USCA1 Opinion

March 17, 1993

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT
_____________________

No. 92-1270
U. S. HEALTHCARE, INC., ETC., ET AL.,
Plaintiffs, Appellants,
v.
HEALTHSOURCE, INC., ET AL.,
Defendants, Appellees
_____________________
ERRATA SHEET
The opinion of
amended as follows:

this court

issued on February

26, 1993

In footnote 1, l. 2, replace "1992" with "1991".

On page 7, l. 9, replace "mid-1992" with "mid-1991".

is

March 12, 1993

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT
_____________________

No. 92-1270
U. S. HEALTHCARE, INC., ETC., ET AL.,
Plaintiffs, Appellants,
v.
HEALTHSOURCE, INC., ET AL.,
Defendants, Appellees
_____________________
ERRATA SHEET
The opinion of
amended as follows:

this court

issued on February

26, 1993

is

On page 7, three lines above section II, replace "1992" with

"1991".

February 26, 1993

UNITED STATES COURT OF APPEALS
For The First Circuit
____________________
No. 92-1270
U. S. HEALTHCARE, INC., ETC., et al.,
Plaintiffs, Appellants,
v.
HEALTHSOURCE, INC., ETC., et al.,

Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[William H. Barry, Jr., Magistrate Judge]
________________
____________________
Before
Torruella, Cyr and Boudin, Circuit Judges.
______________
____________________

Franklin Poul with whom Dana B. Klinges, Mark L. Heimlich, Wo

_____________
________________ ________________
__
Block, Schorr and Solis-Cohen, Andrew D. Dunn, Thomas Quarles, Jr.
_____________________________ ______________ __________________
Devine, Millimet & Branch were on brief for appellants.
_________________________
Thomas Campbell with whom Deborah H. Bornstein, James W. Teeva
_______________
____________________ _______________
Gardner, Carton & Douglas, William J. Donovan, Peter S. Cowan
___________________________ ___________________
_______________
Sheehan, Phinney, Bass & Green were on brief for appellees.
______________________________
____________________
February 26, 1993
____________________

BOUDIN, Circuit Judge.

_____________
companies

(collectively

antitrust case
Inc.,
are

"U.S.

in the district

its founder and one

engaged

U.S. Healthcare and two related

in

Healthcare")

brought

court against

Healthsource,

of its subsidiaries.

providing medical

services

maintenance organizations ("HMOs") in

suit U.S.

this

Both sides

through health

New Hampshire.

Healthcare challenged an exclusive

In its

dealing clause

in the contracts between the Healthsource HMO and doctors who

provide primary care for it in New Hampshire.
in district

court, the magistrate judge

and U.S. Healthcare appealed.

I.

After a trial

found no violation,

We affirm.

BACKGROUND

Healthsource New Hampshire is an HMO founded in 1985

Dr. Norman Payson
Its

and a

parent company,

group of doctors

Healthsource,

in Concord,

Inc., is

by
N.H.

headed by

Dr.

Payson and it manages or has interests in HMOs in a number of

states.

We

refer to

both the

parent company

and its

New

Hampshire HMO as "Healthsource."

In

simpler

days, health

care

comprised

a doctor,

patient and sometimes a hospital, but the Norman Rockwell era

of medicine

has given

way to

new world

complex insurance and provider arrangements.

successful

innovations is

the

HMO, which

of diverse

and

One of the more

acts

both as

health

insurer

and

provider,

charging

premium for each employee who subscribes.

employers

a fixed

To provide medical

-2-2-

care to subscribers, an HMO of Healthsource's type--sometimes

called an individual practice association or "IPA" model HMO-contracts with independent doctors.
to treat other patients,
whose doctors

These doctors

continue

in contrast to a "staff"

would normally

model HMO

be full-time employees

of the

HMO.
HMOs
stressing

often can

care at

preventative care, controlling

hard bargains
more

provide health

patients

with doctors or hospitals

in

exchange

for

lower

cost by

costs, and driving

(who thereby obtain

reduced

charge).

Healthsource, like other HMOs, uses primary care physicians-usually internists but

sometimes pediatricians or others--as

"gatekeepers"

who direct

when necessary

and who

the patients

to specialists

monitor hospital stays.

only

Typically,

the contracting primary care physicians do not charge

by the

visit but are paid

per

month for

patient's

"capitations" by the HMO, a

each patient

primary care

who selects

physician.

fixed amount

the doctor

Unlike

ordinary health insurance, the HMO patient

as the

a patient

with

is limited to the

panel of doctors who have contracted with the HMO.

There
"financing"

are

familiar

alternatives

to

HMOs.

At

the

end, these include traditional insurance company

policies that reimburse patients for doctor or hospital bills

without

limiting the patient's choice of

Blue Cross/Blue

Shield plans

doctor, as well as

of various types

and Medicare

-3-3-

and

Medicaid programs.

diversity.

