Professor Pierce

Spring 2002
Antitrust Chronological Outline
I.

Introduction: Common Law Antecedents of the Sherman Act

A. The Case of Monopolies (1603 England)
1. The queen granted a monopoly on playing card making, viewed cards
as a social ill.
2. Queen was getting paid for the monopoly grant.
3. Court finds it is a monopoly and doesnt see a justification. Holds the
decree invalid. Court sees same effects of monopoly as queen and says
the queen is not entitled to them.
4. Court recognizes that monopolies generally lower quality. They say
Parliament could grant a monopoly but the queen cannot.
B. General Economics
1. Marginal Revenue Curve basis for decision-making. The monopolist
will produce up to the price of the curve. The monopolist will supply up
to where the marginal revenue intersects with marginal costs. And will
charge the price where the Demand curve intersects with that quantity.
2. Would rather have competitive markets that dont result in artificially
high prices for lower than optimum output as well as artificial transfer of
rents.
C. Reasonable restraints on trade incident to legitimate transactions are okay.
1. Mitchell v. Reynolds (1711)
a) Owner of a bakery wants to lease his bakery for 5 years. AS
part of the lease agreement the owner agrees that he will not open a
competing bakery within the parish of the original lease. The
owner violates this.
b) Even though contracts in restraint of trade, all contracts are in
restraint, and reasonable restraints incident to legitimate
transactions are okay.
c) Court balances potential adverse effects on public and the good
effect.

II.

Chapter I: The first 25 Years under the Sherman Act: 1890-1914

A. Generally
1. Sherman Antitrust Act (US 1890)
a) 1 outlaws every contract in restraint of trade (courts add
unreasonable)
b) 2 outlaws monopolization or attempts to monopolize. (Also
means unreasonable, some attempts can be good for the market.)
2. Initially the court treats the Sherman Act as applying in an
extraordinarily narrow context. Via the interstate commerce clause.
B. Jurisdiction and the Scope of the Act
1. Sherman Act does not apply when there is not interstate commerce
present.

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Spring 2002
a) US v. Knight (1895) Knight controls 98% of sugar market by
the time it gets to court. But the court rules that sugar
manufacturing is entirely local so Sherman Act does not apply.
(1)
The decision is essentially dead but it has never
been overruled.
(2)
Problem just because sugar in one area does not
mean that it does not have effects on I/C. This decision
would make the Sherman Act only applicable to
transportation.
b) The Supreme Court has been notoriously inconsistent without
overruling in this area.
(1)
E.g. Baseball is just a sport that does not affect
interstate commerce, however football does affect interstate
commerce and baseball case was never overruled.
2. Extraterritorial Jurisdiction of the Sherman Act
a) Congress did not mean to apply the Sherman act to
extraterritorial jurisdiction. American Banana (1909).
(1)
United Fruit and governments of Panama and Costa
Rica destroyed American Bananas plantations in order to
preserve the United Fruit monopoly.
(2)
Demonstrates the pragmatical limits of US antitrust
law.
b) Today, Courts are more likely but still hesitant to apply
Sherman Act to foreign commerce.
C. Horizontal Combinations in Restraint of Trade
1. The practice of setting prices is a restraint on trade (curbs each firms
freedom and commerce and is in violation of 1. Court found that the
Sherman Act outlaws all contracts in restraint of trade, although it
abandoned this finding one year later. Also, the Sherman Act can apply
where the Interstate Commerce Act applies. Nothing in the ICC says that
the Sherman Act does not apply. US v. Trans-Missouri Freight Assoc
(1897) (Found that the cartel practice of agreeing on prices was in fact a
contract in restraint of trade and thereby gave rise to a Sherman Act
violation.)
a) Government was claiming that the purpose of the association
was to unjustly and oppressively increase rates. Filed suit claiming
a violation of 1 (price fixing restraining trade by not letting
everyone set their own price).
b) Must ask whether or not the practice, not the result, is
reasonable.
(1)
As applied here, the reasonable price is no defense,
the practice of setting prices (and therefore suppressing
competition) is a restraint on trade.
(2)
The practice of price-fixing is not reasonable.
Basically saying that price fixing agreements are within the

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Spring 2002
prohibition of every trade restraint without regard to
reasonableness.
2. Note on Cartels
a) Cartel meetings decide who will cut back on production to set
price higher.
b) Only real strategy is to bargain hard in the meetings and then
cheat.
c) The only ones that are effective use the power of the state.
(E.g. American Banana cartels.)
d) Small producers love cartels. Despite the fact that half of the
Congress enacted the Sherman Act with the idea that if they get rid
of cartels, it would help small producers.
3. Horizontal minimum price fixing and horizontal allocation of markets
are per se illegal unless they are necessary as ancillary to a legitimate
transaction. US v. Addyston Pipe & Steel (6th Cir 1898) (This per se rule
does not in fact become the law until 30 years later by the supreme court.)
a) Leaves possibility for a narrow incident to legitimate
transaction defense.
b) An example of where the behavior would be ancillary to a
legitimate transaction would be Mitchell v. Reynolds (Bakery
lease.)
c) Court defines a market as consisting of a product market and
geographic market.
d) Geographic market
(1)
Determinate of scope is transportation and shipping
costs.
4. Market Allocations Generally:
a) Can create separate markets giving monopolistic
charachteristics in each area.
b) This behavior has the same effects on consumers as a
monopoly.
c) Geographic allocation of market has the same effects as
horizontal price fixing and monopoly.
D. Monopolization and Merger
1. Rejection of per se rule and adoption of rule of reason
a) Standard Oil in 1911 says that the will never adopt a per se
rule in these cases, instead they will look to the rule of reason.
(1)
Adopts the rule of reason for all cases.
(2)
Therefore government cannot win without proving:
(a)
That did something to have a bad effect
on consumers
(b)
That the action did in fact have a bad effect
on consumers
(c)
And must allow s to defend and present all
evidence to show that the practice was necessary.

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Spring 2002
(3)
Even finding that the rule of reason applied, the
(Rockefeller) still lost, as the firms behavior was clearly
anticompetitive. Created an oil refinery trust of over 90%
of the refineries in country where they set prices and
quantity. Court ordered divestiture.
(4)
Here, Rockefellers vertical integration undoubtedly
lowered prices and made it more effective but he also
formed a cartel that ripped off the country.
2. Essential Facilities there are essential facilities to which private
actors must provide access to all. In these disputes the remedy will be to
allow an ownership interest and access to facilities.
a) Terminal RR Case (Where owned 3 rail bridges over
Mississippi must allow other railroads to use them for a fee, and
regulate the prices that will be charged.)
E. Vertical Restraints of Trade Resale Price Maintenance
1. Dr. Miles Medical company & John D. Park & Sons (1911) - Illegal
because selling to distributors and requiring a price.
a) Dr. Miles sold medicine prepared by means of secret methods
and formulas to jobbers and wholesalers. It fixed the price, not just
of its own sales, but also the wholesale and retail prices that its
product could be sold at. Department stores, sold the medicine at
cut rates (below the price fixed by Dr. Miles.) Dr. Miles claims
that s in combination and conspiracy with a number of wholesale
and retail dealers sold the remedies at cut-price levels and therefore
unlawfully and fraudulently procured them from Dr. Miles agents
by means of false and fraudulent representations and statements.
b) What he was afraid of was discount sellers ruining his
reputation.
c) Court says that the secret processes used were not the same as a
patent. A general restraint upon alienation is ordinarily invalid.
You cannot fix the future price of sales.
d) Court says it is a restraint on trade
(1)
Purpose of the agreement is to maintain prices after
he has parted with the articles and prevent competition
among those who trade with him Same as the dealers
getting together and fixing prices.
(a)
Once he has sold the product he has no
control over the subsequent traffic of articles.
(2)
While you can always set your own price, when you
attempt by contract to limit someone else's freedom to set
their own prices it becomes illegal.
2. For 1 you cant violate it by making unilateral (private) decisions not
to deal with others. Colgate Case (1919) Set uniform prices (by way of
a price list) and you dont have to do it, but if you do then you have to set
our prices or else well stop selling to you. Court says that is not a
violation. This modifies Dr. Miles but Dr. Miles still dominates.
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Spring 2002

III.

