Download Antitrust Law

Anti-Trust
▼
Brunett
• Early Parkinsons- and Micro-phobia
• 2 hornbooks on reserve- Sullivan and Grimes P Hovenkamp?- FederalAnti
Trust Policy- more D oriented.
▼ EXAM
▼
I will be GC of a company that has 5-7 problems of an antitust nature
• half I would have seen before other half new
▼ other half of the exam- short answer 10-15 min answers
• some are very theoretical, other legal.
▼ 3 hours, unscheduled
• not available during reading period
• he will get a new exam up before the period
▼ Case names are not neccssary- HATES mis citations.
• when in doubt- don't say anything
• KNOW GTE SYLVAINA, chcago borad of trade, addison pipe. illinois tool
works
• TOTALLY OPEN- NO HORN BOOKS OR OTHER PEOPLE'S OUTLINES
▼
How does an anti-trust case begin?
▼ Suit by the government
• Suit by the antitrust division of the DOJ
• Suit by the FTC
▼
Suit by a state AG
• relatively new because states generally don't have the resources to prosecute
them.
• Antitrust cases
• A suit by the government is after some sort of injunctive relief
▼ Private treble damages actions
• Clayton Act allows for treble damages to victums of anti-trust actions.
• You can get injunctive relief as well as attorney's fees.
• But the big ones are brought by government
▼
Sherman Act
▼ One of the mysteries of antitrust is how much were the drafters of the
Sherman act borrowing from the common law?
• Becomes important because the courts did not get any direction from the
act- so they went to the common law.
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Common law fobade unreasonable restraints on trade.
• What is reasonable- how about an agreement not to compete.
▼ Sherman act is aimed at private parties
• Government can still grant monopolies- like taxi cab routes
• Sherman was interested in economic rights
▼ Sherman act prevents monopoly- not oligopoly
• FTC- laws prevent oligopoly
▼ Section 1
• Unlawful (and criminal) "every contract, combination or conspiracy in
(unreasonable) restraint of trade
▼ Section 2
• prohibits monopolization, attempts at monopolization, and combinations or
conspiracies to monopolize any part of interstate or foreign commerce.
▼
Clayton Act
▼ Section 3
▼
prohibits sale on the condition that the buyer not deal with competitors
of the seller, where the effect may be to substantially lessen competition or
tend to create a monopoly in any line of commerce
• tie in sales, exclusive dealing arrangements, and requirements contracts
• only applies to goods.
▼ Section 4
• allows for treble damages to private parties for violations of Sherman and
Clayton
▼ Section 6
• exempts labor unions and agricultural organizations from Sherman and
Clayton
▼ Section 7
• Prohibits acquisitions and mergers where the effect "may be substantially
to lessen competition, or tend to create a monopoly", in "any line of
commerce in any section of the country
▼
Monopoly Sherman Act 2
▼ Jurisdiction
▼
the activity must at least affect interstate commerce
• The restraint it self need not affect commerce, but the business activity at
stake needs to
• If its foreign commerce, is the intent of the parties to affect commerce in the
US and the conduct actually does have effects in the US
▼ Remedies
▼
Only certain violations provide for criminal penalties
• criminal convictions require proof of intent and impose higher burdens of proof
(duh)
• Equitable remedies are availableto either the gov or private parties
▼
Damages
▼ Available to
• private parties
• state attornies general acting in parens patriae
• foreign governments
▼ If:
• the injury is to a business in which the P is engaged, or damage to P's
property
• P's injury is a direct result of D's conduct
• Injury is from the anticompetitive effects of the conduct
• the P is a direct purchaser from the D and the injury is not too remote.
• Atty fees are available to private antitrust plaintifs
• Private parties may recover treble damages
• Feds may recover single damages
▼ Anti-Trust Operates independent of other legal areas
• You can have a completely legal contract, that violates antitrust.
▼ Monopoly Analysis Sherman Act Sec 2- Single firm.
▼
Possession of monopoly power in the relevant market
▼ The market is often composed of 2 elements
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Product market --DuPont
▼ Where there is easy substitutions between items, then the market
includes those items.
▼
Consumer choice largely defines the product market
• "commodities reasonably interchangeable by consumers for the
same purpose make up the "part of trade or commerce,"
monoplization of which may be illegal"
▼
Du Pont Substitution analysis on price elasticity of demand. The
cellophane case
• How much must the market be elastic for the item to be included
in the market? Not sure at all really
• A low degree of differentiation is required to be deemed
substitute articles
• Court rulled that the market was flexible wrapping materials, and
not only cellophane
▼
We look at price quality, physical differences, and most
importantly the use to which the product is put.
• Cross elasticity of demand
• competition by other products
• the functional interchangeability of those products.
▼
Cellophane Fallacy
• The price at which the monopolist is pricing is the result of
monopoly prices.
▼ High corss-elasticities of demand between products may
indicate that a monopolist is already extracting the full amount of
monopoly profits possible,
• they have prices so high to the point of consumers choosing
other products if the price were to go any higher.
• It is only for the reason that prices are so high that consumers
find other products substitutable.
▼ Single Brand Markets
• Kodak- but the idea of single brand markets is controversial
▼
geographic market
• To what geographic area can purchasers practically turn for a product
or service
▼ How do we define the geography of the market.
▼
A market is where buyers and sellers meet.
• Would we call a national company, or contact a local one.
• There is no such thing as a single customer market absent
unique characteristics that distinguish this customer from others.
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factors to consider
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•
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transportation costs
delivery limitations
customer convenience and preference
location and facilities of other producers and distributers
The court in Grinell says the geographic market is where the
company operated- they were a national company, and local
competitors couldn't compete on a national level• Grinell wanted a national remidy, and not a local one.
▼ Defining the market is often dispositive of the question- AND IT IS
INCREDIBLY DIFFICULT TO DO.
▼
It's not rocket science, it's attempted rocket science.
• Is the market cellophane or flexible wrapping materials?
▼
Who decides what the market is?
• The jury! Ha- we'll just confuse those poor suckers.
▼ How much market power is necessary?
• Case law suggests that 70% is probably sufficient
▼ What extent does profitability play? What about the cost of production?
• How do you know the value of monopoly if you do not know the costs and
profit margins?
• Cost of entry into the market is very important now.
▼
But profitability is dangerous
• How do we accurately account for the profits of a certain product?
Accounting can shift costs around, to make it opaque.
▼ What about quality?
• Isn't it in the users mind?
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The willful acquisition or maintenance of that power as distinguished
from growth or development as a consequence of a superior product,
business acumen, or historic accident
• Monopoly power is the ability to control prices or exclude competition in the
relevant market
▼ Economic Definition of market power
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a function of demand ellaticity,
• the more elastic the demand curve the less market power.
▼
In a truely competitive market demand is infinetly elastic
• market conditions dictate the prices charged.
• If you can raise your prices without lossing all of their customers, then the
market is not "perfect" in the economic sense
▼
Lower costs
• lower costs permit a seller to sell at higher margins than those of
competitors.
• They can cut prices lower than others, and still remain profitable.
▼ A seller who lowers prices because of lower costs is not, in itself in
violation of section 2,
• this is superior business acumen
▼
Predatory - Pricing
▼ Predation
• Rubbing out competition through pricing mechanisms.
▼
phase 1
• Price lowering
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Phase 2
• price raising
• JUST DON'T bring a predatory pricing case. You will not win with
out regular exclusionary conduct.
