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1. Introduction to Antitrust a. Central tension of antitrust law - we want firms to compete and succeed, but monopoly is not illegal i. We punish illegal acquisition of maintenance of monopoly power b. At the time of passage, antitrust laws were meant to protect small businesses; prevent them from being beholden to large trusts who provided transport for goods and inputs c. Over time, rationale evolved as people become uncomfortable with the consequences of punishing large corporations i. Recognize tension between efficiency and equity d. Competitive outcome is one where the output is being maximized and everyone who is willing to pay the cost of the product can buy it i. Marginal cost pricing ii. Link between number of firms competing and competitiveness not very tight e. Antitrust Statutes i. Sherman Act §1 - horizontal restraints - where we get felony convictions ii. Sherman Act §2 - monopolizing conduct

1. "monopolize" not interpreted literally

2. limits unilateral conduct

3. civil fines, injunctions, behavioral mandates, treble damages in private suits iii. Clayton Act § 7 - comprehensive statute for mergers

1. Ripe for debate about interpretation f. Trans-Missouri Freight Association (1897)
i. No exception in the Sherman Act for reasonable restraints of trade ii. Not up to the Court to determine whether the anticompetitive effects are within the zone of reasonableness g. United States v Addyston Pipe & Steel Co. (6th Cir. 1898)
i. Contracts that are unreasonable restraints of trade at common law are not criminal, just void ii. Very hesitant to make things previously voided and turning them into a lot of harm and damages iii. Covenants in partial restraint of trade generally upheld as valid iv. Legitimate ancillary restraints of trade may actually enhance competition

2. Antitrust Injury a. Basic question of antitrust is who can sue? On what basis can they sue?
i. Government - statutory parens patriae standing ii. Private litigants? Direct/indirect purchasers?
b. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc. (1977)
i. Case brought under §4 of the Clayton Act ii. CoA held that private plaintiffs only needed to show that the merger would in some way negatively affect them.

1 iii. Antitrust law requires a showing of antitrust injury for standing - injury of the type that antitrust laws were intended to prevent and that flows from what makes defendant's conduct illegal c. Cargill, Inc. (Excel) v. Monfort of Colorado, Inc. (1986)
i. Does §16 of the Clayton allow equitable relief in cases where such relief is not allowed under §4?

1. Statute says that plaintiff is entitled to injuctive relief for threatened loss or damage by a violation of the antitrust law ii. Holding - §4 and §16 best understood to provide complementary remedies for single set of injuries and therefore must still plead an antitrust injury

1. Alternative would allow competitors to seek an injunction any time a competitor threatens to cut prices to increase market share.

2. This is precisely the behavior antitrust law seeks to encourage iii. Court refuses to adopt a per se rule "denying competitors the standing to challenge acquisitions on the basis of predatory pricing theories"
d. What is the right type of plaintiff? - Illinois Brick Co. v. Illinois (1977)
i. Previously Court held in Hanover Shoe that indirect purchasers are not the parties injured by an antitrust violation.
ii. Court does not want to complicate the damage calculations to trace the effects on the overcharge throughout a supply chain.
iii. Allowing offensive but not defensive use would create serious risk of multiple liability.
iv. Cannot justify unequal treatment of plaintiffs and defendants v. Comments

1. Direct purchasers may have no incentive to sue because they can often pass on the increased price.

2. Supreme Court has ignored indirect purchaser suits.

3. Large number of states have repealed the effect of this rule in their state antitrust statutes

3. Antitrust Standing a. Must be some degree of sufficient nexus between the plaintiff and defendant - hard time getting standing if you are neither the competitor nor the customer of the defendant.
b. Blue Shield of Virginia v. McCready (1982)
i. Allegation that Blue Shield conspired with psychiatrists to lock out psychologists from reimbursement ii. Sufficient nexus does exist for a consumer to challenge because they are directly harmed by the conspiracy - unable to pay for psychologist services c. Associated General Contractors i. Association encouraging people to do business with non-union contractors

2 ii. Unions do not have standing to challenge because they are neither the purchaser of contracting services nor a competitor

4. Section 1 of Sherman Act a. Horizontal Restraints i. Generally - composed of price agreements and output restrictions

1. Reduce competition

2. Cartels exist, all the time a. Notoriously unstable, though may last for some period of time b. Larger number of competitors, low barriers to entry may make more unstable, different profit maximizing output, different cost structures c. Per se illegal - proof of conduct is proof of the violation ii. Standard Oil

