Sherman Act Sec 1.
“A contract, combination or conspiracy” can violate Sec 1 only if it is “unreasonable” (Standard Oil.)
Per se illegal:
· Naked, Horizontal price fixing
· Naked, Horizontal market
· Naked, Some horizontal concentrated refusal to deal (boycotts)
Once a P can demonstrate that the challenged conduct falls within one of these per se categories, the P needs to do it to prove that the conduct actually occurred. (conduct presumed to be unreasonable as a matter of law). If P can establish those facts, then the D is liable.
Naked agreement – when it is does not set out some illicit trade restraint.
Ancillary restraint – when a restraint is merely one part of a larger agreement that serves some purpose other than restraining trade.
RULE: For per se allegation the P does (Socony Vacuum):
Ø Not have to show market power or even ability to cause a harm
Ø Not have to prove intent
Ø Not show any overt act toward carrying out the conspiracy; the agreement itself is sufficient to establish the offense
Ø The size of the conspiracy or the commerce involved is irrelevant; at least in the strictest legal sense, there is no de minimis expectation to per se illegality under §1.
In non-per se cases, the P need to prove that the conduct occurred and that the conduct was “unreasonable.”
Naked, Horizontal price fixing
– An agreement bw head to head completive sellers of the same product or service as to the price at which they will see.
– No particular price is necessary (In Socony Vacuum the Ds agreed to buy and stockpile some of the product in their market to cause price increase)
– Terms of the sale can also be price-fixing, as long as the terms relate to the overall consideration a buyer must give for the good. (Catalano – horizontal agreement among beer distributors to not extend credit to retail stores that carried their products. The distributors remained to charge any price they liked for their beer — still price fixing, stating the given credit was a part of the price.)
– The machinery employed by a combination for a price-fixing is immaterial. Unser SA a combination formed for the purpose and with the effect of raising, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se.
– Sharing revenues of sales is per se illegal price fixing, because they remove the incentive to compete another on a price basis (Citizen Publishing)
– A horizontal agreement to take action whose only purpose is to affect price is some way is per se illegal. (Socony Valuum)
– Joint sales or joint licensing agreement if they do no more than distribute goods independently produced by the participants.
– Sue Generis Rule of BMI (blanket licensing of copyrighted music) even thought there was a literal price fixing, SC held that the agreement was not illegal; rule of reason analysis was done because of its significant procompetitive advantages. Blanket licensing made copyright enforcement feasible that served as procompetitive purpose of encouraging composers to produce more work, and it would be impossible to police against infringement otherwise; it was also impossible to negotiate individual deals with each of million performers, producers, station, etc.
Naked, Horizontal market
– Palmer v. BRG – Intellectual property deal not of bar exam preparation courses not to compete both in Georgia — Per se illegal.
– BMI – without any competitive benefit (music licensing)
Naked, Some horizontal concentrated refusal to deal (boycotts)
Per se when the target of boycott is yet another horizontal competitor and the agreement is used to directly raised prices, restrict output, or divide territories or customers.
Per se only when
1. Firms join effort to disadvantage competitors by cutting off access to supply, facility, market necessary to enable the boycotted firm to compete (exclusionary conduct)
2. Boycotting firms have dominant position in relevant market (market power) OR exclusive access to an element essential to effective competition
3. And no plausible argument that the boycott helped with overall efficiency (no procompetitive justifications)
4. OTHERWISE the “structured rule of reason” reasonableness test applies (Northwest) -> P is required to prove D had “market power or access to an element essential to effective competition” for the per se group boycott test to apply.
– An agreement among competitors or some other participants in a given market that they will refuse to do business with some third party who is also involved in the market.
– Horizontal agreement among competitors, where the target of the boycott is another horizontal competitor, and the agreement is used directly to raise prices, restrict output, or device territory or customer.
– Must serve the parties’ own commercial advantage, but even if it is commercially motivated can be hard to say if they should be treated in antitrust.
– Setting a standard could be said to be a boycott (adopting design by a group of makers on the market can disadvantage some maker who has an alternative design; this also however, has procompetitive benefits as providing price and quality competition.)
