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Antitrust

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Antitrust

Course Info

Professor: Unknown (Lagos checklist referenced) Semester: Spring 2017 Statutes: Sherman Act (15 U.S.C. §§ 1–2), Clayton Act § 7 — Mergers (15 U.S.C. § 18) Comparative: EU competition law (TFEU Arts. 101 and 102)

Topics Covered

  • Sherman Act § 1: agreements in restraint of trade; per se, quick-look, and rule of reason
  • Price fixing and output restrictions; exchanges of information
  • Market division (territorial and product allocation)
  • Boycotts: direct, directed at competitors, joint-venture, noncommercial
  • Oligopoly problem: conscious parallelism, plus factors
  • Intra-enterprise conspiracies: Copperweld single-entity defense
  • Vertical restraints: RPM (min and max), nonprice intrabrand, exclusive dealing, tying, anti-steering
  • Sherman Act § 2: monopolization, attempted monopolization, predatory pricing, bundled/market-share discounts, refusals to deal, essential facilities, patent-hopping
  • Clayton Act § 7: horizontal, vertical, and conglomerate mergers; market definition; HHI concentration analysis
  • Merger review process: HSR pre-merger notification, second requests, preliminary injunctions, remedies
  • Cartel enforcement: US leniency program, EU leniency program, criminalization, prisoner’s dilemma
  • EU competition law: TFEU Art. 101 (agreements/concerted practices), Art. 102 (abuse of dominance)
  • Procedural issues: standing (direct purchaser rule, Illinois Brick, Hanover Shoe), class certification (FRCP 23), Twombly pleading, Matsushita summary judgment
  • Immunities: state action (Parker doctrine), Noerr-Pennington, single entity, baseball, collective bargaining, noncommercial activity
  • Reverse payment settlements (Actavis) and Hatch-Waxman Act
  • Robinson-Patman Act: price discrimination

Detailed Outline

A. Sherman Act § 1 — Concerted Restraints

Statutory Text: Every contract, combination, or conspiracy in restraint of trade among the several states is hereby declared illegal. (15 U.S.C. § 1)

Procedural Incidents

  • Public enforcement: DOJ files in district court; FTC uses ALJ process + Commission review, must obtain preliminary injunction in district court.
  • Private enforcement: Clayton Act § 4 (treble damages). Standing limited by:
    • Remoteness/proximate cause requirement
    • Indirect purchaser bar (Illinois Brick — only direct purchasers have standing federally; Hanover Shoe — pass-through defense unavailable to sellers)
  • Class certification: FRCP 23(a) + (b)(3) — predominance of common questions; damages model must match certified theory (Comcast)
  • Foreign defendants: Sherman Act applies if price fixing abroad reaches US market; Empagran bars foreign plaintiffs on purely foreign injury

Finding an Agreement

  • Direct evidence: recordings, admissions (DOJ lysine cartel recordings)
  • Circumstantial: parallel conduct + plus factors
    • Plus factors: advance price notices, facilitation practices, MFN clauses, meeting-competition clauses, retroactive/contemporaneous MFN contracts, information exchanges, trade association activity
    • Conduct constituting a “radical departure” from prior practice
    • Action requiring competitor assurance to be rational (Interstate Circuit; Apple)
  • Twombly pleading standard: must allege enough factual matter to suggest agreement; parallel conduct alone insufficient
  • Matsushita summary judgment: implausible claims (e.g., predatory pricing with no recoupment mechanism) require stronger evidence
  • Conscious parallelism / oligopolistic interdependent pricing is not a § 1 violation without more

Immunities and Exceptions

  1. State action (Parker doctrine): sovereign state action immune; delegates to nonsovereign actors must have clear articulation + active supervision (NC State Board of Dental Examiners)
  2. Noerr-Pennington: agreements to petition legislature, agencies, or courts immune, even with malicious intent; sham litigation exception (objectively baseless + no genuine interest in merits)
  3. Single entity (Copperweld): parent-wholly-owned-subsidiary cannot conspire under § 1; American Needle — NFL teams are separate economic actors; Dagher — joint-venture pricing treated as single-entity conduct
  4. Baseball: exempt by judicially created doctrine
  5. Collective bargaining: products of CBA not covered

Methods of Analysis

Per se rule — Agreement illegal regardless of purpose, market power, or effect. Applies to:

  • Horizontal price fixing (Socony-Vacuum)
  • Naked territorial division (Topco)
  • Naked horizontal boycotts (Klor’s)
  • Certain tying arrangements

Exceptions to per se: ancillary restraints (BMI, Brown Univ.); market power screen (<6% share, Rothery); professional associations (IFD); leagues (Board of Regents); nonprofits with social welfare justification (Brown Univ.)

Quick-look — Two-step: (1) presumed anticompetitive if “an observer with even a rudimentary understanding of economics could conclude” arrangement would harm consumers; (2) defendant must proffer procompetitive justification; (3) if satisfied, plaintiff shows less restrictive alternative. Applied in IFD (dentists withholding x-rays), Board of Regents (NCAA TV restrictions), PolyGram

Rule of reason — Three-step:

  1. Plaintiff shows anticompetitive effects in relevant market (market power + harm: price increase, output reduction, quality decrease)
  2. Defendant proffers valid procompetitive justification
  3. Plaintiff shows less restrictive alternative achieves the same procompetitive end

Market Definition

  • Hypothetical Monopolist Test (SSNIP): if single producer could profitably raise price 5%, that is the market; if not, broaden
  • Cross-elasticity of demand; critical-loss analysis; avoid cellophane fallacy (DuPont — firm already charging monopoly prices)
  • Submarkets: destination vs. local skiers (Vail); core vs. marginal consumers (Whole Foods); type of store (Staples); derivative aftermarkets (Kodak); upstream manufacturing market (Microsoft)
  • Supply-side constraints: capacity of outside sellers to meet demand

Horizontal Agreement Types

Price fixing — Per se illegal (Socony-Vacuum; Maricopa County; Professional Engineers). Includes output restrictions, maximum fees, elimination of price competition. Ancillary restraint exception: BMI blanket license (new, more efficient product); O’Bannon (NIL = $0 necessary for amateurism product)

Territorial and customer division — Per se illegal (Topco; Palmer; General Leaseways). Ancillary restraint exception: Polk Bros. (product allocation in joint venture to prevent free riding, rule of reason)

Boycotts

  • Direct boycotts by sellers: per se (SCTLA) or quick-look (IFD)
  • Boycotts directed at competitors: per se naked horizontal boycotts (Klor’s; FOGA; Toys ‘R’ Us); modified by Nynex (must show injury to competition, not just injury to plaintiff)
  • Joint-venture boycotts: per se if joint venture has market power and uses unreasonable exclusion (Associated Press; Terminal R.R.); rule of reason for non-exclusionary joint-venture conduct (Northwest Wholesale Stationers)
  • Noncommercial boycotts: not covered by Sherman Act if political/legislative purpose (NAACP v. Claiborne Hardware; Missouri v. NOW)

Exchange of information — Rule of reason; legality turns on market structure and information type:

  • Infers conspiracy: highly concentrated, fungible, current or disaggregated firm-specific price data, secret, frequently exchanged (American Column & Lumber; Container Corp.)
  • Insufficient alone: aggregated historical averages, freight costs (Maple Flooring)
  • DOJ/FTC safety zones: managed by third party, data at least 3 months old, at least 5 providers, sufficiently aggregated

Reverse payment settlements — Actavis: payments by brand-name manufacturers to generics to not enter may violate antitrust even if within patent exclusionary scope

B. Sherman Act § 2 — Monopolization

Statutory Text: Every person who shall monopolize, or attempt to monopolize any part of the trade or commerce among the several states is guilty of a felony. (15 U.S.C. § 2)

Elements of Monopolization

  1. Monopoly power: ability to profitably raise prices to supracompetitive levels
    • Market share: <50% rarely sufficient; 50–70% occasional; >70% strong evidence
    • Plus barriers to entry: network effects (Microsoft), capital requirements, regulatory barriers (HCA), chicken-egg developer problem
  2. Willful acquisition or maintenance — not growth from superior product, business acumen, or historic accident

