I.

Objectives and Origins of antitrust..................................................................................................................6

A. The Goals of Antitrust Policy......................................................................................................................6
1. The Role of Competition.........................................................................................................................6
2. The Sherman Act + other Legislation......................................................................................................6
B. Historical Sources of Antitrust.....................................................................................................................6
1. Early Law on Monopoly (English CL etc)..............................................................................................6
2. Dyers Case (1415)..................................................................................................................................6
3. Schoolmasters Case (1410)....................................................................................................................6
4. Case of Monopolies (1602).....................................................................................................................6
5. Michel v. Reynolds (KB 1711) (Rule of Reason)....................................................................................6
6. Some Trends............................................................................................................................................7
7. Current Paradigm.....................................................................................................................................7
C. Historical Development of Antitrust Statutes..............................................................................................7
1. Many versions came and went.................................................................................................................7
2. Some Industries Exempted from Antitrust..............................................................................................7
3. 1890 Sherman Act Background...............................................................................................................7
4. 1914 Clayton Act.....................................................................................................................................8
5. 1914 Federal Trade Commission Act......................................................................................................9
6. DOJ + FTC each has power to enforce antitrust......................................................................................9
7. 1936 Robinson-Patman Act (dealt with price).........................................................................................9
8. 1950 Celler-Kefauver Act........................................................................................................................9
9. 1976 Hart-Scott-Rodino...........................................................................................................................9
D. Early Legal Doctrine: Cartel Cases (51)......................................................................................................9
1. Issues........................................................................................................................................................9
2. US v. Trans-Missouri Freight Assn (US 1897) No ROR.......................................................................9
3. US v. Joint Traffic Assn (US 1898)......................................................................................................10
4. Historical Context (Commerce Clause):................................................................................................10
5. Addyston Pipe (1898)............................................................................................................................10
6. Restrictive Covenants: Rest2 K (1981): Reasonableness....................................................................10
7. Standard Oil (1911)...............................................................................................................................10
8. US Steel.................................................................................................................................................10
9. American Tobacco.................................................................................................................................10
II. Chapter 3 Market Structure and Monopoly Power........................................................................................10
A. Market Power, Relevant Market, Monopolization....................................................................................10
1. 3 Questions............................................................................................................................................10
2. US v. Aluminum Co. of America (2d Cir. 1945)...................................................................................11
3. du Pont (US 1956)Cellophane Case -- relevant market.................................................................11
4. Intl Boxing Club (1959).......................................................................................................................12
5. Syufy Enterp. v. AMC (9th Cir. 1986)....................................................................................................12
6. Microsoft................................................................................................................................................12
7. Grinnell (1966) 2 Monopolization of Security Market...................................................................12
8. Assessing Mkt Power............................................................................................................................13
9. DOJ/FTC Merger Guidelines 1034-1042..............................................................................................13
III.
Price Fixing and Division of Markets Sherman 1..................................................................................14
A. Conspiracy in Theory and Action..............................................................................................................14
1. Conditions Favoring Cartels..................................................................................................................15
2. Barriers to Entry and Competition.........................................................................................................15
3. What is wrong with price fixing?..........................................................................................................15
4. General Principles..................................................................................................................................15
B. Development of the Per se Rule on Price Fixing...................................................................................15
1

1. Chicago Board of Trade v. US (US 1918) Rejecting Per Se..................................................................15

2. Socony-Vacuum Oil (US 1940) Per Se Rule: Price Fix........................................................................16
3. Basic Dichotomy: Per Se v. Rule of Reason..........................................................................................17
4. Learned Professions...............................................................................................................................17
5. BMI v. CBS (US 1979) Characterization of Blanket License: New ProductNot Per Se..................17
6. The Quick Look.................................................................................................................................18
7. NCAA v. Regents of U. of Okl. (1984) Quick Look..........................................................................18
8. US v. Brown U. (3d Cir. 1993) Quick Look not Sufficient................................................................19
9. Current view of FTC & DOJ 3.36(b) Collaboration Guidelines...........................................................19
10.
California Dental (1999) Rejecting Quick Look & Remanding........................................................19
11.
Steps of the ROR...............................................................................................................................20
12.
Quick Look........................................................................................................................................20
13.
Did quick look die in Cal Dental?.....................................................................................................20
C. Territorial Divisions & other restraints......................................................................................................20
1. Non-Price Horizontal Restraints............................................................................................................20
2. Natl Assn Window Glass Mfgs. v. US (US 1923)..............................................................................20
3. Timken (US 1951) Bearing Mfgs. Violated Sherman...........................................................................20
4. US v. Gm (1966) Exclusive Dealing: Exclusion of Discounters...........................................................20
5. US v. Sealy (1967) Unlawful Territorial Restraints...............................................................................21
6. Topco (US 1972) Territorial Restraints Per Se Illegal (bad law?).........................................................21
7. General Leaseways (1984) Mere Economy of Scale Doesnt Save Restraint.......................................22
8. Palmer v. BRG of Georgia, Inc. (Bar/Bri Case) (1990).........................................................................22
IV.
Group Refusals to Deal (Boycotts) and joint ventures..............................................................................22
A. Refusals to deal..........................................................................................................................................22
1. General...................................................................................................................................................22
2. Montague v. Lowry (1904) Tile Mfgrs: No Deal w/NonMembers........................................................22
3. Fashion Originators Guild v. FTC (US 1941) Blacklisted Style Copyists........................................22
4. Klors (US1959) Group Boycotts Per Se Illegal (under 2).................................................................23
5. Nynex (US 1998) No Per Se Rule Where Buyer Chooses Other SupplierRegardless of Reason.....23
6. Radiant Burners (US 1961) Refusal to Supply Gas to Non-AGA-Approved Burner = Per Se Illegal. 24
7. Structural Laminates (9th Cir. 68) Upholding P-wood Standard............................................................24
8. Natl Sanitation Assn. (6th 1980) Upholding Standards.........................................................................24
9. Northwest Wholesale Stationers (US 1985) Cooperative Buying Expulsion; NOT Per Se.............25
10.
FTC v. Indiana Federation of Dentists (US 1986). RORActual FXNo Need 2 Prove Mkt Power
25
11.
FTC v. Superior Court Trial Lawyers Association (US 1990)...........................................................26
B. Joint Ventures (378)...................................................................................................................................26
1. Summary Coming to conclusion of discussion of Section 1 & horizontal agreements.......................26
2. Who is to benefit from antitrust?...........................................................................................................26
3. US v. Terminal Railway Assn (US 1912). Essential Facilities Doctrine............................................27
4. AP v. US (US 1945) Membership Veto/Refusal to Deal = Unreasonable Restraint..............................27
5. How assess JVs under RoR?..................................................................................................................28
6. SCFC ILC, Inc. v. Visa USA, Inc. (10th Cir. 1994) VISA System OK..................................................28
C. Government ActionEfforts to Influence Government...........................................................................28
1. Eastern RR Presidents Conference v. Noerr Motor Freight Co. (US1961) NOERR-PENNINGTON
DOCTRINE...................................................................................................................................................28
2. California Motor Trans. (1972) Applying Sham Exception.................................................................29
3. NOW Boycott (1980) Noerr Immunity.................................................................................................29
4. Otter Tail Power (1973) Sham Exception..............................................................................................29
5. Allied Tube & Conduit Corp. v. Indian Head, Inc. (US 1988) Removal From Politics........................29
2

6.
7.

Norr-Pennington Doctrine.....................................................................................................................29
Professional RE Investors (1993) Sham Exception: Objectively Baseless.......................................29
D. State Action & Federalism: PArker v. Brown Doctrine........................................................................30
1. Parker v. Brown (1943) (450) Sherman Does Not Apply to State Action.............................................30
2. Schwegmann Bros. (US 1951)..............................................................................................................30
3. Goldfarb (1975).....................................................................................................................................30
4. Midcal (1980) 2-PRONG PARKER TEST............................................................................................30
5. Southern Motor Carriers (1985) 461.....................................................................................................30
6. FTC v. Ticor (464).................................................................................................................................30
7. Parker v. Brown Discussion...................................................................................................................31
E. Municipalities & PArker-Midcal...............................................................................................................31
1. City of Hallie.........................................................................................................................................31
2. Omni Outdoor Adving, Inc. (US 1991) No Conspiracy Exception to Parker......................................31
V. Chapter 6 Market Concentration, Conspiracy & Antitrust............................................................................31
A. Proof of Collusion......................................................................................................................................31
1. Interstate Circuit v. US (1939). Tacit Agreement Sufficient (after trial)...............................................31
2. Theater Enterprises v. Paramount Film (1954) Parallel Conduct not Conclusive (on sj)......................32
3. Compare/Reconcile Theater Enterprises with Interstate Circuit...........................................................33
4. In re Baby Food Antitrust Litigation (Plus Factors)...........................................................................33
B. Facilitating Practices..................................................................................................................................33
1. Impediments to Price Coordination.......................................................................................................33
2. Structural Factors that Facilitate or Complicate Price Coordination (528)...........................................33
3. Facilitating Practices..............................................................................................................................34
C. Trade Assns & INformation exchange (IX) (586).....................................................................................34
1. Background............................................................................................................................................34
2. American Column & Lumber Co. (1921) IX Violated 1....................................................................34
3. Maple Flooring (1925) IX of Past & Aggregated Data OK...................................................................35
4. Cement Manufacturers (1925) IX OK to Protect from Arbitrage..........................................................35
5. Sugar Institute Public (1936) Binding Public Price BAD.....................................................................35
6. US v. Container Corp. (1969) Price Stabilizing Plan BAD IN THEORY.............................................35
7. US v. Gypsum (609)..............................................................................................................................36
8. Todd v. Exxon (2nd Cir. 2001)................................................................................................................36
9. Blomkest Fertilizer, Inc. v. Potash Corp. of Sask., Inc. (8th Cir. 2000) (Rule of Reason & SJ)............36
10.
Compare Todd v. Blomkest................................................................................................................36
D. Vertical Restraints (resale Price Maintenance)..........................................................................................37
1. Vertical v. Horizontal Restraints............................................................................................................37
2. Sharp Division Between Price & Non-Price Restrictions.....................................................................37
3. Price Restraints: Two Rules (Min/Max)................................................................................................37
4. Non-Price Restraints: One Rule Post-Sylvania, all ROR......................................................................37
5. Summary: Only per se rule where minimum price maintenance.........................................................37
6. Extended Analysis + Holdings...............................................................................................................37
7. Dr. Miles (1911) Per se Rule Against Minimum Resale Price..............................................................39
8. State Oil v. Khan (1997) Max Resale NOT per se (overruling Albrecht).............................................39
9. Albrecht v. Herald Co. (1968) (overruled in State Oil).........................................................................39
10.
Continental TV v. GTE Sylvania (1977) Max Price ROR............................................................39
11.
Summary............................................................................................................................................40
E. Vertical Restraints and Refusal to Deal.....................................................................................................40
1. Colgate (1919) Refusal to Deal Not a Contract, Combination or Conspiracy Colgate Defense40
2. Park-Davis (1960) Illegal Combination Where Seller Pressured Wholesalers.....................................41
3. Monsanto Co. v. Spray-Rite Service Corp. (1984) Standard of Proof 4 Vert. Price-Fixing.................41
3

4.
5.
6.

Biz Electronics Corp. v. Sharp Electronics (1988) No Per Se in Purely Vertical Cases....................41
Summary of Vert Restraints...................................................................................................................42
Recap of Vertical Relationships.............................................................................................................42
VI.
Section 2. Monopolization. (Chapter 8)..................................................................................................43
A. Monopoly Conduct Revisited....................................................................................................................43
1. Overview................................................................................................................................................43
2. Categories: Actual v. Attempted...........................................................................................................43
3. Alcoa......................................................................................................................................................43
4. Grinnell..................................................................................................................................................43
5. Otter Tail Power (1973).........................................................................................................................43
6. Aspen Skiing (1985)..............................................................................................................................43
7. Trinko (US 2004) (lexis printout)..........................................................................................................44
8. US v. Microsoft Corp. (DC Cir. 2001)...................................................................................................44
B. Attempted Monopolization ( 2)...............................................................................................................47
1. Elements of Attempt..............................................................................................................................47
2. Spectrum Sports, Inc. v. McQuillan (US 1993) Elements of Attempt...................................................47
3. Discussion leading to Lorain Journal....................................................................................................47
4. Loraine Journal (1951) Attempted Monopoly.......................................................................................47
C. Predatory Pricing.......................................................................................................................................47
1. Behavioralists v. Chicago School..........................................................................................................47
2. Theory/Counter Theories of PPricing....................................................................................................48
3. Elements of Predatory Pricing Claim....................................................................................................48
4. Brooke Group (1993).............................................................................................................................48
D. Tying..........................................................................................................................................................49
1. Clayton Act 3 (p876)..........................................................................................................................49
2. United Shoe (1922)................................................................................................................................49
3. International Salt (1947)........................................................................................................................49
4. Requirements of Tying Claim................................................................................................................50
5. Northern Pacific (1958) Substantial Restraint Req............................................................................50
6. Times Picayune (1953) Market power + Substantial Restraint Reqd..................................................50
7. Advanced Biz Systems (1970) Copies, Paper & Service: Illegal Tie....................................................50
8. Jefferson Parish (1984) Need Independent Demand For 2 Products.....................................................50
9. Kodak (1992).........................................................................................................................................51
10.
Market Share Hard Numbers.............................................................................................................51
11.
Technological v. Contractual Tying...................................................................................................51
12.
Critique of Tying Law........................................................................................................................51
13.
Requirements of Tying Claims..........................................................................................................52
14.
Tying as per se violations...................................................................................................................52
15.
Procompetitive Justification..............................................................................................................52
E. Exclusive Dealing......................................................................................................................................52
1. In Vertical Context.................................................................................................................................52
2. Inter-Brand Exclusivity (horizontal)......................................................................................................52
3. Standard Fashion...................................................................................................................................52
4. Tampa Electric.......................................................................................................................................52
F. Bundled Discounts (the hott antitrust topic)..............................................................................................53
1. Overview................................................................................................................................................53
2. LePages v. 3M (3rd Cir. 2003)................................................................................................................53
G. Exclusive Dealing......................................................................................................................................54
1. Overview................................................................................................................................................54
4

