Antitrust - Morgan - Spring 2004_3

8/20/2019 Antitrust - Morgan - Spring 2004_3

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Background and Early Cases – The First Period .........................................................................1 A. The Case of Monopolies, 1603................................................................................................1B. A Note on the Economics of Monopoly...................................................................................1C. Mitchel v. Reynolds, 1711......................................................................................................1D. Sherman Antitrust Act (p. 30):...............................................................................................2

E. U.S. v. EC Kniht, 1!"# .............................................................................................................2. $%e&ica 'anana v. United (&)it Co%pany, 1"0", note case...............................................2Horizontal Combinations in Restraint of Trade............................................................................2

!. United States v. T&ans*Misso)&i (&eiht $ss+n, 1!"7 ........................................................2". US v. $ddyston ipe and Steel Co%pany # 1!"!, Si-th Ci&.............................................2$. Cartels..........................................................................................................................................3

Monoolization and Merger ...............................................................................................................3%. Standa&d il Co%pany of / v. US.........................................................................................3&. 'he Attempt to monopolie.......................................................................................................4

!ertical Restraints of Trade" Resale Price Maintenance............................................................4. &. Miles Medical Co%pany v. ohn . a&2 Sons, 1"11 4ve&tical &est&aint of t&ade5 . .4

M. U.S. v. Colate Co, 1"1"...................................................................................................4N. 'he Clayton Act.......................................................................................................................5*. 'he 'C Act............................................................................................................................5

The #econd or Rule of Reason Period – $%$& to $%'% ...............................................................6 A. 'oa&d of City of T&ade of Chicao v. United States, 1"1! ....................................................6B. United States v. US Steel Co., 1"0 ........................................................................................6C. $%e&ican Col)%n )%8e& v. US, 1"1...........................................................................6D. +osner Note: , $n-ustry Con-itions for hen *li/opoly is iely...................................7

The (nterlay bet)een Patents and *ntitrust +a).......................................................................7E. US v. 9E Co%pany, 1"6 ..........................................................................................................7. Standa&d il Co%pany 4:ndiana 5 v. US, 1"31.......................................................................7

Testing the +imits of the Rule of Reason.......................................................................................8!. United States v. T&enton otte&ies Co, 1"7 ......................................................................8The Third Period, The Per #e Rule is -ing, $%./"$%0. ..............................................................9Horizontal Combinations in Restraint of Trade............................................................................9Maret -i1ision# /roup 2oycott# monopoliation.................................................................................9

A. U.S. v. Socony*;ac))% il, 1"


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&. Standa&d il of C$ v. United States, 1"?@.....................................................................................21B. Continental T.;. v. 9TE Sylvania, :nc, 1"77 .........................................................................21C. '&)ns?ic2 Co&p v. )e8lo 'o?l**Mat, 1"77 .................................................................22

'he +er Se 5ule 1. 5ule of 5eason De2ate Continues in > Cases..........................................23

Horizontal Price Fi2ing......................................................................................................................23D. Note case: 9oldfa&8 v. ;i&inia State 'a&, 1"7# .............................................................23E. /ational Society of &ofessional Eninee&s v. US , 1"7! ...................................................23. '&oadcast M)sic v. C'S, 1"7"...............................................................................................23!. $&iBona v. Ma&icopa Co)nty, 1"! 4not &ead fo& class5...................................................24". /C$$ v. Unive&sity of 2laho%a, 1"!


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5. Califo&nia ental $ss+n v. (TC, 1""".................................................................................29S. :n the Matte& of oly&a% @oldin, 003, (TC pinion.....................................................30

'he Continuin/ Concern a2out E4clusionary Con-uct...................................................................30Monoolization....................................................................................................................................30

'. $spen S2iin Co v. $spen @ihlands, 1"!# .........................................................................30

8. ;e&iBon v. T&in2o, 00


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AN'$'58S' *8'$NES+5$N! I00

Background and Early Cases – The First Period

$. The Case of Monopolies, 1603

a. Complaint of monopoliation of play car-sJ case is a2out tryin/ to enforce a monopoly/rante- 2y the Kueen to her close frien-. Darcy claims he has a monopoly# an- tries tomae a police ar/ument in fa1or of it# namely# that playin/ car-s is a -istraction# an- itis appropriate that these less -esira2le Kualities 2e controlle- 2y those ho ha1e/entlemanly Kualities.

2. "ol-in/: court -oesnt enforce the monopoly# 2ut Darcy -oesnt /o to Lail. 8ntil theSherman Act# the /eneral approach to monopolies as simply not to enforce them.

c. Court /i1es reasons hy monopolies are 2a-i. 'aes aay Lo2s from other peopleii. 'oo much pri1ate /ain at the e4pense of the pu2lic (i.e. prices rise# Kuantify

falls# Kuality falls)B. A Note on the Economics of Monopoly

a. +rinciple of scarcity: cant ha1e e1erythin/ e ant 6o any concern for cost2. +eople act so as to ma4imie their on self interestc. ife is li1e- at the mar/ins: e constantly mae Lu-/ments a2out a little more of this

an- a little less of that-.


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D. Sherman Antitrust Act (p. 30):a. >: e1ery contract# com2ination# in the form of trust or otherise# or conspiracy# in

restraint of tra-eis here2y -eclare- to 2e ille/al.2. I: e1ery person ho shall monopolie# or attempt to monopolie# or com2ine or

conspi&e ith any other person or persons# to monopolie any part of the tra-e ofcommerce.

i. 'his is aime- at a sin/le firm achie1in/ a status that oul- allo them tomonopolie.

E. U.S. v. EC Kniht, 1!"# a. Case of the su/ar trusts 9 American Su/ar refinin/ company ha- acKuire- ?HO of the

su/ar refinin/J this case as 2rou/ht hen the last 33O as 2ein/ acKuire-. !o1tstheory as that this as a com2ination in 1iolation of > an- also a monopoliation in1iolation of I. on these same facts to-ay# the /o1t oul- clearly in. But this casecame out -ifferently. Court sai- the fe- /o1t can only re/ulate commerce amon/ thestates an- ith forei/n /o1ernments. Since refinin/ only taes place ithin a sin/lestate# manufacturin/ isnt ithin the poer of the fe-eral /o1t. Cant infrin/e on statesri/hts to re/ulate.

2. "arlan (-issent): if you control refinin/ of a pro-uct an- monopolie that sta/e in theprocess# it is a critical monopoly. Con/ress may remo1e unlaful o2structions# ofhate1er in-# to the free course of tra-e amon/ the states.

c. This case effectively ;ERRUE no?, ?o)ld 8e inte&state co%%e&ce today, it ?o)ld%a2e She&%an $ct ill)so&y, too na&&o?

(. $%e&ica 'anana v. United (&)it Co%pany, 1"0", note casea. 8nite- fruit company ha- 2ou/ht se1eral plantations an- o2taine- a monopoly in the

pro-uction of 2ananas. 'he effect as to control the supply of 2ananas to the 8S2. Supreme Court hel- that the antitrust las -i- not apply to acts that occurre- holly in

another country. 'he Sherman Act can not ren-er acts ille/al that ere le/al in thenation here they ere committe-.

c. N*


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$f no one ha- the city# they oul- 2i- ithin the /roup# an- the spoils oul- 2e -i1i-e-up. 'his is classic price fi4in/. irms ar/uethat they only controlle- 30O of the entiremaret an- therefore coul-nt 2e a monopoly. Also ar/uethat the entire countryasnt affecte- 26c the inners ere innin/ in their on city.

2. 'aft (for the court)i. Nee- to un-erstan- that this act comes from C6 an- e1erythin/ ille/al at C6 is

ille/al no# plus 'ransGMissouri hel- that more can 2e ille/al.ii. Doesnt thin that all contracts in restraint of tra-e are ille/aliii. 'als a2out hen the restraint of tra-e is ancillary# such as an a/reement 2y a

seller not to compete# 2y a retirin/ partner not to compete# 2y a partner pen-in/partnership not to -o anythin/ to compete ith the firm# 2y a 2uyer of propertyNot to use the same in competition retaine- 2y the seller# an- 2yser1ant6assistant not to compete ith his master. Essentially ant to encoura/esome transactions an- are illin/ to put up ith a little restraint.

i1. Does not a-mit to proposin/ a rule of reason 9 to -o so oul- 2e to sail on arule of -ou2t. Says instea- that hes comin/ up ith a limite- e4ception to thee1ery contract approach ?he&e the ove&all t&ansaction is desi&a8le and not in&est&aint of t&ade ?ill tole&ate a %ode&ate, ancilla&y &est&aint of t&ade that helps

the )nde&lyin t&ansaction et done.c. S.C. later affirms the case# 2ut -i-nt a-opt the ancillary restraint lan/ua/e. 'oo it as

interstate commerce case.-. 'his is still a classic antitrust 1iolation

$. Cartelsa. A--yston +ipe as oneJ the classic one is *+EC.2. *ne of the pro2lems face- is cheatin/. Another one is /ettin/ e1eryone to Loin. A thir-

pro2lem is reachin/ an a/reement on hat price to set.c. $n a case lie A--yston +ipe# har-er to cheat 26c it as a pu2lic 2i--in/ system.

Monoolization and Merger

. Standa&d il Co%pany of / v. USa. 5ocefeller /ets in1ol1e- in out pro-uction# an- /ets to the point here he controls

?0O of the oil pro-uction# shippin/# refinin/# an- sale of petroleum an- its pro-ucts."a- -eals ith 55s to ship his oil cheaply# an- set up corp in N% to hol- an- mana/ethe shares of the partners. Ma-e it -ifficult for ne entrants.

2. note: there as no chance that 5ocefeller as /oin/ to in this case%ustice


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from enterin/ the in-ustry or remainin/ in it ho oul- ha1e 2i- the price 2ac to thecompetiti1e price.

/. 5eme-y: -issolution of the corporation 9 2roe the company 2ac up into the separatelittle companies that ha- forme- it# an- the in-ustry as then a 30Q firm in-ustry.

"arlan (-issent)h. "a- a /oo- rule in 'ransGMissouri (all contracts in restraint of tra-e are in1ali-) an-

no its am2i/uous.&. 'he Attempt to monopolie

a. $s this enou/h to 1iolation IP2. S?ift Co v. US, 1"0# : rule is that you nee- more than intentJ its not ille/al to ant to

2e a monopoly. Nee- to ant to 2e one# act on it# an- ha1e a -an/erous lielihoo- ofsuccess. :ntent alone not eno)h.

c. U .S. v. Te&%inal Rail&oadi. > 55 throu/h St. ouis 2ou/ht the station an- 2ri-/e into St. ouis. Concern

that the 55s not in the /roup oul-nt 2e a2le to cross the ri1er. Court foun-that the consoli-ation of all the rail ser1ice in St. ouis 1iolation I# 2ut thereme-y asnt to 2rea it up 26c there as only room for one 2ri-/e an-sitchin/ yar- in St. ouis. Ct. sai- that the monopoly oul- 2e sai- to 2e an

essential facility 9 ha- to 2e ma-e a1aila2le to anyone ho nee-e- to use it#2ut coul- char/e a price that is the same as the other 55 pai-.

!ertical Restraints of Trade" Resale Price Maintenance

. &. Miles Medical Co%pany v. ohn . a&2 Sons, 1"11 4ve&tical &est&aint of t&ade5a. Althou/h -eci-e- the same year of Stan-ar- *il# this as months 2efore the 55# an-

-eci-e- un-er the e1ery contract in restraint of tra-e concept. 'his case still remains/oo- la.

