antitrust - pierce - spring 2002-1-4

8/20/2019 Antitrust - Pierce - Spring 2002-1-4

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Professor PierceSpring 2002

Antitrust Chronological Outline

I. Introduction: Common Law Antecedents of the Sherman ActA. The Case of onopolies !"#0$ %ngland&

". The 'ueen granted a monopol( on pla(ing card ma)ing* +iewed cardsas a social ill.2. ,ueen was getting paid for the monopol( grant.$. Court finds it is a monopol( and doesn-t see a ustification. /olds thedecree in+alid. Court sees same effects of monopol( as 'ueen and sa(sthe 'ueen is not entitled to them.. Court recogni1es that monopolies generall( lower 'ualit(. The( sa(Parliament could grant a monopol( ut the 'ueen cannot.

3. 4eneral %conomics". arginal 5e+enue Cur+e 6 asis for decision7ma)ing. The monopolistwill produce up to the price of the cur+e. The monopolist will suppl( up

to where the marginal re+enue intersects with marginal costs. And willcharge the price where the 8emand cur+e intersects with that 'uantit(.2. 9ould rather ha+e competiti+e mar)ets that don-t result in artificiall(high prices for lower than optimum output as well as artificial transfer ofrents.

C. 5easonale restraints on trade incident to legitimate transactions are o)a(.". itchell +. 5e(nolds !"""&

a) Owner of a a)er( wants to lease his a)er( for ; (ears. AS part of the lease agreement the owner agrees that he will not open acompeting a)er( within the parish of the original lease. Theowner +iolates this.

b) %+en though contracts in restraint of trade* all contracts are inrestraint* and reasonale restraints incident to legitimatetransactions are o)a(.c) Court alances potential ad+erse effects on pulic and the goodeffect.

II. Chapter I: The first 2; "A. 4enerall(

". Sherman Antitrust Act !?S "=>0&a) @" outlaws e+er( contract in restraint of trade !courts addunreasonale&b) @2 outlaws monopoli1ation or attempts to monopoli1e. !Alsomeans unreasonale* some attempts can e good for the mar)et.&

2. Initiall( the court treats the Sherman Act as appl(ing in anetraordinaril( narrow contet. Bia the interstate commerce clause.

3. urisdiction and the Scope of the Act". Sherman Act does not appl( when there is not interstate commerce present.

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a) ?S +. Dnight !"=>;& 6 Dnight controls >=E of sugar mar)et (the time it gets to court. 3ut the court rules that sugarmanufacturing is entirel( local so Sherman Act does not appl(.

!"& The decision is essentiall( dead ut it has ne+er een o+erruled.

!2& Prolem 6 ust ecause sugar in one area does notmean that it does not ha+e effects on IFC. This decisionwould ma)e the Sherman Act onl( applicale totransportation.

b) The Supreme Court has een notoriousl( inconsistent withouto+erruling in this area.

!"& %.g. 3aseall is ust a sport that does not affectinterstate commerce* howe+er footall does affect interstatecommerce 6 and aseall case was ne+er o+erruled.

2. %traterritorial urisdiction of the Sherman Acta) Congress did not mean to appl( the Sherman act to

etraterritorial urisdiction. American 3anana !">0>&.!"& ?nited Gruit and go+ernments of Panama and Costa5ica destro(ed American 3ananas- plantations in order to preser+e the ?nited Gruit monopol(.!2& 8emonstrates the pragmatical limits of ?S antitrustlaw.

b) Toda(* Courts are more li)el( ut still hesitant to appl(Sherman Act to foreign commerce.

C. /ori1ontal Cominations in 5estraint of Trade". The practice of setting prices is a restraint on trade !curs each firm-sfreedom and commerce and is in +iolation of @ ". Court found that theSherman Act outlaws all contracts in restraint of trade* although itaandoned this finding one (ear later. Also* the Sherman Act can appl(where the Interstate Commerce Act applies. Hothing in the ICC sa(s thatthe Sherman Act does not appl(. ?S +. Trans7issouri Greight Assoc!"=>& !Gound that the cartel practice of agreeing on prices was in fact acontract in restraint of trade and there( ga+e rise to a Sherman Act+iolation.&

a) 4o+ernment was claiming that the purpose of the associationwas to unustl( and oppressi+el( increase rates. Giled suit claiminga +iolation of @ " !price fiing 6 restraining trade ( not lettinge+er(one set their own price&.b) ust as) whether or not the practice* not the result* isreasonale.

!"& As applied here* the reasonale price is no defense*the practice of setting prices !and therefore suppressingcompetition& is a restraint on trade.!2& The practice of price7fiing is not reasonale.3asicall( sa(ing that price fiing agreements are within the

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prohiition of e+er(J trade restraint without regard toreasonaleness.

2. Hote on Cartels 6a) Cartel meetings decide who will cut ac) on production to set price higher.

b) Onl( real strateg( is to argain hard in the meetings and thencheat.c) The onl( ones that are effecti+e use the power of the state.!%.g. American 3anana cartels.&d) Small producers lo+e cartels. 8espite the fact that half of theCongress enacted the Sherman Act with the idea that if the( get ridof cartels* it would help small producers.

$. /ori1ontal minimum price fiing and hori1ontal allocation of mar)etsare per se illegal unless the( are necessar( as ancillar( to a legitimatetransaction. ?S +. Add(ston Pipe K Steel !#th Cir "=>=& !This per se ruledoes not in fact ecome the law until $0 (ears later ( the supreme court.&

a) Lea+es possiilit( for a narrow incident to legitimatetransactionJ defense.b) An eample of where the eha+ior would e ancillar( to alegitimate transaction would e itchell +. 5e(nolds !3a)er(lease.&c) Court defines a mar)et as consisting of a product mar)et andgeographic mar)et.d) 4eographic mar)et

!"& 8eterminate of scope is transportation and shippingcosts.

. ar)et Allocations 4enerall(:a) Can create separate mar)ets gi+ing monopolisticcharachteristics in each area.b) This eha+ior has the same effects on consumers as amonopol(.c) 4eographic allocation of mar)et has the same effects ashori1ontal price fiing and monopol(.

8. onopoli1ation and erger ". 5eection of per se rule and adoption of rule of reason 6

a) Standard Oil in ">"" sa(s that the will ne+er adopt a per serule in these cases* instead the( will loo) to the rule of reason.

!"& Adopts the rule of reason for all cases.!2& Therefore go+ernment cannot win without pro+ing:

!a& That did something to ha+e a ad effecton consumers!& That the action did in fact ha+e a ad effecton consumers!c& And must allow s to defend and present alle+idence to show that the practice was necessar(.

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!$& %+en finding that the rule of reason applied* the !5oc)efeller& still lost* as the firm-s eha+ior was clearl(anticompetiti+e. Created an oil refiner( trust of o+er >0Eof the refineries in countr( where the( set prices and'uantit(. Court ordered di+estiture.

!& /ere* 5oc)efeller-s +ertical integration undoutedl(lowered prices and made it more effecti+e ut he alsoformed a cartel that ripped off the countr(.

2. %ssential Gacilities 6 there are essential facilities to which pri+ateactors must pro+ide access to all. In these disputes the remed( will e toallow an ownership interest and access to facilities.

a) Terminal 55 Case !9here owned $ rail ridges o+erississippi must allow other railroads to use them for a fee* andregulate the prices that will e charged.&

%. Bertical 5estraints of Trade 6 5esale Price aintenance". 8r. iles edical compan( K ohn 8. Par) K Sons !">""& 7 Illegal

ecause selling to distriutors and re'uiring a price.a) 8r. iles sold medicine prepared ( means of secret methodsand formulas to oers and wholesalers. It fied the price* not ustof its own sales* ut also the wholesale and retail prices that its product could e sold at. 8epartment stores* sold the medicine atcut ratesJ !elow the price fied ( 8r. iles.& 8r. iles claimsthat s in comination and conspirac( with a numer of wholesaleand retail dealers sold the remedies at cut7price le+els and thereforeunlawfull( and fraudulentl( procured them from 8r. iles agents ( means of false and fraudulent representations and statements.b) 9hat he was afraid of was discount sellers ruining hisreputation.c) Court sa(s that the secret processes used were not the same as a patent. A general restraint upon alienation is ordinaril( in+alid.& 6 Set uniform prices !( wa( ofa price list& and (ou don-t ha+e to do it* ut if (ou do then (ou ha+e to setour prices or else we-ll stop selling to (ou. Court sa(s that is not a+iolation. This modifies 8r. iles ut 8r. iles still dominates.


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G. Adoption of the Cla(ton and Gederal Trade Commission Acts". ">" GTC Act

a) 4i+es the GTC concurrent urisdiction with the 8Ob) Power to prohiit unfair or decepti+e acts or practices !Illegale+en if it doesn-t +iolate the antitrust laws.&

2. Cla(ton Acta) %empts laor unions from antitrust laws !@ #& !sa(s nothingaout independent contractors anding together& 6 also eemptsemplo(eesb) Outlaws price discrimination !@ 2&* eclusi+e dealing* or t(ing.c) Applies onl( when practice lessens competition or tends tocreate a monopol( !The courts must figure this out.&d) Outlaws mergers that sustantiall( lessen competition.