Exclusionary Conduct Types

Predatory pricing — Price below AVC + dangerous probability of recoupment (Brooke Group). Low prices alone are not sufficient; rationale must account for recoupment difficulty (Matsushita; AA Poultry)

Bundled discounts:

  • LePage’s approach: bundled discounts by monopolist that exclude competitors unable to match bundle are illegal
  • Cascade Health approach: if discount allocated to competitive product brings that product below AVC, illegal

Market share discounts: characterized as exclusive dealing, predatory pricing, or bundled discount (ZF Meritor; Esai)

Refusal to deal: generally no duty to deal (Colgate; Trinko). Exception where monopolist abandons a prior course of profitable dealing to achieve anticompetitive end (Aspen Skiing — terminated all-mountain ski pass). Trinko: regulatory access obligations (Telecom Act) do not create antitrust duty to deal. Essential facilities doctrine: stated but not definitively adopted (MCI v. AT&T four-factor test; Trinko leaves doctrine open)

Tying: per se if (1) two separate products, (2) market power in tying product, (3) not insubstantial dollar volume affected. Technological integration treated under rule of reason (Microsoft — browser/OS; look for whether product design achieves net advantage or is mere bolting)

Price squeezing: Linkline — no antitrust duty to deal at wholesale + low retail prices not predatory unless below AVC; not a standalone § 2 violation

Patent-hopping: withdrawing drug before patent expiry and replacing to avoid generic substitution mandates may violate § 2 (Actavis)

Attempted Monopolization

  1. Predatory or anticompetitive conduct
  2. Specific intent to monopolize
  3. Dangerous probability of achieving monopoly power

C. Clayton Act § 7 — Mergers

Statutory Text: No person shall acquire stock or assets where in any line of commerce the effect may be substantially to lessen competition. (15 U.S.C. § 18)

Merger Review Process

  • HSR pre-merger notification: 30-day initial waiting period; second request triggers 60-day additional period; substantive merger law and notification obligations are distinct (§ 7A vs. § 7)
  • DOJ seeks preliminary and permanent injunctions in district court
  • FTC seeks preliminary injunction in district court (lower “public interest” standard — must show “serious, substantial, difficult, and doubtful” questions); can continue administrative proceedings
  • Remedies: structural (divestitures, preferred), behavioral (price caps, conduct restrictions), licensing, asset exclusion

Market Definition and Concentration

  • Same SSNIP / HMT analysis as § 1; cluster markets permissible (Philadelphia National Bank — commercial banking)
  • HHI thresholds: unconcentrated <1,500; moderately concentrated 1,500–2,500; highly concentrated >2,500
  • Presumptively anticompetitive: HHI >2,500 + delta >200 (Philadelphia National Bank structural presumption; 2010 Merger Guidelines)

Competitive Harm Theories

Unilateral effects: merging firms are close substitutes; post-merger entity can raise prices and “recapture” diverting customers from the merged partner (Office Depot — office superstores 13% higher prices without superstore competition)

Coordinated effects: merger facilitates tacit collusion in market with inelastic demand, fungible products, transparent prices, smooth sales, history of coordination, high barriers to entry (Hospital Corporation of America — acquiring 4 competitors in concentrated Chattanooga market increased coordination risk)

Vertical foreclosure: substantial foreclosure of significant share; barriers to entry into both markets; may facilitate collusion (DuPont — 68% of GM finishes foreclosed)

Rebuttal Defenses

  • Entry: timely (customers not significantly harmed pending entry), likely (profitable accounting for costs/risk), sufficient (replicates scale of one merging firm)
  • Efficiencies: merger-specific, verifiable, passed through to consumers, not arising from output reductions (Heinz — improved recipe not merger-specific)
  • Failing firm: grave probability of failure, no other buyer, assets would otherwise exit market (Citizen Publishing); failing division variant