▼ Brooke Group- Ligget
• Cigarette manufacturing was an oligopoly- pricing tends to
follow the leaders
▼
There must be an injury to competition
• the idea is that by lowering prices you will eliminate
competition, and then be able to raise prices to
supra-competitive levels.
• Out-put enhancing behavior will not be found to be
monopolistic
• Supreme court doesn't like predation
• The risk must be very real to have even the slightest
possibility of succeeding
▼
Test for predatory pricing
▼ Prices MUST be below cost
• Cutting prices low benefits consumers, and we don't
want to discourage that sort of activity.
• There must be a dangerous probability of sucess
▼ Weyerhaeuser
• Predatory pricing is the same as predatory bidding
▼ Limitations of market power
▼
ease of market entry
• by raising prices coupled with low costs of market entry, incnetive is
created for newcomers to enter the market.
▼ Measuring Market Power
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Market share is the primary measure of market power
▼ but it is not the sole determinate
• especially if the barriers to entry are non-existant or low.
• Doubtful whether market share of 40-70% is enough
▼
At some point, market power becomes monopoly power.
• Monopoly power is marked by high profits over an extended period of
time and the failure of other products to respond as substitutes.
▼
Alcoa - 70% is sufficient
• Maybe biggness is enough to do be a monopolist after all.
▼ The conduct is minimal
• How serious must your conduct be? This cases doesn't answer it.
• The monopolist whose monopoly is "thrust upon him" his safe from
Sherman Act 2
▼ United Shoe
• The product is superior, but the method of leasing the machines prevents
other competitors from entering the market, and eliminates the secondary
market entirely.
▼
3 approaches to whether a monopoly exists.
• Pre- Alcoa approach. a violation of sec. 2 has occured if the corp has
acquired or maintained a power to exclude others as a result of using
an unreasonable "restraint of trade" under section 1.
• Griffith approach. to prove a violation of sec. 2 need not show a
violation of sec 1. Under sec. 2 there has been a monopoly if 1) the
corp has the power to exclude competition, and has 2) exorcised that
power, or has the purpose to exercise it.
• Alcoa approach- an illegal monopoly exists where the corp has an
overwellming market share, without any neccesary exclusionary
practices. They may escape liability through a showing of superior
product, natural advantage, economic or technological efficiency, or
other similar natural competitive advantages.
▼ Loraine Journal
• The only reason for Loraine's conduct was to exclude competition- there
was no rational business sense for it otherwise.
▼ When conducts function is solely to punish or hurt the other competitor it may
arise to the level necessary to be monopolist conduct
• ESPECIALLY if there is no rational business sense for the conduct- and
even more so if the conduct hurts the monopolist company.
• use of monopoly power "to destroy threatened competition" is a violation of
the "attempt to monopolize" clause of section 2- Otter tail power.
▼ Aspen
• The exclusion of Highlands from the "all Aspen Pass" was ok, but the fact
that Ski Co refused to sell passes to Highlands even at retail showed an
abuse of monopoly power. Prices were raised to make highlands attempts
unprofitable.
• The multi area pass allowed for competition passed on quality of the ski
area- by restricting it, it reduced the incentive to compete on quality.
▼
NOTHING in Aspen suggests that you must do business with a
competitior
• But if you are already cooperating with them and you pull out, you
should have good reasons to do so.
• Aspen was unable to advance credible business justifications for it's
actions- this was it's downfall
▼ Verizon
• "The cost of false positives counsels against an undue expansion of §2
liability"
▼
Anticompetitive Conduct
• Some acts that were otherwise lawful would be illegal under section 2 if
accompanied by market power
▼ There is no violation unless it is shown that the monopolist deliberately and
purposefully exercised the monopoly power to acquire or maintain the market.
• specifici intent to monopolize is not requires
▼ Conduct is fucked up.
▼
But it is generally anti-competitive if
• the conduct tends to impair the opportunities of rivals
• does not further competition on the merits, or does so in an
unnecessarily restrictive way
▼
Examples
• raising production as to limit the entrance of a competitior (alcoa)
• a lease only policy, limiting the used market (united shoe)
▼ pricing below average or marginal cost (matsushita)
• but this is difficult to distinguish from competitive behavior.
• must show a reasonable chance of success ( Brooke Group)
▼
Refusals to Deal
• There is no general requirement that companies deal with competitors
• Exception
▼ Essential Facilities
▼
acces to a n essential facilitiy may be required if it could feasably be
shared or a reasonable, non-discriminatory basis
▼ Requirements
• control by a monopolist
• competitors inability to practically or reasonably duplicate the facility
• denial or use
• feasability of providing for the use by the competitor.
▼ Aspen canceling existing deals
▼
use of aspen in this context is frought with peril
• the existance of a regulatory scheme may allow a refusal to deal to
escape liabilty (Verizon v Trinko)
▼ Monopoly leveraging
• using monpoly power in one market to gain a competitive advantage in
another.
▼ Monopsony power
• monopoly buying power
▼
Natural Monopoly
• Is ok under section 2- there is no conduct element.
• but is conduct does show up, there will be a violation
▼ Otter tail
• lawful monoply expired, and the company refused to sell wholesale power
to the new competitors or allow them access to the transmission lines
▼
Attempts to monopolize
• higher burden than monopolization claim
▼ Elements
• in the relevant market defined
• a dangerous probability of success.
▼
anti- competitive Conduct
• must be seeking monopoly through means other than business acumen
▼ use of unfair means
• eg: boycotts, (Lorain Journal)(Klors), discriminatory pricing
• Does NOT men aggressive competition though
▼
Specific intent to exclude competitors
• may be inferred from conduct
▼ Attempt
▼
By definition attempt is not monopolization,
• but it is still against the law.
▼
What does it take in terms of market share to get an attempt charge to
stick?
• We don't know, but the dangerious probability of sucess standard is
pretty close.
▼
An expanssion of attempt has a real possibility to deter the very robust
comptition that the laws seek to foster.
• Probably the only reason we have attempt laws is to catch those cases
where the monopoly aspect of the claim falls short.
▼
Spectrum sports
• the lessig line of cases elimiated market share as part of the standard of
determining attempt claims.
▼
Copyright/patents
• a copyright or patent does not equate to monopoly power
• When the gov. brings an attmept cause of action it signals that the case for
real monopolization is weak.
▼
Microsoft
▼ Originally, MS got in trouble for bundling IE with windows, but the consent
decree allowed them to create "integrated products"
• What is an integrated product?
▼ District court
• Judge spoke with reporters during the trial and used unfavorable language
about microsoft.
• Trial was fast tracked
▼
Findings of fact were issued several months before the conclusions of
law.
• Allowed a window for negotiations.
▼ What is the market?
• Intel based PC systems
▼
Why not apple?
• Because the market was not elastic in movement between apple and
ms
▼
What about the dynamic of the computer market
• There is so high of a potential of a new competitior entering the market
quickly, that Microsoft argued that antitrust laws should not apply to
high tech because of this.
▼ What about the conduct?
• Intel- MS forced intel to stop working on a Java api for intel chips
• Apple- forced apple to promote IE in exchange for continuing to develope
and support MS office.
• Copyrights- MS argued that their copyrights allowed them to dictate how it
was used by OEM's- without fear of antitrust liability
• Lots of Microsoft conduct cannot be explained UNLESS MS is a
monopolist.
• Lots of examples of intent
▼ Smoking gun documents
• Just because you have a document that says you are going to exercise
your monopoly power doesn't equate to actual conduct.
