ...................................................................................................................................... 22 Brooke Group v. Brown & Williamson Tobacco Corp (Supp 6)  is the law today............................................................. 22 this VII. A. B. Duty to Deal = when does the monopolist monopolize by not carrying out certain duties .......................................................... 24 Lorain Journal v. US (164)........................................................................................................................................................... 24 Essential Facilities Doctrine......................................................................................................................................................... 24 1. Terminal Railroad Case (172) .................................................................................................................................................. 24 2. Otter Tail Power v. US (168) sometimes called an “essential facility” case ........................................................................ 24 3. Official Airline Guides v. FTC (173) shows limitations of essential facility doctrine ......................................................... 25 VIII. A. B. C. IX. A. B. Duty to Continue Dealing ............................................................................................................................................................ 26 Aspen Skiing v. Aspen Highlands (252) ...................................................................................................................................... 26 Olympia Equipment Leasing Co v. Western Union (262) ........................................................................................................... 26 Eastman Kodak v. ITS (Supp 14)................................................................................................................................................. 27 Microsoft Case ............................................................................................................................................................................. 28 Facts ............................................................................................................................................................................................. 28 Leveraging ................................................................................................................................................................................... 28 1. Different theories re “leveraging” ............................................................................................................................................... 29 2 C. D. E. F. Tying claim .................................................................................................................................................................................. 29 Exclusive Dealing claim .............................................................................................................................................................. 31 Holding ........................................................................................................................................................................................ 32 Aftermath ..................................................................................................................................................................................... 32 X. A. B. C. D. E. F. G. H. Microsoft Case (Econemedies Lecture) ........................................................................................................................................... 33 Early History ................................................................................................................................................................................ 33 Jackson decision........................................................................................................................................................................... 33 Market Definition......................................................................................................................................................................... 34 Monopolization Claim ................................................................................................................................................................. 34 Attempt to Monopolize Claim ..................................................................................................................................................... 34 Tying Claim ................................................................................................................................................................................. 34 Remedies ...................................................................................................................................................................................... 34 Other Possible Solutions suggested by economists ...................................................................................................................... 35 XI. A. Guest Lecture – Microsoft (Dan Rubenfeld) ................................................................................................................................ 36 §2 violation  monopolized market for personal computer operating systems in violation of §2 .......................................... 36 M 1. Monopoly power ...................................................................................................................................................................... 36 2. M has maintained its PC OS system monopoly by predatory, exclusionary and other anticompetitive conduct which has raised rival‟s cost, foreclosed critical channels of distribution and artificially preserved the applications programming barrier to entry ................................................................................................................................................................................................. 36 B. §1 claim M engaged in unreasonable restraint of trade in violation of §1 ................................................................................ 36 C. M‟s Screen restrictions are an Unreasonable Restraint of trade ................................................................................................... 37 D. M‟s agreements restricting OEM‟s right to remove Internet explorer are an Unreasonable Restraint of trade ........................... 37 E. M‟s agreements with ISPs and ICPs are an Unreasonable Restraint of trade M threatened to stop providing software and other products unless they agreed to distribute Internet Explorer exclusively ..................................................................................... 37 F. Defenses ....................................................................................................................................................................................... 37 I. II. §1 of the Sherman Act ..................................................................................................................................................................... 38 Per Se or Rule of Reason ................................................................................................................................................................. 39 Old Cases ..................................................................................................................................................................................... 39 1. Board of Trade of the City of Chicago v. US (283) ................................................................................................................. 39 2. US v. Trenton Potteries (287) .................................................................................................................................................. 39 3. Appalachian Coals v. US (289) this is not good law today .................................................................................................. 39 B. US v. Socony-Vacuum (296) – per se illegal price fixing.......................................................................................................... 39 C. National Society of Professional Engineers v. US (309) quick look ....................................................................................... 40 D. BMI v. CBS (316) ........................................................................................................................................................................ 41 E. Catalono v. Target (325) .............................................................................................................................................................. 40 F. Characterization Cases .................................................................................................................. Error! Bookmark not defined. 1. Cartels & Price Fixing = Illegal ................................................................................................ Error! Bookmark not defined. a. Arizona v. Maricopa County Medical Society (327) ........................................................................................................... 40 b. NCAA v. University of OK (334) ........................................................................................................................................ 42 c. FTC v. Superior Court Trial Association (Supp 19) ............................................................................................................ 41 2. Market Division = illegal ......................................................................................................................................................... 43 a. Topco (344) this has essentially been overruled ............................................................................................................... 43 b. Palmer v. BRG of Georgia (Supp. 22) ................................................................................................................................. 43 3. Non-cartel agreements = legal .................................................................................................. Error! Bookmark not defined. a. California Dental case ........................................................................................................... Error! Bookmark not defined. b. Rothery v. Atlas (438) ......................................................................................................................................................... 43 4. When and how do you take a “Quick Look”............................................................................. Error! Bookmark not defined. A. III. A. Professional Restraint Cases ........................................................................................................................................................ 44 California Dental case .................................................................................................................................................................. 44 3 IV. A. B. C. Information Exchange .................................................................................................................................................................. 45 General ......................................................................................................................................................................................... 45 US v Container Corp. of Am. (367) ............................................................................................................................................ 45 US v Gypsum (371) ..................................................................................................................................................................... 45 V. A. B. C. D. E. F. G. Boycotts ........................................................................................................................................................................................... 46 Fashion Originators Guild of American (FOGA) v. FTC (391)................................................................................................... 46 Klor‟s v. Broadway-Hale Stores (394)......................................................................................................................................... 46 Northwest Wholesale Stationers v. Pacific Stationery & Printing Co (401) ................................................................................ 46 FTC v. Indiana Federation of Dentists (405) ............................................................................................................................... 48 Superior Court Trial Lawyers ...................................................................................................................................................... 46 Nynex v. Discon (Update p. 15)................................................................................................................................................... 49 Toys R Us (handout) .................................................................................................................................................................... 47 VI. Guest Lecture re European Antitrust issues (Singleton) .............................................................................................................. 49 VII. A. Political and State Action ............................................................................................................................................................. 50 Noerr-Pennington Doctrine .......................................................................................................................................................... 50 1. Noerr Case ............................................................................................................................................................................... 50 B. Sham Exception ........................................................................................................................................................................... 50 1. California Motors Transport v. Trucking Unlimited (418) ...................................................................................................... 50 2. Lawsuits as Sham..................................................................................................................................................................... 50 a. Professional Real Estate case ............................................................................................................................................... 50 C. Cases applying Noerr Doctrine .................................................................................................................................................... 51 1. Allied Tube v. Indian Head (419) ............................................................................................................................................ 51 D. Political Boycotts ......................................................................................................................................................................... 51 1. Superior Court Trial Lawyers .................................................................................................................................................. 51 2. Missouri v. NOW (424) ........................................................................................................................................................... 51 3. NAACP case (424)................................................................................................................................................................... 51 VIII. A. B. C. D. Proof of Conspiracy ..................................................................................................................................................................... 52 General ......................................................................................................................................................................................... 52 Interstate Circuit Case (450) - the holding in this case does not survive after Matsushita ......................................................... 52 Theatre Enterprises v. Paramount (466) ....................................................................................................................................... 52 Matsushita Electric v. Zenith (468) .............................................................................................................................................. 53 IX. A. Mergers ........................................................................................................................................................................................ 54 General ......................................................................................................................................................................................... 54 1. 3 categories of mergers ............................................................................................................................................................ 54 B. Merger Guidelines (1992) ............................................................................................................................................................ 55 C. Early Background Cases .............................................................................................................................................................. 56 1. Brown Shoe v. US (750) the substantive legal analysis in this case has been overruled ...................................................... 56 2. US v. General Dynamics Corp (778) ....................................................................................................................................... 57 3. Hospital Corp of America v. FTC (789) .................................................................................................................................. 57 D. FTC v. Staples (handout) ............................................................................................................................................................ 57 E. Heinz/Beech-Nut Merger (handout)............................................................................................................................................. 58 F. Boeing – McDonnell Douglas (Update 36) .................................................................................................................................. 58 G. Perceived Potential Entry = Potential Competition ...................................................................................................................... 59 1. FTC v. Proctor & Gamble (815) .............................................................................................................................................. 59 2. US v. Marine Bancorp (1974) (824) geographic market extension case .............................................................................. 59 3. Merger Guidelines standards.................................................................................................................................................... 60 H. AOL Time Warner (handout)....................................................................................................................................................... 60 4 X. Vertical Restraints............................................................................................................................................................................ 61 Resale Price Maintenance ............................................................................................................................................................ 61 1. Dr. Miles case (523) ................................................................................................................................................................. 61 a. Aftermath of Dr. Miles case ................................................................................................................................................. 61 1) Fair Trade Laws and State Action Doctrine ..................................................................................................................... 61 2. Economics of RPM (582)......................................................................................................................................................... 62 B. How to determine if there is a contract, combination, or conspiracy ........................................................................................... 62 1. US v. Colgate (545) ................................................................................................................................................................. 62 2. Monsanto v. Spray-Rite (556) S.Ct. holding re how to determine if there is an agreement ................................................. 63 C. Non-price Vertical Restrictions  Customer and Territory Restraints ......................................................................................... 63 1. Schwinn case (604)overruled ............................................................................................................................................... 63 2. Continental TV Inc. v. GTE Sylvania (606) ............................................................................................................................ 64 D. Non-price Restraint Agreement to Terminate Discounter ........................................................................................................ 64 1. Valley Liquors v. Renfield (622) ............................................................................................................................................. 64 2. Omega Satellite Products v. City of Indianapolis (623) ........................................................................................................... 65 3. Business Electronic Corp v. Sharp case (564) ......................................................................................................................... 65 E. Toys R Us in light of Sharp and Monsanto case .......................................................................................................................... 66 F. Khan v. State Oil Company (Update 25) ..................................................................................................................................... 66 G. Maximum Resale Price Fixing and Standing to sue..................................................................................................................... 67 1. Albrecht v. Herald (590) – overruled ...................................................................................................................................... 67 2. Atlantic Richfield Co. (ARCO) v. USA Petroleum (Supp 52) ................................................................................................. 67 3. Khan v. State Oil Company (Update 25) ................................................................................................................................. 68 A. XI. A. B. C. D. E. F. G. Tying ............................................................................................................................................................................................ 69 Timeline of case ........................................................................................................................................................................... 69 §3 of the Clayton Act ................................................................................................................................................................... 69 IBM v. US (661) .......................................................................................................................................................................... 69 International Salt v. US (662) ...................................................................................................................................................... 70 Northern Pacific Railway v. US (663) established modified per se rule against tying ............................................................. 70 Movie Block Booking cases (665) ............................................................................................................................................... 70 Fortner I case (667) ...................................................................................................................................................................... 70 1. Fortner II (p. 668) this case was not assigned....................................................................................................................... 71 H. Jefferson Parish Hospital District v. Hyde (672).......................................................................................................................... 71 I. Eastman Kodak v. Image Technical Service (Supp. 57) .............................................................................................................. 