III. The 5ule of 5eason Period 6 ">"; to ">$;A. Cases gi+ing definition to the rule of reason

". Chicago 3oard of Trade +. ?S !?S ">"=&

a) 3oard would close in the afternoon ut could still u( atdifferent prices until 3oard enacted rule prohiiting grain tradefrom 2 p.m. until open of usiness !net da( or onda(&. Couldonl( trade grain then at the price set ( the oard until 2 p.m.b) 8O alleged this was hori1ontal price fiing 6 the supplierswere agreeing on prices.c) Hot a +iolation of the Sherman Act ( appl(ing the rule ofreason the go+ernment pro+ed neither an illegal intent nor an(illegal effects.d) The asserted the good effects 6

!"& 3efore rule there were onl( a few grain dealers u(ing off hours and the( had undue mar)et power.!2& Allowed grain dealers to wor) etter hours. !3utlater courts ha+e failed to recogni1e this as material.&

e) Court said* e+er( oard of trade and nearl( e+er( tradeorgani1ation imposes some restraint upon the conduct of usiness ( its memers.Jf) ust ecause the go+ernment cannot pro+e ad effects does notmean that ad effects don-t eist.g) Case shows that s can win a @ " claim under the rule ofreason.

2. ?nited States +. ?S Steel Corp !?S ">20&a) Shows that can win @ 2 claim under rule of reason.b) ?S Steel formed a holding compan( trust that has ac'uiredshares of "2 steel producing firms !;0E of production& that used tocompete* now ?S Steel ma)es the output price decisions. !It is acartel&.c) 4o+ernment alleges it to e a contract in restraint of trade andan attempt to monopoli1e.

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d) 4o+ernment tries to etend the theor( that it was a cartel of"00E of firms ( 4ar( 8innersJ where the( would send BPs to4ar( Indiana to discuss.e) The majority applies rule of reason and says that the

government must prove bad effects on the market. The court

finds the go+ernment hasn-t shown this.!"& It was an unsuccessful cartel !ne+er got to "00E&!2& Incomplete monopol( !He+er got to "00E&!$& Ho proof of ause of power

f) ?nsuccessful cartel and incomplete monopol( are nowdefenses after this case.

3. The Trade Association Cases". 5ecent Supreme Court decisions don-t tell much more than thefollowing. Similar cases in similar mar)ets with differing decisions proal( more a result of changing court.2. Trade association was organi1ed in restraint of trade as its purposes

and effects were increased pricing and production restriction.J AmericanColumn K Lumer Co +. ?S !?S ">2"&a) emers of trade association participated in eha+ior that+iolated the Sherman act.b) Girms pro+ided information tot eh trade association andassociation pro+ided information ac) to the firms.

$. Trade associations that discusses usiness and statistics* ut do not actin restraint of prices* production* or competition are legal. aple Glooring!?S ">2;&.. Gi+e conditions fa+orale to conclusion that implicit collusion in theindustr( eing eamined:

a) A concentrated mar)et of sellers and a lac) of a fringe mar)etof small firms.b) A standard product sold primaril( on the asis of price.c) Issues pertaining to the needJ or at least the incenti+e tocollude.d) An inelastic demand at the competiti+e price.e) An industr( in which entr( ta)es a long time.

;. 9hat can trade associations doNa) Send information to other firms and agencies !8O K GTC&

!"& Hot tr(ing to hide an(thing. 5eporting data ac) iswhere the prolems are caused.!2& Gorm specific information. Ber( +aluale for putting together cartel 6 a+erage* aggregate data is not.!$& Past data +ersus prospecti+e data.

b) Limited access to association numers and infoc) Cannot ad+ertise for a group !designed to cooperate& !luringothers ( claiming success at raising prices.&

#. The prolem of oligopol(

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a) Ad+ance pulication of prices !could e sociall( eneficial orharmful 6 sutle con+ersation etween competitors.&b) Industr(7wide resale price maintenancec) 3asing point pricing 6 agree to 'uote same price for samelocations. !Simplifies process of reaching agreement for cartel.&

d) Other important characteristics 6!"& Product homogeneit(Fheterogeneit(!2& Price elasticit( of demand!$& %ase of entr(

. %nforcement authorit( is monitoring:a) Characteristics of the mar)et

!"& Oligopol( 7 of firms and mar)et shares!2& /ow eas( is the mar)et to carteli1e 6 !e.g. practicall( impossile to get a cartel of "00 firms&!$& Agreement etween producers of heterogeneous products would ha+e to e +er( complicated for an

effecti+e cartel!& Inelastic demand for product ma)es it easier tocarteli1e 6 not worried aout industries with elastic demandcur+es.!;& %ase of entr(

b) Concerned aout highl( concentrated mar)ets withhomogenous products with inelastic demand and high arriers toentr( 6 ma)es it ideal for carteli1ation. !4raduall( courts are pa(ing more and more attention to these characteristics.&c) Ad+ance price pulication can e part of hori1ontal price fiingagreement. 5esale price maintenance fairl( eas( to monitor.

C. The Interpla( 3etween Patents and Antitrust Law". Antitrust law hates monopol(2. Patent law lo+es monopol(. It grants legall( conferred monopolies to patent holders who earn monopol( rents on the in+entions.$. T5IPs 6 20 (ears.. Patent law has not changed much o+er time.;. A patent is a propert( right* the holder can condition the use of that propert( right. ?S +. 4eneral %lectric !?S ">2#&

a) 9here 4% held the patent to tungsten filament the onl( wa( tode+elop incandescent lighting* worth illions of dollars* the( wereallowed to set the price that it could e sold at if the( ne+erreleased the license and instead sold through agents.b) Two wa(s of mar)eting 6 sell light uls onl( through9estinghouse or agents re'uired to sell the light uls for no lessthan a certain price. !/ori1ontal price fiing& License competitorto ma)e manufacture and sell light uls ut the( were re'uired tosell at 4% re'uired price.


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c) The license and minimum price pro+ision was to rie9estinghouse not to come up and compete while 4% held patentand court said this was o)a(.

#. Patent law entitles (ou to (our monopol( rent* ut does not entitle (outo cartel rent on separate patents. Standard Oil +. ?S !">$"& !9hen

similar patents are held the( cannot e cross7licensed in a wa( that createsa cartel which dominates the mar)et* howe+er in this case the mar)et wassuch that the four firms holding the patents did not hold the mar)et powerto do damage.&. Patent misuse will lead to the patentor losing their rights to that patent.=. %clusi+e 8ealing

a) Cla(ton @ $ prohiits eclusi+e dealing contracts whoseeffects may sustantiall( limit competition or create a monopol(.Intended to pre+ent such agreements as would under thecircumstances disclosed proal( lessen competition or create anactual tendenc( to monopol(.J Standard Gashion +. agrane7

/ouston !?S ">22&8. Testing the Limits of the 5ule of 5eason". ur( does not ha+e to e instructed to account for whether the actual price fied was reasonale. That-s irrele+ant. ?nited States +. TrentonPotteries !?S ">2& !Per se illegalit( in the rule of reason period&.

a) Toilet owl industr( 6 ideal mar)et to carteli1e.b) Supreme Court upheld criminal con+ictions under the ShermanAct.c) Loo)s li)e an adoption of a per se rule !although the( don-to+errule the rule of reason.d) At a minimum court has foreshadowed a maor change.

2. The filed rate doctrine 6 a) 9here railroads who would normall( compete agreed to chargethe same rates* and the ICC appro+es rates as reasonale* theSupreme Court held that a pri+ate action for trele damagesalleging collecti+e rates in +iolation of the Sherman act would not e supported. Deogh +. Chicago K Horthwestern 55 b) Supreme court found that there proal( was a +iolation of theAct* ut there was no remed( a+ailale.c) 8octrine 6

!"& ICC gi+en power to sa( a rate is illegal or legal!2& An( rate the ICC determines to e lawful is the onl(lawful rate according to the ICC act.!$& 5emed( under Sherman act would ha+e een treledamages* ut must compare actual rate to lawful rate. Orinunction to pa( legal rate. /owe+er* there is nodifference etween actual and lawful rate ecause the ICCsets oth.

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!& 8octrine applies whene+er a federal agenc( has power to sa( prices are lawful or unlawful. And filed rateis the onl( lawful rate to charge.

$. An agreement eliminating competition etween producers ut done toeliminate mar)et e+ils was o)a( 6 where there were good intentions and it

was not (et shown to ha+e negati+e effects on the mar)et. AppalachianCoals +. ?S !?S ">$$& !A cooperati+e enterprise* otherwise free fromoection* which carries with it no monopolistic menace* is not to econdemned as an undue restraint merel( ecause it ma( effect a change inmar)et conditions where the change would e in mitigation of recogni1ede+ils and would not impair* ut rather foster* fair competiti+eopportunities.J&

a) 9here Appalachian firms got together and tried to fi pricesthe Supreme Court said it was o)a( ecause the( didn-t actuall( fi prices. Instead the(

!"& Staili1ed prices

!2& 5aised pricesb) 3oth of which were o)a(.. Hote etween Trenton Potteries !?S ">2& and Appalachian Coals!">$$& the depression occurred. 8ecided differentl(.

a) Capitalism and competition were good in ">20s so tougher onenforcing antitrust laws.b) 3( ">$$* ?S pulic attitude was hostile towards mar)ets !Hew8eal era& 6 replace ruinous competition with cooperation.