2. RULE: EXCLUSIVE DEALING MAY BE TREATED UNDER EITHER 3 OF THE CLAYTON

ACT (IF IT INVOLVES THE SALE OF GOODS) OR 1 OF THE SHERMAN ACT..............................54
3. STANDARD FASHION CO. v. MAGNETTE-HOUSTON (1922)......................................................54
4. FTC v. BROWN SHOE (1966) Invalidating Restriction on Resale of Competitor Shoes....................55
5. TAMPA ELECTRIC CO. v. NASHVILLE COAL CO. (1961)............................................................55
H. Mergers......................................................................................................................................................56
1. Overview................................................................................................................................................56
2. Clayton Act, Section 7...........................................................................................................................56
3. Brown Shoe Discusses Purposes of Section 7.......................................................................................56
4. Reasons to Merge...................................................................................................................................56
5. Compare to J/V Cases............................................................................................................................57
6. Types of Merger.....................................................................................................................................57
7. US v. Philadelphia National Bank (1963)..............................................................................................57
8. Mergers during the 1960s......................................................................................................................58
9. General Dynamics (1976)......................................................................................................................58
I. Merger Guidelines.....................................................................................................................................58
1. From GD Guidelines.........................................................................................................................58
2. What would happen if there is a small but significant and non-transitory price increase?...................59
3. Market Definition..................................................................................................................................59
4. 1.3 ID Market Participants..................................................................................................................59
5. 1.4 Calculating Market Shares...............................................................................................................59
6. 1.5 Market Concentration...................................................................................................................59
7. 1.51.....................................................................................................................................................59
8. 2 Potential Adverse Competitive Effects of Mergers.........................................................................60
9. 2.12 Conditions Codusive to Detecting and Punishing.........................................................................60
10.
2.21 Firms Distinguished Primarily by Differentiated Products....................................................60
11.
3.0 Entry Analysis..............................................................................................................................60
12.
4. Efficiencies....................................................................................................................................60
13.
5 the failing firm defense (hail mary pass).....................................................................................60
J. Vertical Mergers (NOT ON EXAM).........................................................................................................61
1. Chicago..................................................................................................................................................61
2. Post-Chicago..........................................................................................................................................61
3. Vertical Merger Guidelines (not covered).............................................................................................61
I.

OBJECTIVES AND ORIGINS OF ANTITRUST

A. THE GOALS OF ANTITRUST POLICY
1. The Role of Competition
2. The Sherman Act + other Legislation
B. HISTORICAL SOURCES OF ANTITRUST
1. Early Law on Monopoly (English CL etc)
a) Senators who enacted common law said/thought that they were merely enacting the CL.
(1) This proposition is disputed and some argue that CL is irrelevant to interpreting the
Sherman Act.
b) Questions to consider
(1) Can we ID the beneficiary in the CL cases?
(2) Is there a unifying theory of monopoly and competition?
(3) Can we find consistent themes to draw upon later on?
2. Dyers Case (1415).
a) Held. Contract to repay debt or not work in the Dyers trade for 6 months is void as against the
common law, and were the P here, he would be thrown in debtors prison.
b) Discussion. Who is benefited by this policy?
(1) Consumers less competition.

(2) Not the Dyer impairs his freedom of K.

3. Schoolmasters Case (1410).
a) Held. No action can be maintained against schoolmaster who set up a school that competed with
the existing school, thereby driving down prices.
b) Notes.
(1) Harm without legal injury.
(2) Here the primary benny appears to be the consumer again.
(3) What if new entrant is dumping below cost to drive out the competitor?
4. Case of Monopolies (1602).
a) Held, in an action was brought against a haberdasher who purportedly violated a patent granted
by the Queen to the plaintiff as the sole importer of playing cards was invalid.
b) Notes.
(1) The court invalidated (obliquely) a patent granted by the queen, but shortly thereafter
parliament granted a patent another party.
(2) This case is really about the authority of the Queen to grant patents. Parliament had the
authority, the Queen didnt. This is about separation of powers.
5. Michel v. Reynolds (KB 1711) (Rule of Reason).
a) Facts. Baker sold his bakehouse and agreed not to compete in that locality for five years or to
pay a sum of money if he did.
b) Held, the contract was valid and enforceable.
c) Distinguish Dyers & Reynolds
(1) The Dyers case is a bare restraint of trade.
(2) In Reynolds, there is ancillary no-compete agreement to a K for the sale of a business.
(3) General v. Particular Distinction.
(4) The cessation of competition was proportional to the K (a five year lease and a five year
restraint of trade).
(5) The no-compete clause was necessary for a good and useful contract for the sale of the
business.
6. Some Trends
a) Protectionist
b) Political
c) Mercantilist
d) Consumerist (fairly strong)
e) Free Labor
f) These trends often conflict but are not acknowledged.
7. Current Paradigm
a) Under Current Paradigm, consumer = primary beneficiary of antitrust law
b) Primary evil to be solved is the deadweight loss + wealth tfer.
c) Antitrust is cyclical, so its evolving.
C. HISTORICAL DEVELOPMENT OF ANTITRUST STATUTES
1. Many versions came and went
a) National Industrial Recovery Act (early new deal) (came and went)
(1) 1935 Schecter invalidated new deal via commerce clause or non-delegation doctrine
b) Resale Price Maintenance
(1) 1930s Congress wanted to permit it
(2) Per se illegal today.
2. Some Industries Exempted from Antitrust
3. 1890 Sherman Act Background
a) Letwin Deceptively simple.
(1) Congress that passed the act were Republicans and dominated by industrial magnates.
(a) Some argued that Sherman Act was intended as a band-aid.
(b) Seeking to head off popular resentment towards industrialists.
b) Why Antitrust?
(1) Trusts were large corporate orgs.
(2) Corp law was less evolved, so many trusts consisted of many corps bound contractually
to follow direction of a central organizer (David Rockefeller).
(3) Resentment against high prices + concentration of power.

c) Legislative History
(1) Senators saw themselves as enacting the common law.
(2) Belief that monopolies, trusts and cartels injured consumers through higher prices and
lower quality.
(3) Legislators believed that industry should be organized to benefit small dealers and worthy
men notwithstanding that the trusts may have made things cheaper at times.
(4) Legislative history is misleading because something to support everyones view.
d) Text
(1) Section 1 prohibits contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade.
(a) Requires two actors.
(b) Wholly owned subsidiary and holding co. not subject to this rule.
(2) Section 2 prohibits monopoly.
(a) Section 2 does not require joint action (more than one actor).
(b) Not a status offense. Prohibits monopolizing (verb).
(3) Section 2 is more liberal (doesnt require joint action) but only punishes monopoly,
whereas section 1 is narrower (requiring joint action) but a mere restraint of trade is
punished.
(4) Original section 7 provided a private right of action + treble damages.
4. 1914 Clayton Act
a) More Aggressive
b) Section 2 prohibits Price Discrimination (largely replaced by Robinson-Patman Act)
c) Section 3 prohibits certain forms of exclusive dealing (still on the books and active)
d) Section 4 (Very Important Remedially).
(1) Private person injured in business or property by reason of antitrust may sue for treble
damages + attorneys fees.
(2) Hannover(?) US S Ct held that retailer could sue for overcharge even if price increase
was passed on.
(3) 1977 Illinois Brick. Held that consumer indirect purchaser could not sue. States
responded by passing legislation repealing Illinois Brick and permitting action in state court
for indirect purchaser.
(4) Associated General Contractors. Only indirectly injured competitor can sue (not the
investors).

e) Section 6 labor not a commodity. Intended to shield labor unions.

f) Section 7 extends A/L to corporate mergers in some cases where not monopolistic.
g) Section 8 prohibits interlocking directorships.
5. 1914 Federal Trade Commission Act
a) Humphreys Executor. Permitted Congress to establish a position not removable by president.
b) Section 2. Unfair competition unlawful + commission empowered to enforce.
6. DOJ + FTC each has power to enforce antitrust.
a) Coextensive authority.
b) Currently, informal division of labor.
7. 1936 Robinson-Patman Act (dealt with price)
a) Most reviled antitrust law today.
b) Created buyer liability.
c) Buyer must show that the discount is proportional to the savings from dealing in greater volume.
Became difficult to prove cost justification defense.
d) More concerned about small biz.
8. 1950 Celler-Kefauver Act
a) Extended antitrust law to (asset acquisitions?)
b) Old Section7 only applied to competitors. Amendment made it clear that vertical or conglomerate
mergers could be the subject of AL.
9. 1976 Hart-Scott-Rodino
a) Pre-merger notification system. Mergers become reportable and must be reported prior to closure.
b) Only applies to stock acquisitions not asset acquisitions.
c) Does not apply to joint ventures.
d) 30-day waiting period.
e) Prior to end of 30 days FTC or DOJ can issue the (DREADED) words second request.
(1) Burdensome
(2) Prevents closure until request fulfilled
f) Not an approval/clearance statute. Even if cleared, not immunized from suit by gov or private
parties.
D. EARLY LEGAL DOCTRINE: CARTEL CASES (51)
1. Issues
a) CL
b) RoR
c) Lower Prices/Small Dealers/Worthy Men
d) Naked v. Ancillary
2. US v. Trans-Missouri Freight Assn (US 1897) No ROR.
a) Held, the freight assn.s price-fixing scheme violated the Sherman Act notwithstanding that it was
found by the TC to promote fair and healthy competition.
b) Reasoning
(1) By driving out the small dealers and worthy men, price-fixing schemes that reduce
prices can ultimately harm competition and thus violate the Sherman Act.
(2) Explicitly rejected a rule of reason approach.
c) Later cases conclude that, to the extent Trans-Missouri rejected the Rule of Reason, it is no longer
good.
3. US v. Joint Traffic Assn (US 1898).
a) PEckham retreated from Missorui Freight and recognized ancillary restraints as acceptable.
4. Historical Context (Commerce Clause):
a) 1905 Lochner v. US. Limiting scope of gvt power under the commerce clause Switch in
Time that Saved 9.
b) EC Knight suggested that manufacturing was outside the commerce power.
c) By 1905, in antitrust context commerce power is not so hotly disputed.
5. Addyston Pipe (1898)
a) Facts. Agreement to fix price of pipe according to geographic regions. Prices 500 miles away
were less than prices in areas nearby the foundry.
b) Reasoning
(1) Distinguished direct v. indirect restraints
(2) Nevertheless the restraint was void at cl.

(3) Unlike EC Knight, this involved interstate commerce in restraint of trade.

6. Restrictive Covenants: Rest2 K (1981): Reasonableness
a) No compete promise unreasonable if
(1) Greater than needed
(2) Promisees need outweighed by hardship to promisor
b) Valid ancillary promises include
(1) No compete w/sold biz
(2) Employee/employer promise
(3) Partner promise
c) Courts look at three factirs
(1) Geo area
(2) Duration
(3) Scope
7. Standard Oil (1911)
a) Rockefeller + 71 other D oil cos charged with conspiring to monopolize and restrain trade in oil
b) Held, standard oil must be dissolved.
c) Reasoning
(1) Principle Evil of the Combination
(a) Power to fix prices and injure the public
(b) Power to limit production
(c) Danger to reduced quality
8. US Steel
a) Applied ROR to consolidation case and upheld.
9. American Tobacco
a) Affirmed use of ROR.
II. CHAPTER 3 MARKET STRUCTURE AND MONOPOLY POWER
A. MARKET POWER, RELEVANT MARKET, MONOPOLIZATION
1. 3 Questions
a) How measure mkt share?
b) What share gives rise to monopoly power?
c) Given monopoly power, what conduct will the laws tolerate?
2. US v. Aluminum Co. of America (2d Cir. 1945).
a) Facts. Alcoa accused of monopolizing manufacture and sale of virgin aluminum ingot. made
deal w/power cos not to deal w/competitors, etc. Resulted in 1912 consent decree. Alcoa had 90% of
the market in virgin ingot. It faced competition from foreign importers, who faced some disad due to
tariff prices.
b) Reasoning
(1) P proved mkt share (domestic mkt).
(2) It was for D to prove no abuse of the power.
(3) Moreover, low profits not a defense b/c lazy monopolist may have consumed its
monopoly rents.
(4) Alcoa monopolizing by constantly redoubling capacity in order to absorb new demand
and preclude entry of competitors into the market.
c) Discussion
(1) Relevant Market: How Determine? What Factors?
(a) Product
(b) Supply
(c) Geography
(2) Gvt argues that Alcoas balance sheet (profits) demonstrate that it is a monopoly. Hand:
Profits is a bad way to prove monopoly because the lazy monopolist may have consumed its
monopolist rents.
(3) Hand suggests that capture of 90% of market share is to monopolize. However, if the
monopoly is obtained through skill, foresight and industry, the
(4) What Alcoa Did Wrong: Predatory InvestmentCrane
(5) Alcoas investment in capacity would have been irrational (inefficient) but for the fact
that such excess capacity would exclude new entrants.