At the "provider" end, there is also

Doctors may now form so-called preferred provider

organizations, which may include

peer review and other joint

activities, and contract together to provide medical services

to large buyers like
There are

Blue Cross or to "network"

also ordinary group

medical practices.

model HMOs.
And,

of

course, there are still doctors engaged solely in independent

practice on a fee-for-service basis.

Healthsource's
success.

HMO operations in

New Hampshire

were a

At the time of suit, Healthsource was the only non-

staff HMO in the

state with 47,000 patients (some

areas of Massachusetts), representing

Hampshire's

population.

costs,

including a

sought

and

obtained

specialists.

Giving

Payson apparently
as well, and

gave

hospital utilization

favorable

Healthsource's success

about 5 percent of New

Stringent controls

low

rates

doctors

and incentive to

encouraged doctors to

at least 400

did so.

proposing to make Healthsource

in nearby

By

it

rate; and

from

hospitals

further

low
it
and

stake

in

contain costs,

Dr.

become stockholders
1989 Dr. Payson

was

a publicly traded company, in

part to permit greater liquidity for its doctor shareholders.

U.S.
HMOs.

U.S.

Healthcare is

Healthcare, Inc.,

plaintiff

companies--U.S.

and

Healthcare

U.S.

also in

of

the business

the parent of

Healthcare, Inc.
New Hampshire,

-4-4-

of operating
the other

two

(Massachusetts)

Inc.--may

be

the

largest

publicly

country, serving

held

provider

of

HMO

services

over one million patients

Hampshire

doctors

to

border-area residents

act

Prior to 1990,

done some recruiting of New

as primary

served by

the

and having total

1990 revenues of well over a billion dollars.

its Massachusetts subsidiary had

in

care

providers

for

its Massachusetts HMO.

In

1989, U.S. Healthcare had a substantial interest in expanding

into New Hampshire.
Dr.

Payson

was aware

operating in other states

services

in the

of 1989

that HMOs

were thinking about offering their

in New Hampshire.

Healthsource

went public,

would

their

sell

fall

He was also concerned that, when

many

stock,

of its

decreasing

doctor-shareholders
their

interest

Healthsource and their incentive to control its costs.

considering alternative incentives, Dr. Payson

in

After

and the HMO's

chief operating officer conceived the exclusivity clause that

has prompted this litigation.
public offering in

Shortly after the Healthsource

November 1989, Healthsource

notified its

panel doctors that they would receive greater compensation if

they agreed not to serve any other HMO.
The

new

provided for
paid to

contract

term, effective

an increase in the

each primary

January

26,

1990,

standard monthly capitation

care physician, for

each Healthsource

HMO patient cared for by that doctor, if the doctor agreed to

-5-5-

the

following

optional
________

paragraph

in

the

basic

doctor-

Healthsource agreement:
11.01 Exclusive Services of Physicians. Physician
_________________________________
agrees during the term of this Agreement not to
serve as a participating physician for any other
HMO plan;
this shall not,
however, preclude
Physician from
providing professional courtesy
coverage arrangements for brief periods of time or
emergency services to members of other HMO plans.
A doctor who adopted
HMO patients
under

Blue

provider

under

the option remained free to

ordinary indemnity

Cross\Blue

arrangements.

could also return to

Although
doctor

who

increased his

amount at

plans,

doctor who

insurance

policies,

or

preferred

under

accepted the

option

non-exclusive status by giving notice.1

accepted

capitation

the

exclusivity

or her capitation

$1.16

increase of

Healthsource

than $1 per patient

status.

Shield

serve non-

amounts

varied,

option

payments by

generally

a little

per month; the magistrate judge

and said

that

about 14 percent as

The dollar benefit of

it represented

an

more

put the
average

compared with non-exclusive

exclusivity for an individual

doctor

obviously

varies with

handled by the doctor.

the

number

of HMO

patients

Many of the doctors had less than 100

Healthsource patients while about 50 of them had 200 or more.

____________________
1The original notice period was 180 days.
This was
reduced to 30 days in March or April 1991.
It appears, at
least in practice, that a doctor could switch to nonexclusive status more rapidly by returning some of the extra
compensation previously paid.
-6-6-

About 250

doctors, or

87 percent of

Healthsource's primary

care physicians, opted for exclusivity.

U.S.
applied

Healthcare through
for a New Hampshire

1990, following an earlier

subsidiary.
limiting its
that it

approval

New Hampshire

subsidiary

state license in

the spring of

application by its

Massachusetts

A cease and desist order was entered against it,

marketing efforts, because of

premature claims

had approval to operate in the state.

desist order
license

its

was withdrawn

issued

on

February

on February
21,

of marketing materials.

1991,

15,

The cease and

1991, and

subject

to

the
later

The present suit was filed

in district court by U.S. Healthcare against Healthsource and

Dr. Payson on March
had

only two

New

12, 1991.