;. Other wa(s to deal with the recession era prolems of ecess capacit(from low demand as seen in Appalachian Coal

a) %ncourage cartels !court was s(mpathetic to&!"& If a cartel is formed the( will restrict output andraise prices. 3ut this lowers demand and increases ecesscapacit(.!2&


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!;& %liminates the ecess capacit( and ha+ecompetition.!#& ergers are fine as long as the( ha+e no ad+erseeffects on competition.

IB. The Per Se 5ule and Gocus on mar)et Structure 6 ">0 to ">

A. /ori1ontal Cominations in 5estraint of Trade". Price Giinga) /ori1ontal price fiing is per se illegal. ?nited States +.Socon(7 Bacuum Oil !?S ">0&

!"& Court said that hori1ontal price fiing had een perse illegal for 0 (ears. !Hot 'uite true.&!2& The authorit( for legal carteli1ation of the petroleum oard was held unconstitutional.!$& ?ses a ut forJ test for causation.

b) State Action 8octrine!"& 9hen California created a CA 5aisin Production

3oard to o+ersee production of raisons and encouragedcarteli1ation of raison mar)et !the 3oard could decide priceand 'uantit( of producers&* the Supreme Court held thatthere was no +iolation. Par)er +. 3rown !?S ">$&!2& The Sherman act is silent aout go+ernmentin+ol+ement. The Court interprets statute-s silence ascongressional intent not to interfere with traditional statein+ol+ement in area.!$& If state orders eha+ior that would otherwise eillegal with pri+ate actors* it is insulated from liailit(.!& onitoring and enforcing is easier with stateo+ersight.

c) The Sherman Act does not prohiit collecti+e ad+ertisementsepressing se+eral firms +iew against legislation* which wouldreduce the cost of truc)ing. %astern 55 +. Hoerr !?S ">#"&.

!"& %+en if a group is moti+ated ( profit* it is stillallowed to influence go+ernment action.!2& %ception 6 Collecti+e actions ta)en not reall(moti+ated ( tr(ing to influence go+ernment action* utinstead ha+e asolutel( no chance of success and solel(moti+ated ( an intention to dela( go+ernment action arenot protected. CA otor Transit !?S ">2&. %tremel(limited eception.

2. 4roup 3o(cottsa) 4roup o(cotts are per se +iolations of Sherman Act @ "

!"& 9hen a group of "200 fashion designers refused tosell goods to retailers who ought from st(le piratesJ thecourt found that it was a group o(cott which was per se+iolation of @ " of the Sherman Act. Gashion originators!?S ">"&

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b) The ailit( to +eto an application for memership (competitors is a group o(cott and thus illegal. Organi1ations ma(not aritraril( or for anti7competiti+e reasons e ecluded fromessential ser+ices. Associated Press +. ?S. !?S ">;&

!"& Also could not loc) the ailit( to run stories of

competitors* although the( could in the same mar)et.!2& Organi1ations ma( not aritraril( or for anti7competiti+e reasons e ecluded from essential ser+ices.

c) ?nder what conditions ma( non7aritrar( reasons for epulsion e emplo(ed. Sil+er +. H


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changes in prices. In ">> Supreme Court found conscious parallelism is per se illegal can draw the inference. In ">;* the(found conscious parallelism to e legal* found that consciousparallelism alone cannot violate the antitrust act.

. Cases Testing Limits of Per Se

a) Conscious parallelism is not per se illegal ut might e used asa piece of e+idence which will e added to others to pro+e a+iolation of @ " Sherman. ?S Container Corp !?S ">#>& !Informalad hoc reciprocal echange of price information can la( foundationfor a Sherman Biolation if the industr( is such that mar)etcharacteristics are +ulnerale. In corrugated oes* the industr( isdominated ( few sellers* product is fungile* competition for salesis price* demand is inelastic* and u(ers place order for onl(immediate short7term needs.&

!"& The court here applied the rule of reason !3ut moreli)e a complicated per se rule&. 4o+ernment would ha+e to

show the price echanges were done with ananticompetiti+e intent.!2& fungile product 6 standardi1ed specs not a lot of+ariation.!$& Seems to e more of a complicated per se rule thanthe rule of reason.


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an( one mar)et and this allows them to compete and proal( has pro7competiti+e effects.!& The maorit( recogni1es that it ma( not e the estdecision for this mar)et.

d) Per se rule ustifications

!"& Proailit( that eha+ior is harmful!2& 8ifficult( in distinguishing situations!$& Institutional limitations of the court.

3. onopoli1ation". ust pro+e the a monopol( and that the( otained the monopol(through wrongful means. Simpl( ha+ing a monopol( is not illegal.Though it is illegal to ause monopol( power if (ou ha+e it. ?nited States+. ALCOA !2d Cir for Supreme Court ">;&

a) 8etermining the scope of the rele+ant mar)et:!"& 4eograph( 6 loo) at transportation costs!2& Product 6 is it durale materials including steel and

plastic or is it onl( aluminum. Sustitution effect.b) In ">$0s aluminum was not a worldwide mar)et as tariffs and'uotas made international mar)ets difficult to rea) into.c) ALCOA argued should include secondar( aluminum andeclude compan( use !the amount of aluminum that ALCO a sellsitself to use to ma)e aluminum products.&d) Court said (ou definitel( include compan( use. The( thenha+e #E of the mar)et. /and said he didn-t )now whether #Ewas a monopol(.e) Then loo) at secondar( aluminum inclusion. >0E of rec(cledaluminum started out as ALCOA aluminum so ALCOA can thenfigure on how to factor in that >0E of their aluminum will come ac) to compete with them.f) Thus ALCOA had >0E of mar)et which definitel( was amonopol(.g) 9as it due to natural growth or thrust upon itN !3oth treatedthe same.&

!"& Court felt that the monopol( was not thrust upon itthe( reached for it.

h) 5emed( 6 8idn-t order di+esture ecause 99II made the prolem go awa(.

2. ?nited Shoe achiner( !8. ass ">;$& !. 9(1ans)i +er( highl(respected and hired as his law cler) Dra(son* a professor of economics 6still a wide consensus that the( lew it.&

a) Shoe mar)et 6 ?ntied States led the world in shoe ma)ing. ?Shad "#0 shoe firms in ?S. 3( the time the case was o+er therewere no shoe7manufacturing firms left in the ?S.b) ?nited Shoe success due to:

!"& Patents and economies of scale!2& Superior products and ser+ices

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!$& Its leasing s(stem.c) /ad leases that had low annual fee* wouldn-t sell machineswould onl( lease them* long term leases with low renewal fees*high cancellation fee* rent ased on rate of utili1ation* imposed penalties for use of another firm-s machines.

d) The leases tended to increase ?nited-s power in the mar)et.Since ?nited refusing to sell the machine it was much harder toengineer around patents ( competitors. 8ifficult to engage inre+erse engineering.e) The court re'uires changes in leases and that ?nited also sellmachines. 9ants the leases to e flat rate short7term rentals.f) ?nited-s leases ma)e it reall( cheap to get economies of scalewhich pro+ides increased ailit( to enter the mar)et. This s(stemof mar)eting is onl( +iale if (our machine accounts for all of thecustomer-s production so (ou ha+e to impose penalties oncompetitors.

g) The result 6 massi+el( transformed shoe mar)et of the ?nitedStates. Ta)en a mar)et perfect for ease of entr( and roustcompetition coupled with sophisticated machiner( mar)et withsophisticated research and de+elopment with " firm in+estingresearch and de+elopment and ma)ing great machines to lease toan(one with ease of entr( and destro(ed it. The arriers to entr(went up massi+el(. Lots of firms drop out of the mar)et and man(firms cannot enter it.h) "; (ears later 8O goes ac) to 9(1ans)i and sa(s we as)edfor di+esture ut didn-t gi+e di+estiture. Still =E of the mar)et.9(1ans)i still wouldn-t dissol+e. Supreme Court re+ersed anddissol+ed the compan( into three companies. "0 (ears later ?nitedShoe went an)rupt as did shoe manufacturers.i) 9orldwide regrowth after 99II 6 helped destro( shoeindustr( as well.

$. If the court wants to a+oid finding a @2 +iolation will define therele+ant product mar)et as +er( road.

a) Gor eample* in 8uPont the rele+ant product mar)et wasdetermined to e fleile pac)aging materials rather thancellophane pac)aging materials e+en though cellophane is ; timesas epensi+e as other products and $ times less epensi+e thansustitutes in the same mar)et under this definition. 8uPont held;E of cellophane pac)aging materials mar)et and ";E of fleile pac)aging materials. A $7ustice pluralit( won ecause the( wereupholding lower court decision that the products were a goodenough sustitute with one another to define mar)et as fleile pac)aging materials. ?nited States +. 8uPont !?S ">;#&.