71 5 I. Introduction A. General - in general only cartels are prosecuted criminally and most other def‟s are prosecuted civilly - antitrust is about private restraint of trade that obstructs/blocks competition/marketplace - purpose of antitrust law is to protect consumer welfare (which is related to harm to the market) - harm to competitors does not violate antitrust laws - you have weigh whether actions allow you to distribute products better or stifle competition - Justice Dept and Federal Trade Commission can bring antitrust enforcement actions - only the justice dept can sue criminally - if gov brings a case there is no jury - private actions you can ask for and get a jury 1. Actions brought by State Attorneys General - state attorney generals are suing under a provision in the federal antitrust laws that allow them to bring suits parens patriae on behalf of residents in the relevant state (this is really more like a private action) - statistical data can be used to prove aggregate damages and the payment of damages can go into one fund = fluid recovery - Hewitt v. Standard Oil states cannot sue to recover damages to their general economy - Georgia v. Pennsylvania RR states can sue for injunctive relief against violations that threaten their economy - State of California v. American Stores states can sue even if FTC has already sued and later consented to the acquisition of stock at issue 2. Private Actions - a judgment for the gov is PF evidence of violation in a private suit against the same def - class actions all defendants are jointly and severally liable for treble damages - if 1 of a number of defendants settles, the claim against the remaining defendants is reduced only by the dollar amount of the settlement - Texas Indus v. Radcliff Materials joint tort-feasors have no right to contribution = a defendant who pays more than its share of damages has no recourse against co-defendants a. Damages - successful private Ps get treble damages = 3 times their losses + attorney‟s fees - P can also get injunctive relief to have standing to get an injunction, P must be threatened with antitrust injury - S.Ct. cases  - Hanover Shoe v. United Show Machinery Corp an overcharged buyer can recover entire artificial price increase charged to it by seller and seller gets no relief from liability and damages even if buyer/plaintiff passed on the overcharge to downstream purchasers - Illinois Brick Company v. Illinois indirect purchasers harmed by a price fix can‟t assert that the direct purchaser passed on the overcharge to them (this means that cases brought by indirect purchasers are normally dismissed for lack of recoverable damages) = only direct purchasers can bring a cause of action (some state statutes permit indirect purchasers to sue) - Kansas v. Utilicorp United an indirect purchaser who is a party to an arrangement that does not present the complex problems of tracing may be allowed to prove that overcharges were passed on to it (this exception is construed narrowly) 1 b. Antitrust Injury - Brunswick Corp v. Pueblo Bowl-O-Mat Facts: P, a bowling alley, tried to recover profits lost when def bowling company revitalized another bowling alley and increased competition Holding: damages are limited to ANTITRUST INJURY = injury of the type the antitrust laws were intended to prevent and that flow from that which made the defendant‟s acts unlawful; the injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation 1) Low Prices - although maximum resale price fixing is illegal per se, Brunswick suggests that injury from low prices is not likely to be antitrust injury - Atlantic Richfield Co v. USA Petroleum Co if a dealer is required by its suppliers to hold its prices down and a competitor of the dealer is squeezed out of the market as a result of the illegal agreement, an antitrust action does not accrue to the competitor c. Standing - Brunswick also suggests there is no standing unless the P suffered antitrust injury 1) 5 Factors to Consider - Associated General Contractors of California v. California State Council of Carpenters and Blue Shield of Virginia v. McCready 5 factors material to determining standing: 1) the harm was direct rather than remote 2) the harm was of the sort that the antitrust laws were designed to prevent or inextricably intertwined with it 3) intent to harm P or those in P‟s class 4) prospect that standing will lead to duplicative recovery or difficult questions of apportionment of damages 5) prospect that standing will leave significant violations undetected or unremedied 2) Standing for competitors of parties to a merger - Cargill v. Monfort of Colorado (859) P brought suit to stop merger between Cargill (#2 in market) and Spencer (#3 in the market), after the merger the merged company would have 20% of the market, a competitor brought suit S.Ct. held there was no standing because P did not show that it might suffer antitrust injury (specifically P did not show that the merged firm was going to engage in price predation on the way to monopolization) - In RC Bigelow v. Unilever where a merger would result in monopolistic market share (87%), there was a material fact re whether P was threatened w/ antitrust injury 3) Standing for target companies - Central National Bank v. Rainbolt targets do not have standing because they will become part of the merged firm and thereby become a party to and not a victim of any anticompetitive advantage BUT  - Consolidated Gold Fields v. Minorco a British target and its partly-owned American subsidiary had standing to stop a takeover the British target had standing because it would lose its ability to compete independently and since its American interest would be threatened to be shutdown AND American subsidiary had standing because it was threatened with antitrust injury since the surviving company was likely to shut down the American operations and exploit the British gold 2 3. Boundaries of Antitrust Laws within the US a. Interstate Commerce - Summit Health Ltd v. Pinhas Facts: staff member at hospital claimed he was terminated due to a boycott carried out through a peer review process, issue is whether this affects interstate commerce Holding: the market P was excluded from and the peer review process were in interstate commerce, “the effect on commerce must be measured by a general evaluation of the impact of the restraint on other participants and potential participants in the market from which the plaintiff has been excluded” b. Exemptions from Federal antitrust laws - you can have restraints in the insurance business except for boycotts - you have to comply with any regulatory statutes at the same time you comply with antitrust laws c. States Regulation/Action as Potentially Anticompetitive Actions - regulation/actions by the state to regulate commerce is OK as long as it doesn‟t impose an undue burden on interstate commerce or conflict with antitrust laws - BUT state can‟t authorize or order private persons to commit an act that violates the federal antitrust laws and then give the actors immunity from the fed antitrust laws - Goldfarb v. Virginia State Bar no immunity where bar association set minimum fees even though the bar is an “arm of the state” the action can‟t just be prompted by state action, it has to be compelled by the direction of the state acting as sovereign - Cantor v. Detroit Edison Company no immunity where electric company tied light bulbs with electricity service even though tie-in was ordered by a state-approved tariff because the state had no policy regarding light bulbs - California Retail Liquor Dealers Ass’n v. Midcal Aluminum a state statute that told wine producers to fix resale prices in the state was invalid, ct held that a valid state action must meet 2 requirements  1) the state must have a clearly articulated and affirmative expressed policy to replace competition with regulation and 2) there must be active supervision by the state FTC v. Ticor Title Ins. Co the state must engage in detailed scrutiny of the actions at issue (“active supervision”), it is not enough for the state to be able to disapprove of the actions d. States‟ Antitrust Laws - California v. ARC America a state antitrust law that let indirect purchasers to recover antitrust damages was not preempted by the Clayton Act which specifically disallows damage recovery by indirect purchasers - Exxon Corp v. Governor of Maryland Maryland‟s law that disallowed gasoline refiners from operating retail service stations was valid e. Municipalities - Local Government Antitrust Act says cities and city employees acting in their official capacity cannot be liable for treble damages but may be liable for injunctive relief - Town of Hallie v. City of Eau Claire active state supervision is not a requirement where the actor is a municipality, there only has to be a clear articulation of a policy to replace competition with regulation and this can be accomplished if a state has delegated to the city the express authority to take action that foreseeably will result in anticompetitive effects 3 f. Private Parties - Southern Motor Carriers Rate Conference v. US a private party seeking the benefit of the state action exemption does not need to be acting pursuant to direction by the state, it is enough that the state has a policy to permit the anticompetitive activity and the state actively supervises the outcome 4. Right to petition for government action (Supp 96) - Noerr-Pennington Doctrine = right to petition for government action unless the petition is a mere sham (even competitors can petition) - NOW Doctrine Missouri v. NOW ? B. International Concerns 1. General Canada was 1st to adopt antitrust laws EU developed competition laws in 1950s and did not enforce these laws until this past decade private restraints of trade are cause for concern on an international level it is much easier to find a “dominant position” in Europe than to find “monopoly power” in the US, in Europe it is more common to try to regulate the dominant company which is very different from the US which seems to want to get rid of the dominant company 2. Alcoa Doctrine/Effects Doctrine (from US v. Aluminum Co. of American) - Sherman Act applies even to foreign actors abroad if what the actors intend to do and did will affect US commerce with effects that are more than “insubstantial ripples” - Timberlane Lumber v. Bank of America to get jurisdiction today most US courts require that foreign defendants‟ conduct have a direct, substantial and reasonably foreseeable effect on US commerce, courts also take into account the actors‟ nationality and the laws of their nations (to determine whether there are conflicts with US laws) and their intent to effect US competition and trade - BUT in Hardford Fire Ins. Co v. California the S.Ct. held that the fact that there was a UK law that allowed a practice that was unlawful under US law did not create a conflict of the sort that would require a dismissal of the case from US jurisdiction - suits have been brought to protect American consumers from restraints imposed from abroad as well as foreign consumers and firms from restraints by American firms - note: Great Britain passed a “blocking and claw-back law” to block discovery of docs located in Britain and reduces damages that are awarded - US v. Sisal Sales Corp applied Sherman Act to conspiracies and monopolies in Mexico involving both private parties and foreign gov officials which threatened to have direct anticompetitive impact in the US (some meetings had been held in the US by conspirators) a. LIMITATIONS to Alcoa Doctrine: - Export Trading Company Act a company that gets a certificate of review under this law is exempt from US antitrust laws with respect to activities described in the certificate (applicants have to prove their export activities will not lessen competition in the US or substantially restrain the export of any competitor) - Foreign Trade Antitrust Improvement Act of 1982 says that the Sherman and FTC Acts do not apply to all US trade or commerce with foreign nations unless the conduct has a direct, substantial and reasonably foreseeable effect on US commerce or the export trade of a person engaged in such trade in the US (this law does not apply to import trade/commerce) = antitrust laws don‟t apply where only foreign competitors or consumers are hurt 4 - US v. Watchmakers of Switzerland Info Center US can‟t order parties to do something contradictory to their own country‟s laws 3 defenses to applications of Sherman Act abroad  1) foreign sovereign immunity =sovereign can‟t be sued re challenges to its sovereign acts 2) act of state = cts can‟t question validity of the act of a sovereign take on its own territory 3) foreign sovereign compulsion = if a foreign sovereign compels its own national to do an act, particularly in it sown territory, the performance of the act does not violate US law C. Statutes 1. Sherman Antitrust Act (15 USC §1 + §2) - this is a criminal and civil statute (most cases are civil, cartels and market division cases are criminal cases) - prohibits contracts, combinations, and conspiracies in restraint of trade - prior to the Sherman Act there was state law and British common law - §1 prohibits contract, combinations or conspiracies in restraint of trade - 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 declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court. - §2 prohibits monopolization and attempts to monopolize (liability results under §2 only when a company actually monopolizes or dangerously threatens to do so) - the violation of this act is a felony today (which was not true before), our penalties are higher than most other countries 2. Clayton Act - §3 is the main section which prohibits potentially anticompetitive acquisitions, exclusive dealings, tie-ins, and interlocking directorates - §7 = merger provision which prohibits anticompetitive mergers a. Celler-Kefauver Amendment - this is an amendment to the merger provision of the Clayton Act that prohibits potentially anticompetitive mergers and acquisitions b. Robinson-Patman Act - this is an amendment to the Clayton Act - prohibits price discrimination in the sale of goods when it harms competition - exceptions are made where the discriminatory low-price is cost-justified or necessary to meet competition AND if price discrimination doesn‟t hurt consumers, it does not implicate antitrust concerns/laws - whenever you have price discrimination this can also implicate §2 of the Sherman Act particularly where you have predatory pricing - this provision does not apply to sale of services 5 3. Federal Trade Commission Act - prohibits unfair methods of competition and unfair or deceptive acts or practices - this set up the FTC and was at first intended to be a body that would give advice to business people, today it is much more of an adversarial and administrative type body - since the FTC is only an administrative agency, it cannot sue criminally, but a portion of the FTC Act allows the FTC to sue civilly when a case is brought under the FTC Act only injunctions are awarded, no fines - these injunctions are different than those given in a case brought by the justice dept - additional private parties can sue based on a decision in a case brought by the justice dept, they have to show impact (i.e. if a final judgment is entered into the Microsoft case, private parties can bring suits based on the reasoning of that case but they still have to show that anticompetitive acts impacted them specifically) - FTC action the bureau of competition recommends which cases to bring, the case is heard before an administrative law judge which may be appealed to the FTC and then later to the federal appellate court 6 II. Early Sherman Act Cases = “Cartel Cases” - cartel = competitors get together to eliminate some or all of the competition, this is often referred to as naked restraint of trade (this word was not used in the US until after 1980) - at the turn of the century all agreements among competitors that restrained trade were banned by §1 of the Sherman Act, but agreements that were ancillary did not violate the Act - the distinctions made in Cartel Cases are still valid today - the early cases tended to mesh §1 and §2 violations together A. US v. Trans-Missouri Freight Association – S.Ct. (37) Facts: 3 RR companies made an association and agreed to be bound by K that said that members would work together to stifle competition from non-members by adhering to fixed rates, anyone who wanted to deviate from the fixed rate needed to give notice that they were going to deviate - Def‟s arguments 1) only contracts that brought about unreasonable restraint of trade were covered by the Sherman Act 2) their actions were reasonable because railroad companies have high fixed costs and very low variable costs and marginal costs (= cost of the last unit of equipment) therefore all railroad companies will charge so little for their services that no one will make enough money to make back the money for the fixed cost = competition will destroy competition ultimately (“financial ruin argument”) 3) the prices charged were reasonable (there was some evidence that the common law considered the issue of “reasonableness”) - NOTE: under the common law partial restraints were OK as long as they were reasonable Issue: under the law before the Sherman Act, it was clear that this K was illegal - the issue here is 1) is this illegal under the Sherman Act? AND 2) what does “every contract, combination in restraint of trade” mean under the Sherman Act? Holding: antitrust violation was found all contracts in restraint of trade are illegal - all contracts that restrain trade are covered by the Sherman Act, there does not have to be unreasonable restraint BUT here the restraints are issue are the main concern of the contract and are not ancillary/permissible restrictive covenants - ct held that the language in the agreement that said the agreement was created: “for the purposes of mutual protection by establishing and maintaining reasonable rates, rules, and regulations on all freight traffic” plus the creation of the association which fixed prices for association members = restraint upon trade or commerce - the intent of the members who entered into this agreement does not matter - the court said “reasonableness” should not be an element of the analysis because it is a very difficult thing for the court to define reasonableness Dissent (WHITE) the freedom to contract and freedom of trade will be compromised by a holding like this which will not permit the issue of reasonableness to be considered = White wants a rule of reason for everything and tried to argue that the Sherman Act was about freedom of contract and freedom of trade/contract which will together create balance in competitive society NOTE: eventually congress established a commission to regulate prices for railroads - some people thought Trans Missouri might have been too broad and might “chill business” 7 B. US v. Addyston Pipe & Steel – 6th Cir (45) Facts: an association was created between iron pipe makers in order to raise the prices for pipes, these companies agreed amongst themselves that when a member of their association was selected to make a bid in the open market then the other members would not bid against that member - Def argued that their prices were limited by or based on the prices set by the open market - def was located in Tenn and it cost $15 to make cast iron pipe plus it cost $3 to ship pipes to Georgia yet in Georgia the members charged $24.25 per pipe pursuant to the association K (other competitors charged similar prices but had higher freight costs) Holding: the association was a monopoly = violation naked restraints are illegal (= only purpose is to exclude competitors) but ancillary restraints (= provisions that ensure that the contract can be enjoyed) may be legal - naked restraints v. ancillary restraints certain restrictive covenants can be valid if they are 1) ancillary agreements: a) by the seller of property/business not to compete with the buyer in a way that reduces the value of the property/business sold b) by a retiring partner not to compete with the firm c) by a partner pending the partnership not to do anything to interfere, by competition or otherwise with the business of the firm d) by the buyer of property not to use the same in competition with the business retained by the seller and e) by an assistant, servant, or agent not to compete with his employer after the expiration of his time of employment 2) these covenants must be reasonably necessary to a) the enjoyment by the buyer OR b) to the legitimate end of the existing partnership OR c) to the prevention of injury to the seller from use by the buyer of the thing that was sold, OR d) to protect from danger of loss to the employer‟s business due to an employee‟s use of confidential info NOTE: ct‟s analysis regarding whether the def‟s actions were reasonable was really discussing what we now refer to as “market power” (today we don‟t do a reasonableness analysis because we consider cartels to be per se illegal) 1. Addyston Pipe & Steel v. US - def appealed and argued that the judgement violated the Commerce Clause - S.Ct. affirmed but added that it only applied to activities that are not entirely intrastate - ct also held that trade did not need to be totally suppressed to constitute a restraint of trade C. US v. Joint Traffic Association (51) Facts: members of the Joint Traffic Association had a rate-fixing K where a member could deviate from set rates if its board of directors adopted resolutions and if they gave notice to the Association Holding: antitrust violation was found - the formation of corporations, partnership agreements, joint sales agencies, and sale or leases with ancillary covenants not to compete are not contracts in restraint of trade - Fox‟s summary this case reaffirmed Trans Missouri, but people still thought the S.Ct. had made a too broad, sweeping statement about contracts in Trans Missouri 8 D. Standard Oil Co v. US (1911) (75) 1. General - consider this case from the point of view of consumers and also from excluded competitors S.Ct. didn‟t start making distinctions between these two groups until recently, today the court is very concerned about consumer harm - when this case got to the S.Ct. there was some understanding that this company would be illegal all of the justices vote that this is an illegal trust but there were 2 separate grounds upon which the justices made this determination - History behind the Case there was a lot of oil in the US, Rockefeller realized that the oil refiners would have more power than the oil producers because there would only be a limited number of oil refiners, Rockefeller also realized that it would be more efficient to have strategically located refineries and that shipping costs were a large part of the cost of oil which made the railroads a very important consideration 2. Robber Barons Essay - what if a company plans to charge very low prices? this would cause a lot of competitors to go out of business but is the purpose to get power or to become more efficient - “pooling” is an indication of a cartel = competitors make agreements among themselves - NOTE: manipulation of railroad prices by Rockefeller also violated laws regulating RR then - p. 73 describes how Rockefeller guaranteed railroads a certain amount of oil to transport, Rockefeller trust essentially stopped competition among the railroads and created a cartel among the railroads 3. The Case (75) Facts: Rockefeller became the largest shipper of oil and had secret deals with railroads to reduce its shipping costs, created secret alliances with other oil refiners, bought up some competitors in the oil refining market and there was some evidence that Rockefeller threatened competitors and forced them to sell out to him, received very large discounts from railroads and made the railroads charge competitors higher prices for transportation costs 4. Justice White Holding a. General - unreasonable restraints of trade are illegal, you must apply rule of reason - §1 and §2 have to be considered together §1 prohibits all contract leading to monopolization and §2 explicitly prohibits acts of monopolization which will lead to monopolies [congress did not prohibit monopolies p. 77 states can still achieve or grant a monopoly] - economic laissez faire the market will cure its own problems (here the practices of the Standard Oil Co. were dangerous to freedom of trade and individual rights) - purpose of antitrust laws antitrust laws were passed to stop the concentration of wealth in the hands of a few in a way that would oppress individuals and the public generally - damages 1) injunction to prohibit actions that would violate the statute 2) dissolving of the combination b. standards for determining whether a contract violates §1 - apply rule of reason = every contract in restraint of trade may be illegal if it is unreasonable, and to determine whether a contract is reasonable v. unreasonable  1) you have to consider the intent of the company (this factor is still important today) to determine intent you consider purpose and effect of the actions taken 9 - - - - Fox says you should focus on effect because it is hard to determine actual intent note: if you have a document that says the def said “we want to kill the competitors” and this statement is followed by “by creating a better product” the first part of the statement can still be introduced to a jury here def is liable under §1 and §2 because the intent was to exclude competitors through ruthless means and the act of aggregating a vast amount of capital and control over the oil industry creates PF presumption of intent and purpose to maintain dominancy over the oil industry here you have to consider the conduct that brought about the vast extension of power over the oil industry as well as the conduct after the control was established here it was clear that the company wanted to exclude others from the oil business, it made large acquisitions to block competitors, took control of means of transportation, divided the country among members involved in the controlling organization here it did not matter that def had only a small percentage of control over the crude oil, they still had a great deal of control over the refined oil 5. Justice Harlan‟s Partial Concurrence and Dissent - agrees that Standard Oil‟s actions were illegal but disagrees regarding the purpose of the Sherman Act  Harlan thinks that the purpose of the Sherman Act was to prevent high concentration of wealth among a few people - Harlan said that the holding in this case is wrong because a plaintiff may not be able to win because it will be hard to apply the holding - Harlan also says that only unreasonable restraints of trade are prohibited by this holding, BUT all restraints of trade should be prohibited 6. Aftermath of Standard Oil - NOTE: after this case it was unclear whether Trans Missouri was overturned and whether rule of reason dictates every antitrust case, later cases said that Trans Missouri still applies where price fixing is an issue because price fixing is per se illegal - the combination was dissolved and the assets distributed to stockholders, but Rockefellers retained control of the oil business and their control in the oil industry did not change until new competitors entered the market later and the control of the business of the Rockefellers was eroded through stock trading - Fox says the reasoning of this case is still used today 10 III. Economics of Competition - classical economists believe the price of every product is determined by the amount of labor needed for its production and no gov intervention is needed since competition will control prices - neoclassicist believe that producers will profit maximize, consumers will be concerned with maximization of utility and the law of demand applies = as the price of a product increase demand for that product will diminish - IO economics (Industrial Organization Economics) these economists consider the structure of an industry because the structure of the industry influences the conduct of the firms that are involved - marginal revenue = the increase of total revenue yielded by the sale of 1 additional unit of the product (the marginal or incremental unit) - NOTE: a monopolist will try to make its marginal cost and marginal revenue be equal Merger Guidelines - Potential Adverse Competitive Effect of Mergers (Supp 116) A. Different theories of antitrust economic - competition is one way to achieve efficiency with respect to allocating resources, some people think competition is about promoting efficiency or preventing concentrations of power - competition tries to remove impediments in the market in order to make the market work - efficiency can be defined as use of products to their highest and best use - competition is not used to re-distribute wealth - if a market has a number of big firms you would assume the firms would compete and keep the prices at a reasonable level 1. Pre 1980 economic system - US law was much more focused on the little competitor and about pluralism of control in the marketplace, concentrated power was considered bad, courts were concerned with structure of industry competitors and conduct performance paradigm (?) 2. Post 1980 and Chicago School - now the law is focused on consumer welfare (cases that consider different issues may not be valid law anymore) we apply neoclassical price theory - Chicago School of thought antitrust law is for achieving efficiency (getting the best deal for the consumer = through the eyes of the consumers), presumes the market works well - under this theory it is not necessary to apply antitrust laws unless there are actions that cause output limitations (laisser faire) - during Reagan years there was very little enforcement of antitrust laws, even when the laws were enforced they were generally only enforced against cartels because cartels are virtually never efficient since the purpose of cartels is to effect output and make prices higher 3. Post Chicago School of Thought - this school of thought began in 1990s - believes that the Chicago paradigm was too narrow and believe that output limitation should be a greater concern than the Chicago school suggested - believes the premise that markets always works well is not correct 4. Game Theory (?) 