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Antitrust Law
University of California, Berkeley School of Law
Edlin, Aaron S.



Sherman Act: §1 makes it a felony to enter a “contract, combination or conspiracy in restraint of trade.” Sherman Act § 1: Every contract, combination…or conspiracy in restraint of trade or commerce among several states or w/foreign nations is illegal.

Liability under §1 requires a 1) an agreement; in 2) restraint of trade.


Ds must have formed an agreement (CCC) to be liable under §1. This requires 1) twoness; 2) agreement.

1. First, are the firms separate entities that can conspire under §1?

a. Twoness: To be liable under §1, firms must have the required “twoness” to make a CCC in restraint of trade. If actors are viewed as a single unity, they can’t “agree” under §1. Sherman Act §1

i. Policy: Restraints of trade are broader than monopolization, so to keep §2 (banning unilateral conduct) from being subsumed in §1, Congress added requirement of a CCC.

b. Is this a single firm?

i. Single firm: Firm is generally immune from §1 b/c as a single unity that can’t make CCC. Firm’s actions are generally not a conspiracy of employees.

1. Policy: Teacher thinks good b/c 1) firm is a response to the need for cooperation + want cooperation within firm and competition outside 2) can’t have every action of all firms subject to scrutiny under ROR; 3) don’t want §1 to subsume §2; 3) PF is core of AT, so will be concerned w/that but not w/competition btw firm and wholly owned subsidiary.

a. Counterargument: Bad b/c 1) BMI was a joint venture in response to need for cooperation + it was subject to §1; 2) could judge under ROR, which takes efficiencies into account (dissent) and would allow for efficient corporate organization.

c. Is this a subsidiary and parent?

i. Subsidiary: Wholly owned subsidiaries and parents are single unity that can’t conspire to agree under §1. Copperweld (1984): C + wholly owned subsidiary Regal could not make CCC under §1. Court claims w/o citation that conspiracy is impossible w/o separate incorporation.

1. Policy: No agreement b/c finding otherwise 1) would be “triumph of form over substance” since just form of separate incorporation; 2) subsidiary would just become unincorporated division/merge to avoid AT + companies have good reasons (LL for tort) to be incorporated separately; 3) individual company can have 100 cabs + not be CCC ; 4) firms are pursing common interest of whole + no sudden joining of power.

a. Counterargument: Bad (dissent) b/c 1) if firm doesn’t need to compete w/its subsidiary, why scrutinize its other behavior; 2) Maybe advantages of separate incorporation are private and it is costly to world (taxes, torts).

ii. Is this a joining of formerly competing companies into subsidiaries + parent?

1. Agreement to make sudden joining of economic interests could be illegal under §1, but after formation, parent/subsidiary structure is not ongoing conspiracy. Cooperweld: Reading to keep result in Yellow Cab and Kiefer Steward. Teacher says majority says “we overrule the logic of those cases, but not the results.”

a. Policy: Problem with tendency to avoid overruling in favor of distinguishing is that predictability sought by stare decisis is lost.

iii. Does the parent own less than 100% of subsidiary?

1. Teacher says that if parent owns 51% of subsidiary and likely also “controlling interest” in subsidiary, it is a single unity which can’t conspire w/parent under § 1. Lower courts

a. Advanced Health-Care Serv. v. Radford (9th Cir. 1984): Two subsidiaries owned by parent can’t conspire w/each other.

b. Novatel Comm. v. Cellular Tel. Supply: 51% ownership sufficient for full control + entities can’t conspire.

iv. Is this two wholly owned subsidiaries conspiring w/each other?

1. Two wholly owned subsidiaries can’t conspire. Lower courts

d. Is this a trade association/joint venture?

i. Trade associations/joint ventures: Trade associations and joint ventures are not a single unity and are “continuing conspiracies” with regard to regulations of competition btw members. They will be subject to § 1 if there is a joining of separate economic forces that would otherwise be competing. American Needle: 32 teams form NFL, which makes NFLP for joint marketing of licensing IP. NFLP has ability to agree under §1. Court may have based ruling on 1) teams who previously had separate and competing economic interests w/licensing joining together to give NFLP exclusive license for their hats; 2) anything NFL does related to competition of teams is an agreement.