3.

4.
5.

6.

7.

(6) Current Test at DOJ: Sacrifice Test. Would an investment be irrational but for the fact
that it would result in exclusion of competitors.
du Pont (US 1956)Cellophane Case -- relevant market
a) Facts. duPont controls 90% of the US market in cellophane sales. It bought the exclusive right to
market from its French inventor.
b) Issue. What is the relevant mkt? Cellophane or all flexible packaging material.
c) Held, no monopoly b/c relevant mkt is flexible packaging materials; duPont cannot monopolize
and raise prices because it faces competition from other flexible packaging materials.
d) Reasoning
(1) Court: The ultimate consideration in such a determination is whether the defendants
control the price and competition in the market for such part of trade or commerce as they are
charged with monopolizing. [This is the fallacy.]
(2) What factors define the relevant market?
(a) Reasonable interchangeability
(b) Cross-Elasticity of Demand
(i) This refers to increase in price accompanied by a change in demand.
(ii) If 100% change in price 15% demand then there is a 1.5 elasticity.
Generally, if > 1 then demand is elastic.
e) Dissent
(1) Specialists would disagree that there is a substitute for cellophane.
(2) The other products do not compete for prices: when the price of cellophane fluctuated,
the other products should change also if they are competing. They did not change along with
cellophane.
f) Analysis: The Cellophane Fallacy
(1) Elasticity is the WRONG MEASURE OF A MONOPOLY.
(2) Profit has already been increased to the profit-maximizing level (monopoly price). Any
further increase will drive consumers to other products (the price has reached the point where
otherwise non-substitutes become viable).
(3) If du Pont is already charging monopoly prices, there is elasticity of demand
(4) At some price there is a price for everything (in other words, there is always elasticity of
demand).
Intl Boxing Club (1959).
a) Championship boxing fights are not the same relevant market as regular fights.
Syufy Enterp. v. AMC (9th Cir. 1986).
a) Held, no error in concluding that the relevant market in the San Jose area was industry
anticipated top-grossing films.
b) Even in the absence of hard evidence showing cross-elasticity of demand, the jury could properly
conclude that such films were not in substantial competition with each other.
Microsoft
a) Middleware and non-PC operating systems excluded from the relevant market because they
werent reasonably interchangeable; users wouldnt realistically switch over and they didnt
constrain prices on windows
Grinnell (1966) 2 Monopolization of Security Market
a) Held, Grinnell violated 2 by monopolizing the market for accredited central station protection
service.
b) Reasoning
(1) Relevant Market.
(a) Accredited central service stations.
(b) Although some competitors, they did not have same quality or effect on
onsurance premiums; some consumers would be simply unwilling to switch. Thus,
per du Pont, they were not reasonably interchangeable.
(2) Relevant Geographic Market.
(a) Majority
(i) National.
(ii) Biz (rates, accreditation, etc) is conducted on a national level.
(b) Dissent:

10

(i) The geographic mkt gerrymandered to fit Ds biz. Relevant geo mkt
should be determined by looking to the consumers available alternatives.
This is LOCAL.
(ii) The actual biz is by its nature locally provided.
(3) Monopoly Power
(a) Ds control 87% of the relevant mkt.
(b) Products are not reasonably interchangeable due to the importance of
accreditation and the superior quality of central station protective services; some
consumers wont switch.
(i) Problem Here. Dont know if Grinnell can act like a monopolist just
because some sub-group wont switch to another product. Need other info.
(ii) Arbitrage. Buying and reselling to undercut the monopolists price
where monopolist tries to price discriminate and charge captive market a
monopoly price.
(c) The dominance was acquired largely by unlawful exclusionary practices:
(i) No-compete market division
(ii) Pricing
(iii) Acquisitions by Grinnell of competitors
(4) Remedy: Divestiture.
(a) Dissent: The remedy is local divestiture, which illustrates that the choice of a
NATIONAL market was wrong.
8. Assessing Mkt Power
a) Time
b) Barriers to entry.
(1) Potential entrants may constrain mkt power.
c) Countervailing buyer power.
d) Conduct evidence
9. DOJ/FTC Merger Guidelines 1034-1042
a) Not law: Statements of enforcement intentions.
b) First question is, what is the relevant market?
c) Market Definition Focuses solely on Demand Substitution Factors
(1) This means that the Grinnell approach is rejected to the extent it focused on supply side.
(2) Supply considerations are still relevant to mergers, but not the determination of the
relevant market.
d) Definition 1035. A market is defined as a or group of products and a geographic area in which it
is produced or sold such that a hypothetical profit-maximizing firm, not subject to price regulation,
that was the only present and future producer or seller of those products in that area likely would
impose at least a small but significant and nontransitory increase in price, assuming the terms of sale
of all other products are held constant.
e) Product Market Definition.
(1) Would small nontransitory price increase be profitable? If no, the reason must be because
consumers would switch to an alternative product. Therefore, find the next best substitute
and add it to the relevant market. What if single supply controlled both, and imposed a
nontransitory price increase? If not profitable, add in the next substitute, and continue until
the answer is yes. All substitutes have been included in the market.
f) This is an analytical approach still many variables but at least a respected approach.
g) Geographic Market Definition same approach as above; keep adding markets.
h) 1.12 Product Market Definition in the Presence of Price Discrimination
i) Have the Merger Guidelines Committed the Cellophane Fallacy?
(1) No, because they deal with mergers in the future. Thus, presumably here the firms
seeking to merge are not yet performing at a monopoly level.
(2) Merger Guidelines Ask: Will this make things worse?
j) 3 approaches to market definition: Cellophane, Grinnell, Merger Giuidelines
(1) If the question presents a future merger issue, follow guidelines.
(2) If it is an attempt case,
(3) If alleging actual monopoly, how do it?
(a) See Posner 151 (?).

11

(b) See Authors p. 191. Hunt and Peck Approach.

III. PRICE FIXING AND DIVISION OF MARKETS SHERMAN 1.
A. CONSPIRACY IN THEORY AND ACTION
1. Conditions Favoring Cartels
a) Low cost of organizing
b) Low numbers of firms
c) Low price elasticity at competitive price
d) Durability
2. Barriers to Entry and Competition
a) Slow speed of entry
b) Sunk costs
c) Cost and demand Disads
(1) Patents and licenses
(2) Scarce resources
(3) Product differentiation (consumer loyalty)
d) Economies of scale
3. What is wrong with price fixing?
a) See 206 American Airlines. We are worried that, by their agreement, they will behave as a
monopolist.
b) There is still an incentive to cheat on the price-fixing agreement. The higher price will reduce
demand. Thus, there is an incentive to reduce prices a little to capture the demand that was lost as a
result of the higher price.
c) One view is that cartels collapse under their own weight very quickly.
(1) Not clear that this is always so.
(2) Also, a short term injury.
4. General Principles
a) Highly concentrated markets are most susceptible to collusion because it is easier to police a
smaller number of firms.
b) Demand-Elasticity. Easier to police where demand is in-elastic.
c) Barriers to entry
(1) High cost to entry.
(2) Maximum Viable Scale. Must operate at high efficiency to be profitable
(3) Government Regulations. Ex: Zoning regulations.
B. DEVELOPMENT OF THE PER SE RULE ON PRICE FIXING
1. Chicago Board of Trade v. US (US 1918) Rejecting Per Se
a) Facts. Three types of grain sales: Spot sales, Future sales, Sales to Arrive. The Board had a
rule restricting the period of price-making. Bids on to arrive grain could only be at the closing
price. Gvt. Sues to enjoin enforcement of the call rule.
b) Held. The restraint is permissible and effectuated the creation of a more effective public market
for to arrive grain.
c) Reasoning
(1) All regulation restrains. Here, the regulation merely regulates the conduct of traders
without suppressing competition.
(2) Created public market and leveled playing field.
(a) But, cartels always level the playing field and permit inefficient producers to
compete. Perhaps Brandeis is really trying to protect the less efficient little guy.
(3) Brought buyers and sellers into direct relations.
(a) This doesnt mean more efficient.
(4) Distributed grain among more receivers and merchants
(a) But, cartels often distribute to more people.
(5) Eliminated risks incident to a private market
(a) Perhaps Brandeis means that small country dealers can now give a confidant
(and higher) price to the farmer. This may be inefficient.
d) Class.
(1) The governments failure to do more to allege the negative effects of the rule (they argued
a per se rule) meant that the Boards assertions were uncontested. Oddly, Bradeis didnt
remand for consideration of the Rule of Reason and more evidence at the trial level.

12

2.

3.

4.

5.

(2) Didnt take the Michel v. Reynolds approach. Instead, the test is whether the restraint
merely regulates competition or whether it suppresses or destroys competition.
(3) This may be right on its facts, its a good statement of the rule of reason, but unclear if
really correct due to procedural posture.
Socony-Vacuum Oil (US 1940) Per Se Rule: Price Fix
a) Retail prices for gasoline were customarily pegged to the spot market for gasolinethe market
for surplus gasoline at distressed prices. The defendants had a coordinated program of buying in the
spot market which had a stabilizing effect. Under the agreement, major companies had a dancing
partneran independent refiner from whom they purchased the distressed gas at the going market
price. The effect was to establish a floor below the distressed gas market and stabilize gas prices.
b) Class.
(1) Interesting change in the view of competition.
(2) Natl Recovery Act delegation by President. Subsequently, the statute invalidated.
Committee went on to do its work anyway. Thus, view of legality of cooperation changed in
this period.
(3) Douglas attempts to distinguish App. Coal.
(a) Not directly affecting consumers in app. Coal. Bullshit: (1) Factually wrong,
b/c in Socony not direct to consumers, either and (2) even if there arent direct
effects, they will ripple to the consumer.
(b) Effect conjectural and court retained jurisdiction in App. Coal. But Douglas
contradicts himself later.
(4) See 218. Price fixing is per se unlawful.
(a) He claims for forty years price-fixing was per se illegal, but Chicago Board of
Trade was a legal price fix.
Basic Dichotomy: Per Se v. Rule of Reason
a) Per se in Socony very rigid.
b) Now, how decide whether per se or rule of reason applies?
c) Michel v. Reynolds Ancillary v. Naked. Problem: they dont perfectly encompass the cases.
d) Socony arguably merely regulated and rationalizedwhy per se?
e) Problem with defining price-fixing
(1) Chicago Board of Trade + Appalachain Coal. Both literally involved price-fixing.
(2) Socony did not literally involve price-fixing.
Learned Professions
a) Natl Society of Engineers (1978)
(1) Held, an absolute ban on competitive bidding was per se unlawful. While competition
may lead to unethical conduct, a total elimination of competition was impermissible. ROR
doesnt permit a defense that competition itself is unreasonable.
b) AMA v. FTC (1980).
(1) Per se did not apply to AMAs rule against price advertising, but under ROR total ban on
price ads was impermissible. However, the court of App affirmed a proviso in the order that
authorized the AMA to regulate deceptive ads.
BMI v. CBS (US 1979) Characterization of Blanket License: New ProductNot Per Se
a) Facts. ASCAP and BMI = licensing clearinghouses. BMI/ASCAP held exclusive right to license
artists work. Per a consent decree, they ceased issuing blanket licenses only and began permitting
individual licensing negotiations. 2d circuit agreed that it was price-fixing.
b) Issue. Whether this should be invalidated as per se price-fixing.
c) Class:
(1) CBS sought either (1) an injunction directing ASCAP and BMI to make licenses
available at standard per-use rates within negotiated categories of use or (2) if that or blanket
licensing constitutes price-fixing, CBS sought an injuction against all blanket licenses.
(a) This strategy shoots cbs in the foot. If they actually prefer to keep some aspects
of the blanket license, then that is evidence that the per se rule is the wrong approach
to take.
(2) Does the court know enough about the practice of blanket licensing to apply the per se
rule?
(3) White: There is no price-fix because the product is the license, not the individual works.
BMI is the producer of the product.

13

6.
7.

8.