Merger Types

Horizontal: most scrutinized. Evolution: Brown Shoe (Congress preferred fragmented markets, protect small competitors); Philadelphia National Bank (structural presumption); General Dynamics (long-term contracts make current market share poor predictor); modern Guidelines focus on unilateral and coordinated effects

Vertical: less inherently risky. Analysis focuses on foreclosure of substantial share, entry barriers, collusion facilitation. Rational for merged entity to deal with non-captive parties in most cases (DuPont; Columbia Steel)

Conglomerate: almost always benign. Risk only from tying/bundled discount conduct (GE-Honeywell — EC rejected on bundling risk)

Global Merger Review

  • US: focuses on US competitive effects (DOJ structural remedies preferred)
  • EU: favors structural remedies; crown-jewel provisions; upfront buyer solutions
  • China and other jurisdictions: may interject industrial policy considerations
  • Remedy coordination across jurisdictions is critical for global transactions

D. Vertical Restraints

Minimum RPM: previously per se illegal (Dr. Miles); Leegin (2007) overrules, applies rule of reason. Procompetitive rationale: eliminates free-riding on showroom investment, increases interbrand competition. State antitrust laws may still treat RPM as per se

Maximum RPM: previously per se (Albrecht); State Oil v. Khan (1997) overrules, rule of reason

Colgate doctrine: unilateral announcement of resale price + refusal to deal with noncomplying dealers is not an agreement (Monsanto — evidence must preclude possibility of independent action)

Territorial and customer restraints: rule of reason for intrabrand nonprice restraints (Continental TV v. GTE Sylvania — fosters interbrand competition)

Exclusive dealing: rule of reason; must show foreclosure of substantial share of relevant market (Tampa Electric — <1% foreclosure lawful; Standard Fashion — 40% foreclosure unlawful; Dentsply — foreclosure of majority of dealers)

Tying: see § 2 above. Per se if two products, market power, not-insubstantial commerce; technological integration under rule of reason (Microsoft)

Anti-steering: rule of reason (Amex — credit card prohibition on directing consumers to cheaper payment methods)

E. Cartel Enforcement and Criminalization

US Leniency Program

  • Available to first individual or entity to qualify; immunity for cooperating executives
  • Requirements: cooperation agreement, admission of criminal violation, disclosure of all relevant facts and documents, best efforts on employee cooperation
  • Benefits: no criminal charges, no fine, no collateral consequences, potential de-trebling of civil damages
  • Creates prisoner’s dilemma among cartelists; >90% of US cartel investigations generated by leniency applications

EU Leniency Program

  • Available to undertakings only (not individuals)
  • Tiered: immunity for first applicant enabling Commission to find infringement; reductions for subsequent applicants providing significant added value
  • Less predictable than US program; applicant drives the process

Criminalization theories: retribution, restraint, deterrence (specific and general); monetary sanctions must be adjusted by probability of detection to render activity unprofitable

Exchange of Information — Airline Tariff Publishing: airlines used computerized fare-posting system to signal future price increases to competitors; settled by consent decree requiring cessation of the practice

F. EU Competition Law (Comparative)

TFEU Art. 101: Prohibits agreements and concerted practices that prevent, restrict, or distort competition within the internal market, including price fixing (a), output limitation (b), market sharing (c), discriminatory conditions (d), and supplementary obligations (e). Art. 101(3) exemption available for efficiency-enhancing agreements

TFEU Art. 102: Prohibits abuse of dominant position, analogous to § 2

Duality test: similar to Copperweld — whether entities are independent economic actors

Institutional design: administrative adjudication by DG-Comp (European Commission) + national competition authorities coordinated through European Competition Network; EU merger regulation combines substantive law and notification (unlike US)