2. Dr. Miles sol- -ifferent me-icines all across the country 9 he thou/ht that this as aconsi/nment contract an- therefore he oul- 2e a2le to set the price. "e coul- choosethe min price an- the seller recei1e- a portion of itJ if the seller cant sell it# /oes 2ac

to Dr. Miles. "ere someone /a1e the me-icine to +ar# ho ran a -iscount store. Milescomes in an- ants an inLunction to pre1ent +ar from sellin/ it. Defense is that this isa contract in restraint of tra-e an- the courts -ont enforce those. "ere the + isntseein/ Sherman Act relief# 2ut the same type as in Mitchel .

c. Court fin-s that this is an unenforcea2le contract 26c it is in restraint of tra-e 26cholesalers are 2uyin/ /oo- an- resellin/ them# so title passe- to holesalers.

-. Miles trie- to ar/ue that his processes ere secret an- this as analo/ous to a patent 9 Court sai- pre1iously sai- that a patent hol-er can mae use of it contin/ent on notun-ercuttin/ the price 9 2ut here Miles ha-nt applie- for a patent# hich oul- ha1emeant -isclosin/ the recipe.

"olmes (-issent):e. !enerally# its a /oo- i-ea for people to ha1e free-om on contract. $n a maret here

there are multiple 2ran- the a2ility of any one of them to set a price ont 2e theirrelationship ith the -ealer# 2ut the price that competin/ pro-ucts are sol- for. Milesisnt a2le to control the price of all aspirin# Lust hisJ cant really affect customers 26cthere are other manufacturers.

f. E1en if "olmes is ri/ht# still mi/ht 2e 2etter off safe than sorry.M. U.S. v. Colate Co, 1"1"

a. Col/ate as en/a/e- in resale price maintenance. +rosecutor char/e- a conspiracyan- -i-nt name anyone other than Col/ate 9 case is -ismisse- on this 2asis alone.

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2. Court sai- that hile a firm may not esta2lish contract as Miles -i- to reKuire firms tosell a /i1en price# they can a-opt a system that they -eal only ith their frien-s# an-their frien-s only sell at prices they lie# an- they ont -eal ith them if they sell atless than the price (i.e. MS5+).

c. $f a firm only su//ests a price an- only -eals ith firms that use that price# that is-ifferent than Miles an- not a 1iolation of >.

N. 'he Clayton Acta. Section I 9 or2i-s price -iscrimination (to ha1e -iff prices for -iff purchasers of

commo-ities unless price -iff to reflect shippin/ costs# etc.)2. Section 3 9 E4clusi1e -ealin/ arran/ements (2uy from me# cant 2uy from others) Q 'yin/

arran/ements (2uy my racKuet# must also 2uy my tennis 2alls)c. Section 9 're2le -ama/es Q attys fees-. Section , 9 $f one con1icte- in antitrust 1iolation# later +s can /o 2ac an- sue for

-ama/es 6o a/ain pro1in/ person -i- acte. Section R 9 a2or of humans not commo-ity (see la2or unions stuff a2o1e)f. Section @ 9 Corporate mer/ers cant create competition in restraint of tra-e/. Section >R 9 5i/ht to sue for inLunction for antitrust

*. 'he 'C Acta. Section , 9 All 'C antitrust stuff -one un-er Section ,# empoers 'C to act

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The #econd or Rule of Reason Period – $%$& to $%'%

A. 'oa&d of City of T&ade of Chicao v. United States, 1"1! a. Boar- of 'ra-e as here /rain as 2ou/ht an- sol-. 3 in- of sales: (>) spot sales:

sale ma-e after the /rain has arri1e- an- /et it on the spotJ (I) future sales: sales fromlater that month or some time in the futureJ an- (3) sales to arri1e: a/reements to

-eli1er on arri1al /rain hich is alrea-y in transit or is to 2e shippe- ithin specifie-time. "ere there as a call rule in effect: at >:>, there as a call session at hich theprice as fi4e- till the Boar- opene- the folloin/ mornin/J any mem2er of the 2oar-ho 2ou/ht or sol- after that time oul- pay the call price. !o1t sai- this as lie acartel# an- e1en un-er 55 it is ille/al for -ominant 2uyers an- sellers to fi4 their price.D ar/uethat it as for the con1enience an- 2enefit of the mem2ers so people coul-/o home an- not orry 9 it ma-e the Boar- the central place people came to esta2lishprice in the in-ustry# an- this as close to perfect competition.

2. !o1t ante- to strie the e1i-ence intro-uce- 2y the D 9 2ut un-er the 55# you -ontstrie the e1i-ence 2ut let the -efen-ant put it on

Bran-eis (for the court)c. Court conclu-es that the factors Lustify the rule. price fi4in/ case.2. Court fin-s that this purpose as Lust short of /ettin/ to/ether to set prices an-

pro-uction le1els. 'he fact that e1eryone ne hat the others ere -oin/ alloe- themem2ers to act ith complete nole-/e a2out hat the conseKuences oul- 2e oftheir on actions.

c. "olmes (-issent): e lie free speechJ there is nothin/ in the con-uct here that 2in-sthe mem2ers to any action e1en 2y merely social sanctions.

-. Bran-eis (-issent): the fact that there is information isnt e1il# 2ut rather it maesmarets or an- therefore e shoul- permit this in- of e4chan/e. $nformation is

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costly# an- this allos small pro-ucers to fin- out information an- compete ith the 2i/ones.

e. 'he court simply /ot this one ron/ 9 later cases say that there is nothin/ the prohi2itsthe e4chan/e of information 6o somethin/ more.

D. +osner Note: , $n-ustry Con-itions for hen *li/opoly is iely

a. irst: a concentrate- maret of sellers an- a lac of frin/e maret of small firms.i.


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Testing the +imits of the Rule of Reason

!. United States v. T&enton otte&ies Co, 1"7 a. Sanitary potters assn en/a/e- in the manufacture or -istri2ution of HIO of the toilets#

urinals pro-uce- in the 8S. $ssue in this case as a Lury instruction 9 this as acriminal case# not one for an inLunction. Defense ante- instruction that if hat they

-i- as reasona2le# then they cant 2e con1icte-J Dist Lu-/e instea- sai- price fi4in/per se ille/al# an- Ds ere /uilty if Lury foun- alle/ations to 2e true.

2. Court sai- that the Kuestion is not hether the result of a /i1en arran/ement isreasona2leJ the issue is hether the practice itself is anticompetiti1e. Choice iseliminate- 2ecause of this practice# 2ut cant really say hether competition ispositi1ely or ne/ati1ely affecte-. Secon-# the issue of hether prices are reasona2leare foreclose- 2y 'ransGMissouri. 'his practice is per se unreasona2le an- this in- of-efense is not a1aila2le e1en in a case 2ein/ -eci-e- in a rule of reason perio-. /ettin/to/ether to esta2lish price is per se unreasona2le e1en in a 55 perio-.

c. $ppalachian Coals v US, 1"33 Tnot rea- for class# Lust mentione- in passin/Ui. !o1t create- a Loint sellin/ a/ency for coal hose Lo2 it as to sell coal

throu/h a sin/le a/ent 9 price fi4in/ arran/ement. +art of 5oose1elts solution

to the -epression.ii. Court fin-s that e1en thou/h this particular arran/ement ha-nt 2een man-ate-

2y the /o1t# it as a perio- in history here e ou/ht to fin- thatanticompetiti1e acti1ities ere reasona2le. "ol-in/ the plan ille/al oul- onlyresult in the firms mer/in/.

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The Third Period, The Per #e Rule is -ing, $%./"$%0.

Horizontal Combinations in Restraint of TradeMaret -i1ision# /roup 2oycott# monopoliation

A. U.S. v. Socony*;ac))% il, 1" 1iolation e1en if not commit o1ert

act# an- e1en if not ha1e any means to carry it outiii. $n this case: cos not ha1e means to carry it out# 2ut still per se in1ali-

B. (ashion &iinato&s+ 9)ild of $%e&ica v. (TC, 1"


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assert /roup 2oycott. S.C. a/rees 9 a conspiratorial refusal to sell /as for 2urnerslacin/ A!A seal of appro1al falls ithin one of the classes of restraints that are per seille/al.

D. Ti%2en Rolle& 'ea&in v. US, 1"#1 4not &ead fo& class5 = %a&2et divisiona. > char/e that British 'imen# rench 'imen# an- 8S 'imen -i1i-e- the maret for

'imen roller 2earin/s V fi4e- the price at hich each oul- sell.

2. Defense tries to assert that its a sin/le enterprise -i1i-in/ the orl- an- ancillary to-istri2ution an- essential to set up in many countries. Court -oesnt 2uy it# an- saysancillary restraint ar/uments -ont cut it in a per se rule# an- the fact that these ere allpart of the same corporate or/aniation -oesnt tae them out of Sherman Actco1era/e 26c e1en mem2ers of the same family can conspire.

E. U.S. v. Topco, 1"7 a. 'opco is a cooperati1e 2uyin/ or/aniation 9 2ou/ht canne- /oo-s another pro-ucts

from a 1ariety of pro-ucers# an- 2ou/ht in 2ul so that it coul- /et ma4 -iscount# an-also -e1elope- pri1ate la2el of /oo-s. 'here ere territorial limits set up so that thesupermarets oul-nt compete a/ainst each other# an- 2oar- must appro1e nemem2ership. 'his as a case of maret -i1ision an- /roup 2oycott# 2oth of hich ere

per se ille/al. Ar/ument that this shoul- 2e alloe- 26c it allos the smaller companiesto compete.

2. MaLority fin-s that this is a horiontal restraint an- therefore a per se 1iolation of >. ifthe -ecision is /oin/ to 2e ma-e to sacrifice competition in one portion of the economyfor /reater competition in another portion# Con/ress has to mae it. 'his is not a ellGre/ar-e- -ecision

c. Bur/er (-issent): this is the 1ie that has sur1i1e-. +rior -ecisions -ont Lustify thisresult. !oal sou/ht as the a2ility to competeJ /roup has laful purpose an- this isfully reasona2le.

Monoolization

. U.S. v. $lcoa, 1"


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iii. -istrict court -efines the pro-uct maret as (>)6(>)Q(3)Q() 33Oi1. "an- -efines it as >QIQ3Q6>QIQ3Q ?0O

-. "o -o e -etermine if the District %u-/e or "an- is correctPi. Depen-s on hether the pro-ucts are interchan/ea2le 9 hat -o people 1ie

as an accepta2le alternati1e6su2stitute. $f people 2elie1e that thin/s areaccepta2le su2stitutes# then they are in the same maret.

e. Mor/an says that the ri/ht formula shoul- 2e (>QI)6(>QIQ3Q) ROf8 This test of mkt o)er -E9 b:c sho)s attention aid to structural detail as ste

in 6; analysis< this case foundation for modern monoolization la)==/. 'his case also -epen-s on structural analysis# not necessarily con-emnation of

2i/ness

i. U.S. v. 9&iffith, 1"

2e the first to so the films. Dist ct foun- that competitors ha- -ifficulty /ettin/ ri/hts to-esira2le films# 2ut the -efen-ants ha-nt trie- to put competitors out of 2usiness.

i. Specific intent to monopolie nee- not 2e shonJ intent can 2e inferre- from conte4tan- 2eha1ior. 1iolation# essentially ha1e per

se 1iolate- I (same proposition as -issent in 8S Coal). L. Monopoly poer# e1en if lafully o2taine-# 1iolates I if you can sho a purpose to

preser1e it or misuse it in the future 9 -ont nee- to ait for 2a- acts.

