Antitrust Exam Review OutlineJ. Devlin Hartline, Sr.

Text: Sullivan, Hovenkamp, and Shelanski: Antitrust Law, Policy and Procedure (6th ed.)

I. Policies and Goals

goal is to maximize consumer welfare; to preserve free and unfettered competition; low-est prices and highest quality; two approaches: (1) noneconomic; focuses on concentra-tion of industrial power; promote equality; protect small businesses even if leads to higher costs; and (2) economic; focus on economic efficiency; not concerned with con-centration of power; goal is protect competition, not competitors; improve allocative effi-ciency

antitrust has a distributive goal of preventing unfair acquisitions of consumer wealth by firms with market power; right to purchase competitively priced goods; consumer sur-plus is the difference between the maximum amount a consumer would pay and the price he actually pays; allocative inefficiency describes misallocation of resources; monopoly pricing diminishes the total wealth of society since monopolist produces less than would be produced under competitive conditions; transfer of wealth from consumers to mo-nopolists; consumers become poorer while monopolists become richer

Sherman Act legislative history shows lack of concern about allocative inefficiency; mo-nopolies were condemned because they unfairly extracted wealth from consumers; pro-ductive efficiency is also an aim of the Act; goal was to provide consumers the benefit of free competition; condemned monopolies despite their efficiencies; condemned market power to raise prices and restrict output; artificially high prices unfairly transfer con-sumer wealth to monopoly profits

United States v. Trans-Missouri; Court took literal interpretation of Section 1 as con-demning every restraint of trade as illegal, even if reasonable; populist view is concerned about small businesses and not concerned about price increases

United States v. Joint Traffic; Court says prior interpretation was overinclusive; Section 1 only applies to contracts whose direct and immediate effect is a restraint on trade; agreement for legitimate business purpose that does not directly restrain trade, though it may indirectly do so, does not violate the Act; ancillary restraint doctrine: incidental restraint that does not directly or significantly affect competition which is evaluated un-der reasonableness standard

United States v. Addyston Pipe (6th Cir.): Sherman Act made restraints of trade unlaw-ful; created criminal and civil actions; private cause of action permits remedies of dam-ages and injunction; noncompete agreements are a restraint of trade yet should be up-held since ancillary restraint and the effect is an incident of the main purpose; covenant in partial restraint of trade can be upheld is (1) merely ancillary to the main purpose of the lawful contract, and (2) necessary to protect the covenantee in the enjoyment of the legitimate fruits of the contract or to protect him from the dangers of an unjust use of those fruits by another; main purpose of the contract suggests the measure of protection needed; excessive restraint is void since unnecessarily oppresses the covenantor and tends to a monopoly; if sole object is to restrain competition, then per se void since noth-ing justifies the restraint; established two-prong approach: (1) ancillary restraints get

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reasonableness test (later called rule of reason), and (2) direct or naked restraints like price fixing are per se void

Standard Oil v. United States: Court held that the standard of reason which had been applied at common law was intended to be the measure used for determining whether a given act was unlawful under the statute

United States v. American Tobacco: restraint of trade under the statute only refers to combinations that unduly restrict competition or trade; Court would apply rule of reason to both direct and ancillary restraints of trade (Addyston Pipe would only apply rule of reason to ancillary restraints); an illegal restraint is a combination that by it inherent na-ture or anticompetitive purpose or effect unduly restricts competition, i.e., whether the nature, purpose, or effect of the restraint was unreasonably anticompetitive

II. Enforcement Issues

A. Direct Purchaser Requirement

Illinois Brick v. Illinois: a direct purchaser is injured by the full amount of the over-charge paid by it and the antitrust defendant is not permitted to introduce evidence that indirect purchasers were in fact injured by the illegal overcharge; passing on defense is barred as a matter of law (except when the buyer has a preexisting cost-plus contract that makes it easy to prove that he has not been damaged); issue was whether indirect purchaser could sue, i.e., use passing on offensively; Court held that indirect purchaser could not sue; only the overcharged direct purchaser is the party “injured in his business or property” within the meaning of the statute; risks of allowing such suits: (1) multiplic-ity of suits, (2) evidentiary complexities and uncertainties, and (3) difficulties in appor-tioning damages; only exception is cost-plus contract because there the direct purchaser passes on the overcharge

Hanover Shoe v. United Shoe: Court held that antitrust defendant could not defeat pri-vate action for damages by arguing that the plaintiff suffered no injury because the over-charge was passed on to consumers; indirect purchasers may state a claim for relief only when (1) preexisting cost-plus contract between the direct purchaser and the indi-rect purchaser, (2) direct purchaser is owned or controlled by the price fixer or the indi-rect purchaser, (3) vertical agreement (resale price maintenance) between the price fixer and direct purchaser, and (4) injunctive relief

B. Business or Property Requirement

claim under Section 4 of the Clayton Act requires that the plaintiff allege injuries to its “business or property”

Reiter v. Sonotone Corp.: issue is whether retail purchaser is injured in “business or property”; property is broad and means anything of value, including money; consumer whose money is diminished by reason of antitrust violation has been injured in his prop-erty within the meaning of Section 4; consumers have standing to sue; purpose of private right of action was to permit private challenges to antitrust violations

a state or a city is a person for purposes of Section 4

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C. Antitrust Injury Requirement

used to have to plead and prove injury to general public as well as private injury; now only have to prove private injury; public injury is inherent in antitrust violations; an-titrust injury requirement focuses on by reason of language of Section 4

Brunswick v. Pueblo Bowl-O-Mat: Section 4 of the Clayton Act provides treble dam-ages to “any person who shall be injured in his business or property by reason of any-thing forbidden in the antitrust laws”; must be the type of injury the statute was in-tended to forestall; antitrust laws protect competition not competitors; must show an-titrust injury, i.e., injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful; injury should be the type of loss that the claimed violations would be likely to cause

antitrust injury requirement means plaintiff must plead and demonstrate an actual diminution of competition

Cargill v. Monfort: Section 16 of Clayton Act allows private parties to seek injunctive relief for threatened loss or damage by violation of antitrust laws; plaintiff must allege an injury of the type the antitrust laws were designed to prevent and that flows from that which makes defendants’ acts unlawful; antitrust laws do not require courts to protect small businesses from loss of profits due to continued competition; they only pro-tect loss of profits from practices forbidden by the antitrust laws; it is in the interest of competition to permit dominant firms to engage in vigorous competition, including price competition; losses due to increased competition are not an antitrust injury

D. Standing to Sue

focus is on the directness of the injury to the plaintiff or on the remoteness of the plain-tiff’s injury from the antitrust violation