• But juries like it.
▼
Price Fixing Sherman 1
▼ Elements of a Section 1 claim.
▼
agreement or concerted action
• Unilateral action does not qualify at all.
• unreasonable restraint
• effect on interstate commerce
▼ Horizontal Price fixing is very much illegal.
• "any combination or agreement between competitors formed for the
purpose and with the effect of raising, depressing, fixing, pegging or
stabilizing the price of a commodity in interstate or foreign commerce is
illegal per se" Socony Vacume
▼
There is no defense or justification of any kind recognized where
horizontal price fixing is shown
• "whatever economic justification particular price fixing agreements may be
thought to have, the law does not permit inquiry into their reasonableness.
They are all banned because of their actual or potential threat to the central
nervous system of the economy" Socony Vacume
• illegal even if the only force behind the enforcement of the scheme is ethical or
moral sanctions against those who deviated.
▼ EXCEPT Chicago Board of Trade
• If a credible arguement can be made that the agreeement has the purpose
and the effect of making a market function more competitivly or of creating
integrative efficiencies, the effect on prices may be viewed as an acillary
restraint and subject to RR.
▼ a violation can be established by either an unlawful purpose, or an
anticompetitive effect
• if the agreement is unlawful, it is not necessary to establish market power
to set or influence prices.
▼
Price FIxing is an expansive concept
•
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Minimum prices
Maximum prices (Maricopa County Medical Society)
Production Limits- (NCAA)
Purchase Price Limits- an agreement among buys on the price they will offer
Elimination of Competitive Bidding (Profesional Engineers)
Elimination of short term credti
Defendants will try to charachterize their agreements as something other than
a "naked agreement to restrict prices" in order to avoid the per se rule
Phantom Freight
▼ The price of a comodity has the fright to a certain point rolled into the price.
• Plywood made in portland, priced with delivery to denver. You buy plywood
in portland- you pay a price that includes shipping to denver, even though
the plywood is actually just shipped down the road.
▼ Rule of reason- focuses on the impact on competition
▼
Sherman act prevents "every"contract that restrains trade
• an all inclusive condemnation would make section 1 unworkable
▼
The rule of reason:
• Does the restraint impact competitive conditions.
• Is there a less restrictive alternative to the restaint?
• An endless trial where the D wins
▼
applied when the purpose or the effect of the restraint is unclear or the
D is able to articulate a plausible agreement that the conduct enhances
competition, or increases efficiency though integration.
• does not permit a broad inquiry that would balance anti-competitive effects
against social or political benefits (Professional Engineers)
▼ the inquiry: is the challenged agreement one that promotes competition, or
supresses competition. (chicago Board of trade
• the statutory policy of sherman precludes inquiry into whether competition
is good or bad.
▼
An alleged anti competitive restaint could past muster if there were
legitimate competiitve reasons for it.
▼ Factors to consider
• structure of the industry
• facts specific to the firms operation in the industry
• history and duration of the restraint
• reasons for its adoption
• the effects on the competitive market including price and output
▼
Note on market power
• Market power does not seem to be an itigral part of the RR analysis- at
least compared to the analysis in monoplization cases.
• Chicago Board of trade
▼
Professional engineers.
• Once an anticompetitive result has been found through a RR analysis- then
you cannot defend on the basis that there are socially benificial reasons for
allowing the restraint.
• That would be a reason for congress to make an e
▼
RR is complex- can we have a RR criminal case?
• An effect on prices, without more, will not support a criminal conviction under
the Sherman act
• State of mind or intent is a required element of a crime- and intent cannot be
inferred from effect on prices alone
▼ Intent is required under shreman act criminal liability
• STANDARD: an action undertaken with the knowledge of its probable
consequences and having the requisite anti competitive effects can be a
sufficient predicate for a finding of criminal liability under the antitrust laws.
• A good faith belief-not absolute certainty- that a price concession is being
offered to meet an equally low price offered by a competitor is sufficient to
satisfy the §2(b) defense
▼ Per Se - Socony Vacuum
▼
Certain restraints ALWAYS result in a substantial restrain of trade,
without any redeaming competitive aspects.
• A case by case inquiry is therefor unnecessary
• Once experiance with a particular kind of restraint enables the court to
predict with confidence that the rule of reason will condemn it, it has
applied a conclusive presumption that the restraint is unreasonable
▼
Plaintif wins quickly
• per se limits the issues to be determined at trial- simplifying and shortening
them
▼ does the conduct fit into a recognised per se type of activity?
• If yes then the inquiry need not proceed further.
▼
Per se rules are all about conduct
▼ but "it is only after considerable experiance with a restraint that a court will
find a restriant per-se illegal." Topco
• eg- horizontal price fixing and horizontal market division, output
restrictions, certain tie-ins and boycotts, minimum price resale
maintenance(vertical price fixing)
▼ Does the conduct or effect fit in a recognized pre-se catagory?
• Yes? then it need not go any further
• If the purpose or effect is unclear, or the D makes a plausable arguement
•
•
•
•
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that the conduct enhances market competitiveness, or increases efficiency
though intigration, then RR should be conducted balancing the harms and
benifits
• But we can't get too analytical- otherwise the per se rule colapses into a
reason analysis - defeating the purpose of the per se distinction.
• THe effect is not what we care about
• Is it price fixing? Yes - then it's per se illegal.
We want a very dark line between rule of reason and per se rules
A restraint need not eliminate all competition to be anti-competitive.
THere is a line of cases that says we don't apply per se rule's to
professions.
proof of market power has never been required in per se cases
Actions that are still per se
•
•
•
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Agrereements not to compete - close to per se
price fixing
divission of teritories
price trading between compeitors
• ie containter
• All are pure conduct situations
▼
Per se rules based on conduct are not favored much anymore
• They are looking more like RR rules now
▼ Paralel Conduct
• The supreme court has NEVER ruled that proof of paralel conduct
conclusively establishes agreement or phrased differently, that such be
behaviour itself constitutes a Sherman Act offense.
▼
Lower courts typically require circumstantial proof in addition to
conscious parallelism to raise successfully an inferance of conspiracy
▼ The necessary additional proffs are plus factors
• Plus factors could be that the company acted contrary to their economic
interest
• or maybe you can show motivation to enter into a price fixing conspiracy
▼ SUMMARY PROCEDURES SHOULD BE USED SPARINGLY IN COMPLEX
ANTITRUST LITIGATION WHERE MOTIVE AND INTENT PLAY LEADING
ROLES, THE PROOF IS LARGELY IN THE HANDS OF THE ALLEGED
CONSPIRATORS AND HOSTLE WITNESSES WHO THICKEN THE PLOT.
• The above language may or may not still be good law-depending on your
perspective.s
▼ Quick Look approach
• A type of rule of reason approach which presumed competitive harm but
permitted the D to proffer "competitive justifications" for the conduct
▼
Is the QL substantive or procedural
• No one is quite sure
• It is mechanical, but it smacks of substantive analysis.
▼
Excerpt from Brunet's article.
