Antitrust Outline
Introduction .................................................................................................................................................... 4
The Demand Curve ................................................................................................................................. 4
Terms: ..................................................................................................................................................... 4
Main Statutory Provisions .......................................................................................................................... 5
Sherman Act (passed July 2, 1890) ........................................................................................................ 5
Clayton Act (passed 1914, amends Sherman Act) ................................................................................. 6
Federal Trade Commission Act (passed 1914) ....................................................................................... 6
Robinson-Patman Act (passed 1936)...................................................................................................... 6
Hart-Scott-Rodino Act (1976) ................................................................................................................ 6
Theories of Harm ........................................................................................................................................ 7
Restraints of Trade ......................................................................................................................................... 7
Cases ........................................................................................................................................................... 7
US v. Trans-Missouri Freight (1897) ..................................................................................................... 7
US v. Addyston Pipe (1898) ................................................................................................................... 7
Rule of Reason ............................................................................................................................................... 7
Cases ........................................................................................................................................................... 8
US v. Standard Oil (1911) ...................................................................................................................... 8
Northern Securities v US (1904) ............................................................................................................ 8
US v. American Tobacco (1911) ............................................................................................................ 8
Price Fixing and Other Per Se Violations ....................................................................................................... 8
Cases ........................................................................................................................................................... 8
Chicago Board of Trade v. US (1918) .................................................................................................... 8
Appalachian Coal v. US (1933) .............................................................................................................. 9
US v. Socony-Vacuum (1940)................................................................................................................ 9
Horizontal Agreement Characterizations ....................................................................................................... 9
Cases ........................................................................................................................................................... 9
Broadcast Music (BMI) v. Columbia Broadcasting (CBS) (1979) ......................................................... 9
NCAA v. Univ. of Okla. Bd. Of Regents (1984) .................................................................................... 9
Updating the Rule of Reason .......................................................................................................................... 9
California Dental Association v. FTC (1999) ........................................................................................10
Finding the Agreement ..................................................................................................................................10
Cases ..........................................................................................................................................................10
Interstate Circuit v. US (1939) ..............................................................................................................10
Theater Enterprises v. Paramount Film Distributing (1954)..................................................................10
Toys “R” Us v. FTC (2000)...................................................................................................................10
American Column and Lumber v. US (1921)........................................................................................11
Refusals to Deal and Joint Ventures ..............................................................................................................11
Cases ..........................................................................................................................................................11
Montague & Co. v. Lowry (1904) .........................................................................................................11
Fashion Originators Guild v. FTC (1941) .............................................................................................11
1
Klor’s v. Broadway Hale (1959) ...........................................................................................................11
NYNEX v. Discon (1998) .....................................................................................................................11
Radiant Burners v. Peoples Gas, Light & Coke (1961) .........................................................................11
Northwest Wholesale Stationers v. Pacific Stationary and Printing (1985) ..........................................11
Associated Press v. US (1945) ..............................................................................................................12
Influencing the Government ..........................................................................................................................12
Cases ..........................................................................................................................................................12
Eastern Railroad Presidents Conference v. Noerr Motor Freight Co. (1961) ........................................12
California Motor Transport v. Trucking Unlimited (1972) ...................................................................12
Allied Tube & Conduit v. Indian Head (1988) ......................................................................................12
Mass. School of Law at Andover v. ABA (1997) .................................................................................12
Professional Real Estate Investors v. Columbia Pictures (1993) ...........................................................13
State Action ...................................................................................................................................................13
Cases ..........................................................................................................................................................13
Parker v. Brown (The California Raisin Case) (1943) ..........................................................................13
Schwegmann Bros. v. Calvert Distillers (1951) ....................................................................................13
Goldfarb v. VA State Bar (1975) ...........................................................................................................13
California Retail Liquor Dealers Assoc. v. Midcal Aluminum (1980) ..................................................13
Columbia v. Omni Outdoor Advertising (1991) ....................................................................................13
Vertical Arrangements...................................................................................................................................14
Cases ..........................................................................................................................................................14
Dr. Miles Medical Co. v. John D. Park & Sons .....................................................................................14
Continental TV v. GTE Sylvania (1977) ...............................................................................................14
US v. Arnold, Schwinn & Co. (1967) ...................................................................................................14
Monsanto v. Spray-Rite (1984) .............................................................................................................14
Business Electronics Corporation v. Sharp Electronics Corp (1988) ....................................................14
State Oil v. Khan (1997) ........................................................................................................................15
Single Firms: Monopolization and Market Definition ..................................................................................15
Cases ..........................................................................................................................................................15
US v. Aluminum Co. of America (Alcoa) (1945) .................................................................................15
US v. E.I. DuPont de Nemours (1956) ..................................................................................................15
Predatory Pricing ...........................................................................................................................................15
Case ...........................................................................................................................................................15
Brooke Group (Liggett) v. Brown & Williamson Tobacco ...................................................................15
Tying Arrangements ......................................................................................................................................16
Cases ..........................................................................................................................................................16
Northern Pacific Railway v US (1958) ..................................................................................................16
Eastman Kodak v. Image Technical Services (1992) ............................................................................16
Jefferson Parish Hospital v. Hyde (1984) ..............................................................................................16
Telex v. IBM (1973) ..............................................................................................................................17
US v. Microsoft (2001) ..........................................................................................................................17
Exclusive Dealing ..........................................................................................................................................17
2
Cases ..........................................................................................................................................................17
Standard Fashion v. Magrane Houston (1922) ......................................................................................17
FTC v. Brown Shoe (1966) ...................................................................................................................17
U.S. Healthcare v. Healthsource (1993) ................................................................................................17
US v. Microsoft (2001) ..........................................................................................................................18
Mergers and Acquisitions ..............................................................................................................................18
Analysis of a Merger .................................................................................................................................18
Cases ..........................................................................................................................................................19
FTC v. Staples (1997)............................................................................................................................19
In re AOL (2000) ...................................................................................................................................19
FTC v. H.J. Heinz (2001) ......................................................................................................................19
In re Silicon Graphics (1995) ................................................................................................................19
Attempts to Monopolize ................................................................................................................................19
Cases ..........................................................................................................................................................19
Lorain Journal v. US (1951) ..................................................................................................................19
Aspen Skiing Co. v. Aspen Highlands Skiing Co. (1985) .....................................................................20
Spectrum Sports v. McQuillen (1993) ...................................................................................................20
US v. Microsoft (2001) ..........................................................................................................................20
Price Discrimination ......................................................................................................................................20
Cases ..........................................................................................................................................................20
Utah Pie v. Continental Baking (1967)..................................................................................................20
FTC v. Morton Salt (1948) ....................................................................................................................20
US v. Borden (1962)..............................................................................................................................20
Falls City v. Vanco Beverage (1983) ....................................................................................................21
Standing, Enforcement, and Injury ................................................................................................................21
Jurisdiction ............................................................................................................................................21
Standard of Review ...............................................................................................................................21
Cases ..........................................................................................................................................................21
Hanover Shoe v. United Shoe Machinery (1968) ..................................................................................21
Illinois Brick v. Illinois (1977) ..............................................................................................................21
Kansas v. UtiliCorp United (1990) ........................................................................................................21
Blue Shield af Virginia v. McCready (1982) .........................................................................................21
Brunswick v. Pueblo Bowl-o-Mat (1977)..............................................................................................21
Remedies, Settlements, and Consent Decrees ...............................................................................................22
Intel Consent Decree .............................................................................................................................22
Microsoft Consent Decree .....................................................................................................................22
3
Introduction
The theory of antitrust is somewhat antithetical. While the free market in the United States is designed to
promote the impulse of businesses and individuals to grow as large and profitable as possible, antitrust law
is there to curb the naked greed that can ultimately harm competition. So, the goal of antitrust law is to
promote competition and not individual competitors. There is an alternate theory, however, that antitrust
law is also designed to protect consumers. Lastly, there is the Chicago school of thought that antitrust law
is based on the goal of efficient utilization of resources (espoused by such luminaries as failed Supreme
Court Justice nominee Robert Bork). Much of this comes in the context of mergers, which ostensibly
eliminates competition from the market. Agencies (see Jurisdiction, infra) can operate from a position of
presumptive unlawfulness, and have free reign to investigate mergers.
The Demand Curve
Under economic theory, as the price for a good or service increases, market demand will correspondingly
fall. Similarly, through decreasing the availability of a good or service in the market, the price will
correspondingly increase.
The problem, under antitrust law, is when the price of a good or service is artificially increased or, in the
alternative, if the quantity of a good or service is artificially decreased.
In the graph above:
P1 = Fair market (competitive) price
P2 = Monopolistic price
Q1 = Market demand at competitive price
Q2 = Market demand at monopolistic price.
The triangular area formed below the quantity slope represents the harm in the market, as consumers are
denied access to goods and services, and resources that would otherwise be efficiently used are left
unutilized. Although Sharfman did not term it as such, under economic theory this triangular area is termed
the “contraction in demand.”
Terms:
Consumer surplus: The excess money that people would pay over the competitive price for a good is called
the consumer surplus.
Inelastic: A good for which the demand doesn’t change much even if the price changes.
Competitive cost: A consumer price that includes a reasonable profit for the business.
Monopoly price: The price a vendor can demand if that vendor has monopolized the market (read: some
price higher than the competitive price). The monopoly price is where profits are maximized (anything
higher would reduce consumer purchases to the point where none would buy).
4
Reserve price: The maximum price a consumer would be willing to pay for a good or service before either
substituting another good or service or forgoing purchase altogether.
Consumer surplus: The price some consumers would be willing to pay over the competitive price to obtain
a good or service. In a certain light, this could be considered a foregone profit.
Predatory pricing: Collusion between companies to drive out competition by lowering prices below cost
and then, once vanquished, raising prices back toward monopoly prices. The problem, of course, is that
other competitors could come back into the vacuum.
Supracompetitive price: Any price above the competitive price but below the monopoly price.
Market power: The ability of a firm to set prices or otherwise control a market.
Market definition: Set both by market share and geographic location. Narrowing the scope of geographic
location and/or the relevant product market makes it more likely to find market power.
Quick look analysis: A largely abandoned method to determine if a particular behavior violates antitrust
law. Designed for violations that are not illegal per se, but are sufficiently anticompetitive on their face that
a rule of reason analysis is not required. Places burden on the defendant to prove the action is not anticompetitive nor reduces quantity or increases price. No need for plaintiff to prove defendant has market
power under the quick look analysis.
Rule of reason analysis: Burden is on the plaintiff to prove that the actions of the defendant are
anticompetitive, reduce quantity, or increase price; plaintiff also has to show the defendant has power in the
defined market.
Horizontal merger: A merger of competing companies.
Vertical merger: A merger of companies with complementary products
Portfolio effects: In mergers, the anticipated effect of mergers between companies offering complementary
products. Also referred to as “range effects.” The theory is that consumers often prefer to purchase a
complete line of products from a single supplier. The proposed merger between Honeywell (a major
aerospace equipment and instrument provider) and GE (the largest manufacturer of jet engines) was
blocked on this basis.
Entrenchment: The result of a firm benefiting from a merger’s portfolio effects, as it solidifies its
dominance in markets.
RPM: Retail price maintenance.
Main Statutory Provisions
Sherman Act (passed July 2, 1890)
Sherman Act, Sec. 1, sentence 1: Costs are (artificially, through contract or conspiracy) driven up and
thereby a segment of consumers are being deprived of the benefit of goods as fewer are being transacted for
in the market.