. Cla(ton Act @ 2 K @ $ prohiit price discrimination* t(ing orre'uirement contracts where the( ma( sustantiall( lesson competition or tend to create a monopol(.J

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;. ?tah Pie !">#& 6 one of the worst decisions imaginale. onopolistearning elow monopol( rents sues competitors for predator( conduct andwins. An(one who is the dominant firm in mar)et and losing mone( cancall competitors and tell them to raise prices to a non7predator(J le+el.

a) Hational firms sold at lower than prices charged in other

mar)ets and at prices elow a+erage cost 6 charged more in CAthan the( did in Salt la)e Cit( 6 where competition is higher priceswill e lower.b) 3ut there are lots of reason for differences in prices charged (national firms 6 transportation* competition* o+erall this is a greatthing for competition.c) ight sell at an( time etween a+erage cost and marginal cost.That would e routine* rational profit maimi1ation.d) Supreme court has ne+er re+ersed ?tah Pie ut proal( noneof it is good law toda(.

#. Predator( Pricing

a) T(pical predator( pricing eample is when a large firm hasmone( set aside to support charging under marginal cots.b) Loo) at time +alue of mone(. If (ou start eercising monopol( power e+entuall( someone will enter the mar)et to compete.c) A mar)et with high arriers of entr( will ta)e man( (ears efore (ou can dri+e out competitors.d) 4enerall( considered a s(stem that will not wor).e) Alleged that the firms in ?tah Pie were engaging in predator( pricing* ut could also call it competition. Hone of the firms werein a position to reach for a monopol(.f) Supreme Court later redefines predator( pricing in a wa( toma)e etremel( difficult to succeed as a Q. !In the ">=0s&g) Antitrust standing 6 affects predator( pricing claims.Competitors do not ha+e standing to ring the t(pes of claims rought ( ?tah Pieh) Phil Areda !/ar+ard Law& test of predator( pricing 6

!"& Onl( a price lower than marginal cost should count.Can use +ariale cost in lieu of marginal cost* as +arialecost is easier to calculate.!2& Charging a price lower than charged in anothermar)et is utterl( irrele+ant.!$& Charging a price elow a+erage cost is irrele+ant!& Charging a cost elow marginal cost is suspicious.!;& %+er( circuit has now gone with the Areda test.

C. Bertical Arrangements Percei+ed as %clusionar(". Bertical arrangements deal with transactions etween firms that are notcompetitors ut rather are at different parts in the distriution process.2. T(ing is per se illegal ecause it alwa(s has ad effects and ne+er hasgood effects. International Salt !?S ">&

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a) 9here t(ing the salt processing machine with the tied productof salt was illegal.b) This decision would mean that cars are the largest @ $ +iolationof the Cla(ton t(ing pro+isions.c) Court ta)es a +er( road and wrong approach.

d) The court felt that if (ou had a monopol( (ou would ha+emonopol( rents and if (ou tied a product in another mar)et (ouwould get those monopol( rents too. 8oesn-t wor) that wa( (ouonl( get those first monopol( rent.e) 3esides Int-l Salt onl( had ;E of the machine mar)et and 2Eof the salt mar)et.f) Court sa(s that t(ing ne+er has good effects. /owe+er somegood effects of t(ing are:

!"& 5educes repair cost!2& 5educes maintenance costs!$& Deeps reputation of machine clean.

$. T(ing Toda(a) Potential ad effects of t(ing ma( increase arriers to entr( if(ou ha+e a monopol( in one mar)et and tie to another productwhere (ou are monopol(Fdominant. Then it is too difficult tocompete effecti+el( as (ou must enter oth mar)ets simultaneousl(with the ailit( to compete in oth.b) The asolute minimum needed to ha+e ad effects in t(ingmust ha+e a mar)et dominanceFmonopol( power in oth mar)etsfirst.c) To e illegal t(ing toda(:

!"& Two separate products!2& ust pro+e has mar)et power in t(ing product!$& Q must show the through t(ing has a proailit(of reaching mar)et dominance in the tied product.

. 5e'uirements contracts are not per se illegal ecause the( sometimesha+e good effects. Std Oil of CA +. ?S !?S ">>&

a) /ere the go+ernment was arguing that since re'uirementcontracts ha+e the same language as t(ing products the( should e per se illegal. Ho ustice accepts that.b) 5e'uirement contracts are illegal if a firm has sustantial shareof the mar)etc) Tampa %lectric clarified this language and said it was onl(applicale to firms with a sustantial share of the mar)et.d) 4ood effects of re'uirement contracts:

!"& %+er( compan( will police dealer and 'ualit(control is easier when (ou onl( u( from the reputaledealer.!2& 3eing ale to predict continuit( of supplies.

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;. /a+e to pro+e not insignificant part of commerce. 5eection ofmar)et dominanceJ standard. need onl( ha+e not insustantialamount of commerce.J Horthern Pacific 5ailwa( +. ?S !?S ">;=&.#. 3loc) oo)ing of films is an illegal t(ing of products. ?S +. Loews!?S ">#2&

a) An(one who sells a patented or trademar) product has mar)et power. The re'uisite economic power is presumed when thet(ing product is patented or cop(righted.Jb) 3loc) oo)ing usuall( ma)es more mone( 6 can-t cater toe+er(one-s whims.c) Court does so ( coming up with another wa( to approachmar)et dominance.

. Pro+iding credit* as a tied product* in ecess of purchase is illegal.Gortner +. ?S Steel !">#>&

a) T(ing product was credit* and tied product was pre7faricatedhouses.

b) ?S steel had a not insustantial amount of commerce!R200*000&c) ?S steel had sufficient economic power ecause Grotner couldnot set credit as cheapl( from an(one else d hence* would not ha+e een ale to construct the de+elopment.d) How mar)et power with respect to credit or housing mar)et.e) /owe+er* Gortner asserts that ecause he could not get creditfrom an(one else* ?S Steel had mar)et power.f) This case would now get thrown out on standing as can-t showre'uisite antitrust inur(.

8. 8ealing with 8ealers". 5esale Price aintenance

a) 4roup o(cott eisted when 3roadwa( /ale tells "0 appliancema)ers it will not deal with them if the( deal with Dhlors* and as aresult those appliance ma)ers refuse to sell to Dhlors stores.Dhlor-s +. 3roadwa( /ale !?S ">;>&

!"& 3roadwa( /ale had monopsid( power 6 monopol(from the u(er-s perspecti+e.

b) ?nilateral +ertical minimum price fiing plus communicationis an illegal contract. ?S +. Par)e78a+is !">#0&

!"& A return to the 85. iles edical !">""& decision!2& Court using oral communication as a contract.!$& 3asicall( erases Colgate decision which said thatunilateral +ertical minimum price fiing is legal.

c) Simpson +. ?nion Oil Co !?S ">#& not co+ered in class.2. Territorial Allocation

a) Bertical allocation of territor( ma( ha+e enough enefits to ustif( not eing per se illegal. 9hite otor !?S ">#$&

!"& 9hite otor con+inced the court that this methodwas essential for smaller firms to compete.

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!2& Bertical allocation is not treated the same as +erticalminimum price fiing.!$& 8ouglass wrote opinion for the maorit( here.

b) Bertical territorial restrictions are per se illegal* ut the( arelegal if accomplished through agents rather than distriutors.J

Schwinn !?S ">#&. Schwinn was later o+erruled in ">!"& Leading manufacture of i)e ma)ing in America.2.;E of mar)et which decreased to "2.=E of mar)et wheno+ersees producers egan to sell through discount stores.!2& In response Schwinn reduced its numer of dealersand agreed to territorial restrictions.

c) Bertical maimum price fiing is per se illegal. Alrecht +./arold !?S ">#=& Later o+erruled in ">>

!"& Ginds that newspaper carriers should e allowed toincrease prices and that newspapers cannot restrict theirailit( to do so.

!2& Alrecht was a monopolist to the paper route. Thusnatural incenti+e was to ause monopolist power which hedid.

$. Price 8iscriminationa) @2 Cla(ton ActF5oinson7Patman Act amendmentsb) aterial from p. 0$70= not co+ered in class.

%. ergers". ">;0 amendment to Cla(ton @ prohiit mergers that ma(sustantiall( impair competition.J The idea is to stop the trend towardmar)et concentrationFoligopol( in its incipienc(.

a) Oligopol( 6 ; to "0 firms maimum amount of firms thatwould constitute an oligopol(.b) Concern aout the mar)ets where numers are elow ; 6monopol( and oligopol(.c) Created a situation where companies could not merge unlessthe( showed a "00E difference from other companies.d) Since ">0s Supreme Court has not re+iewed a merger case.e) How 8O K GTC re+iew mergers and if the( challenge themthe( rarel( go forward.f) Although the Supreme Court merger cases ha+e ne+er eeno+erruled some parts of the opinions are no longer good law.

2. 5elati+e mar)et in merger a) 3rown Shoe +. ?S !?S ">#2& manufacturing mar)et 6 productmar)et. $ different products 6 men* women and children-s shoes*the $ t(pes are not interchangeale. 5eall( low cross7elasticit( ofdemand etween the three. Therefore* the court found that therewere three different product mar)ets 6 men-s* women-s andchildren-s shoes. The court did not u( the argument howe+er thatDinne( and 3rown did not compete ecause one made medium'ualit( and the other made low 'ualit( shoes. The( compete.