• Although one single, generally accepted definition of the quick look method
does not exist, at a visceral level a quick look analysis may be little more than
an elegant substitute for per se labeling. Judge Posner's early use of the quick
look in his General Leaseways, Inc. v. National Truck Leasing Ass'n decision
simply took an abbreviated examination of the alleged horizontal market
division to determine if it was per se illegal. [FN37] Justice Thomas's footnote
in Texaco Inc. v. Dagher casts a similar shadow on the meaning of quick look
by describing it as a means to have a “cursory examination” of an alleged
restraint to learn if it is “plainly anticompetitive,” [FN38] a buzzword for per se
liability. [FN39] Use of the quick look to identify per se offenses was similarly
embraced in California Dental, which called for an “abbreviated or ‘quick-look’
analysis under the rule of reason [when] an observer with even a rudimentary
understanding of economics could conclude that the arrangements in question
would have an anticompetitive effect on customers and markets.” [FN40] Put
differently, the quick look is the opposite of the sort of robust “searching
inquiry” associated with the rule of reason. [FN41] In Professor Piraino's
words, “[t]he quick look is an abbreviated form of analysis similar to the per se
rule.” [FN42] Similarly, Professors Gavil, Kovacic, and Baker describe a “quick
look to condemn” as aiding a “swift, though not immediate *500
condemnation.” [FN43]
▼ Problems with the QL
• First, it is obvious that antitrust lives in the era of the rule of reason. Per se
rules have been cut back or confined to their facts and even overruled. The
dominant philosophy of antitrust, advanced in Continental T.V., Inc. v. GTE
Sylvania calls for economic analysis of every alleged restraint and involves
a hands-on, detailed application of economic impact, the opposite of the
cursory examination associated with the quick look. [FN44] A quick look
method designed to identify candidates for per se illegality would be a
narrow, seldom-used tool. [FN45] Professor Meese has criticized the quick
look methodology because of its tendency to lead to the use of inaccurate
per se labeling. [FN46]
▼ Benifits of QL in RR analysis
• In great contrast, an alternative way of deconstructing the quick look is to
think of it as an abbreviated version of a potentially detailed rule of reason
approach and to consider the quick look to apply to all antitrust cases,
whether likely to be per se or rule of reason in nature. Translated to the
firing lines of litigation, this type of quick look approach might well be
advanced by a defendant in a pretrial motion rather than being the
exclusive tool of the antitrust plaintiff. [FN56] Like the rule of reason, this
version of the quick look considers pro-competitive and anti-competitive
impact. [FN57] Indeed, some commentators and courts connect the quick
look to the rule of reason in their phraseology by terming this method as
the “quick look rule of reason,” [FN58] the “flexible rule of reason,” [FN59]
or the “truncated”*502 rule of reason. [FN60] Regardless of which name
is used, this version of quick look holds potential for a more complete style
of antitrust methodology, with attention given to the economic impact of an
alleged restraint in order to decide whether a full rule of reason trial is
necessary. In short, this version of the quick look appears evidentiary in
nature and fails to offer a settled middle ground between the traditional per
se and rule of reason categories. Instead, this justification of the quick look
emphasizes an attempt to trim the potentially overly complex rule of reason
in an era of minimal use of per se rules. [FN61]
• It is possible to think of the quick look procedure as a time-saving
presumption of anti-competitive effect. Once the plaintiff proves an offense
that is facially anti-competitive, the burden to show a positive impact on
competition in the form of lower prices or increased output shifts to the
defending party
▼
examples of use.
• agreements that facially restrain competition
▼
Brief History
• The FTC and DOJ advocated for it.
• A quick look can be thought of as a less onerous per se rule of reason
▼
If the D satisfied the burdon, then a full rule of reason inquiry would
follow.
• an obvious anti-competititve effect triggers the abbreviated analysis
▼
THis is a dangerous path to follow- the quick look has never been
unequivically adopted by the Supreme Court
• they have called is a preliminary approach.
• The DOJ is looking for some sort of methodology to cut through the
paperwork in a larger anti-trust action
▼
A naked restraint on price and output requires some competitive
justification even in the absence of a detailed market analysis
• NCAA
• Some justices think that the quick look is appropriate only when the
anti-competitive effect is clear.
▼ BMI v CBS
▼
Blanket License give holder access to the entire library of songs for
the price of the license
• Enforcing a copyright in this manner is highly efficient- thee is no need to
police the licence holder
• But it also encompases the price of all the songs in the library- songs a license
holder might not want to pay for.
• You can't go off of a literal analysis for a per se violation
▼ Trading information
• There is a HUGE difference between cost sharing and price sharing
▼
Trading price information is hot stuff, cost information, not so much.
• Does the tradign information help perfect the market or create efficiencies, or
does it facilitate cartelization and lessen competition.
▼ Price info is very suspect
• Past prices to unidentified buyers was found to be ok, while current or
future prices where the partiese were identified was held not to be.
• Ogopolistic market structure is an important factor
▼
Trade associations are dangerious
• They can be used to disseminate price information, as well as serve legitimate
ends
• When the item being sold is a standardized commodity, there is a strong
tendency to uniformity of price, and makes it more important that such
opportunities as may exist for fair competition should not be impaired.
▼ Oligopolistic industries
• to be labeled unfair within the meaning of §5 a minimum standard demands
that absent tacit agreement, at least some indicia of oppressiveness must
exist such as 1)evidence of anticompetitive intent or purpose on the part of
the producer charged or
• the absence of an independent legitimate business reason for its behavior.
• With an oligopoly there is greater risk of price fixing.
▼ Cartels
• When a cartel is effective they are monopolists
• When they are ineffective, they are competive
• Agreements are illegal if they are naked- that is they do not have any other
puporse that to fix prices.
▼
Doctrine of ancillary restrant
• If the purpose of the K is pro competitive then we will allow an ancillary
restraint provided that it is neccesary to acheive the pro competitive outcome.
▼
Apalation Coal
▼ Ain't worth much
• If you have to cite this case you are in trouble.
▼ Price fixing among corporate families
▼
THere is a unity of interest among the corporate familys
• A wholey owned sup cannot conspire with the parent- there is complete unity
of interest
• Can a 50% owned sub conspire? It depends.
• An agreement in sherman act terms between a parent and a wholey owned
sub lacks meaning.
• Topco
▼ Division of Markets
• Per Se illegal (Addyson Pipe, Topco)
▼
Boycots
▼ Unilateral choices not to deal with a firm are your prerogative.
• But a group of competitors refuse to deal with a firm, they are acting in a
combination in restraint of trade.
• A group boycott or concerted refusal by traders to deal with other traders
have long been held to be per se violations.
▼ But colluding horizontally is not a good idea.
• An act harmless when done by one firm may become a public wrong when
done by many acting in concert, for it then takes on the form of conspiracy
• The reasonableness of the methods pursued by the combination to
accomplish its unlawful object is no more material than would be the
reasonableness of the prices fixed by the unlawful combination.
• The fact that an agreement to restrain trade does not inhibit competition in
all of the objects of that trade cannot save it from the condemnation of the
sherman act.
▼
Network Effect
• A phone system is only a great thing if everyone has access to a phone- it's
utility grows as the network grows.
▼
Anti-trust laws protect competition, not competitors.
• a slogan or cliche, not a rule- but sometime it is confused as such.
▼
Klor's
• showing a effect on price or the quantity of quality of goods or services offered
to the public is not a prerequisite to a Sherman act violation
• Modern cases cast doubt on whether Klors is a per-se case- Brunett thinks it is
still a per se
▼
NW Stationers
• Boycotts are illegal, but what constitutes a boycott can be vague.
▼ not every cooperative activity involving a restraint will share with per se
forbidden boycotts
• EG NCAA- "horizontal restraints on competition are essential if the product
is to be available to all"
• the act of expulsion, from a wholesale cooperative does not necissarily imply
anticompetitive animus and thereby raise a probability of anticompetitive
effect.