You can’t violate section one unilaterally; at least two actors are required.

You can be liable both civilly as well as criminally. Fines and prison time could be the result.

Generally to prove a Section 1 violation you must show the defendant has market power.
Sherman Act, Sec. 2: Every person who monopolizes, or attempts to monopolize (dangerous probability of
success, and yet fail to), is liable for violating the statute. Affirmative defenses are listed in 2(c) through
2(e), the biggest is due allowance for cost (such as delivery to smaller retailers who require greater service
during distribution).
Sherman Act, Sec. 4 (jurisdiction, who has standing): Federal courts have jurisdiction, under common law
the government could not bring a case, but now the government can. Any person can also bring suit.
Sherman Act, Sec. 7: “Person” includes corporations.
5
Clayton Act (passed 1914, amends Sherman Act)
Clayton Act, Sec. 2:
(a) No price discrimination except for valid business costs, sellers can still
choose customers
(b) FTC can prohibit price discrimination but the presumption is rebuttable
Clayton Act, Sec. 3: Forbids sellers from offering discounts on goods (not services) to obtain exclusivity;
seems to trigger an automatic Sherman Act Section 1 violation. This is the foundation for tying claims.
Clayton Act, Sec. 4:
4A: Anyone who is injured in cash or property by an antitrust action has
standing to bring suit in district court and can recover treble damages. Prevailing
plaintiff rule: You can recover attorney’s fees as well.
4B: Four year SOL.
4C(a)(1): State attorneys general have standing.
4C(a)(2): Treble damage awards are possible.
4D: Profits made through illegal overcharges can also be awarded.
4E: Court has discretion in apportioning damage awards.
4F: Feds and states can join cases.
4G: Sole proprietorships and partnerships are not classified as persons under the
law and therefore have no standing.
Clayton Act, Sec. 5:Successful state or federal case against a defendant can serve as prima facia evidence
for private plaintiffs.
Clayton Act Sec. 7: Clause prohibiting mergers that promote monopolies; gives FTC jurisdiction.
Clayton Act Sec. 7A: Prior to the passage of Section 7A through the Hart-Scott-Rodino Act, mergers could
only be challenged after that had been transacted – the “unscrambling the egg” problem. Section 7(a)
requires filing notifications by the transacting parties to the government and a waiting period for merger.
Section 1 of the Sherman Act and Section 7 of the Clayton Act are ex post, whereas Section 7(a) of the
Clayton Act is ex ante.
Note: There is private standing within section 7, but no private standing under section 7(a) of the Clayton
Act (only the government can object under section 7(a).
If the acquirer’s value is greater than $200M, or worth more than $50M but less than $200M and have net
sales or assets of greater than $10M, then mergers are subject to federal notification. The parties have the
obligation to notify and wait 30 days (this can be extended).
Clayton Act, Sec. 16: Besides money damages, you can also get injunctive relief.
Federal Trade Commission Act (passed 1914)
Federal Trade Commission Act, Sec. 5: Permits the FTC to take pre-emptive steps to prevent antitrust
violations (subject to judicial review, see Brown Shoe, infra). Covers “unfair methods of competition in or
affecting commerce.” This reads broader than the Sherman Act, but Souter in CDA says that a violation of
Section 5 of the FTC Act is the equal to a violation of Section 1 of the Sherman Act. In fact, Section 5 of
the FTC Act is a superset of Section 1 of the Sherman Act. The penalties for violation of section 5 is
outlined in sections (f) ($10K for each violation of a commission order, of which there are always many)
and (m)(1)(A), (B), and (C) which says the commission can commence a civil action with the same $10K
per violating fine.
Robinson-Patman Act (passed 1936)
Prohibits price discrimination by sellers amongst consumers. Amended Section 2 of the Clayton Act. Seems
to protect competitors rather than competition, there is a growing chorus to repeal it.
Hart-Scott-Rodino Act (1976)
Contains a parens patriae provision that permits states to sue on behalf of neutral persons as opposed toonly
on behalf of corporations under antitrust law.
6
Theories of Harm

Monopolization/Attempts to monopolize

Price fixing (per se)

Horizontal agreements (was per se)

Vertical agreements (those that set price or reduce competition are per se)

Product tying arrangements (per se)

Refusals to deal

Predatory pricing

Retail price maintenance (per se)

Geographic market division among competitors (per se)

Group boycotts – also known as concerted refusals to deal (per se)
Restraints of Trade
Section 1 of the Sherman Act renders unlawful “every contract, combination, and conspiracy in restraint of
trade.” Since every contract in some sense restrains trade, the scope of this Section has been narrowed by
interpolating into it a “reasonability” requirement.
Type of Restraint
Horizontal
Vertical
non-price
depends (AP)
rule of reason (Continental)
min-price
per se
per se (Dr. Miles)
max price
per se
Rule of Reason (State Oil v. Khan)
suggested
per se
Rule of reason (BEC v. Sharp)
Cases
US v. Trans-Missouri Freight (1897)
P51: Suit in equity, government looking for injunctive relief. 18 carriers west of the Mississippi who fix
rates, rules and regulations for traffic, and so on. District Court dismisses complaint, affirmed by Circuit
Court, makes it to SCOTUS. Defendants argue that the agreement would not have been void at common
law. SCOTUS disagrees, the statute is broader than common law and forbids any restraint of trade. The act
previously was not construed to make new items unlawful that were lawful under common law, but instead
to statutorily make unlawful those things prohibited under common law. In this decision, the reach of the
Sherman Act was extended beyond that recognized by common law.
US v. Addyston Pipe (1898)
P56: Six pipe manufacturers entered into a horizontal agreement of two years’ duration under which they
divided sales territories. SCOTUS backs off from the extreme position of Trans-Missouri Freight; in
Addyston, only unreasonable restraints are unlawful (the birth of the rule of reason). Naked restraints are
illegal per se (only purpose is to exclude competitors) but ancillary restraints may be legal (provisions that
ensure that the contract can be enjoyed).
Rule of Reason
“When you are performing a rule of reason evaluation, look at the purpose as well as the effect.” –
Brandeis, Chicago Board of Trade
The “rule of reason” is the approach that courts take generally when the effects of a particular restraint are
not immediately obvious and require and full-blown market analysis. There is no hard and fast set of rules;
literally everything is on the table.
7
Unreasonable is defined by reducing quantity and raising price; if this standard is not met, then the restraint
is per se reasonable. There are per se violations (e.g., price fixing), that even though they don’t increase
price/reduce quantity they are still regarded as a violation. At this point, the reasonableness standard does
not need to be met and the government through proving the action, has proven its prima facia case.
Reasonability depends upon whether the restraint promotes or undermines competition. If the former, then
the restraint is reasonable; if the latter, then it is unreasonable. What ultimately matters is the restraint's
effect. A restraint's ostensible or actually intended purpose is relevant only insofar as it sheds light on the
restraint's effect. What sort of effects would be anti-competitive? Justice Brandeis, in Chicago Board of
Trade (infra) identified higher prices and lower quality as examples of anti-competitive effects.
Cases
US v. Standard Oil (1911)
Handout: Standard Oil goes through three phases:

1870 – 1882: Standard gobbles up as many Ohio refineries as it can lay its hands on

1882 – 1899: All stock gathered together and stuffed into a trust to escape the clutches of Ohio
(NJ thought to be more pro-business). Placing the companies in a trust unites their interest and
means that there is someone who must maintain a fiduciary duty to all firms; they will also not
compete with each other.