9.
10.

d) Take-Aways
(1) Practicality.
(a) CBS doesnt ask for a total ban on blanket licensing. This concedes that the
blanket licensing is useful. Therefore, the per se rule is inapplicable.
(2) Chicago School.
(a) Output-focused.
(3) Legal Point
(a) Characterization around the per se rule: the blanket license is a new product.
e) Stevens Dissent.
(1) Would have applied ROR.
The Quick Look
a) The role of other (non-economic) justifications
b) The quick look arises most in cases that arise at the margins of commercial activity.
NCAA v. Regents of U. of Okl. (1984) Quick Look
a) Each network paid a pre-set lump for 14 games. The networks negotiated with the individual
schools for televised games, but each school was limited to a certain number of televised games and
prices were set by the NCAA. The schools were forbidden from negotiating with anyone else for
televising games.
b) Held
(1) The NCAAs plan violates the Sherman act.
c) Reasoning
(1) Not applying the per se approach b/c of the important role horizontal agreements play in
preserving the special character of college football.
(2) This is a price-fixing agreement: Prices are kept higher because output is restricted.
(3) Consumers are hurt because less games are televised. The supply does not respond to
consumer demand.
(4) Where there is an agreement not to compete in terms of price or output, no elaborate
analysis of market power is necessary to demonstrate the anticompetitive character. See p.
258 + Footnote 57. The rule of reason can sometimes be applied in the twinkling of an eye.
(5) It thus falls on D to come forward with an affirmative defense.
(6) Unlike BMI, here production is limited, not increased.
d) Discussion
(1) NCAA argued
(a) that it was promoting live attendance by restricting television coverage.
(b) that it was promoting amateurism and competitive balance.
(2) Should the non-economic values advanced by NCAA by a defense to an antitrust action?
(a) Generally, what if an institution is totally non-profit?
(3) Does the court do a full ROR analysis? NO.
(a) See FN 57 ROR applied in twinkling of an eye.
(b) However, if D can show some pro-competitive FX full ROR analysis.
US v. Brown U. (3d Cir. 1993) Quick Look not Sufficient
a) MIT and other top schools agreed to offer financial aid solely on the basis of need, thereby
eliminating financial aid (and thus, tuition cost) as a point of price competition among Ivy league
schools. It advanced other, non-economic justifications (the promotion of diversity and egalitarian
access) in defense of the Overlap program.
b) Held, remanded for a full Rule of Reason analysis.
Current view of FTC & DOJ 3.36(b) Collaboration Guidelines
a) Reasonably necessary need not be essential.
California Dental (1999) Rejecting Quick Look & Remanding
a) California Dental Association placed restrictions on its members ability to advertise: no price or
quality information or false or misleading info. CDA argued that it promoted full disclosure. Admin
law judge held that there was no market power but that there was no market power showing required.
b) 9th Circuit
(1) Applied Quick Look: Obvious anticompetitive effects because restricted truthful
advertising.
(2) Increases costs by increasing search costs.

14

(3) Justification was that promoted truth: ALJ made no such finding so theoretically CDA
should lose at this point.
c) Supreme Court
(1) This is an appropriate subject for FTC Act (it is governed by antitrust). The CDA
performs an important economic service for its profit-making members.
(2) Quick-Look (280) triggered when an observer with a rudimentary understanding of
economics could conclude that the arrangement would have anticompetitive effects on
consumers and markets.
(3) In this case, the anticompetitive effect, if any, is not sufficiently verifiable to be the basis
for such a general rule.
(4) Therefore, the burden remained on the FTC to prove that the rules were anticompetitive.
(a) They did not meet this burden. See 284.
11. Steps of the ROR
a) P Prima Facia
(1) P shows restraint
(2) Likely to have anticomp FX
(3) Market power or actual anticomp FX
b) D
(1) No anticomp FX or no mkt power; rebutting above, and;
(2) Offsetting procomp FX
c) P: Less restrictive alternative
12. Quick Look
a) P alleges restraint
(1) Court immediately sees that the restraint is problematic
b) D must immediately skip to Ds (2) above and show procompetitive FX.
(1) If D is successful, back to Ps (2) above and do ROR.

15

c) Litigation Tip: Always plead in the alternative: per se, ROR, quick look. Courts wont give you
a second bite at the apple.
13. Did quick look die in Cal Dental?
a) Calkins: One view: Vindication for quick look b/c SC did not require showing of mkt power
(Crane not agree);
b) Ellen Mees: Farewell to the quick look. Relic of populist past; economic theory now recognizes
many restraints as promoting competition. Therefore, ROR always necessary.
c) FTC moving towards ROR.
C. TERRITORIAL DIVISIONS & OTHER RESTRAINTS
1. Non-Price Horizontal Restraints
a) Agreements not directly pertaining to price
b) Agreement b/w competitors
2. Natl Assn Window Glass Mfgs. v. US (US 1923)
a) D were mfgs of window glass. They did it by hand which was much more expensive and
inefficient. They agreed on a division of the labor force in order to keep their ailing industry alive.
b) Held, the combination was not an unreasonable restraint of trade.
c) Note: This case is incredibly fact-specific.
d) Price-fix v. mkt division. But mkt division has even more severe fx on competition than a pricefix. In price-fix, firms still must compete on non-price factors.
3. Timken (US 1951) Bearing Mfgs. Violated Sherman
a) Allocation of trade territories, fixed prices in territories of competitors, cooperation to exclude
competitors and limits on imports/exports violated S act.
4. US v. Gm (1966) Exclusive Dealing: Exclusion of Discounters
a) Agreement by dealerships not to conduct business with discounters violated the Sherman Act.
b) This was a classic conspiracy in restraint of trade; an agreement between dealers designed to
eliminate a class of competitors.
5. US v. Sealy (1967) Unlawful Territorial Restraints
a) 30 manufacturer-licensees of the Sealy name were also the shareholders of Sealy. They
established territorial restraints.
b) Held, the DCs finding that the restraints were not unreasonable reversed. The territorial restraints
were illegal because they permitted the licensees to maintain prices in there area free of competition.
6. Topco (US 1972) Territorial Restraints Per Se Illegal (bad law?)
a) Topco was organized as an association of independently owned grocery stores. It enabled them to
buy goods collectively, etc.. However, the organization also placed restrictions on locality.
b) DC Findings
(1) Average mkt share of companies was 6%... Not really monopolist power.
(2) Exclusive territory essential to the success of Topco
(3) Topcos branding competed with the big supermarket chains
(4) Whatever anticompetitive effects intra-brand, greatly offset by gains in inter-brand
competition.
(5) Invalidation of the restraints would not increase intra-brand competition
(6) The relief sought would substantially diminish competition in the supermarket market.
c) Majority
(1) FN 94 (310). Abandonment of the per se rule would leave courts free to ramble through
the wilds of economic theory.
(2) Contrast with Addyston Pipe, setting sail on a sea of doubt. In Addyston, however, the
litigants wanted the court to evaluate the reasonableness of price. Here, Marshall is saying
that the court doesnt want to evaluate the reasonableness of the practice.
d) What if BMI was on the books at the time this case was decided?
(1) They are creating a unique new product (a semi-national brand). See Burger @ 312.
e) What is Topcos economic justification?
(1) Brand promotion and preventing free riders. Exclusive territories prevent free riders
from capturing benefit of other Topco stores advertising.
(2) Even if Topco is right that the plan promotes the brand and this is a proper objective of
antitrust law, did Topco use the least restrictive method? (see 5 step approach)
(3) DC would have ended exclusivity but permitted an arrangement where new entrant to a
territory was required to contribute to the advertising budget of the other store.

16

f) Posner on Topco. Topco dead as dodos.

7. General Leaseways (1984) Mere Economy of Scale Doesnt Save Restraint
a) Held, association of small truck leasing and service companies violated Sherman Act by
establishing territory requirements; economies resulting from reciprocity among association members
did not justify eliminating all competition among them. Here, the members could have continued to
extend reciprocity without limiting competition.
8. Palmer v. BRG of Georgia, Inc. (Bar/Bri Case) (1990).
a) BRG and HBJ were the two providers of prep courses in Georgia. They agreed to allow one to
have all of Georgia, and the price immediately went from 150 to 400. Held, invalidated under per se
rule without oral argument.
IV. GROUP REFUSALS TO DEAL (BOYCOTTS) AND JOINT VENTURES
A. REFUSALS TO DEAL
1. General
a) Duty of monopolist to cooperate. Compare with Alcoa, where Hand observed that Alcoa never
aided less dominant firms. But Hand was responding to Alcoas assertion, not saying that failure to
coop = monopoly.
b) Duty by joint venturers/trade association to admit all or deal on same terms?
2. Montague v. Lowry (1904) Tile Mfgrs: No Deal w/NonMembers
a) Facts. Tile manufacturers prohibited dealing with nonmembers except at the inflated list price.
b) Held, the restraint is illegal under 1.
c) Reasoning
(1) Tile manufacturers argued membership was open. Tile association could arbitrarily
refuse membership and there was an incentive for existing members to exclude applicantcompetitors.
(a) But who cares if membership is open? Isnt that just an opportunity to collude in
violation of section 1?
3. Fashion Originators Guild v. FTC (US 1941) Blacklisted Style Copyists
a) The guild manufacturers maintained a blacklist of retail firms who carried the products of stylecopyists. The guild made up about 38% of the market and was composed of many of the industry
leaders.
b) Held, the commission correctly concluded that this was an unfair method of competition.
c) Reasoning
(1) It narrows the outlets available for the resale of manufacturers goods, and subjects
noncomplying retailers and manufacturers to an organized boycott.
(2) In addition to the exclusionary agreement, the guild regulated discounts (price-fixing),
prohibited advertising, and denied membership to manufacturers conducting fashion shows
unless the merch is actually sold and delivered. Many of these policies bore no relation to
objective of preventing style copying.
d) Discussion
(1) Pre-Lanham act.
(2) How do we cabin this rule so as to limit absurd results (for example, a violation of
antitrust where daycare centers agree not to hire sex offenders).
(3) The rules relied upon characterization as piracy and the exclusion of competitors (the
rule was closely related to the economic interests of FOGA).
4. Klors (US1959) Group Boycotts Per Se Illegal (under 2)
a) Facts. Both parties operate dept stores. Broadway-Hale (D) reaches agreement w/its suppliers
that they will not sell to Klors. Klors argues that the agreement was per se illegal under sections 1 &
2 of the Sherman act.
b) Held, the trade restraint is impermissible.
(1) It deprives manufacturers and suppliers of their freedom to sell to Klors; it interferes
with the natural flow of interstate commerce.
(2) Summary judgment for Broadway-Hale reversed and remanded for trial.
c) Reasoning
(1) Group boycotts/concerted refusals to deal are in the forbidden category of conduct that,
by its very nature, is unduly restrictive and outlawed by the Sherman Act. (Is this per se?)
d) Discussion
(1) This case implicates the free rider problem; potentially Klors was free-riding.

17

5.

6.

7.

8.

9.

(2) GE could want to deal exclusively with B-H in order to encourage B-H to actively
promote GEs products.
(3) Criticism of Klors is that it doesnt allow the facts to be heard where there may have
been a good procompetitive justification for the restraints.
(4) Important to view this as a horizontal case; Broadway-Hale induced a horizontal
agreement among manufacturers in order to defeat its competitor.
Nynex (US 1998) No Per Se Rule Where Buyer Chooses Other SupplierRegardless of Reason
a) After AT&T breakups call-switching equipment had to be replaced and updated. P (Discon)
provided these removal services to Nynex, the local phone company. P alleged that Nynex worked
a fraud on consumers and the government by paying inflated prices to Ps competitors in the removal
services business. Subsequently, Nynex would receive a rebate which amounted to an excess of
profits. When P refused to participate in the fraud, Nynex refused to deal.
b) Held
(1) No boycott-related per se rule applies here; P must allege and prove harm, not just to a
competitor, but to the competitive process itself.
(2) Distinguished Klors: Unlike Klors, this is a purely vertical agreement between a
supplier and a customer.
(3) Distinguished FOGA: A group boycott by competitors on third parties.
(4) There is virtually no barrier to entry in this market; local phone co can do the work itself.
c) Discussion
(1) Consumers are clearly hurt here, if the allegations are true. Seems like it should be an
antitrust event.
(2) However, this doesnt hurt competition itself. There is still competition, but as to this
particular buying decision the effect hurt consumers by defrauding regulators.
Radiant Burners (US 1961) Refusal to Supply Gas to Non-AGA-Approved Burner = Per Se Illegal
a) Am Gas Assn. set standards for radiant burners and refused to license Ps burner. The AGA tests
are not set according to objective standards, but are influenced by the AGAs memberssome of
whom are Ps competitors. Member gas suppliers refused to supply gas to burners that lack the seal.
This allegedly made it impossible to sell the burner and P went out of business.
b) Held, the conspiratorial refusal to supply gas was among the class of restraints which from their
nature or character are unduly restrictive, and hence forbidden.
Structural Laminates (9th Cir. 68) Upholding P-wood Standard.
a) Quality standards set by Plywood Assn. were routinely published by Dept. of Commerce and
certification became essential to the plywoods saleability.
b) Held, mere adoption of a standard that discriminates between products is not per se illegal
violationparticularly where standard is part of a Congressionally sanctioned scheme. P failed to
show that the standard was either unreasonable or adopted with evil intent.
Natl Sanitation Assn. (6th 1980) Upholding Standards.
a) Held, absent manifestly anticompetitive and unreasonable conduct, alleged boycotts arising from
standard-making or even industry self-reguilation did not violate Sherman Act. Uniform standards
actually promote competition.
b) Commentator: These standards actually adopted to eliminate need for innovation and to reduce
competition from innovative new firms.
Northwest Wholesale Stationers (US 1985) Cooperative Buying Expulsion; NOT Per Se
a) Issue. Whether a per se violation occurs under 1 when a cooperative buying agency of retailers
expels a member without providing a procedural means for challenging the expulsion.
b) Held,
(1) the per se approach does not apply under these circumstances.
(2) Court will not police the process of these exclusions.
c) Discussion (p359)
(1) Cases generally involved joint efforts to disadvantage competitors by either directly
denying or persuading or coercing suppliers or customers to deny relationships the
competitors need in the competitive struggle.
(a) There must be a horizontal agreement (directed at a competitor).
(2) Examples of Horizontal Agreements
(a) Competitor A gets all suppliers to agree not to sell to Competitor B.

