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140 Cards in this Set

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Origins of Antitrust

the laws to promote competition and inhibit monopolies and restraints of trade
Antitrust Definition
Origins of Antitrust

Capitalism, Central Planning, Socialism, Communism, Fascism, Tribalism, Feudalism
Different Economic Systems
Origins of Antitrust

· Price fixing
· limits supply
What does a monopoly do
Origins of Antitrust

· Section 1: K, combination or conspiracy in restraint of trade . . . .
· are all agreements to restraint of trade
· Section 2: monopolization (the process of wrongfully cornering a mkt)
· some monopolies are OK (i.e. USPS)
Sherman Act (1870)
Origins of Antitrust

· Section 2: price discrimination (Robinson Patman Act)
· Section 3: tying arrangements
· Section 7: mergers
Clayton Act
Origins of Antitrust

Independent Reg. Agency
· Section 5: unfair methods of competition
FTC Act (1914)
Goals of Antitrust

· Economic efficiency/consumer welfare
· controlling mkt structure – more competitors --> collusion among competitors
· dispersion of economic and political power
· advance fairness/justice
Schools of Antitrust Thought

Harvard/Structuralist School
Goals of Antitrust

AT only to be used to achieve economic efficiency
Schools of Antitrust Thought

Chicago/Neo Classical
AT Economics

many sellers of good or service. undifferentiated product. sellers called “price takers”. perfect knowledge of marketplace. innovation. Example: grain mkt. Benefits of PC market. low prices. high output. no barriers to entry
Market Structure

Perfect Competition
At economics

One seller. differentiated product. price maker (can chose price to sell). barriers to entry. Ex: software industry, OPEC (cartel – redux output, increase price. Effects of monopoly. Lowers/restricts output. raises prices. no innovation (no incentive).barriers to entry
Market Structure

Monopoly
AT economics

· few sellers
· some product differentiation, but no dominant edge product
· Price sharers: work together to influence price
· Effects
· Price may go up if collusion
· output may go down
Market Structure

Oligopoly
AT Economics

· enough sellers
· some differentiation
· inability to collude to restrict output & raise prices
Market Structure

workable - competition/monopolistic competition (real world goal)
Price Fixing

One of the per se illegal categories
price fixing
price fixing

: “every K, combination, or conspiracy in restraint of trade . . . unlawful”
Sherman Act Section 1
Price Fixing

(1) agreement and (2) restraint of trade
2 elements for Sherman Act Section 1
Price Fixing

:“group of competitors to limit or eliminate competition”]
Restraint of Trade
Price Fixing

does act promote or restrain trade on balance? ( you may weigh pro and con anticompetitive effects)
rule of reason balancing test
price fixing

“only unreasonable restraints are unlawful.”
· Look at conditions of mktplace, nature of restraint and it effects, history of restraint, reason for adopting it, etc.
· DFN: argue that actions actually promoted competition
rule of reason balancing test:

rule from chicago board of trade
price fixing:

facially, it suppresses competition
· Rule: agreement that raises, depresses, pegging or stabilizing (influence) price among competitors unlawful per se (Socony-Vacuum)
· P must no longer produce evidence
Per se rule (shortcut to Rule of reason)
price fixing

(that price level you picked is fair and reasonable) (Trenton Potteries) because:
· reasonable hard to define
· institutional competence
· changeability of circumstances
· competition of freedom
reasonable price definnition not allowed
Price Fixing:

· (1) Conspiracy; agreement sufficient (2 or more legally distinct actors)
· no need to for C/L or traditional conspiracy elements
· (2) No need to have “power or means” to affect price in order to be guilty
· policy: potential threat to central nervous system economy--> price is a signal to competitors to make/charge more/less or to enter/leave mkt. PRICE IS THE CENTRAL NERVOUS SYSTEM OF THE ECONOMY
What P must prove as RoT (Restraint of Trade) in Price Fixing
Price Fixing:

· illegal per se; that action are so anti-competitive
· R/Reason; analyzing the particular facts
· dfn: argue that RoT actually promoted competition
2 ays to prove Price fixing in NSPE
Price Fixing:

(sub-category of Sherman Act Section 1 Rule of Reason; if actions does not fall within bottom 5, then use RoR)(practices are presumed to be unreasonable w/o elaborate analysis of industry from judicial experience)!!
Per Se Rule
Price Fixing

· Horizontal PF (PF among competitors)
· Horizontal Market Division
· Group Boycotts
· Vertical PF
· Tying (mft tells wholesaler that they must buy computer and monitor)
It is only after considerable experience with certain business relatinoship that cours classify them as per se violations of the Sherman Act.
Characterizing Price Fixing exception to per se rule:

“Agreements to Facilitate a Market that are Necessary to Make a Product Exist are legal”
rule for characterizing price fixing: exceptions to per se rule
characterizing price fixing (exceptions to per se rule):

a) (BMI v. CBS – where there was no market for music licenses, ASCAP's blanket licenses created the market and did not violate the per se rule)
b) (NCAA v. Univ. of Oklahoma – where NCAA restricted broadcasting of games, did not violate per se rule b/c NCAA created the sports league and governs play; however court held that actions restricted output, increased price w/o pro-competitive reason)
Characterizing price fixing (exceptions to per se rule):

case law
Characterizing price fixing (exceptions to per se rule):

court can determine whether actions are of kind that restrict competition or creates of market
· Elements/Common Themes of Cases; Quick Look Must Show
·(1) joint venture
·(2) creation of market
Characterizatino Analysis/Quick look Analysis
Price fixing:

i. Criminal intent required in criminal AT cases (Gypsum)
a) rationale: S/L would chill competition
Criminal antitrust and intent issue in RoT case (cause of action).
Price Fixing:

a) An agreement
b) restraint of trade – Intent element-->
· Civil Case
· any agreement that has purpose OR effect of restraining trade
· Criminal Case
· purpose to restrain trade OR
· Effect of restraint and knowledge of probable consequences (Gypsum
Proving Violation of Sherman Act Section 1 Price Fixing
Market Division Among Competitors:

2nd of the per se illegal categories
market division among competitors
Market Division

“competitors have divided up marketplace, allocating to each member a component and agree not to sell to each other's component”
market division among competitors definition
market division

a) must be HORIZONTAL
market division among competitors
market division

a) Geographic division
b) Product Type (you only sell X car, I sell Y car only)
c) Customer Allocation (only sell to your own customer)
market division

how do they divide it up/issue spotting
market division

iii. Are “Naked Restraints of Trade” with no purpose except stifling competition
market division among competitors
market division

“an agreement among competitors is unlawful per se” (Justice Marshall in Topco)
· restraint of trade was NOT necessary to their agreement (distinguished from BMI)
pre se rule and possible characterization
Market Division

“competitors have divided up marketplace, allocating to each member a component and agree not to sell to each other's component”
market division among competitors definition
market division

a) must be HORIZONTAL
market division among competitors
market division

a) Geographic division
b) Product Type (you only sell X car, I sell Y car only)
c) Customer Allocation (only sell to your own customer)
market division

how do they divide it up/issue spotting
market division

iii. Are “Naked Restraints of Trade” with no purpose except stifling competition
market division among competitors
market division

“an agreement among competitors is unlawful per se” (Justice Marshall in Topco)
· restraint of trade was NOT necessary to their agreement (distinguished from BMI)
pre se rule and possible characterization
Group Boycotts:

“an agreement by horizontal competitors and/or others to exclude or coerce a competitor in the marketplace; usually exclusion deprives competitor of something they need to compete.”
group boycotts definition
group boycotts

3rd per se illegal category
group boycotts
group boycotts:

· “those horizontal agreements whose intrinsic nature is exclusionary and anti-competitive are per se illegal” (ex: Klors, FOGA, NYNEX, GM)
explicit boycott
group boycotts:

· Is a “naked restraint of trade” b/c there was no pro-competitive rational; strictly to exclude the competition
explicit boycotts
group boycotts:

· “if a group boycott is explicit, then is per se illegal”
· (Klor undercut Broadway on prices, Broadway & suppliers colluded cut off Klor to exclude them – KLORS)
· Where attorneys got together boycotted to protest pay received,held to be explicitly illegal (Super. Ct. TLA)
· Moreover, you don't need proof of monopoly or market power to prove illegal boycott
explicit boycotts
group boycotts:

· “those agreements whose intrinsic nature is legitimate (i.e. Pro-competitive) w/ ancillary restraining effect are governed by the RoR”
non explicity boycotts
group boycotts:

· agreements to improve market efficiency OK (Reality Multilist)
· agreements to create industry standards OK (Radiant Burner)
· Where R made a more efficient burner than those in the AGA and was denied AGA seal, court held that this is group boycott b/c of subjectivity and bias to which standards which was applied (AGA)
· Joint buyer ventures are pro-competitive (NW Wholesale)
· Trade associations/Professional Associations (Indiana Dentists)
· P need not prove market power to prove per se boycott case (Dentists)
· Expulsion f/ joint buying venture with mkt power may be anti-competitive
non explicity boycotts:

analysis: no balance, did action promote or stifle compeitition
group boycotts:

· Issue: what do you do if you have facility/component that is unique w/o no access to competitors and is necessary or beneficial to compete?
essential facilities doctrine
group boycotts:

· Rule: must share facility with competitors
· D had only RR facility in city; court held that they must open up to competitors (US v. Terminal RR Assn.)
· Held, access to facility to conferred significant econ advantage must be shared among competitors (AP vs. US); Court rejects “indispensability” test
essential facilities doctrine
group boycotts:

i. Vertical Boycotts (single buyer and single seller) are not per se illegal (Where D went to competitor b/c of kickbacks; held not to be per se illegal - NYNEX)
a) To be per se illegal, must be horizontal agreement
nynex and new learning
Trade Associations:

· industry advertising (i.e. Milk campaign)
· creation of standards
· Lobbying efforts (Noerr-Pennington Doctrine)
· Mft and R&D joint efforts
· Educate members
· trade information
pro competitive acts of trade associations
trade associations:

ii. Rule Used: RULE OF REASON
trade associations
trade asssociations:

a) must be reasonable and non-discriminatory , reasonably enforced, especially if restrict/control access to essential facility (see Multilisting, where TA required arbitrary $, regular office hours; held to be facially unreasonable as to these 3 rules) (See also Radiant Burner)
membership
trade associations:

· Actual identifiers/invoices (date, seller, buyer, amts)
· future predictions (seen as invitation to collude)
· very current info (i.e. Past 30, 60, 90 days)
· TA information exchange used to police members who cheated restricted trade b/c violation of agreement would get them kick out (American Column Lumber)
price and statistical (information) exchange: info you can't exchange
trade associations:

· no current price info exchange
· no identifiers, compilation/averages
· reason: show that we aren't looking for cheater
· Historical data (6 months more)
· No exchange of invoices
price and statistical (information) exchange: info you can exchange
trade associations:

· Knowing this info can help create a competitive pricing structure, competitive supply, etc
price and statistical (information) exchange: how can info exchange to pro competitive
trade associations:

a) “...every contract, combination, conspiracy....”; Larry Sullivan says = agreement
conspiracy element in sherman act section 1
trade associations:

b) YOU NEED AN AGREEMENT FOR A SHERMAN ACT SECTION 1; IT CANNOT BE VIOLATED BY 1 FIRM; THERE MUST BE 2 MORE MORE LEGALLY DISTINCT
conspiracy element in sherman act section 1
trade associations:

Wholly owned sub and parent corporation cannot conspire (Copperweld) held by US Supreme Court
intra corporate conspiracy
trade associations:

· Direct
· written agreement
· conduct of parties (witnesses)
· fruits of search warrant
· Circumstantial
proving conspiracy, Generally:

Evidence that you can use
Trade Associations:

· Burden on D to prove that they did not collude; an inference of II conduct – difficult (Interstate)
· Legitimate Explanations for II conduct but not collusion (Some argue not fair to shift burden on D b/c of legitimate explanations)
· cost of supplies/production went up
· change in demand
· predictions about market conditions
· by chance
· I(Paramount)
Implied Conspiracy and Conscious Parallelism:

Parallel Business Conduct
Trade Associations:

· You can use II behavior as block to prove agreement, but not sufficient by itself; if only have evidence of II behavior, burden not shifted to D
· Factors to Show Evidence of Possible Collusion
· evidence of communication, discussions
· opportunity to collude
· behavior irrational absent collusion
· behavior against economic interest
· Motivation
implied conspiracy and Conscious Parallelism:

Today: Conscious parallelism Plus Doctrine
monopolizatoin:
“Every person who shall monopolize, or attempt to monopolize, or combine or conspire w/ any other person or persons, to monopolize any part of trade or commerce among several states ....”
intro to sherman act section 2
monopolization:

Person” = single firm
b) “Any part of trade or commerce” = market/structure
key features of monopolization
monopolization:

· Behavior: Bad behavior “wrongful or exclusionary conduct” (monopolization or attempt) (1st Prong) AND
· Structural: Definition of Market/Market share/Market Power/Dominant
· by geographic and product
key features of monopolizatoin:

2 compenents of proving monopoly
monopolization:

d) But does not ban monopolies themselves, b/c some monopolies are good
· we oppose a firms that attempt or monopolies thru bad behavior
monopolization key features
monopolization:

a) How do you regulate mkt power from abuse vs. encouraging competitive behavior?
monopolization: controversies and issues
monopolization:

a) They Raise prices
b) They restricting output
· leads to “dead weight welfare loss”: amount of goods and services not manufactured/lost value to society from monopoly behavior (pg 170)
objections to monopoly
monopolizatoin:

· Strict liability laws
· dispersion of economic power
· dispersion of political power
· Support for small businesses
non economic objectives (monopoly)
monopolizatoin:

a) Did the firm have monopoly power in a relevant market and
b) The willful acquisition or maintenance (usually by unlawful or exclusionary means) of monopoly power (power to control prices or exclude competition, Papageorge - as the power to raise prices or exclude competitors over the long run successfully)
single firm monopolization: Rule Grinnel Test: must prove 2 parts
monopolization:

substitutability (aka interchability of use measured by cross elasticity of demand) of product (Cellophane)
Defining Relevant marketplace:

product market test
monopolization:

substitutability of product: raise price of one and see if people switch readily
defining relevant marketplace:

product market test
monopolization:

(two products in the same product market and how much demand will change for particular product depending on small/large changes in price). Cable is an elastic product, because you can switch from cable to satellite tv and price would be enough to make a change. If they are readily substitubale then they are in the same market. If they won’t the market is being narrowly defined thus the defendant will be more liable to section 2 liability.
defining relevant marketplace: product market:

cross/elasticity of demand
monopolization:

where do the customers shop for this product or service?
defining relevant marketplace:

Geographical - commercial reality test
monopolization:

· The structure of the customer/supplier relationship.
· Example: A small geographic market is a market because you won’t drive far for it, it is more about convenience. Large Geographic market are diamonds for industrial purposes. You go all over the world because you are spending 5 mill for 2 pounds of product.
defining relevant marketplace:

Geographical
Monopolization:

a) “The power to control prices or exclude competition over time and getting away with it”
· being a price maker
defining monopoly power
monopolization:

a) define relevant market
· product market, and
· geographical market
b) Did the firm have monopoly power in a relevant market
c) Was there a willful acquisition or maintenance of monopoly power.
analysis for exame for section 2 monopolization case
monopolization:

some industries are more efficient with only 1 provider (i.e. Utilities) b/c of physiological limits.
natural monopoly and regulation:

PUblic Regulations
monopolization:

a) Bar/Regulate entry into this natural monopoly
b) Regulate rates to protect consumers
natural monopooly and regulation:

Pervasive Publice Regulation 2 things to do to regulate a rationale monopoly as a government
Monopolizatoin:

“under certain circumstances we will have a regulated model; but in order to protect the consumer, we will regulate entry and rates”
natrual monopoly and regulations rule statement
monopolization:

a) Refused to pass power thru system to enter into other markets (Otter Tail)
natrual monopoly and regulations:

duties of monopolies to deal with others
monopolization:

b) Rule: no general duty to cooperate with your business rivals even if you are a monopolist; however, refusing to sell ticket to competition evidence of bad behavior (Aspen Skiing Company)
· Rule: sliding scale: more market power, acts of exclusionary has evidentiary significant for monopoly determination (the bigger you get, the more careful you have to be with your actions against competitors.)
duties of monopolies to deal with others: rule
monopolization:

specific intent to monopolize: Over Exclusionary Act: Dangerous Probabilty of Successful
Attempts to Monopolize 3 elements
monopolize:

· most common: predatory pricing ( deep pocket co charges below cost for certain time b/c the only rational reason was to drive comp out of business)
· problem: we want low prices , so why go after PP? Later, they will raise prices; there must be a balance
· Proving PP (hard to prove) Federal AT Case
· that D is charging below cost (SC doesn't tell you how to do this)
· likelihood that D will be able to recoup loss later (hard)
attempts to monopolize

overt exclusionary act
monopolization:

· enough market share and enough prospect that they might succeed
attempts to monopolize 3 elements:

dangerous probability of succesful
Mergers

applies to effects of M&A that may be to lessen competition or to tend to create a monopoly
Mergers - INtro to Clayton Act Section
Mergers

- catches RoT or monopoly before it can be in effect
mergers

Nipping it in the bud
mergers:

horizontal, vertical, conglomerate
· horizontal: competitors, firm that acquires another firm that with which they are a direct competitor.
· vertical: buying up the chain of distribution, a purchase or acquisition of a customer of a supplier or vice versa.
· conglomerate: 2 firms not HZ or VT; diversifying products.
3 types of mergers
mergers:

a) plugs all section 7 loopholes: “no person”, “stock or assets”, “in or affecting interstate commerce”
iv. Modern Interpretation: Brown Shoe: 5 Rules established
a) market share is proxy for monopoly power (5% in Brown Shoe)
b) Line of Commerce/Definition of Market
· Sub-Markets:
c) AT laws protect competition, not
d) HZ merger liability: 5% market share, under Brown, is liability; realistically, can't win on small market share
e) VT mergers liability
· Foreclosure: no more access to once available markets due to VT mergers
Celler Keyfauver
Mergers:

“Rebuttal Presumption” if Meets 2 prong standard
a) “(1) An undue %age share of relevant market, and results in significant increase in concentration of firms in that market must be enjoined (2) in absence of evidence clearly showing that merger not likely to have anticompetitive effect” pg 985
· did firms merge with undue market share? Part 1
· translation: Define market share and monopoly power? (product and geography)
· significant increase in concentration? Part 2
· if not clearly anticompetitive effects, then not enjoined Part 3
b) What is Undue Market Concentration? Numbers only not enough
· 30% & no showing of no anticompetitive effect = illegal under PNB
· 7.5% & industry trend towards concentration = illegal under Vons
· Dissent: must look beyond the #s, smaller shops were less efficient; can't use mom & pop protectionism
Horizontal Mergers:

Legal STandard
Horizontal Mergers:

· where merger would not affect competition b/c of lack of coal reserves
· Must look at competitive significant, nature of market, significant increase in concentration
· Failing company defense: good business mergers with a failing company may be permitted
other factors than mere % of present market share must be used under Generl Dynamics Rule
Horizontal mergers:

· old law: post merger legal action; problem: hard to put back the omelette
· current law: pre-merger notification (Hard-Scott-Rodino Act 1976)
DOJ/FTC merger guidelines & administrative enforcement