1899 – 1906: The trust reconsolidates and recapitalizes and begins to spread west.
The decision: 38 companies and seven individuals go down; the company was give the “death penalty” and
broken up. The trusts and covenants employed by Standard Oil to build its monopoly were unreasonable.
Cp. Alcoa, infra.
Northern Securities v US (1904)
P63: Arose because of a merger between two railroads to prevent access by a third railroad (Union Pacific)
to a lucrative route (The Burlington Line) in violation of the Sherman Act. This type of activity is
addressed later in Section VII of the Clayton Act.
US v. American Tobacco (1911)
P66: Five firms responsible for 95% of US tobacco sales merged into a single company. They then
purchased other tobacco related businesses to vertically integrate the operation, then formed other
agreements to stifle competition. Through its analysis the SCOTUS essentially overruled Trans-Missouri
and set a standard of reason for evaluating antitrust cases (rather than saying all contracts could be in
violation).
Price Fixing and Other Per Se Violations
There are certain kinds of behavior (price fixing, product tying, and a few others, see the list in the section
Theories of Harm supra) that are considered illegal per se; meaning if the plaintiff proves the defendant as
taken such actions, the case is essentially over. There are very few “pre se” violations remaining, most
cases require a rule of reason analysis (pro/anticompetitive, increase/decrease in quantity, increase/decrease
in price). Courts adopted the per se rules in an effort to achieve judicial economy.
Cases
Chicago Board of Trade v. US (1918)
P207: In order to participate in the exchange one must become a member by buying a seat. There were
three types of transactions: Spot (in Chicago), Futures (not yet harvested), and in transit (on its way to
Chicago). The Board set a rule that in after hours trading, all grain had to be sold at the closing price of the
previous session. The SCOTUS, providing a laundry list of reasons on page 210, found several procompetitive reasons for allowing the behavior to continue. The main thing to take away from the case is
not just to condemn an artificial restraint on trade, but instead look at its intent and effect.
8
Appalachian Coal v. US (1933)
P211: 137 coal mining operations group together to protect the rapidly falling price of coal. Has all the
hallmarks of a price fixing agreement, but the SCOTUS disagrees. The District Court decreed it illegal on
the logic of Addyston Pipe (above). The SCOTUS took a look at the overall condition of the industry and
decided that since it and the poor people working in it were teetering on the edge of disaster that maybe it
wasn’t so bad. Hideous logic, but another instance of “reason” when discerning whether there is a violation.
Note, too, that what was being decided was merely the lifting of an enjoinder of a plan, not an actual
practice.
US v. Socony-Vacuum (1940)
P214: Socony was a fully integrated petroleum firm, owning everything from the wells to the pumps, and
in its geographic market (Mid-Western States) sold 83% of the gas. Socony coordinated two separate
campaigns to fix the price of gas, buying “distressed” gas on the spot market to preserve its position.
SCOTUS found sufficient market power on the part of Socony to essentially fix the price of retail gasoline
through setting an artificial floor.
Horizontal Agreement Characterizations
Horizontal agreements are characterized by several sellers forming a cooperative to fix prices, such as that
seen in Appalachian Coal above. When evaluating a horizontal agreement, use the following criteria:

Is the conduct involved likely to have a substantial and direct effect on price; is that effect one that
“necessarily” flows from the arrangement?

Are there likely to be substantial redeeming virtues flowing from the practice or conduct?

Could the same or similar redeeming virtues be achieved through reasonably available and less
harmful alternatives?

How difficult would it be to explore relevant considerations, i.e., what will the costs be in terms of
transaction costs and future uncertainty with respect to the legality of categories of business
behavior and thus the effectiveness of the rule?
Cases
Broadcast Music (BMI) v. Columbia Broadcasting (CBS) (1979)
P233: CBS brings suit against BMI complaining of its practice of only offering song licensing in blocks;
accusing of artists making a horizontal agreement on the basis of product tying and price fixing. The
SCOTUS, through rule of reason analysis, finds that the offering of BMI is a new product, and creates a
reasonable market from what otherwise would be chaos (imagine if broadcasters had to negotiate
individually with each artist) and remands for full review. Stevens in dissent says that the agreements BMI
and ASCAP have with artists is an unlawful horizontal agreement and that BMI and ASCAP should offer
varying levels of subscriptions.
NCAA v. Univ. of Okla. Bd. Of Regents (1984)
P249: University of Oklahoma alleges it is harmed by the NCAA restriction limiting the number of college
football games that appear on television by prohibiting schools from negotiating their own broadcasting
rights. SCOTUS finds that the NCAA restriction is not a per se violation but under the rule of reason it
violates Section 1 of the Sherman Act. Stevens forms the “quick look” doctrine on page 258. Under the
quick look analysis, there is no need to prove market power, as there is a naked restraint on output restraint.
It’s in essence “per se lite.”
Updating the Rule of Reason
In which the quick look analysis is done away with and the rule of reason returns.
9
California Dental Association v. FTC (1999)
P276: Two issues in the case: Does the FTC have jurisdiction over non-profit professional organizations
(they do) and is “Quick Look” analysis sufficient to determine if the limitations on advertising enforced by
the CDA are a violation of antitrust law (it isn’t). Essentially the death of the Quick Look, as the court held
that if a practice is potentially pro-competitive, then a full-blown market analysis is required and the
plaintiff has the burden to show that the restraint is anti-competitive. Often this means having to show that
the defendant has “market power” - i.e., the ability to profitably raise price above competitive levels.
Breyer dissent is limited to the standard of review (substantial evidence) needed to reinforce the decision of
those below. The questions on pp 287-88 were explored:

What is the specific restraint at issue?

What are its likely anticompetitive effects?

Are there offsetting pro-competitive justifications?