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!"& 3( toda(-s standard this merger would not ha+e een found to e ta)ing place in a highl( concentratedmar)et. Instead would e consider highl( unconcentrated.This would create a //I of * would not e loo)ed atnow.

b) %.g. Chr(sler7ercedes merger. Low 'ualit( with high 'ualit(cars were different mar)ets. ercedes could proal( not ha+emerged with 4 who has the Cadillac competing with ercedes-cars. /owe+er* toda( ercedes 'ualit( has een dropping so themerger would ha+e een harder.

$. //I inde.a) !ar)et Share of merged firm&2 6 !mar)et share firm A&2 U!mar)et share firm 3&2V W //I.b) An( merger that creates a //I less than ;0 toda( will not eloo)ed at ( the 8O.

. ?nited States +. Philadelphia Hational 3an) !">#$& 6 2nd largest an)

in Philadelphia wanted to merge with the $

rd

largest an) in Philadelphia.5ele+ant mar)et was commercial an)ing. 4eographic mar)et 6 count(area around Philadelphia. 5esult would e to produce a an) with $0E of the mar)et.

a) Prima facie illegal when it produces a mar)et share of at least$0E 7 +irtuall( a per se rule.b) Court felt the( should epend internall(c) Claim that this will promote competition on a national le+el.d) Court sa(s (ou can-t trade an impro+ement in one mar)et forsustantial lessening in another mar)et.

;. ?nited States +. Penn7Olin Chemical Co. !">#& oint +enture etweenPenn and Olin to enter the southeastern ?S mar)et to produce sodiumchlorate. 3oth had thought aout entering indi+iduall(* ut had decidednot to. The( formed Penn7Olin and ecame the $rd largest seller in themar)et. Their mar)et share is 2.#E.

a) @ is applicale to oint +entures. The mar)et is morecompetiti+e then it was efore* ut will foreclose those 2corporations from the mar)et and the oint +enture corporationfrom competing against the parent 6 there might e a sustantiallessening of competition.b) Standard 6 Potential Competition Test 6 9hether there is areasonale proailit( that either would-+e entered the mar)etwhile the other remained a potential competitor. If (es* then it+iolates @ ecause there will e a sustantial lessening ofcompetition !don-t need certaint(&.

!"& /a+ing one form as potential competition )eeps thefirms in the mar)et from raising their prices ecause the()now there will e entr( if the( do.!2& Gactors to loo) at 6 Ho suecti+e intent* loo) atoecti+e factors:

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!a& Industr( 6 would entr( e wiseX is there arapidl( epanding industr( with high demand!& 5esources 6 can the( produce the product!c& 8o the( ha+e the )now7how and capacit( toenter the mar)et indi+iduall( and otain a

reasonale profit.#. %l Paso 4as case . Gederal Trade Commission +. Procter K 4amle 6 !">#& PK4ac'uired Cloro. Cloro was the leading manufacturer of household leach and it was a hea+il( concentrated industr(. The product mar)etwas household li'uid leach and the geographic mar)et was the nation anda series of regional mar)ets. The court found that although* ( thenumers it wasn-t a lessening of competition it +iolated @ .

a) PK4 could e seen as a potential competitor 6 the( had theresources and the capacit( and it was an eas( mar)et to enter. Thenumer of potential entrants was small soothe elimination of one is

significant.b) This merger would increase entr( arriers. It created a high proailit( of an oligopol( and ga+e Cloro enormous ad+antagesin ad+ertising and would ma)e Cloro e+en stronger than it alread(was.c) The fact that it too) awa( a potential competitor and increased arriers to entr( was seen as the court as sustantiall( lesseningcompetition in the li'uid leach industr( an therefore the( found itto +iolate @.

=. The Consolidated Goods Case B. The modern 8e+elopment of Antitrust Law Since ">

A. The Transition Cases". O+errules Schwinn per se rule* goes to rule of reason on +erticalrestraints of trade. Continental TB Inc. +. 4T% S(l+ania Inc. !?S ">&.2. Antitrust Inur( Standing 6 3runswic) Corp. +. Puelo 3ow7O7at*Inc. !?S ">&

a) In a +er( high percentage of cases precludes competitors from ringing suits with the eception of t(ing.b) Onl( reason for competitors to challenge reall( when the newl(merged entit( would e a more competiti+e firm.

$. Antitrust Standing %lements:a) Causal connection etween the -s act and the Qs harm.b) A relation etween the Qs inur( and the t(pe of conduct theantitrust laws were intended to prohiit.c) The issue of duplicati+e reco+er(.

3. The per se +. rule of reason deate continues in @ " cases". /ori1ontal price fiing

a) Price fiing ( law(ers is per se illegal. 4oldfar +. BA State3ar !?S ">;&!Court found it a per se illegalit( when the Gairfacount( ar had deemed it unethical to charge less than a certain

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numer of dollars to ensure high 'ualit( ser+ice.J Supreme Courtsa(s its simpl( minimum price fiing.&b) A prohiition on competiti+e idding ( engineers is per seillegal regardless of supposed moti+es of 'ualit( and safet(.J Hational Societ( of Profession %ngineers !?S ">=&

!"& Hote that a $7ustice pluralit( has continued tomaintain that professionals are different and at a minimumthe rule of reason should e applied.

c) In at least one case classic hori1ontal price fiing etractingcartel rents has een allowed. 3I +. C3S !?S ">>&. Inupholding this eha+ior the supreme court emphasi1ed:

!"& Cop(righted matter 6 cop(rights operate on principle that the cop(right is good and (ou want to gi+emonopol( rent as a reward in this situation. If the(cop(right holder cannot get the reward the( will ha+efrustrated the purpose of a cop(right.

!2& Consent decree 6 past litigation had consent degree.8O pre+iousl( had said this eha+ior is o)a(.!$& Transaction costs 6 In asence of organi1ations li)e3I K ASCAP it would e reall( different. Contract costs*enforcement of +iolations* permissions* ecomescollecti+el( difficult.!& Ste+ens dissented from this opinion and ma( wintoda( e+en if he was wrong in ">>. There are changes inthe mar)et that cut down on the transaction costs.

d) /ori1ontal maimum price fiing is per se illegal regardless ofthe compleities of the mar)et. Ari1ona +. aricopa Ct( edicalSoc. !?S ">=2& !9here doctors set maimum price doctors couldcharge an( insurance compan( and patients. Societ( made theargument that it is a complicated mar)et and wants to use the ruleof reason li)e was used in 3I. The court found that it was a perse illegalit(.&

!"& Clear demonstration wh( hori1ontal price fiingmust e illegal if hori1ontal minimum price fiing is.

e) 3( curtailing output and lunting the ailit( of memerinstitutions to respond to consumer preference* the HCAA hasrestricted rather than enhanced the place of intercollegiate athleticsin the Hation-s life. HCAA +. 3oard of 5egents !?S ">=&!HCAA huge cartel&

!"& Association restricts suppl( and the court uses a'uic) loo) rule of reason to find a @ " +iolation ecause ittends to increase prices and decrease output and has no real ustification for its anti competiti+e effects.

f) Price fiing in the pulic interest 6 uni+ersities- ointdetermination of need for scholarship aid. ?S +. 3rown

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!"& /ere there was a price7fiing in terms of i+( leagueschools agreeing not to compete with one another in theamount of scholarship mone( the( would offer to students.!2& /ere the district court applied 'uic) loo) rule ofreason and found that price fiing fails ecause there were

anticompetiti+e effects and no good effects.!$& This got re+ersed on appeal ecause the( were udged on the 'uic) loo) rule of reason. The appellate courtfelt that non7profit organi1ations must e treated differentl(as the( do not ha+e the same commercial moti+ations.

2. 4roup o(cotts ( competitorsa) Horthwest 9holesale Stationers +. Pacific Stationar( !">=;&

!"& H9 +oted to epel Q from its memership and Qsues sa(ing that the epulsion was without procedural protection and was a group o(cott that limited Qs ailit(to compete and should e considered a per se +iolation of

@".!2& Antitrust inur( 6!a& There was antitrust inur(. A +iolation ofthe antitrust laws is what caused the Qs inur( 6 itwas the group o(cott that would +iolate @ " thatwould harm Qs ailit( to compete.

!$& 9hat is the restriction 6 it is a group o(cott.!& 8oes the per se rule or rule of reason appl(:

!a& The rule of reason applies unless the Q canshow that:

!i& The( are denied their needs andthe o(cotting firm possesses mar)et poweror !ii& The o(cotting firm possesseseclusi+e access to an element essential toeffecti+e competition or !iii& There is no competiti+e +irtue for the action.

b) 5ule of reason applied to group o(cott allegations. 5other(Storage K Ban +. Atlas Ban Lines !8C Cir ">=#&

!"& This estalishes how the Horthwest case pla(s outin the real world. Ho mar)et power* no +iolation.!2& This court sa(s that the rule of reason must alwa(sguide o+er group o(cotts.!$& /ere the outcome was that the action wasreasonale. Atlas had small mar)et share in a +er(competiti+e industr( so the( reall( can-t do an(thinganticompetiti+e. The( don-t ha+e the ailit( to reduceoutput and raise prices. And the( ha+e a pro7competiti+e ustification 6 this is a reasonale attempt too counter the

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percei+ed menace of the free riding prolem. It contriutesto the efficient operation of an integrated networ)

c) 3o(cotts as a form of protest!"& HO9 6 3o(cott of states that hadn-t ratified the%5A. HO9 tried to get national organi1ations to not hold

their con+entions in states that hadn-t ratified the %5A.State of O claimed that his was an antitrust +iolation.The =th cir held that this was not the t(pe of restriction thatthe antitrust laws were designed to prohiit. This wasdealing with political acti+it(.!2& GTC +. Ind. Ged. of 8entists 6 In+ol+ed groupaction allegedl( to impro+e the 'ualit( of care. A group ofIH dentists were incensed that dental insurers wanted themto send in patient-s dental 7ra( so as to +erif( the need for particular treatment. The dentists agreed that none of themwould honor the insurer-s re'uest for 7ra(s. The GTC

challenged on a theor( that the dentists were conspiring to)eep prices up and to discourage the competiti+e responsesthat would result if patients got angr( at dentists who didn-tcooperate with insurers.

