ANTITRUST II
Professor Meyers
Spring 2001
Chapter 8: Price Discrimination
Robinson-Patman Act: It is an antitrust law, implemented in 1930’s to help nonchain stores compete with large chain stores who could get price breaks for quantity
discounts on purchases. Problem: R-P may be more anti-competitive than pro-comp.
Because it protects competitors rather than competition.
Clayton Act § 2 (15 U.S.C. §13 Robinson Patman Act)
Focuses on the impact of price in the market. The R-P prohibits discrimination on price.
R-P prohibits a seller from selling a product at a lower price to one buyer than another.
ELEMENTS:
1. There must be a sale across state line (commerce
requirement)
2. There must be a discrimination (difference) in price.
This difference can be direct or indirect: charge buyer
for delivery or better credit terms.
3. There has to be 2 actual purchasers. (not leases & offers don’t count)
4. It must be a commodity/goods of like grade and quality (measured by
quality of goods not consumer preference.)
5. Purchasers must be competitors.
EFFECTS TEST:
1. Does discrimination “substantially lessen competition” OR
2. “Tend to create a monopoly” OR
3. Does it injure, destroy or prevent competition with the:
Seller (seller who missed sale) (Primary line injury)
Buyer: (Secondary line injury)
Customers of either buyer or seller (Tertiary line injury)
DEFENSES:
1. Cost Justification: Quantity discounts are not a defense.
Cost justifications must be proven before sale takes place. Very hard to
prove.
2. Changing conditions defense: Change in market or going out of
business sales
3. Meeting competition defense
Other provisions c, d and e are totally different than 2(a)
2(f) Buyer Liability If buyer wrongfully induces seller he could be liable too.
The sellers defense is meeting competition defense
Brooke Group(Liggett) v. Williamson Tobacco – Predatory Pricing Claim (Primary Line
Injury)
Plaintiff must show dangerous probability of Recouping Costs by Defendant. Success of
the Defendant = Key Antitrust Injury: 1) Prices below Defendant’s Cost 2) Reasonable
prospect or dangerous probability that predator will recoup losses
FTC v. Morton Salt – Secondary Line Injury; Quantity discounts
Court may infer injury to competition where quantity discounts are not Functionally
available to all purchasers. Note: Primary line injury: tough to prove competitive injury
Secondary line injury: it may be inferred
Texaco v. Hasbrouck – Functional Discounts Legitimate?
Affirmative Defense: 1) Discount justified by savings in manufacture, delivery, or sale;
(buyer performs a legitimate duty for the seller and in return is given a discount) and 2)
good faith response to equally low price of competator. Legitimate Functional Discount
will not give rise to inference of injury to competition.
J. Truett Payne v. Chrysler – Sales incentive program.
Buyer must show Actual Injury to himself, not just injury to competition as a whole.
Actual injury: lost profits, lost business, etc. as the result of the price discrimination.
FTC v. Henry Broch and Co. – “broker” for food producers(sellers)
Held: broker who charges less commission to buyer violates R-P §2(c) because different
commission schedules applied to different buyers. §2(c) designed to prevent dummy
brokers, bribes, etc… Cost justification does not apply here, nor do you need two
transactions.
Commodities of Like Grade and Quality
FTC v. Borden – like grade and quality based on chemical composition, not packaging, or
customer preference.
United States v. Borden – Cost justification defense asserted in price discrimination claim
b/c Borden charged diff. Prices b/n diff. Grocery stores. Held: No cost justification
based on artificial classification of consumers. In order to use cost justification,
Defendant must show marginal cost upon which the price discrim. is based. VERY
HARD!!
Meeting Competition Defense (Buyers Lie!!!)
United States v. US Gypsum – Horizontal Competators exchanged price info. Held:
Good Faith belief, rather than absolute certainty, is necessary for “meeting competition
defense” to justify price concession. Seller entitled to meet price to keep customers.
Factors for Good Faith: 1) Seller allowed to meet competition, not beat competition. 2)
made in good faith. 3) buyer threatened termination. 4) Seller seeks documentary
evidence. 4) Reasonableness in terms of market data. 5) Consistent with buyer’s past
practices
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Falls City v. Vanco Beverage – Beer sales; Meeting competition defense available in
wide geographic market, not just on a customer by customer basis. Standard: Reasonably
Prudent Businessman
Changing Conditions Defense
Comcoa v. NEC – changing market for distribution of telephone goods meets
requirements for this defense.