5. Other view - Fox believes that she is willing to infer harm to markets without using a narrow definition of output limitation and consumer welfare because an analysis that only looks at output limitations may miss some actions that do hinder competition 11 IV. 6. Other Countries - most countries don‟t limit their enforcement to consumer benefit - most other countries also consider competitors plus they want to level the playing field, preserve the balance of power, consider notions of fairness, preserve economic opportunity, fairness v. exploitation and coercion, market integration B. 2 ways to Undermine Efficient Allocation and violate antitrust laws 1) monopoly/dominance (single firm behavior) 2) cartel/collaborative behavior/oligopoly NOTE: duopoly = a market that is comprised of 2 firms oligopoly = market comprised of a few firms, an oligopoly can behave like a cartel but still be legal because there is no actual agreement between the companies in that market to take the actions they are taking both of these things facilitate the gaining of market power (increase in market power is almost always an element of a violation, sometimes there are violations based on the use of a company of the market power they have) - there are cases where you have efficiency and pro-consumer effects while at the same time you have increases in market power (you usually have to consider both efficiency concerns and also market power) merger can fit in either of these categories (most mergers are oligopolistic because mergers in concentrated industries where there are significant barriers to entries can lead to cooperative behavior/coordinated effect) - C. Tasks of Cartelists - you always have to consider what companies are trying to do with their actions (consider Standard Oil, was the company there trying to make railroads more efficient if they had certainty and evening of the supplies of what they shipped, but in that case you saw that the effects of the company‟s actions were both good and bad because it caused the railroad to become a cartel) - it is easier for cartels to form where there are 1) fewer the firms 2) where there are standards for an industry (because there are fewer additional terms for potential cartelists to agree upon) and 3) where there are barriers to entry (this simply affects how many firms exist in a given market) 1. if firms are trying to cartelize, they have to do the following: - note: consider what helps the firms to coordinate and police their cartels a. Fix the “Right” Price - sometimes cartels will only fix a percentage that will be charged rather than a hard price - cartels have to choose what is the profit maximizing price for all members of the cartels (a member who has lower costs than the other members, that that member would be better off competing with the members of the cartels rather than being in the cartel) - cartel members need a lot of information about each other (including information about their costs, prices, etc.) b. Publish the profit maximizing price to Members - this is important because the members have to stick with the same exact price c. Police (Detect Cheaters) - if the market is a place where there are constant price fluctuations, then it will be hard for a cartel to detect cheaters of the cartel 12 d. Punish Cheaters D. Dept of Justice Merger Guidelines 1. Cartels - §1 says cartel agreements are illegal, but coordinated action is not per se illegal under §1 (but when you have an agreement where the result is coordinated interaction and there are output limitations, this agreement would probably be found to be illegal) - when you are analyzing cartels, you never have to define the “market” because cartels are per se illegal but where there is no per se violation you have to define the “market” 2. Reduction of Competition Through Coordinated Interaction - combinations will create internal systems of detection and punishment that will act as deterrents if members decide to deviate from the coordinated effort - market factors that must be considered 1) availability of key info re market conditions 2) individual competitors 3) firm and product heterogeneity 4) pricing or marketing practices typically employed by firm in the market 5) characteristics of buyers and sellers 6) characteristics of typical transactions - previous collusion in another geographic market will be considered when the “salient characteristics” of the market in the past and current areas are comparable - harm to consumers will result when firms coordinate to fix prices or places restrictions on customers or territory these restrictions do not have to reach the level of a monopoly to be harmful to consumers 3. Reduction of Competition through Unilateral Efforts - where you have a firm that results from the merger of 2 firms that create different products, then there is the possibility that that cost of 1 product will be raised which will result in loss of sales which will be diverted to the 2nd product - you have to consider if the market share of the merged company is above 35% - a merger will not lead to the unilateral increase in prices if there are rival sellers that can replace localized competition which would disappear once the merger went through - a merged firm where the 2 original firms produced similar products may increase their prices unilaterally, however, this will not work unless consumers have no other alternative but to buy this product from the merged firm 13 §2: Monopolization and Attempt to Monopolize I. Elements of §2 violations A. Elements of cause of action for monopolization 1) Define the Market market must 1) consist of products and services 2) include all good alternatives you have to consider whether alternative products will push the price down to cost (if the alternatives only push the price down to the monopoly price then the company will always be able to charge the monopoly price and consumers will be exploited) and 3) be capable of being monopolized = a single firm could come in and get monopoly profits and charge monopoly prices example Fox says it would be hard to monopolize yellow pencils because consumers have many alternatives since they will still want pencils that are red, blue, and other colors Kodak case Kodak‟s actions were illegal because Kodak was able to exploit the consumers buying the after-market service usually when a company can exploit the consumers and the exploitation is the raising of the prices and also results in the reduction of output this is an indication that there is a monopoly 2) show that there was monopoly power in that market monopoly power = power to raise price above cost for a significant period of time - sometimes a company can have market power even if they have less than 80% of the market, this determination really depends on the elasticity of the market (usually 60% is required) 3) Anticompetitive Acts you have to show that the firm willfully maintained or enhanced monopoly power by acts not on competitive merits, the company is doing something that will not improve things for consumers and is really just about hurting competitors (i.e. raising rival‟s costs) - Intent you don‟t need specific intent to monopolize, you just need general intent to monopolize - note: when you find an anticompetitive act usually from those acts you can infer intent - evidence of intent is merely relevant to the question of whether the challenged conduct is fairly characterized as exclusionary, anticompetitive, or predatory. - NOTE: improper exclusion (not the result of superior efficiency) is always deliberately intended - Purpose purpose is inferred from anticompetitive actions - Effect = if you acquire and maintain a monopoly whether there is Business Justification (Willful Acquisition or Maintenance of the monopoly power) 4) Harm to competition (i.e. consumer harm) present specific examples i.e. higher prices (you can‟t just argue that there was lost innovation), our laws don‟t protect competitors, it only protects consumers (there are times when protecting consumers will protect competitors) - i.e. Netscape can sue Microsoft, but can only win if the market and consumers were harmed NOTE: these elements don‟t really apply to essential facility cases or merger to monopoly cases NOTE: it is possible that a court will find monopolization based on a company‟s structures rather than its conduct 1) structural monopoly consider AT&T case the company was found to have monopolized because of its structure and not because it committed anticompetitive acts (usually there are also anticompetitive acts in addition to a structure that suggests monopolization) 2) essential facility 3) merger to monopoly 14 B. Elements of cause of action for attempt to monopolize 1) cases generally say you need specific intent to get rid of a competitor 2) dangerous probability of success in reaching a monopoly (it is generally understood that the probability of success will come from anticompetitive acts) 1. Swift v. US (161) cause of action for attempts to monopolize Facts: big meat companies combined and controlled 3/5 of the market, these companies did not compete against each other and worked together to raise, lower, and fix prices Holding: you can find attempts to monopolize where the following factors are met: 1) there is a specific intent to create a monopoly 2) the offending acts create a dangerous probability of the success of the attempt to monopolize - to prove there is a “dangerous probability of success” P has to prove def already has considerable market power - P must define the relevant market, determine def‟s share of that market, prove any other structural elements that affect the power - P also must prove anticompetitive conduct which might, if unchecked, lead to monopoly - NOTE: there is a presumption that the additional act needed to bring about a monopoly is simply a mere force of nature NOTE: - Lessig v. Tidewater says that specific intent to monopolize a part of trade plus predatory conduct are enough to prove an attempt to monopolize claim old analysis (don’t use it) - Spectrum Sports v. McQuillan (criticizes Lessig decision) the conduct of a single firm is illegal as an attempt to monopolize under §2 only when it threatens actual monopolization in a defined market, courts generally require that plaintiff prove 1) def engaged in predatory or anticompetitive conduct 2) def had a specific intent to monopolize and 3) a dangerous probability of achieving monopoly power C. Claim of Combinations and Conspiracies to Monopolize under §2 1. American Tobacco Company v. US (162) - under §2 it is illegal for companies to combine or conspire to acquire or maintain the power to exclude competitors from any part of the trade or commerce among the several states or with foreign nations provided that the companies have the intent and purpose to exercise that power, a plaintiff does not have to show that an actual attempt was made to monopolize NOTE: the scope of the relevant market and the effect of the conspiracy don‟t matter in a claim for combination and conspiracy to monopolize because the agreement to commit the illegal act is the violation 15 II. Structuralism and the Definition of Monopolization A. General - American Tobacco v. US and US v. Alcoa gave birth to structural consensus theory = structure influences conduct and highly concentrated markets are likely to perform poorly (this explains why courts look at market share and market definitions) - cross elasticity of demand = measured by the percent shift in quantity demanded of one product caused by a 1% change in its price relative to the price of another product - i.e. if you want to know if one product is cross elastic with another product at the current price then a raise in the price of one product should result in an equal increase in the number of the other products that is purchased - demand substitutability = consumers can substitute one product for another - elasticity of demand = the percent shift in quantity demanded caused by a 1% change in price, if a 1% price rise will cause more than a 1% shift of demand then demand is elastic - geographic diversion companies can shift where they send their products to - new entry you have to consider whether there are barriers to entry, also consider that to enter a new market a company has high initial costs, usually there are only a few slots for new-comers, entry does not happen immediately, and existing firms may try to block the new competitor by lowering their prices - submarkets where you have heterogeneous, highly differentiated products each brandname can constitute a separate submarket - Aspen Skiing casecourt said the product market was destination ski resorts but the submarket was ski resorts in Aspen, Colorado = defined the market very narrowly - Telex v. IBM producers of peripherals for IBM computers sued and said IBM made unnecessary changes to design interfaces and engaged in predatory pricing, court held that the market included all central processing units = IBM‟s share was less than 50% (if ct had said market consisted of only peripherals compatible with IBM, IBM had a very large share) - supply substitutability companies can increase supplies B. US v. Aluminum Co of America (114) stands for holding that you have to define the market - this case was decided by the 2d cir but has the power of a S.Ct. decision because for some reason the S.Ct. couldn‟t hear the case at the time and asked the 2d cir to make the decision Facts: Alcoa was the only aluminum producer in the US at the time of this case - Alcoa had patents that gave it a monopoly of the mfr of aluminum ingot, Ks with power companies which said the companies could not sell power to anyone else who makes aluminum, international cartel with foreign co-conspirators which kept all foreign aluminum out of the US, and produced 80-90% of the virgin ingot available for sale in the US (this number doesn‟t consider the secondary ingot) - issue whether monopoly continued after the patent rights expired and whether this violated §2 Holding: Alcoa‟s monopoly violated §2 1) what is monopoly and does Alcoa have a monopoly (now we use the term does the company have “monopoly power” = power to raise price above cost for a significant period of time)  - market = virgin ingot - monopoly power 30% was not enough, 64% was doubtful, and 90% was enough to establish monopoly power, later case have said 66% was enough here there was 90% monopoly power, the court draws the inference that there was a monopoly (Fox says this is typical of cts to do) - courts considered whether the following mattered (look at p. 117-119) - power limited by expansion of small producers – small producers may come in to fill gaps left by the monopoly firm but monopoly firm will still have power to control competition from these small producers 16 - - power limited by imports from foreign countries – foreign products are subject to tariffs and transportation costs, Alcoa could raise its prices to the same level that foreign competitors charged, Fox says there was no real threat of foreign imports because Alcoa was part of a cartel that stifled foreign imports profits are only 10% - Judge Hand says monopoly profit is not an important factor, in fact 10% is generally considered to be a fair return, ct says you can‟t excuse Alcoa just because it didn‟t charge monopolistic/extortionist prices because the monopoly is still illegal, also maybe Alcoa wasn‟t efficient enough since there was no pressure for Alcoa to push its costs down (this theory is somewhat wrong because even a monopolist wants to reduce its costs so that it can make more money) 2) what is monopolization and did Alcoa monopolize monopolization = 1) possession of monopoly power = being a monopolist and 2) the use of offensive conduct to obtain, protect, expand or exploit the monopoly - DEFENSE to charge of monopolization monopoly was “thrust upon” you and you did not actively monopolize - conduct Judge Hand said Alcoa was not a passive recipient of the monopoly and embraced each new opportunity (if you are a monopoly you are generally held to have monopolized unless the monopoly was thrust upon you) - intent def does not have to have an evil or exclusionary intent, intent does not matter once the court finds there was a monopoly then there is a presumption that the company intended to monopolize (since a monopolist does not unconsciously monopolize) - size the fact that a company is big does not equal a violation of Sherman Act, the company has to also take action that amounts to a monopoly (the reasoning behind this is that there are some companies that are large because of factors the didn‟t control) - but here Alcoa used its size to abuse its power in violation of the Sherman Act, Alcoa was the only produce of aluminum because it blocked out competitors NOTE: the concentration of power reduces initiatives, efficiency and innovation, and monopoly distorts the allocation of resources, resources are wasted when there are monopolies NOTE: find out what part of Alcoa remains true today - Fox says this case is really a cartel case and not a monopoly case 1. US v. Alcoa (125) decision re remedies - by this time gov had created aluminum facilities which it sold to Reynolds and Kaiser, so the judge‟s job was easier because the gov‟s action created competition Holding: the shareholders of Alcoa must dispose of their stock interest in Alcoa or the Canadian subsidiary, patent grant-backs (?) are prohibited, and the former government facilities for producing aluminum will be used to create a competing company - court acknowledges companies become less efficient when you split up a single company C. US v. E.I. Du Pont De Nemours (128) tells you how to determine “relevant market” Facts: Du Pont created almost 75% of the cellophane sold in the US, gov sued Du Pont for monopolization Holding: Du Pont does not have monopoly power = power to control prices or exclude competition - What is the relevant market  1) reasonable interchangeability you have to consider if there are alternative products that compete with the product at issue = products reasonably interchangeable by consumers for the same purpose should be considered together in the same market 17 consider price, physical characteristics and functionality of all products considered - here cellophane costs more than many competing products and less than a few of them, there is a high degree of functional interchangeability, competitors were not excluded by def - profits no evidence that Du Pont had greater profits than other competitors - consider footnote 29 the price charged by def doesn‟t tell you the whole story because since you don‟t know what def‟s costs are you can‟t tell what def‟s profits are (in this case court‟s analysis is somewhat faulty because it didn‟t investigate this issue and instead only conducted a narrow analysis by using only the current prices charged by def to conduct its analysis, normally you want to consider whether the current price is actually above competitive price) 2) cross elasticity of demand when the price of cellophane goes up do people shift to using different products - you need to figure out the elasticity of the demand that def faces if there is steep demand curve then it is more likely that def has monopoly power but if the demand curve is flat line then there is competition - if market was “cellophane,” then Du Pont would have monopoly power but if market = “flexible wrappings,” then Du Pont has only 17.9% of that market here court says flexible wrappings = relevant market Dissent there is evidence that Du Pont tried to exclude competitors on its own and with the help of a competitor D. Eastman Kodak v. Image Technical Services single brand market Facts: Kodak allegedly blocked competitors from repairing and servicing Kodak copying equipment = Kodak-brand aftermarket Holding: ct suggest that a single brand may constitute the market in some cases (this determination has to be made based on the facts of each case) - the relevant market is determined by looking at the choices available to Kodak equipment owners = only those companies that will service Kodak equipment - the use of monopoly power in one market to gain competitive advantage in another is a violation of §2 even if there has been no attempt to monopolize the second market (note: firms that just reap the competitive rewards attributable to their efficient size do not violate, an integrated business where one of its depts benefits from an association with a division with a monopoly in its own market also does not violate) Scalia dissent this is wrong particularly where the brandholder does not have power in the interbrand market, also every brandholder for durable goods with distinctive parts arguably has market power for their brand in the single-brand aftermarket E. US v. Grinnell (160) - S.Ct. holds that monopoly power = power to control prices or exclude competition and you can infer that there is monopoly power when the company possesses a dominant share of the market F. Merger Guidelines point 1 defining the market 1) you ask what is the market 2) then do a SSNIP small but significant nontransitory increase in price consider what would happen to demand where price is raised hypothetically by 5% by all firms in the hypothesized market, would consumers shift to other suppliers? if a sufficient number of buyers shift their demand then the merged entity wouldn‟t be able to raise their prices by 5% since they wouldn‟t be able to make sales 18 - 3) evidence to be considered a) buyers shift or are considering shifting from one product to another b) sellers base business decisions on prospect of buyer substitution c) influence of downstream competition faced by buyers in output market d) timing and cost of switching products NOTE: uncommitted entrants are considered market participants if their supply responses are likely to occur without expenditure of significant sunk costs of entry and exit and a significant impact (ability to return prices to pre-merger level) is achieved in a timely period (within about 2 years) V. Innovation v. Restraint and Product Predation - you have to ask the question what is an anticompetitive product change v. innovation? - consider leveraging issue in Microsoft case A. EI Du Pont case (195) no obligation to license - Fox says this case is the law today Facts: there were 2 process to make sulfate - the old process was sulfate process and used rutile ore, later a new process was created by Du Pont using ilemite, the 2 processes were interchangeable for a while Du Pont method became cheaper and better for environmental reasons - Du Pont decided to expand, wanted to build another plant, refused to license its process, and it charged limit prices = prices above cost but below monopoly price and also below the price that would have made it profitable for other companies to expand their rutile plants by doing this Du Pont could have gotten about 55% of the market - FTC said def should have licensed its products, said that def should not have charged limit prices, P argued that def‟s actions were predatory claim for attempt to monopolize Holding: no violation because monopolist has no duty to be kind to its competitors and there is no duty for companies to licenses if they don‟t want to - ct acknowledges that monopolists might get a monopoly through means that are not anti-competitive  here def had the most efficient process yet also def did not exclude competition and did not unnecessarily increase barriers to entry and its conduct was consistent with its own technological capacity and market opportunities - re limit pricing there are cases where you can have predatory pricing even where the prices are above cost, but here ct said the prices were determined based on its plan for future growth and were not unreasonable because there was no evidence of below-cost pricing, the firm was very efficient, and the firm had legitimate interest in expanding B. AT&T case (202) – leveraging (remember Microsoft case) - Fox says this is a really unique case and is really an essential facilities case Facts: AT&T was only provider of long distance service (long lines = LL) and it was the only company that provided local service through BOC (Bell Operating Companies), AT&T charged low price for local calls but overcharged for long distance calls (this hurt businesses) - AT&T did everything it could to prevent anyone to enter long distance market by using restrictive leasing arrangements, charging very high prices to use its services and AT&T set standards and then refused to provide any standardization information to others and AT&T controlled Western Electric, which provided all the hardware such as wires and telephones etc. - Bell Labs was the best and only basic research company in the world, Bell Labs had no fear of another company stealing its ideas because only AT&T used its ideas AT&T forced Bell Labs to buy its hardware from Western Electric 19 - gov claimed AT&T monopolized telecommunications market by restricting and eliminating competition from other long distance telecommunications companies and from other mfrs of telecommunications equipment Holding: this case settled but before it settled, a court found that the acts of AT&T were anticompetitive and blocking competitors from using long distance lines invokes essential facilities doctrine NOTE: in Berkey v. Kodak case Kodak had information about chemicals used in photofinishing process that it would not release to other photofinishing companies court said that was OK because Kodak was in only 1 market (photofinishing market) but it is not OK for a single firm to use its monopoly power in one market to get competitive advantage in another market NOTE: Baxter (the Assistant Attorney General) met with AT&T and showed them that AT&T would make more $ if it separated its local business with its long distances service, eventually AT&T agreed C. IBM case (214) product predation case Facts: IBM was the worlds biggest maker of computers, there were peripheral attachments that were needed to be used with CPUs = central processing units, PCM = plug-compatible manufacturers - IBM was the only maker and seller of PCMs and sold them at high prices, later independent competitors came in and developed peripherals that were compatible with IBM‟s CPUs - IBM formed a committee called SMASH, which was designed to destroy competitors it constantly changed its interfaces and every time it changed the interface it created a new invention (this created a period of time when competitors had to figure out what the new interface was in order to make compatible peripherals, this bought IBM time) - Mallard interface IBM created an interface with one less spindle - re byte multiplexor IBM made a change that would make a competitors attachments not work while allowing the IBM peripherals to work fine - the issue is whether the changes in interfaces was a legitimate product change or was just for the purpose of hurting competition Holding: no violation - test used by this court 1) there is a violation if the product innovation unreasonably restricts competition 2) you can determine whether there was unreasonable restrictions by assessing the intent/purpose and the effects (this test requires courts to really get involved) - re Mallard interface no violation - intent intent was negative because intent was to preclude and hurt competitors - effect Mallard was a superior design and is also a technological improvement and resulted in a more efficient system = good effect, the court also said that the effect on competition was negligible because the competitors was probably not going to try to create peripherals to fit this interface anyway - re byte multiplexor no violation - intent the only intent was to preclude competitors - effect the plaintiff didn‟t suffer antitrust injury - NOTE: a violation would have been found if IBM had monopoly power 1. Different tests for product predation 1) if there was any pro-consumer argument for the new innovation (if there is a plausible claim of consumer advantage) then there is no violation (this is hands off approach by courts) 2) there is violation if the def is trying to hurt the competitors 20 3) DC circuit decision if the defendant made the innovation that helps consumers at all then there is no violation (one dissenting judge said you need to consider effects and intent to see if there was unreasonably restrictions on competition) NOTE: Fox says it is not clear what test you should apply whether you should use effect/intent test or the test that any benefit to consumers will equal no violation 21 VI. Price Predation - primary line price discrimination = involves harm caused by a firm to a competitor, price discrimination by a firm where the firm gives rebates to some equal competitors and not to others - secondary line price discrimination = involves harm caused to mom & pop type stores A. Robinson-Patman Act (Appendix p. 885) - the test for price predation will be pretty much the same regardless of whether it comes up under this act or the Sherman Act - Robinson-Patman Act requires reasonability possibility of injury to competition - Sherman Act §2 requires dangerous probability of monopolization B. TransAmerican Computer v. IBM (227) Holding: there should be predatory pricing violation even where def‟s prices are above cost (B&W case says this is wrong) C. Brooke Group v. Brown & Williamson Tobacco Corp (Supp 6) this is the law today Facts: this case involves primary line discrimination - B&W is part of an oligopoly, B&W had 12% of the market - Liggett decided to create a generic cigarette and priced it much lower than the branded cigarettes, Liggett‟s actions hurt B&W most, B&W lowered its prices for 18 months so that the prices were lower than their variable costs (this means the price was lower than its out-of-pocket costs) - B&W was discriminatorily pricing and giving rebates to some people and not to others - Liggett sued for price discrimination (note: Liggett didn‟t actually care about the high prices charged to people who didn‟t get rebates, but it did care about the low cost pricing, plus Liggett couldn‟t sue under §2 because B&W didn‟t have a monopoly and was not attempting to monopolize and couldn‟t sue under §1 because Liggett couldn‟t show conspiracy) - the issue is will low cost pricing by B&W lead to market power and higher price in the future which will be to the detriment of consumers? (note: we care about consumers, not Liggett) Holding: no violation because there was no evidence of reasonable prospect of recoupment - Robinson-Patman Act requires reasonability possibility of injury to competition - Sherman Act §2 requires dangerous probability of monopolization - to prove price predation P must show  1) the prices complained of are below appropriate measure of its rival‟s costs court doesn‟t define “appropriate measure” but Fox says there are only 2 possibilities 1) whether it‟s below average costs or 2) whether it‟s below marginal or average variable cost AND - when a large firm drops its prices in order to discipline a maverick/competitor, isn‟t that enough to find a violation? no the existence of below cost pricing that excludes a competitor is not enough to find a violation - court says that where prices are above costs there is no violation because this shows that a company is efficient and such efficiencies are good for competition = prices that are above cost but lower than other people Fox says this is a prophylactic/broad rule 2) there has to be a reasonable probability that the predator will recoup its investment in the below-cost prices by raising prices at a very high level and for long enough to recoup its losses when it was charging below cost prices - you need to know a) the extent and duration of the alleged predation b) the relative financial strength of the predator and its intended victim c) their respective incentives and will and 22 d) whether given the aggregate losses caused by the below-cost pricing, the intended target would likely succumb NOTE: can an oligopolist ever be liable for predatory pricing no - it is harder for one member of an oligopoly to conduct predatory pricing because that one member will work together with other members of the oligopoly to both lower prices and raise prices = the single member does not make monopoly prices since everyone is charging same lower and then later higher prices = every shares in the harm when charging lower prices and will also share the profits when prices are raised again NOTE: S.Ct. stated that predatory pricing = below cost pricing almost never happens because it is very expensive for companies to do this - Fox says court ignore possibility that there may be simultaneous recoupment 23 VII. Duty to Deal = when does the monopolist monopolize by not carrying out certain duties A. Lorain Journal v. US (164) Facts: Lorain Journal, a newspaper publisher in Lorain, bought the only other competing newspaper in that city and also got a license to operate a radio broadcasting station, it had a monopoly and had an audience consisting of 99% of the families in the city - the FCC later established and operated a broadcasting company (WEOL) in a neighboring city - def refused to announce local ads for entities that also advertised through WEOL = WEOL lost income as a result of def‟s actions Holding: def attempted to monopolize (purpose and effect were anticompetitive) - purpose of def‟s actions def‟s conduct was aimed at complete destruction of the competing broadcasting station - effect of def‟s actions push WEOL entirely out of the market (WEOL is in the same market as Lorain Journal since they are competing to get ads from the same advertisers) and it would have resulted in giving def back the monopoly it had enjoyed prior to the creation of WEOL - def‟s defense was that it had right to choose to accept and refuse advertisements from whomever it wants, but ct held def cannot use this right to attempt to monopolize and def‟s actions were coercive because they have the leverage/advantage that these advertisers needed to advertise through def (Fox says the deciding factor in this case was that Lorain‟s actions were coercive) NOTE: if Lorain Journal simply just didn‟t want to have any dealings with WEOL because it doesn‟t like the owner of WEOL would this change this case?  ? - does it matter that even if WEOL lost all of the Lorain customers it would not actually be destroyed?  modern analysis will not care whether or not WEOL goes out of business, today we are more concerned with what happens to consumers in Lorain = the same holding would be found today because the same harm to consumers would have occurred B. Essential Facilities Doctrine 1. Terminal Railroad Case (172) Facts: there was only 1 bridge over Mississippi river and there was literally no other way to build another bridge over the river for engineering reasons and the nature of the terrain in that area - competitors wanted to use the bridge but can the bridge owner stop certain competitors from going over the bridge? no (this is the quintessential essential facility case) - essential facility doctrine if a group of competitors act together to create a facility that gives them a significant competitive advantage over excluded competitors, those competitors must give access to the excluded competitors on reasonable terms (you have to give competitors whatever it is essential to them to allow them to compete) NOTE: there are not that many cases that fall within this doctrine and courts generally don‟t want to have to determine reasonable rates/terms 2. Otter Tail Power v. US (168) sometimes called an “essential facility” case Facts: def had municipally granted franchises to distribute electric power and serviced 91% of the area, but once the franchise term expired def attempted to prevent communities from putting municipal electricity distribution systems into place by refusing to sell them electricity at wholesale prices, using contracts with other power suppliers to get them to agree to not provide the municipal distribution systems with power through def‟s transmission system, and litigation to prevent the establishment of the municipal systems - the issue is whether def had duty to provide power at wholesale prices 24 Holding: def did have duty to provide power at wholesale prices, def attempted to monopolize because it used its monopoly power to destroy threatened competition - purpose maintain monopoly power by excluding municipal competitor - effect prevented new competitors from getting electricity - the district court ordered that interconnection between def and the municipal systems must happen but the court said that if this interconnection will impair the provision of adequate service to customers then the interconnection should not happen (but in this case there was a commission to oversee the interconnection so they would ensure that it would happen properly) NOTE: - this is essential facility case cause there‟s only 1 distributor of electricity per region - also consider that there are federal regulations that fix the prices at a low level for wholesale business but there were also state regulations that favored utility business in the retail market - there is also an issue of whether antitrust laws should be applied where there is a regulatory framework in this case, the 2 could be both followed simultaneously - also consider that this issue raises the concern that utility business should not be gov controlled and should be controlled by the private sector 3. Official Airline Guides v. FTC (173) shows limitations of essential facility doctrine Facts: def published a list of airline light schedules but listed commuter flights separately and without information about when the commuter flights would connect with major carriers‟ flights - even though def argued that commuter flights are less reliable and consumers would be ill-served and dissatisfied if the listings were integrated, the FTC determined that the refusal to list commuter flights was just arbitrary and the actions taken by def placed commuter carriers at a competitive disadvantage and injured competition, therefore the FTC brought this suit Holding: no violation - def had no anticompetitive motive or intent with respect to the airline industry and is engaged in a different line of commerce from that of air carriers - FTC cites Lorain and Otter Tail Fox says Lorain journal was a different kind of case and should not have been cited but is it possible that Otter Tail is relevant because you could argue this may be an essential facility case but even this is a weak claim because in Otter Tail the def was a competitor to WEOL and here def is not a competitor to the commuter airlines - Fox says that consumers are hurt more in this case than in Otter Tail, but the court said this didn‟t matter simply because def was not a competitor with the commuter airlines in other words, here def had no anticompetitive incentives (in Terminal Railways the incentive was anticompetitive and was to force higher costs on competitors) NOTE: though this wasn‟t in the case, maybe def had a deal with the major airline to leave out commuter airlines from the listing FTC found no proof for this 25 VIII. Duty to Continue Dealing A. Aspen Skiing v. Aspen Highlands (252) Facts: this is a raising rival cost case Aspen owned 3 mountains, P owned 1, there was a 4 mountain ticket which allowed consumers to ski anywhere they wanted, the multi-area ticket accounted for 35% of the total market, later Aspen was purchased by Ski Co. which no longer offered the 4 mountain ticket, this meant Ski Co. could offer a 3 mountain ticket, P tried to create a new package that offered a 3 day pass for its 1 mountain and 3 vouchers for the Ski Co. mountains but consumers didn‟t like it as much, P‟s share of the market declined from 20.5% to 11% Holding: §2 violation court said this hurt consumers and this was exclusionary conduct, there was no business reason or efficiency justification for Aspen‟s actions, purpose was only to raise P‟s costs - a company that has monopoly power has no general duty to cooperate with a competitor but where a firm‟s refusal to deal is exclusionary = violation - to determine if conduct is exclusionary  1) if a firm has attempted to exclude rivals on a basis other than as a result of efficiency then its behavior is predatory - here def was willing to forego some daily ticket sales in order to hurt P and offered no efficiency justification for its actions 2) you have to consider impact on consumers - here consumers preferred the 4 mountain multi pass - P had to spend extra money and shares of the relevant market in order to offer a multi-area experience for skiers 3) was competition unnecessarily restricted NOTE: by the time this case go to the S.Ct. the relevant market was “skiing in Aspen” so this issue was no longer open for consideration by the court in Olympia the court says Aspen stands for the holding that a monopolist may be guilty of monopolization if it refuses to cooperate with a competitor in circumstances where some cooperation is indispensable to effective competition B. Olympia Equipment Leasing Co v. Western Union (262) Facts: Western Union has monopoly in telex market, Olympia tried to compete and failed Holding: no violation - here def encouraged competitors to enter Telex market and even shortened its own lease terms, unbundled telex prices, did not buy additional terminals, asked its salespeople to encourage consumers to buy equipment from other providers, and provided Olympia w/ list of its vendors - although Western Union eventually withdrew some of these practices that helped its competitors, the withdrawal of these practices is not a violation Western Union was under no duty to help competitors enter the market plus Western Union had a legitimate reason for stopping its help to competitors (it wanted to liquidate its supply of telex equipment faster) - NOTE: this case is not an essential facilities case because Western Union was willing to service a customer who purchased equipment from Olympia and did not withhold services from anyone - court says this case is not like Aspen Skiing because in Aspen the P could not have acquired more mountains, but here Olympia could have hired more salespeople when Western Union stopped directly helping it also in Aspen the def was trying to push P out of the market but here Western Union was trying to get itself out of the market 26 C. Eastman Kodak v. ITS (Supp 14) Facts: this is a raising rival cost case Kodak made machines for medical uses, at first Kodak encouraged independent service companies to enter the market of servicing Kodak machines, but later Kodak stopped selling replacement parts to these service companies, and would only sell replacement parts to customers if Kodak was the one doing the servicing, P claimed Kodak used monopoly in parts to exclude rivals and raise price of service to maintain the machines Holding: no dismissal because court said some justifications offered by Kodak were not believable 1) to find a §2 violation once you show there is monopoly power you have to show that the monopoly power was used to commit anticompetitive acts such as foreclose competition, gain a competitive advantage, or destroy a competitor - here there was evidence that Kodak took exclusionary actions and used its monopoly in equipment parts market to strengthen its monopoly shares of the service market 2) Kodak is allowed to rebut this evidence by trying to offer a justification for its actions - Kodak tried to claim it wanted to protect the quality of its service and wanted to avoid being blamed for malfunctions resulting from competitor‟s equipment and services this raises issue of fact because there was evidence that competitors provided high quality service and are preferred by some Kodak equipment owners and there was insufficient evidence to prove that consumers can‟t distinguish whether they have poor equipment versus poor service - Kodak also claimed that it wanted to control its inventory costs court says the cost of inventory is related to breakdowns which will not change regardless of who provides services 27 IX. Microsoft Case - is there a market for Intel compatible PC operating systems? A. Facts - DOJ and 19 states (including D.C.) brought suit alleging M monopolized OS for personal computers through various anticompetitive acts (specifically, M was leveraging its monopoly power in the OS market to obtain a competitive advantage in the Internet and browser markets) - M had 1) monopoly power 2) a dominant share of the market (80-95%), and 3) was protected by substantial barriers to entry [due to network effect, it was profitable for application makers to make applications compatible with Windows] - When Netscape appeared, 1) M proposed that Netscape and M divide the market 2) M created Internet Explorer and it integrated into Windows 3) it contracted with ISPs and access providers to make them only deal with Microsoft and also made it more expensive them to deal with Netscape 4) gave them license to bundle IE with their services 5) did not let PC makers program Windows to let it load Netscape 6) threatened to drop support for Intel and Apple if they provided technology for by-passing M‟s OS - M argued this is a high-tech, fast-moving industry therefore the antitrust laws shouldn‟t apply the same way or apply at all, M could specifically argue that they don‟t have market power because anyone could develop new software/hardware the replaces M‟s products, M also argued that the judge‟s decision in this case protects competitors and not consumers, M also argued that there is competition developing B. Leveraging - issue to consider is whether there a violation by reason of the fact that a monopoly firm uses its leverage and power to get advantages in a second market where the plaintiff cannot prove that the company will get monopoly power in the second market? - Microsoft case gov wanted dismissal of the complaint, re leveraging claim Facts: assuming Microsoft had a monopoly in the operating system market, Microsoft used its power in operating systems market to get a jump on browser market, Microsoft did this by bundling its OS with its Internet Explorer browser, based on this info gov claimed that Microsoft would monopolize browser market, court dismissed only this leveraging claim - 2 reasons for dismissing leveraging claim1) you need a law that gives breathing space for innovation especially where you can‟t show harm to consumers 2) you could argue that leveraging only hurts competitors and not consumers because there is no actual monopolization of the second market - market distortion was a big concern in the US before the 1980s and is also still the belief in Europe  Fox think this is the more fair interpretation of the law - p. 6 Fox said he was trying to protect himself from reversal on appeal, 3rd paragraph makes statements consistent with the Chicago school if you have a main product and a compliment to that product there is only one price that the person will pay for the package, so a company like Microsoft has to decide what is the profit maximizing price if it is not a monopolist, and if it is a monopolist Microsoft would determine the monopoly price, if the browser is still in the competitive market then competition will keep prices down to cost, even if there was no competition in the browser market only competition prices will be charged because consumers will still only pay competitive prices because Microsoft will not be able to charge monopoly prices - there is an assumption that even if there is a monopoly in the second market the company can‟t charge a monopoly price - circuit courts that don‟t recognize a leveraging violation state that the reason they don‟t recognize it is because if you are assuming the second market is still a competitive market then prices are not being raised for consumers = consumers are not hurt - Berkley v. Kodak gov claimed that Kodak used its power over films and camera market (1st market) to get control of the market for photofinishing equipment or services (2nd market), ct held that Kodak‟s actions violated §2 even though there was no attempt to monopolize the second market (note: there is an underlying concern that if you find all leveraging to be violative of §2 then you will stifle competition too much) 28 - does leveraging harm consumers?  1. Different theories re “leveraging” 1) Berkey Photo v. Eastman Kodak (2d cir) seller with a monopoly in 1 product violates §2 when it uses a tie-in to obtain a competitive advantage in a 2nd market even if there has not been an attempt to monopolize in the 2nd market 2) Eastman Kodak v. Image Technical Services (S.Ct.) power gained through some natural and legal advantage (i.e. patent, copyright or business acumen) can give rise to liability if a seller exploits his dominant position in 1 market to expand his empire in the next 3) Spectrum Sports v. McQuillan (S.Ct.) actions of a company are unlawful under §2 only if it actually monopolizes or dangerously threatens to do so 4) Copperweld Corp v. Independence Tube Corp (S.Ct.) Sherman Act only prohibits restraints resulting from a contract, combination, or conspiracy = anticompetitive actions of a single firm are OK if there‟s no threat of monopolization 5) Alaska Airlines v. United Airlines (9th cir) §2 violation exists where the monopolist uses its power in the 1st market to attempt to or actually acquire and maintain a monopoly in the 2nd market C. Tying claim - TEST for tying  1) def has appreciable economic power/market power in the tying product market the market is to be determined based on evidence of consumers‟ perception of the nature of the products and the markets for them - here consumers perceive OS as a separate product from IE and M has market power 2) 2 separate products are involved - Jefferson Parish hospital services and anesthesiology services are 1 product unless consumers perceived the services as separate products for which they desired a choice and the package had the effect of forcing patients to purchased an unwanted product - Eastman Kodak selling replacement parts for machines only to customers who also bought repair services would be tying if there was evidence that there was consumer demand for parts and services separately - in both cases if there were anticompetitive effects defenses such as quality control, prevention of free riding, and elimination of scheduling problems did not prevent a finding of illegal tying - Fox thinks this is the courts weakest point  - problem is that defining OS and browser as 2 separate products creates situation where no company can ever offer an OS along with another product this may stifle innovation or give consumers less things - DC circuit says you have to consider the costs and benefits of putting the 2 products together in practice DC circuit gives extreme deference to the inventing companies and say putting 2 products together is OK as long as there is any plausible reason for putting the 2 products together - you can‟t look at these facts from a product predation standpoint, in other words, M can‟t argue that consumers get a better product when the OS and the browser results in better product for consumers 3) def gives its customers no choice but to take tied product in order to obtain the tying product people who might otherwise choose a different product are forced to take the tied product - M can still be forcing consumers to take the browser with Windows even though Netscape is still able to distribute its product 4) the arrangement affects a not insubstantial volume of interstate commerce you have to consider whether a total amount of business that is foreclosed is substantial enough in terms of dollar-volume so as not to be merely de minimis NOTE: a technological tie might be treated differently than non-technological tie-ins (Justice Jackson did not make distinctions on this basis) 29 30 D. Exclusive Dealing claim - Landmark/Old cases on this issue  - Standard Stations (631-633) Facts: gas stations had exclusive dealing contracts with Standard Oil that said that they would only get gas from Standard Oil and only sell that gas, 16% gas stations foreclosed by exclusive dealings Holding: quantitative substantiality whenever a large share is foreclosed then the agreement is illegal because this deprives traders of opportunity and causes “potential clog on competition,” defenses regarding efficiencies were not accepted by court because court said protecting competition was more important than those efficiencies - Tampa Electric market must be correctly defined to include area to which buyer can turn here a 1% foreclosure was not enough - Alcoa Alcoa was only producer of aluminum and it needed water energy to do its production process, Alcoa entered into exclusive agreements with water suppliers to give only Alcoa water energy this is decided by rule of reason, if the percentage of foreclosure is very large then you have to look for additional anticompetitive effects (i.e. output limitation and raises in price) - Japan glass maker case each glass makers has an exclusive distributor, under what conditions would this harm competition by raising prices this would keep out foreign competition - Jefferson Parish Roux had exclusive contract w/ hospital, there are 20 hospitals in market - you have to consider the market for hospitals as well as the market for anesthesiologists from what % of the hospital market is Hyde foreclosed?, from what % of anesthesiologists market is the hospital foreclosed? - consider whether it realistic to say that the hospital was gaining power in the anesthesiologists market? is it realistic to say that the Roux brothers will dramatically limit access to anesthesiologists? Fox says no for both scenarios, Fox says that there isn‟t really any anticompetitive effects, Hyde is foreclosed from giving his services to Jefferson Parish Hospital but he is not foreclosed from servicing the other 19 hospitals Microsoft case  Facts: M had contracts with OEMs such as Compaq, Apple, Online service provides (OLS), Access Content Providers (ACP), and Internet Service Venues (ISV), these contracts gave M a better or equal position with Netscape, in cases where M got a better deal it would get an agreement where the OEMs would agree not to distribute Netscape Holding: agreements that have the effect of foreclosing a competing mfr‟s brand from the relevant market violate §1 courts are mainly concerned with agreements that place so much of the market‟s available distribution outlets in the hands of a single firm as to make it difficult for other firms to continue to compete effectively or even to exist in the relevant market 1) degree of exclusivity and the relevant line of commerce implicated by the agreement 2) whether the percentage of the market foreclosed by the contracts is substantial enough to import that rivals will be largely excluded from competition 3) the agreements‟ actual anticompetitive effect in the relevant line of commerce 4) length and irrevocability of the agreement 5) availability of any less restrictive means for achieving the same benefits 6) the existence of any legitimate, procompetitive business justification offered by def the relevant market here is the worldwide browser market here no violation for exclusive dealing because Netscape still had access to every PC user Fox says this reasoning may be wrong because the victim should not have to be 100% excluded to constitute exclusion in violation of §1, Fox says foreclosure from most efficient outlets should matter more because this leads to raising of rival‟s costs, fox says you should also ask whether there was a business reason for the exclusive dealings and whether it benefits the consumers (Fox says the law gives a lot of leeway to defendants that can show that consumers are benefited from their actions and that the actions are reasonable) 31 - NOTE: Fox says that these exclusive dealings added with other practices at issue in the case may so unnecessarily disable Netscape that it constitutes a §2 case E. Holding 1) M must be broken into 2 parts OS + all other functions 2) M monopolized in violation of §2 through predatory practices designed to protect the applications barrier to entry 3) M attempted to monopolize the browser market 4) M illegally tied its browser with its OS in violation of §1 = the browser and OS were 2 products, M had market power in the tying market (the OS market), and the tie affected a substantial volume of commerce 5) the exclusive and partial dealing contracts were not unreasonable under §1 BUT they contributed to the §2 violation by blocking Netscape‟s access to the most efficient distribution channels 6) BUT Microsoft did not “leverage” - reasoning since M already charges monopoly profit-maximizing prices, which take into consideration what consumers are willing to pay for the entire package, they will not charge higher prices even if they got a monopoly over the browser market F. Aftermath - the judge did not allow M to put on witnesses re damages and remedies, Fox thinks the issue of relief will be remanded (purpose of relief is to make things better for consumers, not to punish) - Fox says breaking up M into the 2 pieces doesn‟t really work because  1) if the OS is the center of the monopoly, then breaking up M into pieces that allow the OS to stay together doesn‟t fix the problem of the monopoly 2) also breaking M up doesn‟t reduce the network effect whereby application makers design applications for Windows 3) also if the different IP holdings of M are forced to be auctioned off then the different areas will develop independent of each other which may lead to compatibility problems 32 X. Microsoft Case (Econemedies Lecture) - if you have 95% of the market = courts tend to presume violation (there is also more reason to find a violation where the company is pricing above cost) - consider that Microsoft is probably not charging monopoly price (a court has discretion of finding no violation where there are no monopoly prices) A. Early History 1991-93 FTC investigates MS twice but did not take action 94-95 DOJ investigation ended in a 1995 settlement - horizontal restraints Microsoft agreed to end per-processor (zero marginal price) contract with OEMs but can use unrestricted quantity discounts - vertical restraints MS shall not enter into any license agreement in which the term of the K are expressly or impliedly conditioned upon the licensing of any other covered product, operating system software product or other product (provided however that this provision in and of itself shall not be construed to prohibit MS from developing integrated products) or the OEM not licensing, purchasing, using or distributing any non-MS product no product bundling is allowed by contract, but MS can keep expanding the functions of its products, including Windows B. Jackson decision - MS is liable for monopolization and anti-competitive tying, but no liable for exclusive dealing - DC Court of Appeals that has decided the technological bundling issue in the earlier MS case - expedite the process - Jackson‟s finding of fact and conclusions of law  1) MS has monopoly in PC operating systems market (for Intel-based computers) “where it enjoys a large and stable market share” - Econemedies says low price of OS, if MS is able to exercise monopoly power why does it not charge a monopoly price?, most economists agree that it is more profitable to exercise market power through price - if the price of PC hardware is Pn and the demand elasticity is e, the monopoly price of Windows is  see p. 27 - if Ph = 1800 and e= 2, Pw = 1800 while the actual price to OEMs was $40-$60 (you need a very large demand elasticity of e=31 to get a monopoly price of Pw= $60) - NOTE: for MS the marginal costs are very little, even close to zero but there are high fixed costs such as the cost of its employees - Why is the price of Windows low?  - to hook consumers, which means the price could be raised later (but the issue is that MS has 95% market share, so why haven‟t they already raised it) - competition from installed base of Windows it is very difficult to uninstall Windows, consumers buy much better new PCs faster, the price of Windows is small compared with the price of PC + Windows bundle - to reduce pirating this is not that convincing of a theory because then why is then MS Office price high? - it allows for higher prices of complimentary goods but MS does not monopolize all of the complimentary goods markets, therefore it would be optimal to charge the monopoly price on Windows - the existence of actual and potential competition - NOTE: consider the issue that we think the price of Windows is low, but really you could argue that the price is high given the non-existent cost of making each copy of Windows 2) MS used its monopoly power in the PC operating systems market and harmed competitors 3) MS hobbled the innovation process 4) MS actions harmed consumers 33 5) various MS contracts had anti-competitive implications, but MS is not guilty of anti-competitive exclusive dealing contracts hindering the distribution of Netscape C. Market Definition - the market was defined as Intel-compatible computers - from the caselaw market definition should be based on substitution considerations - the court‟s market definition should have included computers based on other chips (Econimedes thinks the market should have been all PCs) - we generally think monopoly is bad because it wastes consumer surplus = the value consumers get out of the market, competitive markets result in more consumer surplus - however where there are significant network effects, a monopoly may actually maximize social surplus this theory is problematic because the monopoly may have emerged because of the monopoly - de facto standardization is good for consumers - see footnote 23 D. Monopolization Claim - NOTE: MS maintained their monopoly power by anti-competitive means - by attempting to kill Netscape through predatory actions because Netscape runs on top of many OSs (the problem is the IE also runs over many OSs) - Netscape could have become the platform over which some applications could be run over the Internet (but in general it seems that any applications that run over Netscape are only internet-based applications which are dependent on a server) - by killing Java as a non-OS-specific language over which applications could be written (instead of being written for Windows) - MS promoted its own version of Java which was Windows-specific and would only run applications that were Windows compatible and didn‟t support Java based applications (MS claimed that Sun‟s non-OS-specific language was inefficient and slow, and MS improved it) E. Attempt to Monopolize Claim - attempt to monopolize the browser market by leveraging its monopoly of the OS market, - MS lost money while trying to gain market share from Netscape, MS failed in this attempt - you cannot extract monopoly surplus twice; this contradicts P‟s theory if the browser and OS markets are the same F. Tying Claim - MS has monopoly power in OS market, the browser market is separate - technological and contractual tying of IE with Windows raised price and hurt consumers - hard to prove that a quality-adjusted new version of Windows without IE should not have a higher hedonic price than the old Windows (hard to prove that increase in price was due to the bundling) - consumers do not want IE even for free because it burdens the OS with memory and overhead requirements - in §2 part of the case the browser and OS markets are the same G. Remedies - MS would create a pricing schedule that would apply to all buyers so that price would not be conditioned on the sale of other MS products - MS would not be allowed to have exclusive contract that do not allow the other party to use display or feature ……… 34 H. Other Possible Solutions suggested by economists - break up Ms in 3 identical parts with each part acquiring the source code of all the program the company problem is that there might incentives for each of these companies to create different programs that might not be compatible with one another - auction off source code - limit the contracts that MS can enter into with sellers and competitors - government regulatory system and standards problem with this is that we don‟t have a stable product - force MS to disclose APIs (interfaces between the OS and the application) - NOTE: breaking up MS might hurt consumers because the company is efficient now and very flexible - some people compare this to the breakup of AT&T but the businesses are very different 35 XI. Guest Lecture – Microsoft (Dan Rubenfeld) A. §2 violation M monopolized market for personal computer operating systems in violation of §2 1. Monopoly power 1) M‟s market share is very high stable and increasing 2) M‟s PC OS monopoly is protected by high barriers to entry including the applications programming barrier to entry (an operating system cannot succeed unless there are applications that are used with the OS that are used widely, M offers about 100,000 applications, in M‟s case Microsoft office is very widely used and makes Windows used more, other operating systems such as Macintosh or even Palm Pilots have must fewer applications, Mac has 12,000 and Palm has 1,000) (you need to show high barriers to entry because M‟s market share alone is not enough to prove that there is monopoly power) NOTE: - Gov‟s 1st exhibit was list of present and future potential shares of Intel-based PC OS Market - gov did not focus on profits because accounting info can be misleading and can clutter the record - defining the market why didn‟t the market include non-intel based PC OS systems? (i.e. Apple) all evidence suggested that there are Macintosh lovers and IBM lovers and the two sets of consumers do not switch back and forth - if you high market share and low profits, doesn‟t that suggest you don‟t have market power in this case this wasn‟t an issue because M makes a lot of profits - M introduced evidence about potential competition from other sources (Rubenfeld argues that M should have introduced evidence about theories about innovation) 2. M has maintained its PC OS system monopoly by predatory, exclusionary and other anticompetitive conduct which has raised rival‟s cost, foreclosed critical channels of distribution and artificially preserved the applications programming barrier to entry - the widespread use of Netscape‟s browser and JAVA threatened over time to erode the applications programming barrier to entry - M recognized that Netscape and JAVA threatened M‟s OS monopoly by using JAVA software could have been created that would have replaced M‟s OS - M attempted to obtain Netscape‟s agreement not to compete in supplying browsers for windows 95 NOTE: gov introduced evidence that in the browser market M‟s shares went up while Netscape‟s shares went down - Rubenfeld that if you raise rival costs even a little bit, this will make a huge difference B. §1 claim M engaged in unreasonable restraint of trade in violation of §1 - M tied browser to OS = unreasonable restraint of trade 1) M‟s OS has appreciable market power 2) there was and is separate demand for browsers and operating systems 3) M treated browsers as separate product 4) M itself treated and treated OS as a separate product initially it distributed millions of copies of Windows without the browser installed, the browser was just included in the box on a separate disk 5) any material efficiencies obtained as a result of combining the OS and browser could have been obtained by permitting mfrs or end users a choice of what browser to combine with the OS gov argued that physically integrating the browser into Windows did not let the computer accomplish anything more than you would be able to achieve if they were separate 6) many users do not necessarily value combining a browser and the OS 36 7) combining the browser and OS impose costs on users who do not necessarily want internet explorers but who have no choice but to take it when they buy windows NOTE: gov introduced evidence that users did not switch browsers if there was one installed on their PC C. M‟s Screen restrictions are an Unreasonable Restraint of trade D. M‟s agreements restricting OEM‟s right to remove Internet explorer are an Unreasonable Restraint of trade E. M‟s agreements with ISPs and ICPs are an Unreasonable Restraint of trade M threatened to stop providing software and other products unless they agreed to distribute Internet Explorer exclusively F. Defenses - M argued  - rival‟s costs were not raised - M and Netscape each were able to use the same channels to distribute their products - consumers are not hurt Rubenfeld said that in a dynamic innovative market it is hard to show that the world would have been different if the software at issue had not existed - NOTE: Windows software has stayed about the same for the last 7-8 years but the quality has improved BUT the price of M‟s software has fallen much more slowly than other company‟s software NOTE: AOL distributes Internet Explorer due to an exclusive contract NOTE: a lot of companies would not testify because they still have exclusive arrangements with M that benefit them a great deal 37 SECTION I: Horizontal Restraints: Competitor’s Collaboration I. §1 of the Sherman Act - §1 says no contract, combination, or conspiracy in restraint of trade - naked restraint = agreements among competitors that have no purpose except to reduce competition (price fixing is the best example) - NSPE caseonly procompetitive effects can offset anticompetitive acts - BMI casenarrows the per se rule (319), there were efficiencies associated with pooling products, the court held that this was not a per se case - Catalano case fixing a term of price = price fixing (this is still good law) Per se Violations = action that on its face would always or almost always tend to restrict competition and decrease output = output limitation and raised prices 1) cartels - Cartels per se illegal even though cartels are not always output limiting and price raising - cartels usually exist where competitor conduct price fixing and there is market division among competitors (note: BMI was not a cartel, the nature of the business there provided a way for people to get to the market, it was an integrative system) 2) naked boycott if in support of a cartel (Superior Ct Trial Lawyers) or if the firms have market 3) vertical minimum resale price maintenance Rule of Reason  1) look at a) purpose b) power and c) effect on price and output 2) determine whether the restraints are reasonable in light of their actual effects on the market and procompetitive justifications a) P must show actual adverse effect on competition in relevant market b) Def can then give procompetitive redeeming effect/justifications c) P can then show the same procompetitive effects could be achieved with less restrictive means Quick Look you only take a quick look if actions are seriously anticompetitive or if justifications are weak if actions are anticompetitive and if justifications are OK there then do rule of reason analysis 38 II. Per Se or Rule of Reason A. Old Cases 1. Board of Trade of the City of Chicago v. US (283) Facts: there was a stock and futures exchange, the market sets the prices in stock and futures exchanges, but the board limited the time during which negotiations can happen Holding (Brandeis): violation, S Ct found that every contract has some element of restraining trade, so need to look at reasonableness of restraints = rule of reason is the general rule - you have to consider purpose, power, and effect 2. US v. Trenton Potteries (287) Facts: def was accused of fixing prices for pottery and limiting sales of pottery to special groups Holding: price fixing agreement are illegal even if the prices agreed upon are “reasonable” 3. Appalachian Coals v. US (289) this is not good law today Facts: there was over production of coal, so companies created a single exclusive selling agency that sold all the coal Holding: court said this was not illegal and said Sherman Act is a “charter of freedom” - jt marketing agreement can be a cover for a cartel or it can be an efficient way of marketing III. Price Fixing A. Illegal Per se 1. US v. Socony-Vacuum (296) – per se illegal price fixing Facts: there was over production of oil and the price of oil was very low, companies got together and made a deal where the different companies agreed to buy and sell from each other, gov was aware that the companies were doing this and there was much more sympathy at that time for this type of action because there was a theory that this would help the country get out of the depression Holding: price fixing agreements are illegal per se - NOTE: competition does not have to be fully eliminated to constitute price fixing - illegal per se even if you set prices at market price - reasonableness of the actual prices charged does not matter - agreement is per se illegal even if it is an agreement to fix a range of prices - you just have to prove that there was a conspiracy for the purpose of raising prices and that it caused or contributed to a price rise - see footnote 59 gov showed there was market power and effect but court says this is not necessary since price fixing is per se illegal - defenses that failed were this was a cartel created during a crisis, the market set the price, and the gov knew about the agreements (NOTE: if gov explicitly approves of cartel, then it is legal) 39 2. National Society of Professional Engineers v. US (309) quick look Facts: the professional engineers had by-laws that said among members of the association there would be no price bidding/competing before they sit down with a client = no competitive bidding - defense was that if they didn‟t do this then there would be competitors who are willing to cut corners at the expense of the clients‟ safety Holding: this was illegal per se - was this price-fixing? Fox says this is not exactly price-fixing, it is “akin” to price-fixing - you only need to do a quick look at the industry and not a full rule of reason analysis - was the by-law anticompetitive? this is anticompetitive because the engineers don‟t compete with each other and may charge high prices to the client - what was the purpose of the by-law the by-laws said it is ungentlemanly to take business from each other and the association said they are a learned profession, but Fox says that this has a very anticompetitive effect - Defenses there is no such thing as public interest defense because it is presumed that where you have competition the public interest is protected - if a restraint has an anticompetitive effect than the only defense you can give must show that there were procompetitive reasons for the actions at issue (the notion of “procompetitive” this includes efficiencies and technological improvement) (note: some jurisdictions don‟t believe this) 3. Catalono v. Target (325) Facts: Beer wholesalers stop giving credit lines to retailers and demanded payment in advance or at time of delivery, credit lines are equivalent to discounts so the terms of the credit/discount must be considered as part of the price of the product Holding: this is illegal per se because the elimination of a discount is like price fixing - ct rejected the following defenses good for competition because a) not price fixing; b) lowered barrier of entry for other wholesalers; c) and made price and terms more visible - NOTE: barriers to entry are always lowered whenever you raise the price of a product, since then other sellers can come into the market – called it perverse argument - Fox says that even if the you fix just one term of the price, even if it seems like a relatively small one, it will suppress competition, not encourage it NOTE: some economists argue that changing 1 term of a price doesn‟t always fix price of the product 4. Arizona v. Maricopa County Medical Society (327) Facts: doctors (70% of the doctors in the county were in a plan/group together) fix maximum fees for insurance plans, the doctors‟ - defenses: this is maximum and not minimum price fixing and thereby keeps fees lower and also makes insurance cheaper, insurance plan holder get better deal, this is a profession, the agreement enhances competition, also consider that HMOs were becoming popular and doctors were trying to create an alternative to HMOs, and this is not price fixing because it is a partnership just like BMI - issue whether this is per se illegal or whether you have to apply a rule of reason Holding: this is price fixing even though it is maximum price fixing = illegal per se - where you have maximum price fixing, members tend to charge the highest price possible - ct said BMI was an example of an integrated enterprise that regulated access to music as well as addressed infringement, here the doctors were not involved in the same type of organization 40 5. FTC v. Superior Court Trial Association (Supp 19) Facts: the lawyers here represented indigent defendants, the lawyers were paid $20/ hour for out of court work and $30 for in court work, the wage was so low that there was a shortage of lawyers to do this job, the lawyers went out on strike and conducted boycott by refusing to take on any work until their fees were raised, the city council was the “buyer”/consumer in this case, eventually the city raised the fees - this is a cartel case because the lawyers are a cartel since they are refusing to give any output, here def‟s are saying that if you raise the price there will be more output - the court treats the lawyers as a boycott, price fixers, and cartel at the same time - this was a real social problem there were sixth amendment concerns re fair representation for indigent defendants plus first amendment concerns Holding: per se illegal price fixing cartel and boycott (this is still good law today) - before the lawyers got together to boycott they were in competition with each other in the sense that they each independently decided whether and how often to provide services - refusal to provide services = output limitation = “essence of price fixing” - p. 21 lawyers argue that they have right to collective bargaining as employees of the cities, but this is wrong, instead these lawyers are independent contractors B. Rule of Reason 1. BMI v. CBS (316) Facts: there were many different composers of musical composition, there were TV stations that wanted to play background music, BMI went into the business of policing infringement and license use of music, they primarily use blanket licenses = license to use the music for whatever the licensor wants, CBS wants to license the music only for specific uses and wants to pay less, CBS claimed BMI was price fixing Holding: NOT per se illegal and rule of reason analysis must be conducted because BMI‟s actions were not a naked restraint (= have no purpose except to stifle competition) and there were efficiency justifications for what BMI did - where it is clear that separate and otherwise competitive firms are openly combining to attain a jt end the analysis must be 1) purpose 2) power and 3) effect - court says there are joint ventures that make a product available to the public through efficiencies that can only be obtained through the jt venture here the nature of the music industry makes this jt venture efficient and the output limitations are tolerated - see p. 319 a per se illegal restraint is of such a nature that it would always or almost always tend to restrict competition and decrease output When you look at jt ventures you have to ask 1) purpose 2) power and 3) effect 1) is it anticompetitive in essence 2) does it contain unreasonably anticompetitive covenants or restrictions 3) must it grant access to competitors who want to join 41 2. NCAA v. University of OK (334) Facts: 276 colleges, there was a plan with ABC and CBS where TV broadcasting company must schedule 82 different colleges over 2 years and no school may appear more than 14 times nationally, NCAA set the prices that the networks could pay for televising the games, Georgia and Oklahoma sue because they were the best teams then and wanted to be on TV more, GA and OK say the plan is a price fixing agreement and is output limiting because the total number of games televised is limited Holding: there is a violation of §1 because it restrains price and output in a way that means consumer preference had no affect on price or output, but it is not illegal per se because this is an industry where horizontal restraints are essential if the product (college football) is to be available at all - this is different from BMI because individual sales could happen efficiently and they were still going on but NCAA was restricting those sales by setting prices - NCAA limited output by limiting number of games televised, created horizontal restraints by preventing competition among teams from competing with each other, 3. California Dental case (Update 18) - this is one of the most recent decision by the S.Ct., Fox says Souter‟s opinion is “unsatisfactory” Facts: by-laws said they wanted to protect people against false and misleading advertising, by-laws said there would be no ads for across the board discounts for groups of people (i.e. new patients or senior citizens) and imposed disclosure requirements and limits exaggeration - the issue is whether these by-laws lessen output of dental services (relevant market) and how do you determine whether a case is a clear price fixing or cartel case Holding: court said a more sedulous look is necessary, you can‟t just take a quick look because here the actions at issue are not strictly anticompetitive (requires less detailed analysis than rule of reason) - the court says preventing fraudulent advertising has pro-competitive effect (inaccurate information is anticompetitive) (Fox says the assessment of competitiveness should not rely on truthfulness) - the court says that the FTC had to present empirical evidence that the by-laws would raise prices and decrease output (Fox says the requirement of empirical evidence is a new thing because it used to be presumed that there would be more output if activity was procompetitive) NOTE: this is a very fact specific decision so hard to apply to other cases. After this case, not much changed qualitatively in law except more burden on plaintiffs. 42 IV. Market Division A. Topco (344) this has essentially been overruled Facts: 25 small and middle sized supermarket chain decided they want their own private label brand, the private label brands sell for less than namebrands, Topco‟s brand takes up 6% of the market, different supermarkets had exclusive territories in which they could sell goods Holding: per se illegal when competitors get together to divide the market - here the restrictions were intrabrand NOTE: in spirit BMI seems to overrule this case because here there was no output limitation B. Palmer v. BRG of Georgia (Supp. 22) Facts: BRG offered a bar review course in Georgia for $150, BarBri entered into that market to compete, a licensing agreement was signed under which BRG becomes a representative of BarBri in Georgia and agrees to not compete in the rest of the US, under this agreement BRG got $100 for each student plus 40% of anything over $350, subsequently BRG raised its prices so that it could get the 40% bonus Holding: per se illegal because this was a naked agreement to divide the market - this was not a bonified licensing agreement, the purpose of this agreement was to get rid of competition, court said the high/raised prices supports this (BUT you can argue that actually the raise in price was justified because BarBri involvement improved the bar review course in Georgia) - this case cites Topco as if Topco was a clear cartel case and the reasoning in this case resembled the reasoning in Topco case (Fox says that today this case would have gone to trial rather than being decided on summary judgment) C. Rothery v. Atlas (438) - case re covenants not to compete (the analysis in this case is used today) Facts: Atlas is a moving company and has 6% of the market, it used independent companies as agents and imposed restrictions on these agents that said the agents can‟t compete with Atlas while they are agents of Atlas, agents claim this is a boycott and is per se illegal Holding: no violation - this is not illegal per se instead rule of reason must be applied in the following way 1) look at structure of the market court said the market is highly fragmented (see p. 441, there is language that sounds like output limitation theory) 2) look at power Atlas only had 6% of the market = no market power 3) look at purpose the agreement was ancillary 4) court says if an act is not output limiting then it is efficient (Fox doesn‟t agree with this) (see p. 442) 5) this system is efficient because it eliminates free riders which are inefficient and destroy incentive for improving/creating/ investing in products and companies must protect against free riders 43 V. Professional Restraint Cases A. National Society of Professional Engineers v. US (309) quick look Facts: the professional engineers had by-laws that said among members of the association there would be no price bidding/competing before they sit down with a client = no competitive bidding - defense was that if they didn‟t do this then there would be competitors who are willing to cut corners at the expense of the clients‟ safety Holding: this was illegal per se - was this price-fixing? Fox says this is not exactly price-fixing, it is “akin” to price-fixing - you only need to do a quick look at the industry and not a full rule of reason analysis - was the by-law anticompetitive? this is anticompetitive because the engineers don‟t compete with each other and may charge high prices to the client - what was the purpose of the by-law the by-laws said it is ungentlemanly to take business from each other and the association said they are a learned profession, but Fox says that this has a very anticompetitive effect - Defenses there is no such thing as public interest defense because it is presumed that where you have competition the public interest is protected - if a restraint has an anticompetitive effect than the only defense you can give must show that there were procompetitive reasons for the actions at issue (the notion of “procompetitive” this includes efficiencies and technological improvement) (note: some jurisdictions don‟t believe this) NOTE: look at footnote which seemed to say that professional may be different in a narrow set of case (this is a narrow opening) B. Goldfarb case  - there were lawyer fee schedules which fixed minimum fees, lawyers thought they were not subject to antitrust laws before this court held that lawyers can‟t fix prices C. California Dental case (Update 18) Facts: by-laws said they wanted to protect people against false and misleading advertising, by-laws said there would be no ads for across the board discounts for groups of people (i.e. new patients or senior citizens) and imposed disclosure requirements and limits exaggeration - the issue is whether these by-laws lessen output of dental services (relevant market) and how do you determine whether a case is a clear price fixing or cartel case Holding: court said a more sedulous look is necessary, you can‟t just take a quick look because here the actions at issue are not strictly anticompetitive - ct says preventing fraudulent advertising has pro-competitive effect (inaccurate information is anticompetitive) (Fox says the assessment of competitiveness should not rely on truthfulness) - the court says that the FTC had to present empirical evidence that the by-laws would raise prices and decrease output (Fox says the requirement of empirical evidence is a new thing because it used to be presumed that there would be more output if activity was procompetitive) D. Bates case  - this is a constitutional case but is still relevant for our purposes, state bar association would pass disciplinary rules to regulate itself, these rules had to eventually be approved by the state court through the power of state action, in this case lawyers were first wanting to advertise but this was prohibited by the disciplinary rules, court held that it is unconstitutional for states to prohibit truthful advertising (this case created a stronger and more accessible market for small and middle size legal practices which serve middle class people) 44 VI. Information Exchange A. General - information exchange = when competitors get together and exchange information - if you had a competitively structured market information exchanges would be very good since the information can be very detailed and can provide valuable knowledge about the market - Trade associations exchange/share information all the time (can get approval letter for an exchange plan from Justice Department) where the market is concentrated and there are high barriers to entry then information exchange can be evidence of cartel (= “cartel-like behavior”) in some cases plus it facilitates “cooperative behavior” here information exchange is harmful and can lead to higher prices (a successful cartel typically depends on exchange of information because prices can be maximized when you have the most information (particularly information about prices, output, and plans for the future) from the different players involved) to avoid being called a cartel, companies should do the following  1) competitors should not direct communicate and discuss price, output, or plans for the future but discussion of past transactions is OK 2) companies can exchange aggregated past information through an independent party who will not pass (you should not share raw data but the independent party can see the raw data) No mention should be made about specific firms, transactions etc and no information about future predictions should be shared 3) BUT companies should not share information when the market is very highly concentrated - B. US v Container Corp. of Am. (367) Facts: def‟s collectively had 90% of the market, defs were competitors that exchanged information about the most recent prices they each charged or quoted Holding: §1 violation because the exchange of this type of information causes price uniformity - §1 is still violated even if there was some