!. U.S. v. United Shoe Machine&y Co&p, 1"#3, ist&ict Co)&t a. Char/e that 8nite- ha- 2een monopoliin/ interstate tra-e an- commerce in shoe

machinery in-ustryJ supply o1er @,O of the current -eman- in the American shomaret an- ha- patents for machines that ere use- to process shoes. By the time ofthis case# the patents ere e4pire-# an- there ere other machines an- metho-sa1aila2le. 8nite- oul- lease eKuipment rather than sell it# an- the factor oul- pay2ase- on the num2er of shoes that ere ma-eJ this re-uce- the e4pense of ashoemaer# 26c he oul- pay less if he ha- a 2a- year. Also# 8nite- -i- e4clusi1e

repairs. >0 year lease# an- often 8nite- oul- up-ate machines. "a- to use 8nite-machine to capacity 2efore you coul- 2rin/ in anotherJ if not# pai- as if you ha- 2eenusin/ the 8nite- machine.

2. Court ultimately conclu-es that the lease terms ere the pro2lem 26c of the len/th an-the reKuirement of full capacity. 'ries to say there is price -iscrimination here 26c8nite- char/e- more for machines ere they ere the only pro1i-ers an- less for theones here there ere other pro1i-es# 2ut it is usin/ the term ron/.

c. 5eme-y: cant 2rea up 8nite- into the miniGfirms it once as# 26c it as one firm atone site. $f it ere possi2le for people to 2uy the machines an- /et out of thetrou2lesome clauses# it oul- 2e o.

-. Supreme Court affirms# 2ut later or-ers the 2reaup of 8nite- Machine 26c peoplecontinue- to 2uy an- lease the machines.

e. Court ha- tale- a2out 3 -ifferent approaches to -eterminin/ ille/alityi. Monopoliation in 1iolation of I if it has acKuire- or maintaine- a poer to

e4clu-e others as a result of usin/ an unreasona2le restraint of tra-e in1iolation of > of the Sherman Act.

ii. ;iolation of I if it (a) has the poer to e4clu-e competition# an- (2) hase4ercise- it# or has the purpose to e4ercise it.

iii. *1erhelmin/ share of the maret not solely -ue to superior sill or efficiency

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f. Note Case: U.S. v. 9&innel Co&p, 1"66 (note case)i. Case in1ol1e- char/e of monopoliation 2rou/ht a/ainst a national firm that

pro1i-e- property protection ser1ice from central locations ithin a city# an-claime- insurance company -iscount 2y ha1in/ the alarm system. !o1t antsthe pro-uct maret to 2e -efine- as central station protection ser1ice that asaccre-ite- 2y insurance companies. Defen-ants ante- to inclu-e- other

protection ser1ices# such as /uar- -o/s# /uar-s on the property# an- e1ensprinler systems as fire protection. Court si-es ith /o1tJ shos that the Courtis illin/ to -efine marets hoe1er ill con-emn the practice.

". o&ain o)&nal and tte& Tail Casesa. althou/h a sin/le firms refusal to -eal cant 2e a > 1iolation# it can 2e a I.2. orain %ournal: at least un-er some circumstances# entry can 2e so -ifficult that one

firm has a monopoly position an- refusal to -eal can 2e a I 1iolationc. Note case: Aal2e& &ocess EF)ip%ent v. (ood Machine&y Che%ical Co&p, 1"6#

i. +atent hol-er can 2e -eeme- to 2e 1iolatin/ I if D can 2e shon to ha1eo2taine- the patent 2y frau-.

$. Utah ie v. Continental 'a2in Co, 1"67 = p&edato&y p&icin a. +er se approach to IJ althou/h case is -eci-e- un-er I of 5o2inson +atent act

(Clayton)# this can 2e seen as case of pre-atory pricin/ an- therefore I Sherman.2. + is a froen pie company is Salt ae city 9 ha- a2out I63 of the maret. 3 companies

ere sellin/ elsehere# enter Salt ae City 2y loerin/ price 2elo 8tah +ie. 8n-er5o2inson +atent# pro2lem is they ere sellin/ pies 2elo hat they ere sellin/ themfor in other parts of the country. $ssue of hether un-er 5o2inson +atent competitionas inLure- or ten-ency to create a monopoly. ocal Lury fin-s that it inLurescompetitionJ Court of Appeals re1erses# sayin/ no inLury an- competition increase- 26cof loer prices.

c. S.C. sai- competition ero-e- 26c others may not 2e a2le to affor- to stay in the maret.$ntent to -ominate 2y +et +ies# hich a-mittin/ to tar/etin/ up# an- if you -ream oftain/ o1er the maret# intent is enou/h to 1iolate I of Sherman.

!ertical *rrangements Percei1ed as E2clusionaryE4clusi1e -ealin/ an- tyin/ arran/ements

%. :nte&national Salt v. United States. 1" tyin a. Ma-e to machines that inLecte- salt into pro-uctsJ one machine reKuire- you to 2uy

all your salt from $ntlJ the other machine you coul- 2uy the same Kuality salt fromsomeone else# 2ut $ntl ha- chance to match the price. $ntl Salt tries to -efen- that theyha1e an interest in the machines 2ein/ returne- in /oo- con-ition an- -ont ant itcorro-e- 2y lo Kuality salt# an- can 2uy elsehere if its the same Kuality an- $ntlont match the price.

2. > 1iolation: Court fin-s that there is a s)8stantial lessenin/ of competition in the orl-of salt 26c other sellers oul- ha1e to 2eat $ntls price# not simply match it. Court says it

oul- 2e o to specify the Kuality. 'yin/ is per se ille/al (socony)J price fi4in/ is ille/alper se. Also 1iolates 3 of Clayton: su2stantial -ecrease in competition or ten-ency tomonopolie 9 Court loos at the amount of W sol-# not maret share.

c. $ntl pro2a2ly ante- to -o this 26c it ser1e- as a monitorin/ -e1ice (see ho 1alua2le itis 2y ho much it is 2ein/ use-)# protect /oo- ill# an- mae more money (an- theycoul- price -iscriminate 2ase- on ho much people -eman- it).

-. 'he court ne1er says that somethin/ sol- in a paca/e is per se ille/al.

12


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&. Standa&d il of C$ v. United States, 1"


17/48

iii. for this type franchise is: Not hether alle/e-ly tie- pro-ucts associate- inpu2lic min- 6'M# 2ut hether they are inte/ral components of the 2usinessmetho- 2ein/ franchise-

i1. A Business Metho- ranchiseN. /o&the&n acific Rail?ay v. US, 1"#! 9 still the rule for tyin/ cases

a. an- /rant railroa- 9 sol- 2locs of lan-# an- hoe1er 2ou/ht6lease- the lan- ha- to

a/ree that they oul- ship anythin/ ma-e on the lan- on northern pacific pro1i-e- thatits rates (an- in some cases its ser1ice) ere eKual to those of competin/ carriers.

Blac (for the court):2. tyin/ arran/ements are per se ille/al.c. 'est to -etermine if its a tyin/ arran/ement 9 (e still use this to-ay)

i. 'here is tyin/ hene1er a party has (>) sufficient economic poer ith respectto the tyin/ pro-uct to (I) apprecia2ly restrain free competition in the maret forthe tie- pro-uct AND (3) a not insu2stantial amount of interstate commerce isaffecte-.

-. 8ses a flour6su/ar e4ample to sho ho somethin/ mi/ht not 2e tie- i.e. if oneseller of flour reKuires that you 2uy su/ar in or-er to /et the flour# it ont 2e a tyin/arran/ement 26c there is a lac of sufficient maret poer 9 can use /o elsehere.

e. Court fin-s that the railroa- ha- sufficient maret poer 9 hich is a stran/e result 26cthere as plenty of lan- a1aila2le# an- the railroa- one- only a small percenta/e. 'hefact that people si/ne- these a/reements as foun- proof of this maret poer. But inreality# people oul- pro2a2ly ship on Northern anyay.

*. United States v. oe?+s, 1"6 a. ilm -istri2utors sol- to t1 stations# 2ut oul- only sell the popular mo1ies if the

un-esira2les ere 2ou/ht as ell.2. Court fin-s that this is ille/al an- is a tyin/ arran/ement 9 1iolation of >. 'here is an

in-i1i-ual -eman- for the mo1ies an- people shoul- 2e a2le to 2uy them in-i1i-ually.5eaffirms the stan-ar- is that seller must ha1e sufficient economic poer ith respectto the tyin/ pro-uct to apprecia2ly restrain free competition in the maret for the tie-pro-uct (from N. +acific). By reason of copyri/ht# -efen-ants ha- a monopoly o1er the

/oo- mo1ie# an- use- poer to /et people to 2uy the others.c. Mor/an points out that if you ha- to sell them in-i1i-ually# oul- ha1e to sell each for

the loest price an- oul- mae less money 9 ar/ues that not e1eryone 1alues e1eryitem in a paca/e the same (i.e. lifesa1ers).

+. (o&tne& Ente&p&ises v. US Steel, 1"6"a. 8.S. Steel offere- 2uil-ers a really /oo- -eal 9 if they 2ou/ht steel houses# /ot a loan

on the price of the house# the lan-# an- really /oo- terms so that it as a noGlosesituation for the 2uil-ers. ornter ante- to /o to 8S Steel cre-it company an- /et thesame terms 6o ha1in/ to 2uil- steel houses. ortner sues on the /roun-s that themain pro-uct as money that 8S loane-# an- tie-Gin the steel houses. 'he only aythis maes sense is to ar/ue that 8S Steel ha- a monopoly on money.

2. Court fin-s that this case in1ol1es tyin/ arran/ement of the tra-itional in- an-

re1erses S% in fa1or of 8S Steel.c. Dissent: Any form of financin/ is really Lust a metho- to -iscount price# ron/ to mae

this per se ille/alJ a form of competition that shoul- 2e encoura/e-XJ almost all pro-uctsales ha1e some si-e features (i.e. free -eli1ery)

-. 8S Steel coul- ar/ue# N*' I pro-ucts# Lust steel homes 6/reat financin/# an- theynot ha1e sufficient economic poer 6tyin/ pro-uct# loans

e. N*'ES: a Lury an- later a Lu-/e in a 2ench trial foun- for ortnerJ Ct of Appealsaffirme-.


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/reater riss 9 than its competitors# that in- of uniKueness ill not /i1e rise to anyinference of economic poer in the cre-it maret. 'he unusual cre-it 2ar/ain offere- toortner pro1es nothin/ more than a illin/ness to pro1i-e cheap financin/ in or-er tosell e4pensi1e houses.

"*5$*N'A ;E5'$CA

+rice fi4in/ resale price maintenanceMaret -i1ision territorial allocation!roup 2oycott /roup 2oycott (not many)

ealin ?ith eale&s

Resale rice maintenance

. Klo&+s :nc v. '&oad?ay*@ale Sto&es, 1"#" 4not &ead fo& class5a. Deman- ma-e that none of the appliance sellers shoul- sell to -iscount stores. Court

says that its a 1ertical /roup 2oycott an- per se ille/al5. U.S. v. a&2e, avis Co, 1"60

a. +are Da1is ha- resale price maintenance policy in its holesalers an- retailerscatalo/. Althou/h Dr. Miles sai- that you cant set prices# 2ut here they trie- to ar/uethat this as more lie Col/ate 9 they ere only -oin/ 2usiness ith those they ante-to. 'ol- holesalers that oul-nt sell to those ho -i-nt o2ser1e the price policy orsol- to retailers ho -i-nt.