1. Overrules Trans-Missouri Freight - overly restrictive rule

2. Sherman Act meant to bring in the rule of reasonableness, articulated this rule in a case here where everyone agrees on the outcome

3. Certain category of restraints are so likely to do harm on their face that they are per se unreasonable restraints

4. Test:
a. Agreement/combination of some kind?
b. Does it necessarily or inherently restrain trade without benefit? - If so,
per se illegal.
c. If not, balance the harms and benefits.
i. "harmful purpose" - intent is probative of effects ii. If there is evidence that conduct is undertaken with a particular intent to harm the market, then we will generally believe that it harmed consumers.
iii. Antitrust Guidelines

1. Some collaboration between competitors may be a good thing.

2. Firms may look to the guidelines to know what is okay and what isn't.

3. Small groups of firms serving a small market getting together could not actually ever fix price due to small market share.
a. Existence of a per se rule makes the conduct still illegal.
b. Safe harbor - if total share is 20% or less, within the safe zone -
government will not prosecute and courts will usually dismiss the case

4. Relevant market - both geographic and product dimensions iv. Chicago Board of Trade v. US (1918)

1. Grain exchange - majority of grain bough and sold through this exchange

2. Rule passed preventing members of the Board from buying or selling "to arrive" grain during a period after the "call" session and before the exchange opened the next day at a price other than the one established as the closing price at the end of each call session.

3 a. "to arrive" grain is that which had not yet arrived in Chicago but were enroute and would be ready for delivery upon arrival

3. Rule enacted in response to  number of buyers would stay out of the "call period" forcing prices and supply lower a. The rule froze prices at end of the call market, forcing buyers into the market.

4. DOJ sues under a per se theory - alleging that the rule restrains bidding and competition during the off-hours, preventing formation of that market

5. Holding a. True test of legality is whether the rule regulates (promotes) competition or suppresses competition b. Prong 2 unmet, no harmful purpose for Prong 3 c. Not really a price fix, more a rule about what hours pricing may take place v. US v. Trenton Potteries Co. (1927)

1. Members of trade association controlling 82% of the sanitary pottery fixtures in the United States charged with price fixing of bathroom pottery.

2. Justification was that the market would be more stable and more competitors would stay in the market, prices already reasonable

3. Holding - not the kind of benefit antitrust law recognizes, no agreement may limit price or quantity no matter how good the agreement is

4. Comments a. Remains good law b. Agreements with an incidental effect on prices are less likely to be treated under the per se illegality vi. Appalachian Coals, Inc. v. United States (1933)

1. 137 produces of coal entered into an arrangement to establish an exclusive selling agent, prices set by selling agent.

2. All 137 producers combined accounted for 12% of production east of
Mississippi, but 74% of Appalachian territory.

3. Must examine the historical economic conditions of the industry, the purposes in each case - "close and objective scrutiny of particular conditions and purposes is necessary in each case"
a. Hard to reconcile with Trenton Potteries b. History of injurious practices is remedied by this price fix

4. Comments -
a. Case would come out the same way today under the safe harbor or under the precompetitive rationale of reducing transaction costs b. Case creates much confusion because of the contrast with Trenton
Potteries.
vii. United States v. Socony-Vacuum Oil Co. (1940)

1. Oil companies convicted for coordinating purchases of gasoline in spot markets to raise retail prices.

4 2. Oil companies justify behavior by stating that there is too much gasoline supply on a market. They bought up supply and hoarded it as a way of restraining price decreases.

3. Holding a. Does not matter how "ruinous" competition is - if it is bad, you should lobby Congress, not the Court.
b. Sherman Act is supposed to promote competition.
c. Trenton Potteries is restored, and Appalachian Coals is limited to its facts.
viii. Fee Schedules - Kiefer-Stewart Co. v. Joseph E. Seagram & Sons (1951)

1. Issue is whether it was a violation of §1 for two distillers to agree on the maximum resale prices that they would permit distributors to charge.

2. Holding - per se unlawful even to agree to a maximum price

3. Reasoning a. Could restrain entry, prevent non-price competition, lead to shortages,
price ceilings may act as a magnet- pulling prices up to that level ix. Information Exchanges - Rule of Reason

1. Trade association program that mandates reporting of prices, daily reports on sales, production purchases, encouraged setting higher prices - illegal a. American Column & Lumber Co. v. US (1921)

2. Maple Flooring Manufacturers Ass'n v. US (1925)
a. Price sharing, inventory information, freight rates b. Built central book of shipping rates based off of their distance from
Cadillac Michigan c. No unlawful restraint of commerce if there was no agreement or any concerted action with respect to prices or production.

3. US v. Container Corp of America (1969)
a. Information exchanges of price, but no agreement to adhere to a price schedule; information exchanged about specific sales to consumers b. Defendant's account for about 90% of the shipment of corrugated containers from plants in the SE US.
c. Interfered with the setting of market prices - chilled the vigor of market competition.
d. Marshall Dissent - not so inherently harmful that we should condemn without looking at effect (even though court does); entry is easy x. US v. US Gypsum (1978) - must be specific intent to agree and harm the marketplace in order for a criminal conviction b. Rule of Reason vs. Per Se Treatment i. Rule of reason is a balancing test - used for conduct that may be harmful, but not so facially harmful that we want to presume the harm.

1. Weigh the good effects against the bad effects

5 ii. Per se illegality is appropriate when:

1. Plaintiff shows "the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output"

2. The practice is not "one designed to 'increase economic efficiency and render markets more, rather than less, competitive.'"

3. Court must carefully examine market conditions

4. Absent good evidence of competitiveness behavior, avoid broadening per se treatment to new or innovative business relationships.
iii. Categories exist for judicial economy, deterrent effect iv. National Society of Professional Engineers v. US (1978)

1. Engineer ethical canon prohibited competitive bidding by members so they could reduce the risk that competition would produce shoddy work endangering the public safety.

2. Holding a. Sherman Act reflects a legislative judgment that ultimately competition will produce not only lower prices, but also better goods and services.
b. Statutory policy precludes inquiry into the question of whether competition is good or bad.
c. Rule of reason does not support a defense based on the assumption that competition is itself unreasonable.

3. Comments a. Inside the RoR box, the benefits must be of the right kind: lower prices,
expanding output, or creation of new products v. BMI v. Columbia Broadcasting (1979)

1. BMI and ASCAP issued blanket licenses to copyrighted musical compositions at fees negotiated by them.

2. Is this price fixing? - per se unlawful?

3. Holding a. Transaction costs would unravel the market; blanket licensing greatly increases the amount of legitimate licenses.
b. Not every agreement on price is a price-fixing agreement.
i. New product now in the market that was not there before.
ii. Does not seem like per se conduct that has no redeeming virtue on tis face.
iii. Novel conduct does not get treated under per se category.
c. Licenses were non-exclusive, meaning that composers may still independently negotiate.
d. BMI sells a product that no individual composer sells or could sell e. Rule of reason is the appropriate method of consideration here.
vi. Catalano v. Target Sales (1980)

1. Prior to agreement, credit was extended without interest for 30-60 days.

6 2. Agreement was to eliminate short-term trade credit formerly granted on beer purchases.

3. Lower court found that the agreement was not price-fixing because it:
a. Removed a barrier perceived by some sellers to entry b. Increased the visibility of prices

4. Holding (Per Curiam)
a. The arguments in favor are not proper justifications under antitrust laws.
b. The more successful the cartel, the higher the price, the more attractive it is for entry. Not a convincing rationale.
i. Beverage industry entry is nearly impossible now anyway.
c. Industry-wide agreement will result in more visibility anyway. Not cognizable justification.
i. Retailers are sophisticated enough to know what prices mean w/ or w/
o credit terms.
d. If this is what consumers wanted, would there need to be an agreement?
e. Per se treatment merited.

5. Comments a. Court seems to say that this is too many steps beyond the BMI logic of expanding output and reducing price with agreements on price.
b. Per Se rule still alive and well c. Test emerges:
i. Is there an agreement on price?
ii. Is there a justification that antitrust laws will recognize?
iii. Is the justification even plausibly true? - Catalano fails at this step.
vii. NCAA v. Bd. of Regents (1984)

1. Restrictions: limits on types of games televised, precluded price negotiations, limits on quantity of games televised

2. Seems like horizontal price fixing - ordinarily condemned, but inappropriate to apply per se rule to this case

3. Industry requires horizontal competition for the product to exist at all.
a. Compels the application of rule of reason

4. Absence of market power does not justify naked restriction on price or output.
a. Anyway NCAA does possess market power with its unique programming.

5. Restriction on televised games when not sold out at home a. Does not help competition, limitation on competition between live and televised b. Many more games would be televised in a free market than under the
NCAA plan

6. Comment - difference between BMI and NCAA - product non-exclusive in
BMI; requires a higher showing to show that restriction was necessary to achieve joint product viii. California Dental Ass'n v. FTC (1999)

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