price competition C. US v Gypsum (371) Facts: def‟s telephoned competitors to verify prices charged to specific customers and tried to argue that they need this information to comply in good faith with that the Robinson-Patman Act which says that mfrs cannot offer discriminatorily low prices to 1 buyer and not to the buyer‟s competition unless a lower price was necessary to meet competition from another mfr Holding: violation of §1 because court rejected this excuse since there are other ways to check a competitor‟s prices without directly communicating with them about it 45 VII. Boycotts - boycotts exist where competitors concertedly refuse to deal in order to coerce or destroy competitors - you could argue that a refusal to deal may just be a joint venture - usually you won‟t see a boycott where there isn‟t market power (unless there is a personal dispute) because a boycott generally won‟t work unless you have market power - example if Lorain Journal and L News are competitors who agree that they won‟t publish advertisers who deal with the radio station WEOL = boycott in violation of §1 A. Fashion Originators Guild of American (FOGA) v. FTC (391) Facts: designers sold to textile mfr who sold to dress mfr who sold to wholesalers who sold to retailers, these people could not get IP protection so they got together and agreed that no one in this chain may deal with anyone who is making or selling pirate copies, this agreement was enforced by having “shoppers” go around and police members and non-members, violators of agreement are subject to heavy fines and are boycotted - p. 392 organization stopped members from doing retail advertising, regulated discounts they could charge, prohibited retail sales, and prohibited sales to people who conduct businesses out of their homes (Fox says that proving these factors are not even necessary because there was still a boycott and coercion) - def says that the pirates are free-riding plus P did not show that def affected cost, quality, or quantity Holding: per se illegal - purpose eliminate competition from pirate copiers = “tends to create in themselves a monopoly in the said industries” - effect reduced outlets to which the mfrs could sell and the sources from which retailers could buy goods, forced members to reveal details about their individual transactions - ct says decrease/increase in price and proof of lower output are not necessary to prove there was a boycott NOTE: would this boycott have eventually raised price and lowered output Fox says yes this is intuitively anticompetitive, she says this is a good example of a boycott, the designers were trying to squeeze pirates completely out of the market and thereby eliminate a huge amount of competition B. Klor‟s v. Broadway-Hale Stores (394) Facts: owners of Klors and BH hate each other, both stores sold electronics and household wares, but Klors claimed that BH convinced mfr of electronics to stop selling their products to Klors or sell them to Klors at higher prices, there were still a lot of other retail sellers in addition to Klors and BH, Klors claimed there were horizontal agreements between the mfrs and vertical agreements between BH and mfrs Holding: per se illegal, S.Ct. says this is a boycott and you don‟t need to show harm to market or public (now courts are concerned about consumer harm) - the concerted action, by its nature and character, a “monopolistic tendency” because such agreements take away the freedom for mfrs to sell in accordance with their own judgment - NOTE: there‟s no harm to competition because since only 1 business was harmed this probably meant no price, output, and quality would not be affected C. Superior Court Trial Lawyers Facts: lawyers represented indigent def and were not getting paid well, they boycott and strike and refuse to take on any new cases until fees are raised, lawyers actions hurt competition in order to get gov action Holding: per se illegal price fixing cartel and boycott (this is still good law today) - before the boycott lawyers competed w/ each other by independently deciding whether and how often to provide services 46 - the lawyers were conspiring to hurt the market (market = the need for these lawyers to represent the indigent defendants) by closing off the supply D. Toys R Us (handout) Facts: this case arose under §5 of FTC act which we construe very closely w/ §1 of the Sherman Act - TRU is a very big toy retailer, warehouse clubs appeared and charged membership fees and provided toys at very low prices and started taking business from TRU, TRU talked to the big toy mfrs and told them that it is their policy to not buy from a mfr who sells the same items to warehouse clubs, all of these mfrs agreed to limit the products sold to clubs and also later agreed to boycott the clubs altogether on the condition that the other mfrs would do the same, TRU has as low as 20% market power in some areas and as high as 49% market power in other areas, FTC claimed there were horizontal restrictions (this is a little like Klors) (this is just a question of fact re whether there was enough evidence that there were agreements among the mfrs to comply with TRUs demands), FTC also claimed that there were vertical restrictions Holding: per se illegal horizontal restraints and plus illegal vertical restrictions - Horizontal Restraint analysis does substantial evidence support a finding that there was horizontal agreement? you can prove this by using direct or circumstantial evidence (if you use circumstantial evidence the evidence must “tend to exclude the possibility” that the alleged conspirators acted independently) - here TRU‟s actions are per se illegal because the mfrs‟ decision to stop selling to clubs was a dramatic shift from its past practices (there was evidence that mfrs wanted to reduce its reliance on TRU and wanted to increase sales to clubs) AND there was evidence that the mfrs communicated with each other through TRU to coordinate their actions - NOTE: Singleton says horizontal conspiracies at mfr level are very bad for the market and raise different concerns than if mfrs were simply excluding warehouses from the market it is not clear which one the court was concerned with - Defining the Market Singleton argues that there were 2 markets in this case 1) TRU and mfr and 2) warehouse clubs and mfrs NOT “toys” - Market Power can be shown through 1) direct evidence of anticompetitive effect (Indiana Dentists) OR 2) by proving relevant product and geographic markets and by showing that def‟s share exceeds whatever threshold is important for the practice in the case - here TRU caused reduction of output of toys to clubs and got rid of the only competition that would have put a check on its own prices (ct viewed this as price fixing) - Singleton disagrees w/ the idea that you can look at anticompetitive effect on the market and then work backward to infer that a company had to have market power in order to create those anticompetitive effects (Singleton says this is too narrow of an inference) - Singleton says there are 3 potential reasons for what happened in this case 1) individually the mfr wanted to do this 2) mfrs wanted to do with because every other mfr was doing it, or 3) you could argue that TRU coerced mfr to do this (court accepts 3) and also says 2) might have affected what happened as well) - what are the anticompetitive effects anyway? court said there was output limitation just because there was a reduction of sales to the warehouses (Fox says this is wrong), from the facts it is actually not clear what the sales were to TRU and whether output was reduced overall in the toy market - can a firm with 20% of the market really have market power? economists don‟t think market power dictates how much a company can effect the economy and here TRU was able to do what it did because it had a good deal/plan to offer the mfrs - Defense of free-riding court rejects this because mfrs paid for almost all advertising and therefore TRU invested nothing and thereby lost nothing 47 E. Northwest Wholesale Stationers v. Pacific Stationery & Printing Co (401) Facts: 100 retailers of stationary create a buying coop in order to pool their purchasing for the purpose of sharing warehouse facilities and saving money on delivery and storage costs, def was a dual distributor in = they engaged in wholesale and retail activity, the coop kicked def out of the coop, the issue is whether expulsion from a buying coop is anticompetitive Holding: this is not per se illegal - to find per se illegality  1) there is a jt effort by a firm or firms to disadvantage competitors by directly denying or persuading/coercing suppliers or customers to deny relationships the competitors need in the competitive struggle (i.e. cutting off competitor‟s access to supplies, facilities, or markets that are necessary for the competitor to stay competitive) 2) there are no procompetitive arguments for actions taken such as efficiency 3) NOTE: typically the boycotting firms possess a “dominant” position in the relevant market where the action is NOT per se illegal violation exists only if  1) the coop had market power OR 2) the expulsion from the coop denied the excluded company from access to a unique and necessary input or outlet (this is different from essential facilities) (you need some market power to do this, but not the same level as needed to prove a §2 violation) - here P had access to market, it just would have been more expensive F. FTC v. Indiana Federation of Dentists (405) Facts: insurance companies want x-rays from dentists to monitor the treatment being given by the dentists and make sure they are not overtreating patients, dentists refuse to submit x-rays to insurance companies (this is similar to facts in Maricopa case) - FTC tried this not as a per se case but as a quick look case/shorthand rule of reason case (the discussion about market definition is very skimpy) - what competition was harmed? ct says that if competition existed dentists would be forced to comply since they would cave in to market forces, here since there is no competition the dentists do not comply Holding: violation [applied “truncated rule of reason” or “quick look”] - rule of reason is applied consumers want dentists to send x-rays to insurance companies and refusal to do what consumers want is anticompetitive - court says it is not necessary to show there was or was not cost/price rises - market power you don‟t have to do an elaborate market power analysis if there is direct evidence of anticompetitive effects - here court said it was enough to show that there was output limitation (= insurers were not able to get x-rays) because markets for dental services are localized and def dentists constituted the majority of the practicing dentists in the areas at issue - Defenses def can combat this claim by raising countervailing pro-competitive justifications - dentists argue that they want to protect the quality of service they can provide to patients (quality goes down when insurance places restrictions on what services they will cover), ensure they are able to make money, and also protect the autonomy of dentists - ct said reduction in quality of care that would result from compliance with insurance companies is not a defense plus the evidence did not support this NOTE: Indiana case was a 5 to 4 decision Fox says it may not hold up - California Dental case no presumption of harm to competition, of output limitation, no shift of burden to show procompetitive justification, preventing puffery or false and misleading advertising is a procompetitive justification 48 G. Nynex v. Discon (Update p. 15) Facts: Nynex bought services from Discon, AT&T offered a deal to Nynex whereby they would provide Nynex with the same services as Discon but at a higher price, Nynex could recoup the price premium to consumers through regulatory-approved tariffs, then Nynex and AT&T could split the gain from the premium, Nynex agreed to this deal and refused to deal with Discon Holding: this is NOT a per se illegal boycott case - ct distinguishes Klors case Klors case involved vertical and horizontal agreements and vertical restraints are not per se illegal unless there is price fixing - this case only involves a vertical restraint and there is no price fixing = no per se rule applies - ct says P must show there was harm to the competition (not just to a single competitor) VIII. Guest Lecture re European Antitrust issues (Singleton) - anyone who tries to put a competitor (even an inefficient one) out of business might violate EU law - in the US immunity is given to the first member of a cartel that exposes the cartel - EU law says excessive pricing is problematic - Singleton criticizes the structure of some of the businesses but does not oppose the behavior 49 IX. Political and State Action A. Noerr-Pennington Doctrine 1. Noerr Case Facts: railroads were upset because there was a bill that would let large trucks use the highway and the trucks would them compete directly with the railroads, the railroads tried to get the gov to not pass the bill, railroads used deceitful publicity campaign and successfully got the governor to veto the bill, truckers sued and said that the railroads got together to harm competition through their actions Holding: no violation private actors have the right to petition the government to take action, it does not matter that the intent of the railroads was anticompetitive and the result was actually anticompetitive and the gov‟s veto of the bill actually restrains trade B. Sham Exception 1. California Motors Transport v. Trucking Unlimited (418) Facts: def automatically opposed every competitor‟s application for a license knowing that its opposition would cost its competitors additional money during the application process Holding: court held that the def‟s actions were not protected because the def was not petitioning the gov and were instead engaged in a “sham” 2. Lawsuits as Sham - lawsuits can be considered petitioning activity and is normally protected unless it‟s a sham - Otter Tail case municipalities were helping private entities to build plants, Otter Tail brought lawsuits because the lawsuits force municipalities to stop financing such developments during the pendency of the lawsuit = the lawsuits were sham lawsuits a. Professional Real Estate case Facts: def rented videos of movies to guests at its hotel, P sued for copyright infringement, def counterclaimed and argued that the lawsuit was a sham Holding: lawsuit was not a sham, for litigation to constitute sham, the suit must be  - 1) objectively baseless (no litigant could reliably expect a favorable outcome) 2) there must be a repetitive pattern of such suits and 3) the suit must interfere directly with the competitive activities of competitors and lessen competition - bad intent behind the lawsuit does not matter 50 C. Cases applying Noerr Doctrine 1. Allied Tube v. Indian Head (419) Facts: trade association set standards and approved steel pipes for use in construction, if this association approved a standard states would generally adopt these standards, producers of plastics pipes appeared and tried to get approval for plastic pipes and makes of steel pipes reacted by staffing the trade association meeting with members who would vote against the plastic pipes Holding: the def is not protected by Noerr doctrine - test for whether there actions are sham or legitimate petitioning of gov  1) impact here this was a conspiracy to squeeze out competitors 2) context here the association only had de facto authority from the state government (no official authority) and the members of the association are not accountable to the public, have personal financial interest in the outcome of their votes 3) nature of the activity this was action taken by private actors D. Political Boycotts 1. Superior Court Trial Lawyers Facts: trial lawyers represented the indigent defendants and were not getting paid well enough, they strike and want the mayor to raise their hourly fees, these lawyers boycott and picket and refuse to take on any new cases until fees are raised, the actions of the lawyers hurt competition in order to get government action, lawyers also claim they have a right of free speech and expression, the lawyers were conspiring to hurt the market (market = the need for these lawyers to represent the indigent defendants) by closing off the supply Holding: the lawyers hurt the market to petition the government = conspiracy in violation of antitrust laws (it is OK to petition the gov and then later the gov action hurts the market) - the S.Ct. that all boycotts have an expressive element, so you cannot justify the lawyer‟s action by saying it was protected by freedom of expression - Court also said that the lawyers can‟t argue that they are simply grassroots boycotters because the individual lawyers were going to get financial gains if they were successful NOTE: you can argue that this is a bad decision because the Noerr doctrine supports typical lobbying by bribing and petitioning people in congress but does not allow you to conduct an effective strike 2. Missouri v. NOW (424) Facts: NOW boycotted certain states that had not passed the Equal Rights Amendment Holding: this does not violate antitrust laws because it was a boycott in a non-competitive political arena for the purpose of influencing legislation - but ct said that there might be cases where noncommercial and non-economic boycotts may violate antitrust laws 3. NAACP case (424) - NAACP boycotted white merchants - court said this is a true political boycott and was protected by freedom of expression because the people were not in the direct commercial chain and were not going to get financial benefits if they successfully boycott 51 X. Proof of Conspiracy A. General - where it is clear that separate and otherwise competitive firms are openly combining to attain a jt end the analysis must be 1) purpose 2) power and 3) effect - if you are trying to figure out if there is a conspiracy/contract at all explicit agreement is not necessary, an “understanding” is enough B. Interstate Circuit Case (450) - the holding in this case does not survive after Matsushita Facts: Interstate has first run theatres in a lot of towns in Texas and run the best films, the admission price was a little over 40 cents, head of Interstate wrote a letter to all managers of movie companies that had addresses of each recipient at the top, the letter said that Interstate won‟t buy movies from the companies unless they agree that they won‟t sell the movies to second run theaters for less than 25 cents and don‟t let them do double features (there is a price fixing issue here but the court doesn‟t address it here), the movie companies all comply with Interstate‟s request - the issue is whether you could infer from these facts that there was an agreement between the movie companies? Holding: S.Ct. said you can infer that there was a conspiracy with Interstate at the hub and the movie companies as spokes because it was more probable than not - the standard is “more probable than not” here court emphasizes that all parties were aware of what each other were doing, they each made significant changes in their practices from before the agreement, also it would not have made sense for any one of the movie companies to do what they did unless every single one of them was doing it (court infers from circumstantial evidence) NOTE: Conscious Parallelism = all entities consciously do the same things, entities involved are doing the same thing and they are aware that every one else is doing the same thing, mere conscious parallelism is not enough to constitute a violation because there are some instances where this is OK, you need to show a “plus factor” to raise a jury question of collusion (i.e. proof of a meeting to discuss prices) NOTE: Fox says that if you get a letter like the one in this case, you should either return it to the sender or you could simply take no action at all, you could even just take action after your competitors have acted BUT you have to do this without speaking to the other competitors first - Fox thinks it is easier to show that Interstate had power than to show that Toys R Us had power - the letter in Interstate would help to show a vertical agreement - where you have such a letter you also need evidence that recipient of letter agreed to take action C. Theatre Enterprises v. Paramount (466) Facts: P owns movie theatre that is 6 miles from the downtown shopping center and wants first-run movies, defs refused to give first-run movies because it is economically better to give first-run movies to downtown theatres Holding: case must go to a jury because the same defs were charged with conspiracy under similar facts in another case 52 D. Matsushita Electric v. Zenith (468) Facts: Japanese producers of electronic products entered US market and were selling at very low prices, American producers were afraid that they were going to be booted out of their own market, Americans believe there was a conspiracy by the Japanese producers - what was the alleged conspiracy? conspiracy to do predatory pricing - what was the proof of this conspiracy?  1) Japanese market was oligopolistic  2) Japanese producers had high fixed costs marginal costs are low and fixed costs are high but the Japanese can charge high prices in Japan to make up for the high fixed costs and then charge low prices in US 3) capacity in the Japanese market was more than they needed for Japan and the Japanese producers want to get rid of the excess products 4) Japanese producers have low variable costs 5) Minestry for International Trade and Industry (MITI = entity of administrative governance over industries and industrial policies) check prices and says the prices are high, but the companies secretly charge lower prices than the prices MITI discovered 6) 5 companies rule the companies agreed only to sell to 5 companies 7) de Podwin report = an expert report that said that there was a predatory pricing conspiracy - none of these factors prove a low price conspiracy (you see some incentive for why the Japanese producers might want to sell off the excess products from Japan at a lower price in the US) - NOTE: the plaintiffs can‟t bring suit regarding high price conspiracy because the plaintiff stands to profit from high prices and therefore the plaintiff would not be able to show antitrust injury and would not get damages Holding: case must go to trial the burden of proof is very high to prove conspiracy after this case - test to prove a §1 violation the evidence must “tend to exclude the possibility” that the alleged conspirators acted independently = the plaintiff fails if inferences of independent action are as strong as inferences of conspiracy, the plaintiff‟s claim must also make economic sense - here there was no rational motive and economic rationale for the Japanese producers to engage in predatory pricing - predatory pricing  - this is very hard to do by a single firm and is even harder to do it with a group of companies - here barriers to entry are not high and so it would not be hard for new competitors to come into the market if the Japanese every tried to maintain a monopoly to recover lost profits from the low pricing also here it‟s been 20 years since conspiracy allegedly began yet American companies still have largest share of the retail market in TVs - NOTE: court would rather err on the side of not finding a conspiracy because it wants to encourage firm to charge low prices, also court said that when the company tries to recoup profits by charging monopoly prices the courts can get the company then NOTE: Fox says the court made some assumptions regarding predation, the case contains Chicago School Assumptions (i.e. the market is too vibrant and will not let companies exploit the market, Chicago school believes gov should keep out of business) NOTE: Matsushita case is different from Interstate because it involves a low price conspiracy and low price conspiracies are harder to prove, from the facts it looked like the defs had a high price conspiracy in Japan and were simply selling off their excess products in the rest of the world NOTE: consider Toys R Us in light of Matsushita mere interdependence or conscious parallelism does not equal a violation, a plaintiff must disprove all theories that seem to indicate there was no conspiracy 53 XI. Mergers A. General - §7 of the Clayton Act = main merger law (§7a is the Hard Scott Rodino Act) says no person may acquire/merge where “effect…may be substantially to lesson competition” - NOTE: before 1940 people were concerned that merger laws were too lenient, also people started becoming afraid that power was being too concentrated and could be used abusively in conjunction with gov action to have too great a control over the market and society (like what happened in Nazi Germany) 1. 3 categories of mergers 1) horizontal mergers you consider whether there is a) coordinated action AND b) unilateral effects = creating single firm power NOTE: horizontal mergers give oligopolists more market power or create oligopolies 2) vertical mergers = mergers of people in buyer/supplier relationships - these used to be considered anticompetitive because they kept smaller firms out of the a market (exclusionary effect) today this is not enough to prove a violation - now we only consider if the merger is exploitative = exploits consumers by raising prices NOTE: horizontal mergers are most likely to be anticompetitive, vertical agreements tend to be less likely to be anticompetitive - Brown Shoe was found illegal on horizontal and vertical grounds - vertical mergers are usually efficient and not anticompetitive because they just reorganize the buyer supplier arrangements, they don‟t change the number of participant buyers or suppliers - 2 possible ways that vertical restraints are anticompetitive  1) Integration forward to retail A B and C are horizontal competitors that are colluding and want to monitor their cartel by owning their outlets 2) barrier raising example Eastman Kodak and Fuji make film and need to use photographic grade gelatin that is made by only 1 supplier called Gelco, if Kodak decides to buy Gelco then it will make it harder for a 3rd company to come (a similar example is where there are 2 suppliers of gelatin and both Kodak and Fuji each buy one of the suppliers raises barriers for 3rd party to enter) 3) conglomerate mergers = all other mergers - included in this subcategory are potential competition mergers = mergers that decrease the potential competition at a certain level (usually these are horizontal mergers) - older cases used to say that there was a violation where there was entrenchment = violation just because the merger will create a “giant” in the market this is no longer the law today 54 B. Merger Guidelines (1992) - these are joint guidelines by justice dept and FTC and are only horizontal guidelines because in 1992 the justice dept was not worried about vertical mergers (there are some guidelines from 1984 that have some provisions re vertical mergers) - under these guidelines you have to consider does this merger create or enhance market power or facilitate its exercise = does the merger raise prices and harm consumers? - steps for using the guidelines 1) define the market - the object is to include all constraints on price that are on the demand side - you always start by finding the smallest area in which a hypothetical monopolist is likely to be able to impose a “SSNIP” = small but significant and non_____ increase in price - consider Hospital Corp of America the market = hospitals - are there any other potential markets? you could argue that the market is limited to specific product/service, limited to a smaller geographic area (in this case most people wouldn‟t go very far from their homes to get to a hospital), or limited to emergency care or even limited to optional care services (the market may be broader where optional care is at issue versus where emergency care is at issue) - NOTE: the firms that are merging may have market power before the merger even happens, but in merger cases you are not concerned with that, instead you are concerned with whether prices will be raised after the merger (cross elasticity of demand matters) - example what is the geographic market for commercial jets? market = the world because there are only 2 companies that make commercial jets for the entire world - example  Zenith and IUE were the only 2 American companies making electronic products, they make taperecorders and TVs as well as consumer electronics (you can put these 3 groups of products all together unless there is some specific reason for separating them), what if Zenith and IUE were going to merge - what would the geographic market be? US? or the world? if there are trade barriers for getting into the US then the market = US because the barriers would give the US firms more power and even if you say the market is just the US you can count the foreign products to the extent that they are already in the US NOTE: Brown Shoe factors may lead you to a smaller market than the hypothetical provided under merger guidelines 2) identify what firms are in the market - you have to include current sellers you have to calculate