F. Adoption of the Clayton and Federal Trade Commission Acts

1. 1914 FTC Act
a) Gives the FTC concurrent jurisdiction with the DOJ
b) Power to prohibit unfair or deceptive acts or practices (Illegal
even if it doesnt violate the antitrust laws.)
2. Clayton Act
a) Exempts labor unions from antitrust laws ( 6) (says nothing
about independent contractors banding together) also exempts
employees
b) Outlaws price discrimination ( 2), exclusive dealing, or tying.
c) Applies only when practice lessens competition or tends to
create a monopoly (The courts must figure this out.)
d) Outlaws mergers that substantially lessen competition.
The Rule of Reason Period 1915 to 1935
A. Cases giving definition to the rule of reason
1. Chicago Board of Trade v. US (US 1918)
a) Board would close in the afternoon but could still buy at
different prices until Board enacted rule prohibiting grain trade
from 2 p.m. until open of business (next day or Monday). Could
only trade grain then at the price set by the board until 2 p.m.
b) DOJ alleged this was horizontal price fixing the suppliers
were agreeing on prices.
c) Not a violation of the Sherman Act by applying the rule of
reason the government proved neither an illegal intent nor any
illegal effects.
d) The asserted the good effects
(1)
Before rule there were only a few grain dealers
buying off hours and they had undue market power.
(2)
Allowed grain dealers to work better hours. (But
later courts have failed to recognize this as material.)
e) Court said, every board of trade and nearly every trade
organization imposes some restraint upon the conduct of business
by its members.
f) Just because the government cannot prove bad effects does not
mean that bad effects dont exist.
g) Case shows that s can win a 1 claim under the rule of
reason.
2. United States v. US Steel Corp (US 1920)
a) Shows that can win 2 claim under rule of reason.
b) US Steel formed a holding company trust that has acquired
shares of 12 steel producing firms (50% of production) that used to
compete, now US Steel makes the output price decisions. (It is a
cartel).
c) Government alleges it to be a contract in restraint of trade and
an attempt to monopolize.

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Spring 2002
d) Government tries to extend the theory that it was a cartel of
100% of firms by Gary Dinners where they would send VPs to
Gary Indiana to discuss.
e) The majority applies rule of reason and says that the
government must prove bad effects on the market. The court
finds the government hasnt shown this.
(1)
It was an unsuccessful cartel (never got to 100%)
(2)
Incomplete monopoly (Never got to 100%)
(3)
No proof of abuse of power
f) Unsuccessful cartel and incomplete monopoly are now
defenses after this case.
B. The Trade Association Cases
1. Recent Supreme Court decisions dont tell much more than the
following. Similar cases in similar markets with differing decisions
probably more a result of changing court.
2. Trade association was organized in restraint of trade as its purposes
and effects were increased pricing and production restriction. American
Column & Lumber Co v. US (US 1921)
a) Members of trade association participated in behavior that
violated the Sherman act.
b) Firms provided information tot eh trade association and
association provided information back to the firms.
3. Trade associations that discusses business and statistics, but do not act
in restraint of prices, production, or competition are legal. Maple Flooring
(US 1925).
4. Five conditions favorable to conclusion that implicit collusion in the
industry being examined:
a) A concentrated market of sellers and a lack of a fringe market
of small firms.
b) A standard product sold primarily on the basis of price.
c) Issues pertaining to the need or at least the incentive to
collude.
d) An inelastic demand at the competitive price.
e) An industry in which entry takes a long time.
5. What can trade associations do?
a) Send information to other firms and agencies (DOJ & FTC)
(1)
Not trying to hide anything. Reporting data back is
where the problems are caused.
(2)
Form specific information. Very valuable for
putting together cartel average, aggregate data is not.
(3)
Past data versus prospective data.
b) Limited access to association numbers and info
c) Cannot advertise for a group (designed to cooperate) (luring
others by claiming success at raising prices.)
6. The problem of oligopoly

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Spring 2002
a) Advance publication of prices (could be socially beneficial or
harmful subtle conversation between competitors.)
b) Industry-wide resale price maintenance
c) Basing point pricing agree to quote same price for same
locations. (Simplifies process of reaching agreement for cartel.)
d) Other important characteristics
(1)
Product homogeneity/heterogeneity
(2)
Price elasticity of demand
(3)
Ease of entry
7. Enforcement authority is monitoring:
a) Characteristics of the market
(1)
Oligopoly - # of firms and market shares
(2)
How easy is the market to cartelize (e.g.
practically impossible to get a cartel of 100 firms)
(3)
Agreement between producers of heterogeneous
products would have to be very complicated for an
effective cartel
(4)
Inelastic demand for product makes it easier to
cartelize not worried about industries with elastic demand
curves.
(5)
Ease of entry
b) Concerned about highly concentrated markets with
homogenous products with inelastic demand and high barriers to
entry makes it ideal for cartelization. (Gradually courts are
paying more and more attention to these characteristics.)
c) Advance price publication can be part of horizontal price fixing
agreement. Resale price maintenance fairly easy to monitor.
C. The Interplay Between Patents and Antitrust Law
1. Antitrust law hates monopoly
2. Patent law loves monopoly. It grants legally conferred monopolies to
patent holders who earn monopoly rents on the inventions.
3. TRIPs 20 years.
4. Patent law has not changed much over time.
5. A patent is a property right, the holder can condition the use of that
property right. US v. General Electric (US 1926)
a) Where GE held the patent to tungsten filament the only way to
develop incandescent lighting, worth billions of dollars, they were
allowed to set the price that it could be sold at if they never
released the license and instead sold through agents.
b) Two ways of marketing sell light bulbs only through
Westinghouse or agents required to sell the light bulbs for no less
than a certain price. (Horizontal price fixing) License competitor
to make manufacture and sell light bulbs but they were required to
sell at GE required price.

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Spring 2002
c) The license and minimum price provision was to bribe
Westinghouse not to come up and compete while GE held patent
and court said this was okay.
6. Patent law entitles you to your monopoly rent, but does not entitle you
to cartel rent on 4 separate patents. Standard Oil v. US (1931) (When
similar patents are held they cannot be cross-licensed in a way that creates
a cartel which dominates the market, however in this case the market was
such that the four firms holding the patents did not hold the market power
to do damage.)
7. Patent misuse will lead to the patentor losing their rights to that patent.
8. Exclusive Dealing
a) Clayton 3 prohibits exclusive dealing contracts whose
effects may substantially limit competition or create a monopoly.
Intended to prevent such agreements as would under the
circumstances disclosed probably lessen competition or create an
actual tendency to monopoly. Standard Fashion v. MagraneHouston (US 1922)
D. Testing the Limits of the Rule of Reason
1. Jury does not have to be instructed to account for whether the actual
price fixed was reasonable. Thats irrelevant. United States v. Trenton
Potteries (US 1927) (Per se illegality in the rule of reason period).
a) Toilet bowl industry ideal market to cartelize.
b) Supreme Court upheld criminal convictions under the Sherman
Act.
c) Looks like an adoption of a per se rule (although they dont
overrule the rule of reason.
d) At a minimum court has foreshadowed a major change.
2. The filed rate doctrine
a) Where railroads who would normally compete agreed to charge
the same rates, and the ICC approves rates as reasonable, the
Supreme Court held that a private action for treble damages
alleging collective rates in violation of the Sherman act would not
be supported. Keogh v. Chicago & Northwestern RR
b) Supreme court found that there probably was a violation of the
Act, but there was no remedy available.
c) Doctrine
(1)
ICC given power to say a rate is illegal or legal
(2)
Any rate the ICC determines to be lawful is the only
lawful rate according to the ICC act.
(3)
Remedy under Sherman act would have been treble
damages, but must compare actual rate to lawful rate. Or
injunction to pay legal rate. However, there is no
difference between actual and lawful rate because the ICC
sets both.

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(4)
Doctrine applies whenever a federal agency has
power to say prices are lawful or unlawful. And filed rate
is the only lawful rate to charge.
3. An agreement eliminating competition between producers but done to
eliminate market evils was okay where there were good intentions and it
was not yet shown to have negative effects on the market. Appalachian
Coals v. US (US 1933) (A cooperative enterprise, otherwise free from
objection, which carries with it no monopolistic menace, is not to be
condemned as an undue restraint merely because it may effect a change in
market conditions where the change would be in mitigation of recognized
evils and would not impair, but rather foster, fair competitive
opportunities.)
a) Where Appalachian firms got together and tried to fix prices
the Supreme Court said it was okay because they didnt actually fix
prices. Instead they
(1)
Stabilized prices
(2)
Raised prices
b) Both of which were okay.
4. Note between Trenton Potteries (US 1927) and Appalachian Coals
(1933) the depression occurred. Decided differently.
a) Capitalism and competition were good in 1920s so tougher on
enforcing antitrust laws.
b) By 1933, US public attitude was hostile towards markets (New
Deal era) replace ruinous competition with cooperation.
5. Other ways to deal with the recession era problems of excess capacity
from low demand as seen in Appalachian Coal
a) Encourage cartels (court was sympathetic to)
(1)
If a cartel is formed they will restrict output and
raise prices. But this lowers demand and increases excess
capacity.
(2)
You can never cartelize yourself out of a problem.
b) Encourage Competition
(1)
If forbidden to cartelize, prices will drop, demand
will rise, and supply will drop. The market will eliminate
the problem, but not instantly it will depend on elasticities.
(2)
The least efficient mines in this situation will close.
(3)
Painful period of dislocation and transition here.
c) Encourage mergers (court feels same result in the end as
allowing cartels.)
(1)
If you allow mergers small firms will merge to take
advantage of economies of scale.
(2)
Inefficient firms will go out of business
(3)
End up with fewer firms that are larger but still have
competition between tem.
(4)
Merged firms will get rid of inefficient mines.