2. Court struc -on this practice 9 here +are Da1is too steps to insure compliance.Court sai- that Col/ate as ne1er meant to 2e a lar/e scale e4emption from the Dr.Miles rules a/ainst resale price maintenance. Resale rice maintenance asracticed in this case is er se illegal8 hen the manufacturers actions /o 2eyon-mere announcement of a policy an- the simple refusal to -eal# an- he employs othermeans hich effect a-herence to his resale prices# then he has put to/ether acom2ination in 1iolation of the Sherman Act. 'he manufacturers use- -istri2utors to

implement this policyG it as no unilateral lie in Col/ate.i. Col/ate -octrine allos manufacturer to announce price maintenance policy

an- enforce it 2y refusin/ to -eal 6customers ho -ont follo policy."*


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Territorial *llocation

S. Ahite Moto& v. US, 1"63a. 5estrictions impose- on hat territory the -ealers can sell cars 9 erent alloe- to

sell outsi-e your allotte- territory or to people outsi-e of your territory. A secon-restriction as that you coul-nt sell to fe-eral or state /o1ernments.

2. Court: horiontal arran/ements to -i1i-e territory are 2anne-# an- court sees if itshoul- e4ten- this to 1erticals arran/ements. 5eman-s this for trial un-er a rule ofreason (2ut if this as horiontal it oul- ha1e 2een per se)

c. Dissent: this is one of the most 2raen 1iolations an- it strai/ht out maret -i1ision 9shoul- 2e per se ille/al (hich is consistent ith the per se rule perio-).

-. Court -i- not apply a per se rule here 26c it felt that it -i-nt no enou/h a2out theimpact of these restraints to see if there is such an effect on competition as to ha1e nore-eemin/ 1irtue.

e. Note case: U.S. v. 9M # >?RRi. Dealers cooperatin/ ith -iscount houses an- referral ser1ices. 'he

-iscounters ten-e- to 2uy from here they sol-. Dealers erent happy a2outthis# an- !M tol- -ealers that they ere 1iolatin/ location clause 2y sellin/ to

-iscount houses. Court foun- this as &lors an- +are Da1is. Because one ofthe prime purposes of the practices as to eep the prices up# this a/reementas per se ille/al.

f. Note Case: U.S. v. Schwinn – overruled by Continental v. GTE Sylvaniai. Schinn as family one- 2usiness an- ha- once 2een Americas lar/est

seller of 2ies. Sol- 2ies in three ays: (>) tra-itional holesaler an- retailersho in turn sol- them to the pu2licJ (I) sol- them un-er consi/nment or a/encya/reements ith -istri2utorsJ (3) Schinn +lan un-er hich customers place-or-ers throu/h retail -ealers to hom the 2ies ere shippe- 2y Schinn for-eli1ery to i-entifie- purchasers. Schinn set up territories# an- trie- to Lustifythe territories 2y sayin/ that it maintaine- ima/e an- Kuality.

ii. Court foun- that the territorial limits ere reasona2le.

'. $l8&echt v. @e&ald Co, 1"6! = ove&&)led 8y State il Co. v. Khana. Suit for 1iolation of > 9 D pu2lishe- mornin/ paper an- + as one of the people ho

ha- a route. + char/e- a2o1e the ma4imum price# an- the paper asnt happy an- tol-customers that it oul- offer them a loer price if they sitche- to their -eli1ery. *nlyI006>I00 sitche-. Since the paper -i-nt ant to actually -eli1er# it /a1e the route toanother carrier.

2. Court: if there as a com2ination in +are Da1is# then there is one here. irst pro2lemfor Al2recht as hether there as a conspiracy at all 9 -i- the paper act unilaterally2ecause 26c they -i-nt lie himP 'he court foun- an a/reement 2eteen thenespaper an- the ne -istri2utor 9 a conspiracy to sell at a price promise-. 'hecom2ination forme- 2y the -efen-ant to force petitioner to maintain a specifie- pricefor the resale of nespaper hich he ha- purchase- from -efen-ant constitute-#

ithout more# an ille/al restraint of tra-e un-er >. $n /eneral# e4clusi1e territory is ofor nespaper 26c it is the only efficient ay to -eli1er them.

c. Dissent (Dou/las): 'his is a rule of reason case stemmin/ from Standa&d il .-. Dissent ("arlan): Lustification for per se rule in the case of minimums has not 2een

shon to e4ist in the case of ma4imums. Defen-ants con-uct as in furtherance of#not contrary to# the purposes of the antitrust las.

Price 3iscrimination, The Robinson"Patman *ctG 'his is I of Clayton Act as amen-e- in >?3R 2y 5o2insonG+atman Act

16


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G Same statute sa in 8tah +ieG I(a) ille/al to price -iscriminate amon/ purchasers of commo-ities of the same /ra-e an-

Kuality here the effect may 2e to su2stantially lessen comp or ten- to create a monopoly orinLure comp

G I(2) 2ur-en of re2uttin/ a prima facie case is on D 2y shoin/ that his loer price asma-e in /oo- faith to meet the eKually lo price of a competitor

G I(f) for2i-s noin/ly recei1in/ a -iscrimination

Monooly

8. !eneral +oints:a. 'ypes:

i. horiontal: amon/ competitors at the same le1el of -istri2utionii. 1ertical: amon/ firms in -ifferent le1els of the -istri2ution chainiii. Con/lomerate: to firms hich are not competitors nor ha1e 2usiness -ealin/s

com2ine an- the ar/ument is that there isnt any su2stantial lessenin/ ofcompetition

2. @ of Clayton: sou/ht to mae more certain the a2ility to challen/e such consoli-ations

2efore they ere a fair accompli.c. U.S. v. Col)%8ia Steel # >?H

i. 'este- hether the statutory lan/ua/e shoul- 2e rea- also to prohi2itfunctionally similar 2ut formally -ifferent in-s of consoli-ations. 8S. Steel aslar/est rolle- steel pro-ucers in countryJ Colum2ia Steel as holly one-su2si-iary an- lar/est rolle- steel pro-ucer in the ) 8.S. Steel ha- acKuire- assets of Consoli-ate- hich is not reache- 2y @Jan- (I) 1ertical acKuisition 9 not reache- 2y @.

-. CellerG&efau1er amen-ments to @: 2rou/ht a2out as a ay to correct the @-eficiencies 9 '&o?n Shoe is the first case -eci-e- un-er the ne @

;. '&o?n Shoes Co v. US, 1"6 a. Suit initiate- 2y !o1t for inLunction to pre1ent mer/er 2eteen &inny an- Bron Shoe

Company 26c it oul- 1iolate @ of Clayton. Bron as 3r- lar/est shoe pro-ucerJ&inny as family oriente- shoe store. Both mae an- sol- shoes# 2ut can analye the

case as Bron as pro-ucer an- &inny as seller 26c that is ho they ere non.2. 'hree -ifferent pro-uct marets here: mens# omens# an- chil-rens shoes. *uter

2oun-aries of a pro-uct maret are -etermine- 2y the reasona2le interchan/ea2ility ofuse or the crossGelasticity of -eman- 2eteen the pro-uct itself an- su2stitutes for it.!eo/raphic maret as -efine- as metropolitan areas lar/er than >0#000 people Ct

-oesnt say the entire 8S of the maret 26c then Bron oul- ha1e a smaller maretshareJ also# customers ont tra1el for to /et shoes.


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c. in-s the mer/er to 2e in1ali-. A-opts the Dist Cts fin-in/s that the shoe in-ustry is2ein/ su2Lecte- to a cumulati1e series of 1ertical mer/ers# hich# if left unchece-# ill2e liely to su2stantially lessen competition. Mer/er may ten- to lessen competitionsu2stantially in the retrial sale of mens# omens# an- chil-rens shoes in theo1erhelmin/ maLority of those cities an- the en1ironments in hich Bron an- &innysell throu/h one- or controlle- outlets.

-. Court loos at hy Con/ress a-opte- the amen-ments to @ 9 ante- to promotecompetition an- preser1e the small 2usiness. Court fin-s that Con/ress reco/nie-that consoli-ation in- of creeps up on you an- there can 2e an on/oin/ tren- 9 i-eathat it as appropriate to inter1ene on the 2asis of pro2a2ilities an- loo at the conte4tof the in-ustry 9 -ont nee- to pro1e any -irect or imminent impact. if there isnegati1e effects in any line of commerce in any section of the country< you ha1ea basis for striking the merger

e. $f Bron an- &inny ant to /et 2i//er# the preferre- metho- is internal /roth. Courtoul- 2e illin/ to tolerate mer/ers of tiny 2usinesses to let them /et to a le1el herethey oul- 2e a2le to compete# 2ut not /oin/ to let maret lea-ers com2ine. Also setsforth the failin co%pany i-ea: if the company is /oin/ out of 2usiness# no harm inalloin/ it to mer/e 26c the competition oul- ha1e 2een /one anyay.

f. ;ertical aspects of the mer/er:i. Concern that Bron oul- 2e the only supplier to &inny an- &inny oul-nt sell

the other manufacturers shoesii. Ar/ument that if others see that this is a /oo- thin/ then they mi/ht -o it as

ell# an- en- up ith a 2u--y system.


22/48

ii. $ncrease len-in/ limits so that they coul- compete ith out of state lar/e 2ans 9 essentially oul- en- up increasin/ competition in one maret hile-ecreasin/ it in another. Courts response is that the statute -oesnt say you2alance 9 if there is a su2stantial lessenin/ of competition the mer/er fails.

f. Note case: US v. on!s Grocery& 'o(s was third largest grocery chai i )* area ad+hoppig ,ag -ood +tores was sith# $ut together oly had 7.5/ of mar"et. ourt does(t

allow merger – oted that $oth chais had roughly dou$led i sie i the precedig 10 years#ad acuisitios ad mergers of groceries were precedig so rapidly i the )* mar"et that thego!(t could e%oi this merger of small $ut successful chais.

4oint !entures

=. U.S. v. enn*lin Che%ical Co%pany, 1"6<a. +ensalt as locate- in *re/onJ *lin as in *hio 9 lots of trees in the SE an- paper

pro-uction as mo1in/ -on there# an- so-ium chlorate is a 2leachin/ a/ent use- inpaper pro-uction. *lin license- a patent to +ensaltJ +ensalt oul- then /i1e *lin thestuff to *lin to -istri2ute. Also ha- American +otash an- "ooer ho ere locate- inthe SE. +ensalt an- *lin each thou/h a2out enterin/ the in-ustry in-i1i-ually# 2ut

-eci-e- not to -o it# an- a/ree- to enter to/ether as +ennG*lin 9 they entere- in a aythat coul- sell for a common price.

2. Court loos at this as @ issue rather than > issue so it can use the su2stantiallessenin/ test rather than force them to use per se rule. 8n-er > analysis# it is-i1i-in/ the maretJ un-er @# it is 1iee- as not re-ucin/ competition 26c there is nolessenin/ of competition from 2efore the 1enture starte- an- are 2etter off ith one realfirm rather than to potentials.

c. District court ha- sai- if + an- * ha- entere- the maret# there oul- 2e a firmmaretJ no its re-uce- to 3 firms an- can say its lessenin/ of competition. SupremeCourt says that no ha1e three firms# an- oul- ha1e the same result if either + or *ha-nt entere- as in-epen-ent# 2ut if one ha- entere- rather than Loinin/ in a Loint1enture# the other oul- ha1e remaine- a potential entrant 9 an- oul- ha1e 3 actual

an- > potential. Ar/ument is that ha1in/ potential competition has competiti1esi/nificance to cause the e4istin/ firms to eep ser1ice up an- prices lo to -iscoura/epotential in1estor from 2ecomin/ an actual one 9 the remo1al of potential is sufficient to2e a su2stantial lessenin/ of competition. 5eman-s to Dist Ct to see if there reallyoul- ha1e 2een a potential.