!a& 8entists were ordered to cease and desisttheir refusal to cooperate. The( were pre+enting acommercial re+iew that controls price and there wasno credile argument that it has pro7competiti+eeffects.

!$& GTC +. Superior Court Trial Law(ers Assn !">>0& 6Trial law(ers would normall( appear in court and ta)eassigned criminal cases and were paid for their ser+ices.The( thought their salar( was low* so the( as)ed for a raise.The( were told no and the( went on stri)e. The( agreednot to come to court to recei+e assignments in new casesand the( issued press releases aout what the( were doing.The Cit( council raised their prices to R$;Fhour ande+er(one seemed happ(. The GTC then rought an actionclaiming it was a group o(cott designed to increase the price. !Price fiing ased on IH dentists.&

!a& 8C Cir said loo) at what-s political andwhat-s economical. If the( used their mar)et power than it is illegal.!& Supreme Court found it to e per se illegal./ori1ontal conspiracies or o(cotts designed toeact higher prices or other economic ad+antagesare pre se illegal no matter what.

d) oint +enture in networ) industries as essential facilities!"& Hetwor) industries 6 industries in which thead+antages of eing inside increase sharpl( as the rate of

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participants increase !i.e. similar to the networ)eternalities argument in icrosoft&!2& The +alue of the ser+ice increases as more peoplema)e use of it. e.g. telephones 6 the more people that ha+etelephones the more (ou can use (our phone.

!$& BISA Case 6 BISA is a oint +enture that processesthe illions of transactions in which we engage. The more people that ha+e BISA* the more merchants will ta)e them.BISA has a rule that it won-t let people issue BISA cards ifthe( are issuing a competing card. Sears wanted to issue aBISA card and BISA said no ecause the( also issue a8isco+er card. Sears rought suit complaining of a @ "+iolation due to their concerted refusal to deal with issuerswho issue other cards. The mar)et was credit cards andthat is not a highl( concentrated mar)et at all. Courtconcluded that the competition would est e ser+ed if

Sears continued to e a competitor and wasn-t grantedaccess to the oint +enture.$. /ori1ontal mar)et di+ision

a) a( Palmer +. 3rg of 4A !">>0& 6 35I came to 4A* where354 was the onl( ar re+iew course. The 2 reached an agreementthat 35I agreed to lea+e the sate and lea+e its oo)s. 354 wouldsta( and gi+e 35I R"00 and 0E of its profits. Suit was claimingthat this +iolated @ " of the Sherman Act ecause it created amar)et di+ision which was an effecti+e restraint on trade.

!"& Supreme court held the action to e per se illegalunder Topco. %+en with firms that ha+en-t competed it can e per se illegal to agree not to compete in certain mar)etareas.

. 8ealing with dealersa) onsanto Co. +. Spra(75ite !">=& 6 when dealing with pricerestrictions (ou must as) whether a concerted or independentaction. 8irect or circumstantial e+idence that reasonale tends to pro+e that the manufacturer and others had a consciouscommitment to a common scheme designed to achie+e an unlawfuloecti+e.

!"& /ere onsato manufactured hericide* and Spra(75ite alleged that it refused to deal with it as it was in part adiscount dealer. The( alleged the( were doing so in anillegal wa( to )eep prices high.!2& the court agreed and found there was sustantiale+idence that showed there was wan agreement to maintain prices and get the discount sellers out.!$& /ere there was e+idence of coercion to get dealersto charge higher prices and refusals to deal with those thatcharged lower prices.

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b) In dealing with +ertical price and non7price restrictions (oumust first as) whether the action is independent or concerted:

!"& Price 5estrictions!a& Independent 6 +alid under Colgate!& Concerted 6 per se illegal 8r. iles

!2& Hon7price restrictions !territorial allocation&!a& Independent 6 +alid under Colgate!& Concerted 6 5O5 applies under S(l+ania

c) 3usiness %lectronics Corp +. Sharp %lectronics !">==& 6 anagreement to terminate without an agreement to suse'uentl( set price ma)es it shift from a per se anal(sis of price restriction to a5ule of 5eason anal(sis.

!"& In order for it to e per se illegal must show!a& Agreement etween the manuf and a dealerto terminate a price cutter !& Agreement etween the manufacturer an a

dealer on the price or price le+els to e charged ( aremaining dealer.!c& If can-t e shown the rule of reason applies ecause it isn-t reall( a price restraint.

!2& ere termination is price restriction if (ou don-t seta price.

d) aimum Price Giing!"& A5CO !">>0& 6 Insisted on the maimum prices ofits dealers. %ffect of the plan was to ta)e awa( the pricecushion it had. ?SA was a customer of A5C that sold itsgas at a discount price. The( complained that A5CO-s planwas to reduce ?SA-s profit margin and damage it ailit( toremain in the mar)et.

!a& Supreme court found there was no antitrustinur(. It stressed the Qs status as a competitor.Price cutting is good for competition. If oneconsiders maimum prices reall( to e minimumsthen ?SA would e the eneficiar( of the +iolation.Price cutting ao+e a predator( le+el simpl(constitutes tough competition. If it were predator(that would e different.!& The case was thrown out.

e) Bertical maimum price fiing is udged under the rule ofreason. O+errules Alrecht +. /arold . State Oil Compan( +.Dahn !?S ">>&

!"& Dhan entered into an agreement with state oil tolease and operate a gas station and con+enience storeowned ( State oil. Dahn got the gas a discount price fromState Oil and then Dahn could charge whate+er he wanted* ut if it eceeded the maimum price set ( State Oil he

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had to reate State Oil. Dahn could sell for less ut then itwould decrease his profit margin. Dhan fell ehind in lease pa(ments. A recei+er not part( of the agreement eganoperating the gas station and otain an o+erall profit marginin ecess of what Dahn had. D sued claiming it was a price

fiing in +iolation of @ ".!2& The case said there might e standing here ecauseif the purpose of prohiiting maimum price restrains is to permit retailers to e indi+iduals he could e the right Q.%+en though if this was reall( a minimum in disguise hewould e enefiting.!$& The court finds there can e pro7competiti+e effectsin this t(pe of maimum price fiing and o+errules the perse rule application de+eloped in Alrecht +. /arold anddecides the rule of reason should appl(.

f) 8e+elopments after 4T% S(l+ania

g) Bertical 4roup 3o(cotts 6 H(ne +. 8iscon;. Pulling the @ " cases together a) The Supreme Court reects the 'uic) loo) rule of reason in CA8ental Assn !?S ">>>&. ,uic) loo) rule of reason is:

!"& loo) for suspicious eha+ior of the )ind that hasanticompetiti+e effects. Then!2& loo) at ustifications to see if the(-re realistic. If itsuspicious and ustifications are not +alid then it is a+iolation.

b) 9here CA dental association anned false and misleadingad+ertising and then defined false and misleading ad+ertising toessentiall( discourage all ad+ertising which ma)es it easier togouge consumers. The maorit( said that the GTC-s 'uic) loo)was not sufficient. /owe+er* the( asicall( said if 3re(er hadwritten the decision the( would ha+e upheld it. !3re(er wrote thedissent.& Still a feeling that there are at least $ memers on thecourt that feels that professionals are different.c) Ho one has figured out what the GTC must do to win cases li)ethe CA 8ental Assn

C. The continuing concern aout eclusionar( conduct". onopoli1ation

a) 8on-t- engage in oint mar)eting with (our competitors ecause if (ou decide to change (our policies* the smaller firm canturn and sue (ou and the( will win. Aspen S)iing !?S ">=;&!rought ( pri+ate actors 6 thus the Supreme Court is much moreli)el( to low it.&

!"& 3asicall( the smaller of two firms claims that thelarger firm +iolated the antitrust laws ecause the( neededthe oint mar)eting agreement to sta( competiti+e.

