American Bar Association Section of Antitrust Law
American Bar Association Young Lawyers Division Antitrust Committee
New York State Bar Association and State Enforcers
jointly present
THE ANTITRUST BASICS TELECONFERENCE SERIES
Lesson I: Sherman Act Section 1
September 20, 2006
Eric A. Sacks
Jenner & Block LLP
“Every contract, combination . . . , or
conspiracy, in restraint of trade
. . . is declared to be illegal.”
15 U.S.C. § 1.
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Only unreasonable restraints are illegal.
Compare Standard Oil Co. of New Jersey v. United States,
221 U.S. 1 (1911), with United States v. Trans-Missouri
Freight Ass’n, 166 U.S. 290 (1897); see also Board of
Trade of City of Chicago v. United States, 246 U.S. 231,
238 (1918), see also Phillip Areeda & Louis Kaplow,
Antitrust Analysis ¶¶ 204-207 (4th ed. 1988).
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Elements of Section 1 Claim
Civil antitrust claims:
− Standing
− Antitrust Injury
− Causation
− Damages
•
•
Section 1:
− Agreement
that is
− Unreasonable
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The Agreement Element
•
Express
– Direct Evidence
– Circumstantial Evidence
•
Tacit
– Parallel conduct
– Independent action?
See Phillip Areeda & Louis Kaplow, Antitrust
Analysis ¶ 236 (4th ed. 1988).
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Direct Evidence
•
•
•
•
Contracts
Corporate and Transactional Documents
Rules
Testimony
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Circumstantial Evidence
•
“Conscious commitment to a common
scheme designed to achieve an unlawful
objective.”
Monsanto Co. v. Spray-Rite Serv. Corp.,
465 U.S. 752, 768 (1984).
•
Evidence that “tends to exclude the
possibility” of independent conduct.
Id.; see also Matsushita Elec. Indus. Co.,
Ltd. v. Zenith Radio Corp., 475 U.S. 574,
588 (1986).
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Circumstantial Evidence
Parallel Conduct
(“conscious parallelism”)
and
“plus factors”
See VI Phillip E. Areeda & Herbert Hovenkamp,
Antitrust Law ¶¶ 1433, 1434 (2d ed. 2003); In re
Baby Food Antitrust Litig., 166 F.3d 112, 122 (3d
Cir. 1999); Petruzzi’s IGA Supermarkets, Inc. v.
Darling-Delaware Co., Inc. 998 F.2d 1224, 1243
(3d Cir. 1993).
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“Plus” Factors
•
•
•
Suggestion of traditional conspiracy
(“facilitating practices”)
Action against economic-interests?
Motivation to conspire?
See VI Phillip E. Areeda & Herbert Hovenkamp,
Antitrust Law ¶ 1434 (2d ed. 2003); In re Baby
Food Antitrust Litig., 166 F.3d 112, 127 (3rd Cir.
1999); Petruzzi’s IGA Supermarkets, Inc. v.
Darling-Delaware Co., Inc. 998 F.2d 1224, 124244 (3rd Cir. 1993).
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Parties to the Agreement
•
Competitors
•
“Partners”
– Horizontal Agreement
(Interbrand Competition)
– Vertical Agreement
(Intrabrand Competition)
Compare Palmer v. BRG of Georgia, Inc, 498 U.S. 46 (1990),
with Continental T.V., Inc. v . GTE Sylvania, Inc., 433 U.S. 36
(1977); see also United States v. Topco Associates, Inc., 405
U.S. 596 (1972).
•
Corporate
Affiliates
– No Agreement?
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752
(1984).
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Unreasonable Restraint Element
•
Rule of Reason
•
Per Se Rule
•
Alternatives: “Quick Look” Doctrines
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Rule of Reason
•
Do one or more parties to the restraint have the ability to
harm competition?
−
•
Does the restraint help more than it hurts?
−
•
Market Power Gate
Balancing of benefits (pro-competitive virtues) with costs
(anticompetitive vices)
Can the benefits of the restraint be obtained without all
of its costs?
−
“Least restrictive alternative”
See VII Phillip E. Areeda & Herbert Hovenkamp, Antitrust
Law ¶ 1502 at 345-46 (2d ed. 2003); see also Board of
Trade of City of Chicago v. United States, 246 U.S. 231,
238 (1918).
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Market Power Gate
•
Indirect Proof
−
•
Market share in properly defined “relevant market”
Direct Proof
−
Increase price or decrease output without significant
profit loss
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Example of Business Justifications
•
Restraint Increases Output
•
Restraint Lowers Price
•
Restraint Promotes Brand Investment
−
Prevents “free-riding”
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Per Se Rule
•
Because of “pernicious effect on competition and
lack of ANY redeeming virtue,” a restraint is
“conclusively presumed to be unreasonable”
Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5
(1958) (emphasis added).
•
•
Categories
Court experience
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Per Se Illegal Restraints
•
Horizontal Price Fixing
United States v. Socony-Vacuum Oil
Co., 310 U.S. 150 (1940).