By mid-1991,

Hampshire "accounts"

U.S. Healthcare

and

only about

18

primary care physicians.

In

the district court,

U.S. Healthcare

challenged the

exclusivity clause under sections 1 and 2 of the Sherman Act,

15 U.S.C.
The parties

1-2, and

under state antitrust

stipulated to

After discovery,

trial before a

two separate weeks of

in August and September 1991.

30, 1992, the
all counts.

and tort

law.

magistrate judge.

trial were conducted

In a decision filed on January

magistrate judge found

for the defendants

on

This appeal followed.

II. DISCUSSION

-7-7-

In this court,
clause primarily

U.S. Healthcare attacks the

as a

per se

or near per

exclusivity

se violation

of

section 1; accordingly we begin by examining the case through

the per se or
We then

"quick look" lenses urged by

consider the claim

framework of
U.S.

320

recast in the

Tampa Electric Co.

__________________
(1961),

the

U.S. Healthcare.
more conventional

v. Nashville Coal Co., 365

___________________

Supreme

Court's

latest

word

on

exclusivity contracts, appraising them under section 1's rule

of reason.

Finally,

we address U.S. Healthcare's claims

section 2 violation and

of

its attacks on the market-definition

findings of the magistrate judge.

The Per Se and "Quick Look" Claims.
___________________________________

U.S. Healthcare's

challenge to

the exclusivity clause, calling it

se violation

and later

signal

aspect

first a per

a monopolization offense,

of antitrust

practice may be reviewed

analysis: the

invokes a

same competitive

under several different rubrics and

a plaintiff may prevail by establishing a claim under any one

of

them.

considered
theory play

Thus, while
under

an exclusivity arrangement

section 1's

a role in a

rule of

reason, it

per se violation of

is often
might in

section 1, cf.
__

Eastern States Retail Lumber Dealers' Ass'n v. United States,

___________________________________________
_____________
234 U.S. 600 (1914), or as

an element in attempted or actual

monopolization, United States v. United Shoe Machinery Corp.,

_____________
___________________________
110 F.

Supp. 295 (D. Mass. 1953), aff'd per curiam, 347 U.S.
________________

-8-8-

521

(1954).

But

each rubric

has

its own

conditions and

requirements of proof.
We begin, as U.S. Healthcare does, with the per se rules
of section 1 of the Sherman Act.
Congress left the

It is a familiar story that

development of the Sherman

the courts and they in turn responded by

practices as per se

classifying certain

violations under section 1.

only serious candidates for this label are

fixing agreements
refusals to
given

deal.2

Act largely to

and

certain group
_______

Today, the

price (or output)

boycotts or

The advantage to

concerted

a plaintiff is

that

a per se violation, proof of the defendant's power, of

illicit purpose and of anticompetitive effect are all said to

be irrelevant,
310 U.S.

see United States v. Socony-Vacuum Oil Co.,

___ ______________
______________________

150 (1940); the

disadvantage is the

difficulty of

squeezing a practice into the ever narrowing per se nitch.

U.S. Healthcare's main argument
to

describe the exclusivity clause

understand why the claim

for per se treatment is

as a group

boycott.

To

ultimately fails one must begin

by

recognizing that per se condemnation is

not visited on every

arrangement

that might, as a matter of language, be called a

group boycott

or concerted refusal

that designation

to deal.

Rather, today

is principally reserved for

cases in which

____________________
2Tying is sometimes also described as a per se offense
but, since some element of power must be shown and defenses
are effectively available, "quasi" per se might be a better
label.
See Eastman Kodak Co. v. Image Technical Services,
___ __________________
_________________________
Inc., 112 S. Ct. 2072 (1992).
___
-9-9-

competitors agree with each other not to deal with a supplier

or distributor
they

if it

seek to injure.

used in

continues to serve

a competitor

whom

This is the "secondary boycott" device

such classic boycott cases as

Lumber Dealers' Ass'n,

_______________________

Eastern States Retail

_____________________

and Fashion Originators' Guild of

_______________________________

America, Inc. v. FTC, 312 U.S. 457 (1941).

____________
___
We doubt
boycott

that the

modern Supreme

Court would use

the

label to describe, or the rubric to condemn, a joint

venture

among competitors in which participation was allowed

to some but not

Inc. v.
___

all, compare Northwest Wholesale Stationers,

_______ _______________________________

Pacific Stationery & Printing Co., 472

____________________________________

(1985), with
____

Associated Press v.
________________

(1945), although

even more
which

United States, 326

_____________

such a restriction might well

more complete analysis

under the

clear is that

284

U.S. 1

fall after a

rule of reason.

a purely

(for example) a supplier

U.S.

What

is

vertical arrangement,

by

or dealer makes an agreement

exclusively to supply or serve a manufacturer, is not a group

boycott.

