Antitrust : Ponsoldt : Fall 2008
CHAPTER 1: THE ANTECEDENTS OF MODERN ANTITRUST. 1
Introduction. 1
Early Cases. 4
Economics. 7
CHAPTER 2: CARTELS AND CONDUCT AKIN TO CARTELS. 9
Evolution of the Law 1918-1940:9
Characterization Cases (Is This a Cartel?)12
State Action Immunity Doctrine. 19
Noerr-Pennington (Political Action) Doctrine. 21
Proving a Cartel (Combination)23
CHAPTER 3: MONOPOLY AND DOMINANCE. 26
The Alcoa Case. 27
The Conduct Offense. 30
Refusal to Deal33
CHAPTER 4: MERGERS. 43
Historical Perspective. 43
Contemporary Law and Enforcement48
CHAPTER 5: COLLABORATION AMONG COMPETITORS (OTHER THAN CARTELS)55
Concerted Refusals to Deal Other than Naked Boycotts. 55
Competitors’ Exchanges of Information. 55
CHAPTER 6: VERTICAL RESTRAINTS. 59
Restraints in the Course of Distribution (Vertical Price Restraints)59
Exclusionary Restraints. 64
CHAPTER 1: THE ANTECEDENTS OF MODERN ANTITRUST
Introduction
I. Background:
A. Antitrust law is public law – it is designed to promote competition, not competitors. It is not for the benefit of an individual competitor, it is for the interest of the ongoing competitive process.
B. Antitrust has been highly politicized since its creation in 1890.
C. 47 of the 50 states don’t have an antitrust statute
1. Georgia does not, but has strong constitutional guidelines against monopolies
II. Major Laws:
A. Sherman Antitrust Act of 1890
1. §1 prohibits combinations in restraint of trade
2. §2 prohibits monopolies
B. Clayton Antitrust Act – prohibits certain merger practices when they affect competition
1. §3 prohibits sales on the condition that the buyer not deal with competitors of the seller (“tying” and “exclusive dealing”), where the effect “may be substantially to lessen competition or tend to create a monopoly
i. price discrimination – 2 kinds:
a. primary line: prohibits direct effects that reduce competition for the seller, harder to bring this kind of case today)
b. secondary line: prohibits price discrimination that reduces competition for the buyer
2. §7 prohibits acquisitions or mergers where the effect “may be substantially to lessen competition, or tend to create a monopoly”
C. Robinson-Patman Act of 1936 to amend § 2 of the Clayton Act
1. forbade any person or firm engaged in interstate commerce to discriminate in price to different purchasers of the same commodity when the effect would be to lessen competition or to create a monopoly.
III. 3 ways to bring cases:
A. Criminal complaint – Sherman Act is a criminal Statute
1. CURRENT EVENT: US v. Rose – upheld the criminal conviction of an executive of a vitamin company for a price-fixing scheme under §1 of the Sherman Act. When the executive jointed, the corporation was already engaged in a concerted action in restraint of trade (fixing the price of Choline Chloride, rigging bids, allocating markets, and doing something with customs). Δ argued that the system ceased to exist when he became president, but the court said there was evidence of a continuing conspiracy.
B. Govt civil complaint – FTC or DOJ can bring suit seeking injunctive relief or penalties for violations of the Sherman, Clayton Acts.
C. Private civil complaint – a private plaintiff can sue over antitrust violations
IV. Congress hasn’t written a preamble or set forth, specifically, its goals. Academics, however, feel that the goals of antitrust law are to:
A. Prevent monopolies to protect consumers from unduly high prices
B. Promote & protect independent business
C. Reduce economic concentration (post-WWII)
D. Promote economic efficiency
1. allocative efficiency – if we have a free market, then goods & services will be traded and valued at their highest value overtime. Aggregate societal wealth will be maximized
2. productive efficiency – cost reductions
V. HYPO: A furniture company agrees to purchase all of a company’s wood for the next 10 years.
A. Requirements K’s like this are perfectly ok under K law, but they can restrain trade – not categorically (like price fixing), but if you look at the surrounding facts, you can determine whether or not the K will injure competition. You would have to show some degree of market concentration.