-. 'est: to strie -on mer/er un-er potential comp theory# must 2e shoin/ that:i. 5easona2le pro2 that acKuirin/ firm# 2ut for this mer/er# oul- ha1e entere-

the mt in the near future1. reas pro2 if D has capacity an- incenti1e to enter

ii. that the entry throu/h other means oul- ha1e resulte- in a -econcentrate-mt or procomp effect

iii. the mt un-er re1ie is concentrate-

7. (TC v. &octe& 9a%8le, 1"67 a. irms ma-e househol- pro-ucts 9 Cloro4 as main/ liKui- 2leach an- ha- rou/hly

half of the maret. +V ! ante- to acKuire stoc of Cloro4 9 it oul- 2e another +V!2ran-. +V! ar/ue- this as a pro-uct e4tension mer/er 9 it as not a competitor inthe 2leach in-ustry. Notion that this as a con/lomerate mer/er. 5ele1ant maret asliKui- 2leach.

2. Court ne1er really 2ou/ht the ar/ument that 26c a company is lar/e an acKuisition 2y itis ille/al 9 ha1e to sho su2stantial lessenin/ of competition. 'o -o this# can shoP

19


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i. Eliminate potential competition of acKuirin/ firmsii. Su2stitution of 2i/ firm in maret for smallerJ 2i/ firm can re-uce competition of

2each in-ustry 2y raisin/ entry 2arriers an- -issua-in/ smaller companies froma//ressi1ely competition.

iii. $n this case# +V! as 1ery stron/ in a-1ertisin/ an- 2uyin/ a-s cheaply an-2ul# an- har- for other companies to compete ith it.

c. Main to ar/uments: (>) -ominance create- that oul- ha1e ma-e ne entry 1irtuallyimpossi2le an- (I) there oul- ha1e 2een loss of potential competitor

-. "arlan (concur):i. MaLority relie- too much on assumptions an- not on the reasona2le pro2a2ility

of hat +V! oul- -o.ii. 'his is such a competiti1e in-ustry an- so easy to enter that the price is Kuite

competiti1e an- profits are really la# an- if that is true# then Cloro4 isntorryin/ a2out +V! enterin/ if it -oesnt acKuire Cloro4# an- therefore no lossof potential competition if the mer/er happens.

e. Note case US v. (alstaff '&e?in, 1"73 i. Marshall (concur) /i1es three situations here potential competition is

important:

1. -emonstrate- e4pectation to enter an- firm -eci-es to mer/e instea-. percei1e- potential entrant3. -ominant entrant:

a. firm that enters 2y mer/in/ is so lar/e that other firms cantsur1i1or or ill follo the lea-er.

20


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The Fourth or Current Period, #ince $%0.

The Transition Period

A. US v. 9ene&al yna%ics Co&p# >?@

a. 'his is the first case in hich e see a chan/e in the -irection of the court# 2ut this isnot the case that is tra-itionally 1iee- as chan/in/ it 9 that case is 9TE

2. !eneral -ynamics happene- to acKuire one of the mer/in/ corps# Material Ser1ice.'he other party in1ol1e- as reeman coal minin/. !o1t claims that this acKuisition1iolate- @ of Clayton 26c the taeo1er su2stantially lessene- competition in thepro-uction an- sale of coal in either or 2oth of to /eo/raphic marets. !o1t sai- thatas a result of this /eo/raphic mer/er there oul- 2e a su2stantial lessenin/ ofcompetition 26c they ha- rou/hly I0O in $llinois an- >0O in the re/ion# an- there as a/eneral -ecline in the num2er of firms in the re/ion.

Steart (for the court) (ho sai- pre1iously that the /o1t alays ins)c. $n +hili Ban# the court sai- you nee- to see hether the num2ers alone are enou/h to

shift 2ur-en to D to Lustify hy this is o 9 e1en thou/h this as only I0O# court as

illin/ to fin- the 2ur-en shifte-.-. Court fin-s that this as N*' a 1iolation of the Clayton Act. 'he -ecline in the num2er

of coal firms ha- chan/e-# 2ut it as a result of the shift in -eman- for other sources of ener/y. ooe- at the a2ility of the company to compete 9 2ase- the analysis on thene contracts the company oul- 2e a2le to /et in the futureG court sa most of thecoal as alrea-y committe- in lon/ term contracts. Essentially loo at the effect thatthe firm can ha1e in the future 9 the anser here as 1irtually none at all 26c they -ontha1e coal in reser1es they ha1e not contracte- to sell.

i. Dissenters respon- that this soun-s lie a failin/ company -efense. But theCourt says this isnt a failin/ company -efense 26c they arent asin/ thecompany to sho they oul- 2e /oin/ 2anrupt 9 this is similar# 2ut not thesame.

Dissenterse. Criticie- the failin/ company -efense. Also ar/uethat althou/h 8nite- ha- not 2een

a -eep shaft miner# coul- ha1e /one out# 2ou/ht some -eep shaft lan-# an- entere-the 2usiness.

B. Continental T.;. v. 9TE Sylvania, :nc, 1"77 a. $ssue of 1iolation of > 2y enterin/ into an- enforcin/ franchise a/reements that

prohi2ite- the sale of Syl1ania pro-ucts other than from specifie- locations.2. Syl1ania maes t1 sets# an- tra-itionally ha- sol- throu/h holesalesJ hen they see

their maret share -eclinin/# -eci-e- to franchise certain -istri2utors as Syl1ania-ealers an- /i1e them an e4clusi1e ri/ht to -istri2ute t1s in the area (2ut ere alloe-to sell other 2ran-s as ell). 'here as no /uarantee- monopoly# 2ut /eneral

un-erstan-in/ that oul- 2e rear-e- if you -i- ell. Syl1ania increase- from IO to,O nationally# 2ut only .,O in San rancisco. Syl1ania franchise- another -ealer a2outa mile aay 9 Continental /ot upset an- ante- to open a store in Sacramento# 2utSyl1ania refuse- to -eal ith them there.

c. District Court: thou/ht the case as controlle- 2y Sch?inn 9 the t1 sets ere sol- toContinental ho coul- then tae them anyhere an Lury 1er-ict for Continental. Courtof appeals sai- Sch?inn as a case that shoul- 2e limite- to its factsJ thisarran/ement as less antiGcompetiti1e 9 case sent 2ac to Dist Ct to thin a2out acase in a lar/er settin/ than the per se rule.

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+oell (for the court)-. Doesnt try to -istin/uish Sch?inn# 2ut says it is ron/ an- o1erGrules it.e. +er se rules of ille/ality are appropriate only hen they relate to con-uct that is

%anifestly antico%petitive. Court fin-s that this is not such a practice. 'his is a 1erticalnonp&ice restraint an- therefore shoul- 2e analye- un-er a rule of reason. oos atthe positi1e features of inter2ran- an- intra2ran- competition.

f. (&ee &ide& iss)es Court fin-s that if you /i1e someone a territory# you ill encoura/ethem to really -e1elop the territory 2y a-1ertisin/ an- in1estin/ capital into the maret26c -ont ha1e to orry a2out someone free ri-in/ off of your or. $f there are multiple-istri2utors# ten-ency to free ri-e 2y aitin/ for the other person to a-1ertise an- thencome in an- tae the customers. 'his type of system protects -istri2utors a/ainst thistype of free ri-in/ an- e4ploitation. Doesnt say that there cant 2e inKuiry into homuch inter2ran- an- intra2ran- competition is lost# 2ut ill 2e -ifferent areas-epen-in/ on the pro-uct an- shoul- 2e for manufacturers to -eci-e su2Lect only tothe e4amination hether there is no Lustification for hat they are -oin/.

/. This case o1er"rules the er se rule and is seen as a triumh of the rule ofreason once again< and seen as really starting the current eriod8 "chwinn o1er"ruled< and 1ertical territory allocation is sub?ect to Rule of Reason analysis8

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'he +er Se 5ule 1. 5ule of 5eason De2ate Continues in > Cases

Horizontal Price Fi2ing

D. Note case: 9oldfa&8 v. ;i&inia State 'a&, 1"7# a. a minimum fee sche-ule a-opte- 2y a 1oluntary 2ar association 1iolate- > per se.

the fact that the layers ere learne- professionals -i- not mean their actions erenot in1ol1e- in Ytra-e or commerce an- e1en fun-amental stan-ar-s of professionalethics ere su2Lect to > analysis.

E. /ational Society of &ofessional Eninee&s v. US , 1"7! a. 'he ethical rules pro1i-e- for a to step processJ (>) first# ha- to ha1e a phase of the

competition that as 2ase- on factors other than price. (I) secon-# once en/ineerchosen# then -iscuss price. 'he En/ineers try to Lustify this 2y sayin/ that it insures/oo- Kuality an- pre1ents pu2lic harm 9 the en/ineer is chosen on the 2asis of Kualityan- not simply 2ein/ the loest 2i--er. !o1t -oesnt try to ar/ue that there is nocompetition# 2ut rather there is no competition on price terms. 'his isnt lie A--yston+ipe 9 the parties -i-nt a/ree to char/e the same price or one oul- char/e the

loest 9 2ut it still as a restriction on competition on price. Client can reLect the price#2ut cant compare them.

2. Court: sai- the rule of reason is prefera2le to per se rule# 2ut some a/reements are soplainly anticompetiti1e that no ela2orate stu-y is nee-e- to esta2lish their ille/ality.uestions hether this is such a case. Safety concern -oesnt /o to a Kuestion ofincreasin/ competition. 'his as not price fi4in/# so not per se ille/al 9 2ut fails un-er55 26c effect is to -ecrease competition# thus increasin/ price# pre1entin/ pricecomparison 9 so it is in1ali-.

c. I cate/ories of antitrust analysisi. first cate/ory: a/reements hose nature an- necessary effect are so plainly

anticompetiti1e that no ela2orate stu-y of the in-ustry is nee-e- to esta2lishtheir ille/ality 9 they are ille/al per se

ii. secon- cate/ory: a/reements hose competiti1e effect can only 2e e1aluate-2y analyin/ the facts peculiar to the 2usiness# the history of the restraint# an-the reasons hy it as impose-

-. Court misses the point that here there oul- 2e pu2lic authorities ho tae the 2lamefor 2a- or of the en/ineers# an- the pro2lem oul- 2e that of the ne4ta-ministrationJ therefore# safety nee-s nee- to 2e taen into account.

e. +rofessional En/ineers maes clear also that Sherman Act -oes N*' permitcompetitors to a/ree on one form of competition o1er another# this interferes 6free an-open maretsJ customers shoul- 2e a2le to -eci-e if they ant hi/her Kuality or loerGprice- 2uil-in/s

. '&oadcast M)sic v. C'S, 1"7"

a. BM$ an- ASCA+ sell 2lanet licenses hich /i1e the ri/ht to use music in their li2raries 9 CBS claims this is price fi4in/ an- almost lie a cartel. CBS thins they oul- ha1epai- a lot less if they -i-nt ha1e to 2uy the 2lanet license.

2. Court says that the critical Kuestion is hether this practice oul- restrict competitionan- loer output 9 nee- to see if nae- restraint of tra-e ith no purpose other thanstiflin/ competition. Court says Lust 2ecause there is an impact on price -oesnt meanthat the action ill 2e per se ille/al or e1en an unreasona2le restraint 9 this is a totalchan/e from Socony ;ac))%. 'his lea1es the -oor open e1en as to a/reements that/o -irectly to price to sho there is a sufficient Lustification to ren-er them laful.