Key Doctrines

Key Cases

  • United States v. Socony-Vacuum Oil Co. — Price fixing per se illegal; coordinated buying program to support spot prices; no de minimis violation; rationale: certainty, deterrence, avoids complicated economic analysis
  • Broadcast Music Inc. v. CBS — Blanket license not per se price fixing; ancillary restraint creating a new, more efficient product; rule of reason applied; BMI distinguished from NCAA because individual licenses still available
  • NCAA v. Board of Regents of the University of Oklahoma — TV output restrictions fail even under quick-look rule of reason; restrictions not necessary to make the product available; unlike BMI, no individual-rights market preserved
  • United States v. Topco Associates, Inc. — Horizontal territorial division among grocery stores per se illegal even when procompetitive rationale (preventing cannibalization) is plausible; CJ Burger dissent argues for ancillary restraints analysis
  • Leegin Creative Leather Products, Inc. v. PSKS, Inc. — Overrules Dr. Miles; minimum RPM evaluated under rule of reason; procompetitive where it eliminates free-riding on service/showroom investment
  • Texaco Inc. v. Dagher — Joint-venture pricing by Equilon (Texaco/Shell joint venture) is single-entity conduct, not per se price fixing between competitors; joint venture pooled capital and shared risk equally
  • American Needle, Inc. v. NFL — NFL teams are separate economic decision-makers for licensing of individual-team merchandise; NFLP and teams are not single entity within Copperweld; § 1 applies
  • Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. — Predatory pricing requires (1) price below AVC and (2) dangerous probability of recoupment; low prices alone harm no one; oligopoly structure makes recoupment difficult
  • Aspen Skiing Co. v. Aspen Highlands Skiing Corp. — Refusal to deal after abandoning profitable all-mountain ski pass (prior course of dealing) constitutes monopolization; willingness to forego short-term profits signals anticompetitive purpose; at or near outer limits of § 2 liability
  • United States v. Microsoft Corp. — Predatory conduct analysis for bundling browser with OS; technological integration evaluated under rule of reason (must show net advantage, not mere bolting); § 2 monopolization via exclusionary practices (OEM restrictions, browser integration, Java compartmentalization)
  • FTC v. Staples, Inc. — Office superstore market definition supported by empirical evidence that prices 13% higher without superstore competition; unilateral effects established by own pricing documents; preliminary injunction granted
  • Hospital Corporation of America v. FTC — Coordinated effects; acquisition of 12% of Chattanooga hospital market to reach 26% share sufficient in market with inelastic demand, regulatory barriers to entry, and excess capacity; merger reduces coordination problem from many firms to four
  • United States v. Philadelphia National Bank — Structural presumption: merger resulting in undue percentage share of relevant market + significant concentration increase is presumptively anticompetitive; 30% concentration threshold significant; requires showing merger is not likely to harm competition
  • Bell Atlantic Corp. v. Twombly — § 1 conspiracy claims must allege enough factual matter to suggest an agreement was made, not merely parallel conduct; plausibility pleading standard; parallel conduct plus independent business rationale is insufficient

Exam Approach

Part I: Sherman Act § 1

Step 1: Procedural Threshold

  • Standing: direct purchaser (Illinois Brick); remoteness/proximate cause; no passing-on defense (Hanover Shoe)
  • Pleading: Twombly — enough factual matter to suggest agreement; must allege plus factors excluding independent conduct
  • Immunity: state action (clear articulation + active supervision for nonsovereign delegates); Noerr-Pennington (genuine petitioning; sham litigation exception); single entity (Copperweld; American Needle test — independent centers of decision-making); baseball; collective bargaining; noncommercial boycott (NAACP v. Claiborne Hardware)

Step 2: Finding an Agreement

  • Direct evidence (recordings, admissions)
  • Circumstantial: parallel conduct + plus factors (information exchanges, advance price notices, MFN clauses, facilitation practices, radical departure from prior practice, action rational only with competitor assurance)
  • Distinguish oligopolistic conscious parallelism (not enough alone)
  • If oligopoly characteristics present (concentrated market, fungible product, inelastic demand, transparent prices, smooth sales), parallel conduct + factors needed

