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QUESTION TYPE 1: OPINION/DISSENT
1A.
There are three big players in carbonated soft-drinks, Coca-Cola, Pepsi-Cola and
Seven-Up. In most major markets in the United States, their products constitute about
70% of sales. Generally the big three sell at the same price, a price at least 5 cents a can
or 30 cents a two-liter bottle higher than that of local or grocery store brands.
A group of six grocery chains in Southern Indiana each markets its own store
brand of carbonated beverages. These store brands have about 14% of the local
carbonated soft drink market among them. The six agreed to advertise jointly their store
brands of carbonated beverages on television. Together, they could afford prime time
advertising that was too expensive for their individual budgets.
Ancillary to the advertising agreement, they agreed to set maximum prices for
their own brands of soft drinks 7% lower than the prevailing market price for national
soft drink brands. The price agreement allowed them to state during the ads price levels
applicable to all six stores. Thus, each ad contains language like: "Try store brand sodas:
at least 7% less than what you pay for Coke & Pepsi" and then lists the grocery stores in
question.
The Department of Justice brought suit to enjoin operation of the agreement,
claiming it was per se illegal price fixing. The grocery stores claim that Rule of Reason
analysis should apply. The District Court applied the per se rule, and, after finding the
facts set out above, granted the injunction. The Court of Appeals reversed, finding that
the grocery stores' arrangement "sufficiently differed from a classic price fix that the
lower court should not have employed the per se rule, but the Rule of Reason."
The Supreme Court granted certiorari, limited to the following question: "Should
a maximum price-fixing agreement among a group of competitors who jointly have no
market power be governed by the Rule of Reason?"
Write an opinion and a shorter dissent addressing this question on the facts of this case.
You should discuss relevant and analogous caselaw and the theoretical materials we
have read and discussed in class.
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1B.
Myers Mining, Manufacturing, and Miscellany (4M), a large corporation which
sells a wide variety of consumer goods, held a patent on "Stick-Em-Ups," small pieces of
paper with adhesive on part of one side that allows the user to attach them to other pieces
of paper. Stick-Em-Ups are placed on other documents to make comments and notes that
can be easily removed when no longer needed. When they first appeared, they
revolutionized office management, nearly replacing the paper-clipped memo.
When 4M's patent on Stick-Em-Ups expired 7 years ago, 4M had a complete
monopoly on the product. Since then, 4M has reduced the price of Stick-Em-Ups
slightly, although they still charge more than their competitors and still make healthy
profits. 4M also has undertaken extensive advertising, including the development of a
catchy jingle (sung to the tune of the popular "Engel Song") which includes the lyric:
"The original Stick-Em-Ups, still better than the rest. You stick with us, you'll stick with
the best."
Several competitors manufacture "adhesive notepaper" (the generic term for
Stick-Em-Ups) and sell it at prices 5-10% less than 4M's. In the first few years after its
patent expired, 4M lost some market share, but it has maintained about 85% of the
market for the past three years. Moreover, 4M sold 12% more Stick-Em-Ups last year
than it did the last year it held the patent.
The government brought suit against 4M, alleging it had violated Section 2 of the
Sherman Act by engaging in the conduct described above. After discovery, 4M
acknowledged that it had monopoly power in the adhesive notepaper market, but moved
for summary judgment, claiming it had engaged in no illegal conduct. The District Court
granted the motion, stating that "4M merely competed well and good competition is
never a Sherman Act violation."
The Court of Appeals reversed, stating that the facts alleged by the government
constituted a Section 2 violation under Alcoa since 4M expanded to meet growth in the
market and advertised to maintain its market share.
The Supreme Court granted certiorari limited to the following question: "Is it a
violation of Section 2 for a firm that admittedly has monopoly power to meet competition
by lowering price, expanding output and advertising extensively?"
Write an opinion and a shorter dissent for the Court addressing this question on
the facts of this case. You should discuss relevant and analogous caselaw and the
theoretical materials we have read and discussed in class.