Blue Shield v. McCready: issue was whether insurance customer had standing to sue un-der Section 4 of the Clayton Act based on insurance plan’s failure to reimburse the cost of treatment; Congress did not intend that everyone tangentially affected by antitrust vio-lation could recover for damage to business or property; to determine standing look at (1) physical and economic nexus between the violation and the harm to plaintiff, and (2) type of injury is that which Congress was likely to have been concerned in making de-fendant’s conduct unlawful; as to nexus, denying reimbursement was the means to achieve an illegal ends; injury was of the type that Congress sought to redress since it was an anticompetitive scheme; although she was not competitor, her injury was inextricably intertwined with the injury the conspirators sought to inflict; her injury flows from that which makes defendants’ acts unlawful; Section 4 provides a remedy to any person in-jured by reason of anything prohibited by the antitrust laws

Associated General v. California: breach of collective bargaining agreement is not an antitrust injury; test is whether injured in their business or property by reason of any-thing forbidden in the antitrust laws; court considers (1) plaintiff’s harm, (2) defen-dant’s alleged wrongdoing, and (3) relationship between them; Sherman Act was enacted to protect price competition; here union is not consumer nor a competitor; unions are of-ten not part of the class that Sherman Act was designed to protect; if injury is indirect, then the damages claim is highly speculative; the more indirect the injury, the greater the

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complexity and the difficulty of apportioning damages and the greater the potential for duplicative recoveries

two-prong test: (1) the physical and economic nexus between the antitrust violation and injury, and (2) the relationship of the injury and the intended scope of the statute’s cover-age

E. Remedies

Section 4 of the Clayton Act permits “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefore . . . and shall recover threefold damages by him sustained”; purpose of treble damages is to (1) deter antitrust violators and (2) encourage private litigants to bring suit

antitrust plaintiff must show fact of injury: (1) existence of antitrust violation, (2) cau-sation, i.e., that the violation caused the injury, and (3) that the injury is of the type the antitrust laws were intended to prevent, i.e., an antitrust injury; must then show amount of injury or else get nominal damages

two types of damages: (1) consumers show overcharge, i.e., the amount by which the illegal activity enhanced the price, or (2) competitors show increased costs, lost profits, or reduction in business value; both types of damages get trebled

III. Horizontal Restraints

A. General

Section 1 of the Sherman Act prohibits conduct which significantly interferes with trade and is the product of an agreement among two or more independent actors

agreement among competitors is a horizontal restraint; examples include price fixing, market divisions or allocations, bid rigging, and group boycotts that (1) restrict output (2) exclude competition or (3) raise prices; such an agreement is called a cartel; for car-tel to be effective, must agree on (1) output or (2) price

test for reasonableness: (1) must find that agreement exists, (2) must find that trade is restrained; if conduct is likely to have no beneficial effect and if it significantly impairs competition, then per se illegal; if not inherently anticompetitive or if the court has not had substantial experience with the practice, then rule of reason analysis to decide whether the practice has unlawful purpose or anticompetitive effect; conduct that raises prices or reduces output are per se illegal

B. Price Fixing

Chicago Board of Trade v. United States: board of trade set price of grain for the night; government alleged price fixing; every agreement concerning trade restrains trade; the test is whether the restraint merely regulates and perhaps promotes competition or whether it suppresses or destroys competition; courts must consider (1) the peculiar facts of the given business, (2) the condition of the business before and after the restraint is ap-plied, and (3) the nature of the restraint and its effect, actual or probable; also look at the history of the restraint, the evil believed to exist, and the reason for adopting the restraint;

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the rule here was a reasonable regulation of business; the rule had no appreciable effect on general market prices and did not affect the volume of grain coming in; procompeti-tive effects include creation of public market for grain, regular market hours, brought buyers and sellers together, distributed more grain, increased the number of dealers, elim-inated risks, and facilitated trade; alternate view is that it was an ancillary agreement

United States v. Trenton Potteries: charged with price fixing of bathroom potteries; controlled 82% of the market in the U.S.; defendants argued that the conduct was lawful because the prices charged were reasonable and noninjurious to the public; the public in-terest is best protected from the evils of monopoly and price control by the maintenance of competition; price fixing aims to eliminate competition since it involves the power to control the market and to fix arbitrary and unreasonable prices; a price that reasonable to-day may be unreasonable tomorrow; no need to investigate whether a particular price is reasonable since price fixing is per se illegal; the reasonableness of the fixed price is ir-relevant; from the agreement, illegal purpose can be inferred; from the conduct, inherent anticompetitive effects are obvious; case left open question as to whether also need mar-ket power to affect price

Appalachian Coal v. United States: coal producers entered into agreement to establish exclusive selling agent; government argued this would be illegal cartel that eliminated competition; defendants argued that purpose was to increase production through better distribution and to achieve economies of scale and that they didn’t have market power to fix the price of coal; eliminating competition is not necessarily illegal; necessary for court to look at peculiar industry, practices, defendant’s plans, reasons for adoption, and proba-ble consequences of plan on market prices; intent is not an element of the offense, but it is relevant; test is whether it was an undue restraint on trade that would increase prices; since defendants did not have market power, they would not be able to fix prices; coal will continue to be subject to active price competition; agreement would fos-ter, not impair, competition; Court used rule of reason analysis despite the facial price fixing

United States v. Socony-Vacuum Oil: defendants fixed price of gas; district court ap-plied per se rule; appellate court applied rule of reason; Trenton Potteries used per se ille-gal rule; Appalachian Coal and Chicago Board of Trade used rule of reason since there was no plan to fix prices; Court says no rule of reason where the combination operates directly on prices; here, had the intent to raise prices, so get per se illegal rule; proof that there was a conspiracy to raise prices that actually raised prices is enough; fact that some competition remained is irrelevant; price fixing is any combination that tampers with price structures, and it is per se illegal; prices are fixed if they are agreed upon; the power to fix prices exists if the combination has control of a substantial part of the com-merce in that commodity; the power possessed need not be domination or control of the market

Kiefer-Stewart v. Seagram: Court said agreement among competitors to fix the maxi-mum resale price, no less than an agreement to fix the minimum resale price, is per se illegal since it is a restraint on trade

Goldfarb v. Virginia State Bar: Court said that minimum fee schedule set by state bar association violated Section 1 of the Sherman Act as price fixing; Section 1 covers the sale of both goods and services

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United States v. United States Gypsum: issues were whether intent is an element of a criminal antitrust violation and whether exchange of price information is exempt from Sherman Act scrutiny; Court holds that an effect on price, without more, will not support a criminal conviction under the Sherman Act, and that intent is an element of the offense which must be proved by evidence or inferences drawn therefrom; intent cannot be pre-sumed from proof of an effect on prices; there is no strict liability for Sherman Act crim-inal offenses; it is enough to show that the conduct was undertaken with knowledge of its probable consequences of anticompetitive effects; don’t have to show conscious object of producing such effects; jury may infer intent from effect on prices, but must also be al-lowed not to make the inference