Do the parties have sufficient market power to make a difference?
The case boils down to the allocation of the burden of persuasion, found in the last paragraph of Breyer’s
dissent. In the world “quick look,” the defendant must show a pro-competitive reason for the action. In rule
of reason, the plaintiff must show an anticompetitive effect. The rule of reason is where we are today.
Finding the Agreement
As noted above, it is a general rule that to find a violation of Section 1 of the Sherman Act there must be an
agreement. Finding said agreement, however, is sometimes tricky unless there is a smoking gun memo or
such. This section covers the standard of evidence for a plaintiff to prevail in an antitrust case.
To find the agreement, the court will often look for “plus factors”; a list appears on page 499. Factors can
include a defendant acting contrary to economic interests and having motivation to enter into a price fixing
conspiracy. Look also for evidence showing (1) a pattern of parallel price increases during the certified
time period, (2) documentary and testimonial evidence of price matching among competitors, and (3)
reciprocal exchanges of price information.
Cartels are very difficult to maintain; the temptation to defect is often huge.
Cases
Interstate Circuit v. US (1939)
P493: Two firms that hold 75% of the US market for film distribution as well a monopoly on first run
theaters in the Texas market agree to coerce theater owners to set minimum ticket prices. Tacit collusion is
not enough; the Court also looks for “plus factors,” such as the decision of defendants not to testify; the
seeming lack of witnesses to testify, and so on. The SCOTUS finds a conspiracy and enjoins appellants
from enforcing their agreements with theater owners.
Theater Enterprises v. Paramount Film Distributing (1954)
P500: Plaintiff, a suburban theater owner, alleges distributors conspired to limit first run films to only the
downtown Baltimore area. Paramount is merely acting consciously parallel with all other distributors,
maximizing revenue by delivering first run to urban, well serviced theaters. Because no evidence could be
found of an agreement between the first run film distributors, the defendants prevailed.
Toys “R” Us v. FTC (2000)
P505: TRU, through individual vertical agreements, facilitated a horizontal agreement among toy
manufacturers to limit sales of certain premium or “hit” toys to big box retailers. Agreement terms on page
507. TRU had 20% of the US toy market (considerable power) and, within the vertical agreements with the
toy manufacturers had the right to monitor performance and enforce the contract terms. FTC alleges
agreement produces a group boycott, which is a per se violation. TRU’s pro-competitive arguments (such
as “freeriding” by other retailers on TRU’s advertising, etc.) discounted. TRU enjoined from enforcing
agreements.
10
American Column and Lumber v. US (1921)
P587: Trade association creates a scheme in which mills share production, inventory, and sales data with
each other. Although association mills make up only 5% of the US market and 3% of US output, the
exchange of data has the effect of creating a horizontal agreement amongst competitors. List of data
exchanged appears on page 589. Note there were also monitoring and enforcement provisions in the report.
The fact that there were massive price increases as well as reduced quantities did not help defendants; the
smoking gun was a meeting in Cincinnati in which the association agreed to constrain production in order
to raise prices. Today, trade associations are cautious about sharing pricing and quantity information, and
the penalties imposed on members if they fail to share. Holmes’ dissent was practically nonsensical.
Refusals to Deal and Joint Ventures
Group boycotts, in which ostensible competitors refuse to deal with one or more other firms, are a violation
per se of Section 1 of the Sherman Act. Unilateral refusals to deal are defensible (this is till undergoing
evolution), but concerted (group) refusals to deal are prohibited.
Group Boycotts are per se illegal only when horizontal (e.g., Fashion Originators); in a vertical group
boycott a full rule of reason analysis must be done (Nynex).
Cases
Montague & Co. v. Lowry (1904)
P329: A group of San Francisco tile sellers agree to not deal with those who were not part of their
association. There were provisions for monitoring and enforcement under the agreement. Members were
enjoined by SCOTUS from enforcing the agreement.
Fashion Originators Guild v. FTC (1941)
P331: The Guild forged a members’ agreement to not sell their fashions to stores that also carried
knockoffs of their designs. The SCOTUS finds the agreement to constitute a group boycott. Guild found to
have market power (60% of certain US markets), agreement had punishment provisions for violators.
Defendant arguments that prices were not fixed nor production limited discounted. Court found nothing in
federal law to protect designers from the freeriding of design pirates (perhaps a theory of tort under state
law).
Klor’s v. Broadway Hale (1959)
P336: Defendant Broadway-Hale conspired with appliance vendors not to sell merchandise to Klor’s.
Although no consumer harm was found, the contract between Broadway-Hale and the appliance mfr’s
constituted a violation of Section 1 of the Sherman Act.
NYNEX v. Discon (1998)
P339: NYNEX chose to use a wholly-owned subsidiaries for removal work performed in its central offices,
even though they were charged more for the work and passed the additional costs onto consumers. NYNEX
owned all named defendants in the case. Although the behavior of NYNEX was egregious (cover-ups, etc.),
because it was a single-purchaser/single-supplier issue, no antitrust violation was found.
Radiant Burners v. Peoples Gas, Light & Coke (1961)
P351: PGL&C refused to sell gas to owners of Radiant Burners as said burners were denied certification in
American Gas Association test labs, over which PGL&C wielded considerable influence. Radiant said they
were denied certification unfairly and the refusal to deal constituted a violation of antitrust law. SCOTUS
agrees and remands case for further proceedings consistent with decision.
Northwest Wholesale Stationers v. Pacific Stationary and Printing (1985)
P354: Investigated whether a buyers cooperative that expelled a member without providing procedural or
administrative recourse had violated antitrust law. Overruling the decision in Silver v. NY, the court finds
that the lack of procedure is not an unreasonable restraint on trade. Expulsion also was not a group boycott,
as Pacific made no showing of being denied access to goods or customers.
11
Associated Press v. US (1945)
P381: This case went on direct appeal to SCOTUS from District Court. AP had set up a membership
agreement that both prohibited selling news to non-members as well as limited new memberships. There
were provisions for punishment of those who did not conform to the agreement. Market power of
Defendant found, refusal to deal also found.
Influencing the Government
In many cases, the constitutional right to petition the government trumps the antitrust statutes. Similarly, as
shown infra, states and municipalities can take actions that would otherwise be in conflict with antitrust
law.
In the Columbia Pictures case, in which litigation that a reasonable plaintiff can reasonably believe to
prevail, the antitrust defendant is granted Noerr immunity. This fleshes out the sham exception to the Noerr
immunity. There is a two part test for sham, (1) “objective baselessness” (completely wacko), and (2) if the
process of the litigation subjectively shows intent to interfere directly with the business relationships of a
competitor. Stevens in his concurrence (joined by O’Connor) thought the sham exception should be
broader, that perhaps if there 20-30% chance of success would be enough
Cases
Eastern Railroad Presidents Conference v. Noerr Motor Freight Co. (1961)
P410: Birth of the Noerr exclusion. The railroads engaged in a broad based advertising smear campaign
against the trucking industry and also petitioned the government for increased regulation of truckers,
including convincing the governor of PA to veto the so called “fair truck bill,” which would have allowed
trucks to carry heavier loads. Noerr trucking filed an antitrust case based upon these actions. The SCOTUS
held that the actions complained of did not constitute an antitrust violation. The Noerr exclusion
(sometimes referred to as the Noerr-Pennington exclusion or Noerr immunity) relates to efforts to promote
legislation that result in a restraint of commerce that might otherwise be a violation of antitrust law. Such
efforts include lobbying, publicity campaigns and so on – even when the goal is to harm a competitor.
SCOTUS points out that allowing the plaintiff to prevail would hinder the government’s ability to regulate
commerce.
California Motor Transport v. Trucking Unlimited (1972)
P418: Creates a sham exception to the Noerr exclusion. The sham exception applies to abuse of judicial or
legislative process , not the outcome; see Columbia infra. Defendant had committed perjury in an effort to
exclude a competitor from a market. The court noted that while parties enjoy a First Amendment right to
influence the government and legitimately can use the courts to gain a competitive advantage,
misrepresentations designed to harass and deter competitors from access to agencies and the courts were
not protected. See also Professional Real Estate Investors v. Columbia Pictures infra.
Allied Tube & Conduit v. Indian Head (1988)
P421: Defendant had packed the board of the Nat’l Fire Protection Agency to deny a safety certification for
plaintiff’s product, which was electrical conduit made using PVC. Plaintiff tried to avoid liability through
the Noerr exception but failed. SCOTUS found that the regulatory body was not itself legislative (and that
there were pro-competitive reasons for self-regulating commercial bodies), although many municipalities
followed the NFPA’s recommendations to form regulations. White delivered a blistering dissent (page 430)
with which O’Connor joined, that found a much closer relationship between the NFPA and legislative
bodies.
Mass. School of Law at Andover v. ABA (1997)
P434: Close Cover Before Striking School of Law whines about ABA’s denial to certify them. As the ABA
makes recommendations to states about who can and cannot sit for the bar exam, Noerr immunity is found
by the 3rd Circuit.
12
Professional Real Estate Investors v. Columbia Pictures (1993)
P443: PREI sued Columbia alleging a violation of the Sherman Act because Columbia (and seven other