their sales and capacity - you also have to consider uncommitted entrants entities that have incentive to enter the market and don‟t have to make a huge commitment and don‟t have to expend too many sunk costs to enter the market (sunk costs = cost to commit and entity to a market) 3) calculate market shares - you calculate market shares in order to determine future competitive significance - you have to look at sales, capacities, and reserves - with this measure you will be able to see what the company is currently doing in the market and also determine what the company would do where there are SSNIPs 4) measure the concentration in the market pre-merger and post-merger by using HHIS and also determine the increase in concentration (= delta) that would occur if the merger went through - HHI index just measures concentration - you have a monopoly where a firm has 100% power = 10,000 HHI - you have a fragmented market where you have 100 firms with 1% power each = 100 HHI - 1000 HHI is insignificant = safe harbor 55 - if post merger HHI is 1000-1800 and the delta is more than 100 = this may raise significant concerns that the merger is anticompetitive if the increase is more than 1800 and the delta is more than 50 = this may raise significant concerns that the merger is anticompetitive if the delta is less than 50 = this is not significant enough to worry about it if concentration is greater than 1800 and the delta is more than 100 = there is presumption that the merger is anticompetitive and the def then has burden to rebut this presumption 5) potential effects you have to figure out if there is coordinated action or if factors are in place that will cause lessening of output unilaterally - you ask whether the conditions are conducive to cartel-like behavior? the difference is that where there is a cartel there is an agreement and where there is just coordinated action there is no explicit agreement - firms can get unilateral power because they have differentiated products and the 2 firms are the first and second choice of consumers (i.e. coke and pepsi) 6) consider if there are barriers to entry – if probable entry by another company is timely, likely, and sufficient then there is no anticompetitive effect, if a firm will be able to enter within 2 years and be able to be a competitive check on the merged firms then this weighs in favor of the merger 7) efficiencies (this has been revised since 1992, see Supp.) today efficiencies are not a defense to an anticompetitive merger but they are relevant in considering whether there are anticompetitive effects to begin with, the efficiencies must be cognizable, verifiable, merger specific, and must be of a character and magnitude that will make the merger not anticompetitive - efficiencies seldom meet this standard where a merger looks anticompetitive 8) failing firm/division defense there is a S.Ct. case that says that in narrow cases a company can claim that a merger was necessary to prevent a company from failing because the failure of that company would result in the loss of competition, usually a firm that merges with a failing firm will not gain market power after the merger C. Early Background Cases 1. Brown Shoe v. US (750) the substantive legal analysis in this case has been overruled Facts: this is the 1st merger case under the Celler-Kefauver amendment - Brown Shoe (BS) is #4 in its market and makes 4% of all shoes, Kinney makes 5% of shoes - the top 4 companies control 23% of the all mfr of shoes - BS was #3 seller in US with 6% control and Kinney was #8 with 1.2% control - in many local markets BS and Kinney worked together and had up to 5% of the control Holding: the merger is illegal - see p. 754 for definition of “submarket” submarkets may exist where there are distinct customers, distinct prices, specialized vendors, a product has peculiar characteristics, etc. - what was the probable effect Fox says don‟t trust the analysis in this case - ct said the facts lead you to believe there will be concentration - see p. 758 for discussion of market share - this case is cited for the line “it is competition, not competitors which the Act protects” NOTE: - US v. Philadelphia National Bank (760) this case was not assigned, see p. 764-5, a few large banks in PA wanted to merge, merger was illegal, this was the “skeleton case” 56 2. US v. General Dynamics Corp (778) - see p. 780 describes the merger of coal companies, gov brought in statistics to prove there was a dramatic increase in concentration after merger Holding: def can rebut P‟s claim by showing statistics are not a good proxy for future harm, proof of significant market share does not alone mean there is a significant threat to competition - NOTE: gov usually also introduces evidence re barriers to entry 3. Hospital Corp of America v. FTC (789) Facts: there were 11 hospitals and def took over 5 of them, after the merger the top 4 companies had 91% of the market, def was #2 with 26%, the issue was whether high concentration was a threat to competition and whether it will bring about oligopolistic pricing - issue was there was substantial evidence supporting FTC‟s conclusion that the merger creates danger of collusion Holding: yes there was substantial evidence - evidence of future potential anticompetitive effects 1) there are fewer total number of firms which makes it easier to coordinate (here hospitals can jointly resist gov and insurance pressures to cut costs) 2) there are gov regulations that create barriers to entry 3) buyers can‟t go anywhere else to get hospital services 4) demand for hospital services by patients is inelastic (if demand is inelastic this means that change in price will not effect demand for good/service) 5) where there is a tradition of cooperation, there is greater chance of collusion NOTE: this case doesn‟t follow the merger guidelines technically D. FTC v. Staples (handout) Facts: Staples was #2 office supply store and wanted to acquire Office Depot (s#1 office supply store), Office Max is the #3 office supply store Holding: preliminary injunction given to stop merger - standard for preliminary injunction likelihood of success on the merits of proving that the effect of the merger will be substantially to lessen competition or to tend to create a monopoly - analysis court must look at 1) product market consumable goods sold by office superstores  - court used Brown Shoe factors of 1) functional interchangeability, 2) elasticity, 3) practical indicia (i.e. industry recognition and special characteristics of superstores), 4) pricing evidence (i.e. evidence of difference in pricing depending on which competitors were nearby), 5) uniqueness (difference in selection and size of superstores compared to other office supply sellers)and 6) submarkets - merger guideline analysis you assume there is a hypothetical monopoly and conduct a SNIP and then make an analysis of whether monopolist will maintain those prices and what consumers would do under those circumstances ct assumed the monopoly could raise the price and hold it there and consumers would not go to other alternatives - Fox is skeptical about this market could the market also be paper clips, post-its, and file folders or even a market that consists of office products? and could court have included sales by general retailers, Wal-Mart, and Warehouse clubs in the market (actually, there was some evidence that the presence of these did not affect prices charged by the office superstores)? - NOTE: office furniture is not part of the market because people shopping for office furniture will shop across a very wide range of stores 57 - 2) geographic market metropolitan areas 3) the merger’s probable effect on competition in the product and geographic market  - effects and HHIs there are high HHI numbers pre and post merger so FTC has a PF case, this shifts the burden to the def to prove the merger is not anticompetitive Defense efficiencies court said def‟s evidence regarding efficiencies was not credible and def could only offer a few examples of specific cities where the FTC‟s evidence did not apply - def tried to argue the barriers to entry were low but court said evidence showed that the evidence supported conclusion that it was improbable that others will enter the market NOTE: consider that the superstores exist for the purpose of providing discounted office supplies E. Heinz/Beech-Nut Merger (handout) Facts: Gerber had 65% of the market, Heinz had 17.4% and Beech-Nut had 15.4%, Heinz and Beech-Nut want to merge Holding: no preliminary injunction BUT on appeal FTC got a preliminary injunction - product market jarred baby food (Fox says this is right)the next competitive source of baby food would be table food (i.e. parents make their own baby food) - effect of merger there will be high concentration, HHI will go from 510 to 5275 = FTC was able to establish PF case that the merger is anticompetitive - PF case was rebutted with evidence that the merger will increase competition - efficiencies court believes there are significant efficiencies, the court does not treat efficiencies as a defense it just says that the post merger circumstances will be better because the merger will increase the ability of Heinz and Beech-Nut to innovate and compete with Gerber, which has had the #1 position in the market for 40 years - in this case the FTC did not do econometric studies and instead depended solely on statistics NOTE: merger guidelines are not law so cts can make their own choices about what they want to apply, the more sophisticated the ct, the less likely it is that the ct will use Brown Shoe analysis F. Boeing – McDonnell Douglas (Update 36) Facts: Boeing had 65% of world market, McDonnell Douglas had about 4%, Boeing wanted to acquire MD, no one other than Boeing was going to purchase MD and Airbus which had 31% was the only other competitor Holding: the world is the market - the FTC dropped the case because McDonnell Douglas was only going to exist for a little while and was going to go out of business eventually because it had no intention of developing new airplanes or keeping up with technology, technically McDonnell Douglas was not a failing company, it simply was not a significant player in the market - European Commission asserted jurisdiction and thought the merger was a problem because Airbus would be at a serious disadvantage since the merger would give Boeing 70% of the market Boeing eventually changed its decision to make the acquisition 58 G. Perceived Potential Entry = Potential Competition 1. FTC v. Proctor & Gamble (815) - don‟t trust reasoning in this case because it makes a lot of assumptions that are invalid today Facts: Clorox is #1 producer of household liquid bleach and makes almost 50% and is the only one to sell nationally, Purex makes 15.7%, there are also 200 more that make non brand name bleach, bleach is homogeneous = chemical constituency is the same for all bleaches no matter who makes it, Proctor & Gamble makes 54% of boxed detergents, issue is whether Proctor‟s acquisition of Clorox is illegal Holding: merger violates Clayton Act - product market household liquid bleach - geographic market the nation and a series of regional markets - anticompetitive effects of the merger  - raising of barriers to entry because smaller firms will be dissuaded from competing with such a huge firm and Proctor‟s large advertising budget will give it a very large advantage (where the product is homogeneous, advertising becomes more vital) - NOTE: smaller firms might actually do very well by underpricing the big firms and you could argue that if Clorox ever raised their prices too much then consumers might switch to the smaller firms - liquid bleach industry was already oligopolistic before this acquisition - perceived potential entry effect court said that Proctor & Gamble had a moderating effect and pushed price lower while they were not in the liquid bleach market and was simply viewed as the most likely entrant, so when they acquired Clorox there was no one to create a moderating effect and prices would become higher NOTE: Proctor and Clorox were not competitors before the acquisition, the case is about the entrenchment of Clorox‟s dominance and the elimination of Proctor‟s potential competition NOTE: if you have very easy entry into a market then it is hard to say competition is stifled 2. US v. Marine Bancorp (1974) (824) geographic market extension case - this is decided in same year as general dynamics case, that year was a turning point for antitrust law  S.Ct. becomes more deferent to business interests, tolerant of bigness, and began to require more proof from plaintiffs Facts: National Bank of Commerce (NBC) is the #2 commercial bank in Washington State and wants to acquire Washington Trust Bank (WTB) which is the 3rd largest in Spokane and has 18.6% of the deposits in Spokane, NBC has no presence in Spokane - gov says NBC is a potential competitor of WTB therefore a merger between the two would eliminate any potential competition (even if it eliminates competition, you have to decide if this elimination is meaningful) Holding: - geographic market in potential competition cases the geographic market is the area in which the acquired company is an actual, direct competitor here the market is Spokane - actual entry theory = but for the merger NBC would have entered the market, stirred up competition, and pushed prices lower than they were before the merger - wing effect probability that the acquiring firm prompted pre-merger procompetitive effects in the target market by being perceived by firms in the market as being likely to enter - a merger that results in market extension may be unlawful if the target market is  1) substantially concentrated 59 - 2) the acquiring firm has the characteristics, capabilities, and economic incentive to make a perceived potential de novo entrant AND 3) the acquiring firm‟s pre-merger presence on the fringe of the target market did prevent oligopolistic behavior by members of that market - here gov was not able to prove this theory elimination of perceived potential entry  - to prove this P must show that 1) the acquiring firm had feasible means for entering the target market by means other than by making the acquisition 2) those means offer a substantial likelihood of ultimately producing deconcentration of that market or other significant procompetitive effects - here state regulations prevented NBC from entering the market other than through the acquisition = court did not reach factor 2) and there is no wing effect - NOTE: **Court reserved the question of whether a merger that results in market extension may be illegal based only on factor 2)** FTC thinks yes (p. 830) and S.Ct. implied yes in US v. Penn-Olin (831) NOTE: it‟s hard to have an actual entry case without also proving a potential entry case 3. Merger Guidelines standards - to prove whether a merger will eliminate actual or potential competition consider 1) market concentration must normally be more than 1800 on the HHI 2) entry must not be easy, it must require a specific entry advantage 3) the acquiring firm‟s entry advantage must not be shared by more than 2 other firms (this condition is relaxed if probably actual entry is particularly strong) 4) the market share of the acquired firm must be more than 5% (DOJ is likely to sue if the acquired firm‟s share is 20% or more and all other conditions are also met) H. AOL Time Warner (handout) Facts: Time Warner was one of the world‟s biggest media companies, it controlled 20% of cable in US, owned Warners which makes 1/5 of the films sold in the US, owns 1/6 of records sold, has a TV network (Warner Bros network), owns HBO and TNT, publishes Time, People, and Sports Illustrated, and is also a big publisher of books, AOL was an ISP and 54% of the people in the country used AOL, the goal of the merger was that Time Warner wanted to get into the internet business and AOL wanted to have access to Time Warner‟s resources in order provide speedier internet connections through cable connections, AOL also wanted to pioneer interactive TV NOTE: AT&T is the largest provider of cable services but in some areas Warner is the only provider of cable access 60 XII. Vertical Restraints - the following are covered by §1 1) minimum resale price 2) maximum resale price 3) confinement of dealers to territories or customers 4) exclusive dealings/partial exclusive dealing contracts 5) requirements contracts 6) tying - potential effects from vertical restraints limits autonomy of dealers, forecloses competitors, raises prices and output limiting - look at DOJ vertical restraint guidelines NOTE: courts are generally OK with vertical restraints but you still have to be concerned with whether or not prices are raised as a result of the restraint A. Resale Price Maintenance 1. Dr. Miles case (523) Facts: Dr. Miles created medicines and sold them to 400 wholesalers who sold to 25,000 retailers, Miles had a retail price maintenance system where he told wholesalers at what price they could sell to the retailers and retailers agreed to sell at a certain price, JD Park was a discounter who got some of the medicine and sold them for less money, Miles sued Park for tortious interference w/ his contracts but issue was whether Miles‟ contracts violate antitrust laws Holding: contracts violate antitrust laws after this case there is per se rule against resale price maintenance that are conducted pursuant to a contract, combination, or conspiracy [NOTE: this creates need to determine in each case whether there is a contract, combination, or conspiracy] (this holding is still true but the reasoning of this case is no longer used) - restraints on alienation are bad alienation = when the seller sells something the seller can‟t put strings on the product because the new owner must have the freedom of alienation with respect to the product (the reasoning behind this is that freedom of trade is a good thing) - ct also says the agreements between mfrs and dealers prevented retailers from competing w/ each other and if Dr. Miles have a monopoly then the retailers might be getting more money than they would if the retailers were competing this is like a cartel - the issue may be intrabrand competition versus interbrand competition - also consider whether it matters that retailers are getting the extra profits, shouldn‟t the question be whether Dr. Miles is getting monopoly profits? - here the advantage was to the retailers and the court said it is more important to preserve freedom of trade court emphasized “free trader value” in this case but today the law has shifted so that a court would now be concerned with “free rider effect” - NOTE: under common law contracts in restraint of trade are void unless they are justified Dissent (Holmes) says producers should manage their business however they choose because the behavior they choose is bound to be best for consumers a. Aftermath of Dr. Miles case 1) Fair Trade Laws and State Action Doctrine NOTE: after Dr. Miles case people were unhappy with this per se rule, particularly unhappy were small business that wanted to be protected against low prices - fair trade laws = state statutes that authorized RPM (these state laws were supported by federal statutes), these laws kept prices up 19-20% (as a result of these laws small liquor business opened that would not have been able to open in a more competitive market because they were not that efficient), 61 - - when the federal laws were repealed the issue that emerged was whether the state action doctrine would allow states to keep their individual fair trade laws Parker v. Brown (534) Facts: state passed laws essentially allowing cartels by raisin growers, a farmer who wanted to grow more raisins than the cartel allowed sued Holding: no violation of federal antirust laws because the state controlled and administered the program at issue in the case = state action CA Retail Liquor Dealers v. Midcal (535)  - Facts: CA had law that said all liquor companies must get licenses and the liquor companies may set prices at which all liquor sellers must sell, one seller wanted to sell liquor for less money and does so without a license and does not post prices, issue is whether state can allow the setting of the liquor prices - Holding: the CA had no authority to impose retail price maintenance, action by state is immune from antitrust laws only if the state program is 1) clearly articulated and affirmatively expressed as state policy and 2) actively supervised by the state (here the state did not set the prices, review the prices, monitor market conditions, or reexamine the program) 2. Economics of RPM (582) - Chicago School says that vertical RPM that is not used to advance a cartel is either procompetitive or benign because it ensures that intrabrand dealers will compete with each other about how much and what kind of service they provide rather than on price - this school of though generally believes that if a strategy increase output then it is assumed to be procompetitive - bilateral monopoly hypothesis - product differentiation - welfare analysis not confined to the margin - taking account of retailer differentiation there are significant differences in the value that each retailer adds to a product so the costs of each retailer is different - taking account of dynamic factors consumer demand changes over time - distortion of the price-service mix when RPM occurs there may be over-investment in services since not all dealers are the same size or of the same efficiency - inefficient results from RPM you get higher consumers prices and often lower output - need to tame competition on product variety it may be good to stimulate price competition B. How to determine if there is a contract, combination, or conspiracy 1. US v. Colgate (545) Facts: Colgate made soap and required the wholesalers and retailers to sell at specific, set prices, Colgate 1) distributed lists of prices to be charged 2) said it would not do business with the wholesalers and retailers unless they adhered to set prices 3) conducted investigations to identify dealers who departed from the prices, but there was no actual agreement/contract Holding: court found that this was not an agreement this case is still good law - this case is about right of mfr to deal or not to deal with whomever they want - mfr can tell dealers that they have list prices and say they‟ll only deal w/ people who will charge their set prices this is OK as long as there is no explicit agreement or nothing more done to induce adherence with set prices NOTE: many people think this case is no longer valid because a mfr that takes these kinds of action will always take additional actions, the line between a contract and a non-contract is a very thin line and it‟s hard to find cases where a company only does exactly what Colgate did 62 2. Monsanto v. Spray-Rite (556) S.Ct. holding re how to determine if there is an agreement Facts: Monsanto produced corn herbicides, the #1 firm in the market had 70%, Monsanto had 15%, Spray-Rite is a discount distributor of Monsanto products, Monsanto was not happy with Spray-Rite and wanted to get a greater market share so Monsanto developed new criteria for its distributors which included much better training/education for the sales force, once new criteria were in place Monsanto did not renew its agreement to give products to Spray-Rite - issue is whether Monsanto cut off Spray-Rite pursuant to a conspiracy to fix resale prices? Holding: this case should go to the jury because there was evidence of 1) on 2 occasions Monsanto threatened different distributors who were charging lower prices by telling them it would not provide them with supplies unless they charged the prices Monsanto wanted 2) a newsletter from a distributor to a customer said that all distributors in general were planning to stick with Monsanto‟s pricing unless they wanted to risk being terminated as a distributor 3) evidence that distributors contemplating compliance with the mfr‟s plan know that those who don‟t comply will be terminated - to get to the jury you need evidence that tends to exclude the possibility that the mfr and distributor acted independently (this notion was also mentioned in Matsushita case) - P must present direct or circumstantial evidence that reasonably tends to prove that mfrs and distributors had a conscious commitment to a common scheme designed to achieve an unlawful objective - independent action is legal mfr has right to deal or refuse to deal with whomever it likes as long as it does so independently, because companies needs breathing room and must have ability to keep lines of communication open with its distributors - p. 559 ct says mfrs and distributors may legitimately communicate about prices and marketing strategy and charge higher prices because they need to ensure that distributors make enough profits to pay for training and hiring salesmen or marketing a product effectively and to keep out freeriders (discounters can free ride on full price distributors) - BUT NOTE: mfr also has an interest in having the dealer charge lower prices so that consumers will buy more C. Non-price Vertical Restrictions Customer and Territory Restraints 1. Schwinn case (604)overruled Facts: Schwinn has 22.5% of the market for selling bicycles, wholesalers can only sell to authorized retailers within a specific assigned territory, those authorized retailers can only sell to consumers = no sells to discounters and this constitutes “tight territorial restraints” Holding: this is illegal per se it is unreasonable for a mfr to restrict and confine areas or persons with whom an article may be traded after the mfr has parted with dominion over it - reasoning basically court wants dealers to have freedom to go where they want to go - after this case mfrs can never, by agreement, tell its distributor or retailers where, to whom, and at what price to sell and now there could be intra-brand competition BUT there might also be free riding on individual dealer‟s investments NOTE: EU law is consistent with the holding in Schwinn NOTE: problem w/ Schwinn holding what if a mfr has territorial restraints like in Schwinn but the mfr is a small company that is faced with a lot of interbrand competition the small mfr won‟t get market power by RPM but will only become more efficient through RPM and will get stronger and become competitive with other members of that market (this is the issue in Sylvania) 63 2. Continental TV Inc. v. GTE Sylvania (606) Facts: Sylvania has 1-2% of the market and has a few retailers in scattered areas, S‟s market share in San Francisco was very small so it asked the Young Brothers to enter San Fran market and sell their products, Continental is also a retailer for S and wanted to move into the San Fran market too but S said they would stop allowing Continental to sell their products if they moved into the San Fran market based on a “location clause” in their contract Holding: reversed Schwinn = non-price vertical restrictions must be decided under rule of reason - ON REMAND no antitrust violation was found, location clause was reasonable - vertical restrictions reduce intrabrand competition by limiting the number of sellers of a particular product BUT also increases interbrand competition by allowing mfr to achieve certain efficiencies in the distribution of its products and avoid free-riders - p. 616-7 ct says we should only look at market and economics and efficiencies when we are deciding whether to apply per se v. rule of reason (court said we should not look at non-economic arguments) NOTE: Fox says the S.Ct. opinion is disingenuous in describing the Schwinn rule, but White‟s opinion is very accurate Justice White concurrence  - believes the territorial restraints in Schwinn are different than the location clauses at issue in this case and the small mfr such as the one in this case is different from Schwinn, so Schwinn should have been distinguished rather than overruled - says that the holding in this case will kill the per se illegality of RPM and will lead to the reversal of Dr. Miles case because there are legitimate reasons why a certain mfr might want to charge higher prices D. Non-price Restraint Agreement to Terminate Discounter 1. Valley Liquors v. Renfield (622) Facts: Renfield was supplying to a few distributors – Continental, Romano, and Valley, but Valley was selling at 5% lower prices, making it a discounter, Renfield stopped giving products to Valley in certain geographic areas, Valley alleged there was horizontal restraint because Continental and Romano made agreement to get rid of Valley (this case failed), issue here is whether there were vertical restraints (this must be decided under a rule of reason) Holding: no preliminary injunction - TEST for finding unlawful vertical exclusive selling restraints P must show that after balancing effect on intrabrand and interbrand competition consumers are worse off in general 1) def must have significant market power a firm w/o market power is unlikely to adopt policies that disserve consumers since it cannot afford to do that and if a firm without market power does impose a policy that hurts consumers, then the market will react quickly (ct says these mistakes are unlikely and either way these “mistakes do not seriously threaten consumer welfare”) - here def had no market power NOTE: Nynex case S.Ct. said that they want suppliers and buyers to decided with whom they will deal, in that case the company also had market power and there were raised prices for consumers, district court found this was not illegal under a rule of reason 64 2. Omega Satellite Products v. City of Indianapolis (623) Facts: city had ordinance that says any cable television system that uses public ways must get a franchise from the city, Omega wanted a franchise and failed to get one, so it sued re vertical restraints and said the city was granting exclusive franchises in violation of §1 Holding: no preliminary injunction, remand to decide case based on rule of reason - horizontal territorial restraints are per se illegal but vertical territorial restraints must be decided under a rule of reason - ct noted that the way cable lines are structures may make it more expensive to have multiple cable providers = the benefits and possibility of competition are limited = natural monopoly 3. Business Electronic Corp v. Sharp case (564) Background vertical price restraints are illegal per se (after Kahn this will no longer include maximum resale price fixing) and non-price restraints are OK because they are assessed under the rule of reason (Sylvania) - Sylvania stands for the proposition that mfr has an interest in having a distributor having a higher rather than lower price in order to get more services to the consumer (mfr sometimes have legitimate interest in higher prices but mfr does not want distributor to pocket extra profits) - Monsanto it is not easy to prove that an agreement exists Facts: Sharp makes electronic calculators sold to business customers for prices up to $1000, Sharp sold to Business Electronic Corp (BEC) which was the only retailer in the area, then later Sharp appointed Hartwell as an additional retailer, Sharp had a suggested retail price list but did not require any retailers to stick to these prices, Hartwell sells at a higher price than BEC, Hartwell asks Sharp to get rid of BEC because BEC‟s discount prices were hurting Hartwell‟s business, Sharp agrees to cut off BEC, BEC sues Sharp - issue is this illegal per se agreement (Cal dental is the only case that addresses this issue in a horizontal restraint case) Holding: this is not per se illegal, rule of reason must be used - p. 566 vertical price restraints reduce interbrand competition, might assist horizontal price fixing, and facilitate cartelization BUT vertical non-price restraints may increase interbrand competition by reducing intrabrand competition and thereby increasing profit margin so that retailers can provide added services along w/ the product (where there are no such restraints there is no incentive to provide such services for fear of free riders) - why doesn‟t the court impose a per se rule against a naked agreement to cut off a discounter? 