1. Policy: Unlike firm employees, members of trade association remain independent actors.

1. Is association engaging in activity where members would otherwise compete?

1. No §1 agreement if association not engaging in activity where members would otherwise compete.

1. Example: NFL saying will only buy paper for headquarters at certain price not §1 agreement b/c teams wouldn’t otherwise compete for paper like this.

1. Note: Could be de minimis activity not subject to AT.

2. Example: NFL saying teams will buy materials for stadiums is §1 agreement but can argue not illegal restraint b/c buying club w/efficiencies.

3. Example: NFL requiring replays not §1 agreement b/c teams won’t compete on whether to show replays.

4. Example: Likely NFL deciding rules of game competition is §1 agreement but can argue needed under ROR (unless limiting coaches’ salaries) to make product of competition.

ii. Are the members in association still independent?

1. Association is subject to §1 if member entities remain independent actors so can compete but association makes rules about how they relate to each other. BMI; FOGA; NCAA; AMA: Organizations where members entities (like individual realtors) are preserved + subject to §1.

iii. Is association separately incorporated?

1. Trade association is agreement btw members regardless of whether the association is separately incorporated. Example: VISA is incorporated but sued frequently under §1 as a CCC of groups of banks. Then, VISA had IPO to become single unity b/c no longer coordinating activities of member banks but seeking profits for shareholders. Now, must sue for agreement btw VISA + banks, not for agreement within VISA itself.

2. Second, does a meeting of the minds exist to find a §1 agreement?

a. Agreement: §1 requires a CCC, or an agreement btw the parties, to find liability.

i. Note: These words do not have unique meanings, but all require an agreement to find liability under §1.

ii. Must determine 1) type of agreement sufficient; 2) pleading standard; 3) plus factors.

b. First, what is an agreement?

i. Type of Agreement Needed: Circumstances warrant a finding of §1 agreement when there is a unity of purpose, common design and understanding, and a meeting of the minds. American Tobacco. An express agreement clearly establishes a CCC under §1 and circumstance evidence can allow an inference of agreement if P pleads sufficient facts to make an agreement the best explaination. Interstate Circuit. But mere parallel behavior generally doesn’t suffice. Theater Enterprises. A tacit conspiracy is equally as illegal as an express agreement if there really is an agreement. American Tobacco; Bogossian. However, it is better not to use this term unless the case is in a circuit where “tacit” is an approved word.

1. Express agreement: Firms get together in a room + agree.

2. Tacit agreement/conscious parallelism: Firms act knowing that others would agree + that is sufficient to form an agreement.

ii. Can facts show us that firms explicitly agreed?

1. Express Agreement: An express agreement establishes liability under §1. An express agreement can be inferred from the facts of the case. Interstate Circuit (1939): Movie distributors all respond to theater chain’s letter demanding that they don’t license second-runs of movies elsewhere for less than 25 cents + don’t license movies to theaters that give double billings (showing two movies at once) of first runs by accepting/rejecting terms in same ways. Court finds this is an agreement, likely an inferred express agreement w/o saying explicitly that a tacit agreement is enough.

iii. Could we infer from the facts that the firms might have an implicit understanding to agree?

1. Tacit Agreement: Circumstances warrant a finding of agreement when there is a unity of purpose or common design and understanding or meeting of the minds. Agreement can be in course of dealing and not just words. American Tobacco: Finding of agreement when three tobacco companies have had practically identical prices from 1923-31. Only seven changes since 1920 and last one when costs were only. For two decades, prices announced every six months. Reynolds increased price periodically + Ligget + American quickly followed. In June 23, 1931, Reynolds raised price even though costs were very low + others followed this. Jury found that there was an agreement b/c firms can raise prices independently when costs go up, but this price rose during Depression when costs were low. Jury didn’t believe D’s explanation of advertising costs.

a. Note: Teacher thinks jury could have 1) found agreement; 2) found no agreement (just interdependent pricing); 3) tacit agreement.