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!2& Claims @ 2 of Sherman act +iolated ecause the( aretr(ing preser+e monopol(. Supreme court agrees* ut the(are +er( wrong. Hot supposed to protect competitors.Supposed to protect competition. ustices ust loo)ing atthe ig gu( +. little gu(.

b) 8o not enter into oint mar)eting agreements with competitors:!"& Clearl( illegal under antitrust laws!2& If (ou withdraw the court will tell (ou it-s a+iolation.

c) Predator( Pricing!"& ?tah Pie 6 reall( ad decision where monopolistearning elow monopol( rents sues competitors for predator( conduct and wins. An(one who is the dominantfirm in the mar)et and losing mone( can call and tellcompetitors to raise prices to a non7predator( le+el.!2& Ho li)elihood of recoupment lends support to no

plausile moti+e and will li)el( not sur+i+e a motion. herethe theor( was that apan had a carteli1ed apanese mar)etsand the( were ale to use the monopol( rents the( gainedin apan to infiltrate American mar)ets and sell electronicsat a loss in order to dri+e out the competitors. /owe+er* sounli)el( that the( would e ale to reco+er the(-re losses of 20 (ears it will ta)e more than 20 (ears at artificiall( high profits while maintaining a mar)et where the( couldn-t letan(one else enter. So unli)el(* implausile. atsushita +.Yenith!?S ">=#& !The dissentFmaorit( seemed to e a procedural matter. ;7ustice maorit( clearl( got it right onantitrust issues. /owe+er 7ustice dissent said the'uestions of fact were not such that lent support tosummar( udgment should let ur( hear the matter.&

d) %stalishing elements of predator( pricing 6 3roo)e +. 3rownK 9illiams !">>$&

!"& Price elow an appropriate measure of cost!marginal or +ariale cost 6 not a+erage cost&!2& Li)elihood of recoupment 6 what is the li)elihoodthat a firm can recoup their losses after pricing so low forso long.

e) 3roo)e +. 3rown K 9illiams!"& Toacco industr( price war following theintroduction of generic cigarettes. ar)et was alwa(scharacteri1ed ( tight oligopol( and conscious parallelism.!2& The smallest firm files suit claiming that the otherswere tr(ing to discipline it and to restore oligopol( pricing.The were actuall( ale to pro+e that priced elow a realistic price theor( in that it was elow +ariale cost.

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!$& A #7ustice maorit( dismisses the claim* howe+er*on the asis of unli)el( recoupment.!& Court sa(s that ?tah Pie no longer has its fullsignificance. It-s reall( ust dead.!;& Court sa(ing etremel( reluctant to let ur( decide

predator( price fiing. Ber( dangerous to sa( people canwin in law suits ( starting to price lower. Predator( pricing rarel( tried and e+en more rarel( successful.

2. Predator( Pricing Continueda) Classic h(po 6 dominant firm has #070E of the mar)et andwants to dri+e people out of the mar)et. Gor se+eral (ears ta)es aloss in order to charge prices lower and ma)e people lea+e themar)et. Then eploits monopol( power long enough to ma)e ac) the losses.b) ost economists thin) this can-t wor). Some thin) that (oumight e ale to ma)e ac) enough mone( in some situations.

5eason 6 once (ou-+e charged unnaturall( high prices it attractsmore competitors.c) Cases decided ( Supreme Court

!"& asushita 6 Q was the dominant firm alleging 2"little firms were tr(ing to dri+e out the ig firm and fi+e ustices get it right.!2& 3rown and 9illiams 6 Allegation ( the smallestfirm in mar)et that the $d largest firm has engaged in cartel!$& Thus the court has ne+er had the strongest case of predator( pricing efore it. The strongest case of predator( pricing is pending in the circuit courts now.!& 4eneral fear that courts don-t want to tell people notto charge low prices.

d) American Airlines !2d Cir pending 2002&!"& Airline industr( rele+ant mar)ets 6 routes.!2& 3ottom line in industr( 6 man( mar)ets wherecompetition is wea)* price high. Loo)s as though there isconscious parallelism.!$& American Airlines has a fortress huJ in 8allasGort 9roth. The( control the airport.!& Originall( mar)et operated with G? codesZ!;& How* if a start compan( tries to compete in an areawhere AA has a monopol( the( will decrease price andincrease seats in that mar)et until the startups ha+e to lea+e.AA is sending the message that if (ou tr( to enter thismar)et* I will hurt (ou. In fact* I will hurt m(self to hurt(ou* ut I onl( ha+e to do so in this mar)et while I am protecting m( monopol( rents in man( other mar)ets toco+er the costs.

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!#& The( might actuall( e ale to ma)e the mone( ac) in this scenario. The mar)et might ust e ale toco+er this.!& Pierce thin)s the 8O has this one right and there isa li)elihood of recoupment here.

!=& Prolems for the 8O !8.Ct. found againstgo+ernment and go+ernment has appealed&:!a& "st prong 6 +ariale cost of a passenger on anairplane. Its approimatel( 1ero to carr( one more person. %+en though the rare case wherego+ernment can pro+e 2d element* can-t satisf( thefirst element the wa( it-s written. AA is stillcharging wa( ao+e +ariale cost.!& %+en if udge thought he had discretion too+errule element "* how can (ou distinguish etween this case and others. %+en if (ou elie+e

that AA is signaling to competitors not to enter.!c& 9hat is the remed(N To tell AA that when acompetitor comes into (our mar)et (ou can ne+ercut (ou-re priceZthat won-t e good.

!>& The case will ha+e to ha+e a +er( complicatedremed(. 9ho administers it thenN Could create an agenc( 6 ut the( had that once with the Ci+il Aeronautics andthe( fied pricing and resulted in prices twice as high.That-s not good.

$. erger 5e+iewa) /art Scott 5adino Act of ">#

!"& If (ou want to engage in an( merger re'uiresad+ance notice to the 8O $0 da(s in ad+ance if one firmhas at least "0 million in assets and other has more than "00million.

b) Companies must notif( the 8O if the( are going to merge andthen the 8O has $0 da(s to oect.c) ?nli)el( that a contested merger will go forward ut the( canin the following situations:

!"& If agenc( does nothing $d part( can ring an actionchallenging the merger. Standing ma)es this difficult as theusual parties that will contest are competitors.

!a& Indirect customers cannot challenge Illinois3ric) !& Less than "E of tacit ac'uiescence (agencies are challenged ( third parties and the( areusuall( lost.

!2& If the companies choose to go forward* agenc( willfile for inunction. This ma(e happens 20 times a (ear.

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!a& Courts do tend to gi+e agencies informaldeference.!& 9ith the eception of hospital merger casesin which hospitals ha+e won o+er the go+ernment;E of the time. Ho other areas ha+e such success

rates.!$& 9ill oppose merger if (ou don-t agree to mitigation.This happens 'uite often and most the parties will agree tothe agenc( re'uested mitigating actions.

d) 8OFGTC 4uidelines:!"& 8etermine rele+ant mar)ets

!a& Loo) at the mar)ets that will e effected (the merger. Product mar)ets and!& 4eographic mar)et

!2& Calculate //I K //I!a& Calculate the //I for each mar)et.!&

//I W !of firms&!E of mar)et share&

2

!c& //I W"000 right at oarder ofunconcentration and moderate.!d& //I W 2;00 is a highl( concentrated mar)et.!e& Safe /arors:

!i& //I Less than "000 will ne+er e challenged.!ii& //I more than "000 ut lessthan "=00 will e safe if //I is less than"00.!iii& Safe if //I greater than "=00and //I is less than ;0.

!$& Loo) at other factors 7 when eceeding safe harors8O considers other factors.

!a& %ntr( conditions 6 most important. %as(entr( will ma)e //I anal(sis irrele+ant.!& Product ar)et characteristic 6homogeneit(Fheterogeneit(. A high homogeneit( in product mar)et ma)es it much easier to engage inconscious parallelism and price fiing.!c& /igh price elasticit( 6 erger tends to notaffect the mar)et if it is inelastic. ust loo) atwhether the merger will ha+e ad effects forconsumers.!d& Gre'uenc( of transactions 6 If there are fewtransactions it-s harder to gauge conscious parallelism. ?se a idding process.!e& Offsetting efficiencies 6 Courts onl(recentl( started to loo) at these. Loo) onl( at effectthat cannot e ac'uired through other means.

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Impossile to find what enefits are in an( gi+encase.!f& Gailing Girm doctrine 6 has appeared inse+eral court opinions which sa( that a failing firmis different. Can use to sal+age an otherwise ad

merger.e) 5easons large mergers will go through:!"& 9hen the( are not reall( competitors !3a( 3ellmerger&!2& International trade arriers coming down 7 increaseto worldwide mar)ets

. 5egulated industries ha+e an entirel( different s(stem. Gor eample*the 8OT can o+erride an 8O opposition to transportation firm mergers.Also* natural gas K electricit( must get a (es from 8OFGTC* S%C* federalreg commission and state agenc( on same terms.;. As a practical matter defense contractors merging the 8O8 has no

legal power ut reall( the(-re opinion is dispositi+e.#. GTC +. Staples !8C. Cir. ">>>& 6 5ele+ant geographic area wasstandard metropolitan area. 5ele+ant product mar)et determined to eretail sales of office supplies ( superstores.

a) Shows the importance of defining the rele+ant product mar)et.If court had ta)en Staples product mar)et wouldn-t ha+e een a prolem. 9ould ha+e included 9almarts* Price Clus* and momand pop stores. Instead it too) the GTC-s asserted superstoredefinition and merger was loc)ed.b) GTC showed a strong stud( that the prices were higher inmar)ets with onl( one superstore* that the superstores thin) of eachother as their onl( competition and that the( charge much less thanother stores so that the( are the onl( mar)et for some purchasinggroups.

. 5aising ri+als cost to essential facilities !sa( in a +ertical merger& willcause authorities to either sa( no to a merger or (es with the ac'uiescenceof pro+iding the facilit( with e'ual access to the competitors and agenc(o+ersight.

