REVIEW SESSION ON WEDNESDAY HOUR AFTER LAST EXAM, ROOM POSTED ON ASSIGNMENT
BOARD
Recurrent Themes
1. CONSTRUCT ANALYTIC FLOW CHART: HORIZONTAL/VERTICAL; MARKET POWER; INJURY;
JUSTIFICATIONS; NECESSARY MEANS/NARROW SCOPE;
2. Competition, rather than direct govt regulation, to control market: how effective is competition
3. Efficient large business interests vs interests of protecting small businesses vs lower consumer prices
4. Economics seldom outcome-determinative
5. What are goals of antitrust: economic vs non-economic, anti-competition vs social policy?
6. Is anti-trust essentially statutory/rigid or common law/organic?
7. Judicial capacity/competency – judicial discretion and sophistication
8. Was there actually an agreement between parties
9. How effective was the alleged cartel – i.e., is it a legitimate threat to competition?
10. Protection of small business in order to preserve competition, or restrain/encourage competition to protect
small business (as a good in itself)
11. How to re-organize in order to avoid antitrust concerns and yet maintain your market objectives
12. Dualism – everyone agrees on the facts but don’t agree on how to interpret the facts
13. Note that unlike many other areas of law, legal reasons for an action can excuse the illegal ones
14. Not means necessary to achieve desired ends rationale (Taft in Addyston Pipe) generally a per se type
rationale
15. To the extent that some practices only make sense in presence of market power, no need to determine
whether market power exists in those cases
I.
The Setting for Antitrust Analysis
Enacting the Antitrust Laws
1. Sherman Act merely condemns §1: contracts, combinations, and conspiracies in restraint of trade
and §2: monopolization, combinations, or conspiracies to monopolize, or attempts thereof – but
“restraint of trade” so vague that essentially a common law area anyway
2. Common law background
a. Middleman offenses:
i. Buying goods before they came to market (forestalling)
ii. Buying in bulk and selling smaller quantities (regrating)
iii. Buying entire crops (engrossing)
iv. Raised prices without contributing value, ducked market regulations, or avoiding franchise fees
v. Eventually ignored and then repealed as wider markets needed middlemen
b. Monopoly
i. To protect against price raises, limited competition, market entry hindrances, lower quality
ii. But exceptions made for customary town and guild monopolies, patents, etc.
c. Restraints of trade: e.g., non-competition clauses in contracts, etc. – eventually allowed if
reasonable, limited in time, etc.
d. Conspiracy: formerly used to break labor unions
e. Limiting corporate powers: anticompetitive collusion of corporations
3. Political background
a. Reform sentiment:
i. Explosive economic growth led to oppression of masses: child labor, long hours, slums, etc.
ii. Agrarian discontent (Nat’l Grange org of farmers) upset over low agricultural but high
machinery prices
iii. Predatory pricing, coerced mergers and buyouts, kick-backs, etc.; fixed prices, controlled output
b. Political manifestations: competition rather than direct control chosen b/c
i. Congress pro-business
ii. Faith in market and private enterprise
4.
Role of Antitrust laws
a. Antitrust deals with control of private economic power: unilateral power to increase price or lower
output to garner market power vs discretion to do so
b. Other tools:
i. Nationalization of industry
ii. Government direct regulation
iii. Common law approach – laissez faire type refusal to enforce illegal contracts, but no active
policing or regulation
c. Three main issues:
i. Is anti-trust essentially statutory/rigid or common law/organic?
ii. What are goals of antitrust: economic vs non-economic, anti-competition vs social policy?
iii. Judicial capacity/competency – judicial discretion and sophistication
d. Legal foundations of antitrust – statutory foundations
i. Sherman §1: contracts, combinations, conspiracies in restraint of trade: independent, private
parties
ii. Sherman §2: monopolies: unitary action by single party
iii. Sherman §4: vests in federal courts authority to adjudicate antitrust, first unification of
national law of antitrust rather than variant state laws
e. Note overall rejection of specificity of legislation – implicit grant of judicial and administrative
discretion
5. Sherman Act
a. Sherman Act essentially unamended for 110 yrs – can look longitudinally to decided how well its
performed over evolution of economic scholarship
b. And common law: Sherman Act based on common law w/ some differences:
i. Monopoly at common law was held only by public or quasi-public entity
ii. Essentially just gives courts permission to apply common law? But what were the intended
differences from common law? Legislative history not much help, depends on how think
current economy working, etc.
iii. Sherman did unify variant state laws under single fed law
iv. Did give criminal sanctions to antitrust violations
v. Did give private incentives to prosecute through treble damages
vi. Did give equity’s broad powers chance to operate
vii. Did give positive restraints on trusts rather than negative restraints
c. Sen. Sherman: not aimed to prevent all combinations, just those in restraint of trade,
anticompetitive, etc. – but difficult to craft specific guidelines
d. Thorelli, Fed’l Antitrust Policy:
i. Legislators did not give in depth enough analysis on vices and virtues of economics of
competition, felt that they should interfere as little as possible w/ market
ii. Was some thought about consumers, but essentially concern for small business, which is why
common law adopted, b/c it essentially created through small business complaints
iii. Sherman Act may in some ways be expression of social beliefs
iv. But reality showed less connection between antitrust policy and competition
e. Hofstadter, (47)
i. Political and social arguments for antitrust stronger than economic ones
ii. American suspicion of concentrated power: state govts already too weak to overcome big
business, some worry might overcome fed too
iii. Psychological value of antitrust, idea of opportunity for everyone, competition as character
forming
iv. In other words, economy not just about efficiency, about building character, morals, etc.
f. Legislative history:
i. Goals of antitrust: lower prices, greater fairness, dispersed control over economy, freedom of
choice w/o control by others,
ii. But super-competitive prices may actually help small businesses operating at margin
g.
h.
i.
j.
iii. However, even in presence of price fixing, last product will still have to be sold at marginal cost
(in order to overcome customer abstention from buying altogether?), and no extra units will be
produced, (no fewer units will be produced also b/c businesses want every last dollar?), so
effectively just redistributing income from earlier purchasers to later purchasers? – this rankles,
is contrary to consumer expectation (would also cause holding out?)
iv. Although may seem a large leap of faith, restraints on market entry are generally inefficient, are
generally effected b/c those already in market are acting in their own self-interest (i.e., they
aren’t already selling at lowest share of consumer surplus), and proof of detriment from such
restraint more costly than simply assuming there is a detriment in every case
Sherman Act Procedure and Early Cases:
i. Early cases often used against unions, while letting Sugar Trust off hook – But later used to
bust trusts
ii. Standard Oil (White, J. S Ct 1911) “rule of reason” vague rule that only unreasonable conduct
is illegal
1914 Legislation
i. Reaction to vagueness of rule of reason – lacked proper notice
ii. Sherman Act lacked administrative commission or agency to enforce it, relied solely on judicial
discretion
iii. Calls for interstate trade commission to give expert advice on how to dissolve trusts, give
detailed guidance, investigate trusts, ensure enforcement, disseminate information, give
suggestions for legislation, advise businesses, give special exemptions,
iv. Federal Trade Commission given power to determine what “unfair methods of competition”
meant and also to develop its own administrative law and not just follow previous law
v. Clayton Act also gave new, specific prohibitions (see pg 53), anti-merger – Clayton Act §7
Merger Provision: prohibits acquisitions that substantially decrease competition
vi. Federal Trade Commission Act §5: dual governing bodies: federal courts and FTC –
prohibition of unfair methods of competition in interstate commerce (i.e., very general)
Later legislation
i. 1936 Robinson-Patman Act on price discrimination
ii. 1937 Miller-Tydings Act exempted certain resale price agreements between mfr and dealer
(later repealed in 1975)
iii. 1950 Celler-Kefauver Act on antimerger provisions
iv. Procedural Amendments
Sherman Act §1: United States v Trans-Missouri Freight Assn (US 1897)(174)[18 railroads
west of Mississippi set freight rates in collusion] Peckham: all contracts in restraint of trade are
per se illegal
i. Every contract, combination, or conspiracy in restraint of trade = §1
ii. Peckham, J. majority:
 Rejects idea that only unreasonable restraints are illegal: too difficult to specify what is
unreasonable: rates of return on investment, return on risk, shareholders dividends, etc. –
very literal interpretation of statutory wording, doesn’t incorporate common law, very little
judicial discretion,
 Furthermore, no special exemptions for certain types of industries, such as railways – that
could be accomplished only by legislative action, not judicial
 But states that contracts (otherwise in violation) that are merely collateral to a sale might be
tolerable
 “Restraints of trade” mean all, reasonable and unreasonable
 Also states that lowered price fixing also illegal, may be predatory
 Even if contract at time formed not illegal, is illegal if continues after Sherman Act enacted
 Railroads, as public entities, are particularly important to control in their effect on
consumers (i.e., railroads public entity argument cuts both ways, railroads had argued that
their status as a public entity forced them to provide services, make investments that they
would not otherwise, therefore needed higher prices to defray these fixed costs)
 Basically a balancing act: public interests in competition outweigh industry’s interest in
protecting itself – will weed out inefficient
iii. White dissent:
 “Restraint of trade” itself encompasses only what is unreasonable
 Congress would never restrain parties rights to make reasonable contracts
 Trade associations are efficient in setting uniform rates, etc., lower risk of downward spiral
 Avoid duplication of efforts by those within the agreement
 Still possible to have competition with non-members, not complete restraint (partial
restraint)
 Public entities already have greater liabilities because of duties to public, must be allowed
to take measures to ameliorate risks
 Outlawing all restraints on trade would effectively abrogate freedom of contract and
freedom of trade
 Would give unreasonable result in unduly hurting railroad companies
 Statutory language intentionally vague AND intentionally tracks language of common law
(but this begs the question of what the current common law is and whether the legislature
agreed on this view of common law)
iv. Background:
 Written agreement, so no question of whether or not there actually was an agreement
 Set prices, investigation of violations, schedule of sanctions, etc.
 Fixed vs variable costs: whether costs depend on level of production/service – also
marginal costs of each additional unit of production/service – fixed costs often greatly
outweigh marginal costs, therefore cannot price units at marginal costs or won’t be able to
recoup fixed costs, competition therefore potentially injurious
 Cartel problem: great transaction costs in formation and maintenance of cartels – cartel =
joint action of all members of industry, to maximize average level of industry-wide profits
via price and output controls through rationing of market
 Incentive to cheat in every cartel AND therefore incentive to cheat before someone else
cheats (prisoner’s dilemma)
v. Debate between Peckham and White reflects judicial willingness to decide an issue or
effectively to remand to legislature if they don’t agree with judicial interpretation
vi. Economic arguments: would injunction on contract actually injure the railroads, economics are
actually rather indeterminate (Peckham)
vii. Methods of statutory interpretation; goals of statute; role of common law; role of economics;
relationship between Sherman and ICC, state regulation, self-regulation; judicial
competency/separation of powers;
k. Relationship between ICC and Sherman Act in Trans Missouri
i. Trans Missouri opinions disagree on whether regulations should govern
ii. What if state regulation? Should fed’l statutes give some deference to state specificity, state
action doctrine
iii. What if railroads had merely imposed uniformity as to non-price features (e.g., classifications,
physical plant, etc.)
l. Separation of power concerns: White not wanting to undermine Congress; Peckham concerns
about judicial legislation;
m. Courts no longer as absolute about “every,” later resort to rule of reason: Procedural posture of
case makes a difference therefore (REVIEW THIS IN CH. 2 - ???)
n. Some object to common law based analysis of Sherman Act because believes that Congress would
not have merely codified the common law
i. But Congress would have had motivation to do so in order to create federal jurisdiction
ii. And Sherman Act, even though using much of common law analysis and precedential rather
than per se rules, is not a mirror image of common law, it is simply “organic” in that it grows
and adapts to circumstances and perceptions
iii. But even if believed in limited judicial competence, and would therefore err on the side of per
se rules, might still consider antitrust law organic in that the per se rules can change over time
The Role of Competition: Analytic Model and Useful Tendency
6. The Value of Perfect Competition
a.
b.
c.
d.
e.
Market structure continuum: competition  oligopoly (cartel)  monopoly – Higher output,
lower price   lower output, higher price
Perfect competition: assumptions
i. Identical products, substitutable as far as consumer concerned – price can be determinative of
consumption
ii. Perfect mobility of resources: market for all products very mobile with each other, can transfer
resources from one type of product to another type
iii. Perfect information: as to both producer and consumer, as to quality; as to all prices available;
producers know all opportunity costs for all different combinations of outputs
iv. All buyers and sellers act independently, no collusion – also no barriers to market entry
Results of perfect competition:
i. Price will be driven down to marginal cost
ii. Dynamic equilibrium will guarantee this by driving up output (due to temporary increase in
prices bid by consumers when demand increases before output does) which will in turn allow
maintenance of price at marginal cost, profits will remain the same – invisible hand of laissezfaire economics
iii. Marginal costs truly reflect opportunity costs of production – i.e., reflect relative costs of
producing one type of product versus another
iv. Pareto efficient: assumes an initial distribution of resources (is desirable) such that one Pareto
efficient distribution not necessarily comparable to another – can achieve a different Pareto
optimal distribution by changing initial distribution of allocations (through taxes, etc.)
v. Allocative efficiency: cannot reallocate resources spent on production without making market
less socially efficient – sub-type of Pareto efficiency – therefore dependent on marginal costs as
they indicate opportunity costs of different types of products
vi. Productive efficiency: minimized cost of production as related to social resources
Allocative efficiency:
i. Market responds perfectly to consumer preferences, and resource production will move to more
profitable product at more profitable level production  allocative efficiency
ii. But note again that ability to demonstrate preference and impose it on market equilibrium
assumes wealth to demonstrate preference through buying – i.e., depends on initial allocation of
wealth
iii. Note also that taxes can be used as incentives/disincentives for consumption of certain types of
products
iv. Cost of transition to more profitable production is costless
Difficulties with the model
i. Doesn’t take into account externalities of certain types of production and consumption in
regulating the levels of those activities
ii. Economies of scale: production costs decrease as production increases, influence marginal costs
 Public utility regulation: natural monopolists, suitable for government regulation to keep
them from overpricing
 Natural monopoly: technology dictates a continually decreasing economies of scale/cost
curve, such that not really room in market for competitors  ruinous competition b/c
everyone keeps underbidding each other, individuals cannot recoup fixed costs, etc. 
competitors drop out of markets until only one producer
 Sometimes monopolists can produce at lower marginal costs than competitors, gives gross
efficiency gain in terms of production costs, but gives allocative efficiency loss because not
producing optimal level of product (because monopolists tend to produce less than the
optimal level???) – not everyone decides this tradeoff on the basis of total welfare (gains in
production efficiency - loss in consumer surplus now given to monopolist) because feel that
judiciary doesn’t have competency to make this calculation
 Technology may dictate a different level of production versus what demand dictates
 If there is an optimal technologically dictated level of production (i.e., economies of scale
is parabolic, such that costs of production start to rise again as produce more than a certain
point), which is lower than demand, then can have room for competition: i.e., one producer
cannot feasibly produce as much as there is demand for
iii. Public goods:

Certain types of goods and services, once produced, incur no extra cost for any and all to
use them,
 Consumption by one doesn’t affect consumption by another
 Consumers will therefore often misstate how much they are willing to pay for the good
 Because can’t price unit consumption according to marginal costs, private entities have no
incentives to produce public goods
iv. Reality doesn’t bear out the perfect competition model
v. Allocative and productive efficiency doesn’t always reflect social and political values
7. Perfect and Imperfect Competition Compared
a. Monopoly: single seller of product with no substitutes w/ barrier to entry to market
i. Monopolist can manipulate price curve via output more than can producers in competitive
market (b/c others in market will decrease output to compensate for any one member’s increase,
thereby keeping overall output constant in competitive market)
ii. Marginal revenue = price per unit at a given level of output, such that profit = revenue (demand
quantity * unit price) – marginal revenue (demand quantity * unit cost)
iii. Monopolist will set marginal revenue = marginal cost (because it wouldn’t be desirable to
produce another unit of output if the cost of doing so weren’t at least equaled by the benefit
(marginal revenue)
b. Antitrust policy probably not so much concerned with preservation of consumer surplus in hands
of consumer but more in preservation of optimal social efficiency – i.e., don’t want monopolists to
distort production so that less than socially efficient level
c. New entrants sometimes can’t join market due to economies of scale, problems with capital
markets
d. No theoretical reason to believe that monopolies cause productive inefficiency (unless believe that
extra profit margins make monopolists sloppy in terms of production efficiency)
e. Oligopolies v cartels:
i. Different from cartel in that parties act interdependently, no collusion
ii. In other words, simply a market with low number of competitors, such that any one
competitor’s actions could have effect on market (because an increase in output will lower price,
but not enough to cause another producer to lower their output, although it will lower their
marginal profit)
iii. Oligopolies cannot maximize industry profits, although individuals can influence their share of
the current level of industry profits
iv. Basically, oligopolists recognize their interdependence and therefore voluntarily restrict output
in order to maintain higher prices
v. Oligopolists might not increase production to where price = marginal cost because of
technological constraints/costs of production curves???
f. Barriers to entry
i. Note that barriers not absolute, may be partial
ii. Barriers often depend on the reaction of the potential incumbent and new entrant
iii. Barriers affect both new entrants and expansion of small competitors
iv. Regulation of supplies of raw materials, transportation, distribution channels, etc.
v. Minimum efficient scale
vi. Capital requirements and fixed costs
vii. Product differentiation, entrenched good will, brand loyalty, and fixed cost nature of advertising
– most common cause of oligopolies
viii.
Where entry very easy, even monopolists will tend to set price at marginal cost in order to
prevent influx of new entrants – i.e., potential competition can be as effective as actual
competition
ix. Ability to minimize costs – good as an incentive for productive efficiency, bad as potential
barrier to entry
g. Although perfect competition can be valued for its ability to prevent rent-seeking by sellers, such
redistributive concerns can also be achieved through taxation
h. Idea that excess profits will encourage excess investment – but could also encourage more
investment in ways that are efficient
i. Bigness concern, political and social threat (see Hofstadter above)
j.
k.
l.
Preservation of choice and economic opportunity (see Hofstadter above)
General but also vague sense of fairness
Economic stabilization: some believe that unresponsiveness of monopolies to changes in price or
general higher pricing of monopolies contributes to inflation (but this latter point misunderstands
inflation – not about absolute price but about rate of increase of price) – inflation too complex to be
addressed through antitrust law
8. Possible Grounds for De-emphasizing Competition
a. Patents – although empirically not proven that bigger firms are able or do produce more
technological advances (i.e., might not need market protections as much to encourage technological
R&D)
b. Natural monopolies – better done through direct regulation
c. Deference to state control, such as in liquor or insurance
d. Some types of export monopolies, combinations allowed for other reasons
e. Concentrated market easier to control for some types of volatile products? (e.g., weaponry,
pharmaceuticals?)
f. National security and other public goods
g. Weak, declining, or otherwise more sympathetic industries: e.g., farming, coal mining, etc.
h. Economies of scale: but dependent on absolute size, not relative size (i.e., a sufficiently large firm
can still have small market share, context dependent)
i. Note also that some types of economies of scale are solely pecuniary and have nothing to do with
technological scale – e.g., bulk and volume sales sometimes – and therefore do not contribute to
conservation of resources
j. Market shifts in response to changing demand, costs, etc. are not themselves costless – at least in
short term, such equilibrium shifts can be costly and socially painful
k. Fiduciary duties to shareholders and fear of takeovers – but these are weak justifications for
market power, profit seeking
l. Second best problem – fixing one problem may very well cause problems of even larger
magnitude in other areas
9. Workable Competition
a. A question of what criteria we use to identify beneficial competition levels
b. Equitable conduct: predatory pricing, market barrier erection, etc.
c. Performance criteria: Sustained above market profits; Egregiously over-sized firms relative to
optimal size; Chronic unjustified excess capacity; Excessive prices Persistent lag in increasing
production efficiency
d. Structural criteria: number and distribution of market members; barriers to entry and expansion,
particularly as relates to relative ease of collusion
Procedures for Enforcing the Antitrust Laws
10. Criminal Punishment
a. Clayton and FTC are non-criminal; Sherman is punishable by fines and imprisonment; RobinsonPatman criminal provisions rarely invoked
b. DOJ frequently does criminal prosecutions (up to 80%), mostly hard-care per se violations,
particularly horizontal per se violations
c. More difficult cases tend to be civil actions
d. Are criminal sanctions appropriate: might deter findings of guilt when “crime” is not that
egregious, or because violation was unintentional (although hard-core per se cases usually are
intentional) – i.e., may rely a good deal on prosecutorial discretion in only criminally prosecuting
the worst, most obviously intentional cases
e. Treble damages often seen as tantamount to criminal sanction
f. Sherman Act makes no distinctions as to punishment based on whether public or private suit,
when should use criminal sanction and when merely equitable sanctions, etc.
g. Note also that organic, common law type nature of Sherman Act also belies characterizations of it
as a criminal statute, doctrine of legality would not allow such discretion with a purely criminal
statute
h. Courts have traditionally required intent and higher standards of proof for criminal sanctions
i.
Generally no similar heightened requirements for treble damages, however, although are required
to show actual damage, unlike equitable remedy cases – also an apparent violation of doctrine of
legality as applied to treble damages (i.e., when antitrust common law makes sudden change in
direction, unwitting defendants don’t get any sympathy in terms of damage liability)
j. Equitable remedies typically and historically very discretionary by courts
11. Equitable Relief
a. Sherman and Clayton both provide for equitable relief
b. Can include disposition of subsidiaries; creation of competitors by defendants themselves;
compulsory license; increases in output or lifting of restrictions; cancellation or modification of
agreements; divestiture of mergers
c. Raises difficulties of supervising compliance
d. Preliminary injunctions
e. Private parties typically need to show significant threat of harm, although this sometimes
interpreted loosely because antitrust private suits designed to encourage enforcement, as well as to
compensate victims – this particularly true of likelihood of success on merits determinations for
preliminary injunctions
f. Standing and other aspects of private litigation often measured by what government would have
been allowed to do had it brought the suit publicly
g. Most DOJ civil actions end in consent decrees: like settlements, do not reflect the state of the law,
more of a private contract – this reflected in fact that courts are reluctant to modify these decrees at
petition of either party
i. Third parties may not institute actions for violations of consent decrees, although consent
decrees can be used as evidence (sort of estoppel?) if has been litigated by courts or in some
cases where defendant admitted liability (i.e., not usually treated as an admission of guilt)
ii. However, third parties often try to participate in formation of consent decrees, as intervenors
under Fed Rule Civ Pro 23(a)(2): however, rarely successful because presumption that
government will adequately represent their interests
iii. Tunney Act governs disclosures that government must make with all consent decrees (pg. 6566) and also provides judiciary some discretion in monitoring consent decrees for public
interest, although courts rarely use it, mostly just rubber stamp things
h. FTC empowered to issue cease and desist orders: do not provide basis for right of private action,
no criminal or civil penalties attached, basically like a judicial injunction
i. FTC also empowered to enforce the Clayton Act by its own (FTC’s) definitions of unfair
competition
ii. Most FTC actions end in consent orders similar to DOJ’s
iii. Like consent decrees, not considered to be an admission of guilt by the defendant
iv. FTC actions are administrative actions, reviewable by Ct Apps. under administrative/agency
review standards (basically abuse of discretion/substantial evidence standard)
v. FTC given wide latitude to fashion remedies (in addition to discretion assumed under ability to
form consent orders?)
vi. FTC itself doesn’t have power to issue preliminary injunctions, although can ask federal courts
to do so
vii. FTC has power to promulgate both interpretive and per se rules as to behavior it considers in
violation of FTC §5
viii.
To some extent FTC and DOJ seem to concentrate on different industries, or at least to
coordinate efforts to prevent duplication
12. Private Actions
a. Treble damages:
i. Incentive for private parties to enforce antitrust laws
ii. Under both Sherman and Clayton Acts
iii. Treble damages are deductible from federal taxes, however
iv. Private parties might be more likely to prosecute smaller violations than government would
view as being worth its investment?
v. Difficulty in proving damages because of difficulties in proving what would have happened in
absence of violations
vi. Defendants generally jointly and severally liable: may over-encourage settlement, regardless of
merits of claim or actual level of guilt of a given defendant
b. Standing and related doctrines:
i. Fear of subjecting same defendant to multiple damage awards to multiple plaintiffs; some
plaintiffs are seemingly more meritorious as truly injured parties than others, more closely
related to underlying goals of antitrust law;
ii. Standing also a convenient way to dispose of otherwise unmeritorious claims
iii. On other hand, don’t want to discourage private actions as means for enforcing antitrust laws
iv. Standing issues typically revolve around 1) directness of damages 2) parens patriae role of
states in bringing suit on behalf of citizens 3) different requirements for suits seeking only
equitable damages 4) evolving requirement of “antitrust injury”
v. Hanover Shoe: defendants not allowed to defend themselves by saying buyer plaintiff passed
on the cost of the injury to its customers, would allow defendants too easy an out from antitrust
liability, too complex an issue to try to determine anyway
vi. Illinois Brick: because of the Hanover Shoe doctrine, consumers may not bring treble damage
suits against manufacturer defendants, etc. whenever defendants are precluded from using
consumers as a defense against intermediary claims of damage
vii. Illinois Brick and Hanover Shoe doctrines have further virtue of effectively limiting the number
of potential plaintiffs, thereby maintaining incentives to sue
viii.