•
Vertical Price Fixing
(Resale Price Maintenance)
Dr. Miles Medical Co. v. John D.
Park & Sons Co., 220 U.S. 373
(1911).
•
Horizontal Market Division
Palmer v. BRG of Georgia, Inc.,
498 U.S. 46 (1990).
•
Some Horizontal Boycotts
Compare Northwest Wholesale
Stationers, Inc. v. Pacific Stationery
& Printing Co., 472 U.S. 284, 29598 (1985), with Klor’s, Inc. v.
Broadway-Hale Stores, Inc., 359
U.S. 207, 212 (1959).
•
Some Tying Arrangements
Jefferson Parish Hospital Dist.
No. 2 v. Hyde, 466 U.S. 2, 15-16
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(1984).
Rigid Approach
Old School
•
•
No consideration of possible
procompetitive virtues
Even when they are plausible
United States v. Topco Associates, Inc., 405 U.S.
596, 609-10 (1972).
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Alternative Approaches
New School
•
Ancillary restraints doctrine
−
−
•
Naked restraint?
“Quick look”
See VII Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶
1511c at 420-421 (2d ed. 2003); Polk Brothers, Inc. v. Forest City
Enters., Inc., 776 F.2d 185, 188-89 (7th Cir. 1985); see also
Rothery Storage & Van Co. v. Altas Van Lines, Inc., 792 F.2d 210
(D.C. Cir. 1986); Joel I. Klein, Acting Assistant Attorney General,
Antitrust Division, A Stepwise Approach to Antitrust Review of
Horizontal Agreements, Remarks Before the American Bar
Association’s Antitrust Section Semi-Annual Fall Policy Program
(November 7, 1996) (available at 1996 WL 655653).
Truncated rule of reason
−
−
Condemnation without “elaborate industry analysis”
“Quick look”
See California Dental Ass’n v. FTC, 526 U.S. 756; 769-70
(1999); Law v. NCAA, 134 F.3d 1010, 1020 (10th Cir. 1998); see
also NCAA v. Board of Regents of Univ. of Okla., 468 U.S. 85,
109-10, & n.39 (1984); FTC v. Indiana Federation of Dentists,
476 U.S. 447, 459 (1986).
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Challenging Section 1 Organizations
•
•
•
Cooperative Ventures
Associations
Standard Setting Organizations
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Cooperative Ventures
•
Legitimate vs. Sham
−
−
−
−
•
Pro-competitive Cooperation
Creation or Promotion
of a Product or Service
Risk Sharing
Integration
Ancillary Restraint?
Timken Roller Bearing Co. v. United States,
341 U.S. 593 (1951), overruled on other issue
by Copperweld Corp. v. Independence Tube
Corp., 467 U.S. 752 (1984); see also Engine
Specialties, Inc. v. Bombardier Ltd., 605 F.2d 1,
8-11 (1st Cir. 1979).
Compare Polk Brothers, Inc. v. Forest City Enters.,
Inc., 776 F.2d 185, 188-89 (7th Cir. 1985), with
Polygram Holding, Inc. v. FTC, 416 F.3d 29, 36-38
(D.C. Cir. 2005).
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Associations
•
Information Gathering and Sharing
•
Help for Cartel or Boycott?
California Dental Ass’n v. FTC, 526 U.S. 756
(1999); Fashion Originators’ Guild of America v.
FTC, 312 U.S. 457 (1941).
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Standard Setting Organizations
•
Opportunity for Pro-Competitive Virtues
•
Opportunity for Exclusion
−
−
Safeguards
“Subversion”
Allied Tube & Conduit Corp. v. Indian Head, Inc., 486
U.S. 492, 500-01, 506-09 (1988); American Society of
Mechanical Engineers, Inc. v. Hydrolevel Corp., 456
U.S. 556 (1982); Radiant Burners, Inc. v. Peoples Gas
Light & Coke Co., 364 U.S. 656 (1961).
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Vertical Restraints
•
Non-price
– Rule of Reason
– Free Riding
Continental T.V., Inc. v. GTE Sylvania Inc., 433
U.S. 36 (1977); see also Business Elecs. Corp. v.
Sharp Elecs. Corp., 485 U.S. 717 (1988).
•
Maximum Price
– Rule of Reason
State Oil Co. v. Khan, 522 U.S. 3 (1997).
•
Minimum Price
– Per Se
Dr. Miles Medical Co. v. John D. Park & Sons
Co., 220 U.S. 373 (1911).
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Resources
•
Phillip Areeda & Louis Kaplow, Antitrust
Analysis (4th ed. 1988).
•
VI & VII Phillip E. Areeda & Herbert
Hovenkamp, Antitrust Law (2d ed. 2003).
•
See also ABA Section of Antitrust Law,
Model Jury Instructions in Civil Antitrust
Cases, 2005 Edition (2005).
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