See Klor's, Inc. v. Broadway-Hale Stores, 359 U.S.

___ ___________
____________________

207, 212 (1959);

1981).
who

Corey v.
_____

Look, 641 F.2d

____

32, 35 (1st

Cir.

Were the law otherwise, every distributor or retailer

agreed with a manufacturer

television

to handle only

one brand of

or bicycle would be engaged in a group boycott of

other manufacturers.
There are multiple reasons why the law permits (or, more
accurately, does not condemn per se) vertical exclusivity; it

-10-10-

is enough to say here that the incentives for

such arrangements

are usually more benign

and effects of

than a horizontal

arrangement among competitors that none of them will supply a

company that deals

with one

would think twice about

for a

staff HMO, an

of their competitors.

a doctor agreeing to work

extreme case

of vertical

No

one

full time

exclusivity.

Imagine, by contrast, the motives and effects of a horizontal

agreement by

all of the doctors

hospital that

serves a

in a town not to

staff HMO

which

work at a

competes with

the

doctors.
In this case, the exclusivity arrangements challenged by
U.S. Healthcare are vertical in
individual

promises

selecting

the option

another HMO.
possible

to

Healthsource made

not to

The closest

horizontal

case

form, that is, they comprise

offer his

by

each

or her

services to

that U.S. Healthcare

is

this: it

doctor

suggests

gets to
that

a
the

exclusivity clause in question, although vertical in form, is

in substance an implicit
involved.

horizontal agreement by the doctors

U.S. Healthcare appears to argue that stockholder-

doctors dominate Healthsource and,

individual interests (as
agreed

that

stockholders in Healthsource), they

(in their capacity as

other HMO
such

that might
a

doctors) not to

compete with

horizontal

in order to protect their

deal with any

Healthsource.

arrangement, if

devoid

We agree
of

venture efficiencies, might warrant per se condemnation.

joint

-11-11-

The

difficulty is that there

horizontal agreement in this

notes

that

case.

show that

the clause

panel doctors.
Dr.

Payson

and

On the

Formally

predominate

was devised

or encouraged

contrary, the record

the

chief

used to

by the

indicates that

operating

to serve Healthsource's own

vertical arrangements

on

the option, there is nothing

Healthsource's

developed the option

of such a

Although U.S. Healthcare

doctor-stockholders

Healthsource board that adopted

to

is no evidence

officer
interests.

disguise horizontal

ones are not unknown, see Interstate Circuit, Inc. v. United

________________________
______
States, 306 U.S. 208 (1939), but U.S. Healthcare has supplied
______
us with no evidence of such a masquerade in this case.
There

is

less

to

be

said

for

U.S.

Healthcare's

alternative argument that, if per se treatment is not proper,

then at least the exclusivity clause can be
as swiftly based

on "a quick look."

condemned almost

Citing FTC
___

v. Indiana
_______

Federation of Dentists,
_______________________

476 U.S.

447 (1986),

and NCAA
____

v.

Board of Regents, 468 U.S. 85 (1984), U.S. Healthcare argues

_________________
that

the exclusivity clause is

brief

glance at

anticompetitive

its impact,

lack

of business

to

condemn it.

intent suffice

relied on provide little

on

so patently bad

help to

its own

version

of those

conceivably

justify

benefit and
The

U.S. Healthcare

cases,

"quick

that even a

look"

the facts

cases

and, even
would

condemnation

of

not
the

clause.

-12-12-

In

the

contracted

cited
the

per

horizontal agreements
(television rights
terms of trade
x-rays

to

cases,

the

Supreme

se rule

by

refusing

that involved price

by NCAA members) or the

(refusal of dentists by

insurers).

Given

the

Court
to

actually

apply it

to

and output fixing

setting of other

agreement to provide
unusual

contexts

(an

interdependent sports league in one case; medical care in the

other), the

Court declined

to condemn the

arrangements per

se, without at least weighing the alleged justifications.

the same time it

required only the briefest

cited "quick look") for

strike

down the

inspection (the

the Court to reject the

agreements.

Accord,
______

At

excuses and

National Society of
____________________

Professional Engineers v. United States, 435 U.S. 679 (1978).

______________________
_____________
In
condemn
Exclusive

any event,
the

no "quick

exclusivity

look" would

clause

at

dealing arrangements come

ever suffice

issue

in

with the

this

of such

California v.
__________

arrangements.

United States,
_____________

case.

imprimatur of

two leading Supreme Court decisions describing the

virtues

to

potential

Tampa; Standard Oil Co. of

_____ ____________________
337 U.S. 293

(1949) (Standard
________

Stations); see also Jefferson Parish Hospital District No. 2

________
________ _________________________________________
v. Hyde,
____

466 U.S. 2,

46 (1984) (O'Connor,

To condemn such arrangements

depiction of
alleged

J., concurring).

after Tampa requires a detailed

_____

circumstances and the most

careful weighing of

dangers and potential benefits, which

-13-13-

is to say the

normal treatment afforded

by the

rule of reason.