Great Atlantic & Pacific Tea Co. v. FTC – Buyer liability. Held if buyer “knowingly”
induces seller to discriminate in price, where buyer uses a second seller, buyer may be
liable under §2(f) but only if Seller one (who lowered cost of sale) is liable under §2(a).
Buyer’s liability derives from Sellers liability. (Seller one may have meeting competition
defense.)
Okla. Antitrust Laws: OK only has laws corresponding to §2(a), (b) not (c), (d), (e), or
(f). Defencses: Cost Justification, Meeting Competition, and Changing Conditions.
Chapter 7: Mergers and Acquisitions
Vertical Integration Through Merger
United State v. Yellow Cab Company – merger restrained trade b/c it prevented the
purchase of cabs from companies other than the parent company. Cab companies would
have to pay more for cabs and pass the cost on to the consumer. Held: Vertical
integration can be a violation of AT laws if unreasonable restraint of interstate commerce.
Case is problematic, both from an economic standpoint, and the unity of interest of
common ownership (no K, combo, conspiracy)
United States v. Columbia Steel Co. - §1, §2 Sherman violations for vertical mergers?
Held: While vertical integrations are not per se violations, the issue is whether the
merger forecloses competition and is more anticompetitive than procompetative.
Note: effects test of §7 Clayton claim: “substantially lessen competition or tends to
create a monopoly”
Vertical Integrations will be judged using effects test vis a vis a defined market
(geographic and product)
United States v. EI Dupont – Held: ownership of GM stock by Dupont insulated them
from the market. Relevant market was automotive market, not fabric sales. Since GM
had 40% market share of auto industry and acquisition of stock was not motivated by
competitive factors, one may use §7 claim to force Dupont to divest shares. Test: 1)
market affected must be substantial 2) Plaintiff must prove likelihood that substantial
portion of market may be affected.
Note: SOL: 4 yrs for private AT actions; 5 years for Criminal; none for injunctive relief.
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Brown Shoe v. United States - §7 claim; proposed merger (horizontal and vertical) b/n
Brown and Kenny shoe mfg or retail outlet. Held: “trend” toward shoe manufactures to
acquire retail outlets “definitely foreclosed” other mfg from competing for other retailers.
The area of effective competition must be determined by reference to product market and
geographic market. Product market: interchangeability (“cross-elasticity”). What is the
size of the share of the market foreclosed? The goal of §7 is to prevent oligopolistic
markets.
Herfindahl-Hirschman Index (HHI) – used to measure concentration of the market and
change in concentration after a merger. Step one: Square the individual market shares of
each competator and then sum the squares. HHI of 10,000 is a perfect monopoly. Above
1800 is highly concentrated market. 1000-1800 moderate. And so on. Step two:
measure the HHI after the merger. Step 3 what is the difference in the two HHI scores.
An increase of 100 or more indicates a greater concentration and a better chance DOJ will
investigate.
DOJ Merger Guidelines –
DOJ is looking for “barriers to entry” into a potential market post merger, and if they do
not pass the “timely, likely, and sufficient” test, then the DOJ will attempt to stop the
merger at “incipiency.”
3.0 “Entry analysis” Entry must be timely, likely, and sufficient in its magnitude,
character, and scope to deter or counteract the competitive affects of concern.
3.2 “Timeliness of Entry” – consider entry alternatives within 2 years
3.3 “Likelihood of Entry” – likely if new entry would be profitable at premerger prices,
and if such prices could be secured by entrant
3.4 “Sufficiency of Entry” - would the new entry affect the merged entity, be “felt” by
the merged entity.
In other words, if the bad effects of the merger occur, are there competitors who could
enter the market (T,L,S) to offset the harm
Today: Look at Trend (consolidation), Barriers to Entry (T,L,S), and Market Foreclosure
(not as important today)
Vertical Mergers hardly ever looked at today (See Reason v. BlueCross)
States AG “4 firm test”
Mergers of Competitors
Northern Securities v. United States – Held: merger of two railroads by a holding
company “restrains competition” within the meaning of the Sherman Act.