• a satisfactory threshold determination whether anticompetitive effects would
be likely might require a more detailed factual picture of market structure than
the district court had before it .
▼ A plaintiff seeking per se must establish a threshold case that the challenged
activity falls into a category likely to have predominantly anticompetitive
effects
• A mere allegation of boycott does not suffice because not all boycotts are
predominantly anticompeitive
• when the P challenges expulsion from a joint buying group, some showing
must be made that the buying group possesses market power or unique
access to a business element necessary for effective cometition.
• Per se in boycotts are now all screwed up after this case- it now requires
intnent or a unique ellement.
▼
Labor exemption
• If the act has to do with time, working conditions, or hours, then it can fall
under the labor exemption to antitrust laws.
▼ Is a boycott per se illegal?
• They "cripple the freedom of traders and thereby restrain their ability to sell
in accordance with their own judgement."
▼
Unless northwest wholesale was a clean boycot holding
• to have a per se boycot you must have market power.
▼ There is a conflict here- does nothwest wholsesale over rule sealy?
• Not explicitly- Market power is required in NW Wholesale, but not in any
other of the cases.
▼
Majority rule today is that boycotts are a modified per se rule
▼ market power or some essential conduct is needed
• Isn't that agains the goal of Per-Se?
▼ The old boycott rules were strictly conduct.
• Non- commercial group boycotts are not part if this analysis
▼
Speeches and group actions are not commercial activities
• there is no harm to compensation.
▼
Mergers Clayton 7- Prophylactic
▼ Types of mergers
▼
Horizontal
• These present problems of competition
• The effect on competition depends on the character and scope of the merger.
▼
Vertical
• No problem- these create efficiency
▼
Conglomerate
• No problem- these are benign
▼ All Merger cases are essentially RoR cases.
• "If anti-compeititve effects of a merger are propbabe in "any" significant
market the merger- at least to that extent- is proscribed."
• Unlawful intent is not part of a merger case at all.
▼
Purpose of the merger statute
•
•
•
•
to ensure better market performance
to encourage internal growth and expansion
to preserve local control over industry
to protect small business
• Mergers are judges on a totality of the circumstances standard.
▼ Statute
▼
we attack mergers in their icipiency, they are attacked where they "may"
cause harm, and they are attacked for injunctive relief
• if the merger is caught before anticompetitive effect takes shape, it is easier to
stop harm than unwind it.
▼ Interpretation
▼
Line of commerce
• uses the same relevant product market as for monopolization under Sherman
2.
▼ emphasis is on interchangeability of products
• less interchangeability may be required to overturn a merger because of
the prophylactic nature of section 7
▼ SSNIP Small but Significant and nontransitory increase in price
• could a hypothetical monopolist increase prices without a competitive
response?
▼
▼
increase prices 5% and determine what happens to the demand
curve to find out if there is monopoly power.
• if consumers would substitute products or new competition would enter,
then those products must be included in the market defintition
• If no substitution or new entrants, then the market has been defined
correctly.
Market Definition
• "Where the purchaser and seller meet" "the area where the effect of the
merger on competition will be both immediate and direct.- Philidelphia National
• there may be more than one relevant market
• The court has refused to determine the legality of a merger by measuring the
effect on areas where the acquiring firm is NOT in direct competition- Conn.
National Bank
• The definition of product market thus focuses on demand substitution factors.
▼
Anticompetitive effect. "may be substantially to lessen competition"
• Congress was concerned with probabilities, not certanties- Procter and
Gamble- Clorox case
• Bad acts or predatory conduct is not required.
• Harm must be within the scope of the act.
▼ How much market share is enough to be anti-competitive
▼
30% is enough in Philadelphia national
• Still good law- but we are not sure
• There is presumptive illegality- kind of a bright line.
▼
the degree of market share-
• is less and less important than the degree to which the market share
increases
• But competitive justifications can be used to some extent more and more
now -adays
▼ Defenses
▼
Failing company defense
▼ A merger between a failing company and a competitor should be allowed,
absent other purchasers
• must be in immanent danger of failure
• no realistic prospect for a successful reorganization
• AND no viable alternative purchaser
• Burden is on the D to prove
▼ Staples case- get notes- I didn't read it.
• a failling company can be bought out w/o anti trust violations
▼
the purchaser must be the only one available to do so
• the purchaser must be the sole one to do so and it must be the last
gasp for the purchased company
▼
▼
it is not enough that the failling company is not profitable or in
bankruptcy
• it must be the lessor of two evils
Lack of competitive harm- General Dynamics
▼ Prior to GD- statistics could prove prima facia §7 Clayton cases
• but statistics are not conclusive of anticompetitive effects
▼ Post aquisition evidence
• irrelevant in a typical injunction cases
• the complaint stands or falls at THE TIME OF THE AQUISITION
▼ GD court looked beyond structural evidence to determine the likely
competitive impact of the acquisition
▼
the P makes a prima facia statistical case
▼ the d rebuts by showing the market share statistics in accurately
portray the merger's probably effect on competition in the relevant
market.
• Merged company had effectively run out of coal reserves, and would
not be able to maintain a competitive edge.
▼
Economic Efficiencies
• 1992 meager guidelines included this element
• Historically, this was not an available defense
• But now it can be allowed if the merger would ultimately benefit competition,
and hens, consumers
• efficiencies are most likely ot make a difference in merger analysis when the
likely adverse effects, absent efficiencies, are not that great
• efficiencies almost never jstify a merger to monopoly or near monopoly
▼ The question is are efficiencies admissible
• the trend is more and more yes.
▼
Post aquisition evidence
• generally not allowed- see General Dynamics
• but it may be admissible when it is not within the control of the merged
companies, and demonstrates fundamental changes in the pattern and
structure of the industry which are probative of whether the merger lessened
competition.
▼ Supreme court has refused to touch merger cases- they have essentially left
it to the regulatory agencies.\
• Whether to bring this type of case by a regulatory agency is a POLITICAL
QUESTION
▼ Approach
• Determine relevant market (product and geographic)
▼
examine market share and concentration
• If the merger produces a company with an undue percentage share of the
market, and results in a significant increase in concentration of firms in that
market, then the merger is presumptivly illegal- Philidelphia National Bank
▼ 30% in Philidelphia was an undue percentage.
▼
Market share is but one factor.
• Alcoa (Rome Cable Case) held that the puchase by Alcoa of Rome, a
company with 1.3% of the market would violate section 7 becasue
Rome was an aggressive, innovative company whose absorption would
have affected commerce more than the 1.3% would indicate.
• examine the totality of the circumstances to see if there is any additional
anti competitive effect
▼
consider any mitigating factors.
• Low barrier to entry
• industry trend toward concentrations
• nature of the merger
▼ Joint Ventures
▼
Factors in assessing the competitive impact of a joint venture in
assessing the probability of a substantial lessening of competition by the
joint venture
• # of compentitors
• background of their growth
• the power of the JV
• relationship between the JV lines of commerce
• pg 637-638 - other factors
▼
IF ONE competitior would enter the market independantly, then the joint
venture will not be allowed
• The standard from Penn-Olin appears to have limited significance
▼ DOJ/FTC Guidelines
• Not binding on the courts or FTC
▼
Horizontal Guidelines
▼ Defining the relevant market
• Uses SSNIP- see SUPRA
▼ HHI
• a metric to determine the effect on market share by an acquisition.
▼
Add the squares of the market shares of each firm in the market
• if post merger HHI is less than 1000, challenge unlikely
▼ between 1000 and 1800, unlikely to challenge unless the merger
produces an increase in HHI of more than 100, but they will take into
account related factors
• ease of entry
• adequacy of irreplaceable raw materials (General Dynamics)
• excess capacity of the firms in the market
• trends toward concentration
• particular efficiencies created by the merger.
• excess of 1800, more likely to challenge.
▼ Hospitals
▼
Generally- a hospital is not a competitor of the doctors
• Hospitals are service providers- they provide beds and facilities
▼ Unilateral Effects
• Customer preferences towards one product over the other do not negate
interchangeability
• It refers to the ability of post-merger firms to raise prices because of the
removal of competitive constraints resulting from the merger, irrespective
of the pricing decisions and actions of their competitors. Such
anti-competitive effects can be pronounced when two significant
competitors merge to create a large, but not dominant player on a market
with only a few other competitors. In such a case, particularly when the two
merging companies have highly substitute good, it will be rational for the
merged company to raise prices to some degree, because it will recapture
some of the customers who would have switched away from the product in
favour of what was previously a competing product. Such a price increase
does not depend on the merged firm being the dominant player in the
market. The likelihood and magnitude of such an increase will instead
depend on the substitutability of the products in question – the closer the
substitute,the greater the unilateral effects.
▼
4 factors necessary for a differentiated products unilateral effects claim
▼ the products controlled by the merging firms must be differentiated
• products are differentiated if no "perfect" substitutes exist for the products
controlled by the merging firms
▼ the products controlled by the merging firms must be close substitutes
• products are close substitutes is a substantial number of the customers of
one firm would turn to the other in response to a price increase
• other products must be sufficiently different from the products controlled by the
merging firms that a merger would make a small but significant and
non-transitory price increases profitable for the merging firms
▼ Repositioning by the non-merging firms must be unlikely
• P must demonstrate that the non-merging firms are likely to introduce
products sufficiently similar to the products controlled by the merging firms
to eliminate any significant market power created by the merger.
▼ Note on patent
• patents don't really give you a monopoly right beyond the rights inherant in
the patent.
▼ Actual Potential Competititor/Perceived Potential Competitor
▼
A potential competitior is so positioned on the edge of the market that it
exerted benificial influence on competitive conditions in the market.
• El Paso is the first instance in which the court recognises the significance of
potential compeition
▼ you rely on the testimony of competitors to determine the effect of the "in the
wings" competitior
• that certanly makes things interesting evidence wise.
▼
Toe-hold aquisition- buying a smaller competitior in the relivant market,
and ramping up their production using the new entrants skill derived from
other markets
▼ how is it defined?
• FTC presumes that 10% or less constitutes a toe hold
• Market share and level of concentration of the acquired firm's market are
typically the prime determinants.
• Brunette " BRING EM ON!"
• The toe hold proponent is asserting that its entry through the acquisition of a
weak or insignificant competitor is pro-competitive because it adds another
consequential competitor to the market, just as de novo entry would
• De novo entry- starting up your own dealer network takes time and risk
when entering a new market.
▼
Perceived potential entrant
• concrened with the present effect that a company not in an ogopolistic market
is having on companies which are in that market.
• the insiders view the outsiders as a likley entrants, so they keep prices and
margins low to discourage entry.
• THe prices are lower than they would otherwise be without the threat of entry
from the outsider.
• A merger by the outsider and an insider would therefore result in the raising of
prices, because the threat of entry has been removed.
▼ Reciprocity
• ONE case says reciprocity agreements MAY affect competition.
▼
Vertical Restraints
• A wholesaler would want to discourage intrabrand competition.
▼ Vertical agreements to set minimum resale prices are still per-se illegal- Dr.
Miles.- but this gets chopped down some in subsequent cases.
• Most other vertical restraints are judged under the RR - Like non-price
restraints in GTE, Maximum price fixing, exclusive dealing arangements
▼
Vertical restraints inhibit alienation.
• The dealer buys the goods and then owns them
• the agreement restricts their ability to sell their own property
▼
You can alwys decide who you want to deal with
▼ Anthing more than a unilateral price declaration is per se illegal.
▼
You cannot require agreement to your terms. -
• THE AGREEMENT IS WHAT IS BAD- not the behavior on the part of
the wholesalers
▼
It is very important to distinguish independant action by the
manufacturer and concerted action on non-price restrictions, with price
fixing agreements- monasanto
• Price fixing gets per-se treatment and treble damages.
▼ There must be evidence that tends to exclude the possibility of independent
action by the manufacturer and distributor
• that is there must be direct of circumstantial evidence that reasonably
proves that the manufacturer and others has a conscious commitment to a
common scheme designed to achieve an unlawful objective.
▼
Resale Price Maintanance- Per-se illegal- Monsanto
▼ A manufacturer has no interest in protecting the high profits of their retailers
• Normally, the manufacturer BENEFITS by price competition at the retail
level- more of their product will be sold if the retailer cuts their margin to
lower price
▼ Free Rider Problem
• the Manufacturer may be interested in the retailer providing services or
some sort, and so protecting a certain margin will allow the retailer to have
the profits to provide the services
▼ Why do we prohibit vertical restraints
▼
it might be a historic/sociological power.
• small business is a good thing- maybe even if it was at the expense of
efficiency and lower prices.
▼ GTE Sylvania- VERY IMPORTANT CASE
▼
GTE sought to reduce competition among their retailers through the
adoption of a franchise system
• "Price is central to the nervious sytem of the economy"
• NON-price restraint
▼
The distinction (in schwinn) between sale and non-sale transactions is
not sufficient to justify the application of a per se rule in one situation and a
rule of reason in another.
▼ HERE- the rule of reason is what guides the analysis in ALL non-price
vertical restraints.
• Because benefits in inter-brand competition can be produced from
non-price vertical restraints.
▼
Why was the rule structured that way before?
• It was based on a formalistic line drawing
• it should be based on a demonstrable economic effect.
▼ Non-price vertical restraints are almost always found to be legal now.
• the line between non-price restraints and price restraints can sometimes be
fuzzy now.
▼ Maximum prices are no longer evaluated Per-se- state oil v khan
• they are pro-consumer, so we should be evaluating them under the ROR.
▼
Manufactures have a clear interest in setting the a Maximum price
• they do not want a retailer with market power cranking up the price, and
therefore selling less of it, hurting the manufacturers profits.
• But maximum's inhibit market entry
▼ Note Exemptions
▼
Consignment Arrangements (GE)
• Is the risk of loss or price decline in the retailer or the manufacturer?
• Might not apply anymore to Non-patent cases- Simpson v union oil
• Colgate- Unilateral refusals to deal have no "agreement" and are ok
▼
Insurance companies are exempt from antitrust rules if: they are
governed under state law and they sell insurance
• does not extend to boycotts
• the state regulation must be real- a form that they fill out may not be enough
▼
Why?
▼ Risk pooling requires lots of information, and the more information is shared
the more efficient the industry is- and the lower consumer prices would be
• in theory.
▼
Agricultural/FIsheries exemptions
• By letting small producers get to together to negotiate with the purchasers,
they can counteract the effect of only one purchaser in the market.
▼ Leegin
▼
Dr. Miles reasoning overturned
• The rule of reason is what is now used to analyze vertical price fixing.
• Per Se rules may increase administrative conveinance, but they may attract
suits, and they prohibit potentially competitive activity.