studios) had signed a license with a company called Spectradyne to deliver video on demand to hotels.
Columbia countersued PREI over copyright violations (PREI had libraries of videodiscs at its resorts and
videodisc players in hotel rooms). Excellent two part test for Noerr sham litigation exception:
1.
If an objective litigant can conclude the suit is reasonably calculated to elicit a favorable outcome,
and
2.
Whether the baseless suit conceals an attempt to interfere directly with the business relationships
of a competitor
Copyright suit was legitimate, so Columbia prevailed.
State Action
There is a federalism tension in antitrust law, as states and municipalities will sometimes pass
anticompetitive regulations. The upshot is that sovereignty permits states to take actions that individuals are
prohibited from taking by the Sherman Act.
There is a two-prong test at the bottom of p460:
1) The challenged restraint must be a “clearly articulated and affirmatively expressed state policy”
-andThe policy must be actively supervised by the state.
Cases
Parker v. Brown (The California Raisin Case) (1943)
P450: The birth of Parker immunity.California passed laws creating a cooperative marketing program for
raisins and implemented competition restrictions (reducing output) and pooled funds to stabilize the
market. Plaintiff was a packer and producer of raisins whose business was harmed by the legislation. The
SCOTUS found, through investigation of the legislative history, that the Sherman Act was designed to
regulate private, not public action. States are officially immunized from federal antitrust laws by the MillerTydings Act - this act has been overturned. Cp. Schwegmann Bros. v. Calvert Distillers and Goldfarb v. VA
State Bar infra.
Schwegmann Bros. v. Calvert Distillers (1951)
P453: Note case. Louisiana passed a law permitting liquor dealers to form a cooperative and fix prices. One
dealer did not want to participate and started selling liquor at prices lower than those offered by members
of the cooperative. Those in the cooperative brought suit claiming unfair competition; the SCOTUS ruled
that while a state could pass a law permitting price fixing, it could not force participation upon those who
were unwilling.
Goldfarb v. VA State Bar (1975)
P453: SCOTUS holds state bar cannot set minimum fees for legal services.
California Retail Liquor Dealers Assoc. v. Midcal Aluminum (1980)
P458: California passed a law requiring all wine producers, wholesalers, and rectifiers to file fair trade
contracts and price schedules with the state. If the producer did not file, then the wholesaler had to file the
producer’s prices. Once filed, the prices remained in effect as minimums. The state had no ability to set
wine prices nor did it review the reasonableness of the prices. Midcal was a wine merchant who sold 27
cases of wine at below list. The SCOTUS ruled that the state could not enforce a law that required action
contrary to the purposes of the Sherman Act without reasonable oversight.
Columbia v. Omni Outdoor Advertising (1991)
P472: Columbia Outdoor Advertising had 95% of the billboard market in Columbia, SC, as well as a very
cozy relationship with city officials. When Omni comes along, Columbia goes on a combined billboard
construction and smear campaign as well as lobbies the city council to enact and enforce zoning restrictions
to prevent Omni from gaining a foothold in the market. Columbia filed suit against the city. SCOTUS holds
13
that the city has unquestioned zoning power within its borders, granted by the state, and that Parker
immunity applies. The bottom line is that any such authority granted by the state must clearly articulate the
policy allowing cities to engage in anti-competitive conduct, and zoning laws are inherently anticompetitive.
Vertical Arrangements
Vertical arrangements typically deal with manufacturers who arrange with resellers to set minimum prices
for goods, a per se violation. In other instances, though, the claim revolves around the termination of
resellers who irritate other resellers by discounting products; this action can also result in a finding of price
fixing, however. Note that many vertical arrangement antitrust defendants use “free rider” arguments in
their defense, in that those retailers who discount products below those offered by other retailers are taking
advantage of the advertisements and services provided by the higher priced retailers.
Cases
Dr. Miles Medical Co. v. John D. Park & Sons
P624: Dr. Miles manufactured some elixir, John D. Park was a reseller who sold the concoction at a price
lower than that mandated by Dr. Miles (Park had acquired the stuff from a third party). Dr. Miles’
agreement was written to in a manner that retailers were represented as agents and the retail of the elixir
was on consignment. The SCOTUS had none of this argument (using a theory of title transfer) and laid
down a rule forbidding all manufacturers from setting downstream prices at all, using language that
disparaged both vertical and horizontal agreements. Holmes dissent in this was equally as loony as his
dissent in American Column and Lumber, supra.
Continental TV v. GTE Sylvania (1977)
P651: Continental was a retail outlet for Sylvania TV sets in San Francisco. After Sylvania shook up it’s
distribution operation, adding another retailer in San Francisco (starting a dispute with Continental),
Sylvania then denied Continental’s request to open a retail operation in Sacramento to sell Sylvania sets
there. The SCOTUS remanded, holding that non-price setting vertical arrangements are not per se antitrust
violations but must be analyzed under the rule of reason. Sylvania only held 5% of the national market for
televisions, a point made by J. White’s concurrence (in comparison to Schwinn, infra).
US v. Arnold, Schwinn & Co. (1967)
P653 (part of Continental TV): Schwinn employed a consignment and agency agreement with retailers,
closely managing the geographic location of franchises and retail prices. The SCOTUS ruled that where
Schwinn used a traditional wholesaler arrangement the restrictions on geography and customers were per se
illegal but under the consignment and agency agreement the practice needed to be evaluated under the rule
of reason. Note that at the time of the case Schwinn had a dominating market share.
Monsanto v. Spray-Rite (1984)
P686: Spray-Rite was a Monsanto distributor who ticked off other distributors by discounting Monsanto
products and selling with very low profit margins. Monsanto declined to renew Spray-Rite’s distributorship
at the behest of other distributors who wanted to maintain the level of retail prices. The SCOTUS found this
action to be part of a vertical price-fixing conspiracy between Monsanto and the other distributors. The
smoking gun was that Monsanto approached two other discounting distributors in the five months
following Spray-Rite’s termination and strong armed them (see the plus factor reference in the introduction
to Finding the Agreement, supra.
Business Electronics Corporation v. Sharp Electronics Corp (1988)
P696: Sharp terminates BEC, a Houston dealer who sells Sharp calculators at a discount, which was
irritating another newer dealer called Hartwell. SCOTUS held that since the vertical agreement did not set
minimum retail prices (only suggested retail prices) it was not illegal per se and required rule of reason
analysis. Under the rule of reason, there is nothing in the Sherman Act that is intended to protect intrabrand,
as opposed to interbrand competition. Scalia naturally finds nothing in Sharp’s behavior that violates
antitrust law; the dissent from Stevens was scathing.
14
State Oil v. Khan (1997)
P634: State Oil set a maximum retail price for station lessors/operators and contractually mandated that any
extra money brought in by operators be refunded to the company (a vertical agreement setting a maximum
retail price). The SCOTUS finds that a vertical arrangement setting a maximum retail price is not a per se
violation and, under the rule of reason, holds that it is not a violation at all (overruling Albrecht v. Herald
Co., p684).
Single Firms: Monopolization and Market Definition
Monopolization is what Section 2 the Sherman Act was created to address. When one firm dominates a
market, the absence of competition almost inevitably leads to higher prices, reductions in resource
availability, inefficient allocation of resources, and consumer harm.
The best approach to the market definition question-and the one that courts now use in all rule of reason
cases, whether Section 1, Section 2, or mergers under Section 7 of the Clayton Act-is that of the Merger
Guidelines , which defines a market as the narrowest product or group of products in the smallest
geographic area such that a hypothetical monopolist could non-transitorily profitably raise price above
competitive levels. Even with this precise approach, it still is a challenge to determine which market is the
relevant one.
Judge Hand’s footnote 4 on page 133 in Alcoa, which says a greater than 90% market share, the dominance
is a de facto monopoly. 64% to 89% would be doubtful. If the market share is 33% or less then this is a safe
harbor. The statute of course says nothing about this; the numbers were pulled from thin air. In the Domed
Stadium Hotel case, 50% was a safe harbor. In Syufy, 60-69% was held to be proof of monopoly. 49% was
held to be an acceptable level for a jury finding of monopoly in Broadway Delivery v. UPS.
Cases
US v. Aluminum Co. of America (Alcoa) (1945)
P130: Alcoa parlayed its patented processes for efficiently producing aluminum ingots into a thriving
multi-decade monopoly. The 2nd Circuit, while acknowledging that Alcoa had engaged in serious
anticompetitive behavior (read: violative of Sherman Act Section 1) in the past, found that Alcoa had had
its monopoly status (~90% share) “thrust upon” it, through its highly successful business practices. Alcoa
consistently only showed a 10% profit during the period it held its monopoly.
US v. E.I. DuPont de Nemours (1956)
P147: DuPont ran an invalid patent (failed to adequately disclose) on cellophane into a multi-decade
monopoly of the cellophane market. The SCOTUS bought into the defendant’s argument that the pertinent
product market was that for flexible wrapping materials and found for DuPont on all counts. C.J. Warren
has a field day with this in his dissent.
Predatory Pricing
This is a problematic theory at best, one in which plaintiffs rarely prevail. Predatory pricing is defined as:
1) Below cost pricing
2) With intent (Section 2 needs intent) and/or effect (Section 1, no intent needed, Robinson-Patman
Act also does not require intent) of eliminating competition
3) With a likely prospect of recoupment through monopolistic (supracompetitive) pricing later – once
competitors are gone.
Case
Brooke Group (Liggett) v. Brown & Williamson Tobacco
P847: Generic cigarette case. Liggett introduced a line of generic, low-price cigarettes that were a hit.
B&W responded by forming vertical agreements with distributors, offering huge discounts, etc. in order to
force Liggett out of the market. As a result Liggett, who had 97% of the generic cigarette market and 5% of
the overall market in 1984 (up from 1% in 1980), began a campaign to match the rebates offered by B&W
15
and filed suit, indicating that B&W was selling cigarettes at below cost (the hallmark of predatory pricing).
As the evidentiary standard to prove predatory pricing is high and data such as costs are held by the
defendant, Liggett lost.
Tying Arrangements
Tying is when you take a product that has a dominant market position (the tying product) and condition the
sale of the tying product upon simultaneous purchase of another product that has a weaker market position
(the tied product).
Section 3 of the Clayton Act: A seller cannot lease or sell goods (not services) on the condition that the
purchaser will not lease or purchase the goods of a competitor.
Section 3 is the foundation for a tying claim, but the last part of the section, which concerns whether
competition has been harmed, echoes the sentiment of Section 1 of the Sherman Act. Of course, in Section
3 of the Clayton Act, there is no need for two parties.
Indeed, the statute is broader than tying, but it encompasses tying.
There are different elements to establish a tying claim:
1.
Are there two distinct products?
2.
Is there market power in the tying product
3.
Is there foreclosure (a forcing effect) on the purchaser to take the tied product preventing purchase
of a competing product?
4.
Does the tying relationship between the goods have the effect of reducing competition through
increasing the market power of the seller? (O’Connor’s dicta in Jefferson Parish Hospital v. Hyde,
p886, dicta on p901).
5.
Lastly, does the activity at issue have relation to interstate commerce?
Cases
Northern Pacific Railway v US (1958)
P881: Northern Pacific included “routing” clauses in their land sales contracts forcing purchases to ship all
commodities produced on the land through Northern Pacific provided Northern’s rates were equal to or
lower than competitors. Court found that Northern Pacific had the requisite power in the local land market
(remember, real estate is not fungible) and that the tying arrangement violated Section 1 of the Sherman
Act.
Eastman Kodak v. Image Technical Services (1992)
P903: The primary issue addressed by the SCOTUS was whether a competitor who lacks power in the
market for the tying product (Kodak had a small share of the equipment market) could be held liable for
tying a product (in this case, parts and service for Kodak equipment) to the detriment of competitors. The
SCOTUS promptly defined the market as that for Kodak parts and service, and found liability as Kodak
held 80-95% of the relative market. The theory of liability was that bundling service and parts with
equipment violated Section 1 of the Sherman Act, while shutting down parts distribution to competing
independent service operators (ISO’s) violated Section 2. Kodak’s argument that there could never be a
violation of the Sherman Act in a single brand fell on deaf ears, with the exception of Scalia’s dissent,
which was appropriately bitter.
Jefferson Parish Hospital v. Hyde (1984)
P886. Hospital charged with violation of Section 1 of the Sherman Act (it looks like Section 3 of the
Clayton Act but Section 3 of the Clayton Act, of course, does not cover services) by signing a contract with
Roux’s group of anesthesiologists. Note that even though the 5 th Circuit court applies the per se rule to the
case, they still do a geographic market analysis. Some people read this opinion as a 30% share representing
a safe harbor, indicating that a share of 30% or less indicates that there is no indicia of market power.
O’Connor’s concurrence (page 898) is now the gold standard of analysis. This is a fixed proportion case; is
anesthesiology a separate product from surgery? Stevens thought they were, O’Connor didn’t. Stevens felt
16
the plaintiff’s case foundered by the geographic market area the SCOTUS adopted (all of New Orleans),
O’Connor wisely saw that there was only one product being offered.
Telex v. IBM (1973)
P924 (Notes case): IBM decided to integrate memory into its CPU’s and a memory provider filed suit. The
court found that IBM had taken the action in an effort to both cut costs as well as improve its products and
held there was no violation.
US v. Microsoft (2001)
P765: Integration of Internet Explorer (IE) into Windows case. The Court evaluated whether the Windows
(tying) product was improved by the integration of the IE (tied) product. Incredible procedural history
given on pp767-768. The monopoly power of Microsoft (MS) is taken as a given (Serman Act Section 2
violation). Court pays special attention to the actions taken by MS to prevent competitor access to
Windows customers (desktop icon control, default settings, inability to uninstall IE without harming the
system, and so on); Sherman Act Section 1 violation not found, however, as MS had merely precluded the
most convenient means of customer access, not all means of customer access. The court did find, however,
that the MS argument of technological improvement through the integration compelling. Note that the
argument that MS was employing predatory pricing with IE was dismissed, even though MS was giving IE
away for free.
Exclusive Dealing
Governed by Section 3 of the Sherman Act. Exclusive dealing is defined as a practice whereby a supplier
requires a customer as a condition of supplying product or induces a customer by offering enhanced
purchase terms to deal only or primarily in the supplier's products or to refrain from dealing in a particular
kind of product except as supplied by the supplier.
Exclusive dealing arrangements are not necessarily problematic. In order to bring a successful case, the
plaintiff must prove:
1.
A "practice" of exclusive dealing (not just an isolated incident);
2.
The practice is engaged in by a major supplier of a product in a market, or is widespread in a
market;
3.
The exclusive dealing is likely to impede entry or expansion of a firm or a product into a market or
have other exclusionary effects; and
4.
The result will be that competition is, or is likely to be, lessened substantially.
Cases
Standard Fashion v. Magrane Houston (1922)
P936: Standard Fashion employed a contract which prohibited resellers from selling any other company’s
patterns. Went to court to enforce the contract; Standard Fashion held 40% of a market with 52,000
competitors. SCOTUS held that the contract violated Section 3 of the Clayton Act and enjoined its
enforcement.
FTC v. Brown Shoe (1966)
P948: Shoe manufacturer offered valuable, franchise-like services to resellers who agreed not to stock
competitor’s shoes. SCOTUS holds that the FTC can take pre-emptive steps under Section 5 of the FTC
Act in order to prevent violations of Section 3 of the Clayton Act (subject to judicial review). Brown Shoe
enforced the contract through on site inspections. Brown’s market power (650 franchise stores, $237
million in 1957 sales) established.
U.S. Healthcare v. Healthsource (1993)
P953: U.S. Healthcare employed an exclusivity clause for doctors in NH to not treat patients using
insurance other than Healthsource insurance. U.S. Healthcare held over 85% of NH’s policies. The
contracts did hold a termination clause (30 days) which the Court found to be compelling evidence of the
contract’s reasonableness. Healthsource’s lawyers botched their job and no violation was found.
17
US v. Microsoft (2001)
P776: Integration of Internet Explorer (IE) into Windows case. Covered supra, this section covers the
clauses Microsoft (MS) inserted into their OEM agreements to prevent competing software to be placed
onto systems, as well as reducing the avenues by which competing products could be delivered to
consumers.
Mergers and Acquisitions
If the acquirer’s value is greater than $200M, or worth more than $50M but less than $200M and have net
sales or assets of greater than $10M, then mergers are subject to federal notification. The parties have the
obligation to notify and wait 15 days (cash tender) or 30 days (all other deals, such as a stock transaction)
waiting period. This waiting period can be extended relatively indefinitely through a second request for
more information.
Characteristics of anticompetitive mergers:
1) Market concentration
2) Cost of entry
3) Whether the merger creates a broader portfolio (vertical, which can be anticompetitive unless
you’re Robert Bork)
From Administrative Law, Chevron: An administrative agency interpreting it’s own ambiguously worded
statute will be deferred to by the courts.
Deference is given to the “failing firm” argument in which the assets of the failing firm would be lost from
the market.
Analysis of a Merger
1) Market definition, measurement and concentration (Sherman Section 2)
A product or a group of products and the geographic area in which it is sold in which there is
hypothetically only a single producer and seller. The question is what is the smallest product range
and geographic area where this hypothetical monopolist could profitably impose a significant (5%)
but non-transitory (6 months to 2 years) increase in price.
2) What is the cost of entry into the market?
Identify the market participants, then look at any other participants who are not currently in the
market but could enter.
3) Next you calculate the market shares, each firm then combined. Can be done either in dollars or in
units.
4) Next you look at the concentration (the HHI)
It’s the “sum of the squares of the market shares” – the highest possible is 10,000.
5) Now look at the pre-merger HHI, and then look at the post-merger HHI.
HHI < 1000 is unconcentrated
1000 < HHI < 1800 moderately concentrated
HHI > 1800 is a highly concentrated market
If post merger HHI is still less than 1000, no problem. If the HHI delta pre- to post-merger is less
than 100 points, then likely it will be OK. If the delta is greater than 100 points or the final HHI is
greater than 1800 or – worse – both, then your proposed merger is likely in trouble.
∆HHI = (Post-merger HHI - Pre-merger HHI)
Post-merger HHI
< 50
50-100
>100
<1000
No challenge
No challenge
No challenge
1000-1800
No challenge
No challenge
High scrutiny
>1800
No challenge
High scrutiny
Presumptive illegality
18
Chart on page 1059 is illustrative.