2. Footnote 46 cases support idea that tacit agreement is enough for §1 liability.

a. Something less such as a tacit agreement might also suffice under §1 as an “agreement.” Interstate Circuit (1939):

b. It is enough that concerted action is contemplated + D conformed to arrangement. United States v. Paramount Pictures (1948)

c. P’s concession of no evidence of “letters, agreements, correspondence” insufficient to give SJ to D. Norfolk Monument Co. v. Woodlawn Mem. Gardens (1969)

d. Can’t prove conspiracy w/similarity of conduct unless have evidence that Ds were “mutually aware of such

nt, but P can only find agreement if got discovery into emails, which P will lack at pleading stage. Stevens (dissenting) thought agreement was pled by facts or conclusions of law.

b. Note: Moved the standard of Matsushita to complaint stage. Now, AT complaints are much longer as P tries to allege plus factors while hopes it won’t be sanctioned for pleading w/o good basis to believe allegations.

ii. Is P trying to defeat D’s SJ motion?

1. On SJ, if conduct is as consistent w/permissible competition as w/illegal conspiracy inference of conspiracy is not possible. Need evidence “that tends to exclude the possibility that the alleged conspirators acted independently.” Matsushita v. Zenith (1986): American television makers claim Japanese television makers engaged in agreement to do predatory pricing b/c absent agreement, an individual Japanese firm would have no incentive to charge price below costs when other firms could do so. Court at SJ stage thought it would implausible that Japanese firms had agreed to engaged in predatory pricing for 17 years b/c that is too long a time for it to be profitable to recoup cost later + better theory was that independently firms were pricing low b/c their costs were low. “Conduct that is as consistent with permissible competition as will illegal conspiracy does not, w/o more support even an inference of conspiracy.”

a. Note: Evidence that price was below cost would have gotten P to trial b/c then no firm on its own would produce below cost while losing money unless other firms had also agreed to do this.

b. Note: Teacher says this case means the inference of conspiracy must be reasonable.

e. Special issue: Do firms have similar prices/change prices at same time?

i. Interdependent Pricing Issue: W/o any communication firms will act to make prices similar b/c it is in firm’s independent interest to do this.

1. Majority: Interdependent pricing is not by itself a §1 agreement or enough for inference of agreement. Don Turner/Hodencamp/Cases:

a. Can firms increase prices together?

i. Price Leadership: Firm raising price in response to price increase of competitor would likely not get to the jury unless firms repeatedly raised prices w/o cost changes. Poser might allow a claim in this case. Example: Gas stations A + B each charge $3 + only firms in area. If B doubles price, A will do so also b/c it knows if it does nothing or tries to undercut B, B will lower price to not lose business. No agreement b/c A only needs to believe that B will lower price if A doesn’t increase its price.

1. Note: Teacher thinks, however, might need “plus” factors to explain lack of agreement if prices rise w/o increase in costs.

b. Is firms keep prices the same?

i. Price Maintenance: Price remaining same if costs go down likely would not be a §1 agreement w/o plus factors. Example: Costs go down. A doesn’t lower price + then neither does B. No agreement b/c nothing is 1) plausible independent behavior to keep status quo; 2) B would independently not lower price b/c he knows if he did, A would lower prices to match B’s prices.

1. Note: Teacher thinks no plus factors needed to explain this.

c. Policy: AT has decided to allow collusive behavior absent agreement b/c if attack similar prices or try to determine if prices have risen b/c court thinks costs are low, courts will become price regulators.

2. Minority: Interdependent pricing is a §1 agreement made w/o words or enough for inference of a §1 agreement. Posner suggests it is equivalent to a tacit agreement. Kaplow: Firm A makes an offer by raising price to continue selling at this price if other firm will also sell at this price + firm B accept this when B also raises prices. This is an agreement b/c communicating w/o words. The price itself is communication.

a. Courts do not follow this view unless there is a clear pattern of negotiation + changing prices together or changing prices in different geographical markets together.