18

(b) Need agreement between horizontal competitors, i.e., a group of suppliers or a

group of retailers
(3) EXCLUSION + HORIZONTAL AGREEMENT
10. FTC v. Indiana Federation of Dentists (US 1986). RORActual FXNo Need 2 Prove Mkt Power
a) Dentists opposed practice of sending x-rays to insurance companies for review in order to
determine whether a procedure was the least adequate necessary. They collectively refused to comply
with ins companies requests. The companies made up a dominant mkt position in several towns in
Indiana.
b) Held,
(1) the per se rule does not apply.
(2) The restraint is impermissible under ROR analysis.
c) Reasoning
(1) ROR Analysis: Proof of Relevant Mkt not necessary where proof of finding of
actual, sustained adverse effects on competition: Proof of relevant market is intended to
show potential for detrimental effects. Accordingly, where there is proof of such effects,
analysis of mkt power is unnecessary.
(2) Proof of effect here is deemed sufficient that x-rays were not provided to insurers in
areas where the agreement was in effect.
(3) This is Socony-like because, although price increases were not shown, a tampering with
the market was shown (doesnt this cut back the other way? i.e. there arent actual effects
shown here).
d) Discussion
(1) See 366 Indiana Dentists: Per se limited where firms w/mkt power boycott suppliers in
order to prevent them from doing biz w/ competitors (WRONG!!!). Doesnt accurately
describe Klors. This is just sloppy language.
(2) This doesnt fit the Northwest Wholesale mold of a group boycott that would justify
invoking the per se rule.
(3) This case (sloppily) applies the northwest wholesale rule (for cabining the group boycott
per se rule).
11. FTC v. Superior Court Trial Lawyers Association (US 1990).
a) Facts. Trial lawyers agreed to refuse appointment unless they were given an increase in
compensation. FTC argued it was a price fix and boycott in violation of section 5 of the FTCA. DC
upheld on First Amendment grounds.
b) Held, reversed. The boycott was a naked restraint, restricting supply in order to raise price.
c) Discussion
(1) There is a horizontal agreement; but there is no exclusion of a competitor. Why is this
properly a per se case and not ROR?
(2) Court says in a footnote that this is a price-fixing case.
(3) Dissent argues that this screws up Indiana Federation of Dentists and NW Wholesalers.
(4) Apparently non-statutory labor exemption wasnt argued below. Instead, argued as a first
amendment case.
B. JOINT VENTURES (378)
1. Summary Coming to conclusion of discussion of Section 1 & horizontal agreements.
a) History
b) Switch to Discussion of Mkt Power
c) Switch to discussion of specific types of conduct
d) Notice a strong but limited per se category
(1) Group Boycotts ---3rd big per se category
(a) Limited to instances where both horizontal ag and exclusion of a competitor
e) Some verticality emerging
f) NOW: Joint Ventures (stuff they may do)
(1) Price-fixing
(2) Exclusion
(3) Substantial Integration of functions to develop efficiencies

19

2. Who is to benefit from antitrust?

a) Joint ventures present the possibility that they increase efficiency and therefore increase producer
surplus while at the same time reducing competition and harming the consumer: look to net gain or
prefer consumer welfare?
b) Example
(1) Acmes pre-JV cost = $10/pre JV price = 12. 3 consumers value widget as follows: J(20)
B(25) M(30). Each buys one, for $36 in revenue. $6 producer surplus + $39 consumer
surplus = $45 total surplus.
(2) Acmes post-JV cost = $8. Post-JV price $21. J now doesnt want the widget. B and M
now pay $42. Total surplus is $47. Consumer surplus is negative and there is deadweight
loss (because J doesnt buy); however, the efficiency gains offset this for a net economic gain.
3. US v. Terminal Railway Assn (US 1912). Essential Facilities Doctrine
a) 3 independent terminal companies operated the connections to ferries and bridges in St. Louis.
This was inefficient. 14 RR companies combined to form the Assn, bought all 3 terminal companies,
and formed a unified system.
b) Held, the discriminatory pricing violated the Sherman act.
(1) Such a unified system must be operated as an impartial agent.
(2) The Court did not order dissolution:
(3) The Assn must
(a) provide proprietary status or use on nondiscriminatory basis and
(b) abolish discriminatory charges and billing practices.
c) Discussion
(1) Essential Facilities Doctrine
(2) Antitrust is not a very good tool for remedying this case. Remedy for antitrust is to
increase access; but here that would generate inefficiencies if they must operate
independently. Moreover, to add more owners (of the same system) does nothing, because
they will continue to behave like monopolies.
4. AP v. US (US 1945) Membership Veto/Refusal to Deal = Unreasonable Restraint
a) Facts. AP is a clearinghouse for news. Part of its bylaws allowed a member to veto admission of
a non-member; it also prohibited sale of AP news to nonmembers.
b) Held, the bylaws were properly held to be an unreasonable restraint insofar as they restricted the
sale of AP news to non-member competitors of AP members in the same city, and gave AP embers the
power to veto their competitors admission to the AP.
c) Discussion
(1) In APs defense, they are trying to prevent freeriding by other local papers. But why is
this a problem if they pay for it? Because they wont pay enough to offset the competition in
the local market. If the PI can just buy the Seattle Times news it is free riding.
(2) The free rider problem does not justify exclusion from membership in AP. Could allow
all in, but have a bylaw that prohibited publication of local AP news.
(3) Antitrust Doctrine: Less restrictive alternatives are available.
5. How assess JVs under RoR?
a) Conduct remedies ex: become impartial agent (Terminal RR Assn.). Courts want to preserve
the efficiency gains achieved by the joint ventures.
6. SCFC ILC, Inc. v. Visa USA, Inc. (10th Cir. 1994) VISA System OK
a) Visa bylaw prohibited admission to the Visa system of any competitor who was issuing a
competitor card (AmEx; Discover). Sears (issuer of Discover cards) was refused admission to the
Visa system. Relevant market was stipulated as issuer marketintrasystem market.
b) Held
(1) Proof of market power was insufficient.
(2) No evidence of anticompetitive effects.
c) Discussion
(1) See p.391 proof of market power is a screen which is often dispositivethis is a bad
statement of the law. Failure to prove mkt power is often not dispositive; if no mkt power but
P shows anticompetitive effects, P wins.

20

d) 2d Circuit came down the other way on this same issue.

C. GOVERNMENT ACTIONEFFORTS TO INFLUENCE GOVERNMENT

1. Eastern RR Presidents Conference v. Noerr Motor Freight Co. (US1961) NOERR-PENNINGTON
DOCTRINE.
a) Held, RR Assns publicity campaign against trucking did not violate the Sherman Act.
b) Reasoning
(1) Immunity. Efforts to influence government action brought about by horizontal
agreement are not antitrust violations; however,
(2) Exception. There is a sham exception to antitrust immunity that subjects the activity to
Section 1 scrutiny: where the activity is an attempt to directly interfere with competitive
conduct.
c) Discussion
(1) Direct Interference. What is direct interference in light of the sham provision?
(2) That if, irrespective of the outcome of the lobbying, the competitor is harmed. For
example, really just a smear campaign.
(3) Noerr Pennington Doctrine immunizes political activity.
2. California Motor Trans. (1972) Applying Sham Exception.
a) Applied the sham exception where Ds sought to harass and deter respondents from access to
adjudicatory tribunals and to usurp the decision-making process.
b) Pattern of baseless and repetitive claims.
3. NOW Boycott (1980) Noerr Immunity
a) NOWs boycott of Missouri conventions was immune under Noerr because its purpose was to
influence Missouris ratification of the ERA.
4. Otter Tail Power (1973) Sham Exception
a) Court remanded to DC in light of CA Motor Transport, and the DC found a pattern of baseless
litigation designed to frustrate competition (applying the sham exception).
5. Allied Tube & Conduit Corp. v. Indian Head, Inc. (US 1988) Removal From Politics.
a) Facts. Standard-setting board conspired to exclude competitors product by packing the annual
meeting with new members whose sole purpose was to vote against approval of P competitors
product.
b) Held, Content of standards were technical and not the subject of antitrust immunity under
Noerr.
c) Rule (421): Efforts that are one step removed from politics (standard-setting board) not given
immunity.
d) Sham must interfere directly with the competitor regardless whether the government takes action.
6. Norr-Pennington Doctrine
a) Doctrinal Matter: Immunizes from antitrust scrutiny efforts to persuade the government to take
action even if the action has anticompetitive consequences.
7. Professional RE Investors (1993) Sham Exception: Objectively Baseless
a) Q. In order to be a sham, is it enough that the party initiating the proceeding has a hope that it
will interfere regardless of whether the attempt is successful.
b) Majority
(1) Claims must be (1) objectively baseless and (2) subjectively intended by the party
asserting the claim to interfere with a competitors business in order for the N-P immunity to
be stripped away.
(2) Objectively baseless = whether a reasonable litigant could realistically expect success on
the merits.
c) Stevens Concurrence
(1) He would hold that a claim has no objective merit if the potential recovery is less than
cost of the litigation. Sometimes a claim may have a realistic prospect of success on the
merits, but not make economic sense; such a claim may be an example of a litigant abusing
the courts system to harass a competitor.

21

D. STATE ACTION & FEDERALISM: PARKER v. BROWN DOCTRINE

1. Parker v. Brown (1943) (450) Sherman Does Not Apply to State Action
a) The CA Prorate Act authorizing marketing programs that were intended to restrict competition
among growers and maintain prices.
b) Held, that where a restraint of trade is imposed by a state acting as a sovereign, the Sherman Act
was not intended to apply.
c) Comparison to Socony. Similar industry collaboration. Socony even started as a fed gvt
initiative. Attempt to rationalize oil.
(1) Court says nothing in language/history of Sherman Act to indicate that intended to restrict
state action But didnt the CL prohibit queen granting a patent? The courts argument is
flawed. At CL definitely some restrictions on state action.
(2) But back when Sherman Act was passed, monopoly was thought of as an exclusive
privilege granted by gvt.
(3) Parker inverts things by stating that purely private action are the subject of antitrust
whereas state action (the most durable form of restraint) is immunized.
(4) This was obviously a collusive scheme by CA producers (in coop with CA leg) to hurt
non-CA raisin producers.
2. Schwegmann Bros. (US 1951).
a) State cannot just authorize private conduct (by purporting to grant immunity) that has already
been prohibited by the Sherman Act.
3. Goldfarb (1975).
a) Private party must be compelled to act by state acting as sovereign in order to have immunity.
4. Midcal (1980) 2-PRONG PARKER TEST
a) 2-Part Test
(1) Challenged restraint must be clearly articulated and affirmatively expressed
(2) Must be actively supervised by the state.
(a) Cant simply attempt to immunize otherwise violative conduct.
b) Sherman cant be thwarted by casting such a gauzy cloak of state involvement over what is
essentially a private price-fixing arrangement.
5. Southern Motor Carriers (1985) 461
a) If there is a permissive policy, may still have Parker immunity if it is actively supervised.
6. FTC v. Ticor (464)
a) Negative veto option in title insurance rate filing scheme did not meet active supervision
requirement.
b) Analogythis is similar to nondelegation doctrine.
7. Parker v. Brown Discussion
a) The downstream side of things. After government authorizes and some entity is acting pursuant
to this authorization, to what extent do they have immunity.
b) The easier case is where gvt compels the economic actors to some action.
c) Harder case is where the gvt is permissive towards some collusive action.
d) Parker is about deference to state legislative judgment; thus, requirement for active supervision
more intense where the state is permissive.
E. MUNICIPALITIES & PARKER-MIDCAL
1. City of Hallie
a) City had to show that the decision to permit a restriction was made pursuant to a state directive;
however, prong two of the Parker test was met where the city actively supervised the program.
2. Omni Outdoor Adving, Inc. (US 1991) No Conspiracy Exception to Parker
a) Columbia dominated the outdoor advertising market and enjoyed a close relationship with the city
leaders. When Omni sought to enter the market and construct new, competing billboards, Columbia
successfully lobbied (simultaneously with other concerned citizens groups) for a strict regulation n
the construction of new billboards.
b) Held, there is no conspiracy exception to Parker immunity.
(1) Court wont look to the motivations of gvt officials.
(2) No corruption exception to Parker. Sherman Act is not the appropriate tool to combat
corruption.
(3) Ps sham (Noerr-Penn) argument rejected. The injury flowed from passage of the
municipalitys action rather than directly from Ds lobbying activity.

22

(a) This is a paradigmatic case for rejecting the sham exception b/c the harm is
indirect.
c) Discussion
(1) Private actors may be protected by Parker/Midcal.
(2) The Court observed that when the state acts as a commercial actor (private market
participant), it may lose its antitrust immunity.
(3) In terms of prong 1, when state gives muni the power to regulate (but not specifically
restrict competition), that is insufficient (by itself) to meet the first prong of Midcal.
V. CHAPTER 6 MARKET CONCENTRATION, CONSPIRACY & ANTITRUST
A. PROOF OF COLLUSION
1. Interstate Circuit v. US (1939). Tacit Agreement Sufficient (after trial)
a) Facts. Two types of D: (1) Movie distributors and (2) large movie exhibitors. One exhibitor sent
a letter to the distributors demanding compliance with two demands: (1) a minimum price on firstruns and (2) a minimum price on second-runs. Subsequently, all distributors implemented
licensing policies that substantially complied with these demands.
b) Held, the Court inferred from the unanimity of action that there was an agreement in violation of
section1.
(1) They all got the letter.
(2) They all acted the same.
(3) They all changed dramatically.
(4) Ds did not testify.
(5) But for the (intended adverse) effect on competition, the terms in question would not
make economic sense.
(6) Absence of an Alternative Explanation (which could have been offered by the execs)
(7) See 498. It was enough that, knowing that concerted action was contemplated and
invited, the distributors gave their adherence to the scheme and participated in it.
(a) Interestingly, there is no explicit agreement.
c) Discussion
(1) What is this case about?
(a) Sufficiency of evidence; or
(b) Substance of contract, combination, or conspiracy in restraint of trade
(2) Here, it seems that tacit agreement is sufficient
(3) Court uses fact that execs didnt testify as evidence that there was an agreement (this
wouldnt fly in a criminal case, due to 5th Am-Self-incrim concers).
(4) Evidence of Collusion
(a) In tight, competitive Oligopoly, uniform pricing could be evidence of
competition and pricing at the most competitive levels.
(b) BUT, isnt lockstep behavior evidence of collusion as well?
(5) This is what Interstate Circuit, above, is about.
(a) The evidence was:
(i) Same letter
(ii) Lockstep action
(iii) Dramatic change in behavior
(iv) Inference from failure to testify
(v) Placing of terms in licensing agreements
2. Theater Enterprises v. Paramount Film (1954) Parallel Conduct not Conclusive (on sj).
a) All the defendants (producers and distributors) would license first-run pictures to downtown
Baltimore theaters only, and refused to do so for P theater in neighborhood shopping district. All the
defendants stated that they only licensed first-runs to non-competing theaters, and that the Crest was
in competition with the downtown theaters. Moreover, as no downtown theater would waive
clearance, any first-run license to Crest would have to be exclusivewhich was economically
unsound.
b) Held, summary judgment to P denied; evidence of parallel conduct was insufficient to conclude
that there was a conspiracy in restraint of trade.
(1) Conscious parallelism has not yet read conspiracy out of the Sherman Act entirely.