Efficiency arguments are not sanctioned by SCOTUS but are often presented in lower courts.
Cases
FTC v. Staples (1997)
P1062 (Notes case): Staples attempted to buy Office Depot. FTC defined the market as office “superstores”
and found that price averaged 13% higher in locations where there was no competition. Also found the
average HHI increase would be 2,715 points. Staples did a poor job on its economic (efficiency
improvement) justification argument, leaving it unsubstantiated. The FTC prevailed in obtaining a
preliminary injunction.
In re AOL (2000)
P1064 (Notes case): When AOL sought to purchase Time Warner, the court fashioned a multifaceted set of
requirements to permit the merger, including AOL permitting a competing ISP’s (Earthlink and two others)
to use the Time Warner Cable high speed Internet network, forced AOL to maintain a commitment to
providing broadband over DSL (a competing high speed Internet access technology), and barred AOL from
limiting competitor’s access to Time Warner content.
FTC v. H.J. Heinz (2001)
P1067: Heinz wanted to merge with Beech-Nut, a competing maker of baby foods (a horizontal merger).
Heinz had the upgraded manufacturing equipment while Beech-Nut had good recipes. Through analysis,
the Court found that the economic justifications for the merger given by Heinz were not compelling, and
that the HHI of the market would raise by 510 points after the merger (presumptively anti-competitive. The
Court further found that the barriers of entry to the baby food market were very high. Ultimately the merger
would have created a duopoly in the jarred baby food market. Great quip: “The combination of a
concentrated market and [high] barriers to entry are a recipe for price coordination.” The FTC succeeded in
obtaining a preliminary injunction against the merger.
In re Silicon Graphics (1995)
P1160 (Notes case): When SGI wanted to purchase Alias and Wavefront, two of the three dominant
software developers for the gaming markets, SGI had to promise that they would use their best efforts to
ensure that the two purchased companies would continue developing software for competing hardware
developers.
Attempts to Monopolize
Section 2 of the Sherman Act prohibits attempts to monopolize by companies that do not possess monopoly
power but engage in anticompetitive conduct designed to achieve it. To prove an attempt to monopolize,
one must establish:
1.
The defendant had a specific intent to achieve monopoly;
2.
That it acted in an anticompetitive manner designed to injure its actual or potential competition;
and
3.
There was a dangerous probability that monopoly power would in fact be achieved.
Since companies that actually possess monopoly power are an industrial rarity, most Section 2 litigation
involves allegations of attempts to monopolize; and it is the "dangerous probability of success" element on
which the resolution of most cases turns.
Cases
Lorain Journal v. US (1951)
P832: A newspaper publisher cut off advertisers who placed ads on the local radio station. The newspaper
was delivered to 99% of residents of three towns. The action was found to be an attempt to monopolize and
the US prevailed.
19
Aspen Skiing Co. v. Aspen Highlands Skiing Co. (1985)
P736: In what Sharfman hailed as a “dreadful” decision, the SCOTUS held that the actions of the owner of
three of the four Aspen ski areas had to deal with the owner of the fourth, allowing blended tickets for all
four areas, etc., as they had done previously but has discontinued. Jury concluded Aspen Skiing had no
valid business reasons for refusing to deal, consumer surveys showed they preferred having four hills to
choose from rather than three, and essentially the SCOTUS found that a monopolist has a duty to cooperate
with smaller rivals.
Spectrum Sports v. McQuillen (1993)
P837: McQuillen held the exclusive right to a product used as a shock absorber in athletic shoes, prosthetic
devices, and horse shoes. McQuillen cut off Spectrum Sports from access to the product after Spectrum
refused to sell their athletic shoe distributorship to McQuillen. The SCOTUS held that unfair or predatory
conduct alone is insufficient evidence to prove an attempt violation of Section 2of the Sherman Act, that
proof of a dangerous likelihood of monopolization must be shown by the plaintiff. Reversed and remanded.
US v. Microsoft (2001)
P798: Integration of Internet Explorer (IE) into Windows case. Covered supra, this section covers the
actions taken by Microsoft (MS) that showed the intent necessary to prove a Sherman Act Section 2
“attempt to monopolize violation. The District court erroneously relied upon MS’s monopoly position in
the operating system market as evidence of its intent to monopolize the browser market. The US attorneys
also failed to provide sufficient proof of barriers to entry into the browser market.
Price Discrimination
Section 2 of the Clayton Act makes it illegal to provide goods at different prices to consumers absent a
showing of business need. This was reinforced by the Robinson-Patman Act of 1936, which amended the
Clayton Act.
A violation requires a finding that the defendant charged two different prices for the same commodity in a
way that substantially lessened competition (or harmed competition between the favored customer and one
of its competitors). What counts as the same commodity of like grade and quality? That's a question of
market definition. Could the defendant succeed in charging differential prices? That's a question of market
power.
Cases
Utah Pie v. Continental Baking (1967)
P1292: Continental Baking, Carnation, and Pet, in an effort to gain entry to the Salt Lake City market,
began selling pies into the market at very prices considerably lower than offered in other regions. Although
consumers clearly benefited from the competition (Stewart, in his dissent, wonders why the RobinsonPatman Act was being used to protect competitors and not competition), the SCOTUS held that the actions
of Continental et al violated the Robinson-Patman Act.
FTC v. Morton Salt (1948)
P1302: Morton Salt used a sliding scale, based upon quantity purchased, reducing per unit prices as
consumers purchased more salt. Morton further granted special favors to certain customers. The SCOTUS
holds that quantity discounts can only be tied to cost savings on the part of the seller, that the FTC does not
carry the burden of proving a differential in price is not tied to cost savings (the burden is on the defendant
when the differential itself is proven), and that the FTC does not carry the burden of proving competitive
harm caused by the price discrimination. The FTC did, however, prove harm to competition (some 2000
pages of evidence worth) and prevailed.
US v. Borden (1962)
P1321: Borden was charging different prices to customers according to their size. SCOTUS held that
Borden did not meet their burden of proof showing that the pricing differentials were justified by business
costs. In order for a company to classify customers in the way Borden did, there has to be a high degree of
homogeneity amongst them, and Borden was unable to show this.
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Falls City v. Vanco Beverage (1983)
P1334: An exploration of the meeting competition defense, in which a reasonably prudent seller who
lowers his price must be aware that he is in fact likely meeting the low price of a competitor. The defendant
was a beer distributor near a state line who lowered prices to meet those of a competitor in a neighboring
state. Note that the meeting competition defense can be used to both retain existing customers as well as
gain new customers. The lower court disallowed the defendant’s affirmative “good faith of meeting the
competition” defense, which falls under section 2(b) of the Robinson-Patman Act.
Standing, Enforcement, and Injury
There is an overarching policy to avoid duplication of rewards.
Section 16 of the Clayton Act provides injunctive relief; cease and desist, actions in order to allow a
merger, etc.
In the case of a class action and a defendant manufacturer attempts to discover the sales invoices of the
wholesalers and retailers. The discovery request will be denied as the information of how much the
wholesalers and retailers charged in the downstream transaction is irrelevant to the harm suffered by the
wholesaler within the context of the antitrust suit. The essence is there must be privity (a direct
contact/transaction) to obtain standing in an antitrust suit.
Jurisdiction
The FTC can only bring civil cases; the antitrust division of the DOJ can bring civil and criminal cases.
They share jurisdiction in the civil arena.
Standard of Review
The Standard of Review for agency and District Court decisions is substantial evidence of error, whereas
the standard of review for the Circuit Court is clearly erroneous.
Cases
Hanover Shoe v. United Shoe Machinery (1968)
P104: United Shoe forced shoe machinery buyers to buy all of the machinery they require from them; they
also have requirements limiting the use of other machines in customers’ plants. Decision held that passing
on the cost to downstream buyers by plaintiffs is not a valid defense for defendants accused of price fixing.
Illinois Brick v. Illinois (1977)
P100: The “pass on” theory of harm cannot be used by end consumers to make a claim against wholesalers
or manufacturers. Only those directly injured have standing.
Kansas v. UtiliCorp United (1990)
P105: SCOTUS rules that a state has no federal standing under the Hart-Scott-Rodino Act through parens
patriae, but that there may be room under state anti-trust laws.
Blue Shield af Virginia v. McCready (1982)
P100: A plaintiff who wanted a service provided by an alternate provider (a psychologuist rather tan a
psychotherapist) had standing to sue based upon antitrust law.
Brunswick v. Pueblo Bowl-o-Mat (1977)
Handout: Brunswick, after incurring a quarter of a billion in 1960-dollar debt, starts purchasing failing
bowling alleys in possession of their equipment after the collapse of the bowling fad. Competing bowling
alleys in the areas where Brunswick is taking over the failing lanes complain; Brunswick has deep pockets,
anticompetitive, etc. Brunswick stands for the concept that for a plaintiff to have antitrust standing under
Section 7 of the Clayton Act, the harm the plaintiff suffers must be directly tied to the anticompetitive
actions of the defendant.
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Remedies, Settlements, and Consent Decrees
Antitrust standing is not co-extensive with Article III standing, under which a plaintiff need only show
injury in fact. An antitrust plaintiff must show more, namely, "antitrust injury"-i.e., the type of harm that
the antitrust laws were intended to prevent. See Brunswick. This will often mean that a competitor will lack
standing to bring an antitrust claim (e.g., a takeover target-but see Minorco). Related to standing is the rule
that an antitrust plaintiff must have suffered "direct injury-the plaintiff must have borne the harm from the
antitrust violation directly rather than have had the cost of the violation "passed on" to it by a non-violating
intermediary (e.g., a wholesaler). See Illinois Brick and Hanover Shoe. A further related point is that there
is no "contribution" in antitrust-i.e., co-conspirators are jointly and severally liable. If one of the coconspirators settles, the plaintiffs claim is reduced only by the amount of the settlement and not by the
settling defendant's total contribution toward the injury. Lastly, like other types of cases, antitrust cases
often settle when both sides find it in their interests to do so. Such settlements, when the government is a
party, typically involve a consent decree.
Two general means for calculating damages (no matter which method uses, under the rule of reason the
markets need to be defined during the period of the infraction):
1) The Yardstick Method
(For price fixing) Compares the price charged in a geographic region where price fixing is alleged
during a particular period, then comparing the process of a similar region. So, a competitive
region’s prices are compared with an allegedly non-competitive similar reasons (all factors which
make the regions dissimilar must be removed).
2) The Before, During, and After Method
Look only in a single area but examine conditions prior to the alleged misconduct, during the
misconduct, then after the misconduct.
Look to sections 4 and 16 of the Clayton Act (which revised the Sherman Act) to see the universe of
remedies available for antitrust violations.
Section 4: trebled damages and attorney fees
Section 16: Injunctive Relief against threatened loss or damage suffered under violation of antitrust laws.
This provides for a breakup – Microsoft narrowly avoided this.
The penalties for violation of Section 5 of the FTC Act is outlined in sections (f) ($10K for each violation
of a commission order, of which there are always many) and (m)(1)(A), (B), and (C) which says the