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c. *ne ar/ument ma-e in this case is that the costs of -ealin/ are /reatly re-uce- an-the a2ility to -eal is ma-e more efficient 9 non as %a&2et c&eation defense. 'hecourt sa this restraint as a--in/ a pro-uct rather than eliminatin/ one. No one isforce- to -eal ith a 2lanet license 9 they are Lust an option. 'he e4tent of thisrestraint is simply a--in/ somethin/ to the orl- that -i-nt e4ist 2efore 26c can still 2uyin-i1i-ual son/s or -eal -irectly ith the artist.

-. $s it reasona2leP 'he efficiency analysis loos at 3 thin/s:i. hether challen/e- con-uct is reasona2ly necessary to achie1e the costG

re-ucin/ efficienciesii. hether the restraint that follos is actually necessary to the maret inte/rationiii. hether the efficiency achie1e- 2y inte/ration outei/hs the a-1erse effect of

the restrainte. So -i- this eliminate the per se rule in price fi4in/ casesP

i. No 9 Catalan v. Ta&et Sales: an a/reement not to /rant a -iscount eKual to the1alue of money for the 30 -ays as the functional eKui1alent of price fi4in/ an-per se ille/al.

5easons to sa1e a practice:

G ten-s to create a maret 9 'M: G hene1er the efficiencies pro-uce- are create enou/h

!. $&iBona v. Ma&icopa Co)nty, 1"! 4not &ead fo& class5a. $mportance of case is hat is says a2out -octors. Doctors in +hoeni4 ho ere not

mem2ers of "M*s trie- to create a system so they coul- 2e competiti1e ith "M*san- oul- a/ree ith insurance companies as to -octors fees# an- patients oul- 2echar/e- a fee hat oul- co1er all their me-ical care as an "M* oul-. Doctors trie-to ar/ue that this is a BM$ type arran/ement in hich a ne pro-uct as offere-J

Ariona challen/e- it as price fi4in/ a/reement. Supreme Court foun- that it as ille/alper se for the -octors to esta2lish e1en the ma4 char/e-.

". /C$$ v. Unive&sity of 2laho%a, 1"!<a. NCAA re/ulates certain thin/s relatin/ to colle/e sports pro/rams 9 here it as

re/ulatin/ the shoin/ of tele1ise- colle/e foot2all /ames. Some of the restrictionsinclu-e- reKuirin/ HI -ifferent schools ha- to 2e on t1 6in a I year perio- an- noschool coul- appear on t1 more than R times an- times nationally. 'ry to form theCA# 2ut NCAA sai- it oul- suspen- all the sports of the schools that participate- inthe CA

2. Dist Ct: applies the rule of reason an- foun- competition as restraine-. Ct of Appealssays its per se price fi4in/.

c. Sup Ct: NCAA trie- to ar/ue that it lace- maret poer an- coul-nt really controlprice 26c there are many other thin/s to atch on t1. Also ar/ue that it ants tomaintain competiti1e 2alance an- in or-er for people to atch there has to 2e

suspense 9 no one ill atch if there are a fe -ominant teams.-. Court uses a rule of reason an- stries this -on. Court uses a F)ic2 loo2 &)le 9 nee-

to loo at the ar/uments# 2ut not in e4cessi1e -etail 9 26c usin/ 55 -oesnt mean thatyou ha1e to loo at e1ery sin/le -etail.

i. Court fin-s there as maret poer 9 this plan re-uce- output. Colle/e foot2allis a uniKue pro-uct ith its on maret an- has a special -emo/raphic ofpeople. Also# the price as the same no matter hich team as 2ein/ shonan- the price as fi4e-. 8nlie BM$# the schools ere not a2le to license theiron /ames.

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ii. +rotection of /ate receipts is not a 1ali- Lustification# an- neither -oesprotectin/ the competiti1e 2alance.

e. Dissent: orrie- that colle/e is more than foot2all# an- -ont ant schools to turn intofoot2all factories.

f. Note 9 this is a first case in the mo-ern perio- e4plicitly to apply a rule of reasonanalysis# yet fin- the practice 1iolate- >.

/. Note case: U.S. v. "rown University# $%%&'i. $1y o1erlap /roup ha- a/ree- as to ho much scholarship ai- they oul- /i1e a

certain stu-ent. Dist Ct sai- price fi4in/ an- antitrust 1iolationJ Court of Appealssai- its not 26c colle/es not in tra-e or commerce. 'his case ne1er ent to theSup Ct 26c the Clinton a-ministration thou/ht this as permissi2le an- -i-ntappeal.

in the mo-ern perio-# nee- to loo at all the facts an- try to reason carefully as to hat it is that isantiGcompetiti1e an- to hat e4tent you are a2le to ar/ue its anticompetiti1e

5rou Boycotts by Cometitors

$. /o&th?est Aholesale Statione&s v. acific Stationa&y &intin, 1"!#

a. Northest as a /roup that acte- as a purchasin/ cooperati1e (lie Topco) 9 it oul-2uy in 2ul an- sell to anyone# 2ut mem2ers oul- /et a re2ate at the en- of the year.Northest ma-e a -ecision not to allo those ho ere 2oth retailers an- holesalers#hich +acific as# 2ut ha- /ran-father clause. +acific chan/e- oners 6o tellin/Northest# hich 1iolate- a 2yla of Northest an- N< ice- them out for not tellin/them. +acific 2rou/ht a claim that this as a 1iolation of > an- as per se 1iolation26c it is a /roup 2oycott.

2. Dist Ct userule of reason an- /rante- S% for N


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iii. 5estraints ancillary# 'opco V Sealy o1errule-# A--yston +ipe is the la of thelan- the Sup Ct NE;E5 a-opts this.

&. Note: Boycotts as a orm of +rotesta. Misso)&i v. /at+l &aniBation fo& Ao%en, ! th Ci&, 1"!0 : antitrust las ere not

-esi/ne- to re/ulate solely political acti1ities

2. /$$C v. Clai8o&ne @a&d?a&e, 1"! :: NAAC+ or/anie- 2oycott of hite merchantsto achie1e -ese/re/ationJ Ct sai- no actiona2le -ama/es

c. (TC v. :ndiana (ede&ation of entists, 1"!6 : Ct uphel- a cease an- -esist or-erentere- a/ainst /roup of -entists that refuse- to apply 4Grays to insurance companies 9no cre-i2le ar/ument ha- 2een offere- that the action ha- proGcompetiti1e effects an-Kuality of care ar/uments ere uncon1incin/.

-. (TC v . S)pe&io& Ct T&ial a?ye&s: layers thou/ht that the amount of money they ere2ein/ reim2urse- for as too little# an- to /et more money# they -eci-e- to strie.ayers /ot the increase- pay# an- the 'C 2rou/ht suit. Sup Ct sai- this is a per se1iolation of the antitrust las. 8nlie in NAAC+# there as no economic purpose.

Horizontal Market 3i1ision

. ay al%e& v. 'R9 of 9eo&ia, :nc, 1""0 4'a&'&i case5a. "B% sol- 2ar re1ie coursesJ B5! as a local 2ar re1ie company. "B% comes to the

area an- the prices fallJ come up ith a plan for B5! to use "B% material an- paycertain percenta/e.

2. Supreme Court says that this is an a/reement to raise price an- this is per se ille/al#relyin/ on 'opco e1en after Bor o1erGrule- it in Rothe&y .

M. (o&est City v. ol2 '&othe&s, 1"!#, 7 th Ci&.a. 'o 2usinesses a/ree to share a 2uil-in/ an- enter into a restricti1e co1enant here

they a/ree not to sell competin/ pro-ucts. orest City ha- other stores an- foun-appliances ere profita2le an- ante- to sell them# 2ut in or-er to -o so ha1e to setco1enant asi-e. $f this as the per se perio-# oul- clearly 2e a maret -i1ision an-

ille/al.Easter2roo (for the court)2. 'hins A--yston +ipe is hat /o1erns.c. Distin/uishes 2eteen nae- restraint an- ancillary can use Kuic loo to see if

ancillary (tra-itionally use- Kuic loo to see if per se applie-). Ancillary restrainspromote competiti1e acti1ity an- the a/reement is not the critical issue 9 moreconcerne- a2out hether its a pro-ucti1e a/reement. 'o -o this# conce-e that there isa restraint# 2ut e4amine it e4 ante. $f there as no a/reement# then they ne1er oul-ha1e /one into 2usiness 26c orrie- a2out freeGri-in/. Creation of this shoppin/ center as proGcompetiti1eJ 2etter off ha1in/ real competitors than potential ones.

-. Clean han-s -efense: the co1enant as alrea-y 2roenJ an- the i-ea that a party to anille/al contract has unclean han-s an- cant /et the court to help them /et out of the

-eal they ma-e. Dont lie this -efense in antitrust 9 if the contract is in restraint oftra-e# -ont ant to enforce it.

3ealing )ith 3ealers

N. Monsanto Co v. Sp&ay*Rite Se&vice Co&p, 1"! G raise- issue of reKuisite stan-ar- of proof 2. Monsanto manufactures chemical pro-ucts# inclu-in/ her2ici-es. Set up -istri2utors

for one year terms# an- chose -istri2utors 2ase- on certain criteria (i.e. hether the

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-istri2utors primary acti1ity as solicitin/ sales to retail -ealersJ (I) hether the-istri2utor employe- traine- salesmen capa2le of e-ucatin/ its customers on thetechnical aspects of the her2ici-e# an- (3) hether the -istri2utor coul- 2e e4pecte- tofully e4ploit the maret in its /eo/raphical area of primary responsi2ility). B6c theher2ici-e as a technical pro-uct# to 2e a Monsanto -istri2utor# ha- to 2e capa2le ofpro1i-in/ a certain le1el of ser1ice. SprayG5ite as a -istri2utor# an- as sellin/

Monsanto her2ici-e at a -iscounte- price. Monsanto -eclines to rene SprayG5ites-istri2utorshipJ Spray 5ite claims that this is a co1er for hat is really an effort 2yMonsanto to set the resale price.

c. Court sees this as a case that mer/e- Dr. Miles V +are Da1is type cases ithSyl1ania an- Schinn type cases.

-. Court -istin/uishes 2eteen price an- nonGprice restraints an- concerte- an-in-i1i-ual action.

e. Court says that the test nee-s to 2e hether the e1i-ence e4clu-es the possi2ly thatthis as in-epen-ent action# an- the 2ur-en is on + to sho that this asnt Lustacci-ental 9 there has to 2e somethin/ more to sho that there is an actual conspiracy."ere the court foun- there as sufficient e1i-ence for the Lury to reasona2ly conclu-ethat Monsanto an- some its -istri2utors ere parties to an a/reement or conspiracy to

maintain resale prices an- terminate price cutters. After Spray 5ites termination#Monsanto ent aroun- to -istri2utors an- sai- loo hat happene- to Spray 5ite 9 you-ont ant to 2e lie that.

f. 5emem2er that sin/le firm action is o 9 it is a pro2lem hen there is an a/reementamon/ many.

Concerted (ndi1idual

Price TminimumU +er Se ille/al * un-er Col/ate>on"Price 5ule of reason un-er !'E * 9 Col/ate

TminimumU is from State *il Company 1. &han 9 Monsanto 2oth min an- ma4prices are co1ere-.