▼
It cannot be said that resale price maintenance "always or almost
always tends to restrict competition and decrease output"
• Manufacturers strive to improve product quality or to promote its brand
because it believes this conduct will lead to increased demand despite higher
prices. The same can hold true for resale price maintenance
• Market power is required to actually maintain anti-competitive prices through
vertical integration.
• Result: Fewer vertical price fixing cases.
▼ Tie in agreements- also governed by Clayton act sec 3.
▼
Clayton act does not cover service ties
• to allege a service tie, it must be under section 1
▼ Act doesn't specifically cover ties
• but Salt and Northern Pacific make it clear that Clayton Sec 3 cover ties
▼
Requirements
▼ separate tying and tied products
• the focus is on the character of the demand fr the two products and not the
functional relation between them. - Jefferson Parish
• There must be sufficient demand for the two products to be sold separately
▼ sale must be conditioned on the arrangement or due to coercion or force by
the seller
▼
Courts are split
• a contract has been held to be sufficient, while some have held that
proof of actual coercion is required, as opposed to sales presure
• if the individual purchase of the bundled products is not economically
viable, coercion is probably satisfied
▼ the seller must have sufficient economic power in the tying product market
to restrain competition appreciably in the tied product
▼
Dominance in the tying product market is what is necessary
• See: International Salt, Loew's Movies, Northern Pacific Railways
• Modern Trend is more toward the firms ability to force consumerist make
chooses that they would not make in a competitive market.- Jefferson
Parish
• Unique terms are not enough to show market power- US steel- prefab
homes and credit
• the arrangement must affect more that an insubstantial dollar volume of
commerce
▼
Defenses
▼ single products
• there cannot be a tie if there is one product
• when the commodity is unique and therefore not interchangeable with other
products.
▼ no sufficient power
▼
How much power is required for an illegal tie?
▼ "sufficient economic power"
• what is sufficient? is it a set amount or is it enough to satisfy a
court?
• not forced sale.
▼
Tie in's are illegal per se and still are.
▼ But the per se rule here and in horizontal price fixing is different
• in ty's it takes a significant amount of analysis to figure out what's going on
• as opposed to the horizontal per se rule, where the inquiry is limited.
• Uniqueness confers economic power only when other competitiors are in
some way prevented from offering the distinctive product themselves.
▼
Hyde- Jefferson Parrish still the law today
• Anesthesiologist case
▼ Hospital service and anesthesiology are seperate lines of commerce
• But only from a demand side of the transaction
• Looking at it from a supply side, then it looks different
• Any inquiry into the validity of a tying arrangement must focus on the markets
in which the two products are sold, for that is where the anticompetitive forcing
has its impact.
▼ When the seller's power is just used to maximise its return in the tying
product market where presumably its product enjoys some justifiable
advantage over its competitors, the competitive ideal of the Sherman Act is not
necessarily comprimised
• only if patients are forced too purchase roux's services as a result of the
hospital's market power would the arrangement have anticompetitive
consequences.
▼
Franchises tieing case
• The test for relevant market is not commodities reasonably interchangible by a
particular plaintif, but commodities reasonably interchangible by consumers
for the same purpose- from Du pont
• A court will not look to the particular contractual restraints being placed on a
particular P.
• Particular contractual restraints assumed by a plaintiff are not sufficient by
themselves to render interchangeable commodities non-interchangeable for
purposes of relevant market definition.
▼ Non-essential services
• they MAY succeed occasionally.
▼
Reciprocal Dealing
• Not per se, but could be illegal with coersion.
▼
Exclusive Dealing Arangements
• RR governs.
▼ Review
• Post sylvania we use business reality
• there is nothing left per se in vertical price setting, territory, and exclusive
dealing
• something left to per se in tying
▼
P's can still win these cases, but they do not often try in vertical cases
• so they try and make vertical cases horizontal
• Heavy regulation does not create immunity to antitrust laws
▼
Private Enforcement
▼ 3 types of enfrocement actions
▼
State actions
▼ Why arn't state laws preempted by the Sherman act
• Is the state action an obstacle to the enforcement of the SHerman act.
• Federal Action
▼
Private Action
• New twombly/iqubal rules mean you must have your complaint ready to go
essentially, because you won't have much opportunity through limited
discovery
▼ Private action should allow for more efficient prosecution of antitrust claims
• creates an army of attornies general
▼ There are more private than public cases now
• The feds go after only visible mergers and the like
▼ Standing
• Brunet hates standing cases• Standing is not really anaylitical
▼
Requirements of a private action
▼ Who has standing?
• "Persons", foreign and domestic corporations and associations, foreign
governments.
▼ Brunswick
• to win an antitrust case you must have an anti-trust injury
• But for Brunswicks action, Bowl-o-mat would have increased market share.
And it was brunswicks size that allowed them to purchase the failing
company
• But the injury was not an anti-trust injury
▼
▼
Is anti trust injury part of the prima facia case, or is it a lack of one an
affiramative defence?
• not clear at all.
Injury to business or property
• not all injuries or compensable
▼ Indirect injury
▼
Illinois Brick- Pass on defences
▼ Only direct purchasers will be allowed to aledge antitrust injury
▼
EXCEPTIONS
▼ Cost-Plus contracts- the supra-competitive prices are clearly
passed on to the purchasers down the road, without have to
engage in elaborate analysis about the effects of supply and
demand.
• there is no risk of duplicative recovery
• the most popular exception to Illinois Brick
▼ Purcahsing from a Subsdiary company- where the Sub bought
from the parent, and the parent was in violations of anti trust
rules
• only where it can be determined with accurasy that they
purchaser was injured to a specific ammount
• Why? Pricing is complex- and higher prices have odd effects on
supply and demand, so a higher price at one point in the chain
makes it difficult to find out who really was injured (who paid the
higher price)
• Many states have overruled iillinios brick for INTRASTATE actions
statutorily to allow for recovery by indirect purchasers.
▼
Robinson Pattman Act
▼ Totally different than the clayton act- expanded into secondary line in the RP
▼
the theory is that competitors are helped, instead of compeition
• this is not the same standard as anti-trust
• if the goal is consumer welfare then the RP act would be repealed.
▼
Occasionally-- it makes sense.
• it can detect monopoly.
▼
Problems
• some buyers value products more than others.
• Buying power- "walmart discount"
• it used to be a lot simpler
▼ It shall be unlawful either directly or indirectly to discriminate between
purchasers of commodities of like grade and quality....where the effect of such
discrimination may be substantially to lessen competition or tend to create a
monopoly
▼
Broadly speaking- price discrimination is illegal unless there is
justification for the diferential
• A firm sol the smae product to different purchasers, at different prices, and
competition in the market was harmed
• Cost justification discounts/quantity discounts are ok
▼
changing market conditions are ok
• end of the model year- old shoe not the same as
▼
requires 2 sales
• outright sales, leases or consignments do not count
▼ in interstate commerce
▼
not solely INTRAstate
• State law might cover intrastate
▼
flow of commerce/stream of commerce
• MORE
▼ warehouse exception
• MORE
• international sales do not qualify
▼ Indirect purchaser doctrine
• parent/subsidiary
• Purchasers must be private- not to government entities
▼
of tangible goods
• not services or real estate (duh)
• of like grade and quality
▼
at different prices
• merely a price difference
• includes rebates, allowances, credit (sticky sometimes)
• different price in a broad sense
▼
RESULTING in an injury to competition
• BUT competitive injury may be inferred from the price difference itself.