Histor
Horizontal Mergers

· 95% of challenged mergers abandoned b/c they lose money
· Violation of guidelines not illegal, but show likelihood of being challenged
· Today: lobby FTC/DOJ to approve the merger
· Fix-It-First System: settlement agreement to spin off companies/competitors in areas (product, geography) where competition would be lessened before merger decision
DOJ/FTC Merger Guidelines & Administrative Enforcement

The merger system
horizontal mergers:

· the gist: are worried about too much market power that can be used to control price or reduce power and to exclude competitors
DOJ/FTC Merger Guidelines & administrative enforcement:

how des the guidelines work
horizontal mergers:

· product (substitutability)
· geography (customers/supplier market)
· D wants broader definition
DOJ/FTC merger guidelines:

define relevant market
horizontal mergers:

· Herfmandal Hirshman Index (HHI)-->easy way to determine increase in concentration market from merger
· (sum of market share before merger)^2 minus (sum of market share after merger)^2
· Concentration of Ranges: (pg 1044): “In the evaluating HZM, the Agency will consider both post M concentration and the increase in concentration resulting from the merger”
· Look to POST Merger HHI to determine concentration (UnConcentrate, highly , moderately)
· <1000: unconcentrated; unlikely to challenge
DOJ/FTC merger guidelines:

applying the guidelines: calculate undue/concentration element
horizontal mergers:

· 1000-1800: moderately concentrated
· unlikely to be challenged if change is <100
· likely to be challenge if change >100
· >1800: highly concentrated
· No challenge if change <50
· challenge if change >100
· 50-100 increase: look to other factors (pg 1045 para 1.52)
· changing market conditions (See General Dynamics)
· Product Homogeneity (possible collusion)
· degree of diff of market, location ,and Substitutability
· Entry: ease or difficulty (100% marketshare might not be monopoly if entry easy)
· ease of collusion
DOJ/FTC merger guidelines:

applying the guidelines: calcluate undue/concentration element
horizontal mergers:

“What is the status of the the proposed merger under the Clayton Act?” ; Analysis under Clayton Act (PNB Rule)
exam approach for merger guidelines:

legal
horizontal mergers:

“Whether the proposed merger will likely be challenged under the FTC guidelines”; Analysis under Merger guidelines (HHI)
exam approach for merger guidelines:

administrative
horizontal mergers:

Defense attorneys argue that the market defined by DOJ/FTC is too narrow; you want to argue that your market is broad so that you can get in more comp.
horizontal merger tip
horizontal mergers:

will sell some assets in hopes of preserving competition
fix it first nature of merger law
Vertical Mergers:

i. Foreclosure: ex: supplier cannot sell to mft b/c mft merged w/ supplier's customer; “Foreclosed from access to market”
ii. Less likely to be challenged b/c presumed that vert mergers are for efficiency purposes
a) counter: higher barrier to entry
vertical mergers
Conglomerate Mergers:

mergers of cos that do not have a direct trading relationship
conglomerate mergers definition
conglomerate mergers:

a) reciprocity theory (Consolidated Foods): there may be competitive harm when a large buyer uses its purchasing power and control as leverage to persuade its suppliers to make reciprocal purchases (produces foreclosure effect)
· held; in concentrated industries, reciprocal buying can trigger a Section 7 liability b/c it may foreclose outsiders from being able to sell (CF)
b) Entrenchment (P&G): “Giant Among Pygmies”; a large firm enters an a market buying the largest firm and using its power to discourage them from competing
c) Potential Competition Theory (P&G): Big firm waiting into wings to enter may drive current firms to lower price, eliminating competition. Courts will not allow big firm to enter market that will disrupt competition
theories under which conglomerate mergers can be challenged
conglomerate mergers:

there may be competitive harm when a large buyer uses its purchasing power and control as leverage to persuade its suppliers to make reciprocal purchases (produces foreclosure effect)
· held; in concentrated industries, reciprocal buying can trigger a Section 7 liability b/c it may foreclose outsiders from being able to sell (CF)
theories under which CM can be challenged:

reciprocity theory
conglomerate mergers:

“Giant Among Pygmies”; a large firm enters an a market buying the largest firm and using its power to discourage them from competing
theories under which CM can be challenged:

Entrenchment
conglomerate mergers:

Big firm waiting into wings to enter may drive current firms to lower price, eliminating competition. Courts will not allow big firm to enter market that will disrupt competition
theories under which Cm can be challenged:

Potential Competition Theory
vertical restraint:

ii. Agreements between those in supply chain (i.e. Retailers and suppliers)
vertical restraints
vertical restraints:

iii. by their nature, VR tend to hurt competition less than HR b/c are less harmful to consumer welfare
certical restraints
vertical restraints:

“RPM is illegal Per Se” (Parke- Davis)
a) it is unlawful for mft to require to adhere to MSRP (Dr Miles Medical)
resale price maintenance/vertical price fixing
vertical restraint:

Unilateral Refusals to Deal
resale price maintenance/vertical price fixing:

exception
vertical restraint:

a) the Meanness Paradox
b) Need an announced program to be able to maintain price with RTLR; make no demands or agreement with RTLR to maintain price
maintenance/vertical price fixing:

exception
vertical restraints:

c) RULE: “a program of announcement of price preferences and simple refusals to deal with no form or coercion or pressure may be lawful under the Colgate unilateral refusal to deal”
maintenance/vertical price fixing:

exception rule
vertical restraints:

Per Se Rule only applies to minimum price fixing” (Khan)
maintenance/vertical price fixing:

maximum price fixing
vertical restraints:

iii. Definition: mft insists/agree that rtlr maintain certain price (MSRP)
maintenance/vertical price fixing:

Resale Price Maintenance
vertical restraint:

i. Most Common: vertical territory and customer restraints
a) ex: Can only sell in your state and you are only retailer
· mft allows 1 retailer only in each state; can't sell outside of your state
non-price vertical retraint
vertical restraint:

“Non-Price Vertical Restraints are judged by the Rule of Reason ” (GTE Sylvania) KNOW THIS CASE
a) “b/c they may in some cases strengthen overall competition, we judge all non-price restraints under the RoR”
non price vertical restraint rule
vertical restraint:

: Intra-Brand vs. Inter-Brand Competition
a) Chicago School: Intra-brand elimination can strengthen inter-brand, which is more important; therefore, can't have a presumption of anti-competition
non price vertical restraint development of rule
tying arrangments:

can't sell on condition that buyer must also buy something else from you; “the bundled sale of of tied good and a tying is governed by both Clayton Act Sec. 3 (conditional sales) and Sherman Act Sec. 1. (restrains trades)”
tying arrangments, basically
tying arrangements:

a) Tying Product: Desired
b) Tied Product: Bundled In (can get anywhere, cheaper)
c) Foreclosed: competitor (M2) blocked out from selling tied product (usually the one who sues)
definition
tying arrangments:

a) coerced agreement sufficient for violation (M2 foreclosed out my M1 involuntarily)
SA section 1 also applies: an (1) agreement that (2) restrains trade may be unlawful
tying arrangments:

to head off tying arrangement before they become monopolies; it forces the customer to give up free choice in the market, which is anthetical in consumer welfare
rationale for opposing tying arrangments
tying arrangments:

a) (1) two distinct product or services
· Test: consumer demand test: If “separate consumer demand” for each product, then a distinct product(Jefferson Hyde)
b) (2) Sufficient Economic/Market Power
· Must substantial market power measured by desirability or uniqueness of a product (not monopoly)
· ex: patented or highly valued items
· Kodak: K owned all repair products
· May also be within 1 brand where there is huge sunk capital (Kodak)
c) (3) “Not insubstantial” amount of tied commerce (must be a substantial impact to commerce)
· Issue: is there a tied product foreclosure? Is the buyer foreclosed from buying in the tied product?
per se rule: whether there is a tying arrangment
tying arrangments:

a) For services and products only: Sherman Act requires all 3 elements
b) For commodities only: Clayton Act requires only 2 of 3 elements (requires at least # 3 – not insubstantial amount tied to commerce)
when and where to use the tying arrangment rules
tying arrangments:

i. Sunk Cost Situations/Relevant market may be within 1 brand (market for Kodak services)(Kodak)
contemporary interpretations
tying arrangments:

in certain circumstances, tying may be permitted even though otherwise unlawful where it is essential to preserve the goodwill of a new product or technology (Jerrold Electronics, Dehydrated Products)
a) “if there is an overriding pro-competitive reason for the tying, the courts will sometimes approve the act even though the elements of tying have been me if it is essential to preserve the goodwill of a new product or technology” (Jerrold, Carvel, Dehydrated Products)
good will defense/new technology defense
price discrimination:

i. “PD is the practice of selling the same good of like grade and quality to two competing buyers at different prices where the effect is to injure competition”
ii. Where: big business is to be able to buy at a lower cost is able to drive smaller competitors out of business
intro to Rob-Pat act
price discrimination:

a) Interstate Commerce
b) Discrimination: a difference in price
c) Sale to 2 Different Purchasers
d) Must be Commodities
e) Must of “Like Grade and Quality” (i.e. The same product)
f) Legal Std: where the effect is to
· (1) substantial lessen of competition or
· (2) tendency to create a monopoly or
· (3) where the effect may be to injure, destroy, or to prevent competition with a particular competitor
· an injury to a competitor (compare to protecting competition of other provisions; critics say this is protectionism)
development of RPA: Elements
price discrimination:

can charge less b/c it costs less to serve the customer at higher volume on actual cost differences; BOP on D must be based on actual accounting differences, not on a general perception(Morton Salt)
· “to succeed on this defense, the D must prove actual accounting difference and can only pass on this actual difference”
development of RPA Defenses
price discrimination:

b) Meeting Competition Defense
development of RPA defenses
price discrimination:

i. “PLH is injury among or at the level at those offering the discriminatory (lower) price” (Utah Pie)
primary line harm
price discrimination:

hard to prove (Brown and Williamson)
a) that D is charging below cost (SC doesn't tell you how to do this)
b) likelihood that D will be able to recoup loss later (hard)
primary line harm rule
price discrimination:

iii. PLH case are rarely brought b/c of high standard
primary line harm
price discrimination:

i. Is more common than PLH
ii. SLH occurs where a power buyer gets a deal that is different from the smaller buyers and smaller buyer can't take advantage of the deal (“functional availability”)
a) Function Availability: Business can give discounts, but there must be a system where discount is functionally available to everyone (depends on facts)
· “Unless the offeror of discount can defend with actual cost justification data, it must make such discounts functionally available to everyone”
secondary line harm
unfair competition

i. “FTC Act prohibits unfair methods of competition in interstate commerce”
FTC ACT
unfair competition:

i. Broadest of all FTC laws; goes beyond (subsumes) SA and Clayton Act; to compensate for that, Congress reduced the remedies (see below); FTC Act automatically violated when SA or Clayton Act violated
a) Limited Remedies: Compare to SA and Clayton Act: no criminal sanctions, no private action/only FTC can bring actions, remedies are prospective (no treble damages, primary is C&D or injunction)
development of FTCA section 5
unfair competition:

i. Scope of FTC Act – beyond the SA and Clayton Act (pg 905) (S&H – stamp case): Cigarette Rule Factors to determine if violation of FTC Act
a) Whether the practice is unlawful or offends public policy
b) Whether the practice is immoral, unscrupulous or immoral
c) whether it causes substantial injury to consumers
contemporary standards
state at laws:

i. 21 states enforced AT in 1890 before federal laws
ii. Congress' purpose was to complement and supplement state AT laws
history of state laws
state at laws:

i. Federal law does not preempt state AT Laws (ARC)
ii. Federal and state share Jx on AT actions
iii. In practice, assume that both laws apply (State and Federal AT laws)
federal state jurisdiction
state at laws:

i. Cartwright Act
ii. Unfair Practices Act
iii. Unfair Competition Law
CA at law