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Antitrust
University of Iowa School of Law
Hovenkamp, Herbert J.

 
Antitrust
Professor Hovenkamp
Fall 2013
 
I. Economic Foundations, History & Goals
 
Chapter 1: Introduction to the Competition Model
I. Overview: The Policies & Goals of Antitrust Regulation
R.H. LANDe, “Wealth Transfers as the Original & Primary Concern of Antitrust: The Efficiency Interpretation Challenged (1982) p.6
 
II. Common Law Legacies
A. English Foundations
W. Letwin, Law & Economic Policy in America: The Evolution of the Sherman Antitrust Act 18-32 (1995)
1. Contracts in Restraint of Trade
2. Combinations in Restraint of Trade
B. American Common Law Tradition
C. Development of Legislation
D. Early Interpretation
1. United States v. Trans-Missouri Freight Ass’n (1897) p.22
·         Cartel = an ass’n of manufacturers or suppliers that maintains prices at a high level & restricts competition
·         Cartel of 18 RRs provided rail service west of Mississippi to set freight schedules & rates for all RRs
·         A contract to fix railroad rates was illegal
·         Defense = the fixed rates were reasonable
o   Railroads were treated as people, in so far as, they were able to conspire together.
·         Held: A naked cartel is illegal per se under §1
o   It doesn’t matter if the restraint was “reasonable,” there is no right to fix rates
·         §1 needs to be read literally, so every contract that restrains trade should be held illegal under §1
2. Notes & Questions
In U.S. v. Joint Traffic Ass’n (1898), the Court said Trans-Missouri was over-inclusive. §1 applies just to those contracts whose direct & immediate effect is a restraint upon interstate commerce. (making way for ancillary restraint doctrine).
Standard Oil – restraints on trade have to be unreasonable
3. United States v. Addyston Pipe & Steel Co. (1898)
·         Facts: ∆ were 6 corporations manufacturing cast iron pipes, charged with dividing competitive territories & fixing prices there. Prices would have been lower had the local manufacturers competed.
·         Issue: Was the association of the ∆’s a contract, combination, or conspiracy in restraint of trade?, 2) Was the trade thus restrained trade b/w the states?
·         Bidding for pipe contracting jobs was ripe with collusion
·         Acceptance of ancillary restraint doctrine
o   Restraints on trade are per se illegal unless they were merely ancillary to one’s business & reasonable.
·         Clearly a “naked” restraint on trade
o   Ancillary requires joint contribution, the restraint on trade must not be the main purpose
·         One goal is to protect small business unit from reduced prices brought about by larger concerns (protect from change unrelated to their own actions that could drive them out of business)
·         Did not matter whether price was fair & reasonable
4. Notes & Questions
 
 
Chapter 2: Framework for Analysis
I. The Economic Problem
II. The Market in Movement
C. Relative Performance of Competition & Monopoly
·         Deadweight Loss: loss production & consumption because of output decrease, & productions lose because production decreases
·         Wealth Transfer: from consumers to monopolist
III. Judicial Emphasis on Economic Reasoning
B. Structuralist Analysis
·         If you have a certain amount of into about the marker’s structure as far as competition, can infer monopolies through market power.
·         This extreme view led to no fault monopoly – condemning monopoly without requiring any bad conduct
·         Remedies:
o   1) Dissolution
o   2) Divestiture
Chapter 3
I. Enforcement
A. Tripartite Approach
1. Department of Justice
a. Civil Action
b. Criminal Prosecutions
2. Federal Trade Commission
3. Private Suits
a. Jurisdiction, Venue, & Service
G. Expert Testimony After Daubert
Daubert v. Merrel Dow Pharmaceuticals, Inc. (1993)
·         Held: District Courts must evaluate expert testimony for reliability as well as relevance
Kumho Tire Co. v. Carmichael (1999)
·         Court held: gatekeeping role of the district court applied to all expert testimony, scientific or otherwise
a. Concord Boat Corp. v. Brunswick Corp. (2000) p.135
·         Price has to be below cost
·         Assess the reliability & relevance of expert testimony at district court, determines the admissibility of evidence “Daubert hearings”
·         Expert testimony in this case did not incorporate all aspects of economic reality & did not separate lawful from unlawful conduct.
 
