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Wayne State University Law School
Calkins, Stephen

Horizontal Restraint Generally
I                      Generally
A       Horizontal agreement = agreement among COMPETITORS
B       Oft-given justifications for cartels
1        Preventing cutthroat competition; preserving needed capacity; reducing uncertainty; financing desirable activities; countervailing power (e.g., of customers or suppliers)
II                   Sherman Act § 1
A       Outlaws “[e]very contract, combination . . ., or conspiracy, in restraint of trade”
1        But not every restraint is really illegal: lawyers forming a firm, for instance
B       Element for violation:
1        AGREEMENT (“contract, combination, or conspiracy”)
2        AND an UNLAWFUL RESTRAINT of trade
1        Was there an agreement?
a        If so, was there a restraint?
b        If so, was the restraint:
i           Price fixing, output restriction, market division, some group boycotts? Then per se illegal
ii         Agreements that facially restrain competition, some group boycotts? Then quick-look (see inquiry below)
iii        All horizontal agreements that do not fall in any of the above categories? Then RoR
c        Recall NO MARKET POWER requirement for § 1 liability
D       Could be a JOINT VENTURE- undertaking by 2 or more business entities for some limited purpose- something short of a complete merger or combination.
1        If the purpose of the combination is illegal per se, the joint venture is also illegal per se.
2        However, if the purpose and effect of the combo produces plausible integrative efficencies, use RoR analysis
a        Inquire, is the restraint on competition created by the combo really necessary to achieve the lawful purpose, or are there are other means to achieve the purpose which are less restrictive of competition.
b        Look at duration (limited time better), necessity of joint venture (could the parties not do whatever they are doing but for the JV), industry structure (JV better in competitive market as opposed to oligopoly).
III                 AGREEMENT
A       Exam Approach- is there an agreement?
1        Is there an actual WRITTEN agreement?
a        Yes, go on to determine if it unreasonably restrains trade.
b        No, go to 2
2        Is there direct evidence of an agreement (e.g. witnesses, audio or video tape) Note: circumstantial evidence can suffice.
a        Yes, go on to determine if it unreasonably restrains trade.
b        No, go to 3
3        Is there conscious parallelism (i.e. party knows of actions of its competitors and decides to do the same)?
a        No, there is NO AGREEMENT.
b        Yes, go to 4
4        Are there plus factors (e.g. communication among parties, an economic motive for concerted action, simultaneous action, acts in contravention of individual economic interests, radical departure from past practices, etc.)
a        Yes, go on to determine if it unreasonably restrains trade.
b        No, there is NO AGREEMENT.
B       Examples of agreement
1        Circulating list of disfavored vendors may suffice to prove agreement not to buy from those vendors
2        No simultaneous agreement nec

, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se. (Socony)
3        -If D’s are willing to do this, then proof that they can influence the pricecomes from the fact that they actually entered into the agreement in the first place.
ii         Max price. (Maricopa / docs setting max price)
1        Why restrains competition? Tends to provide same economic reward to all, regardless of skill, etc; tends to stabilize price, distort resource allocation, may discourage entry into market, experimentation; max price tends to become MIN price
iii        Output limitations
iv       Geographic apportionment of market. (Topco)
1        Cannot divide territories, customers and/or products.
2        D’s Defenses
a         Try to make it a vertical agreement- that way you can be under RoR.
v         Ban on price competition (i.e., gag rule). (Engineers)
vi       And generally, any agreement that will almost always RESTRAIN OUTPUT or INCREASE PRICES. (BMI)
b        Some justifications that ARE NOT legitimately PRO-COMPETITIVE (i.e., this will keep you in a per se analysis):
Prevent SOCIAL HARM — e.g., buildings falling down. (Engineers / prof socy prohibits discussing price w/ customers)