United States v. Columbia Steel Company – Held, in horizontal aspect, the possibility of
future interference with competition through the acquisition of a competing company
does not constituted an unreasonable restraint of trade. Arguably, based on the market
definitions, these two companies were not compotators. Sherman Act Case
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Brown Shoe v. United States - §7 Clayton Claim; Most Hostile Case against horizontal
mergers. Held the effects of the merger may substantially lessen competition in the
market (nationwide mfg and sale of shoes) proscribe the merger.
Probably a bad ruling. Today, one needs to look at barriers to entry.
In horizontal case Plaintiff will want to define the market as geographically small as
possible. In monopolization and vertical case, define as large as possible.
United States v. Philadelphia National Bank – (probably not good law today)- bank
merger; issue: proper line of commerce and section of country. Court held that
geographic market was small and commercial banking was the product market, and
ignoring the argument that the bank would be more competitive nationwide, the court
held that the increase in concentration ALONE was anticompetitive. “Countervailing
power argument” raised here: where anticompetitive effects of merger are outweighed by
meeting communities convenience and needs, then merger shouldn’t be illegal.
United States v. Vons Grocery Co. – (Takes Philadelphia to next level) Held: due to trend
of consolidation and market share in LA area of Vons would increase to 7.5% this merger
would be a “per se” violation of §7 Clayton. No analysis of competitive affect or barriers
to entry.
United States v. General Dynamics – acquisition of stock of coal companies. Market =
not coal, but energy; and geographic = within the competitive position of various coal
mfgs. Merging companies, one was deep mining, one was strip miner. SHIFT toward
more conservative analysis, rational look at barriers to entry, rather than pure market
share. Held: The court should analyze fundamental structural changes in the market
when determining whether a merger would substantially lessen competition. Factors:
concentration of the industry, trend, and after merger affect on the competition.
Consider 1992 Horozontal Merger Guidelines
Entry analysis: T,L,S
Efficiencies
Failure and Existing Assets
FTC v. Staples – FTC seeking prelim injunction to merger b/n two office product
superstores. Two part injunction test: 1) FTC likelihood of success on §7 claim on the
merits 2) equities involved (efficiencies) Note, there were high barriers to entry into the
superstore market.
Hospital Corp. of America v. FTC – whether acquisition of hospitals in TN is likely to
facilitate collusion? Barriers to entry where high, need a state certificate to open
hospital. FTC wins. Note, efficiencies are not a good argument to merger b/c plaintiff
must prove efficiencies cannot be achieved through other means.
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United States v. Waste Management, Inc – barriers to entry in waste management are low
so merger was OK. If merged company presented any inefficiencies post merger,
someone else could easily enter the market
Mergers of Potential Competitors
United States v. Sidney Winslow – merger of shoe componant mfgs found OK b/c they
were not actual competators
United States v. Continental Can – held: proposed merger b/n can mfg and glass mfg
stopped b/c they were potential competitors and market for end uses of their products the
same (“cross-elasticity” of demand), and high probability of foreclosing the market for
end uses.
FTC v. Proctor and Gamble – Clorox Case; Perceived actual potential competitor
creates barriers to entry (high) where it would remove Proctor from the market as a
potential competitor and it may tend to suppress competition where Proctor would
retaliate by selling Clorox at a loss while making up for the loss by selling other products.
Held: merger would allow P&G to exercise market power and substantially lessen
competition and prevent others from entering the market.
Actual vs. Percieved competators facilitating or hurting competition
Failing Company Defense
Citizen Publishing v. United States – two papers operate in “joint operating agreement”;
Defendant failed to show: 1) there was a going out of business sale 2) grave danger of
failure 3) showing that the company with which the failing business was to merge was the
only available purchaser (must offer to third party) 4) bankruptcy would not have helped.
Now papers must get approval to merge, but may avoid many of the problems above.
Note, this doesn’t apply to failing “division”
Further, private party has difficult burden seeking divestiture, let DOJ or AG do it.
Chapter 3: Antitrust Enforcement
Quadriparte approach:
1) DOJ, Criminal and Civil
2) FTC, Civil
3) Private parties, Civil
4) States Attorneys General
DOJ
DOJ has right to discovery b/4 trial, but these are secret. This is the investigative power.