B. Who might be hurt?
1. competing lumber yards – market foreclosure
2. consumers (price of furniture may go up if price of wood is prevented from going down)
3. the lumber yard might be stuck in an unprofitable K
C. Does this K restrain trade / is it prohibitive?
1. Must prove that there is an injury to competition
2. The more concentrated the markets for furniture and lumber, the more likely the injury
3. Prove that the market is saturated (company buys out the market) (difficult to show)
VI. HYPO: Swiss watchmaker has a new technology that allows him to make watches cheaper and better. He does not take advantage by raising the price, which stays the same for 5 years. He refuses to license the technology, and after a while ends up being the only watch-maker left in business.
A. PROBLEM: this ↓ competition, which hurts the public interest because prices will probably rise once all of the competitors are gone.
B. The government might tell the watchmaker he has to license the technology, which would, presumably, restore competition. This helps in 2 ways:
1. ↑ the competition and thereby lowers prices
2. creates an environment in which future innovation is more likely (if there is only one producer, he has no incentive to innovate).
C. This is part of the Antitrust Paradox, in which we encourage innovation and then punish you when you succeed
1. of course, this is an overstatement: the watchmaker wouldn’t really be punished b/c he didn’t do anything exclusionary to gain his market position
VII. The political economy of antitrust – systems for regulation:
A. Command Economies (socialism) – since there is no private sector, there is no regulation
B. Public Utility Model – businesses are privately owned, but heavily regulated in terms of market entry and allocation, price, conditions of sale, etc.
C. Industrial Policy Approach – typical Democrat approach; pick & choose business winners and losers by giving out selective tax breaks and subsidies to certain industries
D. Policed Free Market – market is privately owned, and we allow the private market to control who succeeds, but if there are breakdowns of the proper function of the market, then the government steps in to correct the breakdown
E. Laissez-Faire – no role for government; libertarian approach
VIII.Antitrust in Decline in the US:
A. Since Reagan, we’ve had a pro-Δ push in antitrust. Judicial appointees have helped this along. Bush administration has been very pro-defendant
B. The pattern now is to file an action, undertake discovery, and then the Δ moves for summary judgment, which is granted more after Matsushita (1986) – as a result, lots of cases have resulted in settlement.
C. This has resulted in a jaded view of th
raint; outside competition could still compete so the public still received the benefits of competition.
2. Ruinous competition: inviting the court to reverse the RR case
C. Holding: Addyston Pipe violated §1 the Sherman Act.
1. NEVER OVERRULED – federal cases today sometimes use this analysis, some don’t.
2. No reasonableness test (upholds RR case), BUT in dicta the court establishes a perspective on §1 of the Sherman Act that only unreasonable restraints would be struck down.
i. Reasonableness test = Ancillary Restraint Doctrine
a. Naked Restraints – agreements that have the “direct and immediate” effect of restraining trade are per se illegal under §1 of the Sherman Act.
1. This counts even though a was a partial restraint – they must have had the power to do something because the did it (induced)
2. Would have been illegal under the CL & is currently illegal on the Sherman Act
b. Ancillary Restraints – primary purpose of the agreement is something beneficial & the restraint is only ancillary. Legal if:
1. For a legitimate purpose (“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 the other party”)
2. If the restraint is no more restrictive than necessary to promote the goals of the primary agreement (looking at the overall terms of the agreement)
ii. Standard Oil’s concept of reasonableness is different – looks to the effect on the market. Doesn’t ask whether the restraint is naked or ancillary. Also presumes that companies with a large share of the market are more likely to have an anticompetitive effect.
III. United States v. Joint-Traffic Association (1898) – basically the same facts as the RR case, but the court “softened its dictum that all restraints are illegal, stating that the formation of corporations, partnership agreements, joint sales agencies, and sales or leases with ancillary covenants not to compete, have never been regarded as contracts in restraint of trade”
IV. Northern Securities Co. v. United States (1904)
A. Facts: J.P. Morgan, James J. Hill, & E.H. Harriman form a holding company (company that acquires enough stock in another company to control its operations) under New Jersey law to prevent “cut-throat competition” in the RR industry. This conduct differs from what we’ve seen before – it wasn’t an agreement to hold prices down, it was a bunch of companies that essentially merged and were then having their rates set centrally. There was no merger law yet (§7 of Clayton Act), so they prosecuted here.
B. Δ arg:
1. partial restraint: we don’t have a complete monopoly
2. only unreasonable restraints illegal:the Sherman Act only prohibits unreasonable restraints, and ours isn’t unreasonable.