C. Meaning and Scope of the Rule of Reason

Professional Engineers v. United States: association prohibited competitive bidding by its members; argued that rule minimized risk that competition would produce inferior en-gineering work; rule of reason focuses on the restraint’s impact on competition; rule of reason is used to test enforceability of covenants in restraint of trade with are ancillary to a legitimate transaction; rule of reason looks at whether the challenged agreement pro-motes or suppresses competition; per se illegal for agreements whose nature and effect are so plainly anticompetitive that no elaborate study of the industry is needed; rule of reason for agreements whose competitive effects can only be evaluated by analyzing (1) facts peculiar to the business, (2) history of the restraint, and (3) reasons for imposing the restraint; both look at the effect on competition; an agreement that interferes with the setting of prices by free market forces is illegal on its face; refusing to discuss price until after negotiations is not price fixing per se but no elaborate industry analysis is necessary to demonstrate the anticompetitive effect; ergo, it’s per se illegal under Section 1 of the Sherman Act; the Act reflects Congress’s judgment that competition will produce lower prices and better goods and services; false assumption that competition itself is unreason-able

BMI v. CBS: issue is whether blanket copyright licensing at fixed prices is price fixing that is per se illegal; consent decree guarantees the availability of direct licensing; Con-gress created compulsory blanket licensing; even under the per se rule, still have to look at effect on trade; test: (1) whether the practice facially appears to be one that would al-ways or almost always tend to restrict competition or decrease output, or (2) whether the practice is designed to increase economic efficiency and render markets more, rather than less, competitive; blanket licensing is not a naked restraint on trade with no purpose except stifling competition; it integrates sales, monitoring, and enforcement; individual transaction costs would be expensive; blanket license is a different product altogether and ASCAP is not merely a joint sales agent offering individual goods from many sellers; they are offering their own good; not a simple horizontal agreement among competitors since individuals can still license own goods; holding is rule of reason applies

Catalano v. Target Stores: retailers claim that wholesalers conspired to eliminate short term trade credit; allowing short term credit on purchases effectively reduces the price; this is anticompetitive and per se illegal horizontal price fixing; it matters not if the prices are reasonable; credit terms are an inseparable part of the price; canceling credit is just like canceling discount and is price fixing

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Arizona v. Maricopa County: issue is maximum price agreement by doctors; repre-sented 70% of doctors in county; maximum price fixing is per se illegal; per se rule is grounded in faith in price competition; maximum price restraint tends to provide same re-wards to all practitioners regardless of skill, experience, and training; it discourages entry into the market and deters experimentation and innovation; it may be a masquerade for an agreement to fix uniform prices; not persuaded by argument that should not apply a per se rule since little antitrust experience in the healthcare market; that only applies to experience with the particular type of restraint challenged; per se rule is meant to avoid complicated inquiry; procompetitive effects are irrelevant since per se illegal

NCAA v. Board of Regents: claim that NCAA violates Section 1 of the Sherman Act by restraining trade in televising games; claim the purpose was to reduce the adverse effects of live television upon game attendance; no doubt that this is a restraint on trade since limits freedom to negotiate television contracts; this is a horizontal restraint, i.e., an agreement among competitors on the way in which they compete with each other; this is horizontal price fixing and a limitation on output that is normally condemned as illegal per se since the practice facially appears to be one that would always or almost always tend to restrain competition and decrease output; here, not per se illegal because hori-zontal restraints are essential if the product is to be available at all; sports are special since the product is competition itself and mutual agreement is necessary for the product to exist; analyze under the rule of reason and the issue is whether the restraint enhances competition; NCAA’s plan restricts output and price, and thus has significant potential for anticompetitive effects; have to do some analysis of market conditions before ap-plying per se rule; the absence of proof of market share does not justify a naked re-straint on price or output; plan is inconsistent with Sherman Act’s command that price and supply be responsive to consumer preference; no proof of market power is needed in such a case; naked restraint on price and output requires some competitive justifica-tion; here, NCAA does have market power; argue that it’s a cooperative joint venture like BMI, but still have individualized sales and not acting as sales agent like BMI and there is no efficiency justification; production is here limited and not enhanced; at bottom try-ing to protect ticket sales by limiting output; rule of reason does not support a defense based on the assumption that competition itself is unreasonable; case establishes the quick look analysis under the rule of reason

California Dental Association v. FTC: hold that where the anticompetitive effects of a given restraint are far from intuitively obvious, the rule of reason demands a more thor-ough enquiry into the consequences of the restraint than a quick look; association re-stricted truthful advertising about price or quality; a quick look rule of reason analysis is designed for restraints that are not per se illegal but are sufficiently anticompetitive on their face that they do not require a full-blown rule of reason inquiry and it permits the condemnation of a naked restraint on price or output without an elaborate industry analy-sis; only use quick look analysis when an observer with even a rudimentary understand-ing of economics could conclude that the arrangements in question would have an anti-competitive effect on customers and markets; quick look is appropriate when the great likelihood of anticompetitive effects can be easily ascertained; here, anticompetitive ef-fects are not obvious, so quick look is not appropriate; dissent: four classical antitrust questions: (1) specific restraint at issue, (2) likely anticompetitive effects, (3) offsetting procompetitive justifications, and (4) sufficient market power to make a difference

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Texaco v. Dagher: Texaco and Shell enter joint venture and set price for gas; claim un-lawful price fixing that is per se illegal under Section 1 of the Sherman Act; Court holds that it is not per se illegal for joint venture to set price; horizontal price fixing agree-ment between two or more competitors is per se illegal; Texaco and Shell do not com-pete with each other in the relevant market since instead participate in that market jointly; joint ventures are considered to be a single firm that competes with other sellers

D. Proof of Agreement

agreements are generally proved through circumstantial evidence; the agreement can be tacit or implied and still be illegal; specific behavior that indicates a common course of action can infer an agreement; no formal agreement is needed to constitute unlawful con-spiracy; where can find unity of purpose, common design, or meeting of the minds, can infer unlawful conspiracy

Interstate Circuit v. United States: distributors and exhibitors of films; sent letter to ex-hibitors asking compliance with not charging less than 25 cents and not showing double features; inferred agreement from unanimity of action; compliance required a radical de-parture from previous business practices; they knew concerted action was invited and then participated in it