X2
1C.
Stanley's, Paladini's, and The Three Phils are department store chains, each of
which operates one store in Carey City, a large midwestern city. Mikey Likes It is a large
warehouse-style discount store, also in Carey City. Mikey Likes It runs commercials on
late night Carey City Cable TV, advertising appliances and household goods at prices
25% less than those of major department stores. Some of the commercials mentioned
Stanley's, Paladini's, and The Three Phils by name as "high-priced, snob-appeal, rip-off
joints."
The managers of the Carey City stores for the three chains met and agreed they
had to do something. First, they sent a joint letter to Mikey Likes It, threatening "harsh
action" if the ads mentioning their stores by name were not dropped. When Mikey Likes
It didn't respond, the managers called several major manufacturers and convinced them to
stop doing business with Mikey Likes It.
Mikey Likes It brought a Sherman Act section 1 suit, alleging a per se illegal
group boycott. After a bench trial, the District Court made the following findings of fact:
1) Stanley's, Paladini's and The Three Phils conspired to
get manufacturers to refuse to deal with Mikey Likes It.
2) Entry barriers into the retail market were low.
Stanley's, Paladini's and The Three Phils between them had
less than 5% of the Carey City sales of items sold by
Mikey Likes It. They therefore did not have market power.
3) Each of the products that was part of the boycott was
sold by no more than two of the three defendants.
Many
other sellers of appliances and household items ran
businesses without selling any of them at all. Thus, the
products involved in the boycott, even in the aggregate,
did not constitute items necessary to conduct business.
Based on these findings, the court held that the boycott should be judged under
the Rule of Reason. Because Mikey Likes It had not shown actual harm to competition
and had not demonstrated that the defendants had market power, the court held that the
defendants had not violated the Rule of Reason.
The Court of Appeals reversed, holding that whenever a group of firms agree to
convince suppliers not to do business with a competitor, the harm to competition is
obvious, and the agreement is per se illegal.
The Supreme Court granted certiorari, limited to the following question: "Is it per
se illegal for a group of firms without market power to agree to convince an entity at
another level of the distribution chain to ceasedoing business with one or more of their
competitors, when the conspiracy does not deprive the competitor of products or services
necessary for it to do business?" Write an opinion and a shorter dissent for the Court
deciding that question with reference to the facts given. You should assume that the
District Court's factual findings are supported by the evidence.
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1D.
Assume that instead of settling the Ivy League Price-Fixing case (U.S. v. Brown
University; Course Materials pp.157-69), defendant M.I.T. petitioned the Supreme Court
for certiorari. In its petition, M.I.T. argued that agreements between Universities related
to financial aid packages of prospective students do not come within the scope of the
antitrust laws. Assume further that the Supreme Court granted certiorari, limited to the
following question: "Should the federal antitrust laws be interpreted to govern decisions
of colleges and universities regarding admissions and financial aid?"
Write an opinion and a shorter dissent for the Court deciding that question with
reference to the facts of U.S. v. Brown University. Assume that all the facts given in the
Third Circuit's opinion are correct, and that factual issues that the Third Circuit believed
to be unresolved are still unresolved. Assume also that the question posed has been
properly raised and preserved at all stages of the case.
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1E.
The American Bar Association (ABA), the professional association of American
lawyers, evaluates American law schools on a number of criteria it believes relevant to
the proper training of new lawyers. It then decides whether or not to issue a certificate of
accreditation. If a school is not accredited by the ABA, its graduates cannot become
lawyers in 41 of the 50 states, its students cannot transfer credits to ABA accredited
institutions, and its administrators cannot attend conferences at which potential faculty
are hired.
In 1988, the Massachusetts School of Law (MSL) opened its doors. It advertised
itself as preparing students to practice in the modern world. It taught extensive reliance
on computer researching, encouraged students to work during law school, and utilized
many practicing lawyers as part-time faculty. To keep costs down, MSL hired relatively
few full-time faculty members and had them teach 15 class hours a semester.