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Spring 2002

IV.

(5)
Eliminates the excess capacity and have
competition.
(6)
Mergers are fine as long as they have no adverse
effects on competition.
The Per Se Rule and Focus on market Structure 1940 to 1974
A. Horizontal Combinations in Restraint of Trade
1. Price Fixing
a) Horizontal price fixing is per se illegal. United States v.
Socony- Vacuum Oil (US 1940)
(1)
Court said that horizontal price fixing had been per
se illegal for 40 years. (Not quite true.)
(2)
The authority for legal cartelization of the
petroleum board was held unconstitutional.
(3)
Uses a but for test for causation.
b) State Action Doctrine
(1)
When California created a CA Raisin Production
Board to oversee production of raisons and encouraged
cartelization of raison market (the Board could decide price
and quantity of producers), the Supreme Court held that
there was no violation. Parker v. Brown (US 1943)
(2)
The Sherman act is silent about government
involvement. The Court interprets statutes silence as
congressional intent not to interfere with traditional state
involvement in area.
(3)
If state orders behavior that would otherwise be
illegal with private actors, it is insulated from liability.
(4)
Monitoring and enforcing is easier with state
oversight.
c) The Sherman Act does not prohibit collective advertisements
expressing several firms view against legislation, which would
reduce the cost of trucking. Eastern RR v. Noerr (US 1961).
(1)
Even if a group is motivated by profit, it is still
allowed to influence government action.
(2)
Exception Collective actions taken not really
motivated by trying to influence government action, but
instead have absolutely no chance of success and solely
motivated by an intention to delay government action are
not protected. CA Motor Transit (US 1972). Extremely
limited exception.
2. Group Boycotts
a) Group boycotts are per se violations of Sherman Act 1
(1)
When a group of 1200 fashion designers refused to
sell goods to retailers who bought from style pirates the
court found that it was a group boycott which was per se
violation of 1 of the Sherman Act. Fashion originators
(US 1941)
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b) The ability to veto an application for membership by
competitors is a group boycott and thus illegal. Organizations may
not arbitrarily or for anti-competitive reasons be excluded from
essential services. Associated Press v. US. (US 1945)
(1)
Also could not block the ability to run stories of
competitors, although they could in the same market.
(2)
Organizations may not arbitrarily or for anticompetitive reasons be excluded from essential services.
c) Under what conditions may non-arbitrary reasons for expulsion
be employed. Silver v. NYSE (US 1963)
(1)
Self-regulation does not excuse a group boycott.
When member expelled from NYSE it was considered a
forbidden group boycott.
(2)
Due Process - In order to claim the protection from
antitrust liability afforded by its obligations to comply with
the regulatory requirements, the Exchange would have to
grant due process to a member before it was expelled.
(3)
Thus it wouldnt have been a per se violation had
they given silver a hearing and stated the reasons for the
dismissal.
3. Market Division
a) Horizontal geographic allocations of markets are per se illegal.
As to a relevant geographic market it is a violation of Antitrust law
for individual multiple firms to allocate markets between
themselves. Timken Roller Bearing v. US (US 1951)
(1)
Naked restraint on trade ancillary to legitimate
business purpose.
(2)
British, French, and US Timkens allocating
markets
(3)
The court did not order dissolution. Instead orders
injunction and contract binding the three firms
unenforceable and void.
(4)
Makes partly owned subsidiaries a separate firm for
purposes of the Sherman act.
(5)
If wholly owned subsidiaries, sister corps, etc.
would not be considered separate firms would be seen as an
individual firm, relative departments. Coppenold (1984)
b) Note that it cannot be a violation of Sherman 1 if 3
departments internally agree to allocate markets.
c) Fixing Maximum Prices Horizontal maximum price fixing is
per se illegal. Important to recognize that horizontal maximum
price fixing can essentially be a disguised minimum price fixing.
Keifer Stewart v. Seagram (1951)
d) Conscious Parallelism something that can be identified by an
outside only by observing the market. Either agreeing on price
changes or they are watching and adapting their prices. Parallel
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changes in prices. In 1949 Supreme Court found conscious
parallelism is per se illegal can draw the inference. In 1954, they
found conscious parallelism to be legal, found that conscious
parallelism alone cannot violate the antitrust act.
4. Cases Testing Limits of Per Se
a) Conscious parallelism is not per se illegal but might be used as
a piece of evidence which will be added to others to prove a
violation of 1 Sherman. US Container Corp (US 1969) (Informal
ad hoc reciprocal exchange of price information can lay foundation
for a Sherman Violation if the industry is such that market
characteristics are vulnerable. In corrugated boxes, the industry is
dominated by few sellers, product is fungible, competition for sales
is price, demand is inelastic, and buyers place order for only
immediate short-term needs.)
(1)
The court here applied the rule of reason (But more
like a complicated per se rule). Government would have to
show the price exchanges were done with an
anticompetitive intent.
(2)
fungible product standardized specs not a lot of
variation.
(3)
Seems to be more of a complicated per se rule than
the rule of reason. You have violated the antitrust laws if
youve done ________, __________, and ________, unless
you __________________.
(4)
If you engage in reciprocal sharing of price
information in a market that shows a tendency or good
conditions to form cartels the court will hold it a per se
violation.
b) Pattern for conscious parallelism is the same pattern of a
perfectly competitive market as well as extreme pattern of pricing
behavior.
c) Horizontal territorial allocations of markets is a per se
violation. It also can be characterized as a group boycott which is
also a per se violation. US v. Topco (US 1972)
(1)
When 25 small groceries formed an association at a
time when big chains were destroying smaller grocers.
They engaged in cooperative labeling, buying and
advertising. Recognizing these were the areas that the big
grocers were leading. Also the allocated territories and
allowed a member to veto an application of a competitive
store. They only held 1.5-16% of the market.
(2)
Court held they had already decided this matter. It
was per se illegal.
(3)
J. Burger dissent says that Topco has good
effects on the market. They only have 16% of the share in

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any one market and this allows them to compete and
probably has pro-competitive effects.
(4)
The majority recognizes that it may not be the best
decision for this market.
d) Per se rule justifications
(1)
Probability that behavior is harmful
(2)
Difficulty in distinguishing situations
(3)
Institutional limitations of the court.
B. Monopolization
1. Must prove the a monopoly and that they obtained the monopoly
through wrongful means. Simply having a monopoly is not illegal.
Though it is illegal to abuse monopoly power if you have it. United States
v. ALCOA (2d Cir for Supreme Court 1945)
a) Determining the scope of the relevant market:
(1)
Geography look at transportation costs
(2)
Product is it durable materials including steel and
plastic or is it only aluminum. Substitution effect.
b) In 1930s aluminum was not a worldwide market as tariffs and
quotas made international markets difficult to break into.
c) ALCOA argued should include secondary aluminum and
exclude company use (the amount of aluminum that ALCO a sells
itself to use to make aluminum products.)
d) Court said you definitely include company use. They then
have 64% of the market. Hand said he didnt know whether 64%
was a monopoly.
e) Then look at secondary aluminum inclusion. 90% of recycled
aluminum started out as ALCOA aluminum so ALCOA can then
figure on how to factor in that 90% of their aluminum will come
back to compete with them.
f) Thus ALCOA had 90% of market which definitely was a
monopoly.
g) Was it due to natural growth or thrust upon it? (Both treated
the same.)
(1)
Court felt that the monopoly was not thrust upon it
they reached for it.
h) Remedy Didnt order divesture because WWII made the
problem go away.
2. United Shoe Machinery (D. Mass 1953) (j. Wyzanski very highly
respected and hired as his law clerk Krayson, a professor of economics
still a wide consensus that they blew it.)
a) Shoe market Untied States led the world in shoe making. US
had 1460 shoe firms in US. By the time the case was over there
were no shoe-manufacturing firms left in the US.
b) United Shoe success due to:
(1)
Patents and economies of scale
(2)
Superior products and services
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(3)
Its leasing system.
c) Had leases that had low annual fee, wouldnt sell machines
would only lease them, long term leases with low renewal fees,
high cancellation fee, rent based on rate of utilization, imposed
penalties for use of another firms machines.
d) The leases tended to increase Uniteds power in the market.
Since United refusing to sell the machine it was much harder to
engineer around patents by competitors. Difficult to engage in
reverse engineering.
e) The court requires changes in leases and that United also sell
machines. Wants the leases to be flat rate short-term rentals.
f) Uniteds leases make it really cheap to get economies of scale
which provides increased ability to enter the market. This system
of marketing is only viable if your machine accounts for all of the
customers production so you have to impose penalties on
competitors.
g) The result massively transformed shoe market of the United
States. Taken a market perfect for ease of entry and robust
competition coupled with sophisticated machinery market with
sophisticated research and development with 1 firm investing
research and development and making great machines to lease to
anyone with ease of entry and destroyed it. The barriers to entry
went up massively. Lots of firms drop out of the market and many
firms cannot enter it.
h) 15 years later DOJ goes back to Wyzanski and says we asked
for divesture but didnt give divestiture. Still 48% of the market.
Wyzanski still wouldnt dissolve. Supreme Court reversed and
dissolved the company into three companies. 10 years later United
Shoe went bankrupt as did shoe manufacturers.
i) Worldwide regrowth after WWII helped destroy shoe
industry as well.
3. If the court wants to avoid finding a 2 violation will define the
relevant product market as very broad.
a) For example, in DuPont the relevant product market was
determined to be flexible packaging materials rather than
cellophane packaging materials even though cellophane is 5 times
as expensive as other products and 3 times less expensive than
substitutes in the same market under this definition. DuPont held
75% of cellophane packaging materials market and 15% of flexible
packaging materials. A 3-justice plurality won because they were
upholding lower court decision that the products were a good
enough substitute with one another to define market as flexible
packaging materials. United States v. DuPont (US 1956).
4. Clayton Act 2 & 3 prohibit price discrimination, tying or
requirement contracts where they may substantially lesson competition or
tend to create a monopoly.
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5. Utah Pie (1967) one of the worst decisions imaginable. Monopolist
earning below monopoly rents sues competitors for predatory conduct and
wins. Anyone who is the dominant firm in market and losing money can
call competitors and tell them to raise prices to a non-predatory level.
a) National firms sold at lower than prices charged in other
markets and at prices below average cost charged more in CA
than they did in Salt lake City where competition is higher prices
will be lower.
b) But there are lots of reason for differences in prices charged by
national firms transportation, competition, overall this is a great
thing for competition.
c) Might sell at any time between average cost and marginal cost.
That would be routine, rational profit maximization.
d) Supreme court has never reversed Utah Pie but probably none
of it is good law today.
6. Predatory Pricing
a) Typical predatory pricing example is when a large firm has
money set aside to support charging under marginal cots.
b) Look at time value of money. If you start exercising monopoly
power eventually someone will enter the market to compete.
c) A market with high barriers of entry will take many years
before you can drive out competitors.
d) Generally considered a system that will not work.
e) Alleged that the firms in Utah Pie were engaging in predatory
pricing, but could also call it competition. None of the firms were
in a position to reach for a monopoly.
f) Supreme Court later redefines predatory pricing in a way to
make extremely difficult to succeed as a . (In the 1980s)
g) Antitrust standing affects predatory pricing claims.
Competitors do not have standing to bring the types of claims
brought by Utah Pie
h) Phil Areda (Harvard Law) test of predatory pricing
(1)
Only a price lower than marginal cost should count.
Can use variable cost in lieu of marginal cost, as variable
cost is easier to calculate.
(2)
Charging a price lower than charged in another
market is utterly irrelevant.
(3)
Charging a price below average cost is irrelevant
(4)
Charging a cost below marginal cost is suspicious.
(5)
Every circuit has now gone with the Areda test.
C. Vertical Arrangements Perceived as Exclusionary
1. Vertical arrangements deal with transactions between firms that are not
competitors but rather are at different parts in the distribution process.
2. Tying is per se illegal because it always has bad effects and never has
good effects. International Salt (US 1947)

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a) Where tying the salt processing machine with the tied product
of salt was illegal.
b) This decision would mean that cars are the largest 3 violation
of the Clayton tying provisions.
c) Court takes a very broad and wrong approach.
d) The court felt that if you had a monopoly you would have
monopoly rents and if you tied a product in another market you
would get those monopoly rents too. Doesnt work that way you
only get those first monopoly rent.
e) Besides Intl Salt only had 5% of the machine market and 2%
of the salt market.
f) Court says that tying never has good effects. However some
good effects of tying are:
(1)
Reduces repair cost
(2)
Reduces maintenance costs
(3)
Keeps reputation of machine clean.
3. Tying Today
a) Potential bad effects of tying may increase barriers to entry if
you have a monopoly in one market and tie to another product
where you are monopoly/dominant. Then it is too difficult to
compete effectively as you must enter both markets simultaneously
with the ability to compete in both.
b) The absolute minimum needed to have bad effects in tying
must have a market dominance/monopoly power in both markets
first.
c) To be illegal tying today:
(1)
Two separate products
(2)
Must prove has market power in tying product
(3)
must show the through tying has a probability
of reaching market dominance in the tied product.
4. Requirements contracts are not per se illegal because they sometimes
have good effects. Std Oil of CA v. US (US 1949)
a) Here the government was arguing that since requirement
contracts have the same language as tying products they should be
per se illegal. No justice accepts that.
b) Requirement contracts are illegal if a firm has substantial share
of the market
c) Tampa Electric clarified this language and said it was only
applicable to firms with a substantial share of the market.
d) Good effects of requirement contracts:
(1)
Every company will police dealer and quality
control is easier when you only buy from the reputable
dealer.
(2)
Being able to predict continuity of supplies.