Theatre Enterprises v. Paramount Film: claim conspiracy to restrict first-run pictures to downtown theaters; no direct evidence of agreement; issue is whether can infer agree-ment from parallel business behavior; conscious parallelism is not conclusive of an ille-gal conspiracy; here, had independent and legitimate business reason for the practice; no conspiracy

E. Intra-Enterprise Conspiracy

Copperweld v. Independence Tube: issue is whether parent corporation and its wholly owned subsidiary are legally capable of conspiring with each other under Section 1 of the Sherman Act; called the intra-enterprise conspiracy doctrine; Section 1 only applies to unreasonable restraints of trade effected by an agreement between separate entities; it does not reach activity that is wholly unilateral; concerted activity is inherently anticom-petitive; an internal agreement in a single, unitary firm does not raise the dangers that Section 1 was designed to police; the officers of a single firm are not separate economic actors pursuing separate economic interests; coordination within a single firm is an effort to compete with other firms; divisions of a corporation are still a single actor; coordinated activity of a parent and its wholly owned subsidiary are that of a single enterprise for pur-poses of Section 1 since they have a complete unity of interests and their objectives are common rather than disparate; Court creates here a rule of per se legality for corporation and its wholly owned subsidiary

Chicago v. NBA (7th Cir.): NBA is more like a single entity than a cartel of independent teams; NCAA, by contrast, is multiple college actors; NBA basketball is one product from a single source

Fraser v. MLS (1st Cir.): MLS is a hybrid arrangement somewhere between a single company and a cooperative arrangement between existing competitors

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F. Horizontal Market Divisions

market division agreement is where firms agree not to compete in a designated market; agreements to divide markets (territories, customers, or products) can be as anticompeti-tive as price fixing since can be used to avoid competing on price and can lead to a mo-nopoly; generally, horizontal market divisions are per se illegal and vertical market divisions may be justified under the rule of reason; in order to engage in effective inter-brand competition, some limitations on intrabrand competition may be necessary

United States v. Topco: association of supermarkets that served as a purchasing agent for its members; government alleged that it was a market division agreement since members agreed to sell only within the territory allocated to it; members also had a veto power over new members joining the association; Court held that horizontal market di-visions are per se illegal; per se rules permitted businesses to operate with predictability; dissent: these are reasonable, ancillary restraints

Polk Bros. v. Forest City: one store located inside second store; agreement to not sell certain items; Court held that per se rule is designed for naked restraints rather than agreements the facilitate productive activity; use rule of reason when cooperation that contributes to productivity through an integration of efforts; naked restraints restrict competition unaccompanied by new production or products; ancillary restraints are part of a larger endeavor whose success they promote; use rule of reason if the agreement promoted enterprise and productivity at the time it was adopted; only when a quick look reveals that the practice facially appears to be one that would always or almost al-ways tend to restrict competition and decrease output should a court cut off further in-quiry; this was a productive cooperation that prevented free riding; look at whether the agreement increases output

Palmer v. BRG: Bar/Bri case; revenue sharing agreement and price increase show that was for the purpose and with the effect of raising prices of the bar review course; market allocations between competitors are per se illegal even when there is no agreement on price and when the parties had not previously competed in the same market

G. Boycotts and Concerted Refusals to Deal

Eastern States Retail Lumber v. United States: association circulated blacklist of peo-ple not to deal with; blacklist restrains trade by preventing competition with certain retail-ers; an act that is harmless when done by one is a public wrong when done by many act-ing in concert

Klor’s v. Broadway-Hale Stores: two stores compete in sale of appliances; one claims that there is an agreement by manufacturers and distributors not to sell to it or to only sell at discriminatory prices and unfavorable terms; group boycotts like this that are hori-zontal agreement among competitors are forbidden as per se illegal and are not saved by allegations that they were reasonable or that they didn’t fix prices or limit production; agreement takes from the store the ability to buy in an open competitive market and it drives them out of business; it interferes with the natural flow of interstate commerce; the Sherman Act prohibits all contracts which tend to create a monopoly, whether the ten-dency is a creeping one or one that proceeds at full gallop

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Nynex v. Discon: issue is whether Klor’s rule that group boycotts are per se illegal ap-plies to a buyer’s decision to buy from one seller over another when that decision cannot be justified in terms of ordinary competitive objectives; Court holds that group boycott rule does not apply; vertical agreement is not per se illegal unless it includes some agreement on price or price levels; depriving a supplier of a potential customer is a verti-cal restraint and thus not subject to per se illegality; a per se rule here would discourage firms from changing suppliers

H. Industry Self-Regulation and Disciplinary Actions

Northwest Wholesale Stationers v. Pacific Stationery: issue is whether cooperative buying agency that expels member without procedural due process is a per se violation of Section 1 of the Sherman Act; can be characterized as joint activity that is a concerted refusal to deal; the proper test here is rule of reason; boycotts that cut off access to a supply, facility, or market are per se illegal; wholesale purchasing cooperatives are not a form of concerted activity that is likely to result in anticompetitive effects; they are de-signed to increase efficiency and to render markets more competitive; allow members to achieve economies of scale; not all concerted refusals to deal are predominantly anticom-petitive, and only the ones that are get per see illegality rule

FTC v. Indiana Federation of Dentists: dentists refused to submit x-rays to insurers; FTC claimed this was an unfair method of competition in violation of Section 5 of the FTCA; this turned on whether it was a violation of Section 1 of the Sherman Act; the conspiracy had the effect of suppressing competition among dentists with respect to co-operation with the insurance companies; in the absence of the conspiracy, dentists would have been subject to market forces of competition; group boycotts are per se illegal only if (1) firms with market power boycott suppliers or customers (2) in order to discourage them from doing business with a competitor; that situation is not present here, so rule of reason; this is a horizontal agreement among dentists to withhold a service their cus-tomers desire and it is anticompetitive; impairs the market to advance social welfare by ensuring the provision of goods and services at a price approaching marginal cost; ab-sent a procompetitive virtue such as efficiency it is not sustainable under the rule of rea-son; absence of proof of market power does not justify a naked restraint; here, finding of actual adverse effects on competition; here, do a quick look so burden is on the defen-dant to show procompetitive effects, not on plaintiff to show anticompetitive effects; Court rejects argument that quality of service will be diminished if forced to compete; Court finds violation of Section 1 of the Sherman Act

IV. Vertical Restraints

A. General

a vertical restraint is an agreement between firms at different levels in the production and distribution network; they may be used to promote price fixing or to create barriers to entry that foreclose competition; they can also be used to increase distributional effi-ciency and welfare in the intrabrand market and to promote competition in the larger in-terbrand market