*. ')siness Elect&onics v. Sha&p Elect&onics, 1"!! a. BE as at one point the e4clusi1e retailer for Sharp. Sharp later appoints "artell as a

secon- retailer. Sharp pu2lishe- a list of su//este- minimum retail prices# 2ut its riter -ealership a/reements ith BE an- "artell -i- not o2li/ate either to o2ser1e them."artell later tells share that it oul- terminate its -ealership unless Sharp en-e- itsrelationship ith BE 26c BE often char/e- lo prices# an- Sharp -oes terminate. $ssue2ecomes hether this is a price -ecision or not# an- hether it is unilateral or not.

Scalia (for the court)2. a/rees that there can 2e a per se rule a/ainst price fi4in/# 2ut shoul- apply the rule of

reason unless there is o1erhelmin/ reason to use per se. 'ermination of a sin/le pricecutter ithout any proof of a 2i//er a/en-a -oes not re-uce output an- re-uce price 9it is Lust the termination of a -ealer. Doesnt conce-e that this is a price restraint 9 says

instea- that this is a nonGprice restraint an- really only e4clusi1e territory 9 same as!'E an- shoul- use rule of reason. $f it oul- Kualify as an appropriate 1erticalallocation un-er 55# then the fact that you /ot there 2y terminatin/ a secon- firm ofcuttin/ price is irrele1ant. ;ertical restraint N*' ille/al per se unless it inclu-es somea/reement on price or price le1els.

Ste1ens an-


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char/es lo prices is not a nonprice restraint. No si/nificant shoin/ of hat positi1einter2ran- effects there are here.

-. Note case $tlantic Richfield v. US$ et&ole)%: 8SA +etroleum as a customer of A5C* that sol- its /as at -iscount pricesJ A5C* impose- cap on -ealers prices#hich ere still 2elo cost# 2ut 8SA+ sai- the effect of the plan as to re-uce its profit

mar/in an- -ama/e its a2ility to remain in the maret. Supreme Court thre the caseout for lac of inLury. 8SA+ as not the appropriate + 26c it ha-nt 2een su2Lect toantitrust inLuryG their inLury as a result of competition. Court is usin/ a lac2 of in)&yanalysis.

+. State il Co v. Khan, 1""7 a. *1erGrules $l8&echt . &han one- a ser1ice station that purchase oil from State 9 State

sol- ith a su//este- retail price# an- there as some leeay on the price that coul-2e char/e- -epen-in/ on profit mar/in# 2ut if sol- a2o1e a certain price ha- to /i1esome to state. &han claims that State en/a/e- in price fi4in/ in 1iolation of >. &hanultimately /oes 2anrupt 9 claime- that if he as a2le to# coul- ha1e char/e- more forpremium /as an- a1oi-e- 2anruptcy an- sai- he as personally -ama/e- 2y not

2ein/ a2le to sell at the prices he ante- to.2. 8n-er $l8&echt # the rationale is that ma4imum prices are really money# an- &han oul-

ha1e a lo/ical pro2lem ith his ar/ument an- not ha1e ha- antitrust inLury.c. Court: no one to /et aroun- $l8&echt = simply ha1e to o1erGrule it lie Sch?inn as

o1erGrule- in Sylvania. No it is only minimum concerte- prices that are per se ille/al.$f it turns out that you are -ealin/ ith a situation here somethin/ that purports to 2e ama4 is really a min# then pro1e it in 55 case.

Pulling the 6 $ Cases Together

. 3 Efforts to 5econcile the Mo-ern Casesa. Commissioner Cal1ani (in Massach)setts 'oa&d of Reist&ation in pto%et&y )

i. +oses three Kuestions:>. hether the restraint is inherently suspectJ that is# it is liely to restrict

competition an- -ecrease outputP $f it is not inherently suspect# userule of reason.

I. $f inherently suspect# as if there is an efficiency Lustification for thepractice (i.e. it maes a maretJ impro1es operation of a maret). But he-oesnt limit it 9 if it is proGefficiency it is sufficient for him (i.e. BM$). 'hisis a much 2roa-er analysis. Not proGefficiency# con-emn restriction.

3. $f the efficiency Lustification is plausi2le# last see if the Lustification is1ali-.

2. %u-/e Easter2rooi. +roposes filter system 9 ant to care a2out economic reality 6o losin/ the

clarity an- efficiency of the per se perio-ii. irst: + shoul- ha1e to pro1i-e a lo/ical -emonstration that D has %a&2et

po?e& J otherise anticompetiti1e effect ont succee-. $f no maret poer# /etri- of the case.

iii. Secon-: + shoul- ha1e to sho that the D has an incenti1e to 2eha1e in ananticompetiti1e ay an- that the antitrust sanctions are necessary to correct theDs incenti1es. 'his eliminates cases alle/in/ con-uct that oul- 2eunprofita2le to the alle/e- offen-er.

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i1. 'hir-: Court shoul- then -etermine hether firms in the in-ustry use -ifferentmetho-s of pro-uction an- -istri2utionJ if so# competition 2eteen thosemetho-s shoul- protect consumers.

1. ourth: Court shoul- loo to see if there is e1i-ence output really as re-uce-2y challen/e- practice.

1i. ifth: loo at i-entity of +# 26c if a 2usiness ri1al 2rin/s suit# it is often safe to

infer that the arran/ement is 2eneficial to consumers.c. %oel &lein

i. enforcement oriente- analysis an- 3 stepsii. irst: is the a/reement the type of restraint that is currently reco/nie- 2y the

court as 2ein/ a per se 1iolation (i.e. an una-orne- a/reement to fi4 prices#curtail output# or -i1i-e marets)

iii. Ne4t: if there is a horiontal a/reement that is not per se ille/al# inKuire hether there is a proGcompetiti1e Lustification for the a/reement (2ur-en on -efen-in/party to anser this).

i1. $f there are si/nificant proGcompetiti1e 2enefits to the a/reement# see to-etermine hether its liely anticompetiti1e effects outei/h the procompetiti1e2enefits.

5. Califo&nia ental $ss+n v. (TC, 1"""a. CDA ha- issue- a co-e that a -entist may a-1ertise# 2ut they cant 2e false or

mislea-in/ an- may not fail to contri2ute to the esteem of the pu2lic for -entists. 'Cfoun- these rules per se ille/al 26c -entists ere una2le to a-1ertise that somethin/as painless or offer across the 2oar- -iscounts an- not Lustifie- as professional ethicsre/ulation.

2. Ct of Appeals: use- Kuic rule of reason analysis as in NCAA. +ri1ate restriction oninfo offere- is a limitation on competition an- ou/ht to 2e seen as per se ille/al or Lustas ille/al as any other restriction on somethin/ consumers oul- ant. E1en un-er55# still no ay to Lustify this.

Souter (for the court)

c. can only apply a Kuic loo if an o2ser1er ith a ru-imentary nole-/e of economicscan tell that it has anticompetiti1e effects. +rofessional a-1ertisin/ is relate- tosomethin/ that the consumer -oesnt un-erstan- an- is liely to 2e misle-. E1en if therestriction relates to -iscount# mi/ht not 2e anticompetiti1e. 'C -i-nt present enou/he1i-ence of anticompetiti1e effects 9 -i-nt e1en reach the sta/e here CDA oul-ha1e to sho proGcompetiti1e Lustifications.

-. +oint of this case is that there is no rule of reason# no Kuic loo# no per se rule 9?hateve& is needed is needed .

i. +ro2lem is that you -ont no hat is nee-e- until its too late 9 all cases ha1eto 2e /i1en full 2lon analysis or else the Sup Ct mi/ht say it nee-e- more.

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this a-1ertisin/ 6o re/ar- to hether it as true# an- it as restriction of informationthat consumers oul- fin- useful. E1i-ence a2out hether people nee-e- thisinformation /oes to proGcompetiti1e effects# an- the pro2lem of the ina-eKuate recor-is that of the Ds# an- 'C shoul-nt 2ear the conseKuence of that. Also sufficientmaret poer 9 CDA ha- @,OG?0O of the maret an- its har- to enter.

S. :n the Matte& of oly&a% @oldin, 003, (TC piniona. 3 'enors ma-e '># 'I# an- -eci-e to mae '3. +oly/ram an- ?R@# SiCo opens a thir- an- much lar/ermountain that is set apart from the other to. 'hey -i- a mountain ticet 2ase- onusa/e# 2ut the ne mountain as farther aay an- ha- less people# so less re1enues.SiCo tries to cap the amount that "i/hlan-s coul- /et an- then starts to a-1ertise foronly their mountains# main/ it seem lie "i/hlan-s -i-nt e4ist. "i/hlan-s tries to offera 2unch of thin/s 2ut SiCo reLects them all# an- "i/hlan-s is hurt. SiCo -efen-s 2ysayin/ no -uty to cooperate ith its competitors. Also ar/uethat "i/hlan-s asntofferin/ same Kuality an- -i-nt ant to 2e associate- ith them.

i. $f they all -i- cooperate# it is ar/ua2ly a conspiracy an- price fi4in/. Coul- try toar/ue that lie BM$ it is a ne pro-uct# 2ut these facts too place 2efore BM$.

2. Case trie- on I theory. Dist Ct foun- (an- Sup Ct a-opte-):i. Nee- to sho that D illfully acKuire- an- maintaine- monopoly poer 2y

anticompetiti1e or e4clusi1e means or for anticompetiti1e or e4clusionarypurposes. Not enou/h to sho someone has su2stantial maret share 9 to-etermine if there as illful use of monopoly poer# Lury has to -istin/uishmonopolies /otten as a result of superior 2usiness or Lust luc fromanticompetiti1e con-uct.

ii. No -uty to cooperate un-er IJ refusal to cooperate may 2e Lustifie- if there isa le/it 2usiness purpose.

iii. %ury foun- that the pro-uct maret is -onhill siin/ at -estination si resorts.Court -efines /eo/raphic maret as siin/ in the entire country. $-ea here is

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that Aspen is a su2maret 26c hen -eci-in/ here to /o siin/# thin morea2out the area an- less a2out the particular mountain.

c. Ct of Appeals:i. 8ses essential facilities -octrine an- sai- it is necessary to ha1e access to

multiGmountain ticet to sur1i1e in Aspen maret.-. Sup Ct

i. 'his case is not a2out a /eneral -uty to cooperate ith ri1alsJ cases lie BM$are e4ceptions. 'here may 2e circumstances here a unilateral -ecision not tocooperate 1iolates I# 2ut /enerally that is a > issue.

ii. Since people lie- the mountain ticet an- it as a successful ay of -oin/2usiness# failure to offer it cant 2e Lustifie- as a 2etter ay of maretin/ Aspenor 6in Aspen. $f you mo1e from a successful 2usiness mo-el to one thatconsumers lie less an- hurts your competitors# it is p&edato&y cond)ct .

iii. E1i-ence supports inference that Si Co as not moti1ate- 2y efficiencyconcerns an- it as illin/ to sacrifice short run 2enefits an- consumer/oo-ill in e4chan/e for a percei1e- lon/Grun impact on its smaller ri1al (i.e.pre-atory con-uct).

8. ;e&iBon v. T&in2o, 00<a. ;erion ha- monopoly poer o1er the local phone lines prior to the >??R actJ after the

act# there as at least potential for competition. + as an A'' customer an- unhappyith his ser1ice. 8n-er the Act# ;erion ha- to share its facilities ith A'' an- oul-fi4 any pro2lems ith the system. Alle/ation here as ;erion as fi4in/ its oncustomers pro2lems first.