8. Interpla( etween regulation and the antitrust laws". State 5egulation

a) Toda( the Supreme Court has ig states rights supportersdecision might not e the same toda(. ma( not follow theeconomist perspecti+e.b) State Action 7 Par)er +. 3rown !">$&

!"& %istence of state action insulates an( pri+ate actorwho is acting under state action from antitrust liailit(.

c) 4oldfar !">;& 7BA state ar cartel. In order to e protectedunder state action doctrine (ou must:

!"& Girst determine who counts as state

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!a& State Supreme Court might* wasn-tanswered. Agencies do not count

!2& Second* the state must compel the eha+ior !a& In 4oldfar the state didn-t compel thesetting of the fees so it wasn-t protected under state

action.d) Cantor !">#&!"& Onl( the legislature counts as the state* ma(e thestate Supreme Court will.!2& The state must compel the action.

e) idcal !">=0& How the landmar) opinion defining test:!"& The challenged restraint must e clearl( articulatedand affirmati+el( epressed ( the state.!2& The conduct at issue must e acti+el( super+ised (the state. 9hen the court refers to state in numer onereferring to onl( legislature* not agenc(* ut 2 state

reference refers to an( ranch of the state.f) States need onl( authori1e the anticompetiti+e conduct.Southern otors Carriers !">=;&

!"& Court read the states actions as tacit authori1ation.!2& Assumed that where legislature clearl( authori1edanticompetiti+e eha+ior ( authori1ing regulation oftruc)ing industr( then it can e assumed that it would ha+ewanted to authori1e the most efficient means to carr( thatout.!$& The eha+ior* oint filing of transportation rates*was insulated ( the State Action doctrine.!& /owe+er* later Congress outlawed the states right toregulate the truc)ing prices.

g) State Super+ision re'uirement!"& 3eing suect to udicial re+iew is not acti+esuper+ision ( the state. It ma( e super+ision if the( aresuect to de no+o re+iew. Patric) +. 3urgett !">==&

!a& ade hospital peer re+iew committees +er(unsure of their status. an( are clearl( illegal!& 3ottom line in order to protect an entit(from +er( +aluale peer re+iew must e acti+el(super+ised ( the state. If (ou ring state actorsinto the peer re+iew committee (ou ha+e due process concerns.

!2& Sil+er H


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!& Inade'uate super+ision is not state super+ision. Ifno one reads the documents it will not e state super+ision.GTC +. Ticor Title !">>2&

!a& Insurance case. 8idn-t get immunit( undercCarren Gerguson Act ecause the court felt that

the title searches were not reall( the usiness ofinsurance.!& Insurance companies were setting rates to echarged for title insurance companies and titlesearches and then filing them with the state.!c& Some states admitted not reading them.Those states did not pass acti+e super+isionre'uirement.

2. unicipal regulationa) Local go+ernments can e antitrust s.b) A cit( is not a state. Hothing a cit( does has an( effect on

immuni1ing theirs or pri+ate part( action. Cit( of Lafa(ette. !Atthe time it loo)ed li)e the court was going to get rid of the stateaction doctrine.&c) States can-t ust grant cities power under their state legislature.In order to 'ualif(* the states must affirmati+el(* epressl( andclearl( articulate the actual underl(ing polic( which can then e protected. Cit( of 3oulder d) A cit( can e a state for step two of the test if the state haslegitimatel( clearl( authori1ed the cit( to regulate this polic( inthis wa( than the cit( can count as the state for o+ersight. Cit( of%au Claire.e) Local go+ernments can e held liale for trele damages. Local4o+ernment antitrust Act ">=.f) Cit( of Columia 6 Ho deception and conspirac( eceptions tothe Hoerr doctrine.

!"& Agreements etween municipalities and pri+ate parties to use 1oning power to confer eclusi+e pri+ilege isin a particular line of commerce are e(ond @ ".

g) Sham Litigation W Hoerr Pennington!"& Hoerr was essential a cartel getting together todecide how the( would e regulated. The court held thatgroup meeting to see) regulation is immune from antitrustliailit(.

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!2& 3asicall( Hoerr set up a two prong test to protect sfrom sham litigation under the antitrust doctrine. To win must show that:

!a& Lawsuit is oecti+el( aseless !that is noreasonale person could epect to win on the

merits.&!& Court should focus on whether the aselesslawsuit conceals an attempt o interfere directl( withthe usiness relationships of a competitor throughgo+ernment process rather than the processoutcome.

$. The state of the interstate commerce re'uirementa) Interstate commerce has een held to etend to peer re+iewcommittees. Summit +. Pinas !">>2&

!"& 9here Q was claiming that his re+ocation was dueto his unwillingness to cooperate in a featheredding

conspirac(.!2& ;7ustice maorit( concludes the s are engaged inIFC ecause idwa( /ospital reimursed ( out of stateinsurers and gets out of state supplies.!$& 7ustice minorit( sa(s that the Sherman Act doesn-te+en appl(.!& The court has changed and might got the other wa(now. Gederalism re+olution of uncertain scope anddestination.J

. 5egulation in the International arenaa) Sherman Act applies thru etra territorial urisdictions if its hadan ad+erse affect on mar)et. International o(cotts are not protected and the idea of comit( would not pre+ent the insurersand reinsurers from holding international companies liale./artford Gire Insurance +. California !?S ">>$&

!"& Case has een critici1ed ( foreign entities asre'uiring more from international organi1ations than fromstates. States no longer ha+e to compel act to immuni1eand that is what the( are holding international go+ernmentsto.!2& London reinsurers case.

%. The titanic struggle o+er alleged eclusionar( eha+ior ". efferson Parish !?S ">=& t(ing test:

a) 8oes ha+e mar)et powerFmar)et dominanceFmonopol( power in rele+ant mar)et regarding the t(ing productNb) 3( t(ing the tied product is li)el( to otain mar)et powerwith respect to the tied productN

2. This is a two7step per se test that was put forth ( a $7ustice pluralit(and upheld ( a fi+e7ustice maorit( in support of per se rule.

a) Case where hospital t(ing surger( to anesthesiologist.

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b) A four7ustice concurrence sa(s that the tied and t(ing productis the same. 3ut if (ou accept two products the( would appl( therule of reason.c) wins under e+er(one-s standards and the per se rule loo)smore li)e the rule of reason.

d) The law toda( is most li)el( the $7ustice pluralit( test.$. 8on-t create independent ser+ice organi1ations ecause the( ma( sue(ou if (ou change (ou-re polic( not to include them. 3ut the( can-t ifthe(-+e ne+er een created. Doda) !?S ">>2&

a) 9here tied product is parts and ser+ices for that product andt(ing product is photocop(ing e'uipment.b) Gour Hoel laureates on each side and the ur( comes downagainst Doda) and sa(s the( should ha+e let the ISOs fi theirmachinesc) Potential ad+antages for what Doda) did

!"& Ginancing de+ice

!2& eans of protecting reputation!$& ,ualit( control feedac) mechanism.. %nd rule 6 ne+er create a Q

a) Aspen 6 ne+er help a competitor if (ou withdraw the help(ou-ll loose.b) Doda) 6 8on-t create ISOs if (ou change (ou-re polic( the(-llsue and (ou-ll loose.c) The 8O wouldn-t ring these actions* ust pri+ate Qs.

G. icrosoft". The 8C Cir thin)s the pluralit( separate demand test in effersonParish tr(ing to estalish a crude pro( for udging efficiencies.2. Per se rule 6 8C Cir finds neither separate demand test nor per se ruleapplies as the( find the case distinguishale from e+er( t(ing case theSupreme Court has heard. It-s a case of technological integration.$. Test 6 on remand the go+ernment must pro+e that t(ing had ad+erseeffects that were so ad that the( are illegal not withstanding an( goodeffects that the( might ha+e.. 8C Cir afraid that all computer s(stems ma( e rendered illegal.8oesn-t thin) udges are capale of ma)ing those decisions.;. 4o+ernment theories

a) did a numer of things in order to otain and illegalmaintenance of monopol( of operating s(stem.b) Illegal attempt to monopoli1e rowser mar)et 6 go+ernmentlooses on appeal.c) Illegal t(ing 6 go+ernment looses on appeal.

#. 8C Cir upholds the first reasons had =; E of the mar)et. 8C Cir concerns:

a) Timing 6 complaint was filed in ">>. There was a decisionand similar complaint filed again. Ginal decision won-t come untilaround 200# 6 fore+er in the computer industr(

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b) 5emedies 6 enormous prolems and contro+ersies. Pierce wasat meetings* remedies came up with were +er( similar to theoriginal consent order which wasn-t effecti+e. Irrele+antregardless as ( the time decision comes out the( will all eirrele+ant. 8O went to court without )nowing what remed( it

wanted.c) Hetwor) effects are natural monopolies 6 competition for themar)ets not in the mar)et. Software ma)ers would go cra1( andconsumers would e disad+antaged in a t(pical competiti+emar)et. 8ifferent )ind of competition than we-re used to seeing.d) Gederalism 6 should the go+ernment e ale to tell the states tostop going forwardN

!"& Pierce has odds on icrosoft )ic)ing states utt.

antitrust - pierce - spring 2002-1-4

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