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one justification for vertical restraints is to permit manufacturers and dealers to avoid the free rider problem where maverick distributor is able to sell at a price below that of an-other distributor by taking a free ride on the promotion of the product by the other distrib-utor; a free rider causes the other distributor to lose sales

vertical restraints may be used to encourage the maintenance of product quality and pro-motion of the product

B. Resale Price Maintenance

Leegin v. Kay’s Kloset: Dr. Miles established a per se illegal rule under Section 1 of the Sherman Act for a manufacturer to agree with its distributor to set the minimum price the distributor can charge for the manufacturer’s goods; issue is whether it should be overruled to allow a rule of reason analysis to be used for resale price maintenance (RPM) agreement; hold that Dr. Miles is overruled and that vertical price restraints are to be judged by the rule of reason; Leegin refused to sell to retailers that sold at discount prices; rule of reason considers (1) specific information about the relevant business, (2) restraint’s history, nature, and effect, and (3) whether the businesses involved have mar-ket power; RPM has procompetitive effects such as promoting interbrand competition and consumer welfare and enhancing efficiency; interbrand competition is the competi-tion among manufacturers selling different brands of the same type of product; intra-brand competition is the competition among retailers selling the same brand; RPM stim-ulate interbrand competition by reducing intrabrand competition; this encourages retailers to invest in services or promotional efforts; it gives consumers more options and prevents free riding; RPM facilitates market entry for new firms and brands; anticompetitive ef-fects are unlawful price fixing designed to obtain monopoly profits; might also be used to organize cartels at the retailer level; if RPM used to increase price or decrease output, then per se illegal; minimum RPM can have procompetitive and anticompetitive effects, thus get rule of reason analysis; per se rules lower administrative costs, but they can also prohibit procompetitive conduct that the antitrust laws should be encouraging; abuse of RPM is not a serious concern unless the entity has market power; vertical price re-straints thus get rule of reason analysis

Albrecht v. Herald: newspaper set maximum price at which carriers sold at retail; Court said that combination of restraint of trade existed when newspaper combined with others to coerce the carrier into following the suggested RPM; Court held that vertical maximum price fixing is per se illegal

State Oil v. Khan: overruled Albrecht to hold that vertical maximum price fixing is evaluated under the rule of reason; primary purpose of the antitrust laws is to protect interbrand competition; low prices benefit consumers regardless of how they are set so long as above predatory levels and do not threaten competition; ban on maximum RPM led many suppliers to vertically integrate; maximum RPM can be a mask to fix minimum prices, but the rule of reason can appropriately recognize and punish this

Colgate doctrine is a defense to a dealer’s charge that his termination amounts to a re-fusal to deal; defense is available so long as the refusal to deal is unilateral and not in fur-therance of conduct from which an agreement can be inferred of motivated by monopo-listic purpose; manufacturer can announce its resale price in advance and refuse to deal

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with those who fail to comply and dealer can acquiesce in the demand to avoid termina-tion

Monsanto v. Spray-Rite: issue is standard of proof required to find vertical price fixing conspiracy in violation of Section 1 of the Sherman Act; Monsanto’s decision to termi-nate Spray-Rite’s distributorship was per se illegal if in furtherance of a conspiracy to fix prices; Section 1 does not proscribe independent action; a manufacturer can generally deal or refuse to deal with whomever it pleases so long as done independently; concerted action to set prices is per se illegal, while concerted action on nonprice restrictions is judged under the rule of reason; cannot infer an illegal arrangement because of only complaints; need more evidence than complaints; must show a common scheme to achieve an unlawful objection

C. Territorial and Customer Restraints

territorial and customer restraints arise when a dealer or distributor of a manufacturer’s product is given freedom from intrabrand competition within a particular geographic area or for trading with certain customers; restriction could indicate that manufacturer prefers to insulate its dealer from intrabrand competition so that it could promote the product more competitively in the interbrand market

such agreements are usually contractual; the manufacturer agrees not to authorize other dealers in the given area and the dealer agrees not to compete outside the given area; cus-tomer restrictions are similarly drafted with respect to certain customers; the dealer is re-stricted from competing with other dealers or the manufacturer in that brand, according to the territories or the customers

horizontal territorial restrictions are naked restraints on trade with no purpose but to stifle competition; a vertical territorial restriction may or may not harm competition

United States v. Schwinn: Court held that vertical territory restrictions, i.e., vertical nonprice restraints require different analyses depending on whether the manufacturer parts with title, dominion, or risk with respect to the good; Court held that where the manufacturer sells products to his distributor subject to territorial restrictions, a per se vi-olation of the Sherman Act results

Continental T.V. v. GTE Sylvania: franchise agreement between manufacturers and re-tailers frequently include territorial restriction; claim that Sylvania violated Section 1 of the Sherman Act by entering into and enforcing franchise agreements that prohibited sales other than from specified locations; here, title to the televisions did pass so Schwinn might apply; vertical restrictions might reduce intrabrand competition while stimulating interbrand competition; the primary purpose of the antitrust laws is interbrand com-petition; interbrand competition provides a significant check on the exploitation of intra-brand market power because of the ability of consumers to substitute a different brand of the same product; antitrust policy divorced from market considerations would lack any objective benchmarks; vertical restrictions reduce intrabrand competition by limiting the number of sellers of a particular product competing for the business of a given group of buyers; vertical restrictions promote interbrand competition by allowing the manufac-turer to achieve certain efficiencies in the distribution of his products; Court overrules Schwinn and its per se rule; use rule of reason for vertical restraints

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an exclusive dealership is a contractual agreement whereby all but one dealer in the same product of the same manufacturer are eliminated; it promotes vigorous promotion and solves the free rider problem

Packard v. Webster (D.C. Cir.); court held that agreement between manufacturer and dealer giving it an exclusive contract to sell cars in Baltimore and to terminate two other dealers in the area was not a violation of either Sections 1 or 2 of the Sherman Act; the restraint was on the seller, rather than on the buyer, making it an exclusive selling agree-ment

D. Exclusive Dealing

suppliers may try to foreclose intrabrand competition through vertical restrictions on dis-tributors and dealers such as by contracts that restrict the ability of buyers to deal in a competitor’s goods; two such arrangements are (1) exclusive dealing contracts and (2) tie-in sales; in an exclusive dealing contract, the buyer explicitly or implicitly agrees to buy exclusively the products of the contracting supplier; in a tie-in contract, the buyer agrees to take all its requirements or a second product if it desires to buy the principal product, thereby precluding the buyer from purchasing the second product from a com-petitor

exclusive dealing is a form of a requirements contract in that it restricts the dealer as to whom it can deal with; a traditional requirements contract forced a buyer to purchase some or all of its products from the contracting supplier; an exclusive dealing contract requires the buyer to deal only in the goods of that supplier; exclusive dealing contracts are judged under the rule of reason as they are a form of partial vertical integration that increase efficiency; vertical integration is where a single integrated entity occupies mul-tiple levels of the distribution chain; exclusive dealing may be used to combat inter-brand free riding where a retailer is able to take advantage of amenities supplied by one manufacturer and apply them to products which originate from another

Tampa Electric v. Nashville Coal: requirements contract for coal for 20 years; an exclu-sive dealing contract does not violate Section 3 of the Clayton Act unless it forecloses competition in a substantial share of the line of commerce affected; test for exclusive dealing: (1) the line of commerce involved must be determined, (2) the area of effective competition in the known line of commerce must be charted, and (3) the competition foreclosed by the contract must be found to constitute a substantial share of the relevant market, i.e., the opportunities for other traders to enter or remain in that market must be significantly limited; the controlling factor is the relevant competitive market area

E. Tying Arrangements

a tying arrangement conditions the sale or lease of one product on the purchase or lease of another from the same seller; the desired product is called the tying product, and the second required product is called the tied product; courts are inclined to view two items as a single product (thus precluding liability) if the combination results in certain effi-ciencies in production or distribution

Times-Picayune v. United States: newspaper sold advertising in the morning and after-noon papers as a single product; advertiser could not buy ad in one or the other; two con-

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ditions: (1) the seller enjoys a monopolistic position in the market for the tying product, (2) a substantial volume of commerce in the tied product is restrained; if either (1) or (2), then violates Section 3 of the Clayton Act; if both (1) and (2), then violates Section 1 of the Sherman Act; tying arrangements are illegal when a seller exploits his dominant posi-tion in one market to expand his empire into the next; the whole of the market must be considered; there must be economic harm to competition in the tied market for there to be a tying violation; here, there is no dominant tying product and no leverage in one mar-ket excludes sellers in the second because the products are identical and the products the same; so there is one product, not two; reasonableness inquiry looks at (1) percentage of the business controlled, (2) the strength of the remaining competition, and (3) whether the action springs from business requirements or purpose to monopolize

Northern Pacific v. United States: railroad compelled lessees to ship all commodities produced on the leased land; government claimed this violated Section 1 of the Sherman Act; a tying arrangement is an agreement by a party to sell one product but only on the condition that the buyer also purchases a different tied product; this curbs competition on the merits with respect to the tied product; tying arrangements serve hardly any pur-pose beyond the suppression of competition; it denies competitors free access to the mar-ket for the tied product; tying arrangement is illegal when (1) a party has sufficient eco-nomic power with respect to the tying product to appreciably restrain free competition in the market for the tied product, and (2) a substantial amount of interstate commerce is af-fected; in International Salt the defendant refused to lease a machine unless the lessee also agreed to purchase the salt from the defendant; this violated Section 1 of the Sher-man Act since it was per se unreasonable to foreclose competitors from any substantial market by tying arrangements; the outcome of that case did not turn on the fact that a patent was involved

factors for determining one product or two: (1) physical characteristics, (2) business reasons such as cost efficiencies, (3) end-usage, (4) whether aggregation is essential to the product’s success, (5) industry trade practices, and (6) whether the products are sold in separate markets

tying claim elements: (1) that two separate products were involved in the tie-in sale, (2) that defendant possessed sufficient economic power in the market of the tying prod-uct, and (3) that the amount of commerce affected in the tied product is substantial

Jefferson Parish v. Hyde: exclusive contract between hospital and firm of doctors; issue was whether this was a per se violation of Section 1 of the Sherman Act; practice im-pacted consumers and doctors; it is a tying arrangement because users of hospital’s op-erating rooms (tying product) had to use certain doctors (tied product); not every refusal to sell two products separately restrains competition; essential to an invalid tying ar-rangement is the seller’s exploitation of its control over the tying product to force the buyer into the purchase of the tied product that buyer did not want or would have pre-ferred to buy elsewhere; when forcing is present, competition on the merits in the market for the tied item is restrained and the Sherman Act is violated; can only force buyers to do something they would not do in a competitive market when there is market power; impairing competition on the merits insulates inferior products from competition, hurts competitors, creates barriers to entry for new competitors in the market for the tied prod-uct, and leads to monopoly profits; per se illegality is only appropriate if forcing is prob-able; there must be a substantial impact on competition to justify a per se rule; if only a

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few people are forced, then the impact on competition is negligible; tying arrangement must impact a substantial volume of commerce to be condemned; focus should be on consumers, not the doctors; whether it is one product or two turns on the character of the demand for the two items; the contract between the hospital and the doctors involves exclusive dealing, while the issue with the hospital and the patients involves a tying ar-rangement; this involves two products, but if there is no forcing, which requires mar-ket power, then no violation; only 30% of the people in the parish use this hospital; con-sumers are indifferent about which doctor does anesthesiology, so wouldn’t be making a choice on the merits; moreover, all patients need the tied product so there is no forcing; therefore, no per se illegality; still have to analyze under rule of reason; no evidence of unreasonable restraint on trade; concurrence: tie is only illegal if seller has sufficient market power to appreciably restrain free competition in the market for the tied product; without dominance or control, the seller cannot force buyers to take the tied product; per se doctrine in tying cases requires elaborate inquiry into the economic effects of the tying arrangement; elements of tying violation: (1) seller must have market power in the ty-ing product market, (2) must be substantial threat that the tying seller will acquire mar-ket power in the tied product market, and (3) must be economic basis for treating the ty-ing and tied products as distinct; two products requires that the tied product be one that some consumers would wish to purchase separately without also purchasing the tied product; would not treat these as separate services since always bought together; this tie-in promotes efficiency

Eastman Kodak v. Image Technical: issue is whether lack of market power in primary market precludes the possibility of market power in derivative aftermarket; Kodak sells replacement parts only to buyers who use Kodak to service or repair there machines; claim that Kodak unlawfully tied the sale of its service and parts in violation of Section 1 of the Sherman Act; tying violation only (1) if seller has appreciable economic power in the tying product market, and (2) if the arrangement affects a substantial volume of com-merce in the tied market; to be two products, there must be sufficient consumer demand so that it is efficient for a firm to provide service separately from parts; here, they was such demand as evidences by the service industry; market power is the power to force a purchaser to do something that he would not do in a competitive market; market power is the power of a single seller to raise price and restrict output; consumers don’t en-gage in lifecycle pricing since it’s difficult to do; monopoly violation under Section 2 of the Sherman Act requires (1) the possession of monopoly power in the relevant market, and (2) willful acquisition or maintenance of that power as distinguished from natural growth; monopoly power is something greater than market power; relevant market from customer’s perspective is only those companies that service Kodak machines since parts are not interchangeable; one brand of product can constitute a separate market; if Kodak adopted its parts and service policies as part of a scheme of willful acquisition or maintenance of monopoly power, it will have violated Section 2

Illinois Tool v. Independent Ink: Congress amended the Patent Act to eliminate the market power presumption in patent misuse cases; issue is whether the presumption of market power in a patented product should survive as a matter of antitrust law; Court holds that the mere fact that a tying product is patented does not support such a pre-sumption; OEMs agree that they will buy ink exclusively from petitioners; claim that en-gaged in illegal tying and monopolization under Sections 1 and 2 of the Sherman Act; il-

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legal tying arrangement requires the seller’s exploitation of its control over the tying product to force the buyer to purchase the tied product that it did not want or might have preferred to buy elsewhere; seller must have market power to force purchaser to do something he would not do in a competitive market; the mere existence of a patent does not constitute market power; must be actual proof of power in the relevant market to have an illegal tying arrangement

V. Monopolies

A. The Problem of Monopoly

market power is the ability of a firm to obtain higher profits by reducing output and sell-ing at a higher price; monopolization is illegal conduct by which a single firm seeks to either obtain or to retain market power

United States v. American Can (D. Md.): government argues its too big; defendant says size is not a crime; government says, true, but only not when it is the result of unlawful means; company threatened to drive competitors out of business, threatened to keep raw materials from competitors, bought rivals for more than they were worth, required rivals to promise not to compete, bought patents for machinery, and forced makers of machin-ery to agree not to sell to rivals

monopolists often defend by arguing that they undertook research and development: (1) only large firms can afford expensive research and development, and (2) only monopoly profits give a firm enough money to finance such research, i.e., firms in competition will reduce expenses and cut research funding

United States v. Alcoa (2d Cir.): different ways of computing the relevant market for aluminum; history of antitrust law was to perpetuate and preserve small businesses for its own sake and in spite of possible cost; the origin of a monopoly is critical in determining its legality; size alone does not determine guilt; there must be exclusion of competitors and the growth must be something other than natural and normal; there must be wrongful intent or that some coercive means were used; the Sherman Act also covers plans to mo-nopolize; must prove a specific intent which goes beyond the mere intent to do the act; dissolution is not a punishment but a remedy; Alcoa controlled 90% of market and estab-lished this monopoly by its voluntary actions

elements of monopolization under Section 2 of the Sherman Act: (1) court must deter-mine whether the defendant has monopoly power, that is, sufficient market power to dominate an industry, and (2) court must determine whether the defendant is an innocent monopolist whose dominance was thrust upon it by its own skill or efficiency, or whether it engaged in anticompetitive or monopolistic acts

United States v. United Shoe (D. Mass.): defendant leased, not sold, machines to shoe manufacturers; leases created barriers to entry by competitors: (1) deters switching to competitors by locking up with a lease, (2) gave lessees better terms if replaced with its machines, (3) had no independent service organizations since offered to repair own ma-chines, and (4) used price discrimination to promote sales; test for monopoly: (1) defen-dant controls the market, (2) strength excludes competition, and (3) strength not attrib-uted solely to defendant’s ability, economies of scale, research, natural advantages, or adaptation; leasing practices created barriers to entry and were intended to maintain its

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market power; remedy is not dissolution but rather to reform leases; must sell machines if offer for lease

B. Market Power

test for illegal monopolization: (1) defendant must have a large amount of market power, and (2) defendant must have engaged in certain monopolistic or anticompetitive acts; market power is the ability to raise price by reducing output; market power is the ratio o the profit-maximizing price for a seller’s output to the seller’s marginal cost at that rate of output; in perfect competition, prices are driven to marginal cost; a seller’s mar-ginal cost and its profit-maximizing price would be the same; if the seller attempts to charge more than marginal cost, it would lose sales to competitors

market power is a function of the elasticity of demand for the seller’s output; the more elastic the demand for a certain product, the more customers will opt away when the product’s price goes up and the less will be the ability of the seller to sell at a supracom-petitive level

the judiciary uses market share to estimate market power; market power, and not mar-ket share, is the evil that the antitrust laws govern; the two are correlated and this permits court to use market share as a proxy for market power

to determine market share: (1) identify the product that is alleged to be monopolized, (2) determine the relevant geographic market, and (3) compute the market share ex-pressed as the defendant’s output of the relevant product in the relevant market, divided by the total output of the relevant product in the relevant market; market power is a function of (1) the defendant’s market share, (2) elasticity of demand in the entire market, and (3) cross-elasticity of supply of competing or potentially competing firms

the more elastic the demand for the product when priced at marginal cost, the less mar-ket power the defendant has; elasticity of supply is the presence of unused capacity or the existence of firms that could easily shift into production of the product; the greater the elasticity of supply, the less control a particular producer has over the market price; both elasticity of demand and supply limit the ability of a producer to raise its prices to supra-competitive prices

things grouped together inside a relevant market must be substitutes for each other; that is, to conclude that a grouping is the relevant market (1) the things inside the grouping do not face significant competition from things outside the grouping, and (2) the things in the grouping do in fact compete with each other

United States v. du Pont: charge du Pont with monopolizing cellophane in violation of Section 2 of the Sherman Act; du Pont made 75% of cellophane amounting to 20% of all wrappings sales; control of the relevant market depends on the availability of substi-tutes for buyers, i.e., whether there is cross-elasticity of demand between cellophane and other wrappings; this interchangeability is gauged by the purchase of competing products for similar uses considering the price, characteristics, and adaptability of the competing commodities; du Pont’s ability to set the price of cellophane is limited by competition with other wrappings; control of price or competition establishes the exis-tence of a monopoly under Section 2 of the Sherman Act; where there are substitutes that buyers may readily use for their purposes, there is no violation even if those products are somewhat different; in determining the relevant market for determining control of

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price or competition, the commodities must be reasonably interchangeable by con-sumers for the same purpose; market here is nationwide; cellophane is functionally in-terchangeable with other wrappings; cross-elasticity of demand looks at the respon-siveness of the sales of one product to price changes in another; if a slight decrease in the price of cellophane causes a considerable number of customers to switch to cellophane, it would indicate a high cross-elasticity of demand exists between them and that the prod-ucts compete in the same market; customers are very sensitive to price changes, and this shows that du Pont does not possess monopoly control over price

market share and market power vary directly; elasticity of demand and market power vary inversely; cross-elasticity of demand looks at what consumers will do when a seller attempts to raise the price of something; some will substitute away; fundamental ques-tion is whether the defendant has the power to charge more than a competitive price