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5. Have to prove not insignificant part of commerce. Rejection of
market dominance standard. need only have not insubstantial
amount of commerce. Northern Pacific Railway v. US (US 1958).
6. Block booking of films is an illegal tying of products. US v. Loews
(US 1962)
a) Anyone who sells a patented or trademark product has market
power. The requisite economic power is presumed when the
tying product is patented or copyrighted.
b) Block booking usually makes more money cant cater to
everyones whims.
c) Court does so by coming up with another way to approach
market dominance.
7. Providing credit, as a tied product, in excess of purchase is illegal.
Fortner v. US Steel (1969)
a) Tying product was credit, and tied product was pre-fabricated
houses.
b) US steel had a not insubstantial amount of commerce
($200,000)
c) US steel had sufficient economic power because Frotner could
not set credit as cheaply from anyone else d hence, would not have
been able to construct the development.
d) Now market power with respect to credit or housing market.
e) However, Fortner asserts that because he could not get credit
from anyone else, US Steel had market power.
f) This case would now get thrown out on standing as cant show
requisite antitrust injury.
D. Dealing with Dealers
1. Resale Price Maintenance
a) Group boycott existed when Broadway Hale tells 10 appliance
makers it will not deal with them if they deal with Khlors, and as a
result those appliance makers refuse to sell to Khlors stores.
Khlors v. Broadway Hale (US 1959)
(1)
Broadway Hale had monopsidy power monopoly
from the buyers perspective.
b) Unilateral vertical minimum price fixing plus communication
is an illegal contract. US v. Parke-Davis (1960)
(1)
A return to the DR. Miles Medical (1911) decision
(2)
Court using oral communication as a contract.
(3)
Basically erases Colgate decision which said that
unilateral vertical minimum price fixing is legal.
c) *Simpson v. Union Oil Co (US 1964) not covered in class.
2. Territorial Allocation
a) Vertical allocation of territory may have enough benefits to
justify not being per se illegal. White Motor (US 1963)
(1)
White Motor convinced the court that this method
was essential for smaller firms to compete.
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Spring 2002
(2)
Vertical allocation is not treated the same as vertical
minimum price fixing.
(3)
Douglass wrote opinion for the majority here.
b) Vertical territorial restrictions are per se illegal, but they are
legal if accomplished through agents rather than distributors.
Schwinn (US 1967). Schwinn was later overruled in 1977
(1)
Leading manufacture of bike making in America.
27.5% of market which decreased to 12.8% of market when
oversees producers began to sell through discount stores.
(2)
In response Schwinn reduced its number of dealers
and agreed to territorial restrictions.
c) Vertical maximum price fixing is per se illegal. Albrecht v.
Harold (US 1968) Later overruled in 1997
(1)
Finds that newspaper carriers should be allowed to
increase prices and that newspapers cannot restrict their
ability to do so.
(2)
Albrecht was a monopolist to the paper route. Thus
natural incentive was to abuse monopolist power which he
did.
3. *Price Discrimination
a) *2 Clayton Act/Robinson-Patman Act amendments
b) *Material from p. 403-408 not covered in class.
E. Mergers
1. 1950 amendment to Clayton 7 prohibit mergers that may
substantially impair competition. The idea is to stop the trend toward
market concentration/oligopoly in its incipiency.
a) Oligopoly 5 to 10 firms maximum amount of firms that
would constitute an oligopoly.
b) Concern about the markets where numbers are below 5
monopoly and oligopoly.
c) Created a situation where companies could not merge unless
they showed a 100% difference from other companies.
d) Since 1970s Supreme Court has not reviewed a merger case.
e) Now DOJ & FTC review mergers and if they challenge them
they rarely go forward.
f) Although the Supreme Court merger cases have never been
overruled some parts of the opinions are no longer good law.
2. Relative market in merger
a) Brown Shoe v. US (US 1962) manufacturing market product
market. 3 different products men, women and childrens shoes,
the 3 types are not interchangeable. Really low cross-elasticity of
demand between the three. Therefore, the court found that there
were three different product markets mens, womens and
childrens shoes. The court did not buy the argument however that
Kinney and Brown did not compete because one made medium
quality and the other made low quality shoes. They compete.
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Spring 2002
(1)
By todays standard this merger would not have
been found to be taking place in a highly concentrated
market. Instead would be consider highly unconcentrated.
This would create a HHI of 4, would not be looked at
now.
b) E.g. Chrysler-Mercedes merger. Low quality with high quality
cars were different markets. Mercedes could probably not have
merged with GM who has the Cadillac competing with Mercedes
cars. However, today Mercedes quality has been dropping so the
merger would have been harder.
3. HHI index.
a) (Market Share of merged firm)2 [(market share firm A)2 +
(market share firm B)2] = HHI.
b) Any merger that creates a HHI less than 50 today will not be
looked at by the DOJ.
4. United States v. Philadelphia National Bank (1963) 2nd largest bank
in Philadelphia wanted to merge with the 3rd largest bank in Philadelphia.
Relevant market was commercial banking. Geographic market 4 county
area around Philadelphia. Result would be to produce a bank with 30% of
the market.
a) Prima facie illegal when it produces a market share of at least
30% - virtually a per se rule.
b) Court felt they should expend internally
c) Claim that this will promote competition on a national level.
d) Court says you cant trade an improvement in one market for
substantial lessening in another market.
5. United States v. Penn-Olin Chemical Co. (1964) Joint venture between
Penn and Olin to enter the southeastern US market to produce sodium
chlorate. Both had thought about entering individually, but had decided
not to. They formed Penn-Olin and became the 3rd largest seller in the
market. Their market share is 27.6%.
a) 7 is applicable to joint ventures. The market is more
competitive then it was before, but will foreclose those 2
corporations from the market and the joint venture corporation
from competing against the parent there might be a substantial
lessening of competition.
b) Standard Potential Competition Test Whether there is a
reasonable probability that either wouldve entered the market
while the other remained a potential competitor. If yes, then it
violates 7 because there will be a substantial lessening of
competition (dont need certainty).
(1)
Having one form as potential competition keeps the
firms in the market from raising their prices because they
know there will be entry if they do.
(2)
Factors to look at No subjective intent, look at
objective factors:
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Professor Pierce
Spring 2002
(a)

V.

Industry would entry be wise; is there a

rapidly expanding industry with high demand
(b)
Resources can they produce the product
(c)
Do they have the know-how and capacity to
enter the market individually and obtain a
reasonable profit.
6. El Paso Gas case **
7. Federal Trade Commission v. Procter & Gamble (1967) P&G
acquired Clorox. Clorox was the leading manufacturer of household
bleach and it was a heavily concentrated industry. The product market
was household liquid bleach and the geographic market was the nation and
a series of regional markets. The court found that although, by the
numbers it wasnt a lessening of competition it violated 7.
a) P&G could be seen as a potential competitor they had the
resources and the capacity and it was an easy market to enter. The
number of potential entrants was small soothe elimination of one is
significant.
b) This merger would increase entry barriers. It created a high
probability of an oligopoly and gave Clorox enormous advantages
in advertising and would make Clorox even stronger than it already
was.
c) The fact that it took away a potential competitor and increased
barriers to entry was seen as the court as substantially lessening
competition in the liquid bleach industry an therefore they found it
to violate 7.
8. The Consolidated Foods Case **
The modern Development of Antitrust Law Since 1974
A. The Transition Cases
1. Overrules Schwinn per se rule, goes to rule of reason on vertical
restraints of trade. Continental TV Inc. v. GTE Sylvania Inc. (US 1977).
2. Antitrust Injury Standing Brunswick Corp. v. Pueblo Bow-O-Mat,
Inc. (US 1977)
a) In a very high percentage of cases precludes competitors from
bringing suits with the exception of tying.
b) Only reason for competitors to challenge really when the newly
merged entity would be a more competitive firm.
3. Antitrust Standing Elements:
a) Causal connection between the s act and the s harm.
b) A relation between the s injury and the type of conduct the
antitrust laws were intended to prohibit.
c) The issue of duplicative recovery.
B. The per se v. rule of reason debate continues in 1 cases
1. Horizontal price fixing
a) Price fixing by lawyers is per se illegal. Goldfarb v. VA State
Bar (US 1975)(Court found it a per se illegality when the Fairfax
county bar had deemed it unethical to charge less than a certain
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Professor Pierce
Spring 2002
number of dollars to ensure high quality service. Supreme Court
says its simply minimum price fixing.)
b) A prohibition on competitive bidding by engineers is per se
illegal regardless of supposed motives of quality and safety.
National Society of Profession Engineers (US 1978)
(1)
Note that a 3-justice plurality has continued to
maintain that professionals are different and at a minimum
the rule of reason should be applied.
c) In at least one case classic horizontal price fixing extracting
cartel rents has been allowed. BMI v. CBS (US 1979). In
upholding this behavior the supreme court emphasized:
(1)
Copyrighted matter copyrights operate on
principle that the copyright is good and you want to give
monopoly rent as a reward in this situation. If they
copyright holder cannot get the reward they will have
frustrated the purpose of a copyright.
(2)
Consent decree past litigation had consent degree.
DOJ previously had said this behavior is okay.
(3)
Transaction costs In absence of organizations like
BMI & ASCAP it would be really different. Contract costs,
enforcement of violations, permissions, becomes
collectively difficult.
(4)
Stevens dissented from this opinion and may win
today even if he was wrong in 1979. There are changes in
the market that cut down on the transaction costs.
d) Horizontal maximum price fixing is per se illegal regardless of
the complexities of the market. Arizona v. Maricopa Cty Medical
Soc. (US 1982) (Where doctors set maximum price doctors could
charge any insurance company and patients. Society made the
argument that it is a complicated market and wants to use the rule
of reason like was used in BMI. The court found that it was a per
se illegality.)
(1)
Clear demonstration why horizontal price fixing
must be illegal if horizontal minimum price fixing is.
e) By curtailing output and blunting the ability of member
institutions to respond to consumer preference, the NCAA has
restricted rather than enhanced the place of intercollegiate athletics
in the Nations life. NCAA v. Board of Regents (US 1984)
(NCAA huge cartel)
(1)
Association restricts supply and the court uses a
quick look rule of reason to find a 1 violation because it
tends to increase prices and decrease output and has no real
justification for its anti competitive effects.
f) Price fixing in the public interest universities joint
determination of need for scholarship aid. US v. Brown

