Final Exam

United States Federal Government V. DENTSPLY International, Inc.

Submitted to Prof.Yassin Elshazly

Prepared by Rania Gad

International Business Law

Table of Content
3

Parties

Facts

Legal problem

Applied rules

Analysis

5
7

Precedent

Court decision

conclusion

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Parties:
UNITED STATES Federal Government
(Plaintiff) V.

DENTSPLY INTERNATIONAL, INC.,

Respondent

Facts:
1. This case involves the market for "prefabricated artificial teeth in the United States" for use in making dentures 2. The dealers supply the teeth to dental laboratories, which fabricate dentures for sale to dentists 3. Although of advances in dental medicine, the prefabricated artificial tooth market had little or no growth potential 4. DENTSPLYs market share average 75% 5. DENTSPLYs market share is approximately 15 times larger than its next closest competitor 6. DENTSPLY distributes its teeth exclusively through a network of 23 dealers 7. DENTSPLY dominates the industry 8. There are hundreds of dealers who compete with each other on the basis of price and service. 9. DENTSPLY prohibiting its dealers from adding competitive lines of artificial teeth unless they were selling the teeth before 1993 10.Some manufacturers sell directly to laboratories. 11.. The federal government filed a suit in a federal district court against DENTSPLY, alleging, among other things, a violation of Section 2 of the Sherman Act

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Legal problem
Was the defendants preventing its dealer from selling competitors products restraint of trade and harm the market? (a conducts lays under violation of Sherman act) Was the defendants act violating of section 2 of the Sherman Act

Applied rules

1. Section 3 of the Clayton Act TYING AND EXCLUSIVE DEALING Provides that: "It shall be unlawful to make a sale of goods on the
condition that the purchaser shall not use or deal in the goods of a competitor where the effect may be to substantially lessen competition or tend to create a monopoly...." This provision of the Clayton Act was passed in response to the Supreme Court's decision in Henry v. A.B. Dick &
Co. (1912).

The other practice that section 3 of the Clayton Act occasionally condemns
is exclusive dealing, which occurs when a firm insists that retailers handle its brand exclusively. In Standard Oil of California v. United States (1949), the
Supreme Court found it unlawful for Standard to require its gasoline stations to sell Standard's gasoline exclusively.

2. Section 1 of the Sherman Act : prohibits any contract, combination, or

conspiracy, in restraint of trade. 15 U.S.C. 1 (2007). This prohibition applies only to agreements between firms and is primarily aimed at preventing injury to competition from collusion-arrangements designed to eliminate competition among competitors to their mutual benefit. Combating collusion has long supplied the core of federal antitrust enforcement cases,( William E.
Kovacic, The Modern Evolution of U.S. Competition Policy Enforcement Norms, 71 ANTITRUST L J. 377, 415 (2003) (noting the primacy of section1 enforcement), in

part because, as the Supreme Court has explained, concerted activity is fraught with anticompetitive risks. Copper weld Corp. v. Independence Tube
Corp., 467 U.S. 752, 76869 (1984).

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3.Section 2 of the Sherman Act. (Sherman Act, 2, as amended, 15 U.S.C.A. 2)

Provides that every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person to monopolize any part of the trade is guilty of an offense and subject to penalties. In addition, the Government may seek injunctive relief. 15 U.S.C. 4. A violation of Section 2 consists of two elements:( elements which are the
government must show to succeed in its suit)

(1) Possession of monopoly power and (2) maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident. United States v. Grinnell Corp., 384 U.S. 563, 570-71, 16 L. Ed. 2d
778, 86 S. Ct. 1698 (1966); see also Weiss v. York Hosp., 745 F.2d 786, 825 (3d Cir. 1984

Analysis
DENTSPLYs exclusivity policy, with respect to its restrictions on its dealers product lines, violated Section 2 of the Sherman Act. Monopoly Power The relevant market: One of the first things that any court must do when dealing with a section 2 claims is to define the relevant market in which the defendant is engaged and determine who the relevant consumers are. a- The relevant market could likely include the market for the sale of teeth to dealers and to laboratories, in part because, although DENTSPLY markets its products through dealers, some manufacturer competitors sell directly to laboratories. DENTSPLY might argue that a relevant market cannot include both sales to a final consumer and a middle man, this argument is rejected. citing to the Allen-Myland, Inc. v. IBM Corp. 33 F.3d 194 (3d Cir. 1994) (holding that
the relevant market for IBM included sales directly to consumers as well as sales to leasing companies that resold to consumers).

b- The dental laboratories were the relevant consumers. citing the fact that laboratories are the last to purchase the artificial teeth before they are turned into other products, such as dentures
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Power to Exclude