Telex v. IBM (10th Cir.): Telex makes peripheral devices that are plug compatible with IBM computers; issue is with defining the relevant market; argue that it’s either the plug compatible market or the entire peripheral market; the legal standard is whether the prod-uct is reasonably interchangeable; evidence of cross-elasticity is the responsiveness of sales of one product to price changes of another; here there is reasonable interchangeabil-ity so the relevant market is the entire peripheral market; they are not completely fungi-ble, but may be interchanged with minimal financial outlay

United States v. Grinnell: ADT engaged in practices such as threatening retaliation and opening new stations to prevent competitors from competing; market power is the power to control prices or exclude competition, and its existence may be inferred from a predominant market share; ADT had 87% of the market share which gave it power it did not hesitate to wield; issue is what the relevant market is; commodities that are rea-sonably interchangeable make up part of the market and protect against monopoly power; argue that burglar alarm services should not be mixed with fire alarm services; both are the protection of property through a central station, and there is no problem in combining them into one market; the market is property protection with a central service, not individual types of property protection; non-central alarm services and watchmen are not interchangeable; the geographic market is nationwide

C. Conduct

Section 2 of the Sherman Act requires (1) the defendant have market power, and (2) the defendant exercise that power by means that are anticompetitive; it is not illegal to have a large amount of market power and to charge monopoly prices; the more profitable the monopoly is, the more attractive it becomes to competitors; monopolists often engage in exclusionary practices to prevent newcomers

Berkey Photo v. Eastman Kodak (2d Cir.): Berkey and Kodak compete in providing photofinishing services; Berkey alleges that Kodak violated Section 2 of the Sherman Act, causing it to lose sales; if monopoly power has been acquired through improper means, it is no defense that the power has not been used to extract improper benefits; nor may a monopolist that has acquired monopoly power legitimately wield that power to prevent or harm competition; hold that a firm violates Section 2 by using its monopoly power in one market to gain a competitive advantage in another market, even if not at-tempting to monopolize the second market; cannot use monopoly power to the detriment

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of competition in any market; withholding from others advance knowledge of one’s new products is valid competitive conduct; firms may bring new products to market whenever and however it wants

California Computer v. IBM (9th Cir.): plaintiff made peripherals that were compatible with IBM computers; IMB introduced new computers that had the peripherals built-in; plaintiffs claimed that this violated Section 2 of the Sherman Act as illegal monopoliza-tion; IBM did this to save costs and consistent with industry trends, and it allowed them to reduce costs; IBM was under no duty to plaintiff

Brooke Group v. Brown & Williamson: claim that B&W cut prices of cigarettes below costs and offered discriminatory rebates to wholesalers to harm Liggett; Liggett claims these measures were part of a scheme of predatory pricing in violation of Section 2 of the Sherman Act; the Robinson-Patman Act condemns price discrimination only the extent it threatens to injure competition; predatory pricing elements: (1) must prove that the prices complained of are below an appropriate measure of its rival’s costs, (2) demon-strate that the competitor had a reasonable prospect, or under Section 2, a dangerous probability, of recouping its investment in below-cost prices through later occurring monopoly profits, and (3) pricing must injure competition to be illegal; recoupment is how a predator profits; without recoupment, consumers benefit; here, no evidence that scheme was likely to produce supracompetitive pricing and there was no reasonable prospect of recouping its predatory losses and could not injure competition

Weyerhaeuser v. Ross-Simmons: sawmill plaintiff claims that defendant drove it out of business by bidding up the price of saw logs to prevent it from being profitable; issue is whether test for predatory pricing from Brooke Group also applies to predatory bid-ding; Court holds that it does; predatory pricing elements: (1) must prove that the prices complained of are below its rival’s costs, and (2) must show that the competitor had a dangerous probability of recouping its investment in below-cost prices; plaintiffs cannot recover for above-cost price cutting since that would deprive consumers of the benefits of lower prices; predatory bidding is the exercise of market power on the buy side of the market; the predator bids up the market price of a critical input to such high levels that competitors cannot survive or compete, and the predator acquires monopsony power; monopsony is to the buy side of the market as what a monopoly is to the sell side; once predatory bidder causes the competitors to exit the market, it restricts its input purchases below the competitive level thus reducing the unit price for the remaining in-puts it purchases; use the Brooke Group test for both predatory pricing and buying: (1) must show that the predator’s bidding on the buy side caused the cost of the relevant output to rise about the revenues generated in the sale of those outputs, and (2) must prove that defendant has a dangerous probability of recouping the losses through the exercise of monopsony power

Cascade Health v. Peacehealth (9th Cir.): only two providers of healthcare in the county; claim that by offering insurers bundled and package discounts it engaged in mo-nopolistic behavior in violation of Section 2 of the Sherman Act; bundling is the practice of offering two or more goods or services that could be sold separately for a single price that is cheaper than if they were purchased separately; antitrust laws promote price cut-ting, but can be bad if predatory pricing; bundling can be anticompetitive if competitor can’t offer the same products in a bundle; efficiencies likely explain the use of bundles; test for bundling violation: (1) must show the defendant sold the products below its

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costs, (2) defendant is likely to recoup these losses, and (3) bundle is likely to harm com-petition; similar to predatory pricing analysis; different than tying since buyer has choice of buying bundled products separately; bundles are only condemned if predatory and prices are below costs; ask whether the bundles would exclude a hypothetical equally ef-ficient rival; it is exclusionary if less than the defendant’s costs

Aspen Skiing v. Aspen Highlands: issue is whether a competitor has a duty to cooperate with a smaller rival in a marketing arrangement in order to avoid violating Section 2 of the Sherman Act; monopolist has no duty to cooperate with competitors as long as it has a valid business reason for the refusal; the right to do business with whomever one pleases is qualified; here, did not simply refuse to cooperate, but instead changed a pat-tern of distribution that had persisted for years; it changed its practice to discourage cus-tomers from doing business with the rival; the change was not motivated by efficiencies; strategy was to raise the costs of its rival in order to earn a higher profit

Verizon v. Curtis: Telecommunications Act imposes duties on incumbents to facilitate market entry by competitors; issue is whether violation of this duty states a claim under Section 2 of the Sherman Act; doctrine of implied immunity normally means that enti-ties are shielded from antitrust scrutiny when subject to a complex regulatory scheme; here, congress stated that nothing in the Act impairs the applicability of antitrust laws, so there is no immunity; refusal to cooperate with rivals can state a claim under Section 2; this is not like Aspen Skiing since no prior deal with the competitor; could be either competitive zeal or anticompetitive malice; Verizon’s insufficient assistance to competi-tors is not an antitrust claim; the regulatory structure already protects competition

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