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Spring 2002
(1)
Here there was a price-fixing in terms of ivy league
schools agreeing not to compete with one another in the
amount of scholarship money they would offer to students.
(2)
Here the district court applied quick look rule of
reason and found that price fixing fails because there were
anticompetitive effects and no good effects.
(3)
This got reversed on appeal because they were
judged on the quick look rule of reason. The appellate court
felt that non-profit organizations must be treated differently
as they do not have the same commercial motivations.
2. Group boycotts by competitors
a) Northwest Wholesale Stationers v. Pacific Stationary (1985)
(1)
NW voted to expel from its membership and
sues saying that the expulsion was without procedural
protection and was a group boycott that limited s ability
to compete and should be considered a per se violation of
1.
(2)
Antitrust injury
(a)
There was antitrust injury. A violation of
the antitrust laws is what caused the s injury it
was the group boycott that would violate 1 that
would harm s ability to compete.
(3)
What is the restriction it is a group boycott.
(4)
Does the per se rule or rule of reason apply:
(a)
The rule of reason applies unless the can
show that:
(i)
They are denied their needs and
the boycotting firm possesses market power
or
(ii)
The boycotting firm possesses
exclusive access to an element essential to
effective competition or
(iii)
There is no competitive virtue for
the action.
b) Rule of reason applied to group boycott allegations. Rothery
Storage & Van v. Atlas Van Lines (DC Cir 1986)
(1)
This establishes how the Northwest case plays out
in the real world. No market power, no violation.
(2)
This court says that the rule of reason must always
guide over group boycotts.
(3)
Here the outcome was that the action was
reasonable. Atlas had small market share in a very
competitive industry so they really cant do anything
anticompetitive. They dont have the ability to reduce
output and raise prices. And they have a pro-competitive
justification this is a reasonable attempt too counter the
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Professor Pierce
Spring 2002
perceived menace of the free riding problem. It contributes
to the efficient operation of an integrated network
c) Boycotts as a form of protest
(1)
NOW Boycott of states that hadnt ratified the
ERA. NOW tried to get national organizations to not hold
their conventions in states that hadnt ratified the ERA.
State of MO claimed that his was an antitrust violation.
The 8th cir held that this was not the type of restriction that
the antitrust laws were designed to prohibit. This was
dealing with political activity.
(2)
FTC v. Ind. Fed. of Dentists Involved group
action allegedly to improve the quality of care. A group of
IN dentists were incensed that dental insurers wanted them
to send in patients dental x-ray so as to verify the need for
particular treatment. The dentists agreed that none of them
would honor the insurers request for x-rays. The FTC
challenged on a theory that the dentists were conspiring to
keep prices up and to discourage the competitive responses
that would result if patients got angry at dentists who didnt
cooperate with insurers.
(a)
Dentists were ordered to cease and desist
their refusal to cooperate. They were preventing a
commercial review that controls price and there was
no credible argument that it has pro-competitive
effects.
(3)
FTC v. Superior Court Trial Lawyers Assn (1990)
Trial lawyers would normally appear in court and take
assigned criminal cases and were paid for their services.
They thought their salary was low, so they asked for a raise.
They were told no and they went on strike. They agreed
not to come to court to receive assignments in new cases
and they issued press releases about what they were doing.
The City council raised their prices to $35/hour and
everyone seemed happy. The FTC then brought an action
claiming it was a group boycott designed to increase the
price. (Price fixing based on IN dentists.)
(a)
DC Cir said look at whats political and
whats economical. If they used their market power
than it is illegal.
(b)
Supreme Court found it to be per se illegal.
Horizontal conspiracies or boycotts designed to
exact higher prices or other economic advantages
are pre se illegal no matter what.
d) Joint venture in network industries as essential facilities
(1)
Network industries industries in which the
advantages of being inside increase sharply as the rate of
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Spring 2002
participants increase (i.e. similar to the network
externalities argument in Microsoft)
(2)
The value of the service increases as more people
make use of it. e.g. telephones the more people that have
telephones the more you can use your phone.
(3)
VISA Case VISA is a joint venture that processes
the billions of transactions in which we engage. The more
people that have VISA, the more merchants will take them.
VISA has a rule that it wont let people issue VISA cards if
they are issuing a competing card. Sears wanted to issue a
VISA card and VISA said no because they also issue a
Discover card. Sears brought suit complaining of a 1
violation due to their concerted refusal to deal with issuers
who issue other cards. The market was credit cards and
that is not a highly concentrated market at all. Court
concluded that the competition would best be served if
Sears continued to be a competitor and wasnt granted
access to the joint venture.
3. Horizontal market division
a) Jay Palmer v. Brg of GA (1990) BRI came to GA, where
BRG was the only bar review course. The 2 reached an agreement
that BRI agreed to leave the sate and leave its books. BRG would
stay and give BRI $100 and 40% of its profits. Suit was claiming
that this violated 1 of the Sherman Act because it created a
market division which was an effective restraint on trade.
(1)
Supreme court held the action to be per se illegal
under Topco. Even with firms that havent competed it can
be per se illegal to agree not to compete in certain market
areas.
4. Dealing with dealers
a) Monsanto Co. v. Spray-Rite (1984) when dealing with price
restrictions you must ask whether a concerted or independent
action. Direct or circumstantial evidence that reasonable tends to
prove that the manufacturer and others had a conscious
commitment to a common scheme designed to achieve an unlawful
objective.
(1)
Here Monsato manufactured herbicide, and SprayRite alleged that it refused to deal with it as it was in part a
discount dealer. They alleged they were doing so in an
illegal way to keep prices high.
(2)
the court agreed and found there was substantial
evidence that showed there was wan agreement to maintain
prices and get the discount sellers out.
(3)
Here there was evidence of coercion to get dealers
to charge higher prices and refusals to deal with those that
charged lower prices.
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Professor Pierce
Spring 2002
b) In dealing with vertical price and non-price restrictions you
must first ask whether the action is independent or concerted:
(1)
Price Restrictions
(a)
Independent valid under Colgate
(b)
Concerted per se illegal Dr. Miles
(2)
Non-price restrictions (territorial allocation)
(a)
Independent valid under Colgate
(b)
Concerted ROR applies under Sylvania
c) Business Electronics Corp v. Sharp Electronics (1988) an
agreement to terminate without an agreement to subsequently set
price makes it shift from a per se analysis of price restriction to a
Rule of Reason analysis.
(1)
In order for it to be per se illegal must show
(a)
Agreement between the manuf and a dealer
to terminate a price cutter
(b)
Agreement between the manufacturer an a
dealer on the price or price levels to be charged by a
remaining dealer.
(c)
If cant be shown the rule of reason applies
because it isnt really a price restraint.
(2)
Mere termination is price restriction if you dont set
a price.
d) Maximum Price Fixing
(1)
ARCO (1990) Insisted on the maximum prices of
its dealers. Effect of the plan was to take away the price
cushion it had. USA was a customer of ARC that sold its
gas at a discount price. They complained that ARCOs plan
was to reduce USAs profit margin and damage it ability to
remain in the market.
(a)
Supreme court found there was no antitrust
injury. It stressed the s status as a competitor.
Price cutting is good for competition. If one
considers maximum prices really to be minimums
then USA would be the beneficiary of the violation.
Price cutting above a predatory level simply
constitutes tough competition. If it were predatory
that would be different.
(b)
The case was thrown out.
e) Vertical maximum price fixing is judged under the rule of
reason. Overrules Albrecht v. Harold . State Oil Company v.
Kahn (US 1997)
(1)
Khan entered into an agreement with state oil to
lease and operate a gas station and convenience store
owned by State oil. Kahn got the gas a discount price from
State Oil and then Kahn could charge whatever he wanted,
but if it exceeded the maximum price set by State Oil he
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Professor Pierce
Spring 2002
had to rebate State Oil. Kahn could sell for less but then it
would decrease his profit margin. Khan fell behind in lease
payments. A receiver not party of the agreement began
operating the gas station and obtain an overall profit margin
in excess of what Kahn had. K sued claiming it was a price
fixing in violation of 1.
(2)
The case said there might be standing here because
if the purpose of prohibiting maximum price restrains is to
permit retailers to be individuals he could be the right .
Even though if this was really a minimum in disguise he
would be benefiting.
(3)
The court finds there can be pro-competitive effects
in this type of maximum price fixing and overrules the per
se rule application developed in Albrecht v. Harold and
decides the rule of reason should apply.
f) *Developments after GTE Sylvania
g) *Vertical Group Boycotts Nynex v. Discon
5. Pulling the 1 cases together
a) The Supreme Court rejects the quick look rule of reason in CA
Dental Assn (US 1999). Quick look rule of reason is:
(1)
look for suspicious behavior of the kind that has
anticompetitive effects. Then
(2)
look at justifications to see if theyre realistic. If it
suspicious and justifications are not valid then it is a
violation.
b) Where CA dental association banned false and misleading
advertising and then defined false and misleading advertising to
essentially discourage all advertising which makes it easier to
gouge consumers. The majority said that the FTCs quick look
was not sufficient. However, they basically said if Breyer had
written the decision they would have upheld it. (Breyer wrote the
dissent.) Still a feeling that there are at least 3 members on the
court that feels that professionals are different.
c) No one has figured out what the FTC must do to win cases like
the CA Dental Assn
C. The continuing concern about exclusionary conduct
1. Monopolization
a) Dont engage in joint marketing with your competitors
because if you decide to change your policies, the smaller firm can
turn and sue you and they will win. Aspen Skiing (US 1985)
(brought by private actors thus the Supreme Court is much more
likely to blow it.)
(1)
Basically the smaller of two firms claims that the
larger firm violated the antitrust laws because they needed
the joint marketing agreement to stay competitive.