To

that

dealing arrangements,

like

subject we now turn.

Rule of Reason.
_______________

Exclusive

information exchanges or standard settings, come in a variety

of

forms and

serve a

range

of objectives.

Many of

purposes are benign, such as assurance of supply

the

or outlets,

enhanced ability to plan, reduced transaction costs, creation

of

dealer loyalty, and the like.

U.S. at 307.
an

See Standard Stations, 337

___ _________________

But there is one common danger for competition:

exclusive

arrangement may

"foreclose"

so

much of

the

available supply or outlet capacity that existing competitors

or new entrants may be limited or excluded and, under certain
circumstances,

this may

reinforce

market

power and

raise

prices for consumers.

Although

the

"substantial"

Supreme

Court

once

said

that

percentage foreclosure of suppliers or outlets

would violate section 1, Standard Stations, the Court's Tampa

_________________
_____
decision effectively replaced
an

open-ended

required

inquiry into

any such quantitative

competitive

impact.

test by
What

is

under Tampa is to determine "the probable effect of

_____

the [exclusive]
competition,

contract on

taking into

the relevant area

account . .

. .

of effective

[various factors

including]

the probable immediate

pre-emption
effective

of

that

share

of

and future
the

competition therein."

effects which

market

might have

365 U.S. at 329.

on

The lower

-14-14-

courts have followed Tampa

_____
for

plaintiffs are not

Section, Antitrust

and under this standard judgments

easily obtained.

See ABA Antitrust

___

Law Developments 172-73,

176-78 (3d

ed.

in appraising

the

1992) (collecting cases).

On

this appeal

extent and impact of

because

U.S.

we

are handicapped

the foreclosure wrought by Healthsource

Healthcare

has

not

chosen

argument in these traditional terms.

in the opening or reply briefs.
to

the extent

Healthcare's
seriously

of the
opening

developed in

present

its

Tampa is not even cited

_____

Some useful facts pertaining

foreclosure are
"statement

to

of

the argument

adverted to
the

case"

section of

but

in U.S.
never

its brief.

Since the brief itself also describes countervailing evidence

of Healthsource, something more is

two paragraphs

assuredly needed.

of its "quick look"

In the

formulation addressed to

"anticompetitive impact," U.S. Healthcare simply asserts that

competitive impact

has already

exclusivity clause has

been discussed and

that the

completely foreclosed U.S. Healthcare

and any other non-staff HMO from operation in New Hampshire.

This

is not a persuasive treatment of a difficult issue

or, rather, a host of issues.

First, the extent to which the

clause operated economically to restrict doctors is a serious

question.3

True,

most doctors

signed up

for it;

but who

____________________
3Even with no notice period, Healthsource's differential
pricing policy--paying more to those who exclusively serve
Healthsource--would disadvantage competing HMOs. Some courts
-15-15-

would not take the extra compensation

staff HMO was

yet operating?

incentive to remain in an
it varies with patient
least constrained

when no competing non-

The extent

of the

exclusive status is unclear, since

load, and the least loaded

by the

financial

clause) doctors would

(and thus
normally be

the

best

candidates

suggests that

a competing

HMO.

by relatively modest amounts,

could offset
of

for

the exclusivity bonus for

Healthsource

doctors.

U.S.

Healthsource
U.S. Healthcare

a substantial number

Healthcare's reply

brief

offers no response.
Second, along with the
of duration.

economic inducement is the issue

Normally an exclusivity clause terminable on 30

days' notice would be close to a de minimus constraint (Tampa

__________
_____
involved a 20-year contract, and
as the trigger
may be that

one year is sometimes taken

for close scrutiny).

the original 180-day

On the other

hand, it

clause did frustrate

U.S.

Healthcare's initial efforts to enlist panel doctors, without

whom it would
30-day

clause

be hard to sign up employers.

would

have

this

effect,

reimbursement penalty were visited

to non-exclusive status.
offers conclusions

Perhaps even a
especially

if

on doctors switching back

Once again, U.S. Healthcare's brief

and a few record

references, but neither

____________________
hesitate to apply the exclusivity label to such arrangements
because there is no continuing promise not to deal (see
Antitrust Developments, supra, at 176), but the differential
_____
pricing plan is unquestionably part of a contract and so
subject to section 1, whatever label may be applied.
-16-16-

the

precise

operation

of the

clause

nor

its effects

on

individual doctors are clearly settled.

Third, even
duration

assuming that the

of the

Healthsource

financial incentive

exclusivity clause did

doctors

from the

reach

remove many
of

new HMOs,

unclear how much this foreclosure impairs the ability

HMOs to

operate.

physicians
suggested
physicians

Certainly the

tied to Healthsource
is 25

percent or

in New

larger number not

Healthcare

more of

it

is

of new

primary

all such

tied to Healthsource.
that

of

of the

care

was significant--one figure

Hampshire--but this

urges,

doctors cannot

number

and

many of

the

fairly be counted (e.g.,

____

primary care

still leaves
It may

a much

be, as U.S.

remaining "available"
those employed full

time elsewhere, or reaching retirement, or unwilling to serve

HMOs at all).
disputed

But

the dimensions of

and, by the same

this limitation

were

token, new doctors are constantly

entering the market with an immediate need for patients.

U.S. Healthcare lays great stress upon claims, supported
by some meeting notes of Healthsource staff members, that the
latter was aware of new HMO entry and conscious that new HMOs
like

U.S.

Healthcare could

exclusivity clause.4

be

adversely

Healthsource

affected by

in turn says

the

that these

____________________
4Two examples of these staff notes give their flavor:
"Looking at '90 rates - and a deterent [sic] to joining other
HMOs (like Healthcare)"; and "amend contract (sending this or
next week) based on exclusivity. HMOs only (careful about
restraint of trade) will be sent to even those in Healthcare
-17-17-

were notes made in the absence

that

its

real motivation

of policy-making officers and

for

the

clause

loyalty and cost-cutting incentives.

be a guide

to expected

was to

bolster

Motive can, of course,

effects, but effects

are still

the

central concern of the antitrust laws, and motive is mainly a

clue,
227

see Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d

___ _________________
_________________
(1st

Cir. 1983).

This

case

motives in business arrangement

subject to dispute.
issue in

itself suggests

how far

may be mixed, ambiguous, and

In any event, under Tampa

_____

exclusivity cases remains the

the ultimate

issue of foreclosure

and its consequences.

Absent

compelling

showing

substantial dimensions, we think

of

foreclosure

there is no need for

of
us to

pursue any

inquiry into

Healthsource's precise

motives for

the clause, the existence and measure of any claimed benefits

from exclusivity, the balance
the possible existence and

between harms and benefits, or

relevance of any less restrictive

means of achieving the benefits.

difficulty of assessing the
to

HMOs, a fact

The point is

and

"probable

of

than one

that proof of

immediate

essential basis under

clause.

fact that the clause

from which more

drawn.

We are similarly spared the

and

is limited

inference may be

substantial foreclosure
future

Tampa for an attack

_____

effects"

is

the

on an exclusivity

U.S. Healthcare has not supplied that basis.

____________________
already . . . ."
-18-18-

In formal terms U.S.

Healthcare has preserved on appeal

its claim that the exclusivity clause

competition

in violation

embraced

by

evidence

in its

of

its complaint,
appellate

unreasonably restrains

section 1.
and

the

That concept

is

limited depiction

of

briefs stirs

curiosity, if

not

suspicion.
alleged
argument
the
an

But

market

putting to one

definition errors,

in this court

unreasonable
as

court,

the burden

applying the

and

Healthcare's basic

the evidence compelled

_________

find substantial foreclosure having

adverse

Healthcare,

per se claims

U.S.

must be that

magistrate judge to

had

side its

effect

plaintiff at
of

on

trial
fully

competition.
and

U.S.

appellant in

mustering the

analysis to establish such a claim.

facts

this
and

It has not

done so.
In this
the

formal

discussion, we
finding

of

have placed little

the

magistrate

judge

weight upon
that

"the

[exclusivity] restriction does not constitute an unreasonable

restraint of trade under Section 1 of the Sherman Act."
finding
impact

rested primarily

premise that

whatever the

of the clause on HMOs, ample competition remains in a

properly defined market,

all

on the

His

health

Hampshire.5

care

which he found to

offered

throughout

the

be one embracing
state

On this view of the antitrust laws,

of

New

it does not

____________________
5On the other hand, we do not accept U.S. Healthcare's
effort to salvage something from the decision by arguing the
magistrate judge found substantial foreclosure in fact. For
-19-19-

matter whether substantial foreclosure of new entrants occurs

so long

as widespread

competition prevails in

the relevant

market, thereby protecting consumers.6

Whether

the

law requires

such

likely impact on consumers is open

law

is not crystal clear

further showing

to debate.

on this issue.

Our own

case

Compare Interface
_________

Group, Inc. v. Mass Port Authority, 816 F.2d 9, 11 (1st

___________
___________________
1981), with Corey v.
_____

Look, 641 F.2d at

____

of

36.

Cir.

Ultimately

the

issue turns upon antitrust

policy, where a permanent tension

prevails

sparrow

between

antitrust,

the "no

shall

fall" concept

of

see Klor's, 359 U.S. at 213 (violation "not to be

___ ______

tolerated

merely because

the

victim is

just one

merchant

whose business is so small that his destruction makes

difference

to the

antitrust

protects

economy"),

and the

"competition,

not

little

ascendant view

that

competitors".

See
___

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488

_______________
_______________________
(1977).

We need not confront this issue in a case where the

cardinal
foreclosure

requirement
unreasonably

been demonstrated.

of

valid

restricting

claim--significant
competitors--has

not

____________________
the most part, the statements to which it points appear to us
to be efforts by the magistrate judge to describe the
___
allegations made by U.S. Healthcare.
___________
6See, e.g., Dep't of Justice Merger Guidelines,
4.21,
___ ___
__________________________________
4.213, June 14, 1984, 49 Fed. Reg. 26824, 26835-36 (1984),
adopting this position.
The 1992 DOJ-FTC guidelines are
directed only to horizontal mergers and do not address the
issue. 49 Fed. Reg. 26823 (1992).
-20-20-

Section 2.
_________
constitute

the

Exclusive contracts might in some situations

wrongful

monopolization

claims

Machinery Corp.
_______________

The

2 claims in

market
of

that

is

under section

2.

an

So

ingredient

in

See United Shoe

___ ____________

magistrate judge resolved these section

favor of Healthsource primarily

market broadly
Hampshire.

act

to include all

by defining the

health care financing

defined, Healthsource

had a

share

in New
of that

too small to support an attempt charge, let alone one

actual monopolization.

U.S. Healthcare argues, however,

that the market was misdefined.

It may be
we

unnecessary to consider this claim

have already held, U.S.

since, as

Healthcare has failed

substantial foreclosure effect

to show a

from the exclusivity

clause.

After all, an act can be wrongful in the context of section 2

only

where

it

exclusionary
might
_____

be

has

impact.

required if

within striking

or

threatens

But a

the

definition and, if his

remand might

significant

a monopolist

v.

Cir. 1979), cert.

_____

More important, the magistrate

section

claims

based

definition were shown to be

be required

or one

Berkey Photo Inc.

__________________

263, 272 (2d

denied, 444 U.S. 1093 (1980).

______
dismissed

were

Compare
_______

Eastman Kodak Co., 603 F.2d

__________________

judge

have

lesser showing of likely effect

the actor

distance.

to

unless we

Healthcare could never prevail.

-21-21-

were certain

on

market
wrong, a

that U.S.

There is no subject in antitrust law more confusing than

market definition.
the pristine
attempt

One

reason is that the concept,

formulation of economists,

to

oversimplify--for

even in

is deliberately

working

purposes--the

an
very

complex economic interactions between a number of differently

situated

buyers and

different costs,
v.

sellers,

each of

whom in

needs, and substitutes.

See United States

___ _____________

E.I. du Pont De Nemours & Co, 351

_________________________________

Further, when

lawyers and judges

they

on

impose

it

nuances

U.S.

take hold of

and

administrative and antitrust policy

reality has

the concept,

formulas
goals.

377 (1956).

that

reflect

This adaption is

legitimate (economists have no patent on the concept), but it

means that normative and descriptive ideas become intertwined
in the process of market definition.
Nevertheless,
remembering

rational

treatment

is

assisted

by

to ask, in defining the market, why we are doing

___

so: that is, what is the antitrust question in this case that
market

definition aims

to answer?

helps

resolve U.S.

judge

erred at the outset

Healthcare's claim

market.

mistakenly
whereas its

This

focuses on

threshold inquiry

that

by directing his

issue whether HMOs or health

product

This

analysis to the

care financing was the relevant

approach,
the

the magistrate

sale of
____

says

U.S.

health

concern is Healthsource's buying

______

Healthcare,

care to

buyers

power in tying

up doctors needed by other HMOs in order to compete.

-22-22-

The magistrate
monopolize a

judge's approach

monopoly (monopsony is
too

Rather,
to

many

Healthsource could never achieve a

the technical term),

alternative

buyers

for

because doctors
their

services.7

the only way to cast Healthsource as a monopolist is

argue,

services

as

U.S.

(or

product sold
____

even

Healthcare
IPA

apparently

HMOs) are

to consumers

such as employers

might become possible

and other

factors) to describe Healthsource

potential

services in

monopolist in

did,

separate

If so, it

or

One can

product as either a seller or a buyer; but as a

buyer of doctor services,

have

was correct.

that

health care

and employees.

(depending on market

the sale

New Hampshire, using the

of

HMO

share

as a monopolist
HMO (or

IPA HMO)

exclusionary clause to

foster or reinforce the monopoly.