2. 3 of the -issentin/ Lustices thou/ht that there as no stan-in/.Scalia (for the Court)c. irst issue is hether the act as inten-e- to 2e immune to the antitrust la 9 court

sai- no# there as a sa1in/s clause that e4plicitly pre1ente- that.-. $ssue as if a re/ulatory statute reKuires you to -o somethin/ an- reKuires it 26c the

system is -esi/ne- to stimulate competition# shoul- you 2e a2le to say that a 1iolation

of the re/ulatory reKt is also a 1iolation of the antitrust laPi. Ar/ument that it shoul-: Stan-ar- *il as all a2out the potentiality of

competition 9 the monopolist cant sustain hi/her prices 26c of the possi2ility ofne entrants# an- any action to pre1ent that from happenin/ oul- 1iolate I.'his con-uct loos lie it fits 6in I 26c it is a illful maintenance of amonopoly poer 2y somethin/ that fa1ors its on customers.

e. 'his ar/ument faile- 9 the statute specifically sai- it asnt -esi/ne- to tae antitrustreme-ies off the ta2le. 'he fact that antitrust las arent preclu-e- -oesnt mean thatthere is a 1iolation of them. $f ;erion asnt a re/ulate- firm# there oul- 2e no -utyto cooperate lie in Aspen# hich the Court foun- to 2e an unusual case on the outer2oun-aries. No -uty of an e4istin/ firm to cooperate ith a firm that ants to enter themaret.

f. Court reLects the essential facilities -octrine 9 it is relati1ely un-efine- an- they arent/oin/ to apply it here.

/. 'en-s to sho a 1iolation of a re/ulation isnt in an- of itself enou/h to sho antitrustinLury6purpose6effect

h. Mor/an isnt so sure a2out this case case shos alle/e- anticompetiti1e actions not

enou/h

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Predatory Conduct

;. Mats)shita Elect&ic :nd)st&ial Co v. Denith Radio Co&pa. Ds ere I> %apanese companies that ere pro-ucers of t1s an- t1 partsJ alle/ation

that they ere char/in/ pre-atory prices to -ri1e +s out of the maret. !enerally# theyere char/in/ artificially hi/h prices in %apan# an- ha- lar/e manufacturin/ plants an-

coul-nt sell all the t1s they ma-e in %apan# so sol- them in 8S. Ar/ument also that%apanese Ministry of 'ra-e ent alon/ ith thisJ Ds use- this to say that they erecompelle- 2y a so1erei/n an- anythin/ that happene- as a result of %apanesere/ulation (Sup Ct -oesnt touch this issue). Ds say also that char/in/ hi/h prices in%apan -oesnt 1iolate 8S antitrust las# an- +s ar/ument -oesnt mae anycoherent6economic sense.

+oell (for the Court)2. 'o sur1i1e motion for S%:

i. $s there an antitrust inLuryP>. As to the issue that the %apanese in-ustry of tra-e man-ate- minimum

prices: this is /oo- for competitors 26c can un-ercut them. Not a 2asisfor antitrust claim.

I. . $f the ar/ument -oesnt mae economic sense# no /enuine issue of

material fact# an- S% appropriate.I. "ere there is no issue of material fact 9 the pre-atory pricin/ scheme

ma-e no sense.c. Ar/ument that cuttin/ it off 2efore it /oes to the Lury is /oo- for the D 9 for + in an

antitrust case# there ill 2e hi/h e4pense an- +s ont 2rin/ a case if they -ont thinthey ill 2e a2le to reco1er 26c D ill -ra/ out -isco1ery.

-. +re-atory pricin/ is rare: the premise is that you nee- to un-ercut lon/ enou/h an-

incur real costs 9 sellin/ 2elo the MC# an- nee- to ha1e the prospect of recoupin/ themoney in the future 2y /ettin/ monopoly profit an- hope that no one enters the maret."ere the Ds ha- 2een -oin/ this for I0 years an- +s still ha- the maLority of themaret share.

e. $s this case correctPi. +uts more pressure on + to sho conspiracy# hich is consistent ith

Monsanto.ii. 'his as a 2a- case to 2e/in ith# an- this cuts -on on the num2er of 2a- +

cases# hich is /oo- 26c I cases are e4pensi1e to try an- -efen-

f. Note case: $.$. o)lt&y (a&%s v. Rose $c&e (a&%s, 7 th Ci&, 1"!"i. 5aise- the issue of hat it means to apply the initial screenin/ to I pre-atory

pricin/ casesii. 5ose Acre is a 1ertically inte/rate- e// pro-ucer an- processor. +ro2lem in

that hens -ont lay e//s in the proportion of lar/e6small of the e//s or-ere-#an- issue of hat to -o ith the e4tra e//s.

iii. *ne option is to sell the e//s to 2reaers# ho use them in cae mi4 an-similar pro-ucts. But 5ose Acre sol- the surplus at a -iscount to its re/ularcustomers. Competitors claime- pre-atory pricin/ 26c they ere sellin/ at lessthan total a1era/e cost.

%u-/e Easter2roo (for the Ct)

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i1. $s this a cause of actionP "o to -etermine:>. -oes price e4cee- costP

a. 'his is a complicate- an- speculati1e ay of /oin/ a2out itI. intentP

a. A/ain# not a /oo- measure 9 can alays fin- a 1i/orouscompetitor an- this is unrelia2le

3. Can losses 2e recoupe- as part of the hi/h price later of the pre-atoryseKuenceP

a. 'his is the approach he fa1ors. "ere he fin-s it as nopossi2ility for monopoly prices laterJ prices ere fallin/# constantentry into maret# no 2arriers to entry. Also# in-ustry as 1ery-iffuseJ 5ose Acre ha- >O

2. Sup Ct uses this test in a later case


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Ste1ens (for the Court)c. 'o part test:

i. $s this to separate pro-uctsPii. 8se- maret poer to force customers to accept tie- pro-uctP

-. $f sellin/ only a sin/le pro-uct# fact that there are to parts to it -oesnt mae it a tyin/arran/ement (i.e. a car ith -oors is one pro-uct). "ospital is tryin/ to ar/ue that no

one has sur/ery 6o anesthesia. Court fin-s that there are to pro-ucts 9 -eman- foranesthesia is 1iee- 2y some patients as a separate -eman- (pro2a2ly someone hois ha1in/ an electi1e sur/ery or a oman ho is /oin/ to /i1e 2irth). oo to -eterminehether there is a -ifferent le1el of -eman- an- hether people oul- ant to mae achoice.

e. $snt only the fact that to pro-ucts are paca/e- to/etherJ nee- to ha1e maret poer to say there is an ille/al tie (this has alays 2een part of the rule# 2ut in the 3r- perio-this asnt har- to sho). . use- to only loo at -ollar 1alue

iii. must 2e coherent economic 2asis for treatin/ the tyin/ an- tie- pro-ucts as-istinct

>. customers oul- ant to ha1e one 6o the other I. here# ont ant sur/ery 6o anesthesia# or anesthesia 6o sur/ery.

'herefore meanin/less to tal a2out in-epen-ent -eman- for to items."ospital also cant /et more money 2y sellin/ the to to/ether 9 can /etmonopoly profit 2y raisin/ price of operatin/ room

i. 'ieGin shoul- 2e con-emne- only hen its anticompetiti1e impact outei/hs itscontri2ution to efficiency.

L. E4clusi1e -ealin/: is pro1i-er 2ein/ foreclose- from practicin/6sellin/ their pro-uctPBase- on pro1i-ers alternati1es 9 only 30O patients e4clu-e- an- no su2stantial effecton commerce.

7. East%an Koda2 v. Technical Se&vices, 1"" a. Seen as potentially chan/in/ -irection of antitrust la 9 seen as ra-ical. But later cases

really sho this is stan- alone.2. Alle/e- 1iolation of > an- I. &o-a ma-e relati1ely unusual pro-ucts an- ha- to

2e ser1ice- to precise tolerances. +s ere in-epen-ent ser1ice or/aniations thatoul- ser1ice &o-a machines 9 &o-a then a-opte- policies to limit a1aila2ility ofparts to these ser1ice pro1i-ers. $f you ere a customer an- ante- to /et &o-a

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parts# /o to &o-a for ser1ice or ha1e your on employees -o ser1ice (2ut no 3r- parties).

c. Dist Ct: + is really sayin/ hen you 2uy &o-a machine# also are reKuire- to 2uy&o-a ser1ice (eKuipment an- ser1ice tie-)9 not parts an- ser1ices lie + claime-.&o-a has no maret poer o1er the eKuipment.

Blacmun (for the court)

-. &o-a ha- maret poer o1er their on parts 9 some ma-e 2y &o-a# some 2y othermanufacturers. But that as the only thin/ &o-a ha- poer o1er. $n or-er to /et partsyou ant# ha1e to 2uy ser1ice.

e. &o-a tries to say not separate pro-ucts:i. *ne inte/rate- pro-uct 9-ont ant a part 6o ser1ice 9 the part is inte/rally

part of the ser1ice 2ein/ -one. Can sometimes -o ser1ice 6o parts (i.e. tuneup) an- sometimes oul- ant part 6o ser1ice.

ii. Court fin-s that it really to pro-ucts: some customers ant to purchaseser1ice an- parts separately.

f. &o-a tries to say no maret poer o1er its parts:i. No maret poer o1er eKuipment so cant ha1e maret poer o1er the parts for

the eKuipment# 26c the people ho 2uy the eKuipment in the first place ill

assess part a1aila2ility issue hen -eci-in/ hat machine to 2uy. $f seein/monopoly prices o1er price# ill -ri1e aay people from 2uyin/ the machine.Court says not an on6off sitch here some ha1e maret poer 9 ha1e to let +try to -emonstrate that there is sufficient maret poer an- can char/e hi/herprices 26c of -e/ree of poer they -o ha1e. Also# oul- mae it cheap to repairmachine 2ut char/e a lot for parts.

ii. ife cycle 1aluation is too -ifficult./. +eople ho alrea-y ha- a &o-a machine ere the ones really in trou2le 9 &o-a

ha-nt a-opte- this policy until people alrea-y 2ou/ht the machines.h. "as ha- a lastin/ impact on the chan/e of the stan-ar- for S% 9 apparent 2ias in fa1or

of D seems to ha1e 2een a2an-one- 2y the CtScalia (-issentin/)

i. 'aes o2Lection to the fact that the maLority is tyin/ parts to ser1ice as oppose- toeKuipment to ser1ice ill alays fin- monopoly poer 6your on parts.

L. Cant 2e per se ille/al if you -ont ha1e poer o1er the pro-uct hich you are /i1in/ aarranty for 9 if you coul- ha1e sol- pro-ucts ith arranty# this shoul- 2e the samethin/.

. +eople ho are 2uyin/ these machines are smart an- ill fi/ure out life cycle cost 9enou/h people ill -o this so that &o-a has to price competiti1ely.

Titanic #truggle o1er *lleged E2clusionary Beha1ior " the Microsoft Cases

. US v. Mic&osoft, C Ct of $ppeals, 1""!a. $BM /a1e Microsoft the opportunity to 2e the *S on its computers# hich is ho

Microsoft /ot its start. *nce Microsoft ha- its pro-uct# 1ery lo MC to -istri2ute it.Simple characteristic of 2ein/ the firm that /ot to the top 2y /oo- luc in other than an

Alcoa type orl- means e -ont ant to mae it ille/al.2. D*% as orrie- that Microsoft oul- use monopoly position in *S maret to reKuire

people to 2uy thin/s that coul- ha1e 2een sol- competiti1ely 2ut oul- 2ecome part ofMicrosoft monopoly.

c. Consent -ecree:i. Alloe- Microsoft to -e1elop inte/rate- pro-ucts

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ii. N*' allo Microsoft to enter into license a

Documents

Antitrust - Morgan - Spring 2004_3