(1)As for monopoly power, DENTSPLYs 75%share of the market is more than enough to establish a prima facie case of power, cited Fineman v. Armstrong World
Indus., 980 F.2d 171, 201 (3d Cir. 1992).( Absent other pertinent factors, a share significantly larger than 55% has been required to established prima facie market power). DENTSPLY

maintained this power and used it to adversely affect competition in the market by precluding its dealers from handling its competitors teeth .The defendants act preventing its dealer from selling other competitors product was designed to block competitive distribution points, and to prevent giving the customer a choice (2) Apparent lack of aggressiveness by competitors is a reflection of the effectiveness of Dentsply's exclusionary policy so Dentsply did indeed have the power to exclude competitors from the market & power to exclude competitors from dealers was sufficient to show exclusionary power; exclusion from laboratories was not necessary. AntiCompetitive effect: the second element is willful maintenance. Assessing anti-competitive effect is important in evaluating a challenge to a violation of Section 2. Under that Section of the Sherman Act, it is not necessary that all competition be removed from the market. The test is not total foreclosure, but whether the challenged practices bar a substantial number of competitors or severely restrict the markets ambit. Le Pages, 324 F.3d at 159-60; Microsoft, 253 F.3d
at 69 The impermeability of Dentsply's 75% market share, from 1993 to the present,

was evidence of monopoly power maintenance, and the creation of artificially imposed barriers to efficient scale entry by its smaller competitors It is also noted that because of advances in dental medicine, the prefabricated artificial tooth market had little or no growth potential. Thus, the static nature of market share maintenance was an imposing element of Dentsply's ability to shape the market to its liking. In the Microsoft case the court of appeals adopted standard for determining whether conduct illegally foreclosed competition: The proper inquiry is not whether direct sales enable a competitor to survive but rather whether direct selling poses a real threat to defendants monopoly. Applying this standard, concluding that the small market shares of Dentsplys competitors, which sold
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directly to dental labs, revealed that selling directly actually insufficient to pose threat to Dentsplys dominant position. The mere existence of other artificial teeth manufacturers that sold directly to laboratories was insufficient to demonstrate direct sales as an effective means of competition.
By ensuring that the key dealers offer Dentsply teeth either as the only or

dominant choice, exclusivity policy has a significant effect in preserving Dentsply's monopoly. It helps keep sales of competing teeth below the critical level necessary for any competitor to pose a real threat to Dentsply's market share. As such, exclusivity policy is a solid pillar of harm to competition.
LePage's, 324 F.3d 141, 159 (3d Cir. 2001) ("When a monopolist's actions are designed to prevent one or more new or potential competitors from gaining a foothold in the market by exclusionary, i.e. predatory conduct, its success in that goal is not only injurious to the potential competitor but also to competition in general.").

By prohibiting its dealers from adding competitive lines of artificial teeth, Dentsply was able to deny transaction cost efficiencies to its substantially smaller competitors that could be derived from dealing through dental dealers. A set of strategically planned exclusive dealing contracts may slow the competitors expansion by requiring it to develop alternative outlets for its products or rely at least temporarily on inferior or more expensive outlets. Consumer injury results from the delay that the dominant firm imposes on the smaller competitors growth. Herbert Hovenkamp, Antitrust Law1802c, at 64 (2d ed.
2002).

Dentsply might argue that its sales to its dealers are a series of separate transactions, terminable by any party at any time. But Dentsplys large market share and its conduct make such arrangements as effective as if they are longterm, binding contracts.

Precedent: United States v. Microsoft Corp., 253 F.3d 34, 59-64, 67-77 (D.C. Cir.
2001) (en banc) (per curiam) (condemning various exclusionary contracts imposed by Microsoft on software, hardware, and internet developers). In this case, after concluding that Microsoft had monopoly power, the District Court held that Microsoft had violated Sherman act 2 by engaging in a variety of exclusionary
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acts (not including predatory pricing), to maintain its monopoly by preventing the effective distribution and use of products that might threaten that monopoly.

LePage's v. 3M, Conwood v. U.S. Tobacco reveal a common theme: Plaintiffs

who can demonstrate that dominant firms' practices restrict access to significant portions of a relevant market, efficient distribution media, or scarce retail space stand a reasonably good chance of prevailing under Section 2 of the Sherman Act

Court decision:
A court is not likely to find a sufficiently procompetitive justification for DENTSPLYs policy. The court should rule that the firms restrictions on its dealers product lines violate Section 2 of the Sherman Act. Dentsply International Inc. ("Dentsply") guilty of illegal monopoly power maintenance

Conclusion:
The exclusive dealing policy implemented by DENTSPLY International (DENTSPLY) is in violation of Sherman Act 2. The most significant aspect of this decision was the holding that an exclusive dealing policy created by a company with monopoly power could violate Section 2 even when the agreement was easily terminable.

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