23

3. Compare/Reconcile Theater Enterprises with Interstate Circuit

a) In Theater Enterprises, defendants came forward with reasons for their conduct (they had an
independent economic justification). Distributors had already licensed their films to downtown
theaters and also agreed not to license the film to geographically competing theaters.
4. In re Baby Food Antitrust Litigation (Plus Factors).
a) Acted contrary to economic interests
b) Were motivated to enter into a price-fixing conspiracy.
B. FACILITATING PRACTICES
1. Impediments to Price Coordination
a) The Prisoners Dilemmaeach has an incentive to cheat because the incremental gain of one
may outweigh (in that ones perspective) the losses to all.
b) How enforce the tacit agreement?Facilitating Practices
c) Other facilitating practices
(1) MFN Clauses
d) FTC Act permits the FTC to go after facilitating practices as unfair trade practices
e) Two Theories available to P when challenging anticompetitive practices:
(1) That the facilitating practice is itself an unreasonable restraint of trade; this would be a
ROR case.
(2) There is an actual price fix (tacit or explicit) and the information exchange/or facilitating
practice is evidence/plus factor showing the existence of the price-fix.
2. Structural Factors that Facilitate or Complicate Price Coordination (528)
a) High Concentration
b) Barriers to Entry
c) Open Salescheating detectable
d) Homogeneous Productsless variables in agreement
e) Lumpy Salesgreater incentive to cheat
f) Excess Capacitycuts both ways. Excess cap = incentive to cheat; but, where demand fixed or
falling, incentive to collude.
g) Static Demandcheating detectable by looking at own sales.
h) Similaritysimilar firms have similar preferences; agreement easier to negotiate.
3. Facilitating Practices
a) Information Exchanges
(1) detect cheating quicker.
b) Incentive Management
(1) directly alter payoffs without info exchange. Ex. Monetary penalty on price discounters.
c) Stampede Effect
(1) develop clauses that are in advantage of individual buyers but impose a cost on buyers as
whole.
d) MFN Clauses.
(1) Agree to give same deal offered to another
e) Meeting Competition Clauses (MCCs)
(1) Encourages detection
(2) Encourages coop; seller can raise price w/out fear of losing sales.
(3) No-release MCC is a more credible threat but may have allocative inefficiencies by
forcing seller to meet all prices
f) Entry Deterrence
(1) A no-release MCC is a credible threat that seller will cut prices to meet those of a new
entrant.

24

C. TRADE ASSNS & INFORMATION EXCHANGE (IX) (586)

1. Background
a) Isnt information exchange just like an auctionwhere all have perfect info and compete on
price?
2. American Column & Lumber Co. (1921) IX Violated 1
a) Trade association of independent mills distributed elaborate pricing, shipping, anticipated pricing
info, stock and stores info, held meetings, distributed economic analysis and forecasts from the trade
association economist. The market was large and the association did not have market power.
b) Held, the information exchange was calculated to coordinate a restriction of production and is
unlawful under the Sherman act; the explicit agreement is unnecessary n light of the disposition of
men to follow their most intelligent competitors.
c) Reasoning
(1) There were also anticompetitive effects proven.
d) Brandeis Dissent
(1) Stability as a virtuerationality
(2) Absence of coercion
(3) Response to Brandeis: Futures contracts could accomplish same purpose without
(leveling mkt) without anticomp fx.
(4) Contrast w/Chicago Board of Trade (where he wrote for the majority).
(5) Price IncreaseExplainable by something other than restraint on competition (bad
weather)
e) Defendants Args
(1) Cheatinghere there is no price agreement and all have an incentive
f) Prisoners dilemma is solved here by the info xchg
g) Holmes Dissent
(1) Views it as a free speech issue
(2) This is the middle of Holmes transformation into a free speech advocate
3. Maple Flooring (1925) IX of Past & Aggregated Data OK
a) Facts. Producers accounted for 70% of flooring. Exchange of cost info, compilation and
distribution of a freight book, aggregated price and stock data, meetings discussing industry
conditions.
b) Held, no violation.
c) Distinguish. Only involved information sharing re: closed and past transactions and aggregated
price data.
(1) This is an important distinction.
(2) Present and future pricing/output decisions are especially susceptible of abuse.
4. Cement Manufacturers (1925) IX OK to Protect from Arbitrage
a) Held, approved statistical and credit activities of cement manufacturers who sought to keep close
tabs on buyers.
b) Distinguish. Per industry practice, customers had an option to buy cement at a fixed price; this
raised the problem of customers buying excess and reselling (arbitrage) at the expense of the cement
manufacturer.
c) Reasoning. Justified by the manufacturers need to protect themselves.
5. Sugar Institute Public (1936) Binding Public Price BAD
a) Held, agreement not to deviate from publicly announced price was a violation of the Sherman
Act.
6. US v. Container Corp. (1969) Price Stabilizing Plan BAD IN THEORY
a) Held, agreement to tell competitor, upon request, their last price was invalid.
b) J. Douglas (Majority)
(1) Suggested that info exchanges were a per se violationthis view later rejected in the
Gypsum case.
c) Fortas (Concurring)
(1) Theory of Anti-Competitiveness: This enables competitors to undercut each other; but
not by too much. Thus, competition was restricted if not eliminated.
d) Compare w/American Column
(1) In AC, economic theory (Brandeis) said no problem with arrangement, but the facts
indicated that the practice affected price.

25

7.
8.

9.

10.

(2) Here, the facts do not show an effect on price, but economic theory does!
e) Marshall
(1) Compare with his opinion in Topco: Declined to ramble through the wilds of economic
theory.
(2) See p. 608. The government presented a theory but the theory does not square with the
facts.
US v. Gypsum (609).
a) Agreement on information exchange is not per se violation. Look to FX on competition.
Todd v. Exxon (2nd Cir. 2001).
a) Facts. Appeal from 12(b)(6) order of dismissal. Oligopsonistic market in which large oil
producers shared compensation data regarding their managerial, professional and technical employees.
Alleged relevant market was the labor market for MPT employees in the oil industry.
b) Held, Ps 1 claim survived the motion to dismiss.
c) Discussion
(1) Why is suppressing wages bad?
(a) No guarantee the savings are passed on to the consumer.
(b) There is evidence that oligopsony/monopsony can depress output and price
increases.
(i) Elasticity of supply MPTs will switch to another company/industry if
price is reduced. Therefore, by depressing price, the Oligopolist reduces
inputs necessary for production and therefore reduces output.
(2) Relevant Market
(a) Labor mkt for MPT employees in the oil industry.
(3) Nature of the Information Exchange
(a) Past, present and future salary information.
(b) Complex system designed to make positions comparable (i.e. making the
employees more fungible).
Blomkest Fertilizer, Inc. v. Potash Corp. of Sask., Inc. (8th Cir. 2000) (Rule of Reason & SJ).
a) Facts. Oligopolist potash manufacturers were required to post bonds after the Dept. of
Commerce found that they were dumping potash on the US mkt. The (Canadian) industry leader was
subsequently privatized. Other producers raised their prices after the leader did so. Plaintiff. The
information exchange is evidence of a prior price-fixing agreement. Sought to prove the existence of
a price fix by circumstantial evidence. However, in order to prove pfix by circ ev must rule out
independent explanation for the pfix.
b) Held, the class failed to rebut Ds independent business justifications for the information
exchanges. SJ granted.
c) Discussion
(1) Relevant Marketno need to prove where price-fixing alleged b/c price fixing is per se
illegal.
Compare Todd v. Blomkest
a) Information Exchange
(1) Todd. Past/Future
(2) Blomkest. Past only.
b) Specificity of Info Exchange.
(1) Todd. Aggregated into as small as three-firm lumps.
(2) Blomkest. Specific past sales.
c) Public Dissemination
(1) Todd. Not disseminated to the public. Therefore, no procompetitive effects.
d) Contact between parties
(1) Todd. Regular meetings.
(2) Blomkest. High level contacts but sporadic.
e) Market Structure.
(1) Fungibility
(a) Todd. Structure of the market was important for determining whether it was
susceptible of manipulation.
(i) The more fungible the good (here labor), the easier to set prices and
enforce.

26

(ii) The Ds developed a system to make the positions comparable.

(b) Blomkest.
(i) Potash is completely fungible.
(2) Elasticity
(a) Todd. Supply was inelastic because labor is a perishable commodity.
(b) Blomkest. Potash inelastic.
f) Market Concentration
(1) Todd. Per FTC Guidelines, market not concentrated for merger purposes.
(a) Court says Container Corp. was even less concentrated.
(2) Blomkest. Extremely concentrated.
g) Procedural Differences
(1) Todd. On a motion to dismiss.
(2) Blomkest. Motion for summary judgment. P must identify disputes of material fact
which warrant a trial.
(a) SC has encouraged DCs to apply SJ in antitrust cases.
D. VERTICAL RESTRAINTS (RESALE PRICE MAINTENANCE)
1. Vertical v. Horizontal Restraints
2. Sharp Division Between Price & Non-Price Restrictions
3. Price Restraints: Two Rules (Min/Max)
a) Minimum Resale Price Maintenance is per se illegal
b) Maximum Resale Price Maintenance Subject to ROR as of 1997 (State Oil v. Khan).
4. Non-Price Restraints: One Rule Post-Sylvania, all ROR.
5. Summary: Only per se rule where minimum price maintenance.
6. Extended Analysis + Holdings
a) Manufacturers are free to forward-integrate. (Ex: Nike Outlet).
b) Economic functions from supply to retail could either be integrated or performed by independent
economic actors.
c) Given the above, what retail price level is best for manufacturers?
(1) The manufacturer wants to set prices
(2) Why would manufacturer ever increase its own cost of distribution (i.e. set a Max resale
price)?
(a) Theoretically, once manufacturer has sold to the distributor, further increase in
price will only decrease demand for its products while putting money in the
distributors pockets.
(b) Mfr. has incentive to keep retail prices down.
d) Why minimum price?
(1) Pro-Competitive Justifications
(a) Dont undermine mfr prices.
(b) Avoid free-rider problem (ex: mfr wants brand promotion but discounters will
free ride).
(c) No loss leading (undermining brand equity).
(2) Anticompetitive Stories
(a) Retailer mkt powermay demand that mfr enforce a retailer cartel.
(b) Manufacturing Cartel. Cannot police the cartel if retailers can charge their own
price. Retailers discretion would mask mfg cheating.
e) Alternative to Retail Price Maintenance
(1) Forward integrate
(2) Exclusive Territories
(a) Problem. May create intrabrand power in retailers b/c they get monopolies
(b) Mfgrs Solution: Exclusive Territories + Maximum Price.
f) Maximum Price Maintenance
(1) Anticompetitive Issues
(a) Maximum becomes the minimum.
(2) Counter-Arguments
(a) If prohibit price maintenance, you hurt small distributors because manufacturers
will forward integrate.

27

7.
8.

9.

10.