commission can commence a civil action with the same $10K per violating fine.
A consent decree is essentially a contract; that is an agreement between the plaintiff (in these cases some
form of government); typically the consent decree requires a change in behavior of the defendant; they also
often contain no admission of wrongdoing on the part of the defendant.
Note: Only the FTC has standing to sue for breach of the consent decree.
Intel Consent Decree
The world is defined as the market (Intel’s share is greater overseas than it is just here in the US). Intel was
refusing to share advance information about and product samples of their processors with Intergraph,
Digital Equipment Corp., and Compaq unless each of those firms agreed to share patented intellectual
property with Intel. Suit was brought under section 2 of the Sherman Act. The defendants prevailed, and
the consent decree contained a proviso allowing the three companies to resume their civil suit if they so
chose.
Microsoft Consent Decree
Contains provisions for prohibited conduct in section III, and also contains some affirmative obligations
such as revealing its source code to vendors. Microsoft cannot retaliate against independent software
developers. OEMs can add their own and remove Microsoft’s icons.
Paragraph J is where Microsoft wins. They don’t have to document or disclose certain parts of its API, they
are not precluded from licensing said code components, and so on.
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In Section IV, a private monitoring system is set up to enforce the consent decree. Only the plaintiffs
(governments) have access to this process – and it’s cumbersome. Microsoft also has to hire a compliance
officer.
Page 13, paragraph 13: Third parties are forced to go through an alternative dispute resolution – not sure if
this is enforceable. Another huge Microsoft win.
Page 15, top: The decree is in effect for five years.
SCOTUS held last year that disfavored dealers could only recover after proving lost sales, not for lost
profits. Courts are essentially reducing private claims under the Robinson-Patman act by reducing the
damages that can be claimed under such suits. Damages are cost differences and lost sales (possibly
trebled), and attorney fees – but damages must be direct.
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Index
Addyston Pipe ....................................................7
Entrenchment ..................................................... 5
Administrative Law .......................................... 18
evidence required for antitrust case ..................10
Alcoa ................................................................ 15
Falls City ..........................................................20
Allied Tube & Conduit ..................................... 12
Fashion Originators Guild ................................11
Aluminum Co. of America ............................... 15
Federal Trade Commission Act ......................... 6
ambiguity .......................................................... 18
freeriding ..........................................................10
American Column and Lumber ........................ 10
FTC Act
American Tobacco..............................................8
Remedies ......................................................22
AOL .................................................................. 19
GE ...................................................................... 5
Appalachian Coal ...............................................8
Generic cigarette case .......................................16
Aspen Skiing Co. .............................................. 19
Goldfarb v. VA State Bar .................................13
Associated Press ............................................... 11
Hanover Shoe ...................................................21
Beech-Nut ......................................................... 19
Hart-Scott-Rodino Act ....................................... 6
beer distributor ................................................. 20
Healthsource .....................................................17
Before, During, and After Method ................... 22
Heinz ................................................................19
Borden .............................................................. 20
HMO .................................................................17
Broadcast Music (BMI) ......................................9
Honeywell.......................................................... 5
Broadway Hale ................................................. 11
horizontal agreement ......................................... 7
Brown & Williamson Tobacco ......................... 16
Horizontal Agreement Characterizations ........... 9
Brown Shoe ...................................................... 17
horizontal merger ..............................................19
Business Electronics Corporation v. Sharp
Electronics Corp ........................................... 15
Horizontal merger ............................................. 5
California Dental Association ............................9
IBM ..................................................................17
California Motor Transport .............................. 12
Illinois Brick .....................................................21
California Retail Liquor Dealers Assoc. ........... 13
Indian Head ......................................................12
cellophane ......................................................... 15
Inelastic ............................................................. 4
Chevron ............................................................ 18
Interstate Circuit ...............................................10
Chicago Board of Trade .....................................8
intrabrand competition ......................................15
cigarette ............................................................ 16
Jurisdiction .......................................................21
Clayton Act.........................................................5
Klor’s ................................................................11
Columbia Broadcasting (CBS) ...........................9
Kodak ...............................................................16
Columbia Pictures ............................................ 13
Liggett ..............................................................16
Competitive cost .................................................4
Lorain Journal ...................................................19
consciously parallel .......................................... 10
Lowry ...............................................................11
Consumer surplus ...............................................4
Market definition ............................................... 5
Continental Baking ........................................... 20
Market power..................................................... 5
Demand Curve ....................................................4
Mass. School of Law at Andover......................12
Dr. Miles........................................................... 14
maximum retail price ........................................15
DuPont .............................................................. 15
McQuillen .........................................................20
Earthlink ........................................................... 19
meeting competition defense ............................20
horse shoes........................................................20
Eastman Kodak................................................. 16
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Microsoft .............................................. 17, 18, 20
Reserve price ..................................................... 4
Midcal Aluminum ............................................ 13
Robinson-Patman Act ...................................6, 20
Miller-Tydings Act ........................................... 13
RPM: Retail price maintenance ......................... 5
minimum retail price ........................................ 14
Rule of Reason .................................................. 7
Monopoly
Rule of reason analysis ...................................... 5
safe harbor .................................................... 15
Schwegmann Bros. ...........................................13
Monopoly price...................................................4
Schwinn ............................................................14
Monsanto v. Spray-Rite .................................... 14
sham exception
Montague & Co. ............................................... 11
Noerr exclusion.............................................12
Morton Salt ....................................................... 20
Sharp Electronics ..............................................15
Nat’l Fire Protection Agency ............................ 12
Sherman Act ...................................................... 5
NCAA.................................................................9
Silicon Graphics ...............................................19
newspaper publisher ......................................... 19
Socony-Vacuum ................................................ 9
Noerr exclusion ................................................ 12
Spectrum Sports................................................20
Noerr Motor Freight Co.................................... 12
Spray-Rite .........................................................14
Northern Pacific Railway ................................. 16
Standard Fashion ..............................................17
Northern Securities .............................................8
Standard of Review ..........................................21
Northwest Wholesale Stationers ....................... 11
Standard Oil ....................................................... 8
NYNEX ............................................................ 11
Staples ..............................................................19
Okla. Bd. Of Regents, Univ. of ..........................9
State Oil v. Khan ..............................................15
Omni Outdoor Advertising ............................... 14
Supracompetitive price ...................................... 5
Paramount Film Distributing ............................ 10
termination clause .............................................17
Parker immunity ............................................... 13
Parker v. Brown (The California Raisin Case) . 13
Theater Enterprises v. Paramount Film
Distributing ...................................................10
patterns ............................................................. 17
Theories of Harm ............................................... 6
plus factor ................................................... 10, 14
theory of antitrust............................................... 3
Portfolio effects ..................................................5
Time Warner .....................................................19
Predatory pricing ...............................................5
Tobacco ........................................................8, 16
Predatory Pricing .............................................. 15
Toys “R” Us .....................................................10
Price Fixing ........................................................8
Trade association ..............................................10
Professional Real Estate Investors .................... 13
Trans-Missouri Freight ...................................... 7
quick look ...........................................................9
Trucking Unlimited ..........................................12
Quick look analysis.............................................5
U.S. Healthcare .................................................17
quip ................................................................... 19
Utah Pie ............................................................20
Radiant Burners ................................................ 11
UtiliCorp ...........................................................21
radio station ...................................................... 19
Vanco Beverage ................................................20
railroad ...............................................................8
vertical arrangements
Railroad ............................................................ 12
non-price setting ...........................................14
Railway............................................................. 16
Vertical Arrangements ......................................14
Raisin ................................................................ 13
Vertical merger .................................................. 5
range effects .......................................................5
Yardstick Method .............................................22
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