Thus,
Even

the

magistrate judge

asked the

right question.

so U.S. Healthcare argues that he gave the wrong answer

in finding that HMOs were not a

phrase

separate market (it uses the

"submarket" but this does not alter the issue).

is a legitimate contention

and U.S. Healthcare has

This

at least

____________________
7U.S. Healthcare, of course, is not concerned with
Healthsource's ability as a monopsonist to exploit doctors;
it is concerned with its own ability to find doctors to serve
it. The latter question--one of foreclosure--depends on the
available supply of doctors, the constraint imposed by the
exclusivity clause, the prospect for entry of new doctors
into the market, and similar issues. Whether U.S. Healthcare
is foreclosed, however, does not depend on whether consumers
treat HMOs as a part of health care financing or as a unique
and separate product.
-23-23-

some basis

for it:

HMOs are often cheaper

than other care

methods because they emphasize illness prevention

cost

control.

cases defining

U.S.

Healthcare also

a broader

"health

seeks to

care financing

and severe
distinguish
market"--

cases heavily relied on by the magistrate judge--as involving

quite

different types of antitrust claims.

Memorial Hosp., Inc. v.

_____________________

See, e.g., Ball

___ ____ ____

Mutual Hosp. Ins., Inc., 784

________________________

F.2d

1325

(7th Cir. 1986).

Once again,

we agree that the nature

of the claim can affect the proper market definition.

The

problem with

U.S.

Healthcare's argument

differences in

cost and quality between

possibility of

separate markets, not

with

is

that

products create the

the certainty.

A car

more features and a higher price is, within some range,

in the

same market

price.

The

as one

issue

interchangeability
(discussing

is
of

with less
sometimes

products

cross-elasticity

of

or

features and
described

as

services,

see
___

demand),

a lower
one

of

duPont
______

although

this

formula is itself only an aid in trying to infer the shape of

the invisible demand curve facing the accused monopolist.
practice, the frustrating but

routine question how to define

the product market

is answered in antitrust

expert

to

economists

economist would
(or IPA

testify.

be whether a

HMOs if that

In

Here,

cases by asking

the

sole supplier of

is U.S. Healthcare's

issue

for an

HMO services

proposed market)

could raise price far enough over cost, and for a long enough

-24-24-

period, to enjoy monopoly

surveys,

profits.

actual profit levels,

Usage patterns, customer

comparison of features, ease

of entry, and many other facts are pertinent in answering the

question.
Once again,
this court.

U.S. Healthcare

has not

made its

case in

The (unquantified) cost advantage of HMOs is the

only important fact supplied;

consumers might, or might not,

regard this benefit as just about offset by the limits placed

on

the patient's choice

some

of doctors.

To

be sure, there was

expert testimony in the district court on both sides of

the market

definition issue.

But if

there is any

case in

which counsel has the obligation to cull the record, organize

the

facts, and present them in the framework of a persuasive

legal

argument, it

this one.
ability

is a

sophisticated antitrust

Without such a showing on appeal, we

to reconstruct so complex

case like

have limited

a record ourselves and no

basis for overturning the magistrate judge.

Absent the showing of
in which

a properly defined product market

Healthsource could approach monopoly

size, we have

no reason to consider the geographic dimension of the market.

If

health

magistrate

care financing

judge determined,

monopoly or anything close

providers
Blue

is

in New

Cross/Blue

the

plainly

Healthsource

to it, given the number

Hampshire, such
Shield and

product market,

as insurers,

individual

doctors.

as

the

has

no

of other

staff HMOs,
This

is

-25-25-

equally

so whether

Hampshire

the

geographic market

is southern

New

(as U.S. Healthcare claims) or the whole state (as

the magistrate judge found).

III. CONCLUSION
Once

the federal

antitrust claims

this appeal is resolved.

to

suggest that

federal law;
construction.
state

are

found wanting,

U.S. Healthcare offers no authority

New Hampshire

antitrust law

indeed, the state statute

N.H. Rev.

Stat. Ann.

diverges from

encourages a uniform
356:14.

As for the

tort-law claims, primarily interference with potential

contractual
effectively
appeal

relationships,
with them,

the

and U.S.

magistrate

judge

dealt

Healthcare says

little on

to undercut his dismissal of those counts.

Given the

arguments made and the record evidence arrayed in this court,

affirmance of

the magistrate judge's judgment

on all counts

is clearly in order.
Nevertheless,

we

inherently frivolous.
of the

do
The

not

think

that

this

case

was

timing and original 180-day reach

exclusivity clause could reasonably excite suspicion;

the clause may

have some

impact remains

unclear; and

adopting the clause

impact though the

the motives of

may well have

extent of

that

Healthsource in

been mixed.

Competition

remains an essential force in controlling costs and improving

quality
settle

in health
claims

that

care.
one

Courts are
business

properly available
device

or

to

another

is

-26-26-

unlawfully
Although
dead

suppressing competition

in this

vital industry.

U.S. Healthcare's per se shortcut has taken it to a

end, we

have addressed

the antitrust

issues at

such

length precisely because of the importance of the subject.

Affirmed.
________

-27-27-