1) a jury can‟t distinguish it from motivation to protect services - Sharp could have cut off BEC because BEC was not providing good service to customers or it could have taken action to stop BEC from being a discounter here the ct says that it doesn‟t trust the jury‟s assessment of what Sharp‟s motivations are 2) it doesn‟t almost always reduce output - Sharp may sell more computers after getting rid of BEC because service will be better Dissent  - this is a naked horizontal restraint - there are no efficiency justifications for the actions taken - the termination of BEC as distributor resulted from coercion by the stronger of 2 dealers (the existence of coercion used to be more important in antitrust law, coercion is now only a consideration where a boycott uses coercion in conjunction with a cartel) - agreement had no purpose but to cut off discounters and since discounters are good for consumers, getting rid of the discounters actually harm competition - Fox agrees with this but Sharp would have to have had market power to make this a consideration because where the firm does not have market power the act of cutting off a distributor simply hurts them 65 - Areeda & Turner theory there is special cause for concern when a dealer influences the mfr (look at footnotes 9-11 Fox says this analysis is not „in vogue” today) NOTE: if 2 distributors got together to get rid of a 3rd distributor where the 2 distributors get extra profits from this then this would be illegal per se NOTE: you can have the semblance of a cartel without explicit agreement - example if Dr. M, Dr. A, Dr. B, and Dr. C all makes pills and want to agree on a cartel price and each only provides products to 1 retailer each, each tells its respective retailer that the retailer must sell at $150 and it costs of distribution is $50 - Fox thinks that if resale price maintenance were legal then it wouldn‟t increase competition, instead it would facilitate a cartel or allow a company to better exploit where there is single firm market power E. Toys R Us in light of Sharp and Monsanto case - hypothetical (don‟t assume there is a horizontal conspiracy) TRU gave an ultimatum to Mattel saying that it won‟t carry Mattel toys unless it cuts off warehouse clubs because it doesn‟t like the warehouse‟s price competition, and then Mattel cuts off the warehouse clubs - is this a violation of §1 and if so, what would you have to prove  1) you have to prove there‟s an agreement (after Monsanto and Sharp this is hard to do) - here TRU complained and Mattel took action based on this complaint - you have to look at whether there was more or less output after the action was taken 2) define the market (is it a market in toys? or is it a smaller market? market of just Barbie Dolls?  usually cts are more likely to accept a slightly more general market i.e. toys) rule of reason analysis 1) you have to consider whether the def has market power (you have to look at whether the power is at retail or mfr level) 2) whether the restraint increases or facilitates the use of power? - Schwinn there was a lot of competition against Schwinn, so this seems to support the argument that Schwinn was taking action in order to compete and not exploit - Monsanto case the #1 company in the industry has 70% of the market and Monsanto had significantly less market power and was able to sell more after it took its actions (there was greater output) = indicates that Monsanto did not commit a violation - Sylvania the actions taken in that case was for the purpose of increasing output - Nynex  - Toys R Us  F. Khan v. State Oil Company (Update 25) - look at paragraph on retail price maintenance, addresses minimum price fixing says that mfr may have a legitimate interest in even minimum vertical price restraints - will the per se rule against RPM remain valid? the rule is somewhat vulnerable but it will be hard to get the rt case up to the S.Ct., it is very clear today that RPM is per se illegal for now - note: in Monsanto the def denied that they were doing RPM, Fox says that we need a case to go to the S.Ct. where the RPM is explicit and openly done 66 G. Maximum Resale Price Fixing and Standing to sue 1. Albrecht v. Herald (590) – overruled Facts: def publishes a newspaper and set maximum price at which P could charge for the paper, P charged higher price, def tried to stop P from doing this by selling papers directly to customers and giving a portion of P‟s route to another carrier, P sued under §1 Holding: violation of §1 any price fixing is per se illegal - there was a combination between def, Milne Circulation, and George Kroner to force P to conform to the desired price (def did not do this unilaterally) today the analysis is different than what was done in this case - this was vertical maximum price fixing per se illegal because fixing prices “cripples the freedom of traders” NOTE: the problem with maximum price fixing is that the dealers forced to charge those prices may not be able to compete because they can‟t furnish services consumers want at the price they are limited to charging, and dealers will charge up to the maximum allowable price - but here consider the fact that newspapers really want to encourage a lot of distribution of papers because that will make its advertising space more valuable 2. Atlantic Richfield Co. (ARCO) v. USA Petroleum (Supp 52) - this case attacks the holding in Albrecht Facts: USA was a discount retail marketer of gas (the product is homogeneous, gas sellers only make $ from their brandnames), ARCO wanted to drive out competitors like USA by giving discounts to its dealers, eliminating credit card sales at its brand stations, and setting maximum resale prices on its dealers, USA sued for conspiracy between ARCO and its distributors Holding: USA does not have standing to sue because vertical maximum price fixing does not cause competitors to suffer antitrust injury, you only have standing if there is predatory pricing reasoning is that low prices benefit consumers and competition is harmed only when there‟s predatory pricing (Fox says law might be too hard on Ps and wants too much to encourage low price competition) - do we want private actions against low pricing where there‟s no predatory pricing?  - consider Matsushita discussion of antitrust injury  - hypothetically what if there was a written agreement that said that the Japanese competitors all agreed to charge fixed low prices?  - why would ARCO want a conspiracy to drive out USA? and would it be worth it for ARCO to do predatory pricing?  - ct said this was vertical, maximum price fixing agreements and was per se illegal at the same time court acknowledges that some actions that are per se illegal may still have some procompetitive effects BUT consider Sylvania case and BMI case which said that if there are procompetitive effects these procompetitive effects are redeeming virtues and the action is not per se illegal NOTE: also consider won‟t competition be harmed if USA is put out of business? NOTE: Cargill v. Monfort of Colorado (859) P brought suit to stop merger between Cargill (#2 in market) and Spencer (#3 in the market), after the merger the merged company would have 20% of the market, a competitor brought suit and said it was going to be hurt by the low prices that would result from the merger S.Ct. held there was no standing because P did not show that it might suffer antitrust injury (specifically P did not show that the merged firm was going to engage in price predation on the way to monopolization) - note: if a merger would result in higher prices then you wouldn‟t see competitors bringing suit since they would be able to benefit from the high prices as well 67 3. Khan v. State Oil Company (Update 25) Facts: State Oil sells gas and entered into contract with Khan that set a suggested resale price, if Khan charged lower than this suggested price then it would suffer the loss of profits, if Khan charged higher price and if State Oil did not consent to this price then Khan would have to rebate the entire profit to State Oil, Khan sues - the limitations imposed by State Oil is really maximum price fixing Holding: S.Ct. overruled Albrecht and said vertical max resale price fixing is no longer per se illegal because this it usually good for consumers and where consumers can benefit per se rule should not be allowed (S.Ct. adopted Posner‟s view on max price fixing but did not mention what it thought of Posner‟s view on minimum resale price fixing) “there is insufficient economic justification for per se invalidation of vertical maximum price fixing” - Posner says that in a supplier/dealer relationship not all vertical resale price fixing should be per se illegal because neither maximum nor minimum price fixing are pernicious  - one reason that minimum price fixing takes place is for suppliers to induce dealers to provide point-of-sale services to customers which they could not otherwise afford to do without a guaranteed margin to cover the cost of these services - maximum price fixing might have the purpose of preventing dealers from exploiting their monopoly position (Posner said you should not worry about dealers getting exploited by suppliers who push prices so low that dealer can‟t survive because the supplier has no incentive for doing that since the dealer could simply go to a different supplier) - if TRU and Zany Brainy gets Mattel to stop selling to warehouse clubs this is a horizontal conspiracy - if you have a supplier conspiracy (NOTE: Dr. Miles was actually a horizontal conspiracy) 68 XIII. Tying - what is the current state of the tying doctrine the caselaw makes it fairly easy for a plaintiff to bring successful tying lawsuit against a firm with market power - you can argue harm in tied and tying market usually harm is claimed in the tied market A. Timeline of case - Trans Missouri (cartel case)said all restraints are illegal - Standard Oil S.Ct. said that the rule of reason should apply - after Standard Oil there was a lot of room for argument about what was and what wasn‟t illegal so a lot of companies were testing the waters to see what they could get away with 1936 IBM 1947 International Salt discusses modified per se rule (modified because it requires discussion of market power) 1958 Northern Pacific discuss modified per se rule 1962 Loews block booking 1969 Fortner I (also entrenches the modified per se rule), 1977 Fortner II takes a step back from modified per se rule and makes it less easy for plaintiffs to win 1984 Jefferson Parish continues use of the modified per se rule, the tying rule has relies somewhat on §3 of Clayton act 1992 Eastman Kodak most recent case on tying, does not rely on per se rule but does not retreat from it either B. §3 of the Clayton Act - it shall be unlawful for any person to lease or make a sale of goods on the condition that the lessee or purchaser shall not use or deal in the goods where the effect may be to substantially lesson competition or tend to create a monopoly in any line of commerce - §3 does not apply to cases about services, it only applies to cases about goods C. IBM v. US (661) Facts: IBM made tabulating machines (tying product) and told customers that if they wanted to buy these machines then they also have to buy cards (tied products) [NOTE: in order to successfully tie, IBM needs to have monopoly power with respect to the tying product] - IBM said it had intellectual property rights so that no one else can make the cards Holding: violation - why was IBM tying IBM may have been tying in order to cartelize - also IBM was metering = IBM charges a lower price on the tabulating machines and doesn‟t take all the profits it could take on the tabulating machines, this means it can sell more tabulating machines with this lower price meanwhile IBM also put a premium/higher price on each card = customers pay more for the whole package of the machine plus the card - was IBM limiting output by the tie in probably no - was it exploiting better through the tie in in general yes - court held that IBM only has IP protection for the machines and not for the card 69 D. International Salt v. US (662) Facts: IS made a machine that injected salt tablets into cans and another machine that reduced salt rock into brine, IS said that the two must be purchased together unless the market price was lower than IS‟s price (note: this is a good way to police cartels because if customers come to you and tell you that other companies, particularly a company involved in your cartel, are charging lower prices) Holding: illegal per se - test for tying  1) you have to economic power in the tying product 2) a non-insignificant amount of the economic commerce must be harmed - court says that even though the company is not charging a premium price they are still lessening competition in the tied market because competitors in the tied market are unable to make sale to the customers of the IS for the product in the tied market - the effect of the provision that allows consumers to buy at a market price that is lower than IS‟s price simply create less harm and not no harm E. Northern Pacific Railway v. US (663) established modified per se rule against tying Facts: railroad got huge land grants from gov to build railroads, most railroads was willing to sell some of their land only if the buyers agreed to buy the land and also ship goods on seller‟s railroad Holding: per se illegal it is per se illegal for a firm with market power to condition the sale/lease of one product/service on the purchase/lease of another if a not insubstantial dollar amount of trade in the tied product was affected - def‟s purpose was to stifle competition and the agreements gave no benefits to the buyers - p. 664 “tying agreements serve hardly any purpose beyond the suppression of competition” this language is quoted a lot F. Movie Block Booking cases (665) Facts: movie distributors said that if customers wanted to get desirable films then the buyers also had to buy less desirable movies Holding: per se illegal - it is OK to sell optional package deals but you can‟t force people to buy the package deals - S.Ct. weakened market power requirement by saying you can infer market power where the tying product is desirable to consumers or has unique attributes and where the tying product is patented or copyrighted G. Fortner I case (667) Facts: US Steel made pre-fabricated houses and offered credit on very good terms, but if customers wanted this credit then they had to also buy a pre-fabricated house, def said these are not 2 independent products Holding: illegal - market power you don‟t need to show “dominance” you just need to show “sufficient economic power” = power to impose a tie in on any appreciable number of buyers - tying product an intangible item like credit can be a tying product - court inferred that there was market power 70 1. Fortner II (p. 668) this case was not assigned Holding: S.Ct. throws out the case because it was impossible that US Steel had monopoly power in the finance/credit market this was the first case to re-emphasize plaintiff‟s duty to prove that def had actual market power H. Jefferson Parish Hospital District v. Hyde (672) Facts: East Jefferson hospital told patients that if they want to use operating rooms then they have to use the hospital‟s own anesthesiologist, 30% of patients in the areas go to this hospital Holding: this is NOT per se illegal, instead court must apply rule of reason and see if there was unreasonable restraint of competition 1) is there market power in the tying product? - per se rule applies if the seller‟s market power is high or if the seller offers a unique product that competitors are not able to offer - here the fact that 30% of the population used East Jefferson hospital was not enough to constitute dominance 2) did seller force the buyers into buying the tying product with the tied product - per se rule is applied only where substantial volume of commerce is foreclosed - if only a single purchaser is affected by the tying = not per se illegal - if the buyer is “forced” to buy something that they would not have bought from another seller anyway = not per se illegal 3) were there two products you don‟t look at functional relationship between the 2 products, you just look at whether consumers have separate demand for the 2 products 4) was there non-insignificant effect on tied product market O’Connor concurrence says that tying is only harmful when you can get 2 monopoly profits - a tie in should not be illegal unless anticompetitive impact outweighs efficiency NOTE: this case can look like an exclusive dealing case NOTE: you don‟t have to prove anticompetitive effects in the tied market NOTE: this case was actually a §1 case because it is about services but in footnotes the courts said that it is important to preserve economic opportunities of small and middle sized firms so that these independent competitors have a chance to contest the market, legislators thought that §3 of Clayton Act will help small dealers, mfrs and consumers (court does not address the fact that there are tensions in achieving this goal for these different groups) I. Eastman Kodak v. Image Technical Service (Supp. 57) Facts: Kodak told customers that they won‟t sell them repair parts unless they also take repair service (this is a monopolization case and tying case) - Kodak said that there is no harm to competition because it has no power in the interbrand market Holding: ct said this case must go to trial because consumers were exploited in the afterbrand market 1) is there market power in tying product? market power = power to force a purchaser to do something that he would not do in a competitive market, the ability of 1 seller to raise price and restrict output, the existence of such power is inferred from the seller‟s possession of a predominant share of the market - here certain parts were available only through Kodak, def had control over parts that it didn‟t even mfr, def prohibited independent mfrs from distributing Kodak parts to ISOs, consumers switched to Kodak even though they preferred other firms, Kodak charged high price and lower quality, independent service organizations were driven out of business by Kodak‟s policies these facts raise make “market power an issue for trial 71 2) did seller force the buyers into buying the tying product with the tied product 3) were there two products you don‟t look at functional relationship between the 2 products, you just look at whether consumers have separate demand for the 2 products - there was evidence that the two things had been sold separately in the past 4) was there non-insignificant effect on tied product market Defenses  1) there is no power in the interbrand market therefore even if it has market power in the parts market and afterbrand market def will not be able to exercise that power because any raise in price in the afterbrand market will result in reduced sales of equipment court doesn‟t buy this defense because it was not supported by evidence and also there was no evidence of the corollary proposition that if the cost of parts was lowered there would be more equipment sales PLUS people who buy the equipment are locked in if it is expensive to switch the equipment 2) pricing equipment lower and afterbrand services lower allows new buyers to get into business court says this action plus all of def‟s other actions together makes the procompetitive effects less likely 72 Antitrust Law Developments CCH comments series – trade regulation report BNA advance sheets Office Hours: T 5-6 (office 306) Questions 1. what is the difference between Kodak case and the cases on p. 4 of the update where no market power was found? 2. to prove illegal boycott does the def have to have market power 3. free riders exist when you have restraints and even when you don‟t have restraints 4. what about DOJ vertical restraint guidelines 73 Review  Old case  cartel cases they are still good law, Trans Missouri is still good law because a cartel that is price fixing is still per se illegal Monopolization  1) market and monopoly power Berkey Kodak case Kodak was competing with Polaroid (in camera processed film) but it was not clear whether Polaroid should be considered part of the market, there was some evidence that Kodak was price sensitive to Polaroid, but note: Polaroid was pricing at monopoly price P proved that Kodak was charging monopoly prices products that keep price down to near cost should be included in the market 2) monopolist must have gained or maintained market power through anticompetitive acts or practices 3) you don‟t find a violation where a monopolist got a monopoly by doing good work just by taking advantage of the market - this is not always true (i.e. merger to monopoly, structural monopolies (AT&T case the structure of the company gave AT&T a huge monopoly and was very anticompetitive, Fox says a firm has this kind of power the firm will always use its leveraging power anticompetitively so it will be hard to tell if there is a case where courts will say the structure alone w/o acts will be a violation), and essential facility (you refuse to deal where the owner will not be hurt if they do let competitors use the facility) - NOTE: there is not usually a duty to deal unless there are anitcompetitive acts (except in essential facility cases) Lorain journal is paradigmatic monopolization case Lorain actually had monopoly power and realized that its power was being eroded so the purpose of its acts was to regain power, this is a very clear raising rival costs case because Lorain had no reason for takings its actions (= the actions did not respond to any market demand) Attempts to Monopolize  1) you have to define the market 2) def must be on route to monopoly, it doesn‟t have to have monopoly power, but it usually has a signfiicant amount of market power 3) there must be a dangerous probability that it will result in monopoly 4) there must be specific intent to monopolize = you are intentionally doing anticompetitive acts (the opposite = trying to serve the market better i.e. inventing more for the benefit of consumers) good example of attempt Eastman Kodak photofinishing case, Kodak threatened to monopolize NOTE: Conspiracies to monopolize could be brought under §1 and §2 74 Pricing  - sustainable low prices are good - predatory pricing is bad (B&W casethis is oligopoly case so it didn‟t fall under §2 but it did fall under RobinsonPatman act, ct pretty much says that there are no violations of RP act unless the standard for §2 is met) - if you have a single firm that is price discriminating you could not win under RP act (reasonable possibility) without meeting standard for §2 (dangerous probability) = you need to show lost cost pricing and reasonable probability of recoupment Product Changes  - IBM case even though the bad intent was there, IBM produced a superior product - most cts have said that if the end product is better then intent does not matter (“better” is really subjective determination but if there is any engineering controversy about whether the product is better then the inference is drawn in favor of the def, other people have said that if there is any consumer benefit then the product is a better product) - Judge Schnacky says you have to do the full rule of reason analysis - Fox says that where there isn‟t bad intent then it is virtually impossible for a P to win §1 - there used to be a broad per se rule but each case after that wore down the per se rule - now only cartels are per se illegal and some boycotts are in aide of cartels and are per se illegal (see Sup. ct. Trial lawyers) but note: NW Stationers said boycotts are not per se illegal unless def has market power - there are collective refusals to deal that are jt ventures that are not illegal - Soconoy and Catalono and Trial Lawyers are still good law - NSPE says that where you have an anticompetitive effect the only justification is a procompetitive effects including efficiencies and technological advances (safety considerations and saving jobs are NOT procompetitive justifications these things only explain why you did something but they are not enough to justify anticompetitive acts) Mergers  - Hospital Corp is still a good case - merger guidelines are generally used and HHI numbers are used - market definition you ask only whether merger will raise price (you only want to know if the merger will raise price), merger guideline definition of market does not tell you whether pre-merger conditions were monopolistic - in monopolization case you are arguing that the firm has monopoly power Vertical Restraints  - resale price maintenance by agreement = per se illegal - you must prove that there is an agreement, now it is harder to prove an agreement - if there is an equally likely explanation for the actions that the mfr and distributor acted independently then the case does not go to the jury [this also applies in horizontal restraint case under Matsushita] for other vertical restraints you have to be mainly concerned with lessening of interbrand competition maximum resale price maintenance is not illegal per se unless there is price predation (but there might be a question of fact about whether the price that is fixed is maximum or minimum it is not always clear) distribution restraints on customers and territory judged under rule of reason and are almost always legal - but if you can prove that the action was part of scheme to cartelize and enage in cartel-like behavior (you have to look at def‟s justifications) then you can argue that the actions facilitate the cartel - 75 Tying Agreements - you apply modified per se rule (Kodak and Jefferson Parish) 1) 2 products 2) market power 3) restrain not insignificant amount of trade Fox doesn‟t think this rule will last very long, she thinks the rule will become a rule of reason or will at least change to allow def to prove justifications Antitrust Injury - a private case is brought then P must have antitrust injury - if P is a competitor then it must show that harm to it will result in harm to consumers - in Arco the action was illegal but here P had no antitrust injury Standing related to antitrust injury - indirect purchasers who are clearly injured by a price fixed cannot sue under federal law but can sue under state law Fox says that exclusive dealing section of M case is wrong Dec 12th officer hours 3-4 2 76