(3) Maximum price maintenance will tend to channel distribution through large outlets
because little guy will be unable to compete.
(a) This assumes that there is something good about retaining the little guys and
propping up inefficient dealers.
(i) This is not really a value recognized by antitrust law.
g) Consignment Sales
(1) Argument is that not an antitrust violation because the retailer is acting as the agent of the
manufacturer.
(2) Simpson (1964) p632. Held that bogus consignment arrangement was an antitrust
violation because only designed to avoid Dr. Miles.
(3) Morrison v. Murray Biscuit (7th Cir. 1986) (Posner).
(a) Held, no conspiracy because the arrangement was a true broker/agent
relationship whereby D would take orders and sell at the price set by Murray Biscuit
and be paid a 5% commission.
(b) Rule: Key is whether the agency relationship has a function other than to
circumvent the rule against price fixing. (Per se if circumvent, ROR otherwise.)
(4) ROR where the manufacturer retains the risk and title.
h) Territorial Restrictions
(1) White Motors (1963) (not per se) Schwinn (1967) (per se).
i) Sylvania (1977). Overruled Schwinn, rejecting application of the per se rule in the context of
vertical nonprice restrictions.
(1) Shift likely reflects Chicago school of economics.
(2) Bork and Posner.
Dr. Miles (1911) Per se Rule Against Minimum Resale Price
a) Invalidated minimum resale price contractually fixed by manufacturer of medicines.
State Oil v. Khan (1997) Max Resale NOT per se (overruling Albrecht)
a) State Oil contracted with Khan for the resale of its gasoline. Khan would receive 3.25 cents per
gallon sold if it sold at or above a retail price set by State Oil. Any margin above this amount was
rebated to State Oil, and if Khan sold for less than State Oils price the difference would subtracted
from its 3.25.
Albrecht v. Herald Co. (1968) (overruled in State Oil)
a) The court invalidated under the per se rule the Heralds practice of granting exclusive territories
while setting maximum resale prices to prevent its distributors from price gouging.
b) The Court objected to substituting the perhaps erroneous judgment of the manufacturer for the
operation of the market.
Continental TV v. GTE Sylvania (1977) Max Price ROR
a) Held, vertical maximum price fixing, like the majority of commercial arrangements subject to the
antitrust laws, should be evaluated under the ROR.
b) Discussion
(1) Sylvania illustrates the effect of the Chicago school on antitrust law.
(2) Sylvania expresses impatience with common law rules. Schwinn relied in part on the CL
rule against restraints on alienation.
(3) Purported that the common law of 100 years ago was irrelevant to the meaning of the
Sherman act.
(4) Antitrust policy should not be divorced from economic theory. Contrast with Topco: No
wandering in the wilds of economic theory.
(5) Interbrand v. intrabrand competition.
(6) Interbrand competition more important.
(a) Intrabrand competition less of concern b/c manufacturer will try to squeeze all
the monopoly profits out of its product regardless. Either forward-integrate or
outsource depending on what is most advantageous.
(7) Free-riding story is relevant here. ROR can take account of this concern.
(8) If willing to apply ROR for non-price, why not overrule Dr. Miles?

28

11. Summary
a) It is the rare case that a vertical non-price restraint cannot withstand the ROR.
b) Lowest common denominator. May see non-price and price restraint mixed.
c) B/C manufacturer has power to refuse to deal, why shouldnt they be permitted to set minimum
prices?
(1) B/C that would overrule Dr. Miles (which the court has not done).
(2) Greaterincludes-the-lesser argument. Just doesnt play out.
E. VERTICAL RESTRAINTS AND REFUSAL TO DEAL
1. Colgate (1919) Refusal to Deal Not a Contract, Combination or Conspiracy Colgate Defense
a) There is an absolute property right by the manufacturer to deal on whatever terms with whomever
it wants.
b) Rhetoric is the rhetoric 19th century property rights. Kinda anamolous.
c) Colgate doctrine rooted in property rights.
d) Per se rule of legality where manufacturer refuses to deal with retailers who refuse to sell at
manufacturers advance announced price.
e) Discussion
(1) Shortly after Lochner. But why does this doctrine persist so long after Lochner, etc die?
(2) Colgate gets reduced so narrowly to its facts.
(3) But at the same time, the rise of the Chicago school begins to undermine not Colgate, but
Dr. Miles.
(4) Law and economics does not particularly like per se formalism.
(5) Footnote 62 Monsanto. Solicitor general wanted per se rule for all vert restraints.
2. Park-Davis (1960) Illegal Combination Where Seller Pressured Wholesalers
a) Facts. Manufacturer pressured its wholesalers into cutting of retailers who refused to comply with
announced prices.
b) Held, when mfrs policy goes beyond mere announcement of its policy and a refusal to deal, it
becomes guilty of a conspiracy in violation of the Sherman act.
c) Note: Here, ParkDavis was enforcing an illegal agreement among horizontal competitors.
3. Monsanto Co. v. Spray-Rite Service Corp. (1984) Standard of Proof 4 Vert. Price-Fixing
a) Facts
(1) Spray-Rite was a discounter that was cheating on Monsantos MSRP. One of the dealers
complained of Spray-Rites action. Monsanto terminated Spray-Rites distributorship. DC
gave to jury with instructions that if
b) Held
(1) In order to establish a violation, P must come forward with evidence tending to exclude
the possibility that the manufacturer and nonterminated dealers were acting independently; P
must present direct or circumstantial evidence of a conscious commitment to a common
scheme designed to achieve an unlawful objective.
(2) The standard was met here.
c) Discussion
(1) Manufacturer and other retailers must have agreed upon prices.
(2) Monsanto was forward-integrated to the retail level; this case is partly about a horizontal
agreement. The court doesnt make much of this, but in future could probably be
distinguished on this ground.
(3) Important factors in distributor-termination cases (according to SC)
(a) Concerted v. Independent Action
(b) Price v. Non-price Restrictions
(c) Perhaps should have added: Horizontal v. Purely Vertical
(4) Free-Riding Story. Monsanto wanted to maintain prices in order to encourage its
distributors to invest in advertising/product promotion.

29

4. Biz Electronics Corp. v. Sharp Electronics (1988) No Per Se in Purely Vertical Cases
a) Facts. One of two distributors threatened to stop carrying Sharp products if Sharp didnt cut off a
price-cutting competitor.
b) Issue. Where single retailer and single manufacturer agree to eliminate a retailer due to price
cutting, is that a violation where the remaining retailer does not agree to a fixed price?
c) Held
(1) Per se analysis does not apply because no horizontal agreement (just a single retaile and a
single dealer).
d) Dissent
(1) Argued that there were horizontal effects to the agreement between the manufacturer and
the retailer.
(2) Scalias C/A was that any vertical restraint has some horizontal effect.
e) Discussion
(1) Compare to Klors. In Klors, horizontal agreement.
(2) Compare to Topco: Horizontal agreement to divide territory per se illegal; GTE vertical
division ROR.
(3) Here, free-riding story is very persuasive.
(a) Dissent points out that the remaining retailer has not made any commitment to
provide better services. Free-rider argument is not justified here.
(b) Scalia c/a
(4) Scalia relies on the common law definition somewhat in interpreting the meaning of the
Sherman act.
(5) Scalia is skeptical of the need for antitrust in this area and argues that cartels are difficult
to maintain. Doesnt want a per se rule to interfere with markets.
(6) Scalia
(a) Presumption in favor of ROR
(b) Per se requires demonstrable econ FX
(c) Interbrand competition is the primary concern of antitrust
5. Summary of Vert Restraints
a) Inter- v. Intra-brand restraints
(1) More concern about interbrand restraints.
b) Free-riding story really relevant here.
(1) Brand promotion as a social good.
(2) But, maybe advertising is not so good. Maybe distorts value and antitrust law should not
concern itself with ads.
(3) Economists would not agree. No such thing as inherently goodjust let the mkt
function.
6. Recap of Vertical Relationships
a) Minimum Resale Price Maintenance is Per Se Illegal. Dr. Miles.
(1) Dr. Miles is still good law (although criticized).
b) Maximum resal price maintenance is ROR. State Oil v. Kahn.
c) All vertical price restraints are subject to the ROR
d) Unilateral refusal to deal with a price discounting dealer is per se lawful. Colgate Doctrine.
(1) Colgate doctrine is very narrow.
(2) Exceptions to Colgate Doctrine where there is an effort to coerce maintenance.
(3) Loss of Colgate defense in ROR; not necessarily per se
e) Elimination of a cheating dealer after complaints not enough alone to show agreement on price
(Monsanto); but if there is evidence of an agreement on price then either ROR or per se illegality.
f) Where a single manufacturer and single retailer agree that a second retailer will be discontinued
b/c it cheated, subject to ROR. Sharp.
VI. SECTION 2. MONOPOLIZATION. (CHAPTER 8)
A. MONOPOLY CONDUCT REVISITED
1. Overview
a) Section 2 is Broader
(1) No requirement of joint action
(2) Even attempt is prohibited

30

2.

3.

4.

5.

6.

7.

b) Section 2 is Narrower
(1) Section 2 only prohibits monopolization
Categories: Actual v. Attempted
a) Courts are often imprecise in their discussion
b) Courts sometimes discuss minimum market shares as prerequisites to a finding of 2 liability.
This confuses issue: referring to actual or attempt?
c) If talking about actual monopolization, typically need greater than 50%.
Alcoa
a) Conduct requirement; bad act. Monopolization is an active verb.
b) Obtaining a monopoly through superior skill, foresight or industry is not monopolization.
(1) However, all Alcoa did was redouble capacity in anticipation of increased demand.
Grinnell
a) Possession of monopoly power in relevant market.
(1) In section 2 case market definition is always critical.
(2) Willful acquisition or maintenance of power
Otter Tail Power (1973).
a) The towns Otter served were natural monopolies in that they could only support one
distribution network. Otter tail refused to provide power over its lines to municipal power systems.
b) Held, Otter Tails conduct violated 2.
c) Reasoning. Otter tail possessed a strategic dominance which it used to exclude potential entrants
(generally, munipalities) into the retail arena.
Aspen Skiing (1985)
a) Facts. After several years of coop in which the 3 Ski Areas offered a joint pass, Ski Co. withdrew
and issued its own 3-area pass (it also opened a new mountain). It refused to accept vouchers from
Highlands, its competitor.
b) What bad act?
(1) Prior course of dealing followed by sharp departure.
(2) Created expectation of multi-mountain, mulit-day pass.
c) Is there a perversity in saying that initial cooperation may lead to a duty to coop in the future?
d) Real measure of illegality was Ski Co.s refusal to deal (accept vouchers or sell at retail) and make
short-run gains in favor of gaining long term competitive advantage.
e) Often complaints under 2 are viewed with suspicion; 1 cases treated as paradigmatic antitrust
case.
Trinko (US 2004) (lexis printout).
a) Facts. Verizon was required by statute to provide access to its network. It initially failed to
provide adequate access to operations support systems (OSS), and submitted to a consent decree
which provided performance measurements and reporting requirements.
b) Held,
(1) Verizons alleged insufficient assistance in the provision of services does not make out an
antitrust claim.
c) SC reluctant to impose a general duty to cooperate.
(1) Recall Otter Tail. Required power company to provide access to its power lines. Similar
to Aspen Skiing.
(2) Compare b/c regards a failure to cooperate.
d) Two distinctive feature of Aspen Skiing cited by Scalia as central to its holding and placing at
outer limits of antitrust
(1) Prior course of dealing in Aspen; Here, prior course of dealing sheds no light on
Verizons intent b/c it was forced into the course of dealing.
(2) Aspen/Otter Tail involved a product that was already being produced; Verizon involved a
unique new product (access services) that Verizon was obliged to provide as the resu.lt of a
statutory scheme.
e) Essential Facilities Doctrine
(1) St. Louis Rail. Unique geography gave rise to duty to deal on non-discriminatory terms.
(2) Scalia said that SC has never accepted the essential facilities doctrine; suggests that the
answer would be no.
(3) In any case, the doctrine is inapplicable where a governmental entity has the power to
compel sharing and regulate its terms.

31

8. US v. Microsoft Corp. (DC Cir. 2001)

a) Overview
(1) New economy characteristics
(a) Huge capital investment in initial product
(b) Tiny marginal cost per unit
(2) Network Effects
(a) One persons use of the product makes it more desirable to the next person.
(b) Windows. In order to get people to write software, there needs to be a critical
mass of users of an OS.
(c) Relevance to antitrust: Doesnt change the basic principles.
(d) Network effects are also a form of a barrier to entry.
(3) Governments Theory
(a) Involves two things that might not be markets
(i) PC-compatible operating systems
(ii) Middleware
(a) Netscape
(b) Java
(c) Allows software users to write
(d) Does other functions
(4) Relevant Market
(a) Possibility of future new middleware products in competition with MS does not
get included in (definition of) relevant market; however
(b) Middleware still relevant to question whether MS is constrained (has market
power) in the relevant market as it is defined.
(5) Microsoft argues that that PC-compatible is not the market
(a) Middleware constrains Microsofts ability
(b) Court rejects. Middleware cannot realistically compete w/Windows as a whole.
Can only compete with some functionality.
(i) However, middleware is sufficiently threatening to explain Microsofts
attempt to squash middleware companies like Netscape.
(6) Microsofts Alleged Misconduct (in OS market)
(a) Licensing agreements.
(i) Prohibiting removal of Internet Explore.
(b) Imbedding Internet Explorer with the Windows code making it inseparable.
(c) Exclusive dealing arrangements.
(7) Microsofts Alleged Misconduct in Browser Market
(a) Court: Gvt. Never properly defined the relevant mkt. for browsers
(8) Tying
(a) Whether Microsoft violated Clayton Act by tying IE to Windows
(b) Reversed b/c should have been judged under ROR.
(9) Remand
(a) Case settled
(b) Attorneys General resisted; Judge ultimately accepted the gvts settlement.
(10)Monopoly Power
(a) MS spent billions on ongoing research, and argued that that was evidence it
lacked monopoly power.
(b) Court rejected the argument that further investment proved there wasnt a
monopoly; even a monopolist may promote product by innovation.
b) Microsofts Anticompetitive Conduct (774)
(1) Principles of Monop under 2
(a) Monopolists act must have an anticompetitive effect.
(b) Antitrust law is not about harm to competitors, but about harm to competition.
(c) P has the burden of proving (1) anticomp FX
(d) If P establishes prima facia case, D may proffer pro-competitive justification
(2) If Ds justification is not rebutted, P must demonstrate that the harm (to comp) outweighs
the good (to comp).
(3) Intent is relevant only to show likely effect.