In 1993, the ABA denied accreditation to MSL. It relied on several key findings:
A) MSL had a student to full-time faculty ratio of 1:45,
well above the 1:30 required by the ABA, and many faculty
were teaching more than the 10 hours a semester maximum
imposed by the ABA;
B) MSL had less than half the number of volumes in its
law library that the ABA required;
C) Many full-time MSL students worked more than the 20
hours a week allowed by ABA regulations.
The ABA report on MSL concluded that MSL had made insufficient efforts “to create
even the minimally credible academic institution of the type necessary for the proper
education of young lawyers.”
MSL sued, claiming that denial of accreditation by the ABA constituted an illegal
boycott. Their complaint admitted that the three findings listed above were true, but
claimed that their students received a more useful legal education at a lower price than
that provided by many accredited schools. MSL thus concluded that denying them
accreditation on the three grounds listed constituted an unreasonable restraint of trade.
The District Court ruled that the case would be judged under the Rule of Reason
because it involved accreditation standards involving a professional association. The
court also held the ABA undoubtedly had market power in the sense that it effectively
could prevent the creation of new lawyers by unaccredited law schools. However, the
court dismissed the action, saying that the three grounds for denying accreditation were
reasonable as a matter of law.
The Court of Appeals affirmed. The Supreme Court granted certiorari, limited to
the question of whether the ABA’s admissions criteria were reasonable within the
meaning of the Rule of Reason as a matter of law. Write an opinion and a shorter dissent
for the Court deciding that question. Assume that the trial court correctly determined
that the Rule of Reason (and not the per se rule) applies to this case. Assume also that
the ABA has market power in the relevant market.
X5
1F.
American states generally require that attorneys-to-be pass a state-administered
bar exam after they complete law school. Most state bar exams incorporate some
multiple choice questions that are simultaneously administered nationwide. However,
every state reserves at least half of the exam for questions it creates and administers itself,
often on peculiarities of its own statutory and common law. Thus, studying for the bar
exam differs to some extent in each state.
A number of private firms offer review courses that prepare students to take the
various state bar exams. Generally, the courses include a review of the subjects tested by
the state in question, exam-taking tips, and practice questions and answers. Almost every
student who takes a bar exam purchases one of these courses. The firms sell the courses
to law students in association with a variety of promotional activities at the law schools.
Industry practice is to give substantial discounts to students purchasing courses early in
their law school careers. Because each state bar is different, many of the firms that
provide review courses only operate in a single state. However, firms can achieve some
economies of scale by preparing materials geared toward the national portion of the bar
exam and using them in several states.
Between 1993 and the present, only two firms have operated bar courses in every
state. BarGreed, established in the 1970’s, currently sells 63% of the bar review courses
purchased in the U.S. Its closest rival, Eastbar, only in existence since 1993, sells 11% of
the courses purchased nationwide. Both BarGreed and Eastbar hire famous professors
from top 20 law schools to travel the country lecturing on the national portions of the bar.
These professors also do videotaped supplemental lectures that are tailored to the state
portions of the exams. BarGreed and Eastbar compete with a variety of local and
regional firms that vary greatly in popularity from state to state.
As of Summer 1993, BarGreed sold 88% of the courses geared to the Florida bar.
In that year, it was joined in the market both by Eastbar and by a local firm called Robyn,
Rodriguez & Rosenblatt, which did business under the trade name “3R’S.” 3R’S, a
subsidiary of the educational testing firm Learning Limited, tried to distinguish its course
from BarGreed by using popular local law professors. Its marketing included the slogan,
“Back to Basics with 3R’S: Let Florida’s Best Prep You For Florida’s Bar.” By Summer
1996, this campaign had succeeded sufficiently that 3R’S sold 17% of the bar review
courses for the Florida Bar compared to 65% for BarGreed and 9% for Eastbar. In
addition, 3R’S had sold even greater percentages of the Florida courses for 1997 and
1998 purchased at a discount by first and second year students. In light of this success,
3R’S began exploring the possibility of applying its strategy in other states.
In the late Spring of 1996, worried by the decline in its share of the sales of
Florida bar review courses, BarGreed launched an intensive investigation of 3R’S and of
the Florida market. As a result, it developed a marketing plan for Florida courses that it
implemented during the 1996-97 school year. The plan, known internally as “Operation
Kill-R’S,” had three components:
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QUESTION 1F CONTINUED
(1) Hiring: BarGreed hired five popular professors who had taught major subjects for
3R’S’ courses in prior years. None of the five was yet under contract with 3R’S for
Summer 1997. BarGreed continued to use its regular teachers to teach the national
portions of the bar courses and contracted with the new hires only to teach the Florida
portions. Although their contracts contained no exclusivity provisions, the five Florida
professors were effectively precluded from working for other bar review courses by the
time needed to meet their contractual commitments to BarGreed.
(2) Advertising: BarGreed’s investigations revealed that 3R’S’ parent company,
Learning Limited, had fairly serious financial problems and had entered bankruptcy in
the spring of 1996. However, the investigations also revealed that the bankruptcy would
not affect 3R’S, which was in good shape financially and easily was able to meet its
obligations to its employees and students. BarGreed passed out flyers on law school
campuses that emphasized Learning Limited’s problems and suggested, without actually
saying so, that 3R’S would be affected. For example, one flyer read:
Federal Judge Appoints Receiver To Run Parent of 3R’S:
CAN 3R’S AFFORD TO KEEP THE LIGHTS ON?
None of the advertising was untrue and BarGreed never violated state laws regarding
false advertising or defamation.
(3) Discounting: During the 1996-97 school year BarGreed lowered prices only on sales
of its Florida courses. The sale price was above BarGreed’s own costs, but below the
costs of 3R’S. BarGreed was aware of 3R’S’ cost structure because of its investigations.
Operation Kill-R’S was highly successful for BarGreed. During the 1996-97
school year, it sold 80% of Florida bar review courses. Eastbar sold 10%, and 3R’S share
declined to just 6%.
3R’S sued BarGreed in federal court, claiming that its implementation of
Operation Kill-R’S had monopolized the market for Florida bar review courses in
violation of Sherman Act §2. After a trial at which 3R’S introduced evidence supporting
the facts laid out above, the jury found for 3R’S. On appeal, the 11th Circuit Court of
Appeals reversed. It characterized each of the components of Operation Kill-Rs as
“robust competition” and thus held that there was insufficient evidence of bad conduct to
support a Section 2 claim.
3R’S petitioned for certiorari. The Supreme Court granted the petition, limited to the
question of whether the three components of Operation Kill-Rs were sufficient,
individually or in combination, to meet the conduct element of a Section 2
monopolization claim. Write an opinion and a shorter dissent for the Court deciding that
question.
X7
1G.
Red Shield is a medical insurer that provides group insurance for employees to a
large number of employers in a sparsely populated western state. Red Shield undertook a
study of certain expensive non-emergency medical procedures and concluded that
physicians were ordering some of these procedures much more often than they were
actually required. It therefore instituted a policy whereby they would pay for these
procedures only if the treating physician obtained approval in advance from Red Shield.
The State Medical Association (SMA), which included as members almost all the
physicians in the state, met to discuss the Red Shield pre-clearance policy. SMA
members almost unanimously believed that the policy interfered with their ability to
exercise their medical judgment and was dangerous for patients.
SMA attempted to negotiate with Red Shield to find some way around the policy, but the
insurer refused to compromise. The members of SMA then voted to refuse to treat the
patients of any insurance company that adopted pre-clearance policies. Facing the
likelihood that the people it insured would receive no medical treatment, Red Shield
rescinded its pre-clearance policy.