• The discrimination cannot be only temporary- one case 17 days of lower
wholoesale prices was found not to injure a competitor 15 miles away.
• There is no injury where the "non-favored" buyer could have purchased the
goods from another source at the same price cahrged by the discriminating
seller to the favored buyer
▼
Indirect price discrimination is also illegal
• like discrimination on credit terms
• Morton Salt- discounts that are theoretically open to all, but as a practical
matter, are closed to small buyers, are illegal
▼
Freight discrimination
• freight prices charged fob mill are fine, but issues arise where the freight is
included in the price, or is computed with reference to a basing point.
• A seller with shipping included in the price may be guilty of discrimination to
buyer closest to the plant, because their is less cost to ship to them.
• Single freight systems may also include Phantom freight, Corn Products v.
FTC.
▼
Wholesaler/retailer distinction
• a seller may be discriminating where they sell at one price to a wholesaler, and
another to a retailer, when in reality both customers compete with one another
for the same customers - Texaco v Hasbrouck
▼ Primary line- or competition line- an original 1914 issue in the clayton act
▼
the price discrimination effects the competitor of the seller
• often this is in territorial cases or customer specific price descrimination
• Must be a substantial and sustained drop in price in the local area by a large
competitor
• must be intent or knowledge of effect of injuring smaller-scale rival and must
harm competition
▼
Utah Pie
• Essentially- was there enough in the record to support the Jury verdict
▼ There was more than mere price descrimination
• industrial spy was sent in
• If this was purely a price case, then brook group may have overrulled it
▼
Intent and effect are the salt and pepper of anti-trust- you sprinkle
a little on all your food
• it suppilments the possibility to injury to competition.
▼ You don't really want to relly on pie for much
• because of brook group
▼ Secondary Line- added by RP▼
Injury to the competitors of the purchaser
• the favored and disfavored purchasers are in competiton with each other
• difference in price usually enough to infer injury to competition
▼
Morton salt
• Morton Salt is incompatible with GTE-Sylivania!!!!
▼ Defenses
▼
Cost-Justification
• Like quantity discounts justified by cost differences in shipping the goods
• absolute defense
▼ must be documented by actual savings due to quantity sold, not just a
generalized savings that large deliveries are more economical.
• BUT NOTE MORTON SALT- where the effect of the discount would be
unjust and would promote a monopoly this won't fly
▼
Meeting Competitors Prices
▼ meeting, not beating, in good faith
• The meet not beat defense is gone now- ITS OK TO BEAT COMPETITION
• It's good for consumers
▼
Changing Conditions in Good Faith
• Usually confined to temporary situation cause by that physical nature of the
commodity- perishable fruit
▼
Availabilty defence
• A discount that is available to all, given that certain conditions are met, and as
a practical matter, any purchaser could meet the conditions.
• it is not enough that the P is actually paying a higher price.
▼
Patents
▼ patents and anti-trust are kind of fundamentally incompatible
• Patents grant the right to exclude others from making, selling, or using the
invention.
• They do not give the right to use the invention
▼ Patents grant control of a product, but market power does not necessarily
come with a patent
▼
patentee can license a patent within certain teritories
• but there is no supreme court case on point
▼ GTE sylvania says vertical territory allocation may be efficient and ok
• horizontal territories- per se illegal.
▼
Grant backs
• A patent license covenant requireing the licensee to assign to the licensor any
improvements developed by the licensee
▼ No illegal per se
• tested under the RR
▼ can be efficient for the patentee, but can tend to discourage inovation
• will be found to violate the Sherman Act where they unduly restrain or
monopolize trade
▼ Patent Misuse
• An interesting doctrine
▼
Any violation of the antitrust doctrine is patent misuse
• But not all patent misuse cases are antitrust
▼
Nine No-Nos- illegal licensing restrictions
▼ tying unpatented material as condition of a license
• same rules as other tying cases
• requiring licensee to assign back subsequent patents
• restricting the right of purchasers to resale of the product
• restricting licensees ability to deal in products outside the scope of the patent
• giving the licensee control over the grant of further licenses
• using madatory package licenses
• exacting royalties not reasonably related to the licensee's sale of the patented
product
• restricting the licensee's use of a product made by a patented process
• fixing minimum resale price provisions for a licensed products.
▼
The agencies will not challenge a licensing arrangement if
• the restraint is not facially anti-competitive
• the licensee and licensor collectivly do not account for more than 20 % of each
relevant market significantly affected by the restaint.
▼ Your patent "carrot" is confined to your first sale
▼
But there are instances where you can still restrict sales to single use
• health and safety of the public.
• RR
▼
Attempts to extend the patent monopoly may violate the antitrust laws.
• exclusive agreements not to sell products competing with the patented product
may be abuse
• royalty agreements that extend beyond the patent term are unlawful
▼
Block-Booking
▼ where you have to license a bunch of patents to get at the one you really
want
• Per se- seen a lot in copyright- ie movie theater cases
▼ Reverse payments
• cases are split- most lean to Plaintifs
▼
there is a large pro settlement theme, and courts are wont to touch
those
• but you need to know the rational for the desssions reached to determine the
competitive motivations.
▼ Unilateral resuals to license
▼
in the absence of any indication of illegal tying fraud in the PTO, or
sham litigation, the patent holder may enforce the statuory right to exclude
others from making using or selling the claimed invention free from liability
under the anti-trust laws.
• the patentee's subjective motivation for exerting his statutory rights will not be
inquired into, even if the refusal to sell or license has anti-competitive effects,
so long as the anti- competitive effect is not illegally extended beyond the
statutory patent grant.
• the infringing defendant and not the patentee that bears the burdon to show
that one of the exceptions exists.
▼
Colgate gives you a god given right to refuse to deal with an other firm
• but watch aspen ski.
• 9 out of 10 anti-trust licensing cases could be solved by JUST CHARGING
MORE MONEY FOR THE LICENSE.
▼ Horizontal territory fixing- per se illegal
• but there are strong reasons to allow it.
▼ WALKER PROCESS
• fruad on the patent office is illegal, but only if the normal elements of a
monopolization claim can be made out.
▼ Remedies from the FTC
▼
Injuntive
• cease and decist
• Cannot get money
• Consent Relief
▼ Pay for delay
▼
Still unsettled
• New legislation is being introduced that would make it per se illegal
• Currently it is not illegal
▼
Private Attempts to Influence Government Decision making
▼ Noerr
▼
No violation of the anti-trust laws can be predicated upon attempts to
influence passage or enforcement of laws.
• does not apple to private groups- allied tube
• also applies to the courts and to administrative agencies.
▼ the government acts in the best interest of the public and there is no issue
with trying to convince to government what the best interest of the public is.
• even if it's solely in your economic interest to do.
• Even if your sole motivation for trying to pass a law is the destruction of a
competitor, cannot transform the otherwise legal conduct to illegal under
the Sherman act.
▼ The legality of government influeance is not affected by anti-competitive
purpose.
• Government needs information to make decissions.
▼
Sham exectption- NOW THE MOST IMPORTANT PART OF THE CASE
▼ A situation in which people use governmental process- as opposed to the
outcome of that process- as an anti-competitive weapon
• EG- Frivolous objection to the license application of a competitor, with no
expectation of achieving denial of the license, but simply in oder to impose
expense and delay.
▼ To be a sham, the litigation must be both
• objectly baseless
▼
and improperly motivated
• Only if it is found to be objectly baseless, will the inquiry into motivations
result