Loss of employment or reduction in wages generally not an antitrust injury under damage
to “business or property” rule, unless the job was itself a commercial venture or enterprise (e.g.,
self-employed?) – but this doesn’t address cases of employer collusion within an industry to set
employee wages
ix. Derived injuries in general (injuries secondary to injuries of more immediate victim of antitrust
violations):
 Taxpayers, shareholders, and creditors losses not adequate
 Licensors, franchisors, and percentage-lease landlord also not have standing
 Generally, the intermediary is in better position to sue, better incentives, less risk of
duplicate recovery from same defendant, etc.
 Frequent exception: when the defendant is direct competitor of victim but imposes injury
on victim indirectly through a third party (e.g., where concerted refusals to deal merely use
upstream manufacturer or downstream retailer as mere pawn to hurt horizontal competitor)
 I.e., all a question of whether the injury is in the “target area” of the antitrust offense: this
misleading, however, because not sure if this is question of intent, proximate (foreseeable)
cause, etc.
x. “Business or property” rule:
 Generally no standing when claiming exclusion from business not yet entered – difficulty
of proving damages
 No standing for States claiming damage to general economy – State has no commercial
interest (kind of analog to market participant exception?)
xi. Clayton Act §7: prohibits mergers that “may” less competition or which “tend” to mergers –
such liability for speculative injury often held by courts to preclude liability for treble damages
(Areeda & Kaplow disagree with this)
xii. Parens patriae: allowed for suits for injunctive relief, although Clayton §4C authorizes states
to sue for treble damages excluding amounts granted to those individuals who have already
recovered, to those who opted out of State’s suit, or to businesses
xiii.
Clayton §16 on equitable relief not limited by “business or property” rule, can be
threatened loss or damage – reflects fact that standing for equitable relief generally more broad
than for treble damages, less risk from multiple suits against same defendant
c. Antitrust Injury Doctrine
i. Has done more to restrict antitrust claims than any other doctrines
ii. Brunswick Corp. v. Pueblo Bowl-o-mat (S Ct 1977)(86)[increase in competition to horizontal
competitor by rescuing foundering bowling alleys is legal and not kind of antitrust concern law
focuses on]: Plaintiff must 1) suffer or be at threat of injury that is both 2) actually caused by
the violation, and 3) of the kind that antitrust laws designed to prevent
iii. Unlike standing issues, not based on concerns about remoteness, availability of more direct
victims, proof of damages, or danger of multiple recoveries – but does depend on relation to
purpose of antitrust laws
iv. Cargill v. Monfort (S Ct 1986)(86)[plaintiff sought to prevent merger that presumably would
have increase competition against it (although merger was enjoined because of usual concerns
about decreasing competition generally)]: extended Brunswick to require showing of antitrust
injury for equity suits as well – such injury might have been based on proof of risk of predatory
pricing resulting from merger
v. Atlantic Richfield v. USA Petroleum (S Ct 1990)(87)[loss of ability to charge higher prices
because of others’ agreement to set maximum prices]: not antitrust injury because it results
from competition – might have been adequate injury if 1) led to predatory pricing or 2) if the
dealers who were restrained to maximum prices had sued (claiming loss of autonomy)
d. Class actions: as long as in keeping with Fed R Civ Pro 23(a&b), class action suits often seem to
be ideal way to prosecute antitrust violations
e. Plaintiff participation in violations: courts reject in pari delicto defense where plaintiff coerced
into cooperation, although may mean that plaintiff did not suffer compensable injury – generally,
don’t want to negate opportunity to prosecute true wrongdoing simply because plaintiff cooperated
f. Unclean hands doctrine:
i. Effectively counter-accusation of plaintiff antitrust violation of different sort (i.e., not just
cooperation with defendant’s antitrust violation)
ii. Court may dismiss plaintiff’s claims or may even allow 3rd parties may negate plaintiff’s claims
if plaintiff involved in related antitrust violations
iii. Although this is equitable defense, allowed as defense in both legal and equitable claims
iv. Kaiser: S Ct addressed issue of how closely related counter-violations must be to provide valid
defense:
g. Pg. 129: state action doctrine and federalism – how much immunity gain be obtained through state
legislation
h. How much did early restrictive interpretation of Commerce Clause give courts more comfort in
interpreting Sherman Act more broadly? Antitrust law probably not adversely affected by recent rerestrictions on Commerce Clause because all antitrust violators pretty clearly interstate
13. Preparing and Trying Antitrust Cases
a. Venue and jurisdiction: businesses can be sued in any jurisdiction where it may be found or
transacts business
b. Investigations and discovery:
i. DOJ often conducts investigations quite informally, although will sometimes resort to grand
juries in order to overcome procedural hurdles to discovery
ii. DOJ can issue “investigative demands,” which are similar to but narrower than subpoenas used
by FTC
iii. Of course, private litigants can make full use of discovery procedures
c. Pleadings and summary judgment:
i. Courts typically allow even conclusory pleadings to pass summary judgment, especially where
information to support pleadings can only be gotten from defendant via discovery
ii. Courts often reluctant in general to grant summary judgment on antitrust cases, expressly stated
by S Ct in 1962
iii. Post 1986 decisions, however, seem to use summary judgment a little more liberally
d. Jury trial:
i. No right to trial by jury in equity proceedings, although of course exists in treble damage suits
ii. Often invoked by small businesses trying to play on its sympathetic image in relation to large
businesses
iii. Unlike patent law, many courts seem willing to leave most questions to jury
iv. Some courts, however, have declared some cases too complex to leave to jury, declaring due
process (fair hearing) under Fifth outweighs right to jury trial under Seventh
e. Antitrust trials can often be large and long drawn out, but typically not so
f. Appeals: used to appeal directly from district court to S Ct, but now must go through Ct Apps
14. Repose
a.
Advisory opinions and clearances: potential defendants can get mutually non-binding advisory
opinions and clearances from DOJ and FTC, but courts often reluctant to give these much weight in
private litigation because no statutory power behind them and often doubt whether agencies really
knew all the facts
b. Statutes of limitation:
i. Clayton §4B allows 4 yrs for private suits, but difficulty in figuring out when statute begins to
run – usually measured not from when plaintiff was first injured but from when plaintiff was
most recently injured by an overt act, S Ct also allows some extension beyond 4 yr period when
damages were speculative or difficult to prove
ii. Clayton §5(i) will allow private suit within one year of conclusion of public suit by
government, S Ct has held that FTC proceedings also trigger the statute – private and public
suits need not be identical to run the statute, need only be based in part on same matter
iii. Clayton §4A sets same 4 yr period for government suits for civil actions, criminal actions
under criminal statute of limitations of 5 yrs from criminal act
iv. However, equitable actions by government or private parties are not under statute of limitations,
and doctrine of laches cannot be asserted against a sovereign
c. Res judicata:
i. Private and government suits exert no preclusive effect on one another
ii. Res judicata, merger and bar, and collateral estoppel otherwise apply, although can sometimes
be bent when courts see fit
iii. FTC and DOJ often bring simultaneous civil and criminal suits against same defendant – civil
and criminal suits do exert preclusive effects on each other, although criminal suits often not
absolutely preclusive in civil suits because of lower standard of proof in the latter
iv. Because FTC rules prohibit wider range of conduct than Sherman and Clayton Acts,
exoneration under the latter doesn’t necessarily presume exoneration under the former
v. S Ct has also allowed FTC and DOJ to proceed simultaneously against same defendant, ruled
that Sherman and Clayton Acts and FTC rules should be treated separately
vi. Generally, earlier rulings on continuing violations don’t preclude later litigation: 1) decisional
law between two suits often changes 2) new acts of old violations bring grounds for new suit 3)
exoneration in earlier suit doesn’t guarantee exoneration in later suits, although may be
influential under stare decisis
vii. However, notions of fairness and efficiency may cause court to collapse separate causes of
action, particularly where remedy sought or legal theory relied on are identical
viii.
Simultaneous violations of Sherman §§1 & 2 may cause court to adjudicate §1 only or
wait to impose remedy for §2 until §1 remedy imposed (because latter will often take care of
the former) – sometimes, however, court will want to delay §2 litigation because don’t want to
tie hands through preclusion in later litigating §2 claims
ix. Collateral estoppel:
 Applies to original litigants and those in privity to them and sometimes even to 3rd party,
where the plaintiff common to both suits lost on an issue for which it was deemed to have
adequate chance to make its case the first time around (Blonder-Tongue)
 Government suits against same defendant can serve as prima facie evidence of guilt in later
private suits against same defendant, although private suits cannot serve same purpose in
later government suits, and consent decrees cannot serve as evidence (unless adjudicated by
courts) – these issue estoppel often difficult, however, where no special verdicts
x. Although federal and state antitrust jurisdictions are considered separate, courts often apply res
judicata from one to the other, particularly in direction of state to federal (because state claims
can be brought in federal court, but not vice versa)
II.
Horizontal Restraints
Development of Rule of Reason and the Per Se Illegality of Price Fixing
1. General
a. Horizontal restraints of trade vs. vertical
i. Sherman §1 broad enough to encompass both vertical and horizontal restraints
ii. Vertical restraints can effect a monopoly
b.
c.
d.
e.
f.
Because Sherman Act is criminal statute, must look at intent – but intent based on desire to
compete, so we don’t want to overly discourage such intents and resultant competition
What does price-fixing mean?
i. If say “agreements” to fix prices unlawful, no one will write down such agreements anymore
ii. How broad a definition will you give price-fixing? Socony draws the definition rather broadly
Value of per se rules
i. Give easy judicial interpretation
ii. Give clear rules, signals to businesses
iii. But per se rules also subject to errors (Type II errors)
In the end, reasoning about antitrust cases really vary according to the market – in the end, the S
Ct had to admit that precedence in antitrust law means less than it does in other areas of law – look
more at economic analysis, market analysis, etc. – “organicness”
Cartels:
i. Harm theoretically identical to that from monopolies
ii. But lack the central coordinative effects of monopolies because of divergent and competing
interests of cartel members: e.g., cartel members less likely to minimize production costs, may
overproduce in order to try to gain more share of cartel profits
iii. Cartel members may effectively cheat by engaging in non-price competition
iv. Cartels not protected by entry barriers are subject to new, un-cartelized entrants
v. Justifications for cartels:
 Prevention of cutthroat competition: but competition nevertheless a good thing (may weed
out the inefficient or the excess); price fixing rarely addresses this problem anyway; and we
don’t trust private actors to make judgments about what is best for society
 Cutthroat competition is a barrier to entry into businesses with high fixed costs: however, if
new entrants are needed, this means that more industry-wide capacity is needed to meet
demand, and if existing competitors are already producing at full individual capacity (i.e.,
limited output), they can demand higher prices – i.e., inability to raise prices to cover fixed
costs is sign that industry capacity already matches that of demand – supracompetitive
prices might still encourage inefficient operation, as well – besides, can regulate natural
monopolies directly
 Prevents restriction on employment capacity by prevention of cutthroat competition or
barriers to entry: belied by fact that cartels restrict output, which would restrict employment
 Preserving potential to build needed capacity when short-term decreases in demand occur:
if truly expected return to higher demand levels, wouldn’t lose capacity; don’t want to
encourage inefficient investment in capacity; price fixing occurs during recessions and
expansions; increased prices and lowered output might cause even further recession?; we
want competition to cull out the weak during recession anyway
 Smoothing out price fluctuations for reliability in business planning: but this a false claim,
even monopolists don’t hold their prices constant because that doesn’t work in their selfinterests in the long run; cartels no more likely to produce efficient decision-making; don’t
need cartels for stabilization of minor price fluctuations because costs of changing in
response to such small changes are prohibitively high anyway; don’t trust cartels to confine
their activities to such needs anyway
 Financing desirable activities: but cost-justified, valuable services will be provided by
competition anyway (similar to other fixed costs arguments?); don’t trust private entities to
be generous with the surplus; patents already provide some of this extra padding; cartels are
just as likely to rest on their laurels and not re-invest in improvements in quality, etc.
 Organizing small entities to be countervailing power against large entities
(monopsonist/monopolist): but antitrust laws can protect against these large entities,
allowing private ordering runs risk of injury being passed on to consumers; don’t trust cartel
members to exercise their power only to degree necessary to combat the large entity
 Generally, for justifications for cartels to be convincing, they must not only be provable,
they must also outweigh the costs (above analysis suggest that cartels must also be the only
or the necessary solution to problems?)
2.
US v Addyston Pipe & Steel (S Ct 1899)(176)[combination/cartel to raise pipe prices] Taft: direct
contractual restraints of trade (unless w/in common law exceptions) are per se illegal, aren’t
necessary for main objectives of legal transactions
a. Two reasons at English common law against contractual restraints on trade
i. Disabled contractors from pursuing livelihood and contributing to society
ii. Gave other monopoly power to exclude competitors
b. Later developed to tolerance of partial restraints on trade if within following exceptions:
i. Seller of property promises not to compete with buyer in such way to derogate from value of
property
ii. Retiree promises not to compete with firm
iii. Future partner promises not to prejudice the partnership
iv. Buyer promises not to compete w/ business retained by seller
v. Servant or agent promises not to compete
vi. (This agrees with Peckham’s listed exceptions to per se rule in Trans-Missouri)
c. Above partial restraints tolerable only if reasonably necessary for:
i. Enjoyment by buyer of property, good will, or interest in partnership
ii. To legitimate ends of existing partnership
iii. To prevention of possible injury to business of seller by buyer
iv. To prevention of injury due to unjust use of confidential knowledge gained by agent/servant
v. In other words, must be merely ancillary to main contract and necessary to enjoyment of
legitimate fruits of contract or protect from unjust use by another
d. Main purpose of contract sets standard of reasonableness: necessity to accomplish main purpose
of contract – otherwise would injure covenantor without corresponding benefit to covenantee and
would yield monopoly (sounds like White in Trans-Missouri?)
e. But agreements solely for restraint of trade invalid because: 1) no measure of necessity by which
to objectively judge it 2) no legal purpose to justify it
f. Such naked agreements are per se illegal – no need to balance interests of public, etc. – because
would create too vague a standard, better to conclusively presume illegality, don’t look at
reasonableness of price fixation, etc. – i.e., agrees with Peckham in this concept
g. Partial nature of restraint as to geographic effect and part of price affected doesn’t make this a de
jure partial restraint
h. Most of decision based on common law, regardless of Trans-Missouri’s across-the-board
prohibition
i. Can restraint of trade ever be truly ancillary to main purpose of contract?
i. Somewhat tautological to say lawful purpose makes restraint ancillary, whereas not ancillary if
no lawful purpose
ii. Taft therefore resorts to common law laundry list to define what is “lawful purpose”
j. After decision, parties merged into one entity, so no “contract, agreement” to fulfill requirements
of §1
i. Don’t have Clayton Act yet to regulate these mergers,
ii. How to distinguish mergers designed simply to circumvent Sherman Act anyway?
iii. Could conceivably control these mergers through Sherman Act §2 on monopolies
iv. Do mergers act differently than cartels that might have formed them, such as to justify their
more lenient treatment?
3. US v Joint Traffic Assn (S Ct 1898)(179)[RR combination to fix prices] Peckham: redefines and
limits the contractual restraint of trade per se rule to direct restraints only, to avoid unduly
burdening freedom of contract
a. Refused to overrule Trans-Missouri (in which Peckham wrote majority opinion)
i. Textual interpretation – literalism
ii. Doubts about judicial competence
iii. Separation of powers and administrability of reasonableness standard
b. Doesn’t effectively prohibit any cooperative effort, partnership, incorporation, union, etc. in
business b/c such combinations never considered to be within definition of restraints of trade, not
formed with purpose of restraining interstate trade – smacks of Taft’s laundry list of common law
exceptions in Addyston Steel
c. Must draw reasonable limits to interpretation of Sherman Act
Hopkins and direct v indirect effects of restraints of trade (echoes Taft’s “ancillary” and “lawful
purpose” distinctions)
e. Peckham here effectively restricting his expansive interpretation of Sherman §1 by enclosing it
within a smaller scope of application (only applies in certain cases, but where applies, applies
absolutely)
4. Standard Oil Co v US (S Ct 1911)(180)[break-up of Standard Oil monopoly] White: announces
rule of reason
a. White announced the rule of reason, victory for him after Trans-Missouri
b. White claimed that direct-indirect effect of restraint of trade (Peckham and Taft’s rule) was merely
a subset of rule of reason
c. Harlan’s dissent recalled that earlier decisions irreconcilable with White’s majority decision,
warned against judicial legislation
i. White tries to say that rule of reason would have made Trans-Missouri’s agreement
unreasonable in any case
ii. But only had agreement available in Trans-Missouri, so that agreement must have been on its
face unreasonable, not unreasonable in the circumstances (which the court didn’t have) – so
White’s rule of reason starts to look more like Taft’s per se categories of unreasonable restraints
d. In companion American Tobacco, White reiterates rule of reason
e. This case actually about §2, but creates precedent for interpretation of §1
5. Chicago Board of Trade v US (S Ct 1918)(182)[Board rule disallowing agreement on price other
than that determined at end of Call session each day] Brandeis: rule of reason looks at effect on
competition, not on public
a. Legality of agreement not determined by whether or not restrains competition; every agreement
restrains (per se analysis is too simple)
i. Must look at whether merely regulates or even promotes competition or whether suppresses or
destroys competition
ii. This rule is effectively rule of reason, although it doesn’t mention reasonableness as to effect on
public, is first to introduce question of effect on competition
iii. Holmes in another decision in 1905, however, had said Sherman Act has nothing to do with
competition
iv. In other words, terms used relative to Sherman Act are important, as well as how those terms
are defined
b. Must look at all the circumstances involved, including intent
i. Intent not dispositive but is revealing – Ct makes holding as to evidentiary issues for antitrust
case, properly should have remanded the case rather than deciding itself
ii. US trying to present this as a per se restraint case – however, Ct looks at this from rule of
reason
c. Not an absolute restraint in that:
i. Applied only to one type of grain delivery, applied only for part of business day, could be taken
into account by bidders’ behavior, applied to grain only from Chicago
ii. I.e., everything and anything is relevant in deciding what the effect on competition
iii. Criteria includes both economic and non-economic factors
d. No evidence of appreciable effect on price or volume of grain
e. Did have positive effect on market conditions:
i. Because prevented much of private agreements, made market conditions more public
ii. Made more of this grain market occur during regular market hours
iii. Encouraged more face to face dealings, allowed wider range of dealers to take part (because
stopped much of private, after-hours dealings by small number of Chicago buyers)
iv. Eliminated many risks to country dealers, allowing them to operate at smaller margin and give
more of surplus to farmers without taking more of surplus from consumers – also made sales
more certain, less grain remaindered into other markets (because widened possibility of sales of
grain because no longer SOL if didn’t have private agreement after hours)
v. Increased the number of country dealers involved and the bids supplied to them from Chicago
and competing markets
vi. Allowed wider use of transport into Chicago, rather than those designated in private agreements
d.
vii. In other words, Brandeis concentrates on size of effect of agreement, as well as opportunities to
bypass the rule
viii.
Brandeis also looks at economic efficiency of the rule in promoting the market and
competition – i.e., the lawful purpose is the market itself, in Taft-like terms – but would Taft be
able to fit it into one of his categories
f. But did agreement suppress competition by non-members of Board (probably not: non-members
could still trade through members)
g. Tendency to view market as black box – to extent that we view this decision as a commentary on
markets, may have literal precedential value for future decisions, but to extent that we consider this
case merely a decision about agreements, may be just another isolated case
h. Brandeis looks at effects on price and output, which are two fundamental factors in antitrust
analysis, underlying the variety of analytic paradigms of antitrust
i. Although mainstream of Brandeis’ opinion is economic, definitely suggests that non-economic
criteria would be compatible
6. US v Trenton Potteries Co. (S Ct 1927)(186)[vitreous potterers combine to fix prices and limit
sales] Stone: reasonableness of price irrelevant in determination of reasonableness of effect on
competition, price fixing is per se, regardless of what the price is
a. Applies rule of reason, but simply because prices are reasonable, agreement isn’t per se reasonable
– must look at effect on competition, which is main aim of Sherman Act
i. Stone effectively limiting rule of reason only to certain aspects of the agreement, not all aspects
of it; reasonableness of the price itself is per se
ii. Or state this as “presumptively unreasonable” in order to reconcile this with Standard Oil (i.e.,
Standard Oil rejected all per se rules, so have to rephrase this per se rule in terms of
“reasonableness”)
iii. Thus, unlike White’s Standard Oil across-the-board rule of reason
b. Price that today is reasonable may easily become unreasonable if competition lacking
i. Too high prices are obviously inefficient
ii. But too low prices also encourage distortion of allocation of resources, as well as posing risk of
driving out competitors operating at the margin
iii. Even if fixed price is exactly what it should be in terms of a competitive market, we have
reason to worry that the cartel that fixed it still will affect the market in inefficient, noncompetitive ways that will distort allocation, etc. – also shows why Brandeis concentrated on
market power of party
c. Lack of judicial competence to determine whether price reasonable – low administrability of a
reasonableness rule on price – this also bears out concentration on market power because
competition would serve as built-in administration mechanism
d. In other words, uniform price-fixing by those substantially in control of a market is per se illegal
i. May be a question of framing – not a question of the market power of the actor (Chicago Board
as a whole actually had great market power) but a question of whether competition could affect
the price
ii. Stone distinguishes Chicago Board by saying that wasn’t not price fixing at all
iii. In other words, price fixing is not always per se illegal without looking at market
power/presence of competition
e. Potters here also have some monopoly power, as well as price fixing power – seems to be a more
classic case of cartel behavior like Addyston Pipe and Trans-Missouri
7. Appalachian Coals v US (S Ct 1933)(188)[combination to form central selling agency to obtain best
prices and apportion orders among members] anomalous decision de-emphasizing effect on
competition and overly sympathetic to a dying industry, other non-economic goals, very organic
and discretionary
a. Sherman Act meant to prevent undue restraints on interstate commerce and monopolistic behavior,
but not to restrain expansion of commerce, protection from injury, or promotion of competition –
not meant to be mechanical or formalistic
b. Cites Chicago Board: elimination of competition not adequate for illegality (!!!)
c. Coal industry suffered from low demand, disorganized selling practices, and organization of
buyers
d. Did not view combination as restricting output but as matching supply to demand
e.
f.
g.
Did not fix prices but simply made them more reasonable
Although eliminated competition between members, competition from nonmembers still extant
Mere size and extent of cooperation not dispositive; could have formed single corporation w/o
violation
h. This decision considered to be an aberration of 1930s when competition de-emphasized, although
some modern thought to allow some organization to promote competition in depressed industries
i. Suggest many non-economic goals for antitrust law:
i. Number of technological and economic factors causing drop in demand for coal
ii. Court here concerned because costs of converting to another industry are very high, not a
perfect market
j. Apportionment among members is effectively output restriction – horizontal arrangement
k. Cartel behavior not so worrisome because not all inclusive and cartels prone to disintegration
l. The arguments for Δs here would have been pro forma dismissed as rationalizations for
cartelization in the casebook
m. Court using an organic, natural/common law type analysis here to give itself discretion
8. US v Socony-Vacuum Oil Co. (S Ct 1940)(191)[oil companies organize to buy “distress gasoline”
from legitimate refineries in order to protect oil and gasoline prices from underselling by illegitimate
suppliers who violate state proration (output fixing) laws] Douglas: per se rule on price-fixing
achieved not through direct fixation of prices but through manipulation of supply & demand,
regardless of whether effect on price actually achieved
a. Distinguished Appalachian Coals by virtue Socony’s of intent to affect prices and more direct and
less speculative effect on market
b. Distinguished Chicago Board by virtue of Board’s lack of intent to fix prices, limited scope, and
increase in market and competition for grain
c. Even though spot market itself was competitive and influenced by other factors, combination did
serve to stabilize and raise prices which, but for them, would not have happened (but-for causation
of price rises?)
d. Need only show that conspiracy existed, that goal was to raise prices, and they did in fact raise
prices
e. Competition not eliminated but was curtailed by reduction in supply, timing and placement of
supply, and floor under spot markets affected play of supply & demand
f. Ruinous competition justification inevitably leads to analysis of reasonableness of prices
themselves, slippery slope
g. Makes no difference whether group had power to control market, merely that they had power to
affect it (although fn indicates that need only conspire to affect price, whether or not actually have
power to affect it) – §1 looks only at conspiracy to commit restraints on trade, whereas §2 looks
at whether actually committed monopolization (see fn 59)
h. Seems to reject rule of reason as to price-fixing, if not to combination itself, remands to legislators
– uses across-the-board rule
i. Price fixing need not entail agreement on actual numbers, only on mechanism of affecting or on
range of prices – stabilization is merely one form of fixing – i.e., any market manipulation which
distorts prices and interferes with purely competition
j. Cannot imply approval of government (i.e., via state’s proration law), must have express
Congressional permission to form such a combination
k. Was agreement here definite enough to constitute a contract under §1?
l. Oil prices at this time dropped not so much because of increased supply but because of lowered
cost of production
m. But output restrictions that raise prices also raise incentives to increase output and to thereby cheat
on the state-sanctioned cartel effect
n. Distressed oil is essentially sold at the spot market price, a lowered gotta-sell-now-because-toocostly-to-ship-it-back price
o. “Major” oil companies actually classified as such because of their large level of vertical
integration – therefore independent refineries are not integrated, would normally compete with the
major oil companies but cooperated under this agreement to keep the independent refineries from
underselling the major oil companies
p.