Subsequently, Red Shield brought a suit in federal district court alleging that the
SMA refusal to do business with Red Shield constituted an illegal group boycott. The
trial court made the following findings of fact:
(1) The relevant market is the provision of medical
services in the state.
Members of SMA have overwhelming
market power in that market.
(2) Red Shield does not have market power in
market for the provision of group medical insurance.
the
(3) Most people in the state would not be able to
afford the medical procedures at issue if they were not
covered by insurance.
(4) Most members of SMA have a good faith belief that
Red Shield’s pre-clearance policy would harm many patients.
This belief is reasonable.
The District Court then held that the boycott did not violate the Sherman Act “because it
was adopted based on a good faith reasonable belief that adherence to the pre-clearance
policy would interfere with their professional ethical responsibilities to provide necessary
patient care.”
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QUESTION 1G CONTINUED
The Court of Appeals reversed, finding the case indistinguishable from Indiana
Federation of Dentists. It held that the Sherman Act provided no defense of the kind
found by the District Court. The court concluded, “If the pre-clearance policy harms
patients, the market should correct it. In the unlikely event that the market does not do its
job, SMA is free to lobby the state legislature or Congress to change the law.”
The Supreme Court granted certiorari to decide whether it was a defense to a
group boycott claim that the conspirators had a good faith reasonable belief that their
refusal to deal was necessary to perform their professional responsibilities to clients or
patients.
Draft the analysis sections of an opinion and of a shorter dissent for the U.S. Supreme
Court deciding this question in the context of the facts of this case. Assume that the
record supports the District Court’s findings of fact.
X9
1H.
Idunno is a city of 30,000 located on an island off Alaska's southeast peninsula.
The island is accessible only by boat or plane, and is 70 miles from the nearest town of
5,000 or more people. In 1989, there were 3 movie theatres in Idunno, each owned by a
different local resident.
General Universal Cinematic Kitsch, Inc. ("GUCK") owns movie theatres in
hundreds of cities across the U.S. In 1989, Guck purchased the smallest of the Idunno
theatres, one which garnered about 20% of the city's movie ticket revenue. This year,
GUCK signed agreements to purchase the other two movie houses. The Department of
Justice brought suit to challenge the acquisitions, and moved for a preliminary injunction
barring the sales.
The District Court, after a hearing, made the following findings of fact:
1)
The relevant market was movie houses in Idunno.
Thus, the mergers would give GUCK 100% of the market.
2)
Because there were many buildings in Idunno
convertible to movie houses, and because opening movie
houses requires little capital, barriers to entering the
market were low.
3)
The
merger
created
economies
of
scale.
Specifically, GUCK would realize substantial cost savings
in presenting movies in Idunno because its large operation
allowed it to negotiate volume discounts with both movie
distributors and manufacturers of candy and related
products.
Nonetheless, the court found that under Brown Shoe and its progeny, a merger
that resulted in a monopoly clearly violated Clayton Act Section 7 and issued the
preliminary injunction.
On appeal, the Ninth Circuit reversed. It found that Brown Shoe implicitly had
been overruled by recent Supreme Court antitrust jurisprudence. It held that a merger in
a market with low entry barriers that results in significant economies of scale does not
violate Clayton Act Section 7 as a matter of law.
The Supreme Court granted certiorari, limited to the following question: "Can a
a merger in a market with low entry barriers that results in significant economies of scale
violate Clayton Act Section 7?" Write an opinion and a shorter dissent for the Supreme
Court resolving this question. Assume that the evidence before the District Court
supported its factual findings.
X10
1J.