SOL is tolled by the start of an investigation (CID civil investigative demand). Private
party has a year to file after the conclusion of the DOJ investigation. Gov. through DOJ,
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can recover damages, and if Gov. is wronged party, can have damages trebled. If only
private parties damaged, Gov cannot get damages, must pursue injunctive relief. SOL for
civil is 4 years.
§9 of OK Antitrust laws gives the AG similar investigative powers as parens
patriae. DIFF = if state is injured party, it can seek damages, but not trebled. But if
bringing action as parens patriae then damages can be trebled. State SOL for civil is 4
years from beginning of offence, or discovery thereof (this is diff from federal).
DOJ criminal prosecutions – Horizontal Price fixing is only case DOJ really
pursues. Grand Jury investigation and indictment. Note: only Gov. can waive “speedy
trial act.” So Gov can drag out the investigation. Federal Fines for Sherman violations
350K individual – 10mill. for corp. & 3 years in prison. SOL is 5 years. Must show
“specific intent.” Clayton or R-P violations violation fine = misdemeanor with 5K fine.
OK criminal = fine 10k and 2 years in prison. SOL = 5 years
FTC
Only civil juris. §5 or FTC Act. Hearing in front of FTC examiner. Same investigative
powers. Antitrust division and Consumer Protection division. Appeals to Circuit Court.
Private Parties
Treble damages. Reversible error to let jury know. Exclusive federal juris. For federal
claim. Ratio is 20 private to 1 Gov. action. Mandatory one way reasonable attny fees for
Plaintiff.
Venue
Where Defendant is located or does business, or is found. If conspiracy, must have
venue over all Defendants. Nation wide extraterritorial service of process over defendant
corporations
Juris “Interstate Commerce” Requirement
Summit Health v. Pinhas – Held: there is a nexus b/n alleged act (doctor’s boycotting
service of one doctor) and interstate commerce (patients from other states, Medicare
payments, etc…) Test is NOT the competitive effect upon the defendant, but a general
evaluation or the restraint on all participants and potential participants. Look at the
effects within the entire market.
Note: OK there is no commerce requirement, but effects which fall into OK apply
Doctrines Needed for Antitrust Claim
1) Direct Purchaser Doctrine – only the direct purchaser of goods which where
“price fixed” may recover, not “indirect purchaser”
2) Antitrust Injury – injury must be the result of action Antitrust laws designed to
prevent.
3) Standing – remoteness of the plaintiff to the alleged illegality or injury
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Direct Purchaser and Problem of Passing On
Illinois Brick Co. v. Illinois – Illinois Brick sold brick to contractors who in turn sold to
State of Illinois. Can Plaintiff get around “direct purchaser doctrine” by claiming
contractors merely passed on price fixed bricks? Held: no, an indirect purchaser may not
use the passing on defense that contractor may have (see Hanover) offensively because of
the multiplicity of lawsuits and evidentiary problems the indirect purchaser problem
causes.
Exceptions to indirect purchaser doctrine:
1) Injunction sought
2) Cost Plus – where there is a pre-existing K b/n seller and purchaser giving
evidence of pre-price fixing, there are no evidence problems)
3) Unity of Entity – if the manufacturer/seller and retailer/purchaser are same or
subsidiary, then there is a unity of interest (see Copperweld)
4) Co-Conspirator – if the seller and direct purchaser are co-conspirators then an
indirect purchaser can sue.
Business or Property Requirement
Reiter v. Sonotone Corp. – Consumer who’s only injury under §4 Clayton claim is loss of
money falls within the statutory language of “Business, or Property.” It does not have to
be “business property.
Antitrust Injury
Brinswick v. Pueblo Bowl-O-Mat. – Plaintiff must show 1) damage to self and 2)
“specifically” Antitrust injuries, the type of injuries AT laws were designed to prevent
and that flows from that which makes Defendant’s acts unlawful. The damage to self
should be the type of loss that the claimed violations would be likely to cause.
Cargill v. Monfort – For injunction, Plaintiff still needs to show AT injury is the reason
he is seeking relief
Atlantic Richfield v. USA Petroleum – Price fixing case; conspiracy for vertical max
price; Even where there is a presumption of injury to competition in a “per se” violation,
the plaintiff must still show his damages flow from the AT violation. Here the plaintiff
should show 1) conspiracy(agreement) 2) in unreasonable restraint of trade 3) damage to
plaintiff 4) injury was the type AT laws designed to prevent (Clayton §4). For example
show predatory pricing hurts competition.