Thus, the independent refineries were integrated via long-term contracts (independent refineries
unable to monitor production with demand as easily because don’t have integrated retail outlets to
give feedback on demand – therefore liable to produce much more than is demanded)
q. Jurisdiction and venue:
i. Chose Midwest as venue because little sympathy there for oil producers
ii. Also no state proration laws in Wisconsin, no bias to uphold them
iii. Fn 59 stretched logic to show that prices in Midwest were actually affected (but this was only
part of the alleged crime that actually happened in Midwest)
iv. But much of this venue-driven proof as to price effects (rather than just the agreement itself,
whether or not effect) made it seem like this decision relied on price effects, rather than on
presence of agreement itself – thus, Ct very careful in Fn 59 to say this case needn’t have relied
on price effects, only on agreement itself
r. According to Douglas, for the category of price-fixing:
i. Agreement itself is enough to prove conspiracy, no need for actual overt act
ii. Also no need for some liminal level of effect on market
iii. Also no need to look at reasonableness
iv. I.e., this really is about a per se rule, seems to ignore Appalachian Coals and Chicago Board of
Trade – Douglas doesn’t really do a very persuasive job of distinguishing these cases
9. Monopsonies (fn 51, 200-201)
a. Supply curves tend to be inverse of demand curves, in that usually requires higher prices to induce
producers to supply more, reflecting higher marginal cost of producing extra unit
b. Furthermore, marginal cost to buyers is analogous to inverse of marginal revenue curves, in that
buying additional units have higher marginal costs
c. When monopsony, quantity determined by when buyer’s marginal cost = value of product (as
determined by demand curve) but will buy at seller’s marginal cost (because of competition among
sellers) – this price and quantity likely to be below where competitive demand would set it (price =
b)
d. If sellers were a cartel/monopoly, could switch price to where their marginal revenue (marginal
profit) met marginal costs, a quantity at which competitive demand price would be much higher
(price = a)
e. Where both parties have equal bargaining power, will negotiate between these two prices, which
will likely fall where the both maximize profits (where seller’s marginal cost = buyer’s value), and
will increase quantity to that point (because seller willing to produce more and buyer willing to buy
more) (price = c)
f. The problem with reciprocal cartels/monopolies is that their effects might leak out into other
markets
seller's
marginal cost
competitive
demand
a
c
b
seller's
marginal
revenue
buyer's
marginal cost
quantity
g.
B. Modern Applications: What Are Reasonable Restraints
1. Generally
a. Joint ventures:
i. No definite meaning or definite antitrust ramifications –
ii. Basically seen as some degree of integration beyond interdependence – e.g., Chicago Board of
Trade, Topco, BMI, NCAA
iii. Pre-existing relationships can often by significant (path-dependence?) – i.e., whether was more
competitive market before the joint venture or afterwards
b. In 1996, FTC and DOJ issued guidelines describing a rule of reason safety zone for the health
care industry, mostly has to do with joint ventures for sharing of risk, information, minimal
economies of scale necessary to stay in market, etc. – often dependent on staying below certain
market share threshold
c. National Cooperative Research and Production Act of 1993: rule of reason safety zone for R&D
and production joint ventures, freedom from treble damages
2. US v Topco Associates (S Ct 1972)(205)[grocery stores come together to produce private line of
products, but also agree to allocate territory for sales of private brand] Marshall: all horizontal
restraints of trade are per se illegal
a. This is horizontal restraint of trade, which have always been held per se illegal per §1
b. (Horizontal restraints could be geographic, customer market based, arranged as to service offered,
etc.)
c. Only Congress can make the decision to restrain one area of competition (competition among
Topco private brand sellers) to expand competition in another area (competition with large national
grocery chain stores)
d. Neither private parties nor judiciary can adequately judge and monitor such horizontal agreements
for the public’s interest – must be a legislative decision
e. Marshall effectively willing to suffer Type II errors in use of per se rule – says if you don’t like
these kind of errors, go cry to Congress
f. Effectively, per se as to horizontal integration but rule of reason as to vertical integration – i.e., we
can re-organize in order to avoid antitrust concerns
g. Burger dissent:
i. Per se rule on horizontal restraints aimed more at price-fixing than at horizontal organization as
ancillary to goals such as private label establishment, etc.
ii. Furthermore, trust-busting here would not increase competition within the Topco brand because
the Topco brand would never have existed except for this “trust”
iii. (District court basically agreed, said that Topco still faced with competition from other grocery
store chains)
h. Private labels are important when a grocery store chain wants to negotiate with national brands, as
well as more competitiveness in eyes of consumers (wider variety of brands thereby offered)
i. Whereas vertical integration achieved through long-term contracts, horizontal integration
simulated by joint ventures
j. However, horizontal integration not function in same way as a corporation, joint venture, etc.?
k. Note that territorial divisions effectively give individual monopolies to its members – not direct
price-fixing – still considered per se illegal today
3. BMI v CBS (S Ct 1979)(209)[BMI and ASCAP handle all copyright licensing for individual artists
under blanket license for all copyrights] White: price-fixing a term of art, court applies it only
when virtues outweighed by vices
a. Lower court rejected claim that this fell within per se rule, felt that availability of direct
negotiation with artist saved competition
i. Created under earlier consent decree
ii. BMI had non-exclusive licensing power
iii. Consent decrees mandate for per program licensing options (although still all copyrights
involved) which price is to be monitored effectively by court – this still allows price
discrimination (but still effectively fixes the price for entire collection of copyrights)
iv. But reality of market, transaction costs means that independent licensing highly unlikely,
effectively little competition for BMI and ASCAP
b. Ct app felt that blanket license was price-fixing per se but did not feel that injunction, but perhaps
only reshaping of licensing was proper remedy (would demand more variety of licensing
arrangements but basically still allow BMI to fix the price – not very consistent) – Ct here felt that
any per se rule on this case would necessarily preclude tailoring of remedy
c. Ct essentially holds that price-fixing is a term of art in antitrust law to describe agreements which
are per se illegal –
i. This somewhat tautological – we know per se violations when we see them
ii. Based on “plainly anticompetitive” effect without “redeeming virtue” (a rule of reason type
approach?)
iii. Must look at circumstances and industry – similar to Chicago Board of Trade
iv. Seems to create a presumption that certainly types of behavior are per se illegal, but this is a
rebuttable presumption
v. Begin to see that per se rule application doesn’t achieve judicial economy in the end
d. Court felt that consent decree (and earlier review of this practice) not dispositive but tends to
prove that redeeming value of this arrangement
e. Congress has also uses compulsory blanket copyright licenses for cable television rebroadcasts,
indicates that Congress condones such agreements
f. Ct effectively punting on the whole issue of copyright licensing because of high transaction costs,
fact that Congress has approved various (but specific) types of blanket and compulsory licenses
g. Creation of blanket license effectively creation of new product with characteristics different than
individual licenses: allows centralized monitoring of breach of license, effectively greater choice
(!) of musical compositions because of lowered transaction costs, lowered prices passed onto
consumers, etc.
h. Such blanket licenses effectively allows BMI to price discriminate and thereby rent seek – but this
also solves the allocative inefficiency of monopolies because monopolies will now produce output
levels according to where marginal cost meets demand (although prices set will span the demand
curve)
i. Because this monopoly-like agreement deals with IP rights, which are inherently monopolistic
anyway, our concerns about monopolies here might not be the same
j. ASCAP can also payment discriminate in that artists earn according to air time – allocative
efficiency/incentives correct –this is based on reports from licensees, who therefore don’t have
incentive to misreport (because pay blanket fee anyway)
k. Demonstration of Sherman Act’s enablement of antitrust suits by private parties
l. Ct here does not overreach, remands to allow Ct App to decide it
i. S Ct never determines whether blanket license necessary
ii. Whether blanket license over all copyrights for all uses adequately limited in scope?
m. Court looks at external and internal factors:
i. External: consent decree, Congressionally implied approval, nature of copyright, these tend to
prove redeeming value – but these are unlikely to ever reappear in later cases, little precedential
value
ii. Internal: need for cooperation in this industry (i.e., whether price fixing merely ancillary to
other, loftier goals) – armchair economic reasoning – gives much more mileage
n. Reduces transaction costs, increased efficiency, fostering of new products – all characterized here
as pro-competitive, but are they actually
4. Arizona v. Maricopa County Medical Society (S Ct 1982)(221)[doctors form association to set
maximum payments they will accept from insurance companies] Stevens: affirms Socony rule that
price fixing under any guise is per se illegal, even if set via max price limits
a. Parens patriae – State Attorney Gen. Suing on behalf of its citizens
b. The foundation gives physicians greater bargaining power, also allegedly lowers the calculation
costs of insurance companies to determine risk level
i. Maximum price setting gives insurers incentives to accept terms of the association, which
effectively guarantee that doctors will receive the max amount from insurers, not less
ii. This in day when patients had free choice of physicians, not limited, pre-arranged selection of
MDs – fee for service medicine, not capitation, to encourage efficient level of medical care
iii. Current physician-insurer networks are examples of “selective contracting” where insurers trade
volume of patients for limited payments per procedure
c. Utilization review by foundation so remote from price fixing (although still connected) that would
undoubtedly have been reviewed under the rule of reason if challenged
d. Note that this is appeal of denial of summary judgment, with all usual assumptions in favor of
non-movant
9th Cir claimed to not have adequate experience with health-care industry and therefore shouldn’t
make presumptions about effect of the agreement under a per se rule analysis, contrary to Socony
(horizontal price-fixing through any means is per se illegal) – Ct adopts this Socony rule, says
would eviscerate benefit of per se rule if had to re-vet it each time it applied to new industry
f. Odd that Δs should have pled lenience because was horizontal integration, when such usually
detrimental of defense against per se rule – so pled because wanted to distinguish themselves from
other max price fixing cases which all involved vertical integration (this rule against vertical + max
price fixing later re-written)
g. Ct rejects price lowering effect of maximum price fixing argument
i. Would necessarily entail judgment on the reasonableness of the max price,
ii. May not always have the effect of lowering market price (particularly because periodic
increases in the max price schedules and demands that insurers pay the max price could have
had effect of raising average medical care costs) – “masquerade to fix uniform prices”
iii. Speculative as to whether it lowers prices now more efficiently than open competition
iv. Likely to drive out marginal operators
v. Allocatively inefficient in determining optimal resource allocation to health care industry
h. Ct further notes allocative inefficiency for same payment for all physicians regardless of skill,
experience, etc.
i. But this may also tend to make high quality care more accessible to lower income patients
ii. I.e., should there be different antitrust rules in re important professionals, is this a legislative
question, self-regulation through professional ethics & standards
i. Rejects application of Goldfarb v. Virginia State Bar rule (different treatment of public services
under Sherman Act) because the price fixing here is not do to professional concerns, anyway, but
out of business concerns
j. In end, Ct states per se rule applied conclusively, no presumption rebuttable by alleged benefits,
etc. (although Ct does analyze whether or not pro-competitive as to certainty of risk and lowered
transaction costs)
k. Ct stresses that foundation does not sell insurance itself, would have made a difference if it had –
uses this to distinguish BMI
i. I.e., because association not in direct competition with insurers, it can’t justify its existence by
stating that its increasing competition (w/in insurance industry) by creating a new product
ii. Not necessary for doctors to fix the price, as per BMI, could be insurers or state – whereas BMI
sold a new product that couldn’t otherwise be offered
iii. Efficiencies of lower transaction costs not enough to get past per se rule – basically, price fixing
here not necessary to accomplish the stated aims of the foundation (lower price, raise
efficiencies, etc.)
5. National Society of Professional Engineers v US (S Ct 1978)(229)[challenges canon of ethics
against competitively bidding] Stevens: per se rule on price-manipulation applies despite any
putative non-economic/social benefits, particularly where achieved through constraints
consumer information on price – i.e., look only at economic effects of the horizontal restraint
a. Ct rejects Δ’s contention that the justification of preventing inferior engineering (because
winner’s curse of effectively under-pricing in effort to get bid would give incentive to provide
correspondingly lower quality work)
i. Doesn’t satisfy the Rule of Reason
ii. Agrees competition in this case could be against public interest, but should let individual
consumers choose whether or not to protect themselves against this risk by not engaging in precontract bidding
b. Is this a case like Chicago Board of Trade in that merely regulating timing of bidding/price
determination –
i. This restriction decreases amount of information buyer can gain in re cost of services, increases
the search costs of information
ii. Also decreases elasticity of demand with price – kind of like spot-pricing, but from point of
view of buyer
iii. Although reputation and advertisement could lower these search costs
c. Notes that “every” restraint of trade cannot be illegal because all contracts restrain trade to certain
extent
e.
i. Cites Addyston Pipe rule that restraint ancillary to legitimate purpose is not illegal
ii. Rule of reason looks at 1) nature of contract (illegal per se) OR 2) surrounding circumstances
that might give inference or presumption of restraint of trade (although Ct disclaims industry by
industry tailoring of the Sherman Act, similar to Maricopa)
iii. I.e., must look at effect on competition – Ct looks at economic effect, effectively narrows
Chicago Board in that no longer looks at non-economic (social) justifications
d. Competition might not be best in this professional relationship because the buyer doesn’t have
enough information/knowledge to adequately discriminate amongst suppliers, to make demand
elastic to quality
i. Asymmetric information undercuts the benefit of competition
ii. But Society doesn’t present these more tailored economic arguments, they simply attack the
concept of the market
e. Channeling: if alleging that competition doesn’t work, must punt to Congress – i.e., attacks on
efficiency of competition won’t justify an agreement in courtroom, only in legislature
f. This Ct embraces the economic rationale for the Sherman Act:
i. Competition will protect not only price but also non-price effects
ii. Also, interaction of markets via competition also have overall efficiency effects
iii. Ct indicates that deference to “professional” industries is not adequate consideration because
it’s not economically based – although expressly affirms holding of Goldfarb, says this has
nothing to do with professionalism, could easily have ethical canons against inferior service
without manipulating bidding and price setting – basically rejects Goldfarb
iv. Effectively makes antitrust litigation a game about couching things in economic terms – but
how much do we trust courts to get the economic analysis correct (courts later degenerate into
empirical analysis, see Cal. Dental Assoc.)
g. But Ct seems to undervalue the possibility of self-regulation, public regulation, disclosure, or
other means of increasing information to buyers – a kind of division of labor (or regulation)
i. Ct really seems to be looking at whether this particular agreement is necessary, not just possible
(w/o causing harm)
ii. Bldg codes, professional licensing, etc. could help prevent this race to the bottom
iii. Ct leans on side of distrusting informal regulation of antitrust concerns, better to rely on
competition to do so
6. NCAA v Univ. of Oklahoma (S Ct 1984)(238)[NCAA requires tv stations to agree to very particular
game broadcast schedule and royalties] Stevens: birth of quick-look analysis where horizontal
price restraints might have justification but can reject the justification?
a. Makes price inelastic to demand, quality, etc. – allocatively inefficient
b. Ct describes the agreement as restricting output: how many games can be broadcast overall, how
many games by a particular team can be broadcast – White’s dissent says output measured by
number of viewers, which is not restricted by this agreement
c. NCAA very similar to cartel in that punishes “cheating” by severe sanctions against cheating
schools
d. Ct says that won’t apply per se rule because, despite blatant price fixing and horizontal integration,
is presenting new product (amateur football, which needs some organization to preserve its amateur
status) – BMI analogy
i. But then later says integration as to price and marketing not necessary to maintain amateur
status, so why should they have insisted on rule of reason
ii. Some justification for integration based on need to keep more popular football teams from
sliding into indirectly paying players, etc. – this does seem like more economically based
argument, market failure argument
iii. Unlike BMI, however, individual members cannot negotiate separately
e. Ct doesn’t view this agreement as pro-competitive
i. Actually increases price
ii. Actually decreases output
iii. Not necessary because college football has no competitors against whom to protect itself
through organization (i.e., no need to organize to increase its own ability to compete)
iv. Already a good bargaining position vis a vis tv networks
f. “Quick look” analysis: sees no reason to justify this agreement as necessary
g.
Protection of live attendance is not a justification because it is not something that would have
survived in competitive market anyway
i. Ct says that no need to look at market power because this is a naked restraint (not ancillary to
lawful purpose)
ii. But this sounds like a per se rule, not a rule of reason
iii. But basically, Ct says that only some naked restraints are per se illegal, although other naked
restraints can truncate the rule of reason analysis
h. No effect on competition, good or bad, is also implicitly okay
7. California Dental Association v FTC (S Ct 1999)(Suppl 2)[CDA has stringent rules on disclosure
and advertising of prices, quality, etc.] Souter: quick look analysis not appropriate, basically must
look at each case individually along a spectrum between per se and rule of reason
a. Another agreement based on non-economic justifications, still doesn’t hold up in court
b. More concerned about how the agreement actually is enforced, rather than the nature of the
agreement itself, facial evidence
c. CDA’s agreement actually mirrored much of state-imposed requirements – Ct doesn’t assume any
subsequent implicit legislative approval of this agreement because it is possible that state would
have enforced the requirements much differently
d. See introductory material beginning of semester for procedure in FTC-litigated cases – FTC and
DOJ effectively have dual ability to prosecute Sherman Act, although very few fact-finding
differences between them, despite procedural differences (particularly in that greater deference
might be given to administrative findings by FTC although rarely manifested as such)
e. ALJ found CDA had no more market power – effectively, could not have been applying full rule
of reason analysis, only per se or quick look
f. 9th Cir covering itself by finding violation under both per se and quick look
g. CDA was first case in which S Ct uttered “quick look” or “abbreviated analysis”
h. FTC §5 prohibits “unfair methods of competition” to which Ct applies Sherman Act analysis –
i.e., if it violates Sherman §1, it violates FTC §5 (but is the converse true, technically it shouldn’t
be because §5 more general, encompassing than §1)
i. Jurisdictional question: purely non-profit groups that don’t have a significant amount (which
nebulous standard) of economic benefit to its members are not under FTC Act, although the
standing rule under Sherman is that all nonprofit groups are subject to it – so CDA is SOL
regardless
j. Ct says that this case not appropriate for any per se/quick look analysis
i. Only obvious restraints on competition are per se illegal – i.e., anticompetitive even to a nonexperts eyes
ii. NCAA and Engineers both dealt with restrictions on output – these seemingly obviously
anticompetitive
k. This agreement not appropriate for abbreviated analysis because:
i. Not obvious that this agreement might not have pro-competitive effects, as well as other noneconomic effects
ii. Ct looks very much at role of information asymmetry in professional industries
iii. Restrictions as to claims of quality much more difficult to analyze in terms of economic effects
iv. Also concentrates on “credence goods” – very difficult for layperson to make judgments about
quality even after consumption (whereas “experience goods” can be adequately judged after
consumption)
l. Seems to indicate that antitrust analysis no longer separable into discrete categories, now arrayed
along a monotonic spectrum of depth
m. Ct suggests that pro-competitive effects of agreement might outweigh the anticompetitive effects,
balance these two like a welfare economist, thereby making abbreviated analysis inappropriate
n. This could force courts to degenerate into empiricism – therefore extremely important who has the
b proof, this is crux of the case and all future cases
o. Professions have historically been empowered to police their own false/misleading advertising –
therefore, this decision maybe not so much about eliminating the per se/quick look approaches as it
is about making exceptions for private parties to police advertising within its profession (i.e., don’t
interpret this decision too broadly)
p. Breyer dissent:
i. Looks more at market power than does the majority
ii. Looks more at concrete evidence actually in the record rather than more abstract
hypothesizing about what could be the case – i.e., 1)what is the specific restraint at issue,
2) what are the likely anticompetitive effects, 3) what are the offsetting procompetitive
effects, and 4) is market power sufficient to make a difference
iii. Balances anticompetitive and pro-competitive theoretical and empirical evidence
iv. Market power as a screening device: is it dangerous and is it worth prosecuting
v. Breyer feels that Δ should have b proof as to pro-competitive effects, whereas majority feels
that initial b proof on π to show anticompetitive effect, although blurs this with its apparent
balancing of the two effects rather than serial treatment of them – essentially a difference of
where along the spectrum of scrutiny we think this should go?
vi. NOTE that Hammer considers Breyer’s dissent very on target
vii. Breyer concentrates much more on the actual administrative record, whereas majority allows it
analysis to become too hypothetical (Breyer eventually decides that evidence shows restriction
of useful information to consumers; likely to reduce incentives to compete on qualities not
otherwise revealed to consumers; restrictions too broad, over-restrain information relative to
that necessary to prevent false advertising; market power in at least one geographic reason large
enough to make a difference
viii.
Breyer also notes the 9th Cir. took all these factors into account, regardless of which level
of scrutiny it alleged to have used, therefore its conclusion unassailable
q. Most cases looked at under rule of reason, and therefore look at market power – but prosecutors
have incentives to try to phrase case as per se or quick look, so that don’t have to delve into market
empirics
r. Note that this decision does NOT eliminate the quick look approach but it does admit that each
case in analyzed individually with varying levels of detail – no certainty as to what level of analysis
will be applied
s. Is restriction on demand really any better than restrictions on supply
t. CDA somewhat perverse in that runs contra to usual rule that information is always good for
market – treats information as a form of output
u. Goldfarb fn deference to professions never really been observed, although this case suggests that
in the arena of information provision, profession might make some difference
8. Upshot
a. Note that Trenton Potteries and Socony Vacuum never asserted to overturn Standard Oil’s rule of
reason, still leaves open possibility of rule of reason type analysis of various forms of price fixing
other than naked price fixing
b. What exactly is the restraint – often very dependent on characterization
i. Because price restraints can often be achieved without directly setting prices – e.g., through
territorial allocations, product allocations, or other specializations
ii. But note that these indirect methods often have justifications: more efficient marketing or
production, etc/
iii. But also note that these indirect methods also don’t need cartels to occur – i.e., independent
rational actors will also have incentives to implement them
c. Limitations on output, removal of excess supply, restrictions on competitive bidding, allocation of
demand, price lists, restraints on mark-ups, and other restraints on factors affecting price are other
ways of manipulating price
d. Application of rule of reason, per se, and quick look are often just conclusions about what the
nature of the restraint is
i. Suppl 22: FTC collaboration guidelines GIVES A GOOD SUMMARY OF THE COURSE
THUS FAR
ii. Better to view each of three types of analysis as a different way of framing the restraint,
different way of filing claim in suit, and then look at the strength of the argument that would
have to be made under each type of “claim”
When Does An Agreement Exist
9. General
a. Note that Sherman Act §1 never addresses individual behavior, must always have multiple
parties
b.
c.
d.
e.
f.
g.
h.
i.
Must decide when circumstantial evidence sufficient to infer an agreement in restraint of trade
Must decide when, even absent an express agreement, mutual interdependence is an illegal
restraint of trade – particularly relevant to oligopolies
Must decide to what extent interdependence and inferred agreements overlap
How much weight should we give to fact that consumers differentiate between products that are
very similar but not identical
Dualism – everyone agrees on the facts but disagree on the interpretation of those facts as they
likely affect restraints on trade
i. This often results from procedural posture – deference to trial juries often leads to seemingly
inconsistent appellate level jurisprudence relative to underlying facts
ii. What looks like interdependence/agreement could actually be rational reaction to completely
exogenous factors influencing costs, etc.
iii. Need to look at empirics
iv. Profits: if high profit, suggests that not pricing at marginal cost, although could just mean that a
given business is simply more efficient; is able to generate more demand for itself through
advertising, etc.; one product may actually be better than it competitors; may be a temporary
shift in market forces to which competition didn’t have time to adapt to, etc.
v. Although if observe high profits over time, strengthens inference of anticompetitive behavior
 But also note that some commodities are priced not by their cost of creation but by the
present value of the future stream of value they will bring (e.g., when the commodity is
limited in supply)
 Moreover, where market share skewed such that there are a few large firms and many
much smaller firms, larger firms may naturally (i.e., without oligopolistic pricing) net more
profit due to greater economies of scale, less need for present fixed cost investments, lower
capital costs, etc.
vi. Price discrimination also supports inference of anticompetitive behavior (more on this later)
vii. Product differentiation: might be viewed as bad for muting price competition or as good for
tailoring to demand
viii.
Excess capacity supports inference of anticompetitive behavior, suggests that company
not as worried about lost profits, etc.
ix. Number of producers: exactly how many competitors do you need before you stop worrying
about anti-competitiveness
x. Lack of price competition: tends to support inference of anticompetitive behavior
Bertrand Paradox: even with only two competitors, can have pricing at marginal cost IF:
i. No capacity constraints (i.e., both can totally satisfy demand)
ii. Products are identical
iii. Marginal costs are identical
iv. Neither knows what the other will charge ahead of time
v. Nash equilibrium: no game player has any incentive to change their strategy
How businesses disrupt the Bertrand Paradox:
i. Advertising alone probably not enough, competitor can always retaliate with own advertising
when product identical
ii. Therefore, can effect real difference if make products not identical – could in fact “agree” to
occupy different sectors of the market (high quality vs. low quality), i.e., could actually be
desirable to lower the quality of your product
iii. Could create capacity constraints on both competitors – i.e., output restraint
iv. Leader-and-follower behavior: interdependence behavior, models the Prisoner’s Dilemma and
all its solutions (iterative interactions, etc.) – could conceivably engage in predatory pricing, etc.
in order to sanction defection from the leader-and-follower game
Independent vs. interdependent conduct
i. Independent conduct is rationally individualistic
ii. Interdependent conduct rational only if some tacit agreement to cooperate – solutions to PD in
form of cooperation therefore often inferred to be anticompetitive
iii. I.e., three categories of behavior: agreement, interdependent behavior, and independent
behavior that happens to be identical – important to separate these three because uncertain to
what extent future decisions will combine the second category
j.
Because cartels entail direct communication but oligopolies don’t, much more room for faulty
cooperation in oligopolies
k. Plus factors w/ conscious parallelism that indicate restraint on competition
i. Indications or illustrations of unwritten agreement: economically illogical behavior
ii. Actions against individual, independent self-interest
iii. Poor economic evidence: structural evidence that market power causing inefficiencies from
viewpoint of competition
iv. American Tobacco type analysis looks at analysis of industry itself as it reveals story behind
parties’ behavior (e.g., concentrated market, etc.)
v. Were there opportunities for collusion, other behavior suggesting communication between
members, etc.
vi. All are fact-intensive issues, therefore often devolves into skill of characterization, investigation,
etc.
vii. Note that conscious parallelism is different from interdependence – can have conscious
parallelism as rational independent behavior, purely self-interested behavior
l. Oligopolies:
i. Interdependent firms can become so because there are so few firms that each knows that their
activities can have some effect on price (whereas in perfect competition, each knows that their
activities cannot affect price) – leads to game of follow the leader
ii. Interdependence can be achieved without direct communication between firms: e.g., public
announcements (ostensibly directed to no one in particular), etc.
iii. High levels of observability facilitate oligopolies: can monitor both price changes and defection
iv. As do common methods used by each individual (e.g., trade custom?) in determining price –
alternatively, same general opinion on effect of various price distributions
v. Probably also depends on low levels of price elasticity between different products, such that
customers won’t simply abstain or switch to substitute products at the slightest price increase
vi. Need similar level of price elasticity between different brands of same product, such that supracompetitive pricing won’t cause such large losses in sales volume (e.g., when competitors don’t
have the excess capacity to pick up your lost sales) that losses from lost sales exceed profits
from supra-competitive pricing
vii. Largely identical products, low levels of product differentiation, facilitate oligopoly pricing:
easier to indirectly agree on mutually agreeable pricing
viii.
Competitors who know each other’s personalities and tendencies well
ix. Frequent and observable transactions, so that the transactions can effectively serve as multiple
rounds of negotiation and coordination – frequent sales transactions also allow one to frequently
sample the status of the market and thereby detect defections (i.e., if one loses one’s own sales
volume very suddenly)
x. Products not highly subject to non-price competition – e.g., highly fungible products that don’t
leave much room for R&D to increase their quality
xi. When market skewed such that most market share concentrated in hands of few large firms,
disciplining oligopolies will depend in large part on small firms’ ability to expand capacity or
for new entrants to provide significant competition – i.e., not always absolute number of market
members that is determinative – oligopolies can protect against this by setting price not so high
that it’s worth it for small firms to invest in capacity expansion or new entrants to invest in
setting up shop
10. Eastern States Retail Lumber Dealers v US (S Ct 1914)(266)[retailers agree not to buy from
wholesales who engage in direct sales to consumers] First holding that could infer exist of
agreement from indirect evidence (circulated black list of wholesalers)
a. Mere circulation of list was inferred to be Sherman violation
b. But retailers would have strong incentives to defect, blacklisted wholesalers would probably be
willing to sell for less – i.e., not individually rational not to buy from blacklisted
c. But again, might be individually rational for retailer to refuse to buy if wholesalers behavior
directly hurt the retailer – i.e., reprisal
d. Preamble to list mentioned only expectation of confidentiality and that distribution of list based on
membership in ass’n – i.e., stresses collective action although w/o explicitly stating what the action
would be
e. First holding that could infer exist of agreement from indirect evidence
11. Interstate Circuit v US (S Ct 1939)(267)[movie distributor & exhibitors agree on price
structure/price discrimination for first- and second-run theatres] Stone: deference to jury finding
horizontal coordination either by interdependent or inferred agreement, based on distributed
proposal and abrupt behavioral change
a. Vertical relationship between distributors and exhibitors, horizontal relationship between first-run
& second-run film exhibitor (although not clear since some level of product differentiation)
b. The exhibitors effectively got the distributors into trouble by making clear to each that all
distributors would be involved (i.e., broke the Bertrand Paradox condition in relation to horizontal
organization between distributors) even though no formal agreement between distributors
c. Affected demand by manipulating competitor’s price, which muted competitive effect on own
prices, thus ensuring that marginal revenue won’t fall below marginal cost
d. This is form of price discrimination, keeps consumers of higher end (higher demand) product from
defecting and buying lower end (lower demand) product by making lower end product less
attractive –
i. In vertical integration, simply do this by overpricing the lower end product
ii. But can’t price discriminate w/o some market power
iii. Price discrimination – non-linear pricing
e. How much did Ct pad its storytelling in order to give itself rhetorical power – i.e., how much of its
reasoning was actually logically necessary
f. Some circumstantial evidence of inter-distributor agreement:
i. Knowledge that other distributors given same proposal
ii. All distributors did in fact agree with the exhibitors
iii. Extreme/abrupt departure from past practices, no evidence of natural (open market) evolution
toward this pattern
g. Some circumstantial evidence of interdependent behavior as opp’d to rational independent
behavior (overlaps with evidence of agreement):
i. Lack of free-riders, hold-outs, first-mover problem – uniformity
ii. Abrupt departure from earlier pattern
h. Justification for distributors to agree with proposal: Distributors merely capitulating to market
power of exhibitors (exhibitors as monopsonist)
i. Alternative holding:
i. Was adequate circumstantial evidence for jury verdict of actual agreement
ii. But also enough evidence to show no agreement but interdependence, as alternative but
sufficient act
iii. Note that this very different from saying that this was only possible interpretation of the facts
j. Ct effectively saying that interdependent behavior violates the Sherman Act – remember that
interdependent behavior and inferred agreement are two separate ways of violating Sherman
12. Theatre Enterprises v Paramount Film Distributing (S Ct 1954)(272)[all distributors refuse to
deal with suburban theatre because don’t want to lose exclusive license w/ downtown theatres] Clark:
conscious parellelism differs from interdependence, former not always indicative of collusion
a. No circumstantial evidence of actual agreement (jury found no inferred agreement)
b. No circumstantial evidence of interdependent behavior – appears to have been coincidence that
individually rational behavior was identical for each distributor
c. Conscious parallelism does not always indicate collusion, freely competitive markets possess
conscious parallelism
d. However, distributors here would ostensibly have born no risk (due to exclusive license to
suburban theatre), tends to negate idea that was independently rational for each distributor to refuse
to deal – but why else would they have refused: Ct says that actually would have born risk,
suburban theatre’s guarantees were worthless
e. Paramount Pictures case cited:
i. Similar Δs have been accused of similar types of behavior, was solved through consent decree,
ii. Would have provided prima facie case for π in this suit between private parties
iii. But the refusal to deal here was post the consent decree, therefore unlikely that the earlier
decision serves as type of estoppel in this case
f.
Essentially states that clear and convincing proof of an independent rational refuses assertion of
conspiracy
g. How reconcile this w/ Interstate Circuit: draws line between conscious parallelism and
interdependent behavior, courts characterization of the parallelism depends on circumstances
surrounding the parallelism – also note that both cases can be characterized as mere affirmation of
and deference to jury verdicts
13. American Tobacco v US (S Ct 1946)(274)[cigarette producers controlling 90% of market accused of
price fixing and limiting entry to market] Burton: immediate identical price increases among
smaller competitors despite opportunity to exploit shift in demand indicative of interdependence
OR inferred agreement
a. Smaller producers quickly and identically follow market leader’s price changes – est’d conscious
parallelism
b. Suggestion of agreement in fact that smaller producers did not honor heightened demand from
buyers in immediate wake of market leader’s price raises, did not take advantage of heightened
demand even short term
i. Also suspicious that both of smaller competitors followed leader simultaneously, rather than
waiting to see if other competitor moved first and try to be lowest in the market
ii. Additionally suspicious that competitors identically raised price rather than raising them to just
under the market leader’s price rise
c. Some confounding factors in terms of brand identity, addictiveness of product, etc.
d. Also difficulty of making case based on only one year’s worth of data
e. But absence of exogenous factors that might have collated competitor behavior (conversely, could
have been absence of elasticity to exogenous factors, stable prices in face of which would suggest
price fixing)
f. In fact, decrease in marginal costs should have caused price decrease, as would have decrease in
consumer demand due to Depression (as bolstered by high rate of profits)
g. Advertising justification:
i. No reason why all competitors should have raised prices identically just to support increases in
advertising spending,
ii. Such justification also belied by followers’ behavior in face of short-term increase in demand
iii. Although evidence of heightened advertising could indicate that:
 Non-price based competition exists
 Ability of market to support supra-competitive prices
iv. Story would have been supported by explosion in demand despite increases in price
h. Intent and subjective evidence decreasingly important in antitrust law
i. Another case showing deference to jury verdict – Ct declines to state whether finds inferred
agreement or simply interdependent behavior, this case has been interpreted both ways
14. Matsushita Electric Industrial v Zenith Radio Corp (S Ct 1986)[predatory pricing accusation]
must show that there could be an agreement/interdependence which would have been rational or
conceivable in the situation that would have lead to the alleged results
a. Unlikely that anyone could predatory price for 10 yrs and survive themselves, especially when no
guarantee that could permanently exclude one’s competitors
b. US consumers actually benefit from this routine underpricing, better to err on side of defendants
because antitrust law fundamentally designed to protect consumers – underpricing can itself be
indicative of healthy level of competition, not absence thereof
c. Defendants show no evidence of having suffered from alleged persistent underpricing
d. Holding: π must adduce evidence refuting defense of individually rational behavior
i. Must show that inference of conspiracy (interdependence?) more likely than inference of
independent behavior
ii. I.e., must show that there could be an agreement which would have been rational or conceivable
in the situation that would have lead to the alleged results
e. Also ground breaking in that granted summary judgment in an antitrust case
i. Shows fear of chilling competitive behavior (such as through underpricing)
ii. Don’t want to allow opportunistic use of Sherman to assault competitors
iii. Shows doubts about judicial capacity to find anticompetitive behavior in such a situation
15. Copperweld v Independence Tube (S Ct 1984)(286)[] Burger: Conspiracy with own subsidiary,
member of own corporation not recognizable as illegal under Sherman Act – later applied
narrowly
a. Conspiracy with own subsidiary, member of own corporation not recognizable as illegal under
Sherman Act
b. Burger states that Sherman not intended to be that broad:
i. What was really problematic with earlier seemingly intra-enterprise conspiracy doctrine
actually involved mergers and other jointure of parties that were illegal themselves, not the
behavior of legally united parties –
 Cites Yellow Cab Co. for concept that can have Sherman violations even intra-enterprise,
just as can have it in vertical integration, when the enterprise was formed solely for the
purpose of controlling the market, controlling competition
 But distinguishes Kiefer-Stewart [two subsidiaries jointly refused to deal]: that case was
more properly based on fact that subsidiaries conspired with wholesalers other than the
plaintiff
ii. Sherman §2 better address this issue through restrictions on monopoly power
iii. Can’t legislate against coordinated efforts intra-firm or between parent and subsidiary because
these coordinated efforts often aimed at increasing competitiveness of the entire enterprise
iv. Subsidiary-parent relationships also don’t unite two formerly separate economic powers, the
way that mergers do, therefore automatically less suspicious
v. Burger rejects §§1&2 gap (that single powerful firm’s conduct in restraint of trade that falls
short of monopolization cannot be prosecuted) rationalization:
 Can police a lot of this through Clayton Act, merger doctrine (i.e., as in Yellow Cab where
single enterprise formed for sole object of restraint of trade) and thereby narrow the gap,
 Congress actually desired what remains of the gap, didn’t want courts to start second
guessing individual firms’ business judgment (Hammer very skeptical of such inferences of
legislative intent)
vi. Don’t want to chill otherwise pro-competitive behavior – antitrust law should not influence
decisions about corporate structure and form, should be laissez-faire as to this aspect,
fundamental view of corporations as desirable, wealth-creating entities
vii. Hammer says we should be critical of these assertions, by no means conclusive
c. Effectively rejects intra-enterprise conspiracy doctrine – pre-Copperweld rule:
i. Had often revolved on the level of separateness of parties
ii. Such cases were analyzed under rule of reason (because often could have been legitimate
reasons for the particular relationship between the parties, etc.)
iii. Seen as a way of policing perceived gap between §§1&2: way to prevent parties from making
themselves immune to antitrust law merely by “merging” under same corporate veil (and
because §2 monopolization has much higher threshold)
d. Current direction of law seems to follow Burger’s treatment of corporations as black-boxes
e. Question then arises how far this deference will extend – Copperweld presumes your basic
corporate structure, doesn’t extend to other looser forms of vertical integration (may also be pathdependent: did restraint of trade intent come first, or did merger intent come first?)
f. I.e., don’t try to extend Copperweld too far, could easily throw oneself outside Copperweld
protection by introducing independent contractors, etc. into the mix – Ct itself limits its holding to
this particular case, although subsequent commentators have applied it more broadly
g. Reflects continuing doubts about judicial capacity, perceived need to apply antitrust law
conservatively in order not to impinge on freedom of market
Facilitating Practices
16. General
a. Whereas abovementioned cases focused on whether or not agreement produced undeniably bad
behavior, now look at whether undeniably present agreement (e.g., to share information – such
would undoubtedly satisfy the “combination, contract, or conspiracy” part of §1) produces
behavior we consider bad (i.e., restraint of trade in violation of rest of §1)
b. Another form of dualism: information typically considered desirable, but here, worry about
abusive use of information (e.g., to detect defection from cartel, etc.)
c.
d.
No over-arching theory, basically various industries and practices without unified theory
Sharing of information as potentially anti-competitive: While might be individually rational for
smaller competitors to want information from and to follow larger, leading competitors, but then
would be individually rational for leader to want to hide this information from its competitors
e. Basing point pricing: see infra
17. American Column & Lumber v. US (S Ct 1921)(299)[1/3 of market commits to share detailed
information about lumber sales] Clarke: sharing of highly detailed, narrowed, targeted,
prospective data with suggestion of informal sanctions makes interdependence/cooperation too
easy, must be illegal
a. Can’t really be said to be concentrated industry, very large number of competitors, even though
the group at issue here does represent a significant percentage of market – i.e., basically a question
of how easy it would be to orchestrate behavior of such large number of competitors, this probably
not enough to really affect the market?
b. Agreement to share information on very detailed business matters; meetings (fulfills behavior
requirement) to analyze all this information in toto – very useful in solving the cartel problem
c. No explicit price-fixing agreement, however – Ct effectively saying that agreement to share
information is itself violation, even absent agreement to affect price, output, etc.
d. But were there any (economic) sanction mechanisms to go along with the information sharing (to
solve the cartel problem):
i. Ct posits a variety of “social” sanctions only, Hammer skeptical about actual strength of these
sanctions
ii. But withdrawal of information itself probably not a strong enough sanction, according to
Hammer
e. Ct effectively says that sharing of information itself caused increase in price and restriction on
production
f. The extreme detail of shared information very significant here
g. Much of it seems to be intuitions about suspicious business cooperative behavior, contra to preconceived notion of fair practices
h. Court finds actual anticompetitive effects, but were these solidly tied to the agreement at hand?
i. Uses government publications as benchmark of information that is acceptable for sharing:
aggregate, historic, and widely disseminated information, this information here is much more
narrowed, prospective, etc.
j. Dissent: information is inherently pro-competitive, no matter how detailed
i. Although majority points out that still huge asymmetry of information as to sellers and buyers
ii. Information sharing between only sellers may also be pro-competitive however)
18. Maple Flooring Mfrs Assn v US (S Ct 1925)(304)[flooring suppliers share detailed business
information] Stone: sharing of more generic, less detailed, more historic information not violative,
particularly in absence of evidence of parallel pricing
a. Cartel story more credible here, smaller number of members, with larger market share than in
American Column
b. Court makes clear that trade assn’s themselves are not necessarily anti-competitive:
standardization and improvement of quality, joint advertising
c. The information here could be used to fix prices:
i. Data includes only average costs, some specific freight rates, and anonymously listed sales
information, along with meetings about common problems
ii. Facilitates interdependent behavior
iii. Could be used to derive formula for price-fixing based on average costs, etc. – some evidence
of very informal communication in re price, but no evidence that the shared information was
actually used to set prices
d. Court found, however, no parallel pricing, stated that even if did find parallel pricing, couldn’t
infer that this was in fact anti-competitive (i.e., could be conscious parallelism?)
e. Court notes that information in this case more historic, more general (less specific as to each
member) than in American Column (closer to acceptable govt. publications)
19. US v Container Corp of America (S Ct 1969)(309)[suppliers call each other to verify the prices they
are offering their specific customers] Douglas:
a.
Many new entrants into industry, but still very concentrated market, very skewed toward a few
large producers
i. Possible for them to be disciplined by “competitive fringe,” competitive fringe may increase
incentives to cheat within alleged cartel
ii. Market very easy to enter: dissent concentrates on this, but we don’t know how easy to stay in
market, don’t know minimum efficient scale of production (i.e., we don’t know if new entrants
were able to stay in market long enough to discipline older, larger members)
b. Demand expanding, but prices have actually fallen: supply curve must be outstripping demand
c. Presence of excess capacity: suggests non-competitive market
d. Information exchange here more similar to American Column: specific, non-historic
i. Would make interdependence very easy, because no need for observability of transactions, all
the transaction information is instead voluntarily shared
ii. Also significant that the Court viewed the underlying container products as fungible and
undifferentiated between competitors
iii. Also Court notes that demand tends to be inelastic (because based on short-term needs) – i.e.,
unlikely that cooperating firms would lose much in sales volume by raising their prices
iv. These “plus factors” along with the price stabilization effect, made the conduct look very
oligopolistic
e. Information sharing caused downward price trend, but stabilized price so that competitors did not
undercut each other too much – i.e., only quasi-competitive, allows competitors to still retain
significant amount of consumer surplus
f. Douglas essentially treats this as per se violation, as interference with free price setting by market,
cites price stabilization per se violation as in Socony (another Douglas decision)
g. Fortas concurrence: Disagrees that this is per se,
h. Dissent: Hammer feels they misread the economics, concentrated too much on ease of entry
20. General Motors Corp (1984)(316)[GM and Toyota entered joint venture to produce subcompacts in
domestic GM plants] FTC: joint venture should be allowed as fostering innovation, advancement,
as long as within strict restrictions of consent order
a. Spill-over collusion risk: collusion beyond that strictly involved in the joint venture – the consent
decree therefore limited type of information shared outside of joint venture and also limited the
type of information that could be shared in re the joint venture
b. Price of sub-compact cars dependent on price of Corolla – thus risk that Toyota could raise price
of Corolla in order to force GM to raise price of the subcompact and other models
c. Modification to consent decree in 1993: much of the informational restraints were simply
impracticable
d. Ironic that would allow a joint venture where a merger would never have been allowed – illusion
that we can control a joint venture
e. But allowance of this joint venture also makes future joint ventures less acceptable because will
further concentrate the market
21. Basing point pricing
a. Agreement to charge same price to geographically separate customers despite differences in
transportation costs
b. Based on 1) identical base price for the commodity 2) identical basing point (city from which to
calculate transportation costs) and 3) freight rates – once set the first two, can easily derive basing
point pricing system without many problems above the usual oligopoly pricing problems
c. Result is that buyers have no incentives to buy from closest seller, resulting in wasteful
expenditures on transportation and lack of incentive for sellers or buyers to locate in most efficient,
least exploited areas (thereby spreading distribution of businesses?)
d. Therefore not as efficient a method of rent-seeking as cartels because do have to pay wasteful
freight rates when would have been more cost efficient local dealer
e. Local industries otherwise lacking local competition will be able to charge out-of-town prices +
shipping that the out-of-town competitor will also charge – i.e., could be individually rational to
charge seemingly supra-competitive prices
f. Ideally, local dealers would continue to charge out of town prices (because they can pocket the
surplus) until so many local dealers enter the market they have to start charging only competitive
prices – i.e., without oligopoly pricing, prices should fall in a locality over time
g.
Therefore difficult to discern competitive fr anti-competitive basing point pricing, at least at early
point when local market has not yet become competitive or saturated as to capacity
h. If have basing point price agreement, out-of-town seller will bundle commodity with
transportation, otherwise buyers would simply pay the shipping themselves, which would force the
local sellers to lower their prices accordingly in order to retain their buyers
i. Don’t need freight rates to buyer locals better served by more local sellers – i.e., very suspicious
that local seller has freight rates from out-of-town location, as in Maple Flooring
j. Therefore basing point pricing systems are illegal over §1
k. One remedy is to have alleged defendants stop communication information to one another (FTC v.
National Lead)
22. FTC v Cement Institute (S Ct 1948)(323)[cement manufacturers set up multipoint basing pricing]
Black: illegal basing point pricing system based on identity of prices, punitive control of
geographically diverse market members
a. FTC can declare something unfair competition that is also violation of Sherman §1,
i. Can act against same defendants as DOJ because FTC §5 different from Sherman §1, the
former will often catch conduct that has not yet matured into violations of the latter,
ii. Particularly in view of changing business behaviors and inability of§1 jurisprudence to keep
up with changes
iii. Significant that FTC is often the one prosecuting these basing point pricing cases? Means that,
at least at one time, were not considered adequate to get Sherman §1 convictions?
b. Significant that foreign importers of cement were barred from entry by boycott of dealers who
bought from them – also incriminating behavior in itself?
c. Fact that defectors from pricing system were punished through becoming involuntary basing
points themselves, with subsequent punitive driving down of base price from that basing point –
effectively predatory pricing?
d. Almost perfect identity of price, discounts, and cement containers between geographically diverse
sellers also incriminating, belies claims of natural evolution of basing point pricing from
competitive market
e. Respondents claimed absolute fungibility of product plus high transport costs from manufacturer
to dealer to justify same pricing for all dealers, but FTC found evidence of actual product quality
differences
f. Illustration of both unbelievably high identity of price and also of cartel sanctions
g. Did Ct here find an agreement or that the facilitating practices themselves were violations
23. du Pont v FTC (2d Cir 1984)(329)[anti-knock compound sellers adopt basing point pricing, agree on
sharing of price information and “favored nation” policy so that all customers charged same as most
favored customers] 2nd Cir.: minimal basing point pricing and information sharing justified by
consumer preferences, etc. – FTC can’t have too free a reign in setting own rules, effectively
converging FTC regulations on the Sherman Act
a. FTC states that independent unilateral activity could still violate FTC §5 – effectively trying to
say that FTC §5 is broader than Sherman Act
b. Proof
i. Highly concentrated oligopoly-like industry – entry effectively barred by shrinking market due
to government regulations on leaded gasoline; inelastic demand; homogeneity of product
ii. Facilitating practice that helps oligopoly conduct (favored nation clauses, notification of
changes of prices, and basing point pricing)
iii. Actual effect on prices
c. Court however says must also prove:
i. Anticompetitive intent (Hammer dislikes, too difficult to prove) – court felt this disproven by
new entrants merely following the practices of the original pioneering market member, who
originally set these policies (but this can’t have been true of information sharing practices?)
ii. Absence independent business justifications – court felt that delivery price incorporation
actually more attractive to consumers
iii. I.e., 2d Cir doesn’t outright reject idea that FTC §5 broader than Sherman
iv. Seeming rule of reason
d. Court furthermore felt that basing point pricing so minimal here (2% of total cost)
e.
Finally, court felt most favored nation status policy a pro-competitive thing because effectively
prevent price discrimination
f. How reconcile: If focus on requirement of absence of independently rational behavior, effectively
puts behavior in the interdependent category, which would fall under Sherman Act
g. Breyer’s dissent in Cal Dental in re burden of proof: who should bear burden of proof as to
individual rationality, Breyer would say Δ should bear it once make prima facie case
h. 2d Cir also rejects FTC argument because:
i. Too vague a standard and too difficult to tell when an actual agreement occurred – i.e., court
must police the FTC to make sure it doesn’t use its discretion to restrain what are actually
legitimate business practices
ii. But Hammer notes that antitrust law generally rather mushy, uncertain, particularly rule of
reason
iii. Also, FTC can only issue injunction, less risk from vague standards than under Sherman
criminal sanctions
i. Smaller competitors have highest incentives to cheat on cartel, belies 2d Cir claim that presence of
small competitors who don’t price control is evidence of no cartel (could have been cartel simply
among the larger members of the market?)
j. DuPont and other company added non-price competition, and yet prices were still the same –
seems to belie 2d Cir claim that this is not a cartel
k. Favored nation clause: pre-commitment not to lower prices, can be used to support supracompetitive pricing
l. Why, as in Chevron, is FTC not effectively allowed to create its own interpretation of its own
regulations, rather convergence on Sherman Act
i. Courts recognize practical impossibility for businesses attempting to adhere to both
ii. Courts therefore do a lot of twisting and dancing to try to reconcile administrative freedom of
interpretation with convergence on Sherman Act
Concerted Refusals to Deal (boycotts)
24. Generally
a. Essentially price-fixing all over again, although more severe in that actually seeking to destroy,
not just to exploit and rent-seek without destroying
b. Many legal practices which can be characterized as a type of boycott – e.g., BMI
c. Quick look analysis applies whenever court feels that no adequate business justifications – quick
look precludes necessity of looking at market power
25. Eastern States Retail Lumber Dealers v US (S Ct 1914)(333)[retail dealers refuse to buy from
direct-selling wholesalers, explicit agreement] concerted refusals to deal are coercive restrictions
on autonomy, effectively reduces competition in certain levels of distribution, even if affects only
single market member
a. Precludes independent decision making, thereby restraining competition
b. Refusals to deal independently, however, is not a violation
c. This affects retail prices because won’t allow wholesalers to cut out the middleman, undercut
retailers
d. Also relieves pressure on retailers to add value to wholesale products in order to attract consumers
e. Also effectively restricts entry into retail market by wholesalers, prevents them from effectively
vertically integrating
f. Court states that harm to either wholesalers or to consumers is sufficient – elimination of even a
single wholesaler in otherwise competitive market could still hurt the consumer (slippery slope),
although this rationale not mentioned in this decision – i.e., does market power of any given
wholesaler matter
26. Cement Mfrs Protective Assn v US (S Ct 1925)(334)[sharing of information on buyers’ credit and
on job contracts] mere sharing of information on customers not enough to support concerted
refusal claim?
a. Credit information sharing not ostensibly an anticompetitive act, competitors could still make their
own independent decisions in re their own credit terms
b. Sharing contract information is also legitimate because allows sellers to police fraud by buyers (in
re-selling at higher price if market goes up), still individually rational
i. But Hammer notes that this probably not least restrictive means for policing the market (Taft
“is this restraint necessary” analysis) – but how capable is court of judging what is least
restrictive
ii. Also, isn’t there a private contract solution in that sellers could contractually anticipate buyers’
fraud (although sellers’ ability to anticipate may not actually be that large)
27. Motion Pictures Cases (335)[agreement to use standardized contracts with arbitration and cash bond
clauses] agreement on standardization of transaction forms is illegal restraint of autonomy and
therefore undermines competition
a. No individually rational reason to have these clauses
b. Beneficial results of the agreement and good intentions of members are irrelevant
28. Fashion Originators Guild v FTC (S Ct 1941)(336)[boycotts of retailers selling pirated copies of
uncopyrighted fashion designs plus ] Black: begins to treat concerted refusals to deal under a per
se type approach
a. Significant that no copyright violation, probably no state law violations
i. If there were copyright violations, might look more like BMI-type case
ii. But is this behavior necessary to protect against copyright analysis – Ct here might lean toward
saying no, since tends to take a per se approach
b. Example of economic vigilantism – makes Ct much less sympathetic
c. Secondary boycott – boycott of horizontal competitor through 3d party
d. Other highly suspicious activities in background: regulation of retail advertising, sale days, can’t
sell retail themselves, regulation of discount amounts, etc.
e. Bootstrapping of violations of Sherman and/or Clayton Acts into violations of FTC Act
i. “Tends to become a monopoly” Clayton §3: specific provision against boycotts)
ii. Clayton also prohibits certain types of mergers
iii. These Clayton Act provisions seem redundant of Sherman Act, shows Congress trying to
restrain judicial rule of reason, although Clayton Act judicial interpretation degenerates into
generalities also
f. This behavior also violates Sherman Act: restrictions on intrinsic value of consumer choice, actual
effect on price and output, AND restriction of freedom of action of individual guild members
i. This last restriction is what really spurs Ct to find violation of Sherman
ii. Was it really necessary to find actual effect on price & output – Ct seems to suggest that it was
not
iii. Market power: Ct says guild has market power (based on market share and power to exclude
competition) – Ct suggest this not necessary to finding of violation
iv. I.e., Ct starting to look more like applying a per se rule in that doesn’t require market power or
actual effect on price, although it still finds that these are true
g. Implicit analogy to state tort law: if antitrust is a business tort, then we look at harm to competitors
– Ct cites Trans-Missouri, echoes it in that doesn’t look at only effect on consumers but also on
competitors (e.g., even lowered prices might be anticompetitive)
h. Justifications: Ct continues its per se approach in that deems justifications not really relevant
i. If simply identification of violators of alleged agreement, without accompanying sanctions, might
look more like information-is-good cases, might be less suspicious as long as decision making
power left with consumers and competitors
j. Is a Sherman §1 violation, not §2, because not a monopoly so much as anticompetitive behavior
29. Klor’s v Broadway-Hale Stores (S Ct 1959)(342)[retailer allegedly colludes w/ mfrs & distributors
not to sell to π’s retail store] Black: treats group boycott almost as per se illegal, even if only
single entity targeted (not true restraint of market more generally)
a. But π was just one of a multitude of small retailers who were not targeted by Δs – but whether or
not this passes summary judgment depends on whether agreement, whether rational behavior, etc.
b. District court granted summary judgment, stating that only private harm, not public, society-wide
harm
c. Ct here, however, seems to apply a per se analysis in that don’t look at what harm, simply
presumes a public injury – more or less says group boycotts are per se illegal
d. Ct tries to take on pretense of rule of reason in that says Δ didn’t allege any factors that would
have helped them under rule of reason
e. Instrumental argument: fear of snowballing effects, must protect even individual parties –
furthermore, heuristic of restraint of individual decision making used (in per se type way)
f. May have been significant in that π was a horizontal competitor, moves us into more
automatically suspicious territory
g. Justification: no justification provided, may have influenced Ct
h. Market power: Δ had no market power?
i. Ct very carefully states that single vertical non-price restraints is not a boycott, not a violation –
essentially merely granting exclusive territory
j. Klor’s was effectively free-riding on Broadway-Hale’s value-added services but offering lower
prices
30. American Medical Association v US (DC Cir. 1942)(344)[ethical restraints on salaried medicine
(managed care) and exclusion of anyone who does business with doctors violating the restraints]
coercion of adherence to ethical standards by private business group is violative of individual
autonomy
a. Contra to Cal Dental: no deference to professional private group who allegedly trying only to
enforce public good
b. Court didn’t like it that AMA saw itself as empowered to be police and enforcement agency
31. Associated Press v US (S Ct 1945)(347)[effectively grants of exclusive territory to competitors]
Black: essentially per se approach against seeming group boycott/exclusivity, despite strained
efforts to look like rule of reason
a. Significant whether access to AP specifically is so important that this is group boycott, or did AP
have enough competitors that not a boycott
b. Black & Douglas very careful to avoid characterizing AP as monopoly because don’t want to mess
with 1st Amend by imposing judicial regulation on newspapers
c. Effectively characterized as group of newspapers agreeing (horizontally) not to do business with
distant alleged competitors (when view AP as sum of its member newspapers rather than vertical
integration from AP down) – alleged effectively to block entry of local competitors
d. How relates to Topco and BMI: territoriality issues, efficiency enhancement, creation of new
product (i.e., shared information?)
e. Per se approach: Ct suggests that effects of agreement are not relevant, need only look at nature of
agreement itself, but also finds affects – i.e., Ct avoids explicitly degenerating into per se analysis
f. Ct characterizes access to AP as essential to ability to be competitive g. Concurrence: if AP is really a monopoly, then would have to compare it to public utilities as a
natural monopoly and invite government regulation, want to avoid this for 1 st Amend reasons
h. To what extent are some sort of restrictive bylaws necessary to accomplish creation and
dissemination of news in timely fashion, how narrow in scope must they be:
i. E.g., might be able to exclude membership if based on non-competition related criteria
ii. If all allowed to join, then AP could be accused of being a monopoly
iii. Maybe AP is actually a new product, like BMI – but this would also make AP essential to
competitiveness, would disallow exclusion
iv. If charged fee for membership, would still be considered a barrier to entry by AP Ct. (although
would protect against free-riding) – acceptability might depend on size of fee
v. This all dependent on a more rule of reason analysis
i. Terminal RR (cited by Douglas concurrence) gives examples of regulated access, must deal with
everyone
i. Would be contra to 1st Amend issue
ii. Would effectively force AP to cooperate with competitors, in seeming violation of antitrust
laws
iii. Would pose danger of free-riders
32. Northwest Wholesale Stationers v Pacific Stationery & Printing (S Ct 1985)(352)[cooperative
yielding rebates and economies of scale disbars member for remaining vertically integrated] Brennan:
moves full circle to treat group boycotts under rule of reason/soft per se rule
a. Rebates can be seen as price discrimination fn 2, but can also be seen as profit-sharing
b. Robinson-Patman §4 gives exemption for certain types of price discrimination (in situations such
as this), but with self-regulation
i. Ct agrees with 9th Cir., rejects idea that Robinson-Patman allows self-policing in order to allow
this kind of price discrimination, price discrimination is not a Congressional mandate the way
the SEC regulation of stock market is (see Silver v NYSE) – i.e., no implied repeal of Sherman
Act
ii. Ct implicitly trying to avoid having to judge the fairness of procedural protections within
bylaws of private organizations, efficacy of self-regulation
iii. However, Court doesn’t feel that this issue relevant to whether or not should be per se or rule of
reason: lack of presence of procedural self-regulatory safeguards doesn’t move conduct into or
out of per se box or rule of reason boc
c. π is actually much larger than the Δ cooperative – i.e., ejection of Pacific may have had procompetitive effects in that is reduced the size & power of the cooperative?
d. Per se vs Rule of Reason
i. Whether restriction on something necessary to compete in market, has pro-competitive effects
(a la Topco)
ii. Targets a competitor – must have general market effect to survive rule of reason
iii. Market power
iv. No pro-competitive justification
v. I.e., whether always or almost always productive of anti-competitive effect and lacking in
redeeming value
e. Membership rules are not necessarily a red flag, membership rules are inevitable to cooperative
joint ventures, which are not mala per se because could be pro-competitive
f. Pacific’s accusation of pretextual ejection are not irrelevant, but are not sufficient to move case
back into per se box
g. Ct essentially comes full circle again on group boycotts: gives greater weight to market power and
essential-to-competition factors, which are such mushy factors that effectively dilutes the per se
approach
33. Group boycotts:
a. Generally see Ct equivocate between per se and rule of reason because Ct not comfortable
squeezing all of group boycotts into single category
b. Northwest Stationers represents a type of “soft” per se rule
c. Boycotts are also a means of political expression, how this relates to economic activities
34. FTC v Indiana Federation of Dentists (S Ct 1986)(360)[Federation encourages dentists to refuse to
submit x-rays to utilization review insurers] White: applies essentially quick look analysis because
no apparent pro-competition justifications
a. Again, issue of professional hegemony on information – potential for insurers’ regulation to
redound to benefit of consumers – quality of care argument:
i. But Ct rejects idea that professions should paternalistically make decisions for market because
market can’t comprehend the relevant information
ii. Second reason: don’t have competitive market necessary to ensure that professionals make
decisions on behalf of consumers
iii. The care providers’ activity doesn’t factually support claim of quality of care benefits
iv. Also, this paternalistic decision making on behalf of customers only serves to decrease
distribution of information, always an alarm bell for the Court
b. This insurance system different from modern utilization review in that decides ex post whether or
not to pay for service, rather than giving care providers incentives ex ante to control spending
c. This case occurs after FTC already gained consent decree against insurers using similar utilization
review of care providers, therefore FTC very unlikely to be sympathetic
d. Seems to dance around market power, kind of a quick look review type approach
e. Again administrative review, treats this as: if it violates Sherman §1, then if violates FTC §5
f. Maintains per se category of group boycotts that keeps competitors from doing business with
suppliers/customers, but adds requirement of market power
g. Ct claims not to do per se analysis because of absence of market power:
i. States that interference with non-price characteristics is just as bad as interference with price, is
de facto anti-competitive
ii. States no pro-competitive justification
iii. Shadow of belief that information is good – i.e., little deference to judgment of professionals, a
la Goldfarb
iv. Looks at empirical evidence and economic theory to postulate what would happen in
competitive market absent interference, use this as a baseline to judge the agreement at issue
h. Ct constantly conflates 3d party insurers with consumers of health care, treats their interests as
identical, insurer as surrogate for patients – outcome determinative in that automatically treats
insurers as parties to be protected
i. Ct justifies this treatment through a story stating that competition between insurers ensures that
they are loyal to interests of patients – But Hammer points out potential agency problems here
ii. Modern managed care revolves more on unity between provider and payor, may not be same
agency effect
iii. This agency/surrogacy question recurs in vertical integration cases
i. Market power:
i. Δs plead absence of evidence of market power, important in rule of reason analysis
ii. Ct counters this pleading by saying that no pro-competitive justification, so don’t need market
power proof, in line with quick look analysis
iii. Draws an inference of market power from circumstantial evidence – presence of anticompetitive effect, then there must have been market power (i.e., reverses the usual analysis)
j. Ct probably would not have accepted idea of dentists organizing to accrue market power to fight
consumers (who have consolidated their market power in form of insurers), would have said that
better remedy is to break up consolidated consumer power
k. This Ct’s concerns have now been supplanted by concerns about under-provision of care, rather
than over-provision of care – i.e., sympathies have shifted to care providers and away from insurers,
this decision was very dependent on the economic context at the time
35. USE DOJ/FTC GUIDELINES AT END OF SUPPLEMENT TO REVIEW CHAPTER 2
36. NYNEX v. Discon (S Ct 1998)(Suppl 23)[NYNEX and subsidiary alleged to exclusively deal with
AT&T for service so that can get agency-circumventing kick-backs from AT&T] Breyer: per se
group boycott rule of Klor’s inapplicable to exclusive dealing arrangements between two firms
because not horizontal integration
a. 2nd Cir. asserted that per se group boycott rule applies when exclusive dealing (2-firm group
boycott), otherwise legitimate, has no legitimate business justification
b. Court, however, states this incorrect:
i. Must prove harm not just to single competitor but to entire competitive process
ii. Significant that no horizontal agreements here between direct competitors – Klor’s specifically
exempted this kind of 2-party exclusive dealing from its per se rule
iii. Vertical arrangements such as this one not per se illegal unless involving price fixing
iv. Must be careful not to restrain freedom to form contracts, switch suppliers, etc. – this freedom
essential to competition
v. This is more a case of monopoly (NYNEX) abusing its power – π’s claims try to transform
unfair competition into per se antitrust violation, but this effectively overly restrains legitimate
competitive behavior simply because it nonetheless might offend common sensibilities
vi. Focusing on use of such otherwise legitimate business practices to actively hurt a competitor
would require too much focus on subjective intent of defendants
vii. Finally, allegations that horizontal restrictions did exist, based on idea that potential entrants to
market did not do so and thereby break up the harmful effect of the 2-firm deal, merely go to
show that entry was easy, we should rely on that instead, shows no horizontal agreement, mere
chance?
Influencing Government Action
37. Generally
a. State action exemption: no antitrust liability for state actors restraining competition as long as they
have articulated purpose for doing so and are adequately monitored – aspect of federalism
b. Second exemption for private actors petitioning for state action
c. Although seem like per se exceptions, often seems to devolve into rule of reason, particularly as to
whether private boycotts organized for political or for economic gains?
38. Eastern Railroads Presidents Conference v. Noerr Motor Freight (S Ct 1961)(369)[RR conducted
PR campaign to get legislation restricting truckers] Black: private parties lobbying for legislative
actions are not subject to Sherman liability
a. Federalism dictates that government restrictions on trade not subject to Sherman
i. Would impair ability of government
ii. People must be able to make wishes known to representatives – right of petition
iii. Would thrust judiciary into political questions – would also force judiciary to decide what
legislation was or was not in “public interest”
iv. Representatives need input from those interested in the issue, those who have expertise on the
issue
v. We have other laws for policing unconstitutional uses of legislative power – not for judiciary to
police under Sherman Act
b. Follows that private parties lobbying for legislative action is not subject to Sherman
c. Such private efforts bear little resemblance to purpose of Sherman:
i. Sherman regulates economic, not political activity
ii. Congress typically defers, treats carefully impingement on political activity
d. Intent in lobbying for legislation is irrelevant – lobbyists are usually intent on benefiting
themselves, often economically
e. Third-party technique: RR’s attempt to make lobbying look like product of independent thirdparty – this may be unethical, but Sherman doesn’t address unethical political conduct
f. Irrelevant that truckers hurt by the legislation – legislation often hurts someone, injury is
incidental to the legislation – in fact, that is the nature of competition for opposing businesses to try
to benefit themselves at expense of other
g. However, does leave room for prosecuting “sham” attempts to influence government under
Sherman – but here, fact that lobbying was successful in gaining legislation belies claims that it is a
sham
h. Here, parties are competitors, although not as directly as if in same specific industry
i. Note here that inability to combine in lobbying effort doesn’t necessarily restrict right to petition,
but might weaken the effect – might also be restriction on freedom of association (although this is
true of all combinations and conspiracies)
j. Should private parties also have rights to try to influence administrative acts: same First Amend
concerns, still public right, Pennington exception would cover these efforts as well (administrators
as “public officials”) – although actual details might make some difference
39. United Mine Workers v Pennington (S Ct 1965)(373 fn 2): joint efforts to influence public
officials not violative of antitrust laws even if intended to eliminate competition
40. California Motor Transport v Trucking Unlimited (S Ct 1972)(375)[rival truckers file proceedings
to resist applications for operating rights] Douglas: petition for administrative actions also immune
generally, but repetitive or abusive petitions to government action can be antitrust violation
a. Same exemption for right of petition to administrative agencies AND courts
b. Cites some instances in which perjury in administrative process, et al. is antitrust violation:
i. Patent fraud to exclude competitor
ii. Conspiracy with licensing authority to exclude competitor
c. Misrepresentations, condoned in political arena, are not allowed in adjudication (under antitrust
laws?) But pattern of repetitive, baseless claims are evidence of administrative or judicial abuse
i. This is one important difference from Noerr
ii. This also starts to delve into intent of parties
iii. Has the effect of denying competitor access to administrative or judicial proceedings
iv. Leaves question open of whether a single action might be violation
d. Here parties are direct competitors in exact same industry – may have helped sway the Court
e. Noerr type exceptions/immunities are very useful in that can gain you a 12(b)(6) dismissal of
complaint, or at least summary judgment
f. This is not case of statutory interpretation so much as precedent interpretation
g. Note that Court doesn’t draw line between political and economic effects because economic
power was in fact suspicious partially because of its threat to influence politics, which would have
led Court to try to protect political processes from influence by strong economic groups
h. Rule 11 about attorney ethics and oaths in bringing an action
41. Professional Real Estate Investors v Columbia Pictures (S Ct 1993)(378)[Columbia sues PREI for
copyright infringement over video rentals to hotel rooms] Thomas: right to petition broad,
abrogated only when meritless, no hope of success (limits Noerr sham exception)
a. Litigation must be objectively baseless in order to be considered a sham
b. Irrelevant that plaintiff did not subjectively expect to succeed – intent and purpose are irrelevant
c. Only look at objective reasonableness, whether genuinely aimed at procuring favorable
government action
i. Whether any reasonable litigant could realistically expect success
ii. Whether objectively meritless action
iii. Whether action merely conceals attempts to directly interfere with business relationships of
competitor
iv. Whether used government process itself rather than outcome of process to hurt competitor
v. Existence of probable cause to institute legal action: as defined by reasonable expectation of
success, is an affirmative defense to antitrust violation
vi. Even if plaintiff loses the legal action, must resist attempt to characterize the action as mere
sham
vii. Even if the outcome itself has no economic value to plaintiff, only whether there is a chance of
positive outcome – i.e., economic outcome is irrelevant
d. Successful efforts to influence government are per se not a sham
e. Whether efforts to influence government are ethical or not is irrelevant
f. Circuit split on underlying copyright claim seen as proof that claim was not meritless, also
considers possibility that plaintiff sought overturn/modification of law itself (this latter possibility
narrows “meritless claims” almost into nonexistence?)
g. (P * Voutcome) + Vanticompetitive >/< Cost: if can only exceed costs of litigation when expected value of
outcome of legal action + value of process itself (in anticompetitive terms – i.e., if Vanticompetitive > 0),
then must be a sham, according to PREI – Ct rejects this, says in effect that P must = 0 before
called a sham, regardless of whether Voutcome = 0
h. In other words, could we dispense with the sham exception to the Noerr rule altogether?
i. There are always other ways to police abuse of legal action
ii. Judicial capacity to decide what are shams might be very low, should err on side of not finding
shams (Thomas would agree with this?)
iii. First Amendment issues, etc., federalism issues
iv. This also tends to avoid overlapping with Rule 11 – i.e., don’t have to worry about how sham
exception might interact with Rule11 ethical duties
42. City of Columbia v. Omni Outdoor Advertising (S Ct 1991)(384)[advertising company uses close
relations to politicians to gain billboard zoning to exclude competitors – first mover problem] Scalia:
petitioning of local government action also effectively receives prima facie wide deference,
Parker doctrine
a. States as actors are also immune to antitrust violations, due to federalism and state sovereignty
concerns
b. Parker emphasized immunity of States but excluded local governments from immunity – but
local government are often authorized to act for the State through State empowerment
c. Zoning is an example of such State empowerment
d. In antitrust litigation, Ct doesn’t review local government action for procedural legitimacy the
same way State might review local government action – federalism again
e. Authorization need only be foreseeable result of explicit authorization – i.e., authorization to
suppress competition need not be explicit, need only be foreseeable result of other authorizations –
i.e., zoning power gives inherent power to regulate businesses
f. Parker type immunity necessary exhaust valve for otherwise very rigid assumption that
competition is good?
g. This gives local governments prima facie entitlement to immunity
h. Omni tries to read into Parker a conspiracy exception to Parker state actor immunity, but Ct rejects
this:
i. Applies only when State acts not as regulatory agency but as private commercial actor
ii. But any regulatory activity is immune, even if in collusion with private parties – all government
action is in effect in collusion with, in consultation with, or at urging of private parties
iii. Impossible for juries to distinguish between “legitimate” and “illegitimate” state-private party
collusion
i. Similarly, too difficult to distinguish regulatory action not in public interest from good regulation
– all government action would be subject to such accusations, all of it harms someone (Hammer
calls this “fairy tale” idealism, would favor an exception to immunity based on public interest
benefits)
j. Don’t want to interfere with States’ ability to govern its own agents (in form of local
governments)
k. Other law argument: bribery and government corruption are not the purpose of the Sherman Act –
i.e., question of remedy
l. But states that States may not exempt private action from liability under Sherman Act (this only
slightly different from allowing States to favor private parties by regulating in anticompetitive
ways?)
m. Conversely, if immunize the state actors, must also immunize the private actors that lobby state
action, otherwise would curtail right of petition – i.e., Noerr and Parker doctrines are
complimentary
n. Emphasized difference between abuse of process from abuse of outcome in explaining sham
exception to Noerr doctrine
o. Therefore, also no conspiracy exception to Noerr doctrine
p. Dissent criticizes majority opinion for being to pessimistic about judicial capacity
q. Hammer notes that state action explicitly creating a monopoly might not be breakable, but a
monopoly arising merely incidental to a state action might be breakable
43. Allied Tube & Conduit v Indian Head (S Ct 1988)(391)[voting for fire safety standards set by
private association was rigged] Brennan: limits public action exemption only to direct petitions for
public action, not quasi-public action
a. Varies Noerr doctrine by saying whether or not private anticompetitive effects are incidental to
government action is a circumstantial determination
b. While unethical behavior in political arena is immunized, in private arena can be antitrust
violation
c. Private agreement on standards is inherently subject to antitrust scrutiny because is in effect a
combination and conspiracy:
i. Such standard setting groups tend to be vertically and horizontally integrated, therefore
inherently anticompetitive in potential
ii. Must base standards on objective evidence from experts
iii. When done correctly, can be procompetitive
d. Therefore must apply rule of reason, but no immunity as government action:
i. Can’t treat this group as quasi-legislative just because standards might be adopted by
governments
ii. Presumption is that governments act on behalf of public but that private parties act on behalf of
themselves
iii. Private parties are not accountable to public
iv. Private parties are not empowered by government authorization
e. Private party enforcements to enforce codes are subject to strict scrutiny, however
f. Ct agrees that this could be characterized merely as effort to influence government, however,
under Noerr, not negated simply because this is indirect form of petitioning:
i. Would be immune under Noerr if simply proposed standards to government
ii. If solely aimed to influence government, unethical conduct and anticompetitive intent would be
irrelevant
iii. I.e., process matters
iv. But here, the private party had decision making power itself
v. Hammer asks whether this is public decision making process, is it quasi-public: Brennan says
no because this is essentially economic, not political because of accountability issues, etc. –
vi. Hammer sees this as mere spin doctoring (economic activity with political impact versus
political activity with economic impact depending on “context and nature” of activity)
g. Cannot escape liability merely by noting that private party obeyed its own procedural rules
h. Dissent: this distinction is too vague, doesn’t give enough notice as to what is violation
i.
Note that code also adopted by private parties, another way in which it exists outside of political
arena
j. Hammer sees this as middle ground between public and private activity, standard setting as quasipublic
k. Court seems to be saying that defendants had responsibility to show that standards were based on
objective factors – Court looks at the process of decision making to decide this issue – i.e., if the
private group had instituted a lot of procedural methods for demonstrating objectivity, they might
have escaped liability
l. Some issue of role of professionals in making paternalistic decisions for the market – little
sympathy here?
44. Missouri v NOW (S Ct 1980)(399)[NOW encourages boycott on holding conventions in states that
don’t endorse ERA]: this private action was okay because not aimed at economic benefit of
boycotters, was aimed at influencing political decisions
45. FTC v Superior Court Trial Lawyers Association (S Ct 1990)(400)[public defenders go on strike
for higher wages]
a. This different from political action because lobbying government as a market participant actor and
not as a regulator/legislator?
b. Irrelevant as to social or political value of the boycott, benefit to criminal defendants
c. Lawyers are horizontal competitors in cahoots – particularly suspect
d. If wages were really that low, the open market competition would have automatically raised it –
i.e., obvious that this is price-fixing, irrelevant that the price sought might be reasonable
e. But are courts effectively a monopsonist in that the wage is centrally set? Makes a difference here
that the buyer sets the price, not the sellers
f. Irrelevant as to source of demand, whether or not it is compelled
g. Hammer notes that different but related product (defense of serious criminals) is treated
differently, not an open market
h. Dispositive that the boycott itself was the restraint of trade, not the outcome of the boycott in
terms of legislation
i. Court distinguishes civil rights boycotts of businesses (e.g., Claiborne Hardware):
i. As based on First Amendment rights,
ii. Not based on desire to gain economic benefit for boycotters,
iii. Not designed to be anticompetitive against the businesses boycotted
iv. Designed to achieve constitutional rights as an outcome
j. Hammer notes that court also had power to conscript lawyers to serve for free, caused better paid
lawyers to react negatively when mayor raised the fees – i.e., is there really a free market here,
would there even be a market at all absent government subsidizing of supply (also, was government
itself a co-conspirator in raising prices)
k. Dissent felt that this was really form of speech, attempt to engender sympathy for its cause –
should give exception to per se rule for expressive boycotts, even those with market power – i.e.,
per se rule provokes a presumption of anticompetitive effect
l. Ct. App. gave an O’Brien test to establish an exception for expressive boycotts: decided per se
rule was overbroad because can’t restrain First Amendment rights without showing market power
(actual anticompetitive effect) which is simply presumed under per se rule – i.e., have to apply rule
of reason to expressive boycotts: Ct rejects this
i. Ct App exaggerated significance of expressive element
ii. All boycotts can be characterized as having expressive component
iii. Gives short shrift to importance of antitrust concerns
iv. Other ways to achieve First Amendment/expressive ends
v. Dissent: First Amendment probably does have a stronger role here
vi. This Ct was antipathetic to O’Brien rule anyway
m. Per se rule justified not just as to administrative ease but also because behaviors under per se rule
don’t deserve any deference, are so bad that we are required to condemn them per se:
i. We should be skeptical of this because we often don’t invoke the per se rule
ii. Per se also tends to look a lot like rule of reason anyway
iii. Court seems to be relying on idea of monitoring costs of judging each (per se) behavior
separately is too high to justify more in depth review?
iv. How reconcile this with Northwest Stationers, which seemed to move boycott analysis away
from per se rule: Ct intimates that this differs because its not so much about boycotts as it is
about price fixing
n. Violates Northwest Stationers rule that must look at market power whenever looking at group
boycotts – this case’s rule later modified by NYNEX (stating that group boycotts not per se illegal
unless horizontal integration between competitors)
o. Perhaps better to characterize this case not as group boycott case but as price-fixing case
p. Hammer reconciles this by saying that even if have horizontal boycott, still soft per se rule, unless
price fixing as in Trial Lawyers
q. Differs from Noerr in that can lobby but can’t extort – again, looks at process and not result
r. Note technical distinction from legal boycotts under Labor Act – if were striking against
employers rather than consumers of their services, the lawyers would have been fine
s. This case indicates that per se rules still matter
t. This case just another indication of lack of deference to professionals as an industry – i.e., we
won’t allow professionals greater deference in deciding what is best for the economics of their
industry
C. Horizontal Agreements Generally
1. Antitrust law frequently treats buyers more leniently than sellers
2. If were really concerned about First Amendment, could use a variety of other means to clear the case
from an antitrust docket, rather than head-on addressing the First Amendment exception to the antitrust
claim
3. Requirements of actual antitrust injury implicates a requirement of market power (e.g., Klors) – this
reconciled with NYNEX because not vertical in nature – reflects overall move from protecting
individuals to protecting the economy more generally
4. Hammer feels that:
a. Antitrust law is basically a process of constantly trying to navigate around unseen snags, changes,
etc., no firm boundaries or rules
b. Can only identify patterns, not fixed points – largely intuition informed by economics and policy
c. Thus, very sensitive to issues of characterization
5. How to analyze fact patterns
a. Break the case down into relationships (horizontal v vertical), what is the product, injured
party is buyer or seller, is there an agreement, does it effect a restraint of trade,
interdependence vs independently rational behavior, is there any price fixing or territorial
dedication (red flag) or is there simply group boycott or concerted refusals to deal (less of a
red flag)
b. Then analyze under per se, quick look, and rule of reason, then determine likelihood of
outcomes and which characterization is most persuasive
III.
Monopoly
Introduction
1. Triumvirate of monopoly power, conduct, and intent – interplay between these factors tracks
evolution of §2
2. Must remember that some monopolized markets self-correct by attracting new entrants
3. Monopolies often exist because of economies of scale – may motivate more selective prosecutorial
discretion in whether to prosecute or how to shape remedy (e.g., breaking up the monopoly versus
encouraging new entrants)
4. Useful definitions:
a. Performance: economic appraisal in terms of price, profits, productive and distributive efficiency,
and progessiveness, as compared to perfectly competitive market
b. Conduct: behavior, as distinguished from performance (i.e., results)
c. Market: dependent on market definition
d. Market structure: breadth and character of market, number and distribution of sellers, capacity to
expand, contract, et.
e. Market power: capacity to act as other than perfectly competitive firm; degree to which firm’s
price exceeds competitive pricing
f. Monopoly power: power to control price and/or exclude competition; significant degree of market
power
5. Overall trends:
a. Courts likely to demand some sort of improper, exclusionary conduct, in addition to status as a
monopoly
b. Oligopolies generally do not fall under §2
c. Essentially, “monopolization” is a per se violation, but whether one qualifies as a monopolizer is
rule of reason? (in that based on improper motivations vs. legitimate justifications)
Monopolization
6. Standard Oil (449) (White gets to apply his rule of reason):
a. Analysis of relationship between §1 & §2: portrays §1 as linearly evolving into §2 – Hammer
feels that this is too simplistic, metaphoric at best
b. Reminder of classical economic analysis – no developed sense of allocative efficiency,
concentrates more on entry – monopolies inherently invite entry
7. American Tobacco (S Ct 1911)(450) very subjectively intent-based, rather than objectively
structure-based, analysis of market power
a. Cites intent to use combination to monopolize market by driving competitors out of business or
coercing them into the combination
b. Concentrates on remedy
c. Shows how intent and purpose as still important, Hammer feels this ridiculous way of looking at
antitrust, should be much more structuralist
8. American Can (451)(D Md 1916) monopolies per se aren’t bad but are dangerous in their
potential for abuse
a. Good monopoly versus bad monopoly
b. Antitrust just an alternative to regulation: either break up the monopoly or regulate
c. Can be a monopoly without monopolizing – i.e., monopolies per se aren’t bad but are dangerous
in their potential for abuse
9. U.S. Steel (452)(S Ct 1920) Belies uncertainty about what §2 means – perhaps not only need
monopolizing conduct, but also need successful monopolizing result of that conduct
a. Belies uncertainty about what §2 means – tracks similar uncertainty about §1
b. States that bigness is not necessarily bad, can be good monopolist
c. Can make argument that this case says not only need monopolizing conduct, but also need
successful monopolizing result of that conduct
10. U.S. v ALCOA (2d 1945)(453)[ALCOA continues its monopoly after patent expires and consent
decree, “natural monopoly”] Hand: essentially, just being a monopoly is violative
a. Evidence of great deal of vertical integration
b. Patent-based monopoly originally – i.e., would have been no antitrust case if patent still valid
Consent decree ended horizontal agreement with foreign ingot producers to limit import/export –
cartels; also price-fixing with foreign ingot producers; covenants with power producers not to sell
power to competitors
d. Interpretations of §2 propounded by government as plaintiff:
i. Having monopoly power alone (broadest)
ii. Monopoly power + exclusionary conduct
iii. Monopoly power + conduct violative of §1 (narrowest – i.e., just restatement of market power
argument?)
e. Revolves on burden of proof – do you need to justify monopoly or does government need to
incriminate a monopoly
f. Relevance of profit: not considered extortionate by court, difficult to prove whether due to
monopoly or supra-competitiveness, etc – generally, sustained profits over time are structural
evidence of monopoly
g. This opinion not internally consistent:
i. Jeffersonian view of economy as protecting small businesses, even if a given large business is
economically efficient
ii. When does an innocent monopoly nonetheless violate §2 – Hand seems to indicate that it
almost always does – effectively does away with affirmative defenses to monopolization
h. Hand says any conduct tending to maintain one’s monopoly position is illegal monopolization,
regardless of whether conduct itself is ethical or legal (exclusionary or predatory) or of how
originally came to be a monopoly
i. This effectively penalizes behavior that in other settings would be competitive
ii. Also penalizes behavior that might be more efficient, innovative, or progressive within the
industry
iii. I.e., looks like Hand condemning monopolies altogether, although §2 condemns
monopolization, not monopolies
iv. Hammer says that Hand may actually have had more of an eye on continuing behavior earlier
outlawed by the consent decree and the government’s inability to prosecute those in district
court – Hand didn’t feel he had grounds to declare these district court findings as clearly
erroneous (similar disingenuous reasoning by Wyzanski in United Shoe)
i. Hand claims no need for specific intent
i. But how can one read out intent from a criminal statute: antitrust laws rarely prosecuted
criminally, so usually not an issue
ii. But Hand says its difficult to monopolize without (generally?) intending to monopolize
11. U.S. v. Griffith (S Ct 1948)(462)[business owning theatres in towns with and without competitor
theatres uses market power to secure exclusive first-run rights from distributors for entire circuit]
Douglas: just intent to exploit monopoly power enough, regardless of whether intent to create or
extend monopoly
a. Reiterates that no specific intent necessary to find monopolization
b. Douglas tries to portray a trend by reciting facts about increasing proportion of monopolized
towns
c. States that mere possession of monopolization power, whether or not exercised, is violation of §2,
as long as have intent to exercise that power – i.e., don’t need intent to monopolize, merely intent
to take advantage of monopoly power
d. Even though did not make express its leveraging of market power in one geographic area into
market power in another area, Δis effectively doing so – other courts might disagree as to whether
such behavior is actually illegal because may have structural limitations on actual ability to
leverage in this way
e. Ct suggests that even though evidence to this effect, Douglas has no doubt that the above
leveraging had the effect of expanding number of monopolized geographic areas
f. Economic analysis of leveraging of market power very similar to “tying” infra
g. Reflects intuitive desire to mirror §1 analysis based on restraint of trade (in refusing to look at
whether actual successful in restraining trade?) – but Hammer points out that difficult to identify
what restrains trade and monopolies pose some unique dangers to market that
agreements/conspiracies might not
c.
h.
Douglas somewhat begs the question by defining unlawful conduct as that which effects an
unlawful result
i. But wouldn’t be transaction cost efficient to force completely separate negotiations for each town,
could design more complex alternatives such that apparent “choice” is on part of distributor rather
than theatre owner – this addresses issue of bundling of market power, but doesn’t address issue of
exclusivity, but could design alternatives to make trade-offs between these two
j. I.e., need a concrete idea of what the injury is before can fashion a remedy
12. U.S. v. United Shoe (D Mass 1953)(465)[United maintains its effective monopoly through restrictive
leases, technological advances, prohibiting second-hand market, service agreement incentives]
Wyzanski: §2 violation found in unreasonable restraints of trade to acquire or maintain
monopoly – but targeted remedy, rather than busting the monopoly, a more efficient remedy
a. Three modes of condemning monopolization:
i. Pre-Alcoa: use of unreasonable restraints of trade to acquire or maintain
ii. Alcoa: acquisition of maintenance of monopoly, regardless of whether or not unreasonable
restraints of trade used to do so – i.e., failure to try not to be a monopoly
iii. Post-Alcoa/Griffith: taking advantage of monopoly power
b. Wyzanski then propounds his own (unused here but applied in Grinnell and then rejected by S Ct
in later decisions) theory in which use burden shifting to find prima facie violation based solely on
monopoly-like power with rebuttal based on legitimate reasons
c. Leases violative by virtue of extreme length, penalties for early cancellation unless re-enlist with
new lease,
d. Free service program excludes market for independent service providers – is actually bundling of
service costs into price of lease
e. Is higher price for equipment for which you are unique supplier really price discrimination: classic
price discrimination depends on who the customer is, not what the product is
f. Monopolization defined as those things which barred entry to market by others; things that
obstruct natural market adjustment process; predation (i.e., things that purely designed to hurt
competition, even at own expense) (things that don’t tend to increase your desirability in eyes of
customers?) – whether conduct is “inevitable consequence of lawful undertakings” (i.e.,
unnecessary to being in business – but this very vague criterion)
g. I.e., Wyzanski seems to be adopting the Pre-Alcoa approach of use of unreasonable restraints of
trade to acquire or maintain a monopoly?
h. Then becomes question of remedy:
i. Ultimate goal is to foster competitive market; stop the anticompetitive conduct (which not
necessarily same as what is overall best for the market); breaking up monopolies not always
most efficient
ii. Courts appear to have plenary discretion to shape remedy (this later modified?)
iii. However, courts generally feel no compunctions about demolishing monopolies – once you’ve
crossed the line, you don’t deserve mercy
iv. Courts might take into account natural monopolies because even if broke it up, wouldn’t
necessarily encourage competition – however, might still demand access for potential
competitors under “essential facility” or “common carrier” rationale – more of a regulatory type
approach to remedies
v. Regulatory type approaches, however, raise the spectre of judicial capacity, many judges such
as Wyzanski reluctant to venture there
i. Here, dismantling not thought feasible because of concentration of functions in each unit – but
such rationales could give other businesses incentives to structure themselves this way
j. Wyzanski apparently has great confidence in targeted remedies as indirect means of
monopolization busting
i. Compulsory licenses to Shoe’s technology not clearly related to any illegal behavior – sets up
difficulties of determining proper licensing fees, but this probably easier than trying to figure
out what “proper” price is for the technology, since Shoe accused of price discrimination based
on it unique technology – i.e., patents are NOT inviolable when it comes to trust busting
ii. Trial court effectively can’t avoid regulatory role altogether because still might have to revisit
case to decide if court order being carried out – might also have to adjust the remedies
13. Remedies in Monopolization Cases
a.
Prohibition on those practices which tend to restrain trade (i.e., restrictive licensing agreements,
etc.)
b. Concern, however, that once a business has shown willingness to violate antitrust laws, cannot be
trusted not to do it again (i.e., monopolies blow it, lose all credibility) – therefore need strong
measures to restrain recidivism
c. “Fruits” doctrine: punish monopolies by forcing them to disgorge fruits of their violations – e.g.,
through divestiture, etc. – S Ct affirmed this in Schine Theatres, stating that injunction against
future violations not enough (because w/o disgorgement, firms have incentives to monopolize
anyway until they are caught)
d. Deconcentration (“no fault” penalties): merely transfer the economic efficiencies inherent in
monopoly to another entity, thereby not losing those efficiencies but breaking up the monopoly all
the same – Bork dissent: cannot preserve efficiencies that way because efficiencies inherently
dependent on large size
e. Comparison with oligopolies:
i. Oligopolies much less able to and efficient at achieving monopoly pricing
ii. Oligopolies, however, often have to be more rigid, less able to adjust to market changes the way
a centralized, monopolistic control can
iii. However, oligopolies more likely to fail on their own merits than monopolies
iv. Oligopolies can be seen as offering at least some limited range of choice to consumers
v. Oligopolies may still engage in non-price competition, product differentiation – may or may not
offer any real benefit to consumers, however
vi. Intra-oligopoly competition, however, can also be excessive, particularly since the competition
is restrained to types that may not necessarily give any real benefit to consumers?
vii. Oligopolies justifiable on basis of minimum efficient scale, analogous to natural monopolies?
viii.
Oligopolies might be less likely to have achieved their status through improper means
than monopolies
ix. Overall, oligopolies therefore might be more likely to self-correct, disappear, than monopolies
Vertical Integration
14. Generally
a. Vertical integration, on its face, offers such great increases in efficiency that not per se suspect
b. Vertical integration by existing monopoly of next lower level of industry not necessarily suspect
because the higher level existing monopoly doesn’t gain any greater power than it already had over
the next level of industry
c. Vertical integration might actually be market beneficial in that when monopolies at two different
levels integrate, consumers are charged monopoly rents only once rather than twice
d. Vertical integration might also avoid allocative inefficiency because the existing monopoly at one
level will not charge distorting monopoly prices to its integrated lower level, and therefore that
integrated lower level won’t have its allocative incentives distorted
e. But excuses for vertical integration don’t necessarily justify the pre-existing monopoly itself
f. Vertical integration does make price discrimination possible in that upstream owner will tend to
charge lower prices to its own integrated downstream units as opposed to downstream horizontal
competitors
g. Vertical integration allows upstream suppliers to prevent some degree of arbitrage between
downstream horizontal buyers with differing values for the product – this more efficient in that
elimination of middle men results in less dispersal of rents
h. Remember that perfectly price discriminating monopolists do not create allocative inefficiency –
at worst, they create distributive problems
i. Also remember that we can effectively achieve vertical integration by virtue of contracts, as well,
same concerns apply
15. Otter Tail (S Ct 1973)(492) [former electricity natural monopoly continues attempts to monopolize
via access and restrictions on supply output] refusal to deal and refusal to share essential facilities
constituted violation of §2
a. Both essential facility/monopoly conduct and anticompetitive within horizontal competition
(because Δ would favor its downstream integrated buyer of supply)
b. Dissent: heavy government regulation suggests that any orders to deal should come from
government, not courts, monopoly was unavoidable anyway
16. Berkeley Photo (2d Cir 1979)(492)[Kodak Instamatic has unique type of film and film development]
Essentially differentiates between benefits of monopoly and benefits of integration –
demonstrates path dependence
a. Essentially differentiates between benefits of monopoly and benefits of integration – demonstrates
path dependence in that integration before creation of monopoly is less suspect than vice versa?
b. Effectively creates “3d cause of action” in that objects to leveraging of monopoly power in one
market to create market power in another without necessarily creating a monopoly in that second
market – highly criticized cause of action
17. Aspen Skiing v Aspen Highlands Skiing (S Ct 1985)(493)[dominant slopes refuse to sell joint
tickets with lesser competitor after previous history] Stevens: withdrawal of consent to deal can also
be monopolization when based on improper reasons and serves to injure overall
market/consumers
a. Set against background that prior consent decree stating that joint tickets legal only if individual
competitors set their prices ex ante – i.e., joint ticket seen to have some value to consumers and
therefore allowed to continue
b. Lower court asserted that competitors not under duty to cooperate with each other if valid business
reasons for such refusal – however, refusals that simply hurt competitors without benefit to
consumers – i.e., not based on superior business judgment but illegal attempt to dominate mkt only
i. Thus, the right to refuse to cooperate not unqualified right, may serve at least as evidence of
unfair competition
ii. Improper exclusion of competitor is per se intended, by definition not due to superior efficiency
iii. Note that district court’s jury charge good definition of violation of §2 (495-96) – emphasis on
lack of legitimate business justification as dispositive (possession of monopoly power + willful
acquisition, use, or maintenance of it through anticompetitive or exclusionary means not
otherwise justified by legitimate business concerns)
c. Issue is therefore whether joint ticket is “essential facility” for lesser competitor
d. Path dependency of conduct important here
i. I.e., reliance, expectation, etc. are influential on the characterization
ii. Tends to belie Δ claims that the joint ticket not efficient and beneficial to self – Bork states that
established practices presumed to be efficient, or else never would have existed or persisted
e. Tickets are example of non-linear price discrimination (discrimination according to product
differentiation) used to manipulate consumption toward a given product type
f. Court looks at reliance, trade custom, etc. to find a type of implied-in-fact contract?
g. Exclusion of competitor not itself sufficient for characterization as predatory, must also look at
effect on consumer/market as a whole
i. Empirical data showed consumer preference for and benefit from the joint ticket – i.e., similar
to BMI in that creates a desirable product, consumer choice
ii. Hammer notes that πs had good lawyers – personalized the characterization through personal
testimony, not just economic data, strong pro-consumer characterization of its complaints –
particularly important when claim decided according to vague standards
iii. Court accepts that Δ’s conduct did harm the π
iv. Not independently rational for Δ to take this course of action – hurts Δ in long run, although
perhaps not as much as hurts π (i.e., potentially predatory)
v. Court doesn’t buy Δ’s justifications based on inability to monitor consumer abuse of joint
tickets, dilution of Δ reputation, etc. – based in part on popularity of joint ticket in other skiing
markets
vi. Enhancement of freedom of choice very influential here
vii. I.e., true motivation for Δ’s conduct is very telling in the end
h. Is the market defined here truly the accurate market, or did consumers have substitute products
available were they really that unhappy with the alleged monopolist’s conduct – i.e., did Δ really
have market power based on inelastic demand response curve
i. Court denies that this is essential facilities case: this requires showing that
i. 1) monopolist has control over essential facilities
ii. 2) competitor cannot reasonably or practically duplicate the facilities itself
iii. 3) competitor actually denied access to facility
iv. 4) feasibility of providing the competitor access to the facility
v. Court wants to avoid this characterization because that would place Court into position of being
regulator over a common carrier
vi. Essential facility characterization, however, would tend to moot any legitimate business
justifications for otherwise monopolizing behavior
j. Exclusionary conduct, predatory conduct, and conduct lacking in sufficient legitimate justification
– three aspects of monopolization conduct
18. Brooke Groupe Ltd v. Brown & Williamson Tobacco (S Ct 1993)(524)[Brown & Williamson
accused of predatorily forcing Liggett to raise its retail prices by underselling Liggett’s wholesale
prices] Kennedy: attempted monopolization not found because theory suggests Δ could not have
achieved ends allegedly sought through predatory pricing (although empirics suggest otherwise)
a. Demonstrates Court’s general presumption against findings of predatory underpricing because
such underpricing might actually be evidence of active competition or at least short-term benefit to
consumers – this is why need showing that consumers later hurt even more than earlier benefited
b. Underlying putative motivation is to
i. 1) raise price of generics to supracompetitive level and
ii. 2) restrict the generic market in order to protect the label market segment because B&W label
sales allegedly most hurt by expansion of generic market
iii. Predation for reason #1&2 or merely punishment for defection from oligopolistic cartel
iv. Note that this case states that interdependent behavior itself is NOT antitrust violation
c. Majority seems to be doing a lot of hindsight reasoning, rather than ex ante examination of Δ’s
motivations and expectations
d. Why Robinson-Patman claim under Sherman §2
i. Court states that predatory pricing under §2 examined same way as primary-line injury: both
require injury to market competition, not just injury to individual competitor
ii. Although this case not officially a §2 claim because B&W had too small a market share to
come under §2
e. Underlying problem with majority opinion in that they seem to ignore previous collusion that set
baseline supracompetitive prices against which B&W may very well have had lots of incentives to
want to punish Liggett
f. Predatory pricing is only one form of predatory behavior, notable that some forms of predation
don’t inflict profit losses on self
g. Court here allowed economic theory to overturn fact-finding by jury – Court did the opposite in
Kodak v Time (see infra) – legitimate to see Court as overreaching here, Court apparently has high
opinion of its own capacity
h. Asymmetric concentration in this market – causes differing incentives for each market participant,
makes oligopolistic cooperation less likely benefited
i. Predatory pricing is two part test (from Matsushita):
i. Below cost pricing: below marginal cost too difficult to determine, courts use average variable
cost as proxy for marginal cost
ii. Reasonable chance of later recoupment of lost profits
j. Court here assumes that B&W is discipliner for entire cartel, therefore devolves into discussions
of likelihood of cartel formation – but dissent felt that prior evidence of collusion belies majority’s
belief
i. Doesn’t decline in overall industry and danger of extinction give market participants even
greater incentives and verifiable mutual benefits from collusion (a la Appalachian Coal)?
Majority felt that instability of industry made collusion even less likely
ii. Court also finds the fact that any future recoupment would have to be after pro rata distribution
to other oligopolists but short-term losses would fall only on Δ as sole enforcer of oligopoly –
makes cartel success even less likely
k. Court finds increases in output puzzling, and refuses to try to sort out how this interacts with
underpricing – but wouldn’t increase in output naturally follow underpricing?
l. Court also declines to try to sort out what actual prices to consumers are
m. This is example of attempt at monopolization under §2
19. Unilateral Market Power Theory: product differentiation as baseline for analysis, a way of
narrowing market definition?
Monopoly Power
20. Market Definition
a. Market power can be defined as ability to influence market price, as evidence by price
discrimination, persistent excess capacity, pricing well above cost with supracompetitive profits,
etc.
b. Courts, however, rarely use these structural characteristics to determine whether or not market
power, usually use them only to confirm or reject findings of market power – however, this trend
changing recently
c. Courts instead use market definition to determine market power
d. DOJ and FTC Guidelines on Horizontal Mergers (574)
i. Starts at narrowest definition of product and looks at whether producers would find it profitable
to raise price slightly and transitorily of product without unduly losing volume of sales – keep
expanding the definition of the product until this is true
ii. Define proper geographic market in same manner
iii. Define whether to include secondary goods the same way
iv. Uncommitted entrants: new entrants to market in response to these small and transitory price
rises without significant costs of entrance or exit or other barriers to market entry
e. Note that definition of monopoly as power to control price or exclude others doesn’t depend only
on 100% market share – conversely, even perfect monopolist might have no power or limited
power
f. Costs of market definition may really only be worth it when the potential costs of market power to
society are large – i.e., where even monopolists really have little power to injure consumers and
others, should we really invest in market definition
g. Market power may nevertheless serve as good proxy for dangerousness of given conduct, easier
bright line type rule in many cases than looking at actual risk of danger
h. Direct measurement of market power difficult, must rely on excess profits, inelasticity of demand,
whether technological constraints on market entry and efficient scale of production; etc.
i. Courts tend to look at market definition and market share rather monolithically rather than
adjusting the definitions for different circumstances: e.g., product differentiation/substitutability;
geographic barriers/ease of distribution and transportation; mutual effect of prices in
geographically or technologically separate areas;
j. Must look at the ability of the putative monopolist to actually expand its own capacity when it
allegedly restricts or excludes others from its market
21. US v ALCOA Revisited (2d Cir 1945)(577)[definition of relevant market]
a. Don’t include secondary ingot:
i. Although secondary ingot could either directly displace consumption of virgin ingot or
indirectly displace it by increasing amount of virgin ingot available to fabricators who don’t use
secondary ingot
ii. Because very large producers of virgin ingot will adjust their production to control for the
resulting indirect production of secondary ingot, thereby controlling that supply as well
iii. Contrasts to Wyzanski’s faith that secondary goods always present competition (are always
more than just “limit price vehicles” because present real competition)
 Hammer feels Wyzanski probably right, feels that this falls better under monopoly conduct
rather than under market definition
 Although conduct-construed-as-market-definition might be a useful shortcut
 But if start to incorporate conduct into definitions of market share, start to narrow
possibility that could be “innocent monopolist”??
iv. Hammer points out that “limit price” doesn’t necessarily mean a competitive market: under
DOJ guidelines, if one starts the baseline at price in perfect competition, then market definition
would exclude limit price vehicles because those vehicles still allow supracompetitive pricing
b. Should also not exclude the amount of ingot Alcoa keeps for its integrated fabricators because
even the ingot that Alcoa’s fabricators themselves consume affect the demand for ingot
c. Reveals that market definition an incredibly manipulable concept: depends on what considered
baseline, path dependence, etc.
d.
Foreign imports:
i. Unlike new domestic entrants, foreign imports conceivable might have ready supply to import,
wouldn’t need to expend start-up costs, etc.
ii. However, face handicaps of tariffs, transportation costs, etc.
iii. Nonetheless, presume unless otherwise proven that import level elastic relative to domestic
price
e. Acknowledges that new entrants could be a check, but recognizes barriers to entry, lags in entry
f. Also acknowledges difficulties in decreasing output: costly to have idle, unused capacity, etc.
g. Actual profits not exorbitant – depends on how long sustained, how varies with demand and other
technological vicissitudes
22. US v EI du Pont De Nemours (Cellophane) (S Ct 1956)(583)[whether has monopoly over
cellophane depends on market definition] Reed: market definition depends on substitutability of
product, as defined by cross-elasticity based on current market price, not necessarily just
fungibility
a. Court believes that expansion in cellophane market due to technological advances, not to superior
quality of cellophane or to business acumen or to elimination of competitors
b. Intent to monopolize assumed when have monopoly power
c. Test of market power/market definition is substitutability
i. As defined by cross-elasticity of demand for similar uses; price, characteristics, and adaptability
of substitutes – Hammer feels this is good law (although factually incorrectly applied here)
ii. Need not be a directly fungible substitute or even substantially fungible
d. Increasing output and falling price makes it very difficult for court to see a clear picture
i. Monopoly prices aren’t always the highest prices
ii. New technologies also tend to follow this pattern, as cost of production falls, but this doesn’t
mean that retail price falling as much
iii. Output expansion could be due to expansion of market, rather than static market size, such that
economies of scale could allow some decline in price without actually matching marginal cost
e. Court finds significant that cellophane doesn’t have monopoly over any single use of wrapping
materials
f. All things are substitutable, true elasticity of demand is a question of degree (i.e., rises in price
would always eliminate marginal consumers, regardless of whether monopoly)
g. This Court’s approach varies from DOJ guidelines in that looks at actual elasticity of demand
rather than at functional characteristics of the putative substitutes – also DOJ might set liminus for
elasticity rather low? Only five percent increase in price as test increase)
h. More importantly, Cellophane approach varies from DOJ guidelines in its “Cellophane fallacy:”
doesn’t start baseline for comparison at perfect competition price but at current market price (which
may already be supracompetitive)
i. I.e., cellophane may already have been at its maximal monopoly price such that demand no
longer inelastic
ii. Although even DOJ will start at current market price for comparisons unless has reason to
believe that Cellophane fallacy might be in play
i. Court notes heightened price of cellophane over other products – but this not dispositive because
products actually have different production costs, must look only at cross-elasticity
j. Also not dispositive that had high profits – must look at whether other industries had similarly
high profits in same time period
k. Dissent:
i. Low profits in its other, competitive market products
ii. Elasticity of buyer demand with price
iii. Lack of cross-elasticity
iv. Internal memoranda of Δ itself defining a narrower market – Hammer feels this very
significant
v. Efforts by Δ to lobby for higher tariffs
23. U.S. v. Microsoft (District Ct 2000)(Suppl 29)[see below] Jackson: exploitation of monopoly
leveraging, network externalities, vertical restrictions, etc. tantamount to monopolization
a. Findings of fact/Theories of case
i. Look at definitions at back of case
b.
c.
d.
e.
f.
g.
ii. Applications barrier to entry to competition to operating system itself
iii. Chicken-and-egg problem: operating systems and their dependent applications vary in
popularity mutually according to the availability of the other
iv. Network externality: value increases with popularity of the application, standardization is
efficient in this context and has great economic power, even if not standardized on the highest
quality technology
v. Middleware: communicates between operating systems, makes standardization irrelevant to
some extent
Relevant market: Intel chip compatible operating systems
i. Uses Cellophane reasonable interchangeability standard: actual, potential other members of the
market
ii. Also applies DOJ small price increase test
iii. Note that attempted monopolization claim applies to browser market, not OS market
Court doesn’t stop there: also applies other tests:
i. No easy entry to market within one year of DOJ guidelines, still no easy entry even if extend
this period to 3 years
ii. Court also acknowledges entrenchment of current operating system in consumer consciousness
– limits ability of competitors to enter market by creation of rival operating system
iii. Court also applies possibility that market definition really should include all PCs, not just Intel
compatible ones – this still doesn’t adequately confine Microsoft’s market share
iv. Court reinforces this conclusion by finding that much of Microsoft’s conduct is consistent with
possession of monopoly power
v. Hammer points out that this overlooks the possibility that Intel chip market will be completely
obsolete in short time – i.e., technology monopolies are very short-lived, on average,
applications barrier to entry theory might be too simplistic
Middleware threat:
i. Microsoft effectively trying to vertically integrate to keep its monopoly: e.g., bundling,
exclusion of middleware
ii. Middleware issue forces court to look at Δ’s conduct in related but separate market – courts
really don’t care about this separate market, but do care about how this creates a barrier of entry
to the market in question (i.e., operating systems) – i.e., note that NO claim of monopolization
of middleware
iii. Why not just view this as monopoly leveraging, tying theory (forces consumer to take products
when only want one) – these theories generally not received well by courts
Court then looks at exclusionary and predatory acts in turn, looking at possible business
justifications
Browser threat:
i. Microsoft tried to force Netscape to stop developing Navigator as an application platform
ii. Tying forced on mfrs. – this could be justified on efficiency/standardization claims
iii. Restriction on ability of mfrs to reconfigure Microsoft products to be compatible with other
browsers – this could be justified on copyright claims, integrity of underlying software,
efficiency or technological concerns (adverse tech effects on Windows operating system)
iv. Restrictions on mfrs’ ability to promote other browsers
v. Very significant that Microsoft wasn’t treating its browser as a product to be maximized but
merely as a means to maximize its operating system market – thus, any conduct affecting
browser market loses persuasiveness as justified good business judgment relative to the browser
market (as opposed to operating system market)
vi. Ultimately, business justifications are fact intensive
vii. All these rely on use of Microsoft’s current monopoly as bargaining power to control channels
of distribution – this is monopoly leveraging, but its relevant to a Sherman §2 claim because
the leveraging serves to loop back and bar entry to the original monopolized market
viii.
But how important are mfrs as a channel of distribution as to other channels (direct
distribution, freeware, etc.)
ix. Note that this is exclusionary, not predatory, behavior
Java threat: Activity was both exclusionary and predatory – not meant to maximize Java market
profits, hurt Microsoft itself in short run,
Consumer welfare and §2:
i. Quality, price/output/rents, and choice – but definition of consumer welfare still rather
controversial
ii. Not clear if this case uses this term to refer to consumer surplus or total welfare
iii. Used as a characteristic to determine whether or not conduct pro-competitive/beneficial – thus
very important to be clear on what we mean by consumer welfare
iv. In this case, look at relative benefits of variety/innovation vs standardization – middleware seen
as reconciling the two, both to consumers’ benefit
v. Note that court acknowledges that standardization good and inevitable, but don’t want any
single business to control the development of that standardization/convergence to their benefit
and to the cost of technological development – but this presumes that court can foresee what the
“natural” path of technological development and convergence would have been absent
manipulation by a monopoly – or just make claim that monopolist diverted path, regardless of
what it would have been
vi. Very influential that court perceives Microsoft as denying choice, as defined by proxy of OEM
et al.’s demands for independence and by demonstrated separate consumer demand for OS and
browsers, etc.
vii. Basically, court does no balancing of benefits and costs because doesn’t find any legitimate
business justifications?
i. Remedy:
i. Separate OS and browser bundling: contrary to theory of case because effectively allows
preservation of monopoly within OS market, which is underlying problem (and Microsoft
didn’t really care about browser market for profit, anyway) – basically court looking only to
tailor a remedy without destroying the business (economies of scale, standardization/network
externalities, etc.)
ii. Hammer says that when standardization inevitable (i.e., natural monopoly), should take a public
access approach and impose compulsory licensing – but wouldn’t middleware independence be
better way to give even more innovative capacity? (Hammer tends to favor the public access
approach: would allow both derivative innovation as well as pioneering innovation of
alternatives to Windows, doesn’t believe that public access remedies completely squelch
competition in an ironic way)
iii. Conduct-oriented remedies: resemble public access approach
iv. This remedy again reveals skepticism about judicial capacity to regulate – injunction against
tying a second best but more easily administered alternative to public access approach
j. Hammer disagrees that standardization = natural monopoly, although could have network
monopoly (i.e., could have multiple networks, with monopoly within each)
24. In re Intel (FTC 1999)(Suppl 70)[Intel withholding update info on processor in order to manipulate
OEMs into cross-licensing their technology back to Intel] FTC consent decree: withholding of
information can be seen as monopolization of dominant market power position
a. Theory:
i. Allows Intel appropriate value of OEM IP rights
ii. Allows Intel to keep OEMs from helping out competitor microprocessors from developing
market share because OEMs not using Intel wouldn’t have other value-added that Intel hadn’t
already granted to other OEMs
iii. Allows Intel monopolization of technologies that other microprocessor mfrs might have used to
their own benefit
b. Consent Decree:
i. Allows Intel to avoid compulsory licensing or break-up or other vast structural remedies
ii. Basically not too burdensome to Intel, anyway
Attempt to Monopolize
25. Generally
a. Elements differ from actual monopolization
i. Specific intent to monopolize
ii. Exclusionary or predatory conduct
iii. Dangerous probability of success, as defined by market power
iv. Affect on interstate commerce
h.
v. Actual harm (???)
Is a separate claim from monopolization with separate value:
i. Incipiency rule: want to catch monopolization before causes harm
ii. Unsuccessful attempts at monopolization cannot be prosecuted under monopolization
iii. Some actors just don’t have enough market power to be indictable under monopolization claim
iv. Is conduct mala per se or bad only because of effects: this cause of action based on former,
threat to competitors rather than just threat to competition
26. Swift
a. Factual impossibility not a defense, but by time look at whether dangerous probability, factual
impossibility is a defense
b. Specific intent necessary for attempted monopolization
27. Lorain Journal v. U.S. (S Ct 1951)(597)[journal threatens advertisers with disbarment if patronize
rival radio station] Burton: right to refuse to deal is qualified right, particularly where you are a
monopoly with potential to inflict large injuries on potential competitors
a. Lorain seen to have monopoly over advertising channel
b. Can be seen as predatory conduct or at least exclusive dealing
c. Any time an alleged monopolist engages in exclusive dealing AND inflicts substantial to total
damage on its target, we have attempted monopoly – narrow reading of this case
d. Most wide reading of case states that right to refuse to deal is a qualified right (in line with Aspen
Ski, although differs from Aspen Ski in that no path dependence, although there is change in
former trade practice that erects barrier to entry)
e. Weak for lack of analysis of actual monopoly power
28. Spectrum Sports v McQuillan (S Ct 1993)(601)[sorbothane mfr cuts off dealer who refuses to close
its athletic distributorship due to probably nepotism] White: attempted monopolization requires
showing of market power to show dangerous threat to market as whole, not just single
competitor
a. Could be seen as legitimate plan to change distribution patterns with a franchisee that views its
license as entitlement (very sympathetic to jury) – this case leads to belief that all changes in
distribution are liable to antitrust claims
b. Holding is that dangerous probability necessitates proof of relevant market power, can’t simply
bootstrap specific intent onto dangerous probability (9 th Cir. was only one who thought otherwise)
c. Specific intent is, however, inferable from conduct – common in modern antitrust law
d. Walker Process (inequitable use of patent): cannot show attempt to monopolize without market
power, otherwise would not be able to show ability to endanger competition
e. I.e., not about protecting competitors, about protecting competition & market as a larger entity in
order to protect consumers – mere injury to competitor is a business tort
f. Refusal to deal is less likely to support attempted monopolization, this more likely to be an act
aimed at competitor rather than competition/market as a whole
g. How much market power is necessary: varies with the cause of action, arrayed along a sliding
scale generally: for attempted monopolization 50%+ (30-35% enough for boycotts, 40-50% for §1,
60%+ for actual monopolies)
IV.
Vertical Restraints
Restricted Distribution
1. Generally – see page 612
a. Almost all vertical integration comes under rule of reason
b. Vertical integration desirable when manufacturer, etc.:
i. Wants to keep contractual retailers from competing with integrated retailers
ii. When want to garner more of surplus for itself, than to retailers – this only a problem if retailer
has bargaining power in form of threats to buy from other manufacturers, etc. – i.e., if retail
monopoly was created by the manufacturer, the manufacturer can also take it away via its
superior bargaining power
iii. Integration avoids double-market problem because avoids possibility of consumers paying for
two sequential monopolies
iv. Free-riding on value-added services provided by retailer who has something of a monopoly on
brand – must therefore give retailer more of surplus via retail price maintenance
c. Resale Price Maintenance:
b.
i. Manufacturer’s preference would be to charge highest wholesale price, with retailer charging
lowest retail price – therefore set max retail prices
ii. But also want to prevent retailers underpricing in order to compete with one another – therefore
set min retail prices
iii. Justifications for min retail prices: goodwill;
 Prevent free-riding on each other – but also done through exclusive territories; can be done
through manufacturer subsidies;
 Brand image: prevention of underpricing and lowered perception of quality:
d. Manufacturers want to set wholesale price where only room for retail mark-up is for retailer’s
marginal costs, such that actual consumption/demand doesn’t decrease – thus, would like
competition at retail level to force retailers to set mark-up at marginal retail cost
e. Giving exclusive territory reduces retailer competition, thereby allowing retailer to keep more of
surplus – i.e., exclusive territories have contrasting effect to retail price fixing by manufacturer
f. I.e., when manufacturers have competing drives to empower retailers and yet to retain power
themselves, no need to regulate them via antitrust laws – i.e., interfere only when the drives are not
balanced, use rule of reason rather than per se rule
g. Market power not an issue except when trying to claim that non-price restrictions have an anticompetitive effect (because price-fixing presumes ability to have power over market?) – therefore,
rule of reason would really only be necessary when looking at non-price vertical restraints
h. When manufacturer’s “suggested” price is not set as max or min, interpret it according to
circumstances
i. Bork would probably allow almost full laissez-faire as to vertical non-price restraints, self-interest
will cause self-regulation, Scalia might tend to follow suit indirectly by heightening the burden of
proof
j. Topco could have been at least partially re-characterized as vertical organization that increase
inter-brand competition while decreasing intra-brand competition
k. Distinction between horizontal and vertical agreements all a function of why a vertically oriented
party would be motivated to be involved in otherwise horizontal integration?
l. When don’t have adequate inter-brand competition to constrain intra-brand competition, can
effectively punt to a §2 monopolization claim – therefore, we shouldn’t worry so much about
vertical restraints under §1
2. Dr. Miles Medical v. John D. Park (S Ct 1911)(625)[wholesaler accused of inducing others to
violate restrictive contracts with manufacturer, interference with business relationship/inducement of
breach] Hughes: vertical minimum price controls are per se violations because are restraint on
alienation
a. Antitrust law used as defense by Δ: these contracts are void for public policy as undue restraints
on trade
b. Formula not proprietary information, not patented, such a claim would be too easy to abuse, if not
worthy of patent (quack medication probably not patentable anyway), not worthy of legal
monopoly
c. Manufacturers not intrinsically entitled to set retail price: is tantamount to restraint on alienation,
wholesalers should have more independence, doesn’t look like a restraint ancillary to a legal
contract
d. In fact, looks more like horizontal price-fixing using manufacturer as third party to coordinate the
horizontal agreement
e. Now read to state that vertical minimum price controls are per se violations of Sherman Act
f. Holmes dissent:
i. No antitrust violation, no statute applicable, Sherman not relevant: essentially very skeptical of
Sherman Act, believes in more laissez faire approach
ii. Common law understanding of restraints of trade very different from economists’
understanding – individual liberty is fundamental, look only at coercion rather than at content of
agreement (i.e., as long as contract fixing price was voluntary)
iii. Also cites common law exception to restraints of trade due to necessity
iv. Retailers will inherently try to undercut each other, right for manufacturer to try to protect self
against this
g.
Is vertical price fixing same as horizontal variant, what are ramifications of allowing manufacturer
to determine price, is it desirable to have retailers of identical products compete, what are
differences between intra-brand and inter-brand competition
3. Albrecht v. The Herald (S Ct 1968)(631)[newspaper refused to sell to exclusive retailer when
retailer refuses to charge only set maximum retail price] per se illegal to set maximum price
vertically
a. Illegal to set maximum retail price – risk of jipping retailer out of fair share of surplus because
retailer actually knows the market better, particularly what value-added extras necessary to move
product – i.e., consumers benefit if price controlled by retailer
b. But not really a risk because retailer could simply stop dealing, if inter-brand competition
c. Might drive smaller retailers out of market if limit distribution
d. Minimum price-fixing same as maximum price-fixing, both per se illegal
e. Court feels that if retail competition, retailers are more likely to compete on non-price terms, to
benefit of consumers (question of degree as to which effect will dominate: if retailers assured of
some surplus, they will compete through non-price qualities, but if not assured of mark-up, will
compete through underpricing – i.e., therefore important not to have both price-fixing/provision of
manufacturer subsidy to fund non-price services and exclusive distribution?)
f. Difference between maximum and minimum price-fixing:
4. ARCO v. USA Petroleum (S Ct 1990)(633)[accuses AR of setting maximum price-fixing] limits
Albrecht max price per se rule through standing, antitrust injury doctrine
a. Court will generally be skeptical of such claims: not predatorily low, benefits consumers (Ct will
also be skeptical when private parties sue each other?)
b. Both this Ct and the Khan Ct want to overturn Albrecht – i.e., Ct trying to limit Dr. Miles as well
c. USA trying very hard to plead under per se umbrella so that can avoid softer issues of actual
injury, direct competitive effect, anything other than Δ’s conduct – Ct resistant to this
d. Ct resorts to antitrust injury doctrine (standing doctrine):
i. Protection of market and consumers, not individual competitors
ii. Must look at legitimate justifications
iii. Standing: tends to blur stereotypical standing doctrine with antitrust jurisprudence – says that
unless the injury is one antitrust designed to protect against, no standing to bring antitrust suit
iv. Thus, question is, what specifically is the harm: retailers and consumers are only ones suffering
injury, as per Albrecht-type analysis, and therefore only ones with standing
v. In fact, if max price setting tends, as per Albrecht, to lower non-price services by retailers,
ARCO’s competitors would in fact benefit
vi. Only is case of predation can we say that competitors themselves suffer injury
vii. Standing a calculus: need to make sure those with standing are numerous enough that someone
will actually prosecute to achieve goals of antitrust law – should also include those with
incentives to prosecute – Ct here has effectively restricted standing enough so that can do end
run around Albrecht (i.e., very unlikely that anyone would have adequate standing under
Albrecht-type analysis)
e. Overturning Albrecht-type rule may offend distributive concerns about protecting small business,
etc. – i.e., Albrecht would have protected against underpricing that otherwise would not qualify as
predatory
5. State Oil v. Khan (S Ct 1997)(Suppl. 75)[franchisee sues distributor for effectively setting maximum
price] O’Connor: overturns Albrecht officially
a. Further limits Albrecht:
b. Khan, as member of conspiracy, would not have standing to sue for conspiracy under §1
c. State Oil trying to circumvent illegality of max price setting by saying that franchisee can set any
price but must cede excess back to distributor
d. DC tried to limit Albrecht by replacing its per se rule with rule reason that examines market
power; 7th Cir. felt compelled to reverse due to stare decisis obedience to Albrecht
e. Tracks Sylvania’s overturning of Schwinn to overturn Albrecht:
i. Change in circumstances
ii. Contemporary assessment of actual economic effect
iii. Academic and expert criticism of precedent
iv. Overall, denotes Ct’s distrust of its own judicial capacity
v. I.e., Hammer feels that precedence might not carry the same weight in antitrust jurisprudence
that it does in other areas of law
vi. Hammer characterizes this as organic approach: Congress’ mandate was to create good antitrust
law, not to set up immutable interpretations of Sherman Act – i.e., Ct’s only goal is to protect
competition & consumers, not predictability, statutory interpretation, etc.
f. Again demonstrates courts’ sympathy of max price setting as form of benefit to consumers
g. Dealer freedom restrained by Albrecht-type rule: if manufacturers cannot set max price, will be
motivated actually to integrate retailers as sole dealers, thereby limiting the retailer’s freedom and
excluding other, non-integrated retailers from intra-brand competition
h. Inter-brand competition will tend to restrain max price setting anyway
i. And rule of reason can always be used to restrain outliers as to max price setting
6. Packard Motor Car v. Webster Motor Car (DC 1957)(638)[dealer demands exclusive territory
from manufacturer with waning sales] DC Cir.: restructuring of distribution channels can
sometimes be justified, territoriality justified despite potential for price constraints
a. Example of restructuring of distribution pattern, always risks bad reputation among jurors
b. Cannot tell, as matter of abstract theory, whether reduction in retailer competition will have
beneficial or detrimental effect on non-price offerings to consumers
c. Not §2 case because no monopoly of greater automobile market, only of specific cars
d. Ct sees this as justified as necessary to give retailers incentives to continue selling an unpopular
product
e. This case complicated by fact that dealer instigated the restructuring of distribution, not by
manufacturer – looks like horizontal anticompetitiveness
f. Territorial limitations generally:
i. Can be achieved through direct restrictions, through incentives to develop a territory,
disincentives to wander into other territories, etc.
ii. Desirable to manufacturer sometimes, despite resultant decrease in intra-brand competition,
because:
 Greater incentives to provide non-price value
 Can help maintain overall competition by preventing loss of retailer numbers
 Allows some price discrimination
 Quality control, fostering good will
7. Continental TV v. GTE Sylvania (S Ct 1977)(643)[Sylvania revamps distribution system to reduce
number of retailers and restrain resales but without promising exclusivity of territory or extracting
exclusivity of products sold] Powell: overrules Schwinn’s dominion distinction, vertical non-price
restrictions not per se illegal
a. Sherman §1 claim, compared by Ct to Schwinn [territorial (non-price) restrictions on distributors
who never actually acquired title/took risk for products: Ct held that vertical restrictions on
wholesaler resale in areas or to persons is per se illegal only after mfr parts with dominion over
product, otherwise rule of reason when wholesaler OR retailer merely acts as salesman or agent –
this property-type theory comports with Dr. Miles’ property-like restraint on alienation approach]
b. DC overruled by 9th Cir. because latter felt must have anticompetitive effect in addition to proof of
conspiracy
c. Schwinn fully applicable here, no reason to use rule of reason, no need to look for actual
anticompetitive effect – essentially equates Sylvania’s restrictions as restraint on alienation?
d. Ct agrees to reconsider Schwinn, however:
i. Can only invoke per se rule on §1 claims if patently anticompetitive, per Northern Pacific
ii. Vertical non-price restrictions complex in effect, however, because stimulate inter-brand
competition while simultaneously reducing intra-brand competition
iii. But vertical price restrictions always per se illegal because almost always reduces both types of
competition, Congressional approval of this approach – but Hammer notes that price and nonprice restrictions aren’t actually all that different
iv. See inter-brand competition as focus of antitrust law
v. Majority rejects idea that non-price restrictions could be per se illegal on basis of restrictions on
alienation or autonomy of retailers alone (as suggested by Brown’s dissent) because these
factors often unrelated to price, quality, service, etc.
vi. Majority agrees that vertical non-price restrictions might injure small or entrant businesses, but
also indicates that smaller firms might not be able to afford to maintain dominion in order to
take advantage of Schwinn exception and to compete to enter a market
vii. Majority sees the “dominion” distinction as unrelated to possible benefits of a per se rule as to
non-price restrictions
viii.
Sees intra-brand competition as best mediated by inter-brand competition, as per Bork
ix. Such restrictions enhance inter-brand competition by allowing efficiencies of distribution, to
control for tort liability for mfr’s products, and to provide non-price services (rejects idea that
such “product differentiation” will actually lower inter-brand competition, as Comanor
suggests)
x. Therefore holds Schwinn overruled in favor of rule of reason for customer limitations and
territorial restrictions
e. Ct seems influenced by fact that Sylvania faltering business – likens it to small firms we worry
about
f. Seems implicit that Ct uses market power as a screening device as to whether we should be
suspicious
g. Product differentiation:
i. Increases consumer choice, will tend to increase quality
ii. But decreases competition
iii. But product differentiation a vague concept, could simply be façade for deriving supracompetitive pricing
iv. Bertrand paradox: product differentiation used solely to disrupt conditions necessary for this
paradox
v. FTC once tried to prosecute product differentiation itself as an offense, Ct quickly shot this
down
h. White concurrence:
i. No market power so little ability to charge supra-competitively, and restrictions weak enough to
allow reselling
ii. However, defends Schwinn as protecting against restraints on alienation, doesn’t see why nonprice restraints should be treated differently than price restraints
8. US v. Colgate (S Ct 1919)(663)[trial ct quashed indictment of Colgate for coercive refusals to deal
with distributors] Reynolds: unilateral refusals to deal not illegal – provided an out for
manufacturers looking to vertically price fix indirectly
a. Affirmed because Sherman Act directed only at monopolies, not meant to restrict freedom not to
deal with others
b. Ct found no express or implied agreements
c. Colgate heralds era of cases where businesses, in reaction to per se rule on vertical price-fixing,
have started to be more subtle about the price fixing
d. Reminiscent of Copperweld, where independent contractors who really act more or less as intrafirm employees can cause liability for conspiracy
e. Highlights fact that freedom for one party equates to lack of freedom for another – jural correlate
9. US v. Parke, Davis (S Ct 1960)(665)[Parke Davis agrees to sell only to distributors who maintain
resale prices] limits Colgate, unilateral refusals to deal are coercive and anticompetitive
a. Effectively restricts Colgate: says this has effect of damping competition
b. Particularly found restrictions on wholesalers ability to sell to retailers offensive
c. Felt that manufacturer did not use self-interest to induce voluntary acquiescence “with collateral
effect of eliminating price competition,” distributors’ acquiescence not a matter of free choice
dictated solely by desirability of product
d. Dissent points out that Parke Davis’ action unilateral and not dependent on horizontal
orchestration
e. This really not any different than Colgate, however
f. Coercion might be a function of market power – otherwise inter-brand competition would tend to
mitigate against ability to coerce distributors & retailers
10. Albrecht v. The Herald Revisited (S Ct 1968)(666)[newspaper discharges dealer who refuses max
price restriction] no horizontal agreement found between terminating manufacturer and dealer
who replaced the terminated dealer
Courts will often find no illegality if no established agreement between dealer and manufacturer –
courts therefore often strain to find such a pre-existing agreement
b. Ct finds there was conspiracy/combination between Herald’s thugees and dealer’s replacement to
force dealer to obey max price restriction
c. Harlan dissent:
i. Ridiculous to see others as co-conspirators when they merely agreeing to deal on given terms as
part of their legitimate business
ii. Ridiculous to make coerced dealer wait until actually acquiesced/formed agreement to give
them standing – this rule was just attempt to avoid saying max or min price restrictions are per
se illegal, Ct trying to find violation based on bogus conspiracy instead
iii. Harlan points out that don’t need agreement f 3rd parties in order to coerce one dealer into max
price restriction (whereas would need the agreement of other dealers in order to enforce min
price restriction, otherwise agreeing dealers would be undercut)
11. Monsanto v Spray-Rite Service Corp. (S Ct 1984)(668)[Monsanto discharges distributor for
violation of set resale price, conspired with distributors to also refuse to deal with this distributor]
Powell: need evidence that manufacturer and distributors were not acting independently – this is
new rule Ct announces for vertical refusals to deal in relation to price-restrictions – further
limitation on Dr. Miles and Albrecht
a. What is standard of proof necessary for vertical price-fixing conspiracy under §1
b. DC and 7th Cir. says plaintiff survives directed verdict if can show manufacturer terminated underpricing distributor in response to complaints from other distributors
c. Leaves open question of whether non-price restrictions might be per se illegal if used to effect a
price restriction
d. Ct also declines to reconsider per se rule for vertical price restrictions
e. Points out that difficult to distinguish between legal unilateral refusal to deal (with its resulting
potential benefits of increasing non-price services, decreasing free-riding) and concerted price
fixing between manufacturer and it adhering distributors
f. Therefore, must very clearly prove an actual agreement in order to succeed on §1 claim: mere
response to distributor complaints not adequate proof of this, could be legitimate response to
manufacturer attempts to encourage non-price offerings
g. Manufacturers also have legitimate need to communicate with and respond to distributors
h. Therefore, need evidence that manufacturer and distributors were not acting independently – this
is new rule Ct announces for vertical refusals to deal in relation to price-restrictions
i. Very similar to oligopoly analyses and to predatory pricing analyses and intra-vertical agreements
(Matsushita, Copperweld analogs)
j. Places burden on plaintiff to show lack of independent behavior legitimate justifications (proving
a negative, would normally impose burden of proof on party with greater information)
i. Hammer notes that Breyer’s dissent in Cal Dental might have been more appropriate procedural
approach to this issue, would have been more likely to allow cases to get past motions
ii. But if worried that procedural costs themselves might chill legitimate business practices, might
want to make these kinds of procedural hurdles in favor of Δs
iii. All motivated by fact that vertical price restraints are per se illegal (Dr. Miles), thus rather than
over-rule Dr. Miles, just limit it indirectly
iv. This later interpreted by Business Electronics dissent as price-cutting motivation for vertical
restraints
v. Ct’s interpretation of actual facts very similar to Parke Davis
k. Actual agreement needs more than voluntary acquiescence to suggested resale price, needs to
show that manufacturer actually sought acquiescence and distributor gave it
l. Ct, nonetheless, finds this proof in Monsanto’s punitive behavior (withholding of supply at crucial
time in market) toward one recalcitrant distributor (who then acquiesced) and a circulated letter
referring to “arrangement” and “program” which reasonably could be interpreted as agreement (but
which also could have been interpreted as prediction of distributor reaction to a unilateral
suggestion by manufacturer)
m. Also need to show that π was discharged because of refusal to comply: Ct finds circumstantial
evidence of this in explicit threats to terminate if didn’t raise prices, relation of other’s complaints
about under-pricing, etc. – but effectively, this places very large burden on potential plaintiffs
a.
n.
Admits that the resultant boycott of the uncooperative distributor could be consistent with
termination for other reasons, but at least demonstrates ability for concerted action
o. This case effectively gives much wider latitude to non-price restrictions as long as reasonable –
measure standard of evidence high enough to give this wider latitude
p. Might have standing issues on remand, although Ct merely affirmed without remanding
12. Business Electronics Corp. v. Sharp Electonics Corp. (S Ct 1988)(676)[manufacturer discharges
underpricing retailer in response to complaints & threats from other retailer] Scalia: must have
coercive price-cutting motivation (forcing an “agreement”) for vertical restraint to be per se
illegal
a. Jury trial found conspiracy under §1, but 5th Cir. said need to have no retailer freedom to set
prices at all
b. Reiterates that inter-brand competition can often restrain lack of intra-brand competition, per se
illegality of vertical restraints would give perverse incentives to actually integrate vertically
c. Vertical price restraints an exception because they facilitate cartelizing because retailers wouldn’t
have incentive to ruin its manufacturer’s horizontal agreements:
i. Vertical price control over retail price also adds transparency for oligopoly discipline purposes
ii. Cartels among dealers really only a possibility when dealers have more market power than
manufacturer, simply uses manufacturer to coordinate what is otherwise a horizontal price
agreement, group boycott/concerted refusals to deal
iii. Scalia effectively using this cartelization rationale to further limit the applicability of the per se
rule against vertical price restraints
d. Therefore presumption in favor of rule of reason: must have demonstrable economic effects, focus
on inter-brand competition, must observe Sylvania
e. Here, without further agreement on resale price between remaining retailer and manufacturer, no
showing that would increase chances of cartel: not significantly different from non-price
agreements, and cheating on cartel still too easy
f. No allegations here as to retailer market power: inter-brand competition and competition from
other retailers would tend to restrain this anyway
g. Too difficult to distinguish between retailer terminated for price-cutting and retailer terminated for
failure to provide value-added services, desire to grant exclusive retailer territories, etc. – therefore,
shouldn’t apply per se rule
h. Also can’t decide formalistically based on mention of “price” or effect on price – non-price
restrictions often effected through price effects intra-brand – i.e., could be legitimate ancillary price
restriction (a la Taft)
i. Also can’t decide formalistically based on whether ancillary to actual contractual obligation,
making something otherwise illegal a part of express contract doesn’t make it legal
j. “Restraint of trade” is an organic concept, tailored toward effect, and not categories of conduct –
both per se and rule of reason analysis must therefore evolve with time
k. Common law rule of Dr. Miles inapposite here because no restraint on alienation, no rigid
agreement
l. Distinguishes between horizontal non-price restraints that have price effects (territoriality, group
boycotts, etc.) and vertical non-price restraints that have the effect – not equivalent – also,
agreement itself must be horizontal, not just horizontal effects:
m. Distinguishes Albrecht on basis of no 3rd party coercion enlisted here
n. Also distinguishes Parke Davis because no horizontal agreement between manufacturers or
between retailers brokered by manufacturer, and also because no explicit price restraint – Note that
this case involves dealer coercing manufacturer, not manufacturer coercing dealer, as in Parke
Davis
o. Stevens and White dissent:
i. Involved coercion of retailer to set price, not just a desire for more efficient distribution system
ii. Irrelevant that only one retailer involved in coercion of another, rather than many – therefore,
tantamount to horizontal agreement brokered by manufacturer – but Hammer points out that
this story not convincing unless can show that retailer had market power over manufacturer,
which is rare circumstance
iii. Should defer to jury determination that this agreement was about price, not non-price, terms
iv. Not legitimate ancillary restriction because protecting profit margin to fund value-added
services not legitimate under Sherman
v. Sylvania did not say no need to worry about intra-brand competition, just suggested that
concerns about intra-brand might be alleviated by inter-brand competition
vi. Monsanto’s requirements of 1) proof of agreement, not independent behavior and 2) pricing
motivation, are adequate to protect against over-restraint of vertical agreements
p. Issue of efficient capacity? If the territory could genuinely efficiently maintain both retailers, one
retailer less likely to try illegitimately to get exclusive territory, and manufacturer less likely to give
in to retained retailer’s threats? (especially if manufacturer unlikely to benefit in terms of greater
share of rents from higher retail prices?)
q. DC jury charge held to be erroneous because although 1) required that π have been terminated
because of price cutting, but 2) failed to show that the underlying pre-existing agreement was
designed to fix price (as opposed to legitimate goals where price-cutting was evidence of failure to
adhere to legitimate goals)
r. This holding still subject to criticism that price and non-price restraints are not inherently different
in that they may both promote legitimate goals
s. Distinction from Monsanto: basically clarifies and emphasizes Monsanto by exalting Sylvania
t. Rule of reason looks at all the circumstances and weighs effects on inter-brand competition with
effects on intra-brand competition – Scalia basically presumes that rule of reason would have
exonerated this conduct, deference to the market, no deference to jury (who is not as trusting of
market self-correcting forces)
Tying Arrangements
13. Generally – see page 686
a. Less about constraint of dealer’s autonomy than it is about effect on competition for tied products
b. Can violate either Sherman §1 or 2 or neither, Clayton §3 specifically addresses it
c. Some products aren’t useful without other, tied products – some tying arrangements also offer
economies of scale, transaction costs, etc.
d. Business reasons for tying:
i. Propagation of monopolies down or upstream:
 This won’t allow derivation of additional monopoly rents from the tied product that
couldn’t have already been derived from the originally monopolized product,
 But does have effects in terms of from whom the tied product will be purchased, which
might decrease incentives to innovate, become more efficient
 In markets where competition for tied product not perfect, monopolist might use tying to
exclude rivals in tied product market or might try to raise prices by altering horizontal
interactions (e.g., Microsoft?)
ii. Price discrimination:
 By using the tied product as a measure of how often the tying product (monopolized
product) is used, can discriminate between customers
 Can be effected directly by charging royalties
 Can also be effected by charging higher prices for tied product
 Note that price discrimination can have variety of effects: reduction or increase of price or
output
iii. Disguising price: To evade price controls, to manipulate tax or royalty calculus, evade
oligopoly restraints, etc.
iv. Quality control or improvement:
 By requiring contract for repair or service
 To supervise what kind of services, financing, etc. tied to product when sold to customers
by retailer
 To allow manufacturer continued maintenance of what is effectively continuing market test
of its product
e. Motion Picture Patents v Universal Film Manufacturing (S Ct 1917)(692)[patented projector
tied to patent-expired films] cannot use tying to patented products to extend monopolies
i. Patent owners should not be allowed to extend their patent monopolies to pricing on nonpatented products
ii. Dissent argued that prohibition on this practice might cause patentee to withhold the product
altogether
iii. Is tying a Sherman§1 or Clayton§3:
14. Jefferson Parish Hospital v. Hyde (S Ct 1984)(733)[hospital has rule that uses anesthesiologists
from only one group] Stevens: still apply per se rule to tying, but is a softened per se rule
a. Hospitals raise many Copperweld issues in that physicians and other entities are effectively
contractors/independent units
b. Standing: tying directly injures the excluded competitors, so π does have good standing
c. O’Connor concurrence: very economically based
i. “Soft per se” rule against tying because must look at market power, out of respect for precedent
ii. Doesn’t worry about market power in tying market because that’s a §2 issue: monopoly in
tying product not typically a concern for tying because difficult to leverage it
iii. However, we do worry about it when: trying to use tied product to effect price controls or price
discrimination in the tying product market
iv. Notes that price discrimination not always a bad thing
v. When we should worry about leveraging market power in one market into power in another:
 Market power in first market: IP rights don’t always confer market power because might
have substitutes, if not identical competitors
 Realistic threat of market power capitalization in second market (echoes attempted
monopolization analysis)
 Are there really two separate and distinct products
①
Surgery and anesthesia probably not meaningfully capable of separation – when
consume one, always have to consume the other
②
Overall, linking and integration of products is one of thorniest issues of tying cases
③
Majority sees this more as how the consumer would perceive the products – i.e., is
there a separate demand already extant for the two products
④
Kodak approach looks less at demand than at sufficiency of supply: is it
economically feasible in terms of production concerns to separate output
⑤
Fixes proportions of linked products: this might prevent allocative inefficiency, but
this probably isn’t what O’Connor has in mind
 But allow business justifications: economies of scale, good will, oligopoly busting – in this
way O’Connor differs in her “soft per se” rule from the majority’s harder per se rule
vi. O’Connor points to quality control, assurance of ready supply, etc. as business justification for
tying anesthesia to surgery – i.e., overall benefits to consumers via quality of care is essentially
pro-competitive
vii. Again, seeming deference to professional judgment: hospital better than sick consumers to
choose wisely
viii.
Exclusive dealing arrangements:
 Good description of established current law
 Exclusive dealing arrangements only illegal when significant fraction of buyers are frozen
out of market – i.e., when significant effect on market overall, not just on one competitor
d. Majority refuses to do away with per se rule for tying altogether: Reluctant to overrule precedent –
but very similar to Northwest Stationery’s approach to per se rule on group boycotts in its attempt
to temper and soften the per se rule on tying
e. When is tying objectionable:
i. Coercion, constraint of purchasers’ freedom, autonomy, and choice
ii. Coercion is a function of market power in tying product, so if no market power, no coercion –
past case law did not look at market power
iii. Coercion can also be a function of uniqueness of tying product (e.g., through IP rights)
iv. This different from per se rule in price fixing in that the latter does not look at market power at
all
f. Per se elements:
i. Two distinct products
ii. With market power in tying product leading to coercion

Majority, however, feels that 30% market share not enough (Hammer feels that 35%
should be adequate for §1 claim, frequently met by most hospitals)
 Plaintiff tried to layer in a lot of issues about information asymmetries to prove market
power, but majority doesn’t buy it
 Majority could have expanded the market to make their point stronger
iii. Substantial amount of commerce in tied product – this much weaker than O’Connor’s
requirement for realistic threat of monopoly in tied product
iv. Will not allow justifications, contra to O’Connor approach
g. Majority notes that if tied product were one that purchaser would not normally have bought from
anyone else, no anti-competitive effect
15. ***Eastman Kodak v. Image Technical Services (S Ct 1992)(751)[Kodak stopped selling of
replacement parts by either manufacturers or selves to Independent Service Providers] Blackmun:
lack of market power in tying product not enough to earn summary judgment against tying
claims because not enough constraints in market otherwise to ensure that this is not tying
a. Majority claims both market power and uniqueness of product
b. But if this is truly unique product, this complicates issue of after-markets for parts and services
c. But consumers are sophisticated, powerful entities that could conceivably fend for themselves –
according to dissent, consumers know that poor or costly service or parts make the original product
less valuable, and thus inter-brand competition will restrain antitrust conduct
d. Path-dependence: originally did allow sales of parts, established user base and then screwed the
user base
e. Majority also notes increase in price and decrease in quality:
f. Is tying between service and parts or product and parts
i. Makes a difference in perceptions of separability of products AND in perceptions of market
power
ii. No market power in service, immense market power in product
g. Also have agreement between Kodak and parts manufacturers in apparent concerted refusal to
deal
h. Also an example of attempted monopolization
i. Note that this is a summary judgment case, very limited discovery (Matsushita was other summary
judgment case, but lots of discovery there)
j. To some extent vertical, in that ISOs must buy parts from Kodak as manufacturer – but also
horizontal in that Kodak is itself an service provider (and horizontal relations w/ other
manufacturers of parts to sell parts only to Kodak?) – Scalia in majority seems to be flipping
viewpoint by calling this horizontal, as opposed to his vertical claims in Business Electronics
k. Life-cycle pricing
l. Majority feels that summary judgment inappropriate because:
i. Consumers don’t have enough information about life-cycle to make decisions enforcing
competition
ii. Doesn’t buy Kodak’s claims that competitors will supply this information because competitors
will see advantages of interdependent behavior, not enough consumers are as sophisticated as
Kodak claims when take price discrimination into account (i.e., small, unsophisticated
consumers will not free-ride on information of large, commercial consumers because Kodak
simply compensates by price discrimination)
iii. Market failure shows that market theory of self-regulation of vertical tying not adequate
iv. Kodak’s behavior irrational in that tends to lower quality/raise price of service, which in turn
makes original product less attractive to consumers
v. Even if have perfect information, locked-in transaction costs of switching to another product if
don’t have perfect information before buying (particularly in view of Kodak’s ex post decision
to cut off ISOs) – this an empirical question of whether Kodak willing to take this business risk
vi. I.e., lack of empirical evidence not a problem here, can negate summary judgment on countertheory alone, haven’t shown that per se legal
m. Raises issues of “temperament:” when does Ct decide to concentrate on market failures, when not
– is this merely issue of personality of justices, issue of tying vs vertical constraints, procedural
disposition, etc.
n. Business justifications:
i. Quality control: Ct feels that competitive ISO market would produce better quality for lower
prices (as shown in initial facts) – quality claims generally seen as facile, standards &
specifications an easier way for manufacturers to control quality
ii. Reducing inventory costs: Ct feels that manufacturer would be better off shifting these costs to
ISOs, need for inventory is dependent on break-down rate and independent of who services
them
iii. Free-riding: Ct feels that this kind of free-riding is not objectionable (ISOs free-riding on
Kodak’s R&D in developing its product)
16. Microsoft Revisited (Suppl. 45-55) tying present here because of market power, etc. despite tied
product being free
a. Ct first mentions Jefferson Parish elements for violative tying – nice summary of black letter law:
i.
Two separate products
ii.
Consumers have no choice but to take both products
iii.
Affect substantial volume of interstate commerce
iv.
Market power in tying product
v.
All required whether per se or rule of reason
b. These are not functionally separate products, a la O’Connor, particularly now that Microsoft has
woven code for Explorer into code for Windows
c. But consumers demand and view these products separately – also, efficient for manufacturers to
produce either product separately
d. Market power: Microsoft considered to have market power adequate for §2, so automatically
sufficient for §1
e. Is there adequate commerce in tied product market: DC looks at amount of commerce foreclosed
to competitors – Hammer feels that this element will eventually slide into dangerous threat element
of O’Connor
f. Purpose of anti-tying statutes is to detect anti-competitive product bundling – limits consumer
choice, forecloses business opportunities for competitors
g. Is this coercion if the tied product is “free:”
h. Biggest difference between DC and DC Ct App is one of temperament – Ct App much more
dubious about its own ability to address highly technological fact patterns
Exclusive Dealing (in Vertical Context)
17. O’Connor’s concurring opinion (748-49):
a. Rule of reason
b. Lots of deference, need almost total tying up of distribution systems to exclude competitors
c. Lots of potential pro-competitive benefits: economies of scale and relational contracting
d. Bottle-neck monopolies and essential facilities are the real dangers of exclusive dealing
18. Parties most likely to get into trouble for exclusive dealing when they get too aggressive, when start
to lack business justifications and when more than necessary to accomplish legitimate goals
19. Look to Microsoft for recitation of black letter law and example of extreme deference to exclusive
dealing
V.
Mergers: Horizontal, Vertical, and Conglomerate
Horizontal Merger Guidelines