K-Mart, one of the largest chains of discount department stores in the U.S.,
announced that it was going to purchase Office Depot, the second largest chain of office
supply Superstores (OSS) in the U.S. After an investigation lasting several months, the
FTC announced its intent to challenge the merger, relying on the “actual potential
competition” theory. It brought suit in U.S. District Court seeking a preliminary
injunction barring the merger. After a two-day hearing, the court issued its findings of
fact, which included the following:
(a) As found in FTC v. Staples, OSS constitute their own product market and do not face
significant competition from other sellers of office supplies. The only firms in the market
are Staples (1999 share 40%), Office Depot (1999 share 35%), and Office Max (1999
share 25%). Because of huge volume discounts enjoyed by the OSS, smaller sellers of
office supplies cannot effectively compete with them.
(b) Although K-Mart sells some of the same products as Office Depot, its prices for these
products usually are 25-30% higher than those of Office Depot. The FTC does not
contend that K-Mart is part of the same market as Office Depot. Thus, the proposed
merger is not “horizontal” in the usual sense.
(c) K-Mart undertook a study to explore significantly expanding the office supply
departments in its stores to try to compete directly with the OSS. The study concluded
that such a move would be very profitable. K-Mart’s management had approved plans to
go ahead with the project when they got word that Office Depot might be interested in a
merger. Absent the merger, K-Mart would have attempted independently to enter the
OSS market.
(d) K-Mart has expertise in wide-scale consumer marketing and in the operation of a
large national distribution system that make it especially well-qualified to participate in
the OSS market.
(e) K-Mart is one of the nation’s largest advertisers. It receives significant discounts
because of the quantity of advertising it purchases from television stations. Internal
studies conducted in anticipation of the merger indicate that the use of the K-Mart name
and of celebrities under contract to K-Mart (e.g., Rosie O’Donnell and Penny Marshall)
in advertising would significantly increase the name recognition and consumer appeal of
Office Depot.
In its conclusions of law, the District Court noted that the Supreme Court had
never explicitly approved the actual potential competition theory and that the Court had
not addressed the question in over 25 years. It then held that “trends in Antitrust law”
strongly suggested that the Court would not approve the theory today. It also held that
even if the actual potential competition theory was viable, the advertising advantages
created by the use of K-Mart’s name and resources would make Office Depot a stronger
competitor and improve competition in the OSS market. It thus overturned the FTC’s
decision and held that the merger could proceed.
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QUESTION 1J CONTINUED
The FTC appealed and the Court of Appeals reversed. It argued that allowing KMart to buy Office Depot rather than enter the market itself harmed competition by
further entrenching an oligopoly. It also held that the advertising advantages relied on by
the District Court simply raised barriers to entry and were not the kind of productivityenhancing economies of scale that could be used to offset the potential negative effects of
the merger. The court of appeals remanded the case to the District Court to determine
whether the merger met the actual potential competition test laid out in Marine Bancorp
(course materials at 504).
The U.S. Supreme Court granted certiorari, limited to two questions:
(1) Does the “actual potential competition” theory state a cause of action under Clayton
Act §7?
(2) Can advertising advantages like cost savings and increased brand recognition be used
under Clayton Act §7 to justify an otherwise anti-competitive merger?
Write drafts of the analysis sections of an opinion and a shorter dissent for the Supreme
Court resolving these questions in light of the facts of the case. Assume that the District
Court’s findings of fact are supported by the record.
X12
1K.
Battery-powered handheld organizers (like the Palm Pilot) have become very
common in the last several years. The simplest versions allow people to record phone
numbers and appointments. More complex versions are equipped to transfer information
to and from computers, act as wireless e-mail and internet receivers, serve as pagers, etc.
A relatively small electronics firm, Chen-Young, Bailine & Atlason,
manufactures handheld organizers under the trade name “Cyba.” The Cyba line is wellregarded in the industry and constituted about 8% of the handheld organizers sold in the
U.S. in the last four years.
Three years ago, researchers at Chen-Young, Bailine & Atlason made a major
breakthrough and developed a tiny but powerful projector that could project the images
from handheld organizers onto walls, pieces of paper, or other surfaces. This allows
people to view the information in a larger, easier to read format and makes the image
easily viewable to several people at one time. The projector is called the Digital Image
Optical Node (DION).