– Joint effort by a firm or firms to disadvantage competitors by either directly denying or persuading or coercing suppliers or customer to deny relationships the competitors need in the competitive struggle. (Northwest Wholesale Stationers 1985 — rule of reason ). Boycotts often cut off access to a supply, facility, or market necessary to enable to boycotted firm to compete, and frequently the boycotting firms possessed a dominant position in the relevant market.
– Agreement among lawyers not to provide services until the fees were raised for their work was per se illegal because its only purpose was to coerce an increase in the price to be paid for their services. (Superior Court Trial Lawyers Assn. 1990).
– The NAACP v Claiborne raised a 1st Amendment issue was raised when NAACP activists boycotted retail stores which behaved in racially discriminated ways — and thus were NOT held as per se illegal.
Rule of Reason
P must show not only that a restraint occurred and that the Ds had market power but that as a matter of theory the restraint could in fact cause an increase in price or a decrease in output.
– Under SA the criterion to be used in judging the validity of restraint of trade is its impact on competition. (NCAA v Bd. Regents of the Univ. of Oklahoma 1985 — used quick look analysis.)
– P required to put on either direct evidence of actual harm (normally means some compelling proof of a sustained in price or decrease in output clearly caused by challenged restraint) or proof of market power through the market share.
– P bears the initial burden of proving that an agreement has had or is likely to have a substantially adverse effect on competition. If the P meets its initial burden, the burden shifts to the D to demonstrate the procompetitive justifications/virtues of the conduct. If the D does produce evidence of procompetitive virtues, then the P must show that the challenged conduct in not reasonably necessary to achieve the stated objective or that the anticompetitive effects nonetheless outweigh the procompetitive virtues.
– Where some small part of the agreement seems an
is inadequate and that the restraint likely will harm consumers, either as a matter of theory ir ib such evidence as is needed to show that harm is “likely.” If the P succeeds, then the D must put on a full evidentiary showing to prove its justification adequate.
4. However, if the P fails to show that the initial justification is inadequate, then the case becomes full blown rule of reason case. To proceed, the P will have to prove market power in a relevant market or out on direct evidence of factual anticompetitive effects.
Horizontal Cooperation (use Rule of Reason)
The law is fact bound. Mere exchange of info is not in and of itself illegal, even if the info concerns process.
Communication and cooperation among horizontal conspirators are inherently suspect. In most cases, in absence of some joint-venture style agreement, there is no obvious procompetitive reason such thing should occur.
– It is important to know what kind of info is required to be shared by being in organization and how it will be used
– Will it be disseminated in a way that will facilitate price fixing
– Are the general circumstances of this industry such as collusion or interdependent oligopoly pricing behavior would be likely?
(1) P can show info-sharing agreement like in Lumber, could still prevail under rule of reason even without showing of any marker structure evidence like that in Container. P can show evidence consistent with oligopoly behavior — like concentration some entry protection, inelastic price, fungibility of products (which makes “cheating” on the basis of quality harder), numerous customers and frequent transactions, and other matters that tend to make concentration easier and “cheating” easier to detect – a price sharing agreement may be illegal.
(2) Or P can establish illegality under rule of reason by showing that structural factors do make a given market like one in Container.
(3) The D can try to rebut either theory by identifying some purpose to be served other than restraining competition (it has to actually support competition, and not just social value) Cement Mfrs. — where restraint on competition prevented fraud, which by protecting market participants from abuses, it encouraged those participants to be more active in the market.
American Column and Lumber (1921): Found illegal.
– Today: This would probably not even survive a Twombly motion today on the evidence presented because the usual factors such as barriers to entry and system of discipline were not presented.
– “open competition plan” between competing lumber companies involved the weekly reporting of output, rates and other price-cost information, including future price-cost information — this is sensitive info because it enables coordinated pricing behavior.
– Transparency: Stated goal of was to make competition “open and above board:”
o Transparency can be good in a fragmented market with low barriers to entry in that it facilitates competition