32

c) Network FX (769)
(1) Utility that a user derives from a good increases with the number of other users.
(2) Competition in these markets is for the field, rather than in the field.
(3) Perhaps here there was inevitably going to be a monopolist, and the question was only
who.
(4) Schumpeterian competition: Competition is for monopoly and the desire for monopoly
profits.
d) Licensing Agreements with OEMs
(1) MSs efforts to gain share in browser mkt served to meet the threat to its monopoly in the
OS mkt by keeping rival browsers from attracting critical mass of users necessary to achieve
network effects.
(2) Prohibition against removal of icons, etc raised other competitors distribution costs by
rendering their product redundant.
(3) Requiring that IE remain in the boot sequence and barring others from the boot sequence
had effect of protecting MS mkt share.
(4) MSs copyright argument dismissed as frivolous.
(5) Integration of IE and Windows ok b/c legit biz justification (enabling seamless tfer from
internet to windows environment).
(6) Commingling of codes was anticompetitive b/c raised OEM cost of including and
supporting rival product (b/c then they would have to provide support for both products).
e) Agreements with IAPs
f) Remedy
(1) Microsoft is a single entity (not formed by mergers). More difficult to split up; therefore
(2) Conduct remedy is used.
g) Take-away. Steps to analyze + bad conduct elements.
B. ATTEMPTED MONOPOLIZATION ( 2)
1. Elements of Attempt
a) Predatory or anticomp conduct
b) Specific intent
c) Dangerous probability of achieving monopoly power
2. Spectrum Sports, Inc. v. McQuillan (US 1993) Elements of Attempt
a) Elements of Offense of Attempted Mono
(1) P841 predatory or anticompetitive conduct
(2) Specific intent
(3) Dangerous probability of achieving monopoly power
3. Discussion leading to Lorain Journal
a) Refusals to Deal
(1) Usually involve refusal to deal with a competitor
(2) Different story where it is a refusal to dela with a customer who is dealing with a
competitor (which would be more like a boycott case)
4. Loraine Journal (1951) Attempted Monopoly
a) Loraine journal, which enjoyed a substantial monopoly in the dissemination of news in Loraine
County, refused to accept advertisements from any customer who also placed ads with a new radio
station in the area. Advertisers testified that, as a result of the policy, they terminated their radio
advertising in order to preserve their ability to advertise in the Journal.
b) Held, the injunction was properly granted.
c) Reasoning
(1) The policy was an attempt to monopolizing by forcing customers not to place ads with
the competitor.
(2) Although there is no obligation on Lorains part to accept advertising, it may not refuse to
do so where the intent is to create or maintain a monopoly in violation of of the Sherman
Act.

33

C. PREDATORY PRICING
1. Behavioralists v. Chicago School
a) Chicago dismissed predatory pricing
b) Game theorists thought predation would make sense given certain premises
2. Theory/Counter Theories of PPricing
a) Problem idd by Chicago School (Lott): Firms must incentivize managers to price low enough to
drive out competitors, resulting in benefit to shs that is reflected in compensation to the manager.
b) Solution: Stock options, etc that delink managers compensation from short-term profits. In fact,
not present in most cases.
c) Court error in this area HURTS COMPETITIVE CONDUCTPRICE COMPETITION!!!
d) Jurors have david and goliath mentality
e) Litigation encourages information exchange!
3. Elements of Predatory Pricing Claim
a) pricing below an appropriate measure of cost
b) a dangerous probability that the below-cost pricing will lead to recoupment.
4. Brooke Group (1993)
a) FACTS: Liggett (P) pioneered and obtained dominance in the generic cigarette market. Brown
and Williamson entered the market with its own black and whites. B&W continuously maintained
lower prices on its generics and offered significant wholesale rebates. Liggett claimed that the product
volume rebates offered to wholesalers resulted in net prices on its generic cigarettes that were below
AVC. Liggett claimed that B&W sought to police the market rather than drive Liggett out; forcing it
to accept oligopolistic pricing.
b) Held, although there was sufficient evidence to conclude that (1) B & W intended to monopolize
and (2) priced its generics below AVC, Liggett failed to prove legal injury b/c the evidence does not
prove that B&W had a reasonable prospect of success in recoupment through slowing the growth of
the generic segment of the cigarette market.
c) Discussion
(1) Two elements need be shown
(a) Pricing below appropriate measure of cost
(i) Defendant Average Variable Cost
(b) Dangerous probability that the below cost pricing will lead to recoupment
(i) SC does not usually review lc determinations for sufficientcy
(ii) There was no evidence to support th conclusion that B&W could recoup.
(2) SC has never settled upon what the appropriate measure of cost is
(a) Lower courts tend towards AVR as the measure
(b) Difficulty is that cost structure is complex and not attributable to any single
product line
(i) How allocate overhead to smidgets v. widgets?
(ii) How allocate sunk costs?
d) Average Variable Cost: The Areeda Argument (866-867)
(1) In the real world its rational for firms to price as near as possible to marginal cost.
(2) Thus, marginal cost is really the ceiling for predatory pricing. As long as above MC, not
liable.
(3) But, firms think in terms of fixed costs and variable costs.
(a) Variable costs fluctuate w/changes in output.
(i) Materials, labor.
(b) Fixed costs unaffected by output.
(i) CEOs salary, the factory.
(4) Therefore, variable costs are a better proxy for marginal cost for purposes of the legal test
b/c easier to ascertain for purposes of litigation.
(5) For a violation, D must have priced below AVC.
(6) Practical Result: When litigating, question is, which costs corresponds to output.
(7) Second Circuit has adopted AVC test but still fluctuating.
(8) SC not firm, some courts treat AVC as presumptively the ceiling.
(9) Exam tip: we will be using avc.
(10)The rule is informed by
(a) Chicago Schools skepticism about the frequency of predatory pricing

34

(b) Only look to short term recoupment. Unlikely that firms will engage in longterm predatory pricing due to the unlikelihood of recoupment. See Matsushita.
D. TYING
1. Clayton Act 3 (p876)
a) Illegal to make sales/k on condition that the buyer will not use/buy from a competitor.
2. United Shoe (1922).
a) US leased machinery subject to the condition that if the lessee used the machines on which other
US machines had not been used, a supplies clause, a clause regarding additional machinery
requirements, etc..
b) Held, the tying arrangement was an impermissible attempt to monopolize because it barred
manufacturers from using competitors products for fear of losing their lease to use USs equipment.
3. International Salt (1947).
a) IS required purchasers of its (patented) machinery to use only its salt and salt tablets.
b) Held, the tying arrangement violated of the clayton act.
c) Reasoning
(1) ISs patents on its machinery do not confer a further right to restrain the use of unpatented
salt.
(2) Price-matching provision didnt save the agreement; a competitor would be forced
undercut prices in order to enter the market while IS could defend merely by matching.
(3) While true that IS had additional obligation to repair and maintain the machines, that
didnt justify a total ban on use of competitors salt; a less restrictive alternativeminimum
quality requirementscould serve the same purpose without unreasonably restraining trade.
4. Requirements of Tying Claim
a) Need two products. No shit.
b) Need market power over the tying product. Times-Picayune.
c) Substantial volume of commerce must be restrained. N. Pac.
5. Northern Pacific (1958) Substantial Restraint Req
a) Must be sufficient economic power to impose an appreciable restraint on free competition in the
tied product.
6. Times Picayune (1953) Market power + Substantial Restraint Reqd
a) Before tying arrangement can be condemned per se under 1, (1) the seller would have had to
enjoy monopolistic power (this may overstate) for the tying product and (2) substantial volume of
commerce in the tied product would have to be restrained.
7. Advanced Biz Systems (1970) Copies, Paper & Service: Illegal Tie
a) 6th Circuit held that charging a single per-copy price for rental of copy machine, supplies and
service violated the Clayton Act by depriving customers of their freedom of choice.
8. Jefferson Parish (1984) Need Independent Demand For 2 Products
a) Xclusive K between hospital and a firm of anesthesiologists. Ct App held illegal per se under 1.
b) Held, reversed. P failed to sustain case under ROR analysis.
c) Reasoning
(1) Relevant geo market = Jefferson Parish.
(2) There must be a substantial potential for anticompetitive impact to justify per se
condemnation.
(3) Per se rule applied only where forcingusing market power in the tying market to
force the buyer to buy the tied productis likely.
(4) Must look at mkt in which two products are soldhere, the hospitals sale of
anesthesiological services.
(5) Are there two products? To show tying, there msut be independent demand for
anesthesiological services (i.e., two distinct products).
(6) Here, there was ample evidence of independent demand for anesth services.
(7) Market power: Here, only 30% of the Jefferson Parishs patients go to defendants
hospital. Not sufficient mkt power to apply per se.
(8) Applying ROR, P failed to show an appreciable restraint. Here, the hospital already
retains the power to restrict the patients choice to one of four doctors with staff privileges.
d) Concurrence.
(1) 30% in tying mkt probably not enough.
(2) Procompetitive justifications should be allowed (we should get rid of the per se rule).

35

9. Kodak (1992).
a) On Ds motion for SJ. Equip Parts Service. Kodak tied parts to service. Although it may
not have had market power in the equipt mkt, it did in the parts market.
b) Held, SJ denied.
(1) Section 1 Claim. A question of facts exists whether Kodaks dominance in the parts
market enabled it to force higher prices on its customers in the service market.
(2) Section 2 Claim.
(a) Relevant mkt = manufacturers of parts that are compatible w/Kodak machines.
(b) Kodak has 100% of parts and 80-95% of parts market.mkt.
(c) Fact questions re: procompetitive justifications offered (see 917).
c) Kodak. Argued that any forcing accomplished by leverage its dominance in the parts market
would lead to ruinous losses in equipment sales, where it faced competition from other manufacturers.
d) Dissent: Argued that its lack of market power in the primary (tying) market meant that it couldnt
increase prices in the derivative (tired) market without sacrificing sales in the equipment market.
e) Majority Response:
(1) Assumes that buyers have perfect information (that they know the lifecycle costs of
copiers).
(2) Assumes that there arent any switching costs.
(3) Assumes that (for example governments) arent doing purchasing separately (for parts v.
service) and are thus aware of the overall cost.
(4) These are questions of fact and SJ inappropriate.
10. Market Share Hard Numbers
a) Monopolization Case: 50% or higher, generally.
b) Tying Cases: Approx. 30%.
11. Technological v. Contractual Tying
a) Per Se only w/contractual.
b) Ex. Microsoft bundling of IE was technological tying.
12. Critique of Tying Law
a) N. Pac. 881. tying agreements serve hardly any purpose beyond the suppression of
competition.
(1) This premise is critiqued.
b) Unclear that the monopolist will be able to increase profits in mkt B without DECREASING
profits in mkt A (the tying mkt).
(1) Ex. Int l Salt. Salt machines and salt are complementary products and an increase in the
price of one (salt) would increase overall price thereby driving down demand.
(a) Chicago School--Has lead to a loosening of tying law.
13. Requirements of Tying Claims
a) Jefferson Parish. Whether there are two products depends upon whether there is independent
demand for each product
b) Market/monopoly power in the tying market
(1) Without market power, no credible way to force consumers to take the tied product.
c) Some threat to competition in the tied market. Jefferson Parish: forcing
14. Tying as per se violations
a) Even though they purport to apply per se analysis, courts look to procompetitive justifications.
15. Procompetitive Justification
a) Tying as price discrimination
(1) A way to charge a higher price to buyers with higher demand
(2) Offer the same price for the equipment (tying product) but charge higher price for the
aftermarket (tied) product (paper or service). Thus, the higher demand user pays more over
time.
(3) Is this procompetitive? Some say yes.

36

E. EXCLUSIVE DEALING
1. In Vertical Context
a) Man Ret. You may only sell in certain area and to certain customers.
2. Inter-Brand Exclusivity (horizontal)
a) Agreement that retailer will not carry a competitors brand.
b) Distinguish from Sylvania. Sylvania involved restraints on intrabrand competition.
3. Standard Fashion
a) Retailer agreed to buy all its dress patterns from seller.
(1) What is the antitrust concern here?
(a) Foreclosure of distribution outlets will have an anticompetitive effect at the
manufacturers level.
(2) Seller was a very larger manufacturer controlling 2/5ths of the market.
b) But is there a free-riding issue to be told here?
4. Tampa Electric
a) Court upheld 20 year requirements contract for the purchase of coal used as boiler fuel. The
Utility (buyer) sought enforcement of the contract and the Coal Co. (seller) argued that the contract
was unenforceable because it violated the Clayton Act.
b) Three Factors
(1) Line of commerce
(2) Area of competition (i.e. relevant market)
(3) Competition foreclosed must constitute a substantial share of the relevan market
F. BUNDLED DISCOUNTS (THE HOTT ANTITRUST TOPIC)
1. Overview
a) Suppose yer planning a vacation. Airline, ski pass, lodging, etc Someplace offers a package
that is cheaper than the a la carte.
b) Basic facts: Separate products. Unlike a tying case they are still available separately. However,
if bought together,
2. LePages v. 3M (3rd Cir. 2003).
a) In order to receive the maximum rebate available from 3M, which had 90% share of transparent
tape mkt, the customer had to meet dollar targets in diverse categories of 3M products. The rebate
program was instituted after LePages began to make inroads in the private label transparent tape
product. LePages alleged that the rebate program was designed to push it out of the market by making
it impossible to compete with the rebate packages. Following the program, LePAges began losing
market share and profits. 3M presented evidence showing that was selling above cost.
b) Issue, whether 3Ms bundling constituted the monopolizationthe bad conduct requirