Antitrust - Pierce - Fall 2004_4

8/20/2019 Antitrust - Pierce - Fall 2004_4

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ANTITRUST OUTLINE

I. BASIC ECONOMIC PRINCIPLES

Antitrust Law: Reducing the incidents of harm that are attributable to cartels and monopolies, by fostering the benefits ofa competitive market.

Industry Demand Curve: The industry demand curve (the number of widgets people will buy at a certain price) will

always be represented by a curve that slopes down to the right.• Te !uantity demanded de"#ines as te $ri"e in"reases.

o That is, the higher the price, the fewer pencils people will buy.

o Consumers either find alternatives (pens) or simply do without.

• To a person manufacturing in a "%m$etitive mar&et (a “price taker), you have no choice how much you choose

to set the price at (the demand curve looks flat) because te $ri"e is set 'y te mar&et.

Mar(ina# "%st is te %n#y tin( tat determines te $ri"e %) te $r%du"t:

• Mar(ina# C%st: The additional cost you incur in your decision to make one more units of your product (one more

pencil), !R the amount of money you save in declining to purchase"make that e#tra unit.

• Mar(ina# C%st Curve: $oes down initially, as you take advantage of the available economies of scale. %ut

eventually, you will reach a point in your output level, where your marginal cost in production begins to go up because you overstretch your resources (go into overtime, have to give resources away for other higher valueduses, machines break down).

Pri"e E#asti"ity: The e#tent to which a change in price changes the &uantity of something that is demanded.

• E#asti"ity %) demand: 'roducer is limited in how much it can increase prices because consumers can always buy

an alternate product or do without (ice cream, cars, lu#ury goods).o This even limits monopolies, because they cannot charge more than people will pay.

• Ine#asti"ity %) demand: ide variations in the price will not change the demand for the product because there is

a constant need for them (water, electricity, gasoline)

A##%"ative E))i"ien"y: $etting goods and services to the people who value them most. *ll goods and services would be

appropriately allocated and preferences for leisure met, because by definition no further acts or e#changes could make thesituation better.

Pr%du"tive E))i"ien"y: +ettings firms achieve the sie at which the cost of production is the lowest possible per unit,even if that means somewhat smaller number of competing firms. *+E"%n%mies %) S"a#e,-

Natura# M%n%$%#y: * condition under which a single firm can serve the entire market at the lowest per-unit cost. henthis is the case, policymakers usually forego antitrust and directly regulate the firms prices.

Dynami" E))i"ien"y: The desire to break-up large firms to protect the competitive process itself, and especially to preserve the opportunity for new firms to enter the market and create new firms.

II. EARL CASES: T/E COMMON LA0 O1 ANTITRUST

• Mit"e## v. Reyn%#ds *2322-: * covenant not to compete was valid ( Mitchell v. Reynolds).

• Te Case %) M%n%$%#ies *2456-: /ueen (government) granting a monopoly was illegal and thus en0oined.

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III. T/E S/ERMAN ANTITRUST ACT *2785- AND OT/ER ANTITRUST LE9ISLATION

A. Te Serman A"t *2785-

Te Serman A"t: An A"t t% Pr%te"t Trade and C%mmer"e A(ainst Un#aw)u# Restraints and M%n%$%#ies

• Se"ti%n 2: Trusts, combinations or conspiracies in restraint of trade are illegal.

• Se"ti%n 6: 'eople who monopolie, attempt to monopolie or combine or conspire to monopolie are guilty of a

misdemeanor and will be punished by a fine no greater than 23444 or imprisoned for less than a year.• Se"ti%n : 5.6. Circuit Courts have 0urisdiction.

• Se"ti%n 3: 7ictims of violations may sue in the Circuit Court where the defendant resides, may collect threefold

the amount of damages (treble damages) incurred and can collect attorneys fees.

• Se"ti%n 7: The term “person as used in the *ct includes corporations.

Le(is#ative /ist%ry %) Serman A"t: Le(is#at%r;s Inconsistent 9%a#s<

• C%di)y te C%mm%n Law: Codify common law, add remedies, and add 0urisdiction over interstate and foreign

commerce.

• Pr%te"t Sma## Business: 6ome people supported the act to protect small businesses from large businesses for

sociological and political reasons.

•

E"%n%mi" e))i"ien"y: There were some legislators, and, for a time, some 0udges who thought these above tworeasons were consistent.

• Reas%ns wy e))i"ien"y and $r%te"ti%n %) sma## 'usiness are n%t "%nsistent:

o Cartels, by charging higher prices, will raise the market price and thus give the small firms a cushion to

raise their prices.o %y getting rid of cartels you increase competition and the five larger, more efficient firms will put the

smaller businesses out of business.o 8ronically, then, it is more efficient to get rid of the cartels and leave only the big firms to control the

market9 but, it is more socially beneficial to keep the cartels in order to preserve small business.

A## 8 =usti"es T%day 0%u#d A(ree %n te 1%##%win( in Inter$retin( Serman:

• *ct only meant to apply to 6!:; restraints and monopolies.

• ;conomic efficiency best 0ustifies the *ct.• 8t is also meant to codify the common law, so it is !< to rely on old cases.

B. Te C#ayt%n A"t and te 1TC A"t *282-

C#ayt%n A"t

• Out#aws

o Se"ti%n 6: 'rice discrimination.

o Se"ti%n >: ;#clusive dealing and tying arrangements.

o BUT? tese tin(s are i##e(a# ONL wen tese a"ti%ns +su'stantia##y #essen "%m$etiti%n %r tend t%

"reate a m%n%$%#y.,

•

Se"ti%n : 'rovides remedies (treble damages and cost of suit, including reasonable attorneys fees.• Se"ti%n 4: ;#empts labor unions. (8f these werent e#empted, they would be illegal as a cartel.)

• Se"ti%n 3: !utlaws mergers that “substantially lessen competition.

• Se"ti%n 24: 'rovides for an in0unction.

1edera# Trade C%mmissi%n A"t

• Creates the =ederal Trade Commission.

• Confers upon =TC the "%n"urrent @urisdi"ti%n (concurrent with >o?) to enforce antitrust laws.

• %oth >o? and =TC have worked out how this works by coordinating who covers what sub0ect-matter.

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I. STANDIN9=URISDICTIONR EMEDIES

A. STANDIN9

Ru#e: 'laintiff must be able to show antitrust in0ury (in0ury to competition) in order to have standing to bring an action forantitrust violation. 8f you cannot show in0ury, the case must be dismissed. ( Brunswick )

• 8n0ury must “flow from anticompetitive conduct9 “by reason of illegal conduct.• +ost profits or reduced market share caused by an increase in competition is not actionable. (Utah Pie and

Albrecht A in0ury was loss of monopoly rents)

Di))i"u#t )%r C%m$etin( 1irms t% Brin( Cases: %ecause the dispute is most likely indicative of competition.

• Mer(ers: Brunswick made it virtually impossible for a competitor to have standing to contest a merger.

Pers%ns Tat A#ways /ave Standin( t% Brin( Suit:

• Dire"t C%nsumers * Illinois Brick -

• 9%vernment *DO= and 1TC-

• State Att%rney 9enera#s * parens patrii -

Im$%rtant Private A"ti%n Cases: Sylvania, Monsanto, NCAA, e!!erson Parrish, "rinko.

Brunswi"& C%r$. v. Pue'#% B%w#OMat? In". *2833-: %runswick, one of the two largest manufacturers of bowlinge&uipment, has been ac&uiring bowling centers, including si# in the markets where plaintiff bowling centers operate.'laintiff effectively had a monopoly in these locations, and %runswicks actions introduced co#$etition. The plaintiff brought this action alleging violations C#ayt%n under se". 3? and tre'#e dama(es under se"ti%ns and 24 (cites Albrecht and Utah Pie). /: %ecause plaintiffs in0ury would have occurred regardless of whether defendant, or some otherfirm, took over the bowling alleys, it as n%t s%wn tat te i##e(a# 'eavi%r caused its in@ury and tere)%re is n%t duedama(es under se"ti%n %) C#ayt%n. I: P#ainti))s must $r%ve antitrust in@ury in@ury %) te ty$e antitrust #awswere meant t% $revent and tat )#%ws )r%m de)endant;s un#aw)u# 'eavi%r in %rder t% ave standin( t% 'rin(

antitrust a"ti%n under C#ayt%n se". .

I##in%is Bri"& *2833-: I: On#y dire"t "ust%mers ave standin( t% sue )%r tre'#e dama(es in antitrust vi%#ati%ns. erestanding not limited to the direct consumer, the entire line of distribution would be able to sue, resulting in doublerecovery. *lso difficult to prove what effect the cartel had further down the line of distribution.

B. =URISDICTION

A. INTERSTATE COMMERCE R EUIREMENT

Interstate C%mmer"e A"t *2773-: Created the 8nterstate Commerce Commission to regulate railroads. 'art of the missionwas to set prices.

• =our years later the 6herman *ct made it illegal to monopolie a competitive market, or restrain trade.

• The two statutes are not reconcilable.• "rans%Missouri Railroad& Though irreconcilable, the two states apply to the same activity. (:uddled the law.)

• This issue revisited in 'eoh. (“=iled Rate >octrine)

1i#ed Rate D%"trine: *ny rate filed with a federal regulatory agency is the law. 8t cannot be overturned or ad0usted by6herman or courts applying 6herman. "his has been the $rinci$le #eans throuh which !ederal courts have reconciled thea$$arently irreconcilable #echanis#s o! !ederal reulatory statutes and antitrust statutes. ( 'eouh)

United States v. E.C. Fni(t C%m$any *+Te Su(ar Trust,- *278>-: The *merican 6ugar Refining Co. had ac&uiredall but five sugar refining companies in the 5nited 6tates. Through an e#change of stock, it was able to ac&uire four of

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these five holdouts, giving it DE of the sugar refining market. /: Te A"t d%es n%t a$$#y t% su(ar re)inin( 'e"ause itis n%t interstate trade? and tus d%es n%t )a## witin te "%mmer"e $%wer %) C%n(ress. I: Tis is n% #%n(er (%%d #aw?'ut it as never 'een %verru#ed. Today, interstate commerce is not defined this way. Fowever, the Court today, with+ope and :orrison, is limiting the meaning of interstate commerce back in this direction.

Fe%u( v. Ci"a(% Midwestern Rai#r%ad *2866-: * group of competing railroads meet to fi# prices. They finally agreedupon rates with the 8CC. 8CC approves rates as reasonable. /: This is a violation of the 6herman *ct, but there is noremedy available. The usual remedy under 6herman is the difference between the competitive rate and cartelied rate, butunder the 8CC, any rate that is filed with the agency is the law. Be"ause te ICC rate *"arte#iGed rate- is te %n#y #aw)u#rate? te C%urt d%es n%t ave te $%wer t% award a di))erent rate. I: +1i#ed Rate D%"trine., *ny rate filed with afederal regulatory agency is the law. 8t cannot be overturned or ad0usted by 6herman or courts applying 6herman. This has been the principle means through which federal courts have reconciled the apparently irreconcilable mechanisms offederal regulatory statutes and antitrust statutes.

Summit v. Pinas *2882-: :idway is a +ouisiana hospital. 6ummit owns :idway and many other hospitals in otherstates. 'inhas, a renowned eye surgeon, ob0ects to the two-doctor rule (must have two doctors in the room). 6ummit peerreview committee revokes 'inhass privileges because of alleged incompetence, and he sues stating that the real reason is because he ob0ects to this price-gouging practice (whistle-blowing). /: 3 ?ustice ma0ority finds that the Sher#an Acta$$lies because 6ummits business is infected with interstate commerceG 6ummit owns hospitals in other states and dealswith insurance companies in other states. Dissent: 6herman *ct doesnt apply because this cons$iracy itself does notaffect interstate commerce. I: Reasoning centers around what constitutes interstate commerce A i) tis "ase were triedt%day? te %ut"%me w%u#d 'e di))erent * Lopez -.

B. INTERNATIONAL =URISDICTION

C%mity: Tere are "ertain suits tat "%urts s%u#d n%t address t%u( @urisdi"ti%n is $r%$er 'e"ause %)

re"%(niti%n %) te )%rei(n state;s s%verei(nty and teir su$eri%r interests in tryin( te "ase.

• 8nternational 0urisdiction is largely governed by the principle of co#ity.

Ameri"an Banana v. United 1ruit *2858-: >efendant had a monopoly of the banana trade in +atin *merica, forming acartel with its competitors to 0ointly set unreasonably high prices. 'laintiff bought a plantation in 'anama but refused to 0oin the cartel, so defendant got the government to use 'anamanian soldiers to shut down construction of a railway needed

to get his bananas to market. /: Te Su$reme C%urt w%u#d n%t eHtend te A"t t% events tat were #e(a# in te"%untries were tey t%%& $#a"e. I: T%u( tis is n% #%n(er te #aw t%day? tis "ase dem%nstrates a sti## very$r%'#emati" area in antitrust #aw: 6upreme Court doesnt have the ability to enforce its law internationally9 the Court isalso uncomfortable with its institutional capacity to deal with foreign relations issues. Later "ases eHtend @urisdi"ti%n t%internati%na# Serman "ases m%re eHtensive#y.

/art)%rd 1ire Insuran"e v. Ca#i)%rnia *288>-: This suit arose out of superfund liability. 6tates and private plaintiffsalleged a group boycotted as the result of a conspiracy engaged in by 5.6. insurance companies and internationalreinsurance companies, in vi%#ati%n %) Serman 2. The insurance and reinsurance companies said that they would refuseto insure unless the 86! (a company that provides the standard insurance forms on which all insurance is sold) rewrote theinsurance forms to limit liability. The M"Carren1er(us%n A"t e#empts insurance from the antitrust laws, becauseinsurance is meant to be state-regulated. %ut, the *ct provides an e#emption for any activity that is a boycott. The

reinsurance market is regulated by a %ritish agency in +ondon, and all of the conduct A meeting with the 86! to force a re-draft of insurance forms A took place in +ondon. /: C%mity should not apply because the %ritish government did notco#$el the conduct that violates 6herman. C%mity s%u#d %n#y a$$#y wen a )%rei(n state "%m$e#s te "%ndu"t. Internati%na# Criti"ism: =oreign governments were upset at this decision, because under the 6tate *ction >octrine, statesare given more protection than foreign governments.

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. STATE ACTION DOCTRINE ECEPTION TO ANTITRUST LIABILIT

A. STATE ACTION DOCTRINE

JJ Te Serman A"t is si#ent %n te a'i#ity %) States t% restrain trade.

State A"ti%n D%"trine: *ny state action A action of a 6tate or authoried by a 6tate -- is not within the scope of the6herman *ct, it is instead within the scope of this new defense, the 6tate *ction >octrine. (6ee Parker )

Midcal Aluminum Tw%Pr%n(ed Test: T% determine weter state re(u#ati%n %) $rivate $arties is sie#ded )r%m te

)edera# antitrust #aws<

2. Te "a##en(ed restraint must 'e +%ne "#ear#y arti"u#ated and a))irmative#y eH$ressed as state $%#i"y.,

• :ust be satisfied by a statute.

• Re&uires only that the anticompetitive conduct be authori)ed by the state legislature (Southern Motor

Carriers)9 not compelled by state (*old!arb).

• *s long as the 6tate clearly articulates its intent to adopt a permissive policy, the first prong of the Midcal test

is satisfied. (Southern Motor Carriers+

6. Te State must su$ervise a"tive#y any $rivate anti"%m$etitive "%ndu"t.• Can be satisfied by the actions of any state actor, including a state agency.

• The state (including an agency) has $ower to review particular acts and deliberately uses it. ("icor+

Bene)its %) StateEn)%r"ed Carte#s:

• >ont need agreement of 144E of the people A there is usually a statutory-specified minimum that can force

the others, with the power of the state, to comply.

• Ta#-payers pay for inspectors to monitor raisin-growers and prevent cheating.

• The 6tate has the remedy of incarceration available to enforce compliance (e.g., dont fi# prices or limit

productionI e can send you to 0ail.)

• These are the most successful cartels, because they are enforced by 6tates.

B. NOERR PENNIN9TON ECEPTION TO S/ERMAN LIABILIT *LOBBIN9-

Noerr-Pennington D%"trine: %ehavior designed to influence the government (lobbying), even when engaged in by agroup, even when it has an anti-competitive purpose, is e#empted from 6herman, falling under the defense of the Joerr-'ennington >octrine.

C%re P%#iti"a# A"tivities: This conduct, getting to pursue a common interest to a legislature, court or agency, is soundly protected by the Constitution.

Sam EH"e$ti%n: $roups may not abuse the 0udicial or legislative process solely to reach an anticompetitive end. This isa difficult standard to meet, because the actions must be entirely “baseless and taken “solely for anticompetitive

purposes. (6ee "ruckin Unli#ited )

Re!uirements )%r Liti(ati%n t% 'e a +Sam, under Noerr :

2. Te #awsuit must 'e %'@e"tive#y 'ase#ess in te sense tat n% reas%na'#e #iti(ant "%u#d rea#isti"a##y

eH$e"t su""ess %n te merits.

6. It must 'e determined weter te 'ase#ess #awsuit "%n"ea#s +an attem$t t% inter)ere dire"t#y wit te

'usiness re#ati%nsi$ %) a "%m$etit%r?, tr%u( te +use %) te (%vernmenta# $r%"ess as %$$%sed t%

te %ut"%me %) tat $r%"ess as an anti"%m$etitive wea$%n.,

0ays %) 9ettin( Ar%und te Sam EH"e$ti%n:

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• >ont file an ob0ection in every case.

• >ont file a boilerplate"same document.

• %e more selective on the basis of the claim.

C. MUNICIPALITIES

State A"ti%n As A$$#ies t% Muni"i$a#ities:

2. Sti## need state aut%riGati%n under Pr%n( 2 %) Midcal .

o 8n order to win Parker >octrine immunity from the antitrust laws, a municipality must have s$e"i)i" stateaut%riGati%n of the anticompetitive activity. There is no :unicipality >octrine9 the city is not a stateactor under Parker . ( City o! a!ayette+

o /%me Ru#e Statutes: Fome Rule 6tatutes A which give broad plenary power to the city -- are not

sufficient to satisfy Midcal prong one (specific authoriation). (City o! Boulder )6. A muni"i$a#ity is an a"t%r %) te state wit res$e"t t% Pr%n( 6.

o :unicipal supervision of the conduct at issue will satisfy Midcal prong @. (City o! -au Claire+

Dama(es: Cities were going bankrupt because they were losing trebled antitrust actions. This statute still re&uires cities to be incompliance with City o! a!ayette9 however, there are n% #%n(er tre'#e dama(es avai#a'#e )%r antitrust suitsa(ainst "ities. (ocal *overn#ent Antitrust Act o! /01+

D. CASES

Par&er v. Br%wn *28>-: The 'rorate 'rogram, established by the California *gricultural 'rorate *ct, controlled the production, distribution and sale of raisins in Raisin 'roration Kone L1, which accounts for virtually all raisin productionin the 5.6., and half that of the entire world. /: The 6herman *ct does not prohibit restraints of trade authoried by 6tatelegislatures. %ecause the raisin industry is of local concern, the 6tate is in the best position to regulate it. AbsentConressional disa$$roval , the program is valid both under 6herman and the Commerce Clause. SEE Te Case %)M%n%$%#ies *245>-. I: Created te State A"ti%n D%"trine.

9%#d)ar' v. ir(inia State Bar *283K-: 7irginia 6tate %ar sets advisory fee estimates that attorneys must set prices at acertain level to protect professional ethics. The 7irginia 6tate %ar is a state agency, approved by the legislature and thestate supreme court. /: 8f there is anticompetitive conduct? te state must require te a"ti%n n%t @ust aut%riGe it A

and the only institution that counts as the state is the legislature. A state a(en"y d%esn;t ave te $%wer t% insu#ateanti"%m$etitive "%ndu"t )r%m te antitrust #aws? %n#y te #e(is#ature. I: Chips away at the state action doctrine.

Cant%r v. Detr%it Edis%n *2834-: >etroit ;dison gave free light bulbs along with provision of electrical service.*pproved by :ichigan 'ublic 6ervice Commission. /: The Commission is a state agency, not the legislature, *J> theactivity is approved by the legislature, but not commanded by it9 therefore, there is n% antitrust immunity. I: Ad%$tsGoldfarb ana#ysis.

Mid"a# *2875-: Ann%un"es te tw%$art test *ABOE- used t% determine weter any "%ndu"t )a##s witin te state

a"ti%n d%"trine.

S%utern M%t%r Carriers Rate C%n)eren"e v. United States *287K-: >efendants are “rate bureaus composed of motorcommon carriers in the 6outheast. These rate bureaus submit 0oint rate proposals to the 'ublic 6ervice Commission ineach state. Tis "%##e"tive ratema&in( is aut%riGed? 'ut n%t "%m$e##ed? 'y te States in which the rate bureausoperate. /: >efendants collective rate-making activities, although not compelled by the states, are immune from antitrustliability under the 6tate *ction >octrine articulated in Parker v. Brown. I: *2- +C%m$e#, is (%ne? and re$#a"ed 'y+aut%riGed., *6- 0ere te 'eavi%r is inerentl! anti"%m$etitive? te C%urt wi## 'e #i&e#y t% say tat te a"ti%n is implicitl! aut%riGed. 8f the states intent to establish an anticompetitive regulatory program is clear, the states failure todescribe the implementation of its policy in detail will not sub0ect the program to the restraints of the antitrust laws.

Patri"& v. Bur(ett *2877-: * town in !regon has only one hospital. >r. 'atrick is a new doctor who obtains hospital

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privileges. 8t turns out that almost every doctor in town is a member of the same practice group A a $artnersi$ that provides all of the health care needs of the town. >r. 'atrick does not want to 0oin the practice group9 in fact, he starts hisown practice group. 6hortly thereafter, the hospital peer review committee decides it will take away his hospital privileges. 'atrick sues the hospital for (r%u$ '%y"%tt, claiming the only reason the privileges were revoked was because'atrick would not 0oin the practice group. /: Though prong one of Midcal was satisfied because the legislature re&uired peer review committees, $r%n( tw% was n%t satis)ied 'e"ause te $rivate $eer review "%mmittee is n%t a state a"t%r.I: EHam$#e were $r%n( tw% %) Midcal n%t satis)ied.

1TC v. Ti"%r Tit#e *2886-: 6tate insurance commissioners (agency) supervise the title search firms. %ut, when the =TC brought action, the Court found that the title filings had never actually been opened. /: 6tate agencies did n%t a"tive#ysu$ervise te "%ndu"t at issue A the rates set by the title search firms A so there is no antitrust immunity. I: EHam$#ewere $r%n( tw% n%t satis)ied 'e"ause a"tive su$ervisi%n re!uirement n%t met.

N%errPennin(t%n Cases

Eastern Rai#r%ad Presidents C%n)eren"e v. N%err M%t%r 1rei(t? In". *2842-: @H eastern railroads banded together foran anti-competitive purpose -- sharing the cost of hiring a 'R firm to influence legislation, fostering the adoption of lawsagainst long, heavy trucks, and encouraging the $overnor of 'ennsylvania to veto a “=air Truck %ill. /: Jo 6hermanviolation. There is nothing in the *ct that prohibits influencing legislation9 indeed, that would mean the regulation of political acti"it!, as well as business activity. I: Created N%errPennin(t%n D%"trine? $ermittin( (r%u$s t% in)#uen"e

#e(is#ati%n.

Ca#i)%rnia M%t%r Trans$%rt v. Tru"&in( Un#imited *2836-: *t this time, 6tates were regulating trucking rates, and youhad to go to the 6tate agency to get permission to haul cargo. * group of truckers filed an opposition demand for hearingsin every case which another firm proposes a new route. The truckers would list its reasons for opposition, and demand afull evidentiary hearing on its claims, which would of course take years. /: >efendants actions violated 6herman 6ection1, because is constituted unetical conduct in an ad#udicati"e proceeding . I: C%urt esta'#ises te +sam, eH"e$ti%nt% te N%errPennin(t%n D%"trine.

Muni"i$a#ity Cases

City %) C%#um'ia v. Omni Outd%%r Advertisin(? In". *2882-: >efendant Columbia !utdoor *dvertising (C!*) ran a

billboard business in Columbia, 6outh Carolina, where it eventually controlled more than 3E of the relevant market,having a close relationship with the community and its leaders. 'laintiff claims that there was a longstanding, secretanticompetitive agreement between defendant and the City, whereby C!* maintained its monopoly power and the CityCouncil members received advantages from C!*. 8n response to increasing competition between !mni and C!*, theCity passed an ordinance restricting the sie and location of billboards A an ordinance which favored C!* because it hadmost of the pre-e#isting billboards. /: The state statute authoried municipal ability to regulate land use, and it was)%reseea'#e that the e#tension of regulation authority might have anticompetitive effects9 therefore, the municipal actionin limiting billboard use is sanctioned by state action and is sub0ect to Parker immunity. I: *2- 8t is sufficient thatanticompetitive effects be a foreseeable result of the state authority to regulate, in satisfying the Parker re&uirement for“clear articulation.*6- Tere is n% "%ns$ira"y? "%rru$ti%n %r 'ri'ery eH"e$ti%n t% Parker immunity. *>- *greements between municipalities, or their officials, and private parties to use the G%nin( $%wer to confer de facto e#clusive privileges in a particular line of commerce are beyond the reach of 6herman 1.

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I. MET/ODS O1 ANTITRUST ANALSIS

A. PER SE R ULE

Per Se Ru#e: 'ractice is illegal without further in&uiry, regardless of beneficial effects or reasonableness.

Ty$es %) Per Se I##e(a# A"tivities:

2. /%riG%nta# MaHimum Pri"e1iHin(

6. /%riG%nta# Mar&et A##%"ati%n: 8llegal where the behavior is blatantly anticompetitive ( BR*)>. /%riG%nta# and erti"a# 9r%u$ B%y"%tts: !nly where the firms have market power.. erti"a# Minimum Pri"e1iHin(Resa#e Pri"e Maintenan"e (limited to specific agreements under Bus.

-lectronics)K. Tyin( Arran(ements *May'e. uesti%na'#e a)ter Microsoft -

E))e"t %) Ad%$tin( Per Se Ru#e:• Court can e#clude all evidence of purported social 0ustification.

• Pr%s: Certainty, predictability, deterrence and 0udicial efficiency.

• C%ns: Too simplistic9 may capture pro-competitive behavior or behavior that benefits consumers.

B. R ULE O1 R EASON

Ty$es %) A"tivities C%vered 'y te Trun"ated Ru#e %) Reas%n:

2. /%riG%nta# Minimum Pri"e 1iHin(

6. erti"a# MaHimum Pri"e 1iHin(

>. erti"a# A##%"ati%n %) Mar&ets

. Mer(ers *under 1TC Mer(er Ana#ysis-

K. Trade Ass%"iati%n Cases

Pra"ti"a# E))e"ts %) Reas%na'#eness Standard:

• Companies are much happier with the reasonable standard because it gives them an opportunity to argue they

had no intent, and their practices were reasonable.

• Trials take :5CF longer and there are intervening changes in the market during the course of trial.

• Farder for the government to win.

• Pr%s: :inimies over- and under-inclusion and is fle#ible.

• C%ns: +ess efficient and the outcome is less certain.

C%urt as N%ted tat tere is n% Bri(t Line Between Ru#e %) Reas%n and Per Se Ru#e: Many sades %) te Ru#e %)

Reas%n resu#t<

Traditi%na# Ru#e %) Reas%n: Court makes a broad in&uiry into the nature, purpose and effect of any challengedarrangement before a decision is made about its legality. Restraints do not violate 6herman if they achieve other socialgoals that counterbalance the in0ury to competition.

• 1a"t%rs des"ri'ed in $icago Board of %rade *%riG%nta# $ri"e)iHin( "ase-:

o =acts peculiar to the business to which restraint is applied9

o 8ts condition before and after the restraint is imposed9

o The nature of the restraint and its effect, actual or probable9

o The history of the restraint9

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o The evil believed to e#ist9

o The purpose or end sought to be attained9


10/48

II. S/ERMAN 2: /ORIONTAL COMBINATIONS IN R ESTRAINT O1 TRADE

M%dern Law %) /%riG%nta# Restraints:

• /%riG%nta# Minimum Pri"e1iHin( is Per Se I##e(a# ('ocon!? 'ut re"ent C%urts ave n%ted tat n%t a##

$ri"e)iHin( is +$#ain#y anti"%m$etitive, %r wit%ut +redeemin( virtue, and ave %$ted )%r a M%di)ied

Ru#e %) Reas%n. (BMI) N$AA and $A &ental -

o 6ince the 1N4s, Courts have recognied the per se rule and the Rule of Reason as more of a "%ntinuum

than two separate rules.o Trun"ated Ru#e %) Reas%n: 'ermits in&uiry into competitive benefits and practical efficiencies, against

anticompetitive haards without full-blown Chicao Board o! "rade Reasonableness *nalysis.

• /%riG%nta# MaHimum Pri"e1iHin( is Per Se I##e(a#

o >eclared in 'ie!er v. Stewart

o Confirmed in Marico$a County.

• /%riG%nta# 9r%u$ B%y"%tts Are Per Se I##e(a# were te 1irms /ave Mar&et P%wero >eclared per se illegal in 2ashion 3riinator4s *uild.

o Silver v. N5S- found group boycotts legal only where they provide for due process.

o N6 6holesale declared the group boycotts are only per se illegal where the firms have market power.

o 'olitical %oycottsG ;#empt e#cept where there is some economic motive present ( 7.C. Su$erior Court

Prosecutors).

• /%riG%nta# Mar&et Divisi%n is Per Se I##e(a#.

o >eclared illegal in "i#kin.

o 6till per se illegal, though somewhat limited under BR*, to those situations were the violation is blatant

(like "renton Potteries).

Im$%rtant 2 C%n"e$ts:• C%ns"i%us Para##e#ism: 'rocess (not itself illegal) by which firms in a concentrated market share monopoly

power (oligopoly), setting supra-competitive prices by recogniing their shared economic interests andinterdependence with respect to price and output decisions (e.g. airlines).

o Pri%r t% 28K? te C%urt e#d "%ns"i%us $ara##e#ism t% 'e $er se i##e(a#, but afterward held that it alone

does not violate 6herman 19 rather, conscious parallelism is e"idence of price-fi*ing (together with meetingto fi# prices, for e#ample) partly because it is difficult to maintain ( Brooke *rou$).

• Essentia# 1a"i#ities D%"trine: $ives firms the right to access the property without which they would not be

able to compete. (6ee "er#inal Railroad Association and As$en)

• N%te %n Carte#s: Cartels occur where firms agree to cutback on production to set prices higher.

o Tese are "er! di))i"u#t t% maintain.

There is a bi temptation to cheat and, because they are illegal, there is no legal recourse for violating

the cartel agreement. Re&uires regular meetings to address constant changes in the demand curve.

The only effective cartels use state power ( A#erican Banana, Parker Raisin Case)

6mall producers love cartels because they raise prices, enabling them to get more 22 for their products.

o Te sma##er te num'er %) )irms tat a""%unt )%r te #ar(est sare %) te mar&et? te easier it is t%

"arte#iGe.

=irst you must get all the firms to agree.

Then you have to enforce the agreement, which can be very difficult in cartels where there is such a

strong incentive to cheat.

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• 1i#ed Rate D%"trine: *ny rate filed with a federal regulatory agency is the law. 8t cannot be overturned or

ad0usted by 6herman or courts applying 6herman. "his has been the $rinci$le #eans throuh which !ederalcourts have reconciled the a$$arently irreconcilable #echanis#s o! !ederal reulatory statutes and antitrust

statutes. ( 'eouh)

A. EARL 2 CASES

Standard Oi# C%m$any %) New =ersey v. United States *2822-: *Serman 2 6- 6tandard !il is charged withconspiring and combining in restraint of trade in the business of refined and crude oil. Rockefeller put all the shares ofindividual firms into a trust controlled by him (4E of the oil business in !hio and other states in the Jortheast). /: Theagreement violated 6herman 1 and @. The common law interpretation of sections 1 and @ of the 6herman *ct indicate thatthough the *ct is not meant to apply to all contracts, it is meant to be 0udged on common law and public policydetermination of restraints in trade and monopolies. I: A "%ntra"t is restraint %) trade is un#aw)u# %n#y i) it isunreasonable. The Court considers evidence of intent, whether the businesses have the effects characteristic to amonopoly, and the arguments of the parties in 0ustifying their practices. Limited +reigt Association and ,oint %raffic t%teir )a"ts, because the Court felt that the cases misinterpreted the meaning of the *ct by holding every restraint of trade aviolation.

United States v. Termina# Rai#r%ad Ass%"iati%n: +Essentia# 1a"i#ities D%"trine., >efendant owned 1H of the @Hrailroads that converged in 6t. +ouis, the switching yards on both sides of the :ississippi River, and the only means ofcrossing the river. hile the court found that ordinarily it is !< to create all of the facilities re&uired to perform a particular business, geography in this case made it impossible for the other railroads to construct their own facilities. /: %y virtue of defendants advantage in this region, it not allowing competitors to use its facilities was a restraint in trade.Therefore, it had to allow others to buy into the combination, with the Terminal acting as an impartial agent, or buy use ofthe lines at a fair rate. I: Created the +Essentia# 1a"i#ities D%"trine?, giving firms the right to access the property withoutwhich they would not be able to compete.

B. /ORIONTAL MINIMUM PRICE1IIN9

Summary: /%riG%nta# Minimum Pri"e1iHin( is determined under Trun"ated Ru#e %) Reas%n:

• 'ocon!-acuum )%rma##y ad%$ts Add!ston;s $er se ru#e: “5nder the 6herman *ct a combination formed for the

purpose and with the effect of raising, depressing, fi#ing, pegging or stabiliing the price of a commodity in

interstate or foreign commerce is illegal per se.• BUT re"ent "%urts ave n%ted tat n%t a## $ri"e)iHin( is +$#ain#y anti"%m$etitive, %r wit%ut +redeemin(

virtue, and ave %$ted )%r a M%di)ied Ru#e %) Reas%n. (BMI) N$AA and $A &ental -

Remedy: Could similar ends be achieved without price-fi#ingI

C%ns"i%us Para##e#ism: ;very time one firm raises its prices, the others follow, and when one firm lowers its price, theothers follow.

• *287- It is $er se i##e(a# t% en(a(e in "%ns"i%us $ara##e#ism.

o 2ederal "rade Co##ission v. Ce#ent 8nstitute (1HD)

o United States v. Para#ount Pictures (1HD)

• *28K- It is n%t $er se i##e(a# t% en(a(e in "%ns"i%us $ara##e#ism.

o This behavior is also indicative of competitive markets.o 8t will not alone be enough to support a violation of the antitrust laws, but can be considered as circumstantial

evidence, when combined with other evidence, would be enough to prove a violation.o %eater .nterprises) Inc/ "/ Paramount +ilm &istributing $orp/ ( 28K-: Set #imits %n $ermissi'#e

in)eren"es. %usiness behavior is admissible as circumstantial evidence from which one may infer agreement.Fowever, proof of parallel business behavior does not conclusively establish agreement or itself constitute a6herman *ct offense.

A. EARL /ORIONTAL MINIMUM PRICE 1IIN9 CASES

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United States v. TransMiss%uri 1rei(t Ass%"iati%n *2783-: The government filed suit against an association ofrailroads, the Trans-:issouri =reight *ssociation, for collaborating to “un0ustly and oppressively increase rates whileoperating in interstate commerce. The government sought an in0unction against coordinated rate-making by theassociation. /: The 6herman *ntitrust *ct prohibits ;7;RO contract in restraint of trade. I: +iteral interpretation of thelanguage of the act. /uickly overruled by Addyston Pi$e.

United States v. Addyst%n Pi$e Stee#e C%. *2787-: /%riG%nta# Minimum Pri"e1iHin(. 6i# manufacturers of cast-iron pipe allocate among themselves the right to preserve particular customers through allocation of territories. /: *ddyston 'ipe is a cartel, because the restraint in trade was not ancillar! to the agreements purpose. Contract is illegaleven if the organiation covers only B4E of the cast-iron market in the 5.6. because the restrictive activity was notancillary to a lawful contract and could spiral into a much more dangerous cartel (more firms want to 0oin). Reasonable prices are not a defense. I: Creates per se rule made #aw >5 years #ater- A "%ntra"t in restraint in trade is i##e(a#un#ess it is an"i##ary t% a #e(itimate transa"ti%n.

B. ARTICULATIN9 T/E R ULE O1 R EASON CASES

Ci"a(% B%ard %) Trade v. U.S. *2827-: :ost 5.6. grain is traded by the Chicago %oard of Trade, which is comprised of people who sell grain. The %oard sets the rules for trading of grain. 8t determined that any grain sold between @G44 p.m.and opening the ne#t day, would be sold at a price set by the %oard at close of business (@G44 p.m.) the ne#t day. Thismeans that for half the hours of the week, the prices are fi#ed. /: The practice is legal under P 1, because tis ru#e serveste s%"ia##y'ene)i"ia# $ur$%ses of reducing the power of the few merchants who were willing to trade grain after hoursand allowing all merchants to work reasonable hours. I: 'ost-Clayton *ct application of the Rule of Reason. 'ierce saysthis decision is cray because it says that it is !< not to compete where there may be some socially-beneficial reasons behind the practice. (%road definition of social benefit.) Tis "ase is wide#yre(arded )%r "#ear arti"u#ati%n %) te Ru#e%) Reas%n.

C. TEETERIN9 TO0ARD T/E PER SE R ULE

United States v. Trent%n P%tteries C%m$any *2863-: >efendants are manufactures and distributors of D@E of potteryfi#tures used in bathrooms in the 5nited 6tates. !n appeal, defendants charged that the lower court should have instructedthe 0ury to consider the reasonableness of the prices charged, rather than stating that the defendants activity violated the6herman *ct by engaging in orizontal minimum price fi*ing . /: The power to fi# prices, whether reasonably e#ercisedor not, involves power to control the market and to fi# arbitrary or unreasonable prices. *greements which create such potential power are themselves unreasonable and unlawful restraints. Therefore, %riG%nta# minimum $ri"e)iHin( isitse#) $er se i##e(a#. I: Tis "ase re@e"ts te Ru#e %) Reas%n and ad%$ts te Per Se Ru#e.

JJ %renton Potteries esta'#ised te $er se ru#e? 'ut it was revisited in A$$a#a"ian C%a#s *'e#%w-.

A$$a#a"ian C%a#s? In". v. United States *28>>-: 1BN 'roducers of coal in the *ppalachian Region account for 1@E ofthe coal production east of the :ississippi, but NHE of coal production in the *ppalachian Region. The 'roducers formedan e#clusive selling agency, where each producer owned its capital in the Company and the Company, in turn, establishedstandard classifications, sought the best prices obtainable, and received a commission of 14E. /: >efendant didnt fi# prices, they merely stabilied them and then raised them back up. $iven the poor state of the market in coal, ease of entry,and competition outside the immediate region, the *ppalachian Coals, 8nc. is not acting in restraint of trade, becausecompetition is preserved and it is unlikely the Company would have the power to fi# prices. I: Tis "ase returns t% teRu#e %) Reas%n? re!uirin( ana#ysis %) $arti"u#ar "%nditi%ns? $ur$%se? and #i&e#y e))e"t %) te a(reement. Si)t in te

#aw eH$#ained 'y te 9reat De$ressi%n.

D. PER SE R ULE ADOPTED

'ocon!-acuum )%rma##y ad%$ts Add!ston;s $er se ru#e: “5nder the 6herman *ct a combination formed for the purposeand with the effect of raising, depressing, fi#ing, pegging or stabiliing the price of a commodity in interstate or foreigncommerce is illegal per se.

United States v. S%"%nya"uum Oi# C%. *285-: ith strong encouragement from the Roosevelt *dministration, oil

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companies address e#cess capacity by forming a group that buys +distress %i#, from independent producers at “fairmarket. The plan was a means to stabilie the tank car market, by having ma0or oil companies purchase the distress oil atfair market prices. /: %ecause it was found that the buying programs caused or contributed to the rise and stability of prices, the defendant was a combination with the power to fi# prices and is thus per se illegal under 6herman. I: Mar&et$%wer *as was in %renton Potteries- t% im$#ement $ri"e )iHin( is irre#evant a## tat is re!uired t% )ind i##e(a#ity is te

$ur$%se t% ma&e an a(reement *)n K8-.

United States v. C%ntainer C%r$%rati%n %) Ameri"a *2848-: >efendant accounts for 4E of the shipment of corrugatedcontainers for plants in the 6outheastern 5.6. Through an informal agreement, competing firms e#change information ofthe most recent price charged on the e#pectation of reciprocation. /: The Court found that though this behavior wasvoluntary, irregular, and it was easy t% enter into the industry, the practice resulted in $rice stabili)ation downward, andwas thus a co#bination or cons$iracy to !i9 $rices, in violation o! Section o! Sher#an. (6ee Socony%:acuu#) I:In)%rma#? ad %" eH"an(e %) $ri"es is i##e(a# under Serman 2. Te C%urt ad%$ts a m%di)ied $er se ru#e n% #%n(er

a sim$#e? sin(#e)a"t%r ana#ysis. C%u#d a#s% 'e seen as a trun"ated Ru#e %) Reas%n ana#ysis.

9%#d)ar' v. ir(inia State Bar *283K-: The %ar *ssociation had a rule that it would be unethical to charge less than acertain minimum price for designated services. /: The rule is $er se i##e(a# $ri"e )iHin(. I: Te C%urt ru#ed )%r te )irsttime %n $r%)essi%na#s usin( te antitrust #aws.

E. T/E PER SE R ULE AND R ULE O1 R EASON CONTINUUM

Trun"ated Ru#e %) Reas%n: 8n all horiontal restraint cases the court is to make a threshold in&uiry as to whether achallenged practice “facially appears to be one that would always or most always tend to restrict competition and decreaseoutput, or instead one designed to Qincrease efficiency and render markets more, rather than less, competitive. ( BM8 )

Nati%na# S%"iety %) Pr%)essi%na# En(ineers v. United States *2837-: 6ection 11(c) of the Code of ;thics for the Jational6ociety of 'rofessional ;ngineers prohibits its members from discussing their fee until the prospective client has selectedthe engineer for a particular pro0ect. This is challenged as a restraint of trade in violation of Serman Se". 2. /: The Ru#e%) Reas%n ana#ysis is proper in this case9 however, te $ra"ti"e is i##e(a# under se"ti%n 2 'e"ause it is an a's%#ute 'an%n "%m$etitive 'iddin(. Jo in&uiry into the policy reasons or social benefit behind the practice is proper under the Ruleof Reason. I: Tis "ase revives te Ru#e %) Reas%n? 'ut #imits its in!uiry ONL int% te im$a"t %) te $ra"ti"e %n"%m$etitive "%nditi%ns. *+ui"& L%%& Ru#e %) Reas%n,-

Br%ad"ast Musi"? In". *BMI- v. C%#um'ia Br%ad"astin( System? In". *2838-: /%riG%nta# minimum $ri"e )iHin(. *6C*' and %:8 are organiations comprising millions of copyrighted musical compositions. The organiations act asagents for the song-writers copyrights, by issuing non-e#clusive blanket licenses, entitling the licensee the right to perform any and all of the compositions owned by the members, for a stated term. The fee is usually a percentage of totalrevenues or a flat dollar amount. C%6 claims that *6C*' and %:8 are unla0ful monopolies, that the blanket licensesare illegal price fi*ing , an unla0ful t!ing arrangement a concerted refusal to deal , and a misuse of cop!rigts. /: The blanket licenses should be e#amined under the Rule of Reason, its value toward economic efficiency weighed against anyanticompetitive effect. I: Dem%nstrates a si)t in te C%urt;s ana#ysis t%ward e"%n%mi" e))i"ien"y as a means %)determinin( "%m$etiti%n. The Court adopts a Rule of Reason because of the fact that (1) this dealt with copyrights, (@)this issue had already been settled by consent decree, and (B) the arrangement was efficient and reduced transaction costs. Stevens;s Dissent: Tere is a 'etter arran(ement tat ASCAP "%u#d d% wit%ut vi%#atin( te antitrust #aws. *6C*'

and %:8 could act as agents of the copyright holder, taking care of the initial contracting and monitoring. I) tis "asear%se t%day: 6tevens would win because of developments since 1N -- the advent of the internet and computers, keepingtransaction costs down.

Nati%na# C%##e(iate At#eti" Ass%"iati%n v. B%ard %) Re(ents %) te University %) Oa%ma *287-: The JC** promulgates rules and standards for college sports. 8t also regulated the ability of T7 networks to televise football games, by fi#ing the price for the broadcasts and how"when the games were able to be broadcast. /: Per se ru#e d%es n%t a$$#yt% te s$%rts 'r%ad"astin( mar&et? 'e"ause te $r%du"t is "%m$etiti%n itse#). 5nder the Rule of Reason, the JC**s practice is a vi%#ati%n %) se"ti%n 2, because it curtails output, blunts the ability of member institutions to respond toconsumer preference, and restricts the role of college athletics in national life. I: *2- =irst case in the modern periode#plicitly to apply the Rule of Reason analysis to a section 1 case and still find a violation. *6- !ne of the first cases in

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which an antitrust action is brought against a n%n$r%)it %r(aniGati%n.

United States v. Br%wn University *288>-: The 8vy +eague !verlap $roup (8vy +eague 6chools plus :8T) agreed that(1) no one can get financial aid without demonstrated need9 (@) agreed to meet regularly to set aid standards9 (B) meetregularly to agree to a common amount that the individual has to pay. This has the traits of the classic $rice !i9in cartel , because a person could not get more aid at one school than they could at another school A it would be the e#act same. >uring the 14s, a## universities in"reased '%t tuiti%n and )inan"ia# aid substantially (more aid because it cost moreto go to school). The %ush *dministration brought suit under Serman 2. /: Te a(reement is a $ri"e)iHin(me"anism im$edin( te %rdinary )un"ti%nin( %) te mar&et and tus re!uires @usti)i"ati%n %) a $r%"%m$etitive

virtue 'ut de)endant MIT a""%m$#ised tis 'y $%intin( %ut te ru#es; enan"ement %) needy students; "%nsumer

"%i"e in a mar&et n%t driven 'y $r%)it m%tive. Tus? )u## Ru#e %) Reas%n ana#ysis re!uired.

C. /ORIONTAL MAIMUM PRICE1IIN9

/%riG%nta# Ma*imum Pri"e 1iHin(: The ma#imum price will also be the minimum price. Therefore, once the Courtdetermined that horiontal minimum price fi#ing is per se illegal, it followed the horiontal ma#imum price fi#ing is perse illegal.

Summary: /%riG%nta# MaHimum Pri"e1iHin( is Per Se I##e(a#:

• >eclared in 'ie!er v. Stewart

•

Confirmed in Marico$a County.• Rati%na#e )%r Per Se I##e(a#ity: 'rice ceilings (1) may allow parties to select entry-discouraging prices9 (@)

set price may become the minimum and allow the maintenance of artificially high prices9 and (B) theagreement may be an implicit arrangement to forego service or &uality improvements.

• Bene)its %) MaHimum Pri"e1iHin(: (1) :ay protect consumers from e#ploitative prices9 (@) curbs inflation9

(B) reassures buyers against price disruption9 and (H) may help discount sellers make low-price agreementswith buyers.

Fie)er v. Stewart *28K2-: Foriontal ma*imum price fi#ing is per se illegal.

AriG%na v. Mari"%$a C%unty Medi"a# S%"iety *2876-: >efendant medical foundations operate as insuranceadministrators on behalf of doctors in *riona (1,N34G N4E of doctors in :iracopa County, *K). *s part of the policy,

member practitioners must adhere to a fee scedule setting te ma*imum fees te doctors ma! carge. The 6tate of*riona challenges this practice (parens patrii) as an illegal price-fi#ing conspiracy under section 1 of 6herman. /: *riona is entitled to summary 0udgment9 the fee schedule is a per se violation of 6herman sec. 1 as horiontal ma#imum price fi#ing. I: U$%#ds $er se ru#e a(ainst orizontal ma*imum price fi*ing . Controversial because the challenged practice had the potential to lower consumer costs, and per se rule prevented analysis of probable outcome of activity.

D. /ORIONTAL 9ROUP BOCOTTS

Summary: /%riG%nta# 9r%u$ B%y"%tts are $er se i##e(a# ONL wen )irms ave mar&et $%wer and te '%y"%tt is

dire"t#y aimed at #imitin( %r eH"#udin( "%m$etit%rs %terwise? a$$#y te Ru#e %) Reas%n.

• “Concerted refusals to deal

• Traditi%na# Ru#e: >eclared per se illegal in 2ashion 3riinator4s *uild.

• Silver v. N5S- found group boycotts legal only where they provide for due process.

• M%dern Ru#e: N6 6holesale declared the group boycotts are only per se illegal where the firms have market

power.

• 'olitical %oycottsG ;#empt e#cept where there is some economic motive present ( 7.C. Su$erior Court

Prosecutors).

S%win( te Per Se Ru#e S%u#d A$$#y: P#ainti)) as t% s%w tat te '%y"%ttin( )irm< (N6 6holesale+

2. 'ossesses :arket 'ower, !R 6. 'ossesses ;#clusive or 5ni&ue *ccess to 6upply (“an element essential to effective competition), *J>

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>. +ack of efficiency rationale when boycott aimed at competitor.

Ru#e %) Reas%n: Re!uires wei(in( $ur$%se and e))e"ts %n "%m$etiti%n *P usua##y #%ses- (N6 6holesale+

2. E))e"ts %) 9r%u$ B%y"%tt

• 8n0ure boycotts intended victim

• 8n0ure competition by forcing victim to accept terms or drive out of business

• 8n0ure innocent neutrals caught in the middle of secondary boycott

6. Pr%C%m$etitive =usti)i"ati%ns )%r 9r%u$ B%y"%tt

• >eter “free riders or police “price-cutters not adhering to industry custom• *dvance social, economic goals (i.e., agree to forego deceptive ads, high pressure tactics, or refuse to deal

with polluting companies)>. C%m$anies "%u#d try t% stru"ture (r%u$ '%y"%tt and )a## under #a'%r uni%n eHem$ti%n 'y writin(

(r%u$ '%y"%tts int% #a'%r a(reement * N+L-.

B. TRADITIONAL CASES

1asi%n Ori(inat%rs; 9ui#d %) Ameri"a v. 1edera# Trade C%mmissi%n *282-: The =ashion !riginators $uild of*merica (=!$*) was formed to combat “style copying, whereby the designs of its member designers and te#tilewholesalers were copied and sold at cheaper prices. =!$* performed a group boycott, where retailers throughout thecountry must sign an agreement not to carry the copied clothing or they could not carry =!$* garments. Jotably, =!$*

members comprised BD-M4E of the market in womens clothing, so those retailers that did not agree suffered loss of business. =urther, =!$* instituted other policies unrelated to style copying, including prohibiting its members from retailadvertising, regulating discounts, sales, participation in retail fashion shows, and sales to retailers who do business inresidences. /: The =TC correctly concluded that =!$*s practice constituted an unfair method of competition inviolation of 6ection B of the Clayton *ct and the 6herman *ct. I: 9r%u$ '%y"%tts are $er se i##e(a#.

Ass%"iated Press v. United States *28K-: *ssociated 'ress has 1@44 member newspapers. The by-laws allow anymember of *' to share its story with any other member of *'. 8t also prohibits its members from selling news to non-members, and allows any *' member to block admission to a direct competitor. %y forcing the competitor to 0oin another press group, which is comprised by all @nd-ranked dailies and does not cover some markets, the competitor is relegated tooffering lower &uality news. /: Tis is a $er se i##e(a# '%y"%tt because the inability to buy news from the largest newsagency or its members could have a serious affect on competing newspapers. I: Adverse E))e"ts %) te C%urt;s De"isi%n:

8f every paper can become a member of *', there is a free-rider problem. 8f a paper can rely on getting its news from *',it will stop producing news and create uniformity in news stories A fewer different perspectives. Therefore, the directcompetitor benefits as much from the ashington 'osts stories as its does.

F#%r;s? In". v. Br%adway/a#e St%res *28K8-:


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member of Jorthwest holesale 6tationers, a cooperative that acts as primary wholesaler for its retail members and givesdiscounts in the form of a percentage of the profits the coop makes each year. 'acific was kicked out of the coop forfailure to notify of a change in stock ownership. 'acific brought suit claiming that the e#pulsion is a group boycott inviolation of se"ti%n 2 %) Serman. /%#din(: The Court retains the per se rule for group boycotts, but only where thegroup has market power (remanded). I: Limits NSE t% its )a"ts. *2- JO6; had mar&et $%wer. ithout market power A which the Coop did not have A there is no 6herman violation. *6- JO6; se#)re(u#ated and therefore there were certainrules is :56T adhere to. The Coop was no self-regulatory.

R%tery St%ra(e an C%. v. At#as an Lines? In". *2874-: *tlas, the Mth largest mover in the country, has agencyagreements with 34 moving companies which perform its interstate moving business, forming an association. >ue toderegulation of the moving business (turning a legal cartel into a competitive market), many of *tlass agents began free-riding on their contracts, earning their own interstate authority to move and undercutting *tlass prices while utiliing*tlass name and services. *tlas then severed its pooling arrangement and agency contracts with any carrier that persistedin handling its interstate carriage on its own account, as well as for *tlas. The agents who were cut off are suing here for a(r%u$ '%y"%tt and verti"a# minimum $ri"e )iHin( in vi%#ati%n %) Serman 6. /: *2- %ecause *tlas doesnt have market power (ME of the market), the boycott is not per se illegal under N6 6holesale. *6- The court rules that the verticalminimum price-fi#ing is a valid restraint because it was a restraint ancillary to a socially-beneficial business purpose. I:*2- Tis arran(ement was e))i"ient and (%%d )%r "%nsumers. This is efficient, allows companies to take advantage ofeconomies of scale, and enables smaller movers to still operate as independent agents. *6- This Court (#eans a si)t in teSu$reme C%urt;s antitrust ana#ysis )%r verti"a# restraints, stating that the new law on vertical restraints is betterdictated by BM8, NCAA and Paci!ic Stationary, which revised Addyston Pi$e ; Steel , finding that practices that have anancillary effect of restraining trade are to be 0udged according to their purpose and effect.

D. 9ROUP BOCOTTIN9 AS 1ORM O1 POLITICAL PROTEST

S%"ia##yM%tivated 9r%u$ B%y"%tts: 9r%u$ '%y"%tts tat are "#ear#y d%ne )%r $%#iti"a# $ur$%ses? and n%t )%re"%n%mi" (ain? are va#id under Serman.

• ;G J**C' boycott of >ennys for racial discrimination.

• Fowever, so long as the competing firm has lower prices and the $uild will improve its profits as a result of

the boycott, the 0udge is likely to draw the inference that the actions are actually motivated by greed and thatthe boycott is illegal.o

;G :anufacturer protest of firms that use child labor.o L%%$%#e: :anufacturers can use labor unions to organie and institute group boycotts because labor

unions are e#empt from 6herman.

D.C. Su$eri%r C%urt Pr%se"ut%rs Case: 'rosecutors representing indigent clients boycotted in order to garner higher payfor their time A get a raise from 2@4 per hour to 2B3 per hour. /: The Court finds that because the economic motive was atleast present in this case, it was $er se i##e(a#. I: :i#es public interest with economic self-interest concerns.

E. /ORIONTAL MARFET DIISION *TERRITORIAL ALLOCATION O1 MARFETS-

Summary: /%riG%nta# Mar&et Divisi%n is Per Se I##e(a#.

• >eclared illegal in "i#kin.

• 6till per se illegal, though somewhat limited under BR*, to those situations were the violation is blatant (like"renton Potteries).

• Rati%na#e: Considered naked restraint of trade with no purpose e#cept to stifle competition because (1)

participants no longer compete9 (@) it may lead to price-fi#ing because firms in designated areas en0oymonopoly status9 (B) easier to enforce than other horiontal price-fi#ing cartels because hard for members ofconspiracy to cheat without detection.

• Ru#e %) Reas%n: 8n Atlas :ans, the Circuit Court tried to argue "o$cos per se rule was de facto overruled in

BM8 and NCAA. %5T, the 6upreme Court H years later cited "o$co as supporting per se illegality in Pal#er .

A. TRADITIONAL CASES

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Tim&en R%##er Bearin( C%. v. United States *28K2-: >efendant is charged with combining with %ritish Timken and=rench Timken to restrain commerce by eliminating competition in the manufacture and sale of antifriction bearings onthe world market. *t the time, there were a lot of barriers to foreign direct investment and very high tariffs to internationaltrade. 8n order to get around these barriers, you have to have a high number of native share-holders. !n this model,Timken 0ointly-owned %ritish and =rench Timkin with citiens of those countries. To avoid trade barriers, these firmscould only sell within its own borders and to their colonies. /: The agreement assigning trade territory, fi#ing prices, protecting markets to eliminate outside competition, and restricting imports to and e#ports form the 5.6., is illegal as arestraint of foreign trade under the 6herman *ct. I: /%riG%nta# a##%"ati%n %) mar&ets is $er se i##e(a#.

C%$$erwe#d C%r$. v. Inde$enden"e Tu'e C%r$.: Overru#ed te IntraEnter$rise C%ns$ira"y D%"trine in %imkin.“The coordinated activity between a parent and its wholly-owned subsidiary must be viewed as that of a single enterprisefor purposes of 6ection 1 of the 6herman *ct.

B. UNDER T/E PER SE R ULE

United States v. T%$"% Ass%"iates? In". *2836-: @3 independent grocery stores form a coop A purchasing, labeling, branding and advertising. Rules allow any member to veto a proposed new member or new store near e#isting member.$rocery stores comprise 1.3-1ME of local market. /: This associations practice is a orizontal allocation of markets and group bo!cott , and both are per se illegal . Pier"e;s Ana#ysis: It is im$%ssi'#e )%r T%$"% t% d% any arm t% "%nsumers.

I) anytin(? T%$"% st%%d t% $revent t% d%minati%n %) a )ew #ar(e "ains.

C. MODERN CASES

See 1oter! "/ Atlas Mo"ing : Cir"uit C%urt de"isi%n "%nsiders te %#d $%siti%n tat (r%u$ '%y"%tts and %riG%nta#

a##%"ati%ns %) mar&ets are $er se i##e(a# *see %opco and 'eal!-? as de )a"t% %verru#ed. The new law on verticalrestraints is better dictated by BM8, NCAA and Paci!ic Stationary, which revised Addyston Pi$e ; Steel , finding that practices that have an ancillary effect of restraining trade are to be 0udged according to their $ur$%se and e))e"t.

=ay Pa#mer v. BR9 %) 9e%r(ia? In". *2885-: %R$ of $eorgia and F%? were competitors in the provision of bar reviewcourses in $eorgia. 8n the early 1D4s, both companies agreed not to compete with one anotherG %R$ would get $eorgiaand F%? would get the rest of the 5.6. 8n return, F%? would get 2144 per student enrolled and H4E of all earnings above

2B34. *fter the plan went through, %R$s prices increased from 2134 to 2H44. 'laintiffs brought suit that this agreementwas a violation of Se"ti%n 2 %) Serman. /: This agreement is a horiontal allocation of territories and $er se i##e(a#under %opco. %ecause the defendants were former competitors and the agreement had the effect of raising prices, it hasclear anticompetitive effects. I: /%riG%nta# a##%"ati%ns %) territ%ry sti## $er se i##e(a# were te vi%#ati%n is '#atant*#i&e %renton Potteries-.

1. /ORIONTAL R ESTRAINTS IN SPECIAL CONTETS

JJ M%di)ied Ru#e %) Reas%n a$$#ies t% m%dern "ases in a## %) te "%nteHts 'e#%w *$r%)essi%na#s? ea#t? s$%rts and

n%n$r%)its-? 'e"ause %) te "an"e %) $u'#i" $%#i"y @usti)i"ati%ns.

A. PRO1ESSIONAL CONDUCT *PRICE1IIN9-

Ren!uist is te er% %) tese "ases: Fe believes that professional conduct can never be anticompetitive because of thehigh standards of professionals. Fe is the dissent in these cases.

Pr%)essi%na# De)enses O))ered: Sa)etyPu'#i" 0e#)are

• ;G ( National Society o! Pro!essional ;ngineers) 8f a “lowest bidder system were implemented, there would

be unsafe structures all over the place.

• 'roblemG There are other bodies of law that offer resolution of this problem. (tort, building codes, contract

law)

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• 8f we held that public health"safety were a 0ustification for e#ception from the antitrust laws, attorneys could

argue potentially every activity served a public benefit and should be e#empt.

9%#d)ar' v. ir(inia State Bar *283K-: The %ar *ssociation had a rule that it would be unethical to charge less than acertain minimum price for designated services. /: The rule is per se illegal price fi#ing. I: Te C%urt ru#ed )%r te )irsttime %n $r%)essi%na#s usin( te antitrust #aws.

Nati%na# S%"iety %) Pr%)essi%na# En(ineers v. United States *2837-: Re"astin( te Ru#e %) Reas%n? ad%$tin( a

1%"used Ru#e %) Reas%n. 6ection 11(c) of the Code of ;thics for the Jational 6ociety of 'rofessional ;ngineers prohibitsits members from discussing their fee until the prospective client has selected the engineer for a particular pro0ect. This ischallenged as a restraint of trade in violation of Serman Se". 2. /: The Ru#e %) Reas%n ana#ysis is proper in this case9however, te $ra"ti"e is i##e(a# under se"ti%n 2 'e"ause it is an a's%#ute 'an %n "%m$etitive 'iddin(. Jo in&uiry intothe policy reasons or social benefit behind the practice is proper under the Rule of Reason. I: Tis "ase revives te Ru#e%) Reas%n? 'ut #imits its in!uiry ONL int% te im$a"t %) te $ra"ti"e %n "%m$etitive "%nditi%ns. *+1%"used Ru#e %)Reas%n,-

Br%ad"ast Musi"? In". *BMI- v. C%#um'ia Br%ad"astin( System? In". *2838-: erti"a# minimum $ri"e )iHin(. *6C*'and %:8 are organiations comprising millions of copyrighted musical compositions. The organiations act as agents forthe song-writers copyrights, by issuing non-e#clusive blanket licenses, entitling the licensee the right to perform any andall of the compositions owned by the members, for a stated term. The fee is usually a percentage of total revenues or a flat

dollar amount. C%6 claims that *6C*' and %:8 are unla0ful monopolies, that the blanket licenses are illegal price fi*ing , an unla0ful t!ing arrangement a concerted refusal to deal , and a misuse of cop!rigts. /: The blanket licensesshould be e#amined under the Rule of Reason, its value toward economic efficiency weighed against any anticompetitiveeffect. I: Dem%nstrates a si)t in te C%urt;s ana#ysis t%ward e"%n%mi" e))i"ien"y as a means %) determinin("%m$etiti%n. The Court adopts a Rule of Reason because of the fact that (1) this dealt with copyrights, (@) this issue hadalready been settled by consent decree, and (B) the arrangement was efficient and reduced transaction costs. Stevens;sDissent: Tere is a 'etter arran(ement tat ASCAP "%u#d d% wit%ut vi%#atin( te antitrust #aws. *6C*' and %:8could act as agents of the copyright holder, taking care of the initial contracting and monitoring. I) tis "ase ar%se t%day:6tevens would win because of developments since 1N -- the advent of the internet and computers, keeping transactioncosts down.

B. /EALT/ CASES

Patients d%n;t sue individua##y in "%urt:

• 7ery e#pensive to sue.

• >ifficult to put together a class action.

• *lso, dont care about doctor pricing, because the insurance companies pick up the tab.

M"Carren1er(us%n A"t: =ederal government may not regulate insurance companies, only the states (state insurancecommissioners).

• *dditionally, the antitrust laws do not apply to insurance companies.

• +oose state regulation, unreachable by antitrust laws, leads to massive anticompetitive activity.

/POS:

2. 255 d%"t%rs )%rm a $artnersi$ in wi" ea" a(rees t% "ar(e te same )ee.

• 'artnership comprises a cross-section of practice areas.

• This looks like horiontal price fi#ing.

• %5T, this is not illegal becauseG

o * partnership is recognied as achieving efficiencies by sharing costs and combining talents of the

partners.o *lso, partnerships still have to compete against each other.

• Partnersi$ is n%t in vi%#ati%n %) Serman 'y %riG%nta# $ri"e )iHin(.

6. 23K5 d%"t%rs )%rm $artnersi$ in wi" ea" "ar(es te same )ee.

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• This creates a problem of market concentration, in violation of 6herman @ (monopoliing or attempting to

monopolie) and Clayton N (merger).

• Tis is vi%#ates antitrust #aws )%r tendin( t%ward mar&et "%n"entrati%n.

>. A "%r$%rati%n )%rms t% $r%vide medi"a# servi"es. It ires 255 d%"t%rs and "ar(es te same )ee )%r ea".

• The 144 doctors comprise 3E of the medical services in the area.

• This poses no problem at all, because a corporation is able to have internal rules that doctors have the

same fee, so long as they still compete with other firms.

• A "%r$%rati%n "an $r%vide medi"a# servi"es and set an interna# $ri"e s"edu#e )%r its servi"es.

. 255 d%"t%rs en(a(e in collecti"e bargaining wit te "%r$%rati%n.• This is !efendant medical foundations operate as insuranceadministrators on behalf of doctors in *riona (1,N34G N4E of doctors in :iracopa County, *K). *s part of the policy,member practitioners must adhere to a fee scedule setting te ma*imum fees te doctors ma! carge. The 6tate of*riona challenges this practice (parens patrii) as an illegal price-fi#ing conspiracy under section 1 of 6herman. /: *riona is entitled to summary 0udgment9 the fee schedule is a per se violation of 6herman sec. 1 as horiontal ma#imum price fi#ing. I: U$%#ds $er se ru#e a(ainst %riG%nta# maHimum $ri"e )iHin(.

C. SPORTS CASES

Cases Ana#yGed Under Ru#e %) Reas%n: 'er se rule does not apply to the sports broadcasting market, because the product is competition itself (e.g., you need an elaborate set of rules to provide suspense, uncertainty, and some degree of parity.) ( NCAA)

1ai#in( De)ense: Regulation necessary to protect attendance of live games.

• C%nsumer C%i"e: Consumers have a right to sit home or go to a game, and the JC** cannot interfere with

that.

Is te N1L >6 C%m$etin( 1irms %r a >6 Team Partnersi$: The J=+ is more of a $artnershi$, but a very complicatedone.

• ;ach team has its own revenue from its games.

• 'lus there is revenue sharing for T7 profits.

• *nd there is revenue sharing in general support of the +eague (think 6teinbrenner signing huge checks to other

baseball teams).

• It matters weter N1L is a $artnersi$ because if the J=+ is treated as one entity, it would be a single firm

controlling the professional football market.o This has been often litigated with different results and no 6upreme Court case.

S$e"ia# Statutes: 'rofessional athletics have special statutes that amend how antitrust laws apply to them.

• ;G The *=+ and J=+ merger.

• 8f you convince the people that a merger is good for the sport by getting consumer support behind it, then you

can get a special statute e#ception to 6herman and Clayton.

La'%r EHem$ti%n: 6ports leagues may try to avoid antitrust regulation by loading terms into their labor provisions andtriggering labor e#emptions. (;G Collective %argaining *greements).

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Nati%na# C%##e(iate At#eti" Ass%"iati%n v. B%ard %) Re(ents %) te University %) Oa%ma *287-: The JC** promulgates rules and standards for college sports. 8t also regulated the ability of T7 networks to televise football games, by fi#ing the price for the broadcasts and how"when the games were able to be broadcast. /: Per se ru#e d%es n%t a$$#yt% te s$%rts 'r%ad"astin( mar&et? 'e"ause te $r%du"t is "%m$etiti%n itse#). 5nder the Rule of Reason, the JC**s practice is a vi%#ati%n %) se"ti%n 2, because it curtails output, blunts the ability of member institutions to respond toconsumer preference, and restricts the role of college athletics in national life. I: *2- =irst case in the modern periode#plicitly to apply the Rule of Reason analysis to a section 1 case and still find a violation. *6- !ne of the first cases inwhich an antitrust action is brought against a n%n$r%)it %r(aniGati%n.

C#arett v. N1L: Clarrett, a college football player, challenged the J=+s “years after graduation restriction on playing inthe +eague as a violation of antitrust laws. N1L;s =usti)i"ati%ns: 'rotect the health of young, developing players9 %5T,more likely they had this restriction to keep players in college to improve ability. /: Jo antitrust violation, because thisrule is part of the "%##e"tive 'ar(ainin( a(reement (within the scope of the labor e#emption) and therefore untouchable by antitrust laws. I: I##ustrates use %) "%##e"tive 'ar(ainin( a(reement t% (et ar%und antitrust #aws.

D. PUBLIC INTERESTUNIERSIT CASES

University;s De)ense in Bro0n: :eetings"aid agreements were essential to furthering the public interest by ensuring theirfinancial need resources are ade&uate to give aid to all deserved people.

United States v. Br%wn University *288>-: The 8vy +eague !verlap $roup (8vy +eague 6chools plus :8T) agreed that(1) no one can get financial aid without demonstrated need9 (@) agreed to meet regularly to set aid standards9 (B) meetregularly to agree to a common amount that the individual has to pay. This has the traits of the classic $rice !i9in cartel , because a person could not get more aid at one school than they could at another school A it would be the e#act same. >uring the 14s, a## universities in"reased '%t tuiti%n and )inan"ia# aid substantially (more aid because it cost moreto go to school). The %ush *dministration brought suit under Serman 2. /: The agreement is a price-fi#ing mechanismimpeding the ordinary functioning of the market and thus re&uires 0ustification of a pro-competitive virtue9 but defendant:8T accomplished this by pointing out the rules enhancement of needy students consumer choice in a market not driven by profit motive. Tus? )u## ru#e %) reas%n ana#ysis re!uired.

9. TRADE ASSOCIATION CASES

Ru#e %) Reas%n A$$#ies: Court usually evaluates price-reporting programs under the Rule of Reason to determinewhether their 2purpose and effect3 are to restrain trade unreasonabl!.

Distin(uisin( Pri"e A(reements )r%m In)%rmati%n Sarin(: The mere e#change of information does not itself re&uirethe recipients to follow a particular policy.

Ty$e %) C%mmuni"ati%n is te Distin(uisin( 1a"t%r in tese Tw% Cases:

• The info that went from the members to the trade association was the same in both cases A e#tremely detailed,

firm-specific info about current and future prices.

• Fowever, the information going from the association to the members was completely different.

o The information that A#erican Colu#n included was very detailed and disaggregate firm-specific

information, identifying prices, sales lists and customers.o Ma$le 2loorin4s information had been aggregated by the trade association and did not identify the statistics

of individual firms.

o %oth Courts agree that information can have socially-beneficial effects, such as showing where there will be

surpluses, but draw the line at where it enables price-fi#ing or carteliation.

A. TRADITIONAL CASES

Ameri"an C%#umn Lum'er C%. v. U.S. *2862-: BM3 firms that account for 1"B of hardwood production, form anassociation. The association collects from each member and disseminates to each member detailed, disaggregated, present

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S future information about prices and sales. %efore it sent out, an economist analyes the data and tells the members whatit means. *ssociation meets regularl!, urges a 2spirit of cooperation3 (rather than the cut-throat environment ofcompetition) and claims great success. 'rices increased during this period. /: The association is illegal . I: This is still thelaw today.

Ma$#e 1#%%rin( Manu)a"turers; Assn. v. United States *286K-: * trade association has @@ corporate members, half ofwhich produce rough lumber, the other half of which use the lumber to manufacture wood flooring. There is evidence thatthere are many non-member manufacturers of wood flooring, and that defendants only own a small percentage of maple, beech and birch timber. The *ssociation shares statistical information, average prices, shipping rates and also meetsregularly. /: The sharing of trade information is a good business practice and in the public interest. 8t is not illegal,notably, because the information shared was not confidential and not too specific as to give the members any substantialadvantage over non-members. 8mportantly, the prices were not uniform and they were not higher than non-members prices.

B. MODERN CASES

Nati%na# S%"iety %) Pr%)essi%na# En(ineers v. United States *2837-: 6ection 11(c) of the Code of ;thics for the Jational6ociety of 'rofessional ;ngineers prohibits its members from discussing their fee until the prospective client has selectedthe engineer for a particular pro0ect. This is challenged as a restraint of trade in violation of Serman Se". 2. /: The Ru#e%) Reas%n ana#ysis is proper in this case9 however, te $ra"ti"e is i##e(a# under se"ti%n 2 'e"ause it is an a's%#ute 'an%n "%m$etitive 'iddin(. Jo in&uiry into the policy reasons or social benefit behind the practice is proper under the Ruleof Reason. I: Tis "ase revives te Ru#e %) Reas%n? 'ut #imits its in!uiry ONL int% te im$a"t %) te $ra"ti"e %n"%m$etitive "%nditi%ns. * Trun"ated Ru#e %) Reas%n-

Ca#i)%rnia Denta# Ass;n v. 1TC *2888-: Trade association adopts an ethical rule in which they prohibit misleadingadvertising, and lists types of advertising that it would consider misleading A advertising as to price and &uality mustinclude full conte#t and comparison of this claim. =TC says that all the association is doing is restraining advertisingthrough the back door. /: :a0ority upholds the practice, reversing and remanding the =TC decision. Pr%)essi%na#C%nteHt: The professional conte#t at issue contributes to reversing the decision A had this been the vitrius pottery orcardboard bo# industry, 'ierce has no doubt that the court would have struck down the practice. Dissent: 1inds tat te$ra"ti"e is a vi%#ati%n %) Serman. Creates ui"& L%%& Ru#e %) Reas%n Test.

2. 0at is te restraint at issue

6. 0at are its #i&e#y anti"%m$etitive e))e"ts

>. Are tere %))settin( $r%"%m$etitive @usti)i"ati%ns

H. D% de)endants ave en%u( mar&et $%wer t% ma&e a di))eren"e

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III. S/ERMAN 2: ERTICAL R ESTRAINTS

Manu)a"turer Distri'ut%r 0%#esa#er Retai#er C%nsumer

M%dern Ru#e: Te +Trun"ated, Ru#e %) Reas%n (%verns ALL verti"a# restraints? eH"e$t minimum verti"a# $ri"e

)iHin( *RPM-? wi" remains (%verned 'y a #imited $er se ru#e? under Business .lectronics.

erti"a# A##%"ati%n %) Mar&etserti"a# Pri"e1iHin( Pre"edent:

o 7r. Miles Medical G (111) Contracts with dealers to implement vertical minimum price-fi#ing are per se

illegal, but !< if through agents on consignment.o ColateG (11) !verrules 7r. Miles by saying that vertical minimum price fi#ing is illegal only when there

is a contract.

• 5nilateral vertical minimum price-fi#ing is !< because this is unilateral imposition of the price-fi#ing

regime (e.g. you cant sell for less than 21 or we wont sell to you anymore) A not a contract.o Park 7avisG (1M4) !verruled Colate -- 5nilateral vertical minimum price fi#ing plus communication is an

illegal contract.o Union 3il G (1MH) ;scape clause of 7r. Miles eliminated -- *gencies and consignments are illegal. 7ertical

:inimum 'rice =i#ing is made !unctionally illegal.o 6hite MotorsG (1MB) B ?ustice >issentG 7ertical allocation of markets and vertical minimum price fi#ing

have the same effects A ways of eliminating competition among the distributors. The ma0ority holds thatvertical allocation of territories are !


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erti"a# Minimum Pri"e1iHin(: here a manufacturer tells a wholesaler or retailer the minimum prices which may becharged for the manufacturers products.

M%dern Law: Narr%w Per Se Ru#e A$$#ies t% erti"a# Minimum Pri"e 1iHin(.

• An %wner %) (%%ds? %r its a(ent? may set $ri"es %r %ter terms under wi" its (%%ds are s%#d. (&r/ Miles)

'!l"ania) G.) Business .lectonics/

• 6ee above table for evolution of per se illegality of vertical minimum price fi#ing and its relationship to 7ertical

*llocation of :arkets.

Uni#atera# Re)usa#s t% Dea#:

• $olgate Ru#e: (Jo *greement) *bsent any purpose to create or maintain a monopoly, the *ct does not restrict

the right of a manufacturer to e#ercise his own independent discretion as to parties with whom he will deal.

o *nnouncement of intention to fi# prices, without formal agreement, is permissible.

o 5pheld in Monsanto and e#tended in Business -lectronics.

• M%dern Ru#e * Business E#e"tr%ni"s-: 0it%ut a "%mm%n understandin( a'%ut s$e"i)i" $ri"es %r $ri"e

#eve#s t% 'e "ar(ed? an a(reement t% terminate a dea#er "reates n% (reater "%m$etitive ris& tan an

a(reement t% im$%se verti"a# n%n$ri"e restraints.

o +imits the 'er 6e Rule in >r. :iles to s$eci!ic aree#ents to !i9 $rices.

o Recognies the blurred distinction between price and non-price restraints.

0y w%u#d a manu)a"turer en(a(e in verti"a# minimum $ri"e )iHin(: T% $r%te"t retai#ers )r%m )reeriders.

• To encourage retailers to invest resources into selling your product A such as elegant showrooms and educated

salespeople.

• =ree-riders (such as discount houses) may give neither of these and sell at below recommended price.

Therefore, consumer shop at the elegant stores, but purchase at the discount houses. :anufacturers want todissuade this behavior.

• 'romotes inter-brand competition.

AntiC%m$etitive E))e"ts %) erti"a# Pri"e1iHin(:

• Curtain intra-brand competition.

•:ay be disguised horiontal price-fi#ing scheme by retailers who force manufacturers to fi# minimum prices(Sylvania)

• :ay facilitate manufacturer ability to practice price discrimination.

A. EARL CASES

Dr. Mi#es Medi"a# C%m$any v. =%n D. Par& S%ns C%m$any *2822-: >r. :iles, producer of pharmaceuticals, entersinto contracts with a number of wholesalers and retailers, where they must agree to sell >r. :iles products for no less thana certain amount. * retailer, not in a contract with >r. :iles, gets a number of >r. :iles drugs from a contractedwholesaler, and then began selling the drugs for less than the contracted minimum price. /: 7ertical minimum price-fi#ing contracts are illegal under the 6herman *ct. Fowever, a producer, like >r. :iles, can do the same thing if it is theone making the sale (or agents who never take titleG consignment). 8t 0ust cant set the price that others sell at. I: 8llustrates

situation that e#isted for 144 years, where the 6upreme Court had a set of lawyers that did not understand how marketswork. They drew a legal distinction between two practices that had the same effect (vertical allocation of markets andvertical minimum price-fi#ing).

United States v. C%#(ate C%. *2828-: >efendant circulated lists to its dealers stating the uniform prices to be chargedand conse&uences of not adhering to the prices. $overnment brought suit alleging charge of uniform process throughoutthe 5.6. /: The Court found that as there was no contract between Colgate and its dealers, Colgate had only done whatany firm may doG use independent discretion as to parties with whom it will deal, and announce in advance under whatconditions it will refuse to sell. I: Te C%#(ate Ru#e: Uni#atera# verti"a# minimum $ri"e)iHin( is n%t a vi%#ati%n %) teSerman A"t? 'e"ause tere is n% "%ntra"t.

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erti"a# Minimum Pri"e1iHin( Law as %) 2828: 8f you have vertical minimum price-fi#ing through contracts withyour dealers, then that is a per se violation of the 6herman *ct. Fowever, if you have an at-will contract with dealers, andyou unilaterally send out lists of demands, a failure to comply with which will terminate the contract, then there is noviolation. Tere are n%w tree ways t% (et ar%und te Serman A"t wit verti"a# $ri"e)iHin(:

1. Create own retail outlet@. >eal through an agentB. :ake unilateral demands

B. 2845S CASES

United States v. Par&e? Davis C%. *2845-: 'arke >avis, a pharmaceutical manufacturer, set suggested minimum pricesfor its wholesalers and retailers in the ashington and Richmond area. Though it announced a policy of refusing to dealwith firms that sell below the suggested minimum price, when retailers began advertising this below-minimum price, itenlisted the wholesalers to agree not to supply the retailers that sold at the lower price. This created an oral contract . >art>rugs, a retailer, brought this to the attention of the >o?, which charges a violation of Se"ti%ns 2 and > %) Serman. /: %ecause 'arke >avis communicated with its wholesalers and retailers when it found that they were violating the minimum price-fi#ing standards A basically trying to get them into compliance A this created a contract and is thus governed by 7r. Miles, and not Colate. I: Overru#ed $olgate Uni#atera# verti"a# minimum $ri"e )iHin( PLUS "%mmuni"ati%n is ani##e(a# "%ntra"t. 8ndistinguishable from the facts of Colate, e#cept the plaintiff establishes that there were somecommunications that took place between the retailer and the manufacturer in the process of implementing its price-fi#ingregime.

Sim$s%n v. Uni%n Oi# C%. %) Ca#i)%rnia *284-: 5nion !il entered into 2consignment agreements3 with retailers, suchas 'laintiff 6impson, whereby it fi#ed the price it wished the retailer to sell at and the retailer would receive a smallcommission. hen 6impson charged less than the price re&uired by 5nion !il, 5nion !il cut-off supply and withdrewfrom the consignment agreement. /: These are +s%"a##ed a(ents, in “so-called consignment agreements. 5nion !il is 0ust e#ploiting the 7r. Miles e#ception. Te +"%nsi(nment a(reement, is an a(reement "%er"ive#y em$#%yed? t%a"ieve retai# $ri"e maintenan"e and is tere)%re i##e(a# under Serman. I: By 'impson? a## %) te distin"ti%ns tat

te C%urt made ad te e))e"t %) renderin( $ri%r "ase #aw %'s%#ete practicall! making "ertical minimum price-

fi*ing per se illegal/

C. MODERN CASES

Br%ad"ast Musi"? In". v. C%#um'ia Br%ad"astin( System? In". *2838-: erti"a# minimum $ri"e )iHin(. *6C*' and%:8 are organiations comprising millions of copyrighted musical compositions. The organiations act as agents for thesong-writers copyrights, by issuing non-e#clusive blanket licenses, entitling the licensee the right to perform any and allof the compositions owned by the members, for a stated term. The fee is usually a percentage of total revenues or a flatdollar amount. C%6 claims that *6C*' and %:8 are unla0ful monopolies, that the blanket licenses are illegal price fi*ing , an unla0ful t!ing arrangement a concerted refusal to deal , and a misuse of cop!rigts. /: The blanket licensesshould be e#amined under the Rule of Reason, its value toward economic efficiency weighed against any anticompetitiveeffect. I: Dem%nstrates a si)t in te C%urt;s ana#ysis t%ward e"%n%mi" e))i"ien"y as a means %) determinin("%m$etiti%n. The Court adopts a Rule of Reason because of the fact that (1) this dealt with copyrights, (@) this issue hadalready been settled by consent decree, and (B) the arrangement was efficient and reduced transaction costs. Stevens;sDissent: Tere is a 'etter arran(ement tat ASCAP "%u#d d% wit%ut vi%#atin( te antitrust #aws. *6C*' and %:8could act as agents of the copyright holder, taking care of the initial contracting and monitoring. I) tis "ase ar%se t%day:6tevens would win because of developments since 1N -- the advent of the internet and computers, keeping transactioncosts down.

M%nsant% C%. v. S$rayRite Servi"e C%r$. *287- : :onsanto is a large chemical manufacturer, that controls 13E of thecorn herbicide market and BE of the soybean herbicide market. 'laintiff 6pray-Rite is a family-run business that operatesas a discount retailer of agricultural chemicals. 8t is the 14th largest of 144 distributors of :onsantos corn herbicide and1ME of its sales were :onsanto products. 8n 1MN, :onsanto instituted a new program whereby it would renew itsdealerships yearly, considering a series of factors A including capability of salesmen and e#ploitation of the geographicmarket A prior to granting the dealership. *dditionally, it implemented unilateral "ertical minimum price fi*ing , in order

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to protect its business from free-riders and encourage &uality salesmanship. 'laintiffs discount dealership with :onsantowas revoked in 1MD. 'laintiff claims that :onsanto and some of its dealerships conspired to fi# the prices of :onsantoherbicide, in vi%#ati%n %) Serman 2. /: :onsanto is in violation of 6herman 1.There is substantial evidence that:onsanto and some of its dealers conspired to raise prices, and specifically, that 6pray-Rite was the victim of thisarrangement by failing to comply. I: M%di)ies Parke &a"is 'y re!uirin( m%re tan mere "%mmuni"ati%n? and %#din(tat te antitrust $#ainti)) s%u#d $resent dire"t %r "ir"umstantia# eviden"e tat reas%na'#y tends t% $r%ve tat te

manu)a"turer and %ters +ad a "%ns"i%us "%mmitment t% a "%mm%n s"eme desi(ned t% a"ieve an un#aw)u#

%'@e"tive.,

Business E#e"tr%ni"s C%r$. v. Sar$ E#e"tr%ni"s C%r$. *2877-: 8n 1MD, petitioner %usiness ;lectronics was thee#clusive retailer of 6harp business calculators in Fouston. 8n 1N@, respondent Fartwell was also permitted to sell for6harp. 'arp publised non-binding suggested minimum retail prices, and both retailers often sold below these prices,and %usiness ;lectronics more often sold below Fartwells prices (intra'rand "%m$etiti%n). 8n ?une 1NB, Fartwell

Antitrust - Pierce - Fall 2004_4

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