CONCERTED ACTION

ADM / Price Fixing the lysine market - Per Se Violation

Lysine
Cartel Facts: ADM produced products from crops, including food additives and oils. In 1999,
(2000) Archer had worldwide sales of over $14 billion and 23,000 employees. Lysine was an
amino acid harvested to sell to farmers to be used in animal feed. The lysine market was
controlled by 3 companies in Korea and Japan who engaged in price fixing to maximize
profits. In 1991, ADM increased output – they started producing substantial
amounts of lysine. As a result, global lysine prices declined sharply.

The 3 Asian lysine companies called a meeting with ADM, at which the 4 companies
agreed to price fixing1 and discussed, but did not agree to, allocation of sales
volumes among the companies. Despite the price-fixing agreement, the lysine
companies often underbid the agreed-upon price. With no market allocation agreement,
the companies had incentive to cheat on the price. The companies eventually:
(1) agreed to production caps and allocated market shares; (2) agreed to
purchase from each other any lysine that went unsold under the maximum production
allotments; (3) occasionally revisited their price-fixing agreement to update the price
based on production costs and other variables. An ADM exec who had been embezzling
funds eventually exposed the price-fixing scheme.

The gov charged ADM executives with conspiring to violate § 1 of the Sherman Act.

Holding: price-fixing violates § 1

Reasoning: Their continuing, adaptable agreement to fix prices and allocate market
shares restrained trade. The agreements artificially increased lysine prices above
competitive levels. The agreed-upon lysine production maximums had the potential to
decrease lysine production, thus further entrenching the inflated price.

Takeaway: Under the Sherman Act, companies are prohibited from

conspiring to or agreeing to restrain trade.
Socony- Price-fixing gasoline market via division of market – Per se violation
Vacuum Oil
(1940) Facts: Socony-Vacuum Oil Company, Inc., and several other midwestern oil companies
(defendants) met and verbally agreed to divide up the spot market for gasoline
so that each oil company would be matched with an independent refinery.
Whenever spot-market gasoline became available, the designated oil company would
purchase the gasoline at market price. This arrangement made the price of
gasoline at retail more predictable. It stabilized at a certain price point, and the
oil companies began to charge more at the retail level.

Holding: Horizontal price-fixing agrmts are per se violations of § 1

Reasoning: They coordinated to ensure that certain price ranges could be charged for
gasoline at the retail level. No denial that they engaged in concerted action. (a) Ds argue
that other factors contributed to the rising prices at retail in the relevant market, but the
existence of additional contributing factors is irrelevant if a conspiracy that was
intended to raise prices did, in fact, have that effect. (b) Ds argue coordinated purchases
of spot gasoline helped stabilize the competitive market and the coordination created a
fairer market and reasonable prices. However, fairer competition and reasonable prices
are not defenses to a price-fixing scheme. (c) a price-fixing arrangement does not have

1 Price fixing: agreeing to match the prices of competitors

Givens 1
 to create uniform prices in order to violate antitrust law. Prices fixed within a range can
still be per se violations.

Topco Supermarket chains in membership org geographically divided markets

(1972) and excluded through membership requirements – Per Se violation (this
was before transition to modern ROR)

Facts: Topco (defendant) was a cooperative association consisting of about 25 regional

US supermarket chains. Topco was a purchasing agent for the supermarket chains and
provided over 1,000 different products to its members. Most of the products were
distributed to the members under Topco brands, which were very popular and
profitable to Topco members. Membership in Topco had to be approved by a 75% vote
from the board of directors composed existing members. If an applicant wished to
operate within 100 miles of an existing member, the existing member could
require the vote for membership to be 85%.

Accusation: Division of Markets and exclusion via membership requirements.

Justifications: Topco’s members needed territorial divisions to effectively compete with
larger national chains.

Holding: dividing up the market = per se violation of § 1

Reasoning: Here, the Topco members were essentially dividing up exclusive territories
in which each member could sell Topco products. Additionally, Topco members’ veto
power over the admission of new members wishing to compete within 100 miles of
existing members had the effect of dividing up the market for Topco goods into
exclusive territories for Topco members. Because division of markets is so
inherently anticompetitive it’s deemed per se violations and no further inquiry is needed
– their justifications don’t matter.

Key: The principle of law that Topco announced is still good law, but on its facts it
might be decided differently today
Maricopa Maximum fee schedule for physician services = price-fixing – per se
illiegal

Facts: Doctors in Maricopa County, Arizona, joined the Maricopa Foundation for
Medical Care (the Foundation) (defendant). There were maximum fee agreements
among competing physician members of foundations for medical care. They
established a set of maximum fees that member-doctors could accept as
payment for medical services provided to patients covered by Foundation-
approved medical-insurance plans. The individual member-doctors had no
financial interest in the operation of the Foundation, but the Foundation could collect

Givens 2
 payment from insurance companies to compensate member-doctors for services that
were provided to patients with approved medical insurance. Patients with Foundation-
approved medical insurance who saw member-doctors were guaranteed complete
coverage for medical services at prices listed in the Foundation’s fee schedule.

The State of Arizona sued, claiming that the increases in the fee schedules had the effect
of stabilizing and driving up the rates that insurance companies paid to the physicians,
which in turn increased insurance premiums for patients. The Ds argued that the
schedules helped contain costs by imposing limits on physicians’ fees and allowing
insurance companies to predict costs better which resulted in lower insurance rates.

Holding: The fee schedules are horizontal price fixing that are per se unlawful

Reasoning: A horizontal agreement to set a price ceiling undoubtedly affects competitive

pricing in the market. For example, it may discourage the entry of new market
participants who may want to charge more for better services or products. Similarly, if
market competitors are limited in the amount that can be charged, the financial
incentive to improve products and services is reduced. A price ceiling also runs the
danger of effectively fixing a minimum price, as all competitors may simply decide to
sell at the maximum rate. HERE, (1) the Foundation argues that the fee schedule is
not a violation because the agreements involved are horizontal and only fix maximum
prices. However, the per se rule applies to both maximum and minimum horizontal
price-fixing agreements. (2) The Foundation also argues the agreement has pro-
competitive benefits, because the fee schedules provide a valuable new form of
insurance coverage for health care. However, since any price fixing is per se, there’s no
consideration of any pro-competitive justifications. Also unlike the composers
in Broadcast Music, the Foundation’s doctors do not sell or receive a financial benefit
from selling medical insurance, and they also compete with each other for patients.

Notes: illustrates court struggling to define the scope of per se unlawful conduct ;
would likely not be decided the same way today
Catalano Wholesalers agreed to eliminate interest-free credit to beer retailers =
(1980) price fixing = Per Se violation

Facts: A group of rival beer wholesalers (defendants) simultaneously stopped

supplying interest-free credit to beer retailers. Before stopping the practice, the
terms of the credit extensions had been a form of competition among beer
wholesalers, as the credit terms between individual beer wholesalers and
beer retailers varied considerably.
Accusation: the mutual decision to stop extending credit = violation.

Holding: The agreement to stop extending credit = price fixing that’s a per se violation.

Reasoning: The price fixing does not need to be direct - an agreement that has the
effect of fixing prices is also a per se violation. HERE the interest-free credit
formerly extended to retailers = a discount equal to the value of the purchase price of
the beer for the term of the credit extension. So the credit is like an inseparable part of
the beer price. So stopping the credit essentially fixed the prices up.
Relied on BMI and NSPE to explain that price fixing agrmts are of the type to be
presumed illegal without further inquiry. Also Relied on Socony (conduct to
prevent prices from sharply falling = per se illegal even though there wasn't a
direct agrmt on what the actual price should be)
Pro-competition argument - removal of the credit term could actually increase
competition by removing a barrier to entry, which would incentivize new market
participants and lead to lower prices. Response: While that is conceivable, the more

Givens 3
 immediate effect was to remove a form of competition between the
competing beer wholesalers.

Keys:
*credit is a component of price
*really any area you used to compete in can have this analysis applied to it, but
bc this one touched on price-fixing it was esp unfavored

BRG (1990) Division of geographic markets – bar review courses = Per Se violation

Facts: HBJ and BRG of Georgia, Inc. (BRG) (defendants) were direct rivals in the
market for bar-review courses in Georgia. HBJ gave BRG an exclusive license to
use HBJ’s content and trademark within Georgia. In exchange, BRG would give
HBJ a share of BRG’s revenue and a fee of $100 per enrollee. Under the agreement,
HBJ agreed not to compete with BRG within Georgia, and BRG agreed not
to compete with HBJ outside of Georgia. After entering into the agreement, BRG
raised its price from $150 to $400.

Holding: Allocating geographic markets to minimize or eliminate competition is a per se

violation

Reasoning: Such arrangements are akin to price-fixing because they have the purpose
and effect of raising or otherwise manipulating prices. No pro-competitive justification
other than to restrict competition. HERE, the anticompetitive effect = As soon as BRG
entered the agreement with HBJ, BRG was able to dramatically increase the price of its
bar-review class.
Like in Topco, which held market-allocation agreements to be per se unlawful.
This case is different from Topco only in that this agreement does not divide
Georgia among BRG and HBJ, but exclusively reserves Georgia for BRG which
stops competition altogether.
The anticompetitive effect is the same whether the agreement splits a geographic market
among competitors or simply eliminates competition in the geographic market
altogether.
SCTLA Boycott/Refusal to deal – criminal defense lawyers went on strike for pay
raise = price-fixing = Per Se violation

Facts: Over 1,200 lawyers registered as CJA lawyers to defend insolvent criminal
defendants, but only around 100 regularly accepted cases. After failing to secure a pay
raise, the CJA lawyers voted at a meeting of the Superior Court Trial Lawyers
Association (SCTLA) (defendant) to form a strike committee. They decided that a
boycott against taking new clients was the only way to obtain the raise so
they agreed not to take any new cases after a specified date unless the pay-
raise demands were met. They also reached out to the media to help publicize the
issue. After the boycott commenced, the District issued a pay raise to avoid a crisis.

Accusation: the boycott was a per se violation

Holding: Group boycotts with the purpose and effect of price-fixing are per se illegal

Reasoning: the purpose and effect of the SCTLA’s conduct = to get an economic
advantage by obtaining higher fees for its members. The motivation is primarily
economic, not political.
Before the boycott, CJA lawyers were competing with each other,
each deciding separately whether and how often to offer services. The agrmt
was designed to obtain higher prices for their svcs and was
implemented by a concerted refusal to serve an important customer

Givens 4
 in the market for legal svcs - and really the only customer for the
particular svcs that CJA regulars offered - THIS CONSTRICTION OF
SUPPLY IS THE ESSENCE OF PRICE FIXING, regardless of how it's achieved.
So regardless of other potential justifications, the boycott was aimed at inflating prices,
and this is per se illegal

Note:
*note - court divided
*the threat of not working absent a certain price = fixing
Brunswick Acquiring failing bowling centers; Injury Required
(1977)
Facts: Brunswick was one of the largest manufacturers of bowling equipment in the US.
After a booming decade, the bowling industry dramatically declined in the early 1960s.
To counter the low sales, Brunswick began purchasing and operating insolvent
bowling centers that could be maintained while returning positive cash flow. By the
1970s, Brunswick owned and maintained over five times more bowling
centers than the next-largest competitor. Among Brunswick’s bowling-center
acquisitions were six bowling centers in markets that had competing bowling centers
maintained by Pueblo Bowl-O-Mat, Inc. (plaintiff).

Pueblo sued Brunswick pursuant to § 7 of the Clayton Act, which prohibits mergers that
would either substantially lessen competition or tend to establish a monopoly. Pueblo
also sought treble damages under § 4 of the Clayton Act. The lower courts found in
Pueblo’s favor. Brunswick appealed.

Holding: An antitrust violation doesn’t entitle a private party to damages if that party
has not suffered an injury caused by that conduct

Reasoning: Pueblo contends that Brunswick’s acquisitions of failing bowling centers

that would have otherwise exited the market caused Pueblo to lose business. However,
this injury is not related to Brunswick’s alleged antitrust violation, because Pueblo
would have suffered the same alleged injury even if smaller, individual owners had
purchased the failing bowling alleys.

Takeaways:
Theory of competitive harm is critical to antitrust
Theory of harm must relate to “anticompetitive” effects of conduct
After Brunswick, courts focused more on defining harm from anticompetitive
conduct
The concept of antitrust injury - this case emphasizes the
importance of articulating a clear theory of anticompetitive harm
when seeking relief
To be anticompetitive, conduct must decrease competition
Polygram Concert recordings – no discounting/advertising first two in order to
(2005) promote joint distribution of last one = __ under Quick Look

Facts: The Three Tenors put on extremely popular concerts in 1990, 1994, and 1998.
PolyGram (defendant) distributed the recording of the 1990 concert, Warner
(defendant) distributed the recording of the 1994 concert. PolyGram and Warner
signed an agreement to distribute the recording of the 1998 concert jointly.
They also agreed to a moratorium on any advertising or discounting of the 1990
and 1994 recordings in order to prevent those older recordings from eating into sales of
the 1998 recording.

Givens 5
 Holding: The agreement violated § 5 of the FTC Act. If it is obvious that a restraint of
trade likely impairs competition, there is a rebuttable presumption that the restraint is
unlawful.

Reasoning: Based on a quick look, their agreement had a likelihood of harming

competition. It appeared to be an agreement among rivals to fix prices, so presumptively
illegal. Attempts to rebut fall short: Ds argue the agreement is procompetitive bc it will
increase the overall profitability of the Three Tenors’ concerts. Response: Can’t deem
a restraint lawful solely because it increases the profitability of the entity that imposes
the restraint.

Note:
*FTC brought series of cases (First of which is polygram) to kind of test the
limits of quicklook analysis - they think all you should need is theory and facts -
shouldn't have to bring direct evidence

CDA (1999) Dentists association prohibited deceptive advertising – quick look

analysis

Facts: California Dental Association (CDA) (defendant) is a nonprofit association of

local dentist societies to which about 3/4 of the state’s dentists belong. CDA members
agree to abide by a code of ethics prohibiting, among other things, false or misleading
advertising.
Accusation by FTC: CDA restricted truthful, non-deceptive advertising related to prices
and quality of dental services

Holding: A “quick look” analysis is appropriate instead of ROR if you can easily
ascertain that the restraints will produce an anticompetitive effect

Reasoning: Under a “quick look” rule of reason analysis, an observer with a

rudimentary understanding of economics would easily conclude that the arrangements
in question would have an anticompetitive effect on consumers and markets.
o Here, the issue is less clear bc it is often difficult for a potential patient to determine
with any certainty the quality of services like dental care. And whether a dentist
performs a good or great job doing a filling w/b hard for a layperson to determine.
o Were ad restrictions anticompetitive? Did they limit the total delivery of
dental services (output)?
o May be plausible argument for procompetitive or neutral effects
(this is what takes you away from per se - meaning the court may
think some justification is worth at least looking at - but still have
burden of proving): If quality advertising actually results in some patients
obtaining more care than they otherwise would, then restricting such
advertising would reduce the demand for dental services, not the supply.
o The CDA’s restrictions may have procompetitive effects or no effect on
competition at all.
o There is often no bright line separating a per se from a ROR analysis because a
court may have to examine market conditions and other variables.

Givens 6
  Here, the court of appeals did not examine more thoroughly the assumption
of relative anticompetitive tendencies.
 FTC says one of the ways we compete is through advertising; also think about how
there is information asymmetry- we rely/trust the professionals who serve us
when we don't know enough

Takeaways: when considering evidence of effects, the court must make an enquiry
meet for the case, looking to the circumstances, details, and logic of a restraint – the
goal is to be confident in making a conclusion about the effects
JTC Road paving cartel, excluded a rival – ROR proposed
Petroleum
Comp. Facts: JTC (plaintiff) was in the business of paving roads. JTC sued other pavers and
(1999) producers of asphalt, claiming the pavers colluded by declining to compete against each
other when local governments put paving jobs out for bid. JTC also claimed the pavers
paid the asphalt producers to not sell asphalt to JTC or any other company that refused
to join the cartel. To support this claim, JTC presented evidence that the pavers paid
significantly higher prices to the producers than pavers did in a nearby region with
similar operating costs. JTC theorized that these higher prices included compensation to
the producers for their agreement to not sell to JTC. Further, JTC claimed that the
producers’ excuses for not selling to JTC were often pretextual and insubstantial. For
example, one producer used JTC’s credit history as an excuse not to sell asphalt to the
company, but then still declined to sell to JTC when JTC offered to pay cash. Much of
JTC’s evidence was contested by the defendants. JTC settled out of court with some
producers and pavers.

The district court granted the remaining Ds summary judgment. JTC appealed.

Holding: Summ jdgmt was wrong. There should be trial for resolving the evidence

Reasoning: The evidence of the unjustified higher prices charged to alleged cartel
members and the pretextual denials of business to JTC are a sufficient basis on which a
reasonable jury could conclude that the pavers illegally colluded in violation of § 1.
There could also be legit justifications for those actions. Trial is the place to work it out.

Givens 7
 Figure 1-13:
The Alleged JTC Conspiracy

Local Asphalt
Suppliers

Step 4 // Step 3

Asphalt JTC
Step 1 Applicators
(Cartel Members)
// (Foreclosed
Rival)
Step 2
Step 1: Applicators collude to fix prices
Step 2: JTC refuses to join the conspiracy Step 5
Step 3: Suppliers foreclose JTC
Step 4: Applicators compensate suppliers
for refusal to deal with JTC
Step 5: Applicators maintain supra- Municipalities
competitive prices to municipalities

p. 54
36

Chicago Bd. Grain exchange price rule – Ok under ROR

Of Trade
(1918) Facts: The Board of Trade of Chicago (defendant) operated a grain exchange in the
Chicago market. One sale type was for to-arrive grain (grain that was scheduled to arrive
at the exchange but was not yet available). The Board made a rule that prohibited
participants in the exchange from buying or selling to-arrive grain at a price
other than the price listed at the time the exchange closed for the day, until the
exchange reopened the next business day. This prevented after-market pricing on to-
arrive grain.

Accusation: price fixing. Procompetitive justifications: the rule was actually made to
break up a monopoly that a few grain traders maintained on to-arrive grain.

Holding: The rule is legal. A restraint is not illegal solely bc it might restrain, you have to
look at whether the restraint will serve to promote or destroy competition

Reasoning: (a) The restraint does not prevent members from sending bids during after-
market hours. It simply creates a stronger incentive for members to attend the exchange
during market hours and determine the price that the members would be willing to pay
for to-arrive grain before the next business day. (b) The scope of the restraint is limited
to to-arrive grain, a small part of the grain shipped from Chicago daily, and is also
limited to a small part of the day, and is limited to grain shipped in and out of the
Chicago market. (c) Most importantly, the restraint’s effects are mainly pro-
competitive. It opens up the market for to-arrive grain to more buyers, which
increases the # of bids and makes selling less risky for to-arrive grain sellers who
previously had to deal with fewer buyers in a less conspicuous market. The
competitive benefits outweigh the temporal restriction on price setting for
to-arrive grain.

Givens 8
 TAKEAWAYS:
(1) "true test of legality is whether the restraint imposed is such as merely regulates
and perhaps thereby promotes competition or whether it is such as may
suppress or even destroy competition."
(2) Three Categories of Factors to Consider: Nature; Scope; Effect
Relevant Factors:
• Facts peculiar to the business
• Conditions of business before and after restraint was imposed
• Nature of restraint
• its effect, actual or probable
• History and purposes of the restraint
• Evil believed to exist
• Reason for adopting particular remedy
• Purpose or end sought to be attained
• These are "all relevant factors"

NSPE Engineering society: pick engineer, then negotiate price – prohibiting

(1978) price negotiations = violation under ROR

Facts: In 1935, the National Society of Professional Engineers (defendant) was

established to help promote the non-technical aspects of the engineering profession.
The goals included promoting the economic and professional interests of its members.
In a code of ethics, the Society prohibited consulting engineers from sharing
price information with potential customers prior to being selected for a
specific position. This had the effect of preventing competitive bidding in the
market for engineering services.

Accusation: preventing competitive price bidding.

Justifications: Public policy - Price competition among engineers was detrimental to the
public, because it would incentivize engineers to submit deceptively low bids and cut
corners, leading to awarding engineering contracts to the lowest bidder without regard
to quality.

Holding: Prohibiting members from competing on price violates § 1 under ROR.

Claiming that competition itself is unreasonable in the relevant market is not a defense
to antitrust liability.

Reasoning: Having a legitimate justification for a competitive restraint can’t create

exceptions to antitrust liability. HERE, the Society agreed they wouldn't discuss prices
until after an engineer has been selected for a specific job. Society’s argument is
essentially that competition itself in this market of engineering services is
unreasonable. If every market had an exception to antitrust liability for “dangerous

Givens 9
 goods,” the scope of the Sherman Act would be diminished bc nearly every market for
goods and services could potentially be dangerous. Note also the collusive/exclusive
effects of enforcing the code against violators. While the agreement does not fix price
directly, it effectively removes price as an aspect of competition among members by
preventing customers from comparing different prices in the market for engineering
services. Thus, violation of § 1.

--------------------------------------------------------------------------------------------------------
Keys: *the focus of the analysis should be on anticompetitive effect (we see later
this effect is not as likely when there's no market power)
BMI (1979) Blanket-licensing of copyrighted music – use ROR

Facts: Broadcast Music, Inc. (BMI) (defendant) was established as an intermediary in

the market for individual musical compositions. Previously, thousands of owners of the
copyrights in musical compositions had difficulty negotiating licensing with individual
users and also struggled to detect and police the unlicensed use of the copyrights by
infringers. BMI and the American Society of Composers, Authors and Publishers
(ASCAP) helped with these issues by allowing copyright owners to license their
compositions collectively in a blanket license. The blanket license allowed licensees to
perform any of the works included in the license. Between BMI and ASCAP, nearly
every copyright-protected composition in the United States could be
utilized through the blanket licenses. Columbia Broadcasting System, Inc. (CBS)
(plaintiff) purchased blanket licenses for its television and radio programming.
Believing that the blanket licenses amounted to price fixing and that BMI and ASCAP
were unlawful monopolies in the market for composition, CBS brought suit against BMI
and ASCAP

Holding: A blanket license for an entire market of goods is not a per se antitrust
violation if the license does not inevitably have anticompetitive effects.

Reasoning: In determining whether an agreement should be considered a per se

violation, focus on the purpose and probable effects of the agreement in the relevant
market. If it inevitably produces anticompetitive effects, then likely per se. HERE, BMI’s
blanket license was meant to address the particular issues plaguing the market for
musical compositions. The market consists of thousands of copyright owners and users
and millions of compositions. As a result, the transaction costs between users
seeking a small number of compositions from individual copyright owners
would be high without an intermediary capable of connecting users with
copyright owners. So in that sense BMI’s blanket license creates a more efficient
market by providing an intermediary for users while relieving copyright owners of the
need to constantly police and attempt to sell copyrights. CBS argues that the blanket
license fixes prices in the market for individual compositions and that free trade is
consequently restrained. However, copyright owners are free to license their works
individually outside of the blanket license, and CBS is still free to forego the blanket
license and attempt to negotiate with individual owners. Thus, the blanket-license
agreements should be assessed under ROR.

Takeaways:
The blanket license helped reduce the cost of policing copyright
infringement and contracting with licensees
this case narrowed per se rule – it’s limited to naked price fixing: an agrmt among
rivals on price with no plausible efficiency justification
*this case signaled the beginning of important changes of attitude at the Sup Ct
about the standards for judging cooperative conduct and the role of economic
analysis in general
*recognizes you also have to look at possible procompetitive sides

Givens 10
Realcomp Real estate database / listings – ROR
(lays out ROR framework)

Facts: Realcomp was an association of local real estate agents and brokers. They had a
database of property listings for its paying members. They allowed some listings to be
distributed on public real estate websites, but prohibited the publication of
limited-service listings such as exclusive agency (EA) listings. Limited-service
brokers provided fewer services and were cheaper than full-service brokers, with whom
they competed for listings. Realcomp had substantial market power in the relevant
market.

Holding: Realcomp’s website policy = violation under ROR.

Reasoning: There is substantial evidence to support the findings under a ROR analysis
so no need to try quick look approach first. Realcomp’s website policy restricts public
access to limited-service brokers, thus limiting consumer choice and harming
competition in the real estate listing market. This is a sufficient showing of
anticompetitive effects.

Note:
*this case gives you a feel for how a modern antitrust case will look – ROR
analysis looking at both direct and circumstantial evidence

NCAA NCAA TV broadcasts – horizontal price fixing and restricted output =

violation under ROR

Facts: NCAA adopted TV-broadcast plan that limited the ability of individual members
to sell broadcast rights to college football games. The plan: (1) only 2 specified
networks could negotiate directly with NCAA member schools to broadcast
a limited # of live games; (2) limited # of times any specific member school
could appear and (3) prohibited the sale of broadcast rights outside the
plan’s limitations

Holding: the tv broadcast plan violates § s1

Reasoning:
The NCAA’s actions are ultimately controlled by a vote of its member universities.

Givens 11
  By participating in an association that prevents member institutions from
competing against each other, the institutions have created a horizontal
restraint—an agreement among competitors which controls how they will compete
with each other.
 Here, the restraint limits the # of games member universities may televise,
thus creating a limit on the quantity of televised football available to
broadcasters and fans.
 By restraining the quantity, the NCAA has restricted output. Limitations on
output are frowned upon by antitrust laws.
 Additionally, the NCAA’s actions precluded any price negotiation between
broadcasters and member universities, which = horizontal price fixing.
 Horizontal price fixing and output limitation are generally viewed by
courts as “illegal per se” because the likelihood of anticompetitive
results is so high.
 Here, however, a per se rule application is not appropriate. Use ROR:
 (1) To protect the “product,” college football, the NCAA and its members must
agree on best practices to promote it to the public. Such actions can be viewed
as procompetitive.
 (2) However, the NCAA may have gone too far with its television restrictions.
 By fixing a price for television rights to all games, the NCAA created an
unreasonable, anticompetitive price structure.
 Counter: The NCAA claims that because it has no market power, its plan could
not be anticompetitive. One is not necessary for the other.
 Regardless, the NCAA does in fact possess market power.
 While it is true that the NCAA’s goal is preserve the integrity of
amateur athletics, such a goal does not justify its television
restrictions.

LOOKING FOR AGREEMENT

Copperweld Steel tubing market – alleged vertical conspiracy to frustrate new entry =
internal agrmt ≠ violation

Facts:
 Alleged conspiracy among a parent corp, its subsidiary, and a supplier to impede a
new entrant's efforts (Independent Tube)
o Copperweld (parent corp)
o Regal (its wholly owned subsidiary, which manufactured)
o Yoder (unaffiliated steel supplier)
 At Copperweld's request, Yoder breached a K with Independence to build its mill -
this caused a 9 month delay in Independent's entry

Holding: A parent corp and its subsid = a single economic actor and can’t conspire for
Section 1 purposes (This rule was later extended to also apply to parents and their less-
than wholly owned subsids, sister corps owned by same parent, and other forms of
intra-enterprise conduct)

Reasoning:
 An internal "agrmt" to implement a single, unitary firm's policies isn’t a § 1 issue bc
officers of a single firm are the same economic actors pursuing the same economic
interests, so them agreeing doesn't bring together economic power that was
previously pursuing different directions
 Internal coordination is as likely to result from an effort to compete with external
factors, as from an effort to stifle competition - this may even be necessary in order
for an enterprise to compete effectively

Givens 12
Interstate Movie theater companies
Circuit
Facts: Interstate Circuit, Inc. (Interstate) (defendant) and Texas Consolidated Theaters
(Consolidated) were movie theater companies that dominated the market for showing
films in various Texas cities.
 The exhibitors don't make movies, they license them. They own local theaters -
appear to have market power
 1st run - get movies when they release; 2nd run - movies go in after; sometimes
there's overlap - might still be in the 1st run theatre
 Double features used to be more common - could see multiple movies
 Interstate and Consolidated entered agreements with 8 independent companies
that distributed 75% of all first-run films to U.S. theaters.
 The agreements specified the terms on which the theaters owned by Interstate and
Consolidated would show the films.
 A letter by Interstate’s manager, made two demands as a condition of Interstate’s
continued agreement to show a particular distributor’s films:
(1) distributor must agree that on subsequent runs it would not permit its films
to be shown in theaters charging an admission price of less than 25 cents and
 They were afraid of consumers substituting if it goes below 25 - they didn't
want to create downward pressure on price
(2) distributor must agree not to permit its first-run films to be shown on a
double-bill with another feature film.
 They were afraid of consumers choosing the double feature over theirs bc it
would be same price
 The letter listed the names of all the distributors who were receiving it. Each
distributor agreed with the demands.
o So we have vertical agrmt - for the exhibitor and distributor to agree on the
price was legally questionable
o The gov wanted to prove a horizontal agrmt - that the distributors were agreeing
with each other so they had to try and infer bc they didn't have direct evidence

Holding: Acceptance by competitors, without previous agreement, of an invitation to

participate in a plan, the necessary consequence of which, if carried out, is restraint of
interstate commerce, is sufficient to establish an unlawful conspiracy under the
Sherman Act

Reasoning:
 Usually in hub and spoke- you are trying to infer that the outer rim is colluding with
each other. Here, The gov was trying to prove the outer rim – that distributors
conspired – see p 320 figure
 The letter was direct evidence. But there was also circumstantial evidence Ie
parallel acceptance to the demands in the letter; everybody knew the costs and
benefits of colluding and of cheating; negotiations followed by unanimous action;
there was a radical departure from previous conduct; they failed to deny the
conspiracy

Takeaway: It was enough that, knowing that concerted action was contemplated and
invited, the distributors adhered to and participated in the scheme ….
American Cigarette companies copycatting price changes – enough plus factors to
Tobacco infer agreement
(1946)
Facts: Over several years, American Tobacco Company (American), Liggett & Myers
Tobacco Company (Liggett), and R. J. Reynolds Tobacco Company (Reynolds)
(defendants) together held at least 68% and frequently over 75% of the national
market share of cigarette production.

Givens 13
  The Ds sold their cigarettes in the same way: to “jobbers” at wholesale list
prices, who in turn sold the cigarettes to dealers such as convenience stores.
 The Ds also sold cigarettes at identical prices: When one changed its list price,
the others changed theirs to match. There were 7 identical price increases:
parallel pricing instances.

Holding: There was sufficient evidence for a jury to find conscious parallel conduct and
plus factors from which to infer agreement.

Reasoning: Proof of conscious parallelism alone is not sufficient. The conduct and plus
factors need not be inherently criminal. It is the results of the combined conduct that
may create the violation.
 There was parallel conduct: simultaneous raising of cigarette prices to an
identical price. Were the identical price increases just them understanding their
interdependence under normal follow the leader behavior or something more? More
than coincidence?
 Plus factors:
o the companies shared the method of selling only to jobbers.
o One year, tobacco leaves were at a record low cost yet Reynolds raised the price
of its most popular cigarette. The same day, American and Liggett matched.
There was no economic rationale for a price increase by any of the them,
given the low costs of tobacco leaves.
 D arguments:
o The president of Reynolds claimed the price raise was to "express our own
courage for the future and our own confidence in our industry"
o The president of American claimed the reason for the price raise was "the
opportunity of making some money" and since Reynolds did it, he would have
more $ for advertising so American did it too so they could be similarly
positioned
o Liggett officials claimed they only did it so they wouldn't get left behind and be
at a competitive disadvantage
 What made this environment conducive to cooperation: long history of
identical crises, small number of firms - large and stable market shares, market
power
 A jury can justifiably conclude a conspiracy where the circumstances warrant a
finding that the conspirators had unity of purpose or a common design and
understanding, or a meeting of minds in an unlawful arrangement

US v Foley Real estate agents agreeing on commission – enough evidence to show

(1979) conspiracy

Facts: The prevailing commission rate for real estate agents in Montgomery County,
Maryland was 6% of the sales price.
 Foley (defendant), president of Jack Foley Realty, Inc. (defendant), hosted a dinner
with other leading realtors in Montgomery County (defendants) where he told them
he was increasing his sales commission rate to 7%.
 There was conflicting evidence as to what else was said at dinner, but some evidence
suggested that each realtor indicated a willingness to adopt the 7% rate.
There was also evidence that the group discussed one realtor’s prior attempt
to raise commissions to 7%, which failed because competing realtors kept
their commissions at 6%.
 Within a few months after, the defendants all raised their commission rates to 7%.
 There was evidence that Foley had contacted other defendants in the months
following the dinner and stated if they all did not stick to the “agreement,” the
attempt to raise commissions would not succeed.

Givens 14
 Holding: there was sufficient evidence for the jury to find a conspiracy

Reasoning:
 Rule: Proof of a conspiracy need not be direct. § 1 violation if (1) they accept an
invitation to participate in a plan, the necessary consequence of which, if carried
out, is a restraint on commerce, and (2) they knew that their cooperation was
essential to successful operation of the plan. Such a finding does not compel, but
does permit a finding of conspiracy.
 The jury heard evidence regarding the discussions at Foley’s dinner and the
defendants’ ensuing increase of their commissions to 7%, from which the jury could
conclude that there was an invitation to participate in a plan to raise commissions
and that the defendants accepted.
 Further, given the evidence concerning the failed unilateral attempt to raise
commissions and the discussions about the necessity of cooperation that occurred
after the dinner, the jury could find that the Ds knew that their cooperation was
essential to the successful operation of the plan.
 Although the defendants assert that professional courtesy may have dictated that
the realtors accept Foley’s dinner invitation and not leave once he began discussing
the plan, the jury was permitted to reject this factual argument in reaching its
verdict.
Theater Movie distributors all refusing access to suburban exhibitos
Enterprises
Facts: Suburbs just starting to develop. Movie distributors refused to allow a suburban
exhibitor to access first-run films for showing in a suburban theater.

Holding: enough evidence for jury to decide whether it’s conspiracy

Reasoning:
A court can call coordination between rivals concerted action, even when its
accomplished by means other than a direct exchange of assurances. Generally, plus
factors are required (321). However, these cases represent a tension: Interstate demands
very little evidence beyond parallel conduct before inferring conspiracy, while Theatre
Enterprises emphasizes the need for such evidence. 326. The approach may depend on
policy concerns.
 How is this diff. from Interstate: (1) here the distributors denied acting in concert
and (2) they offered economic justifications for why each independently chose to do
the same thing – to maximize profits
 Circumstantial evidence of consciously parallel behavior may have made heavy
inroads into the traditional judicial attitude toward conspiracy but conscious
parallelism has not read conspiracy out of the Sherman Act entirely - p 321
Monsanto Agricultural pesticides from manufacturer to distributor - RPMs

Facts: Monsanto decided to stop selling any herbicide products to Spray-Rite after
complaints from other distributors about Spray-Rite’s discount pricing. Spray-Rite
stopped operations as a herbicide distributor and sued.
Accusation: conspiring with distributors to fix the price of Monsanto’s herbicide
products

Holding: there was sufficient evidence to find conspiracy to fix price

Reasoning: This was when vertical RPMs were per se illegal. For Ps to prove an agrmt:
must be evidence that tends to exclude the possibility of independent action
by the parties - to prove that the parties had a conscious commitment to a
common scheme designed to achieve an unlawful objective (326-27)

Givens 15
  the "tends to exclude" standard is more easily satisfied when the conspiracy is
economically sensible for the alleged conspirators to undertake and the challenged
activities could not reasonable be perceived as procompetitive
 Here, Monsanto confronted several distributors and threatened to stop providing
herbicide if the distributors continued to sell below Monsanto’s desired price.
Monsanto also approached Spray-Rite about their discount prices solely bc of
complaints from competing distributors. This = circumstantial support for a
conspiracy to fix prices

Matsushita Manufacturers of consumer electronic products (CEPs) – not plausibly a

conspiracy

Allegations: the defendants had conspired to sell their products at an artificially low
price, resulting in a loss for the defendants, in order to put American manufacturers of
CEPs out of business and gain a monopoly over the American market.
Accusation: predatory pricing conspiracy
Required proof: below-cost prices; recoupment

Holding: there is no reason to infer conspiracy because it wouldn't be plausible

Reasoning: Standard for proving conspiracy: present evidence that tends to exclude the
possibility of independent action
 Key: inferences that can be drawn from circumstantial evidence are limited by
economic plausibility (329)
 Here, there is no plausible motive for conspiracy:
o (1) the fact that the companies have not come close to succeeding over 20 years
makes it unlikely that a conspiracy exists
o (2) given the number of corporations (20) allegedly involved and the strong
incentive to cheat, it seems unlikely that they all would be willing to suffer
losses for so long
o (3) Zenith and another American corp hold the two largest shares in the CEP
market, and those shares have not decreased appreciably.

Takeaway:
 (p. 326-27) Monsanto – “there must be evidence that tends to exclude the
possibility if independent action…. [T]here must be direct or circumstantial
evidence that [the alleged conspirators had] a conscious commitment to a common
scheme designed to achieve an unlawful objective.”
 Matsushita …[A]ntitrust law limits the range of permissible inferences from
ambiguous evidence in a § 1 case…. To survive a motion for summary judgment or
for a directed verdict, a plaintiff seeking damages for a violation of § 1 must present
evidence “that tends to exclude the possibility” that the alleged conspirators acted
independently.
 Note discussion on cartel problems and false positives (330-33)

In re Text Text messaging services – mirroring price structures = mere conscious

Messaging parallelism not enough. Need adequate plus factors
II – 2015 pg
386 Facts: The carriers supplied 90% of the text messaging service in the country and
exchanged pricing information at their trade association meetings. The
plaintiffs presented evidence that (1) the carriers uniformly changed pricing structures
to encourage volume-based discounts and (2) the carriers increased their prices for
price per use (PPU) text messages despite the fact that the cost of providing text
messaging services had decreased.
Accusation: Ds conspired to increase PPU for texting which was just one method of
pricing text messages

Givens 16
 Holding: Mere tacit collusion/conscious parallelism w/o plus factors ≠ violation

Reasoning: The difficulty is that behavior can be parallel but independently decided.
 The Ps here tried to use an email where an employee of one comp said of their
decision to raise prices was collusive and opportunistic… just because the other guys
are doing it doesn't mean we have to.
 But did he really mean express collusion or just tacit collusion (follow-the-
leader/conscious parallelism). Nothing in any of his emails suggested he
believed there was a conspiracy among the rivals.
 Plus, the collusion alleged here was about their pricing for price per text – that
market shrunk rapidly as unlimited texting bundles became popular – the Ds even
wanted their customers to switch to bundles so why would they risk collusion when
potential benefits of conspiring were so marginal
 The most compelling evidence would have been the trade association meetings but
there was no suspicious action taken close in time afterwards, and there’s no way of
knowing what was said at those mtgs
ATTEMPTED MONOPOLIZATION
Lorain Newspaper didn't want advertisers to advertise with rival radio station
Journal (leading case on exclusion)

Facts: Lorain threatened refusal to deal: they tried to force their advertisers to stop
placing ads with a local radio station with which LJ competed to sell advertising
services.
Accusation: attempted monopolization

Holding: conduct violated Sect 2 - the dominant firm harmed competition by hindering
its only rival’s ability to compete

Reasoning: Establishing the violation didn't require proof that the attempt was
successful. LJ made it more difficult for the radio station, its only rival, to compete,
threatening their existence, and the newspaper didn't have a persuasive rationale for
why they threatened to refuse to deal with local advertisers if they placed ads with the
radio station.
 The newspaper could have used other tactics to battle the new rival for advertisers,
(although the legality of many of these are debated). For ex: (1) exclusive dealing
contracts, incentivized by lower price in exchange for not advertising in radio
stations in same locality; (2) price-cutting or new product development -
reducing prices for advertisers or creating their own radio station to compete; (3)
predatory pricing – cut price to a low level such that rival couldn't match, forcing
them out of business; (4) bundling services and offering loyalty discounts –
if they had their own radio station
 Key was presenting the advertisers with an either/or situation
 Prefatory pricing in this case (ie offering free ads in newspaper) would not have
closed off the option to buy ads for the radio in this case it would have just freed
up money and advertisers could get ads in both places
 One of the debated issues in antitrust is if you have a multi-line comp (that does
multiple things/services/products) how does someone who only does one of
those things compete?
o What's competition on the merits and what's exclusion? Depends on the
conditions
o Also - do we want to punish failed efforts to exclude?

Roadmap to Exclusion:
 Can the rivals or single dominant firm harm the competitor through exclusion or
foreclosure?

Givens 17
 (1)Does new competitor have alternatives to access, etc
(2)Does it reduce their revenues / increase their costs
(3)Does it matter if it's total or partial inclusion? Impeding?
(4)Are they excluded from the most efficient channel?
(5)Is the harm to the rival significant enough to allow the rivals or single dom
firm to raise prices?
 Did Loraine have efficient business justification? See FN 8 p 448 - not cognizable

Note:
*to the degree it's less likely things will work, firms are less likely to try it
*note if a new competitor has a good counter strategy, exclusionary tactics may backfire
- example: firms tell supplier not to sell to firm C and firm C then vertically integrates
and buys a supplier so now they do it all
*antitrust analysis has to be flexible enough to look at diff business models
MONOPOLIZATION
Alcoa, circa Aluminum producer = monopolization
1912 (VERY CONTROVERSIAL DECISION!)

Facts: Alcoa had previously been accused of anticompetitive action 2. Relevant to this
case, Alcoa does some manufacturing on its own and sells ingot to others - so they're
vertically integrated. When those products go out into the market, they come back - are
recycled.3 Between transportation costs and tariffs, US economic policy had protected
them from import prices - gave them an advantage.4 So they've estab they had monopoly
of domestic ingrid, but now we have to find the conduct - what was not just superior
skill, foresight and industry.5

Questions the court considered:

1. Amt and character of the competition
2. Whether Alcoa had monopoly power
3. If it did, whether that monopoly was unlawful under § 2

Holding: they had the requisite market power and illicit anticompetitive conduct to
prove monopolization

Reasoning:

2 Initial: they secured rights to patents and patented processes that made it cheaper to produce aluminum. But they
also use exclusionary techniques Engaged in cartel agreements where through restrictive covenants, they divided
markets with foreign manufacturers (Alcoa limited its own exports in return for foreigners’ agrmt to limit their
imports into the US); since production requires a lot of electricity, Alcoa entered contracts with electric companies not
to supply electricity to other aluminum manufacturers. They had to take out the exclusionary parts of their contracts.
By mid 1930s: Alcoa was by now the sole US producer of virgin aluminum ingot. Allegations: they used exclusionary
practices to perpetuate their monopoly position.: (1) They had discouraged entry and expansion by competitors by
adding substantially to existing productive capacity – this made competitors fear they couldn't attract the minimum
critical mass of customers needed to support efficient operations. (2) Their capacity additions revealed Alcoa’s
willingness to boost output dramatically (and depress market prices) if competitors tried to expand and undercut
Alcoa sales. Result: They were let off the hook, arguing it was too narrow to perceive Sect 2 as prohibiting a firm
from adding facilities to supply new demand.
3 Why the ct doesn't incl the recycled - see p 462 (measurement issues); Note - bc it can control original output and

price, the secondary can't really be considered competition bc secondary can't really exceed it - cap already set so they
control that indirectly
4 Isolating US companies from competition means increased prices in the US - which also slows innovation, incentive

to figure out new ways to reduce costs, and you get lazy monopolists; Exportation may go down too So it may increase
US jobs, but at what cost; Think about the global economy
5 Increased capacity whenever competitors came along; Enticed people to use their product instead of others -

stimulating demand and it's working.. So they build new plants; See last parag 468 - did they really do anything
wrong though; *it was probably Alcoa's past conduct like the exclusionary contracts that tainted the court's view in
this case

Givens 18
 Market share – the majority of the time they produced over 80% of the product
available in the US, averaging over 90% during the past 5 years
 The product – the nature and uses of secondary ingot; read 463 for description of
why they found that secondary (recycled) and virgin ingot do compete in the market
even though there are some consumers who only want virgin. This means secondary
impacts/limits the price of virgin. But Alcoa knowing that some of its virgin
production will later return to the market as recycled scrap must affect their
decisions about current production.
 Control over the market – for those reasons, in estimating their control over the
market, should exclude supply of secondary
o How to compute Alcoa's control of the aluminum market - as distinct
from its production - depending on what is considered competing in
that market - 462; conclusion for what their mkt control was - bottom p 464
 Pricing – it was the threat of foreign imports coming in at lower prices that made
Alcoa keep their prices where they were instead of raising them even though they
had the market power to do so
 Exercising market power – the burden shifted to Alcoa to prove they had not
abused their power.
 The purpose of Sect 2 – but it doesn't even matter if they didn't abuse their
power – it is inherently bad that they had the monopoly regardless of economic
effects because monopoly = no competition
 But on the other hand – a single producer may be the survivor out of a group of
active competitors merely by virtue of superior skill, foresight, and industry. In such
cases, you can make a strong argument that even though the result may be
monopoly, the Sherman Act wasn't meant to condemn the results of the very forces
it aims to foster – competing to win. So the successful competitor, having
been urged to compete, must not be turned upon when he wins.
 However, in this case – Alcoa wasn't completely innocent in how it came to be a
monopoly – see prior two complaints
 The exception, where you’re in compliance with Sherman Act even
though you have a monopoly is where you did not seek but cannot avoid,
control of the market. Alcoa did not fall into this exception. – 468
o It had no reason to double and redouble its capacity whenever a competitor
tried to enter or expand, only reason that makes sense is that it was in effort to
exclude
 What = monopoly? Per Judge Hand, 90% market share = sufficient; 60-64%
doubtful; 33% insufficient
 Conduct and proof of power are interdependent - one can be used to prove the
other/ anticompetitive effect

Sect 2 Monopolization Synthesis from Alcoa

• (1) “Monopoly” alone is not an offense. While it's not ideal, the engine that
drives dynamic competition etc is the hope of becoming that powerful. So we only
go after monopolization.
• Prospect of monopoly can preserve incentives to invest & for dynamic
competition
• Exploitative conduct (raising prices alone) not an offense despite…
• Allocative efficiency losses, and
• Wealth transfers
• NOTE: Not the case in EU law
• (2) Exclusionary Conduct is essential element. (Limited to firms with
substantial market power.) Don't want to punish business acumen and the like,
those who got there fair and square bc they're simply better.
• But not luck, skill, foresight, superior product, or business acumen
• Key Issue: How do we define “exclusionary”?

Givens 19
 • Power achieved or maintained by some means other than competition on
the merits
• Aspen Skiing sought to define
• Competition on some basis “other than efficiency” or Impair
competition in an “unnecessarily restrictive way”
• Look at impact on (1) rival, (2) consumers & (3) justifications
• Evidence of each?
• Sound like ROR? RRC framework?
• (3) BUT… power matters: conduct can take on exclusionary connotations
when practiced by a monopolist. By virtue of being a monopolist, what you do
affects the market differently. This is why we start with this question - are you
even in a position to affect the market?
• "[B]ehavior that might otherwise not be of concern to the antitrust laws-or
that might even be viewed as procompetitive-can take on exclusionary
connotations when practiced by a monopolist."
• Kodak v. Image Tech., 504 U.S. 451, 488 (1992) (Scalia, J., dissenting).
• What if smaller rivals utilize same practice?
• Might suggest efficiency justifications, but…
• Does not eliminate inquiry into effects
• Same practice by a smaller firm may not pose any threat to
competition
• “Effects” Analysis = pro- and anticompetitive effects
Note similarity to Rule of Reason
Dupont/ Cellophane manufacturer – not enough market share for monopolization
Cellophane
Facts: DuPont had a patent for cellophane and Ps argued a monopoly. This case was
about the court further explaining how courts should define markets and calculate mkt
shares.

Holding: Dupont does not have monopoly power in the flexible packaging market

Reasoning:
 P 495 - figuring out market definition
o What's the product - are there other things ? Substitutability?
o Elasticity of demand - if we change price of a product, what happens to the
demand for it?
o Cross-elasticity - if we change the price of one product, what happens to the
demand of another product?
 Define the relevant market here
o The gov’t argues that the market s/b defined as just cellophane bc it is a unique
product with unique characteristics that lacks a reasonably interchangeable
substitute
o However, Cellophane had the characteristics for example desirable for cigar
packaging but so did other flexible packaging products. And buyers have diff
needs, these products have diff prices so it is interchangeable
o Dupont’s argument was that they compete in a market for flexible packaging
materials, not just cellophane
 If they define the market as Cellophane, Du Pont has 75% and would be a
monopolist. If they define the market as flexible pkging, Du Pont has 17.9% and case
closed
 HERE, bc of the interchangeability, the market was defined as flexible packaging
and DuPont does not have enough market share to raise § 2 violation

The Cellophane Fallacy - 500

o Example - p 498 - their profit margin could be important - like if the 15.9% was
high, this could show they are efficient but also already exercising market power

Givens 20
 o When doing the cross-elasticity test you don't always do it based on the
prevailing price, but focus on the competitive price

Microsoft Computer software – this tying arrangement not per se illegal but subj. to
– 525 – also ROR
see handout
– computer Facts: Microsoft (defendant) was a leading seller of operating-system software and
software related products. They began bundling their web-browsing software, Internet
Explorer, with its operating-system software, Windows 95 or 98. At the time,
Microsoft had market power in the market for operating-system software but faced
competition in the market for web-browsing software.
Accusation: bundling practice was an unlawful tying arrangement so per se illegal

Holding: despite its market power, the tying arrangement was not per se illegal because
Microsoft had procompetitive justifications

Reasoning:
 First determined that Microsoft had monopoly power. There was a tying
arrangement but not subject to per se analysis because there were procompetitive
justifications
 Second that they engaged in a variety of exclusionary acts to maintain the
monopoly by preventing the effective distribution and use of products that might
threaten their monopoly
 To be exclusionary,
o The monopolist’s acts must have an anticompetitive effect- must harm the
competitive process, thereby harming consumers
o The P must prove that the conduct has the requisite anticompetitive effect
 If private plaintiff, must prove its injury is of the type that the statute was
meant to forestall
 If government is plaintiff, must prove the conduct harmed competition,
not just a competitor
If anticompetitive effect demonstrated, prima facie case established.
o So then monopolist may proffer procompetitive justifications for the
conduct – nonpretextual claim that its conduct is indeed a form of competition
on the merits bc it involves, for example, greater efficiency or enhanced
consumer appeal
o If procompetitive justification suffices, burden shifts back to P to show that the
anticompetitive harm outweighs the procompetitive benefit. To
determine the balance, focus on the effect of the conduct not the intent behind it

Note: Judicial deference to product innovation is not absolute but Microsoft argues it
should be and that Network effects should be considered differently so not per se
Brooke Cigarettes - predatory pricing
Group v
Brown & Facts: Brooke Group began offering generic cigarettes at significantly lower prices than
Tobacco the branded cigarettes that were prevalent at the time. The product was a success, and
soon other cigarette companies began developing their own generic cigarette lines.
Brown & Williamson (defendant) developed a generic line in direct competition with
Brooke’s line. The two products were so similar that retailers generally only
carried one or the other. A price war broke out and Brown eventually established
a lower effective price by offering volume rebates to wholesale distributers. Brooke sued.

Holding: P did not meet burden to prove predatory pricing

Reasoning: Low prices benefit consumers regardless of how they were set and so long as
they are above predatory levels, they do not threaten competition.

Givens 21
 o To prove predatory pricing, P must show that the D had a reasonable probability of
recouping the losses suffered during the predatory-pricing period. This means
proving that: 1) the defendant’s prices are below a fair measure of its rivals’ costs,
and (2) the defendant had a reasonable probability of recouping its losses from
charging low prices, which generally requires a showing of collusion with
competitors.
o In order to recoup losses, predators must get enough mkt power to set prices higher
than competitive prices and then must sustain those prices long enough to earn in
excess profits what they earlier gave up in below-cost prices
o Here, there is enough evidence to support a jury finding that Brown entered the
market for generic cigarettes with anticompetitive intent and used wholesaler
rebates to bring prices below the competitive market rate. However, Brooke failed to
show that (1) Brown had a reasonable chance to recoup the losses suffered during
the alleged predatory-pricing period, because no collusion was established.
o Also, cigarette sales were declining at the time, and many manufacturers were
lowering cigarette prices so it is not clear that Brown would have been able to
maintain above-market pricing sufficient to recoup its losses

Note: PP pricing cases are rarely tried and rarely successful bc the risk of
erroneous finding is too costly given that the mechanism by which a firm would engage
in predatory pricing is the same mechanism they use to stimulate competition and lines
are too blurry to say when they cross over to improper.
REFUSAL TO DEAL
Northwest Wholesaler and office-supply retailers- use ROR bc there were
Wholesale procompetitive justifications here

Framework for Analyzing Exclusionary Group Boycotts

"Cases to which this Court has applied the per se approach have generally involved joint
efforts by a firm or firms to disadvantage competitors by ..."

Three Steps/Requirements:
• Cutting off access to a supply, facility, or market necessary to enable the boycotted
firm to compete (Exclusionary Conduct)
• Frequently the boycotting firms possessed a dominant position in the relevant
market (Market Power)
• No plausible arguments that the boycott enhanced overall efficiency (No
Procompetitive Justification)

Aspen Downhill skiing at a destination ski resort

Skiing
Facts: At first, people could buy a ticket and visit any of the 4 mountains (3 aspen, 1
highland). Aspen decided to stop doing this and just sold tickets that were good for
visiting only their 3 Aspen mountains. Then highland started selling vouchers to people
whereby they could spend those vouchers to visit Aspen. But then aspen started saying
they are not accepting those vouchers. They went to the supreme court as an
adjudicated monopolist and the only question was whether their conduct was
exclusionary

Holding: Aspen’s conduct was exclusionary was monopolistic

Reasoning:
 defining exclusionary: attempting to exclude rivals on some basis other than
efficiency .. behavior that not only tends to impair rivals’ opportunities but also does
not further competition on the merits or does so in an unnecessarily restrictive way.

Givens 22
  Lorain was viewed as refusal to deal out of which came a duty to do so; also
discusses intent - it's not that intent is a standalone requirement but when we find
it, it can help see whether you were trying to compete on the merits or not
 Think about how if they raised price, buyers could substitute
 Refusing the vouchers - Since that's money in the pocket that they are turning
down, it looks suspicious - like they just want the other company to go down in
flames
 So their cooperation was profitable for both of them, at least in highland's
perspective, and the only reason aspen broke from it was to try and exclude - the
market was competitive and good for consumers and now the monopolist changed
up
 In addition to considering the effect on the rival, consider impact on consumers and
whether the conduct has impaired competition in an unnecessarily restrictive way.
If firm's been attempting to exclude rivals on some basis other than efficiency, it's
fair to characterize its behavior as predatory
 notice the break down/organization of the opinion
o Superior quality sect is about the impact on consumers
o Highland's ability sect is about impact on rival
o Business justifications sect is about impact on monopolist
o *starts sounding like the rule of reason
 In sum, it had to be determined that Aspen gained, maintained, or used
monopoly power in a relevant market by arrangements and policies
which were primarily designed to further domination as opposed to
being a result of superior business acumen.
Verizon Network access for phone services – refusal to deal

Facts: Without OSS access a rival can’t fill its customers’ orders. Verizon had a duty to
provide that access.
Complaint – Verizon denied internconnection services to rivals in order to limit entry

Issue: Whether breach of D’s duty under a statute to share its network with competitors
states a Sect. 2 claim

Holding: Verizon’s refusal to deal was not a violation

Reasoning:
 The difficulty is that requiring a firm to share the source of its competitive
advantage is in tension with the whole point of antitrust laws bc it may lessen
incentives to invest in the means to compete and innovate
 Key question for analysis in RTD cases – did the D forgo short term benefits bc it
was more interested in reducing competition over the long run by harming its
competitor(s)?
 Can look to prior conduct to suggest motive but it can be hard to tell the
difference between a firm acting out of competitive zeal or out of
anticompetitive malice
 Here, unlike Aspen Skiing, the sharing duty under the statute created something
new – requirement to offer something that only existing “Deep within the bowels of
Verizon” that was only brought out bc of the 1996 statute and offered to rivals (not
consumers) – and it cost considerable expenses and effort just to make that access
possible
 There is no evidence that Verizon’s refusal to coordinate with competitors was
fueled by an anticompetitive intent or that Verizon ever would have coordinated
with competitors in the absence of the 1996 Act.
 Also, consumers are not losing anything that was previously available to them

Givens 23
Kodak Photocopiers and other equipment, and services
(1992)
Facts: Kodak (defendant) manufactures and sells photocopiers and micrographic film
equipment. Kodak also sells parts and provides services for its equipment. Kodak
manufactures some equipment parts internally, while the remaining parts are ordered
from independent original-equipment manufacturers (OEMs). There is no cross-
compatibility of parts between Kodak’s equipment and its competitors’ equipment. In
the 1980s, independent service organizations (ISOs) began selling parts for Kodak
equipment and offering repair and maintenance services at much lower prices than
Kodak. In response, Kodak began refusing to sell replacement parts to buyers who used
ISOs for servicing Kodak equipment and also made it more difficult to obtain used
Kodak equipment. Kodak also reached agreements with OEMs that prohibited the
sale of equipment parts to anyone other than Kodak. As a result, many ISOs went out of
business or lost significant revenue.
Accusation: Kodak’s policy of selling replacement parts for the equipment only to
customers who used their service or repaired their own machines = illegal tying
arrangement (§1) and Kodak has attempted to monopolize the submarket (§2)

Holding: there was enough evidence of both to send to jury

Reasoning:
 Image Tech, an (ISO), argued that Kodak’s policy was diff from its past conduct and
the purpose was to prevent ISOs from continuing to service Kodak equipment
 Kodak argues that it does not have considerable economic power in the subsidiary
market for parts and services, because the primary market for equipment is highly
competitive.
o But Kodak has failed to provide compelling evidence that competition in the
primary market precludes Kodak from exercising monopoly power in the
subsidiary market for parts and services, and there is evidence that Kodak
has used its power to exclude competition from the subsidiary market,
given that many ISOs were forced out of business after Kodak implemented
the tying arrangement and began restricting access to parts
 Kodak argues that a single brand cannot be considered a market for the purposes of
an antitrust violation. However, there is no legal presumption that a single brand
cannot constitute a single market, and here, the relevant market is specific to
Kodak’s equipment
 Court looked at evidence that Kodak took exclusionary action to maintain its parts
monopoly and used its control over parts to strengthen its monopoly share of the
Kodak service market
 Kodak argued they couldn’t charge existing Kodak users higher prices for parts or
services bc it didn't have market power in the market for sales of original equipment
and if they tried to do that, they would lose sales to rival new equipment
manufacturers
 However, they didn’t have legit justification for refusal to deal – they had in fact
raised service prices for their customers without losing equipment sales
 Note – had Kodak never sold parts and service separate from its original equipment
(ie by bundling parts and svc together with when structuring product warranties) it
wouldn't have been in violation
MERGERS AND ACQUISITIONS
Brown Shoe Shoe manufacturer and retailer
(680)
Facts: proposed merger of 2 firms in the shoe business. Brown was 4th largest shoe
manufacturer, 3rd larges shoe retailer (only 20% of retail stores controlled by Brown) in
the US. Kinney was 12th largest manufacturer and 8th largest retailer in the US. Proposed
merger between the two.

Givens 24
  Trend and history – shoe manufacturers acquiring independent retail outlets,
making It harder for independent manufacturers to have a chance; shoe
manufacturers supplying more and more of the retailers’ needs which basically
foreclosed other manufacturers from effectively competing for retail accounts;
Brown esp had a history of acquiring retailers then changing their product mix to
favor Brown shoes

Holding: Sup Ct affirmed enjoining the merger – the shoe industry was being subjected
to a series of vertical mergers which, if left unchecked, would likely substantially lessen
competition

Reasoning: focused on the tendencies which we don't do anymore

 Notable point – even if % market share wouldn't be that big, the fact that they’d
have more national influence means they could still lessen comp. in certain
markets/areas
 “We cannot avoid the mandate of Congress that tendencies toward concentration
in industry are to be curbed in their incipiency….

Philadelphia Commercial banks

National
Bank (685) Facts: PNB was the second largest commercial bank in Philly metro area and proposed
to merge with Girard, the 3rd largest. Product market defined as commercial banking
and geographic market defined as Philly metro area. If merger went through they’d be
the largest in the area and together with the second largest would have almost 60%
dominance
 Trend and history – the current big size of the banks is partly due to mergers to
begin with. The number of commercial banks in the area has drastically declined
already.

Holding

Reasoning:
 Procomp justifications asserted when merged:
o they could better compete with out of state big banks like NY
 ct reponse - you can’t justify anticompetitive effects in one market by
asserting procompetitive consequences in another
o they needed to follow their customers to the suburbs and retain their business
 ct response - Growth by internal expansion is socially preferable to growth
by acquisition
o need bigger bank to bring business to the areas and stimulate economic
development
 ct response – not enough
 The PNB Presumption: a merger which (1) produces a firm controlling
an undue percentage share of the relevant market, and (2) results in a
significant increase in the concentration of firms in that market is so
inherently likely to lessen competition substantially that it (3) must be
enjoined in the absence of evidence clearly showing (Burden shifts to D
here) that the merger is not likely to have such anticompetitive effects

Von’s –
grocery
stores

General Coal market producers

Dynamics
(692) – coal

Givens 25
 Ct considered factors beyond market concentration now and made clear that the
presumption of anticompetitive effects derived from concentration IS
REBUTTABLE
 GD acquired United Electric Coal – they both produced and sold coal – two main
markets = IL and IN
 Complaint – in both markets the coal industry was concentrated among a small # of
producers and the trend was toward increasing concentration (top 4 firms = 63%,
had gone up by 20% in 10 years)
 Ct affirmed lower ct – while the evidence would’ve been enough to support finding
of undue concentration in the absence of other considerations, other pertinent
factors affecting the industry and the business of the firms meant that no
substantial lessening of comp occurred or was threatened by the acquisition.
 Reasoning (still pretty narrow though)
o The bulk of production in the industry was done via obligations to fulfill long
term requirements contracts at previously fixed prices, and didn't represent
the exercise of competitive power. Thus, in a market where the
availability and price of coal are set by long term contracts rather
than immediate or short term purchases and sales, reserves rather
than past production are the best measure of a company’s ability to
compete
o Found that United was facing the future with relatively depleted resources at
its disposal, the vast majority of which were already committed under
contracts which meant their prices couldn't be adjusted. They also couldn't get
more reserves. So they weren’t as significant a factor in the coal market as
production statistics indicate. While they had been highly profitable and
efficient, its current and future power to compete for subsequent
long term contracts was severely limited by its scarce uncommitted
resources.
In sum – regardless of firm’s size when viewed as producer, you have to properly
analyze how strong or weak it is as a competitor

• Key: Defendants successfully rebut statistical case for first time since PNB
• What was critical fact?
• Market shares ≠ market power in this industry
• Coal reserves more important than historical sales
• Note: Market shares can be measured in different ways
• Query: Did merging firms argue “efficiency”?
• No – they challenged basis of prima facie case
• Strategy: Prevent burden from shifting

Baker HHUDR market (hardrock hydraulic underground drilling rigs)

Hughes

Facts: Tamrock (subsidiary through which a Finnish corp manufactures and sells
HHUDRs) proposed to acquire Secoma (subsidiary of Texas based corp Baker Hughes
that essentially did the same thing)

Holding

Reasoning:
 Rule applied: (1) P must show that the transaction will lead to undue
concentration in the market for a certain product in a certain area – this establishes
presumption that the transaction will substantially lessen competition. (2) burden
shifts to D to rebut the presumption with evidence. (3) if successful, burden shifts to

Givens 26
 P to produce additional evidence of anticompetitive effects – this merges with the
ultimate burden of persuasion that’s always on the P
o Evidence of market concentration simply gives a convenient starting point
for a broader inquiry into future competitiveness
o A variety of factors besides ease of entry can rebut prima facie case – see
Merger guidelines
 Important non-entry factors here: (1) market concentration wasn’t abnormal (2)
HHUDR consumers were sophisticated which means likely to promote competition
even in highly concentrated market
 What’s clear showing? Basically the more compelling the prima facie case is, the
more evidence the D need present to successfully rebut it

Notes:
 Most authoritative, harmonizes GD and PNB cases with newer economic thinking
 Footnote 12
Heinz case Jarred baby food market – coordinated effects
(710) –
jarred baby Facts: Heinz and Beech-Nut entered merger agrmt. FTC sought injunction. This court
food reverses lower and remands to enter injunction against the merger.
 Procomp. Justifications asserted: (1) little competitive harm bc the two don't really
compete with each other at the retail level; (2) the AC effects are offset by
efficiencies from their union (substantial cost savings) which they’ll use to
effectively compete against Gerber; and (3) merger is nec so that Heinz can innovate
and thus improve competitive position against Gerber.
o these are not great enough to overcome the presumption

Holding: injunction upheld against merger

The creation of a durable duopoly affords both the opportunity and the incentive for
both firms to coordinate to increase prices (this presumption (fear) outweighed the
proffered justifications). They gave a lot of weight to market concentration by
doing this
H&R Block Tax services market
(738) – after
2010 Facts: Intuit (62% of the market); HRB (15.6%); TaxACT (12.8%). TaxACT markets
Merger freemium services. The change in HHI would be over 400
guidelines –  The gov argued to define market narrowly in terms of DDIY, but Ds argued to define
DDIY it broadly in terms of all tax prep methods incl pen and paper and retail assisted.
products
Gov sought to enjoin merger of HRB and TaxACT on grounds that it violates AT laws
and will lead to duopoly where only substantial providers of digital tax software would
be HRB and Intuit (who does TurboTax)

Holding: Ds didn't overcome presumption that duopoly wouldn't be prone to collusion.

Reasoning; adverse incentives can ince Their incentive may not necessarily be to raise
price but to dilute quality
 Also pointed out that intuit and HRB had in the past lobbied the gov to do
something anticomp in the past
 Gov also pointed out that TaxACT was a maverick that would be eliminated - third
competitor, least amt of market power but had impressive history of innovation and
a lot of promise for expansion, and ability to force downward pricing pressure
o Gov’s response to D’s argument about product differentiation is that prices
and products are transparent/observable
Also there are switching costs

Givens 27
Hospital Hospital Corp. was a hospital chain that, after series of acquisitions, controlled 5 of
Corp of 11 hospitals in Chattanooga. The FTC alleged violation of § 7 of the Clayton Act,
America v because the transactions substantially lessened competition in the Chattanooga
FTC (780) hospital-services market. Court agreed.
o The FTC showed: (a) that Hospital Corp.’s market share increased from 14
percent to 26 percent. (b) The combined market share of the four biggest
hospitals in the Chattanooga market increased from 79 percent to 91
percent. (c) evidence of Chattanooga hospitals’ cooperative tradition and
other economic aspects of the hospital-services market that showed a
market prone to collusion.
o Hospital Corp. argued: (a) the mergers did not threaten competition,
because differences in services and organizational structure made collusion
difficult or unappealing. (b) the fact that hospitals are paid mainly by
sophisticated insurance companies deters anticompetitive collusion.
o Rule - § 7 violation if there is a probability that the merger will
substantially lessen competition by increasing market concentration and
facilitating oligopolistic collusion. In a highly concentrated market, the
oligopoly structure can lead to competitive evils like price-fixing. A
reduction in the total number of competing firms makes it easier to form
collusive agreements and manage coordinated business practices. P only
needs to show the danger of probable anticompetitive effects.
o Application: Here, Hospital Corp.’s acquisitions further concentrated an
already highly concentrated, oligopolistic hospital-services market. Pre-
merger, the four largest hospital-services firms had a 70% market share and
now the four largest control 91 %. D’s own market share almost doubled.
Plus the FTC gave evidence of a tradition of cooperation among hospitals in
Chattanooga. This market is ripe for collusion.
D’s arguments: (a) the diversity of hospital services offered to patients does not deter
collusion bc regardless of the services offered from hospital to hospital, the higher prices
that result from interfirm collusion are attractive and possible. (b) nonprofit entities can
be motivated by the same temptations to collude as for-profit entities bc a struggling
nonprofit hospital might be tempted to collude with for-profit competitors to protect its
vulnerable market share from competition. (c) even large insurance companies cannot
prevent collusion when only four firms control 91% of the market.

Determining the relevant market:

• (p. 742) The Question:
• “….[W]hether it would be hypothetically useful to have a monopoly over
all DDIY tax preparation products because the monopolist could then
profitably raise prices for those products by five percent or more; or
whether…there would be no reason to monopolize all DDIY tax
preparation products because substitution and price competition with
other methods of tax preparation would restrain any potential DDIY
monopolist from profitably raising prices. In other words, would
enough DDIY users switch to the assisted or pen-and-paper
methods of tax preparation in response to a five-to-ten
percent increase in DDIY prices to make such a price
increase unprofitable?”
• The Court’s Answer:
• No, so DDIY is a relevant product market in the sense that
matters to antitrust: it is a group of products/services over which a
monopolist could meaningfully exercise market power…
• So move on to consider theory of anticompetitive effects…

Givens 28
Kraft Cereal market – not unilateral effects
General
Foods Facts: Kraft acquired the RTE assets of Nabisco. Kellog and General Mills had 60% of
market, Kraft had 12%, and Nabisco had 3%.

Holding: unilateral effects claim reject

Reasoning: bc Kellog’s and Nabisco’s RTE cereals compete with many other products
and aren’t the first and second choice of a significant number of consumers. Ct. Relied
on 5 diff types of evidence: (1) extent to which the two brands had similar physical
characteristics and images (different enough); (2) customer testimony about the extent
of buyer substitution between the brands (not really interchangeable); (3) marketing
survey data about the characteristics of each brand’s customers (they were diff enough);
(4) extent to which the margining firms monitored and responded to key marketing
decisions of the other (they didn’t really); and (5) econometric study of buyer demand
by expert economist (low cross-elasticity of own demand – would unilateral price
increase be profitable?)
Staples Office products market – superstores (note this was decided based on
competitive harms in retail markets)

Facts: Staples was the second-largest office superstore in the United States, while Office
Depot was the largest. OfficeMax, Inc., was the only other office superstore operating in
the United States. All three companies sold consumable office products such as paper,
pens, and toner cartridges. Seeing potential for combined efficiencies, Staples and Office
Depot planned to merge their operations.

The FTC sought a preliminary injunction in district court to prevent the merger, under §
7 of the Clayton Act. Injunction Granted.

Holding: the relevant product market be narrowed to a submarket if the

submarket more accurately reflects the line of commerce affected by the
merger

Reasoning: The parties disagreed on the relevant product market. Rule applied:
In Brown, the Supreme Court held that a well-defined submarket of a larger
product market may be considered the relevant market for antitrust
purposes. However, it can be difficult to carve out the appropriate market when
identical products at issue are sold by many different types of retailers. So The

Givens 29
 question is cross elasticity: whether price changes by one type of retailer
will affect the prices charged for the same goods by another type of retailer.
Application: Here, Staples argues that the relevant product market is for
consumable office products, while the FTC contends that the market
should be narrowed to consumable office products sold through office
superstores. While it is true that consumable office products are sold by many
different types of retailers and that the products are functionally
interchangeable, the FTC definition more accurately reflects the line of
commerce affected by the proposed merger.
o Evidence shows: (a) that Staples and other office superstores tend to price
their consumable office products higher in areas without competition from
other office superstores, regardless of proximity to other types of retailers
offering similar products. (b) in areas where Staples and Office Depot
charge higher prices, customers do not take their business to other types of
retailers with lower prices. (c) Office superstores also appear to open new
stores based on potential competition with other office superstores but not
with other kinds of retailers.  the other retailers didn't constrain
their prices so didn't appear consumers would divert elsewhere
Due to the massive number of stores needed to enjoy economies of scale similar to the
existing competitors, it is unlikely that any new entrants will enter the market and offset
the reduction in competition caused by the merger. Additionally, Staples has failed to
show that any post-merger cost savings passed to consumers would offset the threat to
competition
US v Waste Trash collection market – easy entry can rebut
Managemen
t (1984) Facts: Waste Management, Inc. (WMI) (defendant) acquired EMW Ventures, Inc.
(EMW) (defendant). The United States government (plaintiff) brought suit under the
Clayton Act, alleging that the merger was anticompetitive. After the acquisition, WMI’s
market share in the trash collection business in Dallas County, the relevant geographic
area, was 48.8 percent. The district court treated this market share as prima facie
evidence that the merger was illegal. The evidence before the district court
demonstrated that entry into the relevant market was easy, both for entrepreneurs who
could decide to start new trash-collection businesses and for existing trash collectors
who could expand their service area into Dallas County. However, the court concluded
that ease of entry was not sufficient to rebut the prima facie showing of illegality. The
district court thus concluded that the acquisition violated the Clayton Act. WMI and
EMW appealed.

Holding: Ease of entry into the relevant market can rebut a showing of prima
facie illegality of a merger under the Clayton Act. The ease of entry into the trash
collection market in Dallas County sufficiently rebuts the government’s prima
facie showing of the illegality of the merger

Reasoning: One way to rebut the presumption is by demonstrating ease of market entry.
A showing that market entry is so easy that the merged firm would not be able to raise
prices without losing business to new entrants is evidence that the merger is not
anticompetitive. Indeed, restricting review of market share to a snapshot only of
existing competitors may be misleading. In this case, the district court erred by finding
that WMI failed to rebut the prima facie illegality of the merger. WMI does not dispute
that a 48.8 percent market share triggers a presumption of illegality under the Clayton
Act. However, the district court incorrectly held that ease of market entry does not rebut
this presumption. The district court correctly found that entry into the Dallas County
trash-collection market is easy, because not only can an entrepreneur begin a trash
collection operation out of his home, but also large trash collection firms in nearby areas
can easily expand into Dallas County. As a result, WMI and other trash collectors in
Dallas County are unable to raise prices indiscriminately without fear of losing business.

Givens 30
 WMI’s market share thus does not equate to market power, and the merger is not
anticompetitive.

VERTICAL RESTRAINTS
Sylvania TV manufacturer distributing to retailers - Vertical restraints = ROR
(1977) (significant case but hesitant to overrule Dr. Miles case which said vertical price
restraints are per se violations)

Facts: GTE Sylvania Inc. (defendant) manufactured TV sets that were distributed to
retailers. Facing declining sales and a smaller market share, Sylvania established a new
franchise plan: they stopped selling their products to wholesalers and started
selling to smaller retailers to be resold under franchise licenses instead.
Under the agreement, a retailer could resell Sylvania products only from
authorized locations. Sylvania hoped the franchise plan would reduce
competition among franchised retailers and incentivize retailers to be more
aggressive and competent in order to maintain their franchises. The plan was
successful, and Sylvania’s market share rose significantly.

Later, Sylvania offered a new franchise to Young Brothers, an established TV

retailer. Continental T.V. (plaintiff) was another retailer that had a Sylvania
franchise very close to the Young Brothers location. After Sylvania ignored
Continental’s protests about the Young Brothers location, Continental canceled a
large order from Sylvania and placed a new order with one of Sylvania’s
competitors. The relationship between Continental and Sylvania continued to
deteriorate, and Continental eventually stopped paying Sylvania after Sylvania
significantly reduced Continental’s credit line. Sylvania later canceled Continental’s
credit line.

Holding: Vertical restraints should be assessed under ROR analysis. This standard
allows consideration of both the pro-competitive and the anticompetitive effects of a
challenged restraint before deciding if a violation has occurred. Interbrand competition
is more important.

Reasoning: Sylvania’s practice of restricting resale locations for its TV sets would be a
per se antitrust violation but since it’s a vertical restraint ROR has to be applied bc
vertical restraints can have both pro-competitive and anticompetitive effects.VRs
generally reduce intrabrand competition in order to increase interbrand competition.
Intrabrand competition is reduced by a vertical restraint because the location restriction
reduces competition within the manufacturer’s own brand, among its retailers.
Interbrand competition is increased by a vertical restraint because the
manufacturer can use a location restriction to establish more efficient distribution
practices. Interbrand competition is more important than intrabrand - this is the
concept of market power - want enough competition btwn brands.

Givens 31
 Takeaways:

 This was a shift in AT law

o Economic analysis became foundation
 BMI later did for horizontal what Sylvania did for vertical
 Location, customer, geographic ways of using vertical restraints
Examples - controlling distribution to control product quality ie manufacturers telling
distributors they have to ship beer at certain temp; manufacturers making helmet
distributors send them confirmation that they've disclosed danger to consumers
Leegin Leather products from manufacturers to retailers – RPMs = ROR analysis
(2007) (overruled Dr. Miles case which said vertical price restraints were per se violations)

Facts: Leegin (defendant), started selling belts and other women’s accessories under the
Brighton brand and eventually provided Brighton products to over 5,000 different
retailers across the US. PSKS, Inc. (PSKS) (plaintiff), operated Kay’s Kloset (Kay’s), and
selling Brighton products. Over the next few years, Brighton products accounted for 40 -
50% of Kay’s profits. Leegin soon began a new policy of not selling Brighton products to
retailers that sold below their suggested prices. Leegin explained to retailers that they
wanted them to have sufficient profit margins so that the retailers could just focus on
customer service and store appearance. Leegin later learned that Kay’s had been selling
the entire line of Brighton products at discount prices. Kay’s refused to stop selling
doing that, so Leegin refused to sell any more Brighton products to them.

Givens 32
 Accusation: Leegin’s resale-price policy = violation.

Holding: RPMs are not per se violations, use ROR

Reasoning: A single manufacturer’s vertical price restraints tends to eliminate

intrabrand competition which in turn encourages retailers to use the money to
invest in services or promotional efforts that aid the manufacturer’s position
against rival manufacturers. In this way, RPM may be procompetitive by
stimulating interbrand competition or facilitating entry. But it could also harm
competition by facilitating a manufacturers’ or retailers’ cartel. RPM may also enable a
manufacturer or retailer to obtain or maintain market power by excluding rivals.
Justifications might be that without RPM, free-riding may be a problem. Free-riders:
discounting retailers who may get the benefits of making sales without doing the extra
work. RPM or other contractual method prevents them from undercutting full service
providers.

McWane DIPF market – exclusive dealing arrangement condemned

(2015)
Facts: McWane (defendant) held 100% of the domestic pipe-fitting (DIPF) market from
2006 to 2009. In September 2009, Star Pipe Fittings (Star), an international pipe-
fitting manufacturer, entered the domestic market. D Conduct: That same month
McWane implemented a program to encourage its distributors to buy exclusively from
McWane. Those who did not would lose accrued rebates and be cut off from any
McWane purchases for 12 weeks. McWane also raised its prices after Star’s entry into
the market. By 2011 Star’s domestic market share had risen to 10%, but McWane
retained the other 90%. Despite Star’s prices being lower than McWane’s, there is
evidence that firms bought from McWane only bc of the exclusive-dealing threat. The
FTC brought suit against McWane.

Holding: AN EXCLUSIVE-DEALING ARRANGEMENT IS UNLAWFUL WHEN

A FIRM HAS MONOPOLY POWER IN A MARKET AND IT REASONABLY
APPEARS THAT THE FIRM USES THE ARRANGEMENT TO MAINTAIN ITS
MONOPOLY POWER

Reasoning: In a noncompetitive market, an ED arrangement can harm competition. For

example, it can force a rival firm to raise its costs to a point where it cannot become a
true competitor. Exclusive-dealing arrangements are analyzed under the rule of
reason, with the addition that courts must also consider foreclosure.
The P has the initial burden of showing that the conduct harms competition.
The D can rebut with procompetitive justifications. The court then determines
whether the procompetitive effects outweigh the anticompetitive effects. I
HERE, substantial evidence showed that McWane had monopoly power in the domestic
pipe-fitting market and used exclusive dealing to maintain that power: (a) 2 years after
Star's entry, McWane still had 90% of the relevant market, a share that = monopoly
power. (b) The fact that McWane’s prices went up after Star’s entry—which coincided
with the start of the exclusive-dealing program—shows that McWane used the program
to maintain its monopoly power. (c) Despite Star’s prices being lower than McWane’s,
many purchasers bought pipe fittings solely from McWane out of fear of the 12-week
ban, which = substantial foreclosure of Star from the majority of the
domestic pipe-fitting market. (d) It reasonably appears that McWane’s program
prevented Star from gaining a true foothold in the market and McWane does not offer
persuasive procompetitive justifications for its program.
Accordingly, evidence supports the FTC’s finding that McWane improperly used
the exclusive-dealing program to maintain its monopoly power and violates the
FTC Act.

Givens 33
• Facts: Note the specific characteristics of the market
• How did gov’t regulation (ARRA) shape the relevant market?
• Conduct: “Full Support Program”
• How was it equivalent to “exclusive dealing”?
• Analysis: Note Structured Approach
• Market Definition & Monopoly Power
• Theory of Anticompetitive Effects – Monopoly Maintenance
• Deprived Star of access to most efficient distribution (RRC)
• Deprived Star of scale necessary to build its own lower cost plant
(RRR/RRC)
• Evidence? Actual harm? Inference? Role of “foreclosure”? Intent?
• Justifications? (Note role of internal documents)
• How did absence of cognizable justification typical of exclusive dealing
influence court?

Givens 34