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(2)
Claims 2 of Sherman act violated because they are
trying preserve monopoly. Supreme court agrees, but they
are very wrong. Not supposed to protect competitors.
Supposed to protect competition. Justices just looking at
the big guy v. little guy.
b) Do not enter into joint marketing agreements with competitors:
(1)
Clearly illegal under antitrust laws
(2)
If you withdraw the court will tell you its a
violation.
c) Predatory Pricing
(1)
Utah Pie really bad decision where monopolist
earning below monopoly rents sues competitors for
predatory conduct and wins. Anyone who is the dominant
firm in the market and losing money can call and tell
competitors to raise prices to a non-predatory level.
(2)
No likelihood of recoupment lends support to no
plausible motive and will likely not survive a motion. here
the theory was that Japan had a cartelized Japanese markets
and they were able to use the monopoly rents they gained
in Japan to infiltrate American markets and sell electronics
at a loss in order to drive out the competitors. However, so
unlikely that they would be able to recover theyre losses of
20 years it will take more than 20 years at artificially high
profits while maintaining a market where they couldnt let
anyone else enter. So unlikely, implausible. Matsushita v.
Zenith(US 1986) (The dissent/majority seemed to be a
procedural matter. 5-justice majority clearly got it right on
antitrust issues. However 4-justice dissent said the
questions of fact were not such that lent support to
summary judgment should let jury hear the matter.)
d) Establishing elements of predatory pricing Brooke v. Brown
& Williams (1993)
(1)
Price below an appropriate measure of cost
(marginal or variable cost not average cost)
(2)
Likelihood of recoupment what is the likelihood
that a firm can recoup their losses after pricing so low for
so long.
e) Brooke v. Brown & Williams
(1)
Tobacco industry price war following the
introduction of generic cigarettes. Market was always
characterized by tight oligopoly and conscious parallelism.
(2)
The smallest firm files suit claiming that the others
were trying to discipline it and to restore oligopoly pricing.
The were actually able to prove that priced below a realistic
price theory in that it was below variable cost.

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Spring 2002
(3)
A 6-justice majority dismisses the claim, however,
on the basis of unlikely recoupment.
(4)
Court says that Utah Pie no longer has its full
significance. Its really just dead.
(5)
Court saying extremely reluctant to let jury decide
predatory price fixing. Very dangerous to say people can
win in law suits by starting to price lower. Predatory
pricing rarely tried and even more rarely successful.
2. Predatory Pricing Continued
a) Classic hypo dominant firm has 60-70% of the market and
wants to drive people out of the market. For several years takes a
loss in order to charge prices lower and make people leave the
market. Then exploits monopoly power long enough to make
back the losses.
b) Most economists think this cant work. Some think that you
might be able to make back enough money in some situations.
Reason once youve charged unnaturally high prices it attracts
more competitors.
c) Cases decided by Supreme Court
(1)
Masushita was the dominant firm alleging 21
little firms were trying to drive out the big firm and five
justices get it right.
(2)
Brown and Williams Allegation by the smallest
firm in market that the 3d largest firm has engaged in cartel
(3)
Thus the court has never had the strongest case of
predatory pricing before it. The strongest case of predatory
pricing is pending in the circuit courts now.
(4)
General fear that courts dont want to tell people not
to charge low prices.
d) American Airlines (2d Cir pending 2002)
(1)
Airline industry relevant markets routes.
(2)
Bottom line in industry many markets where
competition is weak, price high. Looks as though there is
conscious parallelism.
(3)
American Airlines has a fortress hub in Dallas
Fort Wroth. They control the airport.
(4)
Originally market operated with FU codes
(5)
Now, if a start company tries to compete in an area
where AA has a monopoly they will decrease price and
increase seats in that market until the startups have to leave.
AA is sending the message that if you try to enter this
market, I will hurt you. In fact, I will hurt myself to hurt
you, but I only have to do so in this market while I am
protecting my monopoly rents in many other markets to
cover the costs.

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Spring 2002
(6)
They might actually be able to make the money
back in this scenario. The market might just be able to
cover this.
(7)
Pierce thinks the DOJ has this one right and there is
a likelihood of recoupment here.
(8)
Problems for the DOJ (D.Ct. found against
government and government has appealed):
(a)
1st prong variable cost of a passenger on an
airplane. Its approximately zero to carry one more
person. Even though the rare case where
government can prove 2d element, cant satisfy the
first element the way its written. AA is still
charging way above variable cost.
(b)
Even if judge thought he had discretion to
overrule element 1, how can you distinguish
between this case and others. Even if you believe
that AA is signaling to competitors not to enter.
(c)
What is the remedy? To tell AA that when a
competitor comes into your market you can never
cut youre pricethat wont be good.
(9)
The case will have to have a very complicated
remedy. Who administers it then? Could create an agency
but they had that once with the Civil Aeronautics and
they fixed pricing and resulted in prices twice as high.
Thats not good.
3. Merger Review
a) Hart Scott Radino Act of 1976
(1)
If you want to engage in any merger requires
advance notice to the DOJ 30 days in advance if one firm
has at least 10 million in assets and other has more than 100
million.
b) Companies must notify the DOJ if they are going to merge and
then the DOJ has 30 days to object.
c) Unlikely that a contested merger will go forward but they can
in the following situations:
(1)
If agency does nothing 3d party can bring an action
challenging the merger. Standing makes this difficult as the
usual parties that will contest are competitors.
(a)
Indirect customers cannot challenge Illinois
Brick
(b)
Less than 1% of tacit acquiescence by
agencies are challenged by third parties and they are
usually lost.
(2)
If the companies choose to go forward, agency will
file for injunction. This maybe happens 20 times a year.

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Professor Pierce
Spring 2002
(a)

Courts do tend to give agencies informal

deference.
(b)
With the exception of hospital merger cases
in which hospitals have won over the government
75% of the time. No other areas have such success
rates.
(3)
Will oppose merger if you dont agree to mitigation.
This happens quite often and most the parties will agree to
the agency requested mitigating actions.
d) DOJ/FTC Guidelines:
(1)
Determine relevant markets
(a)
Look at the markets that will be effected by
the merger. Product markets and
(b)
Geographic market
(2)
Calculate HHI & HHI
(a)
Calculate the HHI for each market.
(b)
HHI = (#of firms)(% of market share)2
(c)
HHI =1000 right at boarder of
unconcentration and moderate.
(d)
HHI = 2500 is a highly concentrated market.
(e)
Safe Harbors:
(i)
HHI Less than 1000 will never
be challenged.
(ii)
HHI more than 1000 but less
than 1800 will be safe if HHI is less than
100.
(iii)
Safe if HHI greater than 1800
and HHI is less than 50.
(3)
Look at other factors - when exceeding safe harbors
DOJ considers other factors.
(a)
Entry conditions most important. Easy
entry will make HHI analysis irrelevant.
(b)
Product Market characteristic
homogeneity/heterogeneity. A high homogeneity in
product market makes it much easier to engage in
conscious parallelism and price fixing.
(c)
High price elasticity Merger tends to not
affect the market if it is inelastic. Must look at
whether the merger will have bad effects for
consumers.
(d)
Frequency of transactions If there are few
transactions its harder to gauge conscious
parallelism. Use a bidding process.
(e)
Offsetting efficiencies Courts only
recently started to look at these. Look only at effect
that cannot be acquired through other means.
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Professor Pierce
Spring 2002
Impossible to find what benefits are in any given
case.
(f)
Failing Firm doctrine has appeared in
several court opinions which say that a failing firm
is different. Can use to salvage an otherwise bad
merger.
e) Reasons large mergers will go through:
(1)
When they are not really competitors (Baby Bell
merger)
(2)
International trade barriers coming down - increase
to worldwide markets
4. Regulated industries have an entirely different system. For example,
the DOT can override an DOJ opposition to transportation firm mergers.
Also, natural gas & electricity must get a yes from DOJ/FTC, SEC, federal
reg commission and state agency on same terms.
5. As a practical matter defense contractors merging the DOD has no
legal power but really theyre opinion is dispositive.
6. FTC v. Staples (DC. Cir. 1999) Relevant geographic area was
standard metropolitan area. Relevant product market determined to be
retail sales of office supplies by superstores.
a) Shows the importance of defining the relevant product market.
If court had taken Staples product market wouldnt have been a
problem. Would have included Walmarts, Price Clubs, and mom
and pop stores. Instead it took the FTCs asserted superstore
definition and merger was blocked.
b) FTC showed a strong study that the prices were higher in
markets with only one superstore, that the superstores think of each
other as their only competition and that they charge much less than
other stores so that they are the only market for some purchasing
groups.
7. Raising rivals cost to essential facilities (say in a vertical merger) will
cause authorities to either say no to a merger or yes with the acquiescence
of providing the facility with equal access to the competitors and agency
oversight.
D. Interplay between regulation and the antitrust laws
1. State Regulation
a) Today the Supreme Court has big states rights supporters
decision might not be the same today. may not follow the
economist perspective.
b) State Action - Parker v. Brown (1943)
(1)
Existence of state action insulates any private actor
who is acting under state action from antitrust liability.
c) Goldfarb (1975) -VA state bar cartel. In order to be protected
under state action doctrine you must:
(1)
First determine who counts as state

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Professor Pierce
Spring 2002
(a)

State Supreme Court might, wasnt

answered. Agencies do not count
(2)
Second, the state must compel the behavior
(a)
In Goldfarb the state didnt compel the
setting of the fees so it wasnt protected under state
action.
d) Cantor (1976)
(1)
Only the legislature counts as the state, maybe the
state Supreme Court will.
(2)
The state must compel the action.
e) Midcal (1980) Now the landmark opinion defining test:
(1)
The challenged restraint must be clearly articulated
and affirmatively expressed by the state.
(2)
The conduct at issue must be actively supervised by
the state. When the court refers to state in number one
referring to only legislature, not agency, but # 2 state
reference refers to any branch of the state.
f) States need only authorize the anticompetitive conduct.
Southern Motors Carriers (1985)
(1)
Court read the states actions as tacit authorization.
(2)
Assumed that where legislature clearly authorized
anticompetitive behavior by authorizing regulation of
trucking industry then it can be assumed that it would have
wanted to authorize the most efficient means to carry that
out.
(3)
The behavior, joint filing of transportation rates,
was insulated by the State Action doctrine.
(4)
However, later Congress outlawed the states right to
regulate the trucking prices.
g) State Supervision requirement
(1)
Being subject to judicial review is not active
supervision by the state. It may be supervision if they are
subject to de novo review. Patrick v. Burgett (1988)
(a)
Made hospital peer review committees very
unsure of their status. Many are clearly illegal
(b)
Bottom line in order to protect an entity
from very valuable peer review must be actively
supervised by the state. If you bring state actors
into the peer review committee you have due
process concerns.
(2)
Silver NYSE case if you want to get around
protection of state action give due process
(3)
Congress did pass a statute which was basically a
codification of due process cases which gives immunity to
peer review committees that comply with specific
stipulations
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Professor Pierce
Spring 2002
(4)
Inadequate supervision is not state supervision. If
no one reads the documents it will not be state supervision.
FTC v. Ticor Title (1992)
(a)
Insurance case. Didnt get immunity under
McCarren Ferguson Act because the court felt that
the title searches were not really the business of
insurance.
(b)
Insurance companies were setting rates to be
charged for title insurance companies and title
searches and then filing them with the state.
(c)
Some states admitted not reading them.
Those states did not pass active supervision
requirement.
2. Municipal regulation
a) Local governments can be antitrust s.
b) A city is not a state. Nothing a city does has any effect on
immunizing theirs or private party action. City of Lafayette. (At
the time it looked like the court was going to get rid of the state
action doctrine.)
c) States cant just grant cities power under their state legislature.
In order to qualify, the states must affirmatively, expressly and
clearly articulate the actual underlying policy which can then be
protected. City of Boulder
d) A city can be a state for step two of the test if the state has
legitimately clearly authorized the city to regulate this policy in
this way than the city can count as the state for oversight. City of
Eau Claire.
e) Local governments can be held liable for treble damages. Local
Government antitrust Act 1984.
f) City of Columbia No deception and conspiracy exceptions to
the Noerr doctrine.
(1)
Agreements between municipalities and private
parties to use zoning power to confer exclusive privilege is
in a particular line of commerce are beyond 1.
g) Sham Litigation = Noerr Pennington
(1)
Noerr was essential a cartel getting together to
decide how they would be regulated. The court held that
group meeting to seek regulation is immune from antitrust
liability.

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Professor Pierce
Spring 2002
(2)
Basically Noerr set up a two prong test to protect s
from sham litigation under the antitrust doctrine. To win
must show that:
(a)
Lawsuit is objectively baseless (that is no
reasonable person could expect to win on the
merits.)
(b)
Court should focus on whether the baseless
lawsuit conceals an attempt o interfere directly with
the business relationships of a competitor through
government process rather than the process
outcome.
3. The state of the interstate commerce requirement
a) Interstate commerce has been held to extend to peer review
committees. Summit v. Pinas (1992)
(1)
Where was claiming that his revocation was due
to his unwillingness to cooperate in a featherbedding
conspiracy.
(2)
5-justice majority concludes the s are engaged in
I/C because Midway Hospital reimbursed by out of state
insurers and gets out of state supplies.
(3)
4-justice minority says that the Sherman Act doesnt
even apply.
(4)
The court has changed and might got the other way
now. Federalism revolution of uncertain scope and
destination.
4. Regulation in the International arena
a) Sherman Act applies thru extra territorial jurisdictions if its had
an adverse affect on market. International boycotts are not
protected and the idea of comity would not prevent the insurers
and reinsurers from holding international companies liable.
Hartford Fire Insurance v. California (US 1993)
(1)
Case has been criticized by foreign entities as
requiring more from international organizations than from
states. States no longer have to compel act to immunize
and that is what they are holding international governments
to.
(2)
London reinsurers case.
E. The titanic struggle over alleged exclusionary behavior
1. Jefferson Parish (US 1984) tying test:
a) Does have market power/market dominance/monopoly
power in relevant market regarding the tying product?
b) By tying the tied product is likely to obtain market power
with respect to the tied product?
2. This is a two-step per se test that was put forth by a 3-justice plurality
and upheld by a five-justice majority in support of per se rule.
a) Case where hospital tying surgery to anesthesiologist.
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Professor Pierce
Spring 2002
b) A four-justice concurrence says that the tied and tying product
is the same. But if you accept two products they would apply the
rule of reason.
c) wins under everyones standards and the per se rule looks
more like the rule of reason.
d) The law today is most likely the 3-justice plurality test.
3. Dont create independent service organizations because they may sue
you if you change youre policy not to include them. But they cant if
theyve never been created. Kodak (US 1992)
a) Where tied product is parts and services for that product and
tying product is photocopying equipment.
b) Four Nobel laureates on each side and the jury comes down
against Kodak and says they should have let the ISOs fix their
machines
c) Potential advantages for what Kodak did
(1)
Financing device
(2)
Means of protecting reputation
(3)
Quality control feedback mechanism.
4. End rule never create a
a) Aspen never help a competitor if you withdraw the help
youll loose.
b) Kodak Dont create ISOs if you change youre policy theyll
sue and youll loose.
c) The DOJ wouldnt bring these actions, just private s.
F. Microsoft
1. The DC Cir thinks the plurality separate demand test in Jefferson
Parish trying to establish a crude proxy for judging efficiencies.
2. Per se rule DC Cir finds neither separate demand test nor per se rule
applies as they find the case distinguishable from every tying case the
Supreme Court has heard. Its a case of technological integration.
3. Test on remand the government must prove that tying had adverse
effects that were so bad that they are illegal not withstanding any good
effects that they might have.
4. DC Cir afraid that all computer systems may be rendered illegal.
Doesnt think judges are capable of making those decisions.
5. Government theories
a) M did a number of things in order to obtain and illegal
maintenance of monopoly of operating system.
b) Illegal attempt to monopolize browser market government
looses on appeal.
c) Illegal tying government looses on appeal.
6. DC Cir upholds the first reasons M had 85 % of the market
7. DC Cir concerns:
a) Timing complaint was filed in 1994. There was a decision
and similar complaint filed again. Final decision wont come until
around 2006 forever in the computer industry
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Professor Pierce
Spring 2002
b) Remedies enormous problems and controversies. Pierce was
at meetings, remedies came up with were very similar to the
original consent order which wasnt effective. Irrelevant
regardless as by the time decision comes out they will all be
irrelevant. DOJ went to court without knowing what remedy it
wanted.
c) Network effects are natural monopolies competition for the
markets not in the market. Software makers would go crazy and
consumers would be disadvantaged in a typical competitive
market. Different kind of competition than were used to seeing.
d) Federalism should the government be able to tell the states to
stop going forward?
(1)
Pierce has odds on Microsoft kicking states butt.

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