II. Monopoly & Attempt to Monopolize
 
Chapter 6: Monopoly Structure, Power, & Conduct
 
I. The Problem of Monopoly
A. United States v. American Can Co. (1921)
·         American Can = dominant firm with a competitive fringe, with the fringe imposing a significant limit on the highest price the monopoly can charge
·         Did not make machinery, just licensed to others
·         American Can actions:
o   Bought rivals with non-competition covenants (problem if a substantial portion of market)
o   Bought patents
o   Bought tin plate; over-buying for the purpose of denying access to your rivals, giving a preferential discount
o   Can-making machinery – exclusive dealing & output contracts
§  Agree to purchase manufacturers entire output
§  Rivals are relegated to inferior technology if can control this market
o   Lowered Costs to Consumers
§  Economy of scale = the costs of doing something in larger amounts is less than doing something in smaller amounts
o   Substantial R&D
o   Higher wages to employees
·         Non-competition agreements are upheld if reasonable in location & duration
·         Held:
o   Non competition agreement was not reasonable (15 years, 3,000 miles from Chicago)
o   Purchasing companies & shutting them down has no business justification
o   Can-making machinery buying is subject to the “rule of reason” – only matters when it is more than 30-40% of the market.
§  Market power never exceeded 50%
1. Notes & Questions
B. Note: the Economics of Monopolization
C. United States v. Aluminum Co. of America (1945)
·         Alcoa was a mammoth corporation responsible for a large portion of the production of aluminum in the world. It held the first patents for commercially viable aluminum production that expired in 1909. The gov’t alleged after the patents expired Alcoa took a series of actions to ensure that it remained the sole or dominant producer of its product in the U.S.
·         Must prove for §2:
o   1) Market Power
§  a sufficient share of a properly defined & alleged relevant market (70&ish)
o   2) Anticompetitive Conduct
·         The Court insisted on evidence of exclusionary conduct
o   Monopoly could have arisen by virtue of superior skill – so 90% market share is not enough to prove a §2 violation
·         When a §2 monopolization plaintiff seeks to prove monopoly power through market share, the ¶ must demonstrate a very high percentage share as an absolute minimum requisite showing of the §2 cause of action.
o   60-64% is doubtfully enough
·         Held: Secondary market is included in relevant market
·         Relevant Market:
o   One corporation must have the power to hold

e high they exaggerate power)
o   Serious fallacy, underappreciated.
·         Defendant’s product, cellophane, was held to be reasonably interchangeable with other “flexible packaging materials” because the Court found that for each of cellophane’s various purposes – like wrapping meat, wrapping cigarettes – there were other products that were reasonably similar in their characteristics & not too different in their going price that purchasers might switch to them if du Pont raised its price.
2. Note: Cross-Elasticity of Demand
3. Notes & Questions
4. Note: Barriers to Entry in Monopolization Cases
B. The Geographic Market
1. Notes & Questions
 
III. The Modern Monopolization Offense: Conduct
A. Innovation & Exclusion
1. Berkey Photo, Inc. v. Eastman Kodak Co. (1980)
·         Facts: Photofinishing services. Berkey buys Kodak film, photofinishing equipment & supplies. Kodak introduces the 110 camera & the Kodak II film that must be used together
·         Berkey argues: Should have pre-disclosed, & illegal tying
o   Monopolists have NO duty to pre-disclose for rivals, Berkey would just be able to free-ride off Kodak’s research
o   Ability to introduce the new format w/o predisclosure was solely a benefit of integration & not a use of Kodak’s power in the film market to gain a competitive advantage in cameras.
·         TYING argument
o   Technological tie: camera & film. Kodak has 90% share in film, 90% in amateur camera market (Berkey had 10% at peak)
o   Excluded rival (Berkey) is only in the film market
o   Variable proportion tying arrangement – one base product (camera) with differing amounts of tied product (film cartridges)
§  Kodak earns more money the more users buy film (could give away camera for free almost)
·         Principle relevant market
o   Nationwide, amateur conventional still cameras, conventional photographic film, photofinishing services, photofinishing equipment, & color print paper
·         Tying Analysis
o   Standard = “willful acquisition of maintenance”
§  A firm may not employ its market position as a lever to create a monopoly in another market
o   Held: A firm violates §2 by using its monopoly power in one market to gain a competitive advantage in another, albeit w/o an attempt to monopolize the second market (LEVERAGE THEORY) (not used now)
§  Also improper for monopolists in one market to gain a comp. adv. by refusing to sell a rival the monopolized goods or services he needs to compete effectively in the second market (w/o valid business reasons) (not the case here though)
o   Conclusion: NO violation of §2 merely by introducing the film at the same time as the camera & advertising the advantages. Kodak may have had anticompetitive motivations when restricting camera to one film BUT Berkey must prove INJURY (which it did not)
o   * May be different after Spectrum Sports