Step 3: Classify the Conduct

  • Per se (no further analysis needed): horizontal price fixing, naked territorial division, naked group boycotts, certain tying arrangements
    • Check exceptions: ancillary restraints (necessary to make new product available, or to prevent free-riding); market power screen (<6%); professional associations; leagues; nonprofits with altruistic social welfare purpose
  • Quick-look (presumed anticompetitive; defendant must proffer procompetitive justification; plaintiff must then show less restrictive alternative): conduct that would be per se but for exception; effects “obvious to rudimentary economic understanding”
  • Rule of reason (full three-step): exchanges of information, intrabrand restraints, exclusive dealing, predatory pricing, bundled discounts, market share discounts, refusals to deal, horizontal agreements with uncertain competitive effects
    1. Plaintiff: anticompetitive effects in relevant market (market power + harm)
    2. Defendant: valid procompetitive justification
    3. Plaintiff: less restrictive alternative achieves same end

Step 4: Market Definition (if needed for rule of reason or quick-look)

  • Product: SSNIP/HMT; cross-elasticity of demand; cellophane fallacy warning
  • Geographic: willingness of customers to switch or sellers to supply
  • Submarkets: destination/local dichotomy; core vs. marginal consumers; store type; derivative aftermarkets
  • Supply-side capacity

Step 5: Vertical Agreement?

  • Check Colgate: unilateral announcement + refusal to deal is not an agreement
  • RPM: rule of reason (min under Leegin; max under State Oil v. Khan)
  • Territorial: rule of reason (Sylvania)
  • Exclusive dealing: rule of reason; substantial foreclosure test
  • Tying: per se if two products + market power + not-insubstantial commerce; technological integration = rule of reason

Part II: Sherman Act § 2

Step 1: Monopoly Power

  • Power to profitably raise prices to supracompetitive levels
  • Market share: >70% strong evidence; 50–70% possible; <50% rarely sufficient
  • Barriers to entry: network effects, capital, regulatory, chicken-egg problems

Step 2: Willful Acquisition or Maintenance (not superior product/business acumen)

  • Predatory pricing: price below AVC + dangerous probability of recoupment (Brooke Group)
  • Bundled discounts: LePage’s (monopolist using bundles to exclude) or Cascade Health (discount allocated to competitive product below AVC)
  • Refusal to deal: prior profitable course of dealing abandoned (Aspen Skiing); distinguish Trinko (regulatory duty to deal not antitrust duty)
  • Tying: technological integration under rule of reason (Microsoft)
  • Patent-hopping / reverse payments (Actavis)
  • Price squeezing: not a standalone violation without predatory retail pricing (Linkline)

Attempted Monopolization

  1. Predatory/anticompetitive conduct
  2. Specific intent to monopolize
  3. Dangerous probability of achieving monopoly power

Part III: Clayton Act § 7

Step 1: Pre-merger Notification — HSR filing thresholds; notification obligation ≠ substantive review; § 7 applies regardless of HSR obligation

Step 2: Market Definition — SSNIP analysis; cluster markets (Philadelphia National Bank); supply-side constraints

Step 3: Concentration

  • HHI: unconcentrated <1,500; moderately concentrated 1,500–2,500; highly concentrated >2,500
  • Presumptively anticompetitive: HHI >2,500 + delta >200
  • Philadelphia National Bank structural presumption: 30% + significant concentration increase

Step 4: Competitive Harm Theory

  • Unilateral effects: merging firms are closest substitutes; recapture on price increase (Staples)
  • Coordinated effects: market susceptible to tacit collusion — inelastic demand, fungible products, transparent prices, smooth sales, history of coordination, high entry barriers (HCA)
  • Vertical foreclosure: substantial foreclosure + entry barriers into both markets + collusion facilitation

Step 5: Rebuttal

  • Entry: timely, likely, sufficient (not just that entry is possible, but that it replicates scale and strength of lost competitor)
  • Efficiencies: merger-specific, verifiable, passed through to consumers, not from output reductions
  • Failing firm: grave probability of failure, no other buyer, assets would exit market

Step 6: Merger Type Adjustments

  • Vertical mergers: less risky; look for substantial foreclosure of significant share, entry barriers into both markets
  • Conglomerate mergers: almost always fine; watch for tying/bundled discount risk post-merger

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