Initially, Chen-Young, Bailine & Atlason marketed DION as a small accessory
that could be used with any handheld organizer. The device proved very popular, but it
burned out after about three months use. After additional research, they developed DION
II, which provided an even clearer projection, and lasted considerably longer. They
decided to build DION II directly into their Cyba organizers and not to market it as a
separate product. They also stopped producing the original DION accessory.
After widespread consumer complaints regarding the unavailability of DION
technology separate from the Cyba organizers, the Department of Justice brought an
action against Chen-Young, Bailine & Atlason, claiming that their decision to market
DION technology only as part of Cyba organizers constituted illegal tying in violation of
Clayton Act §3.
After an expedited trial, the District Court held that the conduct in question was a
per se illegal tie. It based its decision on the following findings of fact:

There clearly were two separate products because the DION accessory had originally
been sold separately and consumers wanted DION technology separate from the Cyba
organizer

Chen-Young, Bailine & Atlason had market power because no other product served the
same function as DION technology and, because of the patents on DION and DION II,
no other manufacturer was likely to have an equivalent product within five years.
On appeal, the Court of Appeals reversed. It held, following the D.C. Circuit’s opinion in
U.S. v. Microsoft, that the per se rule should not apply to ties that took the form of
physical integration of products in rapidly changing high technology markets. It
remanded to the trial court for evaluation of the case under the Rule of Reason.
The U.S. Supreme Court granted certiorari to determine when, if ever, the per se rule
for tying should be employed in high technology markets. Draft the analysis sections
of an opinion and of a shorter dissent for the Court deciding this question in the
context of the facts of this case. Assume that the record supports the District Court’s
findings of fact.
X13
1L: During and after the catastrophic 2004 hurricane season, residents in affected areas
complained that many sellers of hurricane-related products (e.g., batteries, duct tape,
plywood and electric generators) had engaged in “price gouging” by raising prices both
before and after the storms to “unfair” levels. In response, a group of hardware retailers
that did business in the states most commonly affected by hurricanes formed the SouthEastern Anti-Gouging League (SEAGL).
The members of SEAGL all signed an agreement regarding their pricing of a
specific list of important hurricane-related products. Each retailer agreed that it would
not raise its prices for these products during the following hurricane season (June 1November 30, 2005). In other words, each retailer agreed to treat its price for each listed
item as of May 31, 2005 as a maximum price for the following six months. SEAGL held
a press conference to announce the agreement and stated that its members would post
SEAGL logos in their stores “so the public can shop for hurricane supplies at our stores
with confidence that they are not getting gouged.”
The U.S. Department of Justice immediately brought suit against the members of
SEAGL seeking to enjoin the agreement under Sherman Act §1 as a horizontal maximum
price-fixing agreement. The states of Georgia, Alabama, Louisiana, and Florida (GALF)
jointly filed an amicus brief in the case, arguing that the SEAGL agreement was “in the
public good” because the cap on prices would reduce hurricane-related stress, would
allow affected residents to recover more quickly, and would reduce the financial strain on
insurance companies and FEMA (which pay much of the cost of post-hurricane
rebuilding). The GALF states asked the court to allow the agreement to stand and
offered, if necessary, to provide evidence for the defendants to use at trial to support the
“public good” claims.
On cross-motions for summary judgment, the District Court held that the
agreement was per se illegal, relying on Arizona v. Maricopa County. It also rejected the
“public good” claims made by the GALF, arguing that “National Society of Professional
Engineers makes very clear that you cannot avoid antitrust liability by arguing that prices
set by freely operating markets are not in the public interest.”
The Court of Appeals reversed and remanded. It reasoned that “antitrust law has
sufficiently evolved since 1982 that we are certain the Supreme Court would not treat a
horizontal maximum price-fixing agreement as per se illegal absent a showing that the
agreement was simply camouflage for an agreement on minimum prices.” The appellate
court further held that, in the event of a rule of reason trial, the district court should
“consider” the “important state interests” raised by the GALF states.
The U.S. Supreme Court granted certiorari to address two questions:
(1) When, if ever, should the per se rule apply to horizontal maximum price-fixing
agreements?
(2) What legal significance, if any, should be given in an antitrust case to evidence
that a particular agreement serves the “public good”?
Draft the analysis sections of an opinion and of a shorter dissent for the Court deciding
these questions in the context of the facts of this case. Assume that the members of
SEAGL do not contest the existence of the agreement between them or its terms.
X14
1M
Over the past few years, a group of upscale department store chains experienced
slowly declining clothing sales. Their managers attributed this decline to competition
from discounters and internet sellers. They decided to collaborate on a national
advertising campaign to emphasize the benefits of getting help from—and the delights of
being pampered by—knowledgeable well-trained sales personnel. For this purpose, they
formed, and all became members of, an organization called TOPSTYLE.*
TOPSTYLE set minimum service standards for its members and created and
placed ads on television and in fashion and lifestyle magazines. As a result, the
department store chains’ clothing sales increased, but not by as much as they had hoped.
Subsequently, TOPSTYLE members entered into an “Exclusivity Agreement” which
stated that, for certain types of clothing, they would only do business with clothing
manufacturers who agreed to sell their products exclusively to members of TOPSTYLE.
The antitrust divisions of several state governments together brought a lawsuit on
behalf of their citizens alleging that the Exclusivity Agreement was a boycott that
violated §1 of the Sherman Act. After discovery, the parties agreed to a limited hearing
to determine whether the per se rule, quick look analysis, or full rule of reason analysis
should govern the case. The district court judge made the following findings of fact:
(1) For many small upscale clothing manufacturers, sales to the members of
TOPSTYLE act as important endorsements of their products and are therefore
necessary for them to do business.
(2) With regard to small upscale clothing manufacturers, the members of
TOPSTYLE collectively have market power.
(3) TOPSTYLE’s service standards and advertising operated successfully before
the Exclusivity Agreement was signed. Thus, the Exclusivity Agreement was not
a necessary part of the agreements regarding standards or advertising.
The District Court held that the Exclusivity Agreement was per se illegal, noting
that the case was essentially identical to Fashion Originators’ Guild and that the
Agreement met the description of a per se case found in Northwest Wholesale Stationers.
The Court of Appeals reversed. The majority opinion argued that recent Supreme
Court precedent suggested that the Court was likely to eliminate the per se rule for
boycotts altogether because the per se rule was increasingly disfavored and because the
elaborate inquiry required by Northwest Wholesale Stationers already involves much of
the analysis that would take place in a rule of reason trial. The majority noted that the
quick look doctrine would provide sufficient protection to the market for cases involving
naked boycotts. The court remanded the case to the District Court with instructions to
determine whether quick look analysis or a full rule of reason trial was appropriate.
QUESTION 1M CONTINUES ON THE NEXT PAGE
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An acronym for “Thoughtful Old-Fashioned Personal Service Tailoring Your Life Elegantly”
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QUESTION 1M CONTINUED
One appellate judge on the panel wrote a separate opinion concurring in part and
dissenting in part. Characterizing Indiana Federation of Dentists as really addressing
cartel behavior, she argued that the Supreme Court had never employed quick look
analysis in a true boycott case. She stated that, because the possible harms were not as
serious in the absence of cartel behavior, the burden of proof should stay with the
plaintiffs in boycott cases. She thus would have simply remanded for a rule of reason
trial.
The U.S. Supreme Court granted certiorari to decide when, if ever, a boycott
should be judged under the per se rule or using quick look analysis. Draft the analysis
sections of an opinion and of a shorter dissent for the Court deciding this question in
the context of the facts of this case. Assume that the members of TOPSTYLE do not
contest the existence of the agreement between them or its terms. Assume that the
District Court’s findings of fact are supported by the record.
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