Standing
Blue Shield of Virginia v. McCready – patient alleges Defendant and psychiatrists in
conspiracy to prevent psychologists from receiving compensation for services. Test for
Standing is Remoteness of Plaintiff:
1) physical and economic nexus b/n alleged violation and harm to plaintiff, and
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2) with particularity, look to the relationship of the injury alleged with the forms of
injury which Congress considered when making Defendant’s conduct unlawful
and providing private remedy under §4 Clayton
Here, Plaintiff wins b/c she got hurt from an AT violation, and was within the economy
which was endangered by D’s actions.
Associated Contractors v. California State Council for Carpenters – Union sued alleging
D’s coerced members and developers not to hire union members. Held: Injuries to Union
indirect, too remote and inability to calculate damages causes lack of standing. While
union members MIGHT have standing, Union does not. Note: diff. From Constitutional
Standing, in AT, is P the proper party to bring the suit?
Parens Patriae
Similar to class action; Action brought by state AG on behalf of state citizens
Hart-Scott-Rodino Act – allows parens patriae actions and recovery of trebled damages.
Suit may only be brought on behalf of natural citizens (not corp/partnerships)
Must still have all the same requirements: Direct Purchaser, Antitrust Injury, Standing…
Advisory Opinions and Clearance Procedures
DOJ – “business review letters”
FTC – “Advisory Opinions”
Letters, opinions non binding. Rely at your risk
Sanctions and Rule 11
Attny warrants document when signing. 21 day safe-harbor to fix defects.
Settlement
If settlement entered BEFORE testimony taken, then may not be used in private suit.
Consent Decree (DOJ) or consent order (FTC) Accompanied by a “competitive impact
statement” that settlement has on market. Not an admission or denial of guilt
In settlement with final judgment and order is entered, then “collateral estoppel” bars
defendants from denying culpability in previous action.
Order and Judgment are NOT secret.
In Pari Delicto (“of equal fault”) and Unclean Hands Doctirne
Perma Life Mufflers v. International Parts – P entered K in restraint of trade (vert. Price
maint.) and later quit the agreement and sued. Held: While normally a party to an illegal
agreement is barred from suit, here, b/c of the policy of making the AT laws available to
private parties to help enforcement, the party may sue – If he is less at fault than the
defendant. Note these are usually equitable doctrines
Test to bar action
1) Was the P, as the result of his own actions, at least substantially equal responsible
for the violations he seeks to redress?
2) Would preclusion of the suit significantly interfere with the enforcement of AT
laws?
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Remedies
Plaintiff must show:
1) Existence of AT violation
2) Causation, violation of AT laws was responsible for his injuries
3) Injury was the type the AT laws were intended to prevent
4) Amount, in economic terms, of damages. Does not have to be specific, range will
do.
Damages determined by:
1) Overcharge – diff b/n price charged and price in competitive market
2) Lost Profits
a. Before and After – how much P making before the violation minus how
much he made after the violation.
b. Yardstick – compare the market before and after the violation
3) Recovery for Reduction in Business Value – lost profits for 5 years
Attorney’s Fees
Ramos v. Lamm – Factors for evaluating attourney’s fee:
Initial Calculation: amount of time spent on the matter and the normal hourly rate for the
work. Fees must be reasonable and reasonably related to the fees charged in the location
of the suit. (LOADSTAR)
Adjustment factors:
1) Novelty of the case
2) Attorney’s skills involved
3) Customary fee in the area involved
4) Time constraints put on the attny
5) Length of professional relationship with client
6) Hourly or Contingency Fee involved (assess the attny’s risk)
7) Undesirability of the case.
8) What was the result obtrained? (MOST important factor)
Chapter 9 Regulation, State Action, and Noerr-Pennington
Regulation in the Marketplace
MCI v. AT&T – Regulation may subject company to some immunity, except where
business exhibits business judgement. (eg: predatory pricing) Here FCC never explicitly
authorized the predatory pricing scheme AT&T implemented.
Rule of “primary jurisdiction:” General Laws like AT laws, must give way to more
specific laws, like Regulatory laws.
Note: Monopoly = Monopoly power + exclusionary acts
Monopoly Power = power to control price or exclude competition
Insurance
McCarrin-Ferguson Act
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Group Life Insurance v. Royal Drug – Under McCarrin-Ferguson Act, the actions of
Insurance company are exempt from AT laws if:
1) Action is “the business of insurance”
a. Whether the practice has the effect of spreading the policy holder’s risk
(underwriting)
b. Whether the practice is an integral part of the policy relationship b/n
insured and Ins. Co.
c. Whether practice is limited to entities w/in the insurance business
2) Must be “actively regulated by state law”
Union Labor Life Insurance v. Pireno – Held: fails first prong, third requirement of
“business of insurance.” Because policy doctor (chiropractier) who had charges rejected
by Insurance company is a 3rd party to insurance business.
St. Paul Fire & Marine Insurance v. David Barry – Exception to McCarrin-Ferguson Act,
in addition to the requirements set out above, §3(b) requires that the action NOT involve
“boycott, coercion, or intimidation.” Boycott means concerted refusal to deal, so P wins
where D refused to deal with any doctor who was insured by a diff insurance company.
Noerr-Pennington
Eastern R.R. v. Noerr Motor – in competition b/n trucking and R.R. companies, concerted
effort by R.R. companies, advertising aimed at legislation, held not a violation of AT
laws b/c 1st Amend. Right to Petition the Government would be infringed by
implementation of AT laws. Here nothing unlawful about petitioning the government.
United Mine Workers v. Pennington – Petition Executive branch to change wages/prices
set for coal miners found to be 1st Amend petition, overriding AT laws, even if result of
executive branch decision could put smaller coal mining companies out of business.
California Motor Transport v. Trucking Unlimited – Sham exception to N-P explained;
“repeated pattern of baseless litigation”
Allied Tube vs. Indian Head – Cannot act in restraint of trade and petition a nongovernmental body. Look at what was done, the bad activity took place before the
governmental level.
FTC v. Superior Court Trial Lawyers Ass’n – Boycott by trial lawyers had direct effect to
injure competition (harm took place before action of governmental unit) Held: Boycott
was per se violation of AT, and no immunity. Distinguish from petition which may cause
anticompetitive effects after governmental action.
Professional Real Estate Investors v. Columbia Pictures. – Sham Exception to N-P
explained fully. Test: 1) is the suit objectively baseless, no reasonable litigant could
expect success on the merits; and if yes, then 2) was the motivation to sue subjective?
(does the suit conceal a motivation to interfere)
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Held: © suit was not objectively baseless, thus no sham.
Preemption
Fisher v. Berkley – is a state law preempted by AT laws. Here, no b/c city set max rent
limit and there was no K, conspir, or combo. In unreasonable restraint of trade between
landlords, they were just following the law. Alternatively, the State Action doctrine
protects the action of the city to enact and enforce the law.
State Action Doctrine
California Retail Liquor Dealers Association v. Midcal Aluminum – a state policy, law,
regulation is immune from AT law if it is 1)“a clearly articulated state policy,
affirmatively expressed”, to supplant competition (create anticompetitive effect) and 2)
policy must be “actively supervised” by state, itself.
Town of Hallie v. City of Eau Claire – 1) “clearly articulated” test: does not have to be
expressly stated, and compulsion is not necessary. If it reasonably could be applied to
supplant competition, it is clear enough. 2) Where actor is a government entity (including
cities) then the “active supervision” requirement is dropped. (but not if an actor is
private, acting pursuant to state law, still need active supervision)
City of Columbia & Columbia Outdoor Advertising v. Omni – Held: no “conspiracy
exception to N-P, or state action doctrine. There are other methods to attack corrupt
government officials, not AT law. Here the city had a clearly articulated policy to
supplant AT laws where the billboard ordinance enacted by the city was within the state
goals of health and public safety and reasonably could be applied hurting some
competition. As to the other D, COA had a right to petition the city for the ordinance
pursuant to N-P, no anticompetitive action took place before the ordinance passed.
FTC v. Ticor Title Co. – Active Supervision? Held: failure of State to act, or tacit
supervison is NOT active supervision. The purpose is only achieved by active adequate
state control over regulatory schemes that justify price fixing by private parties (here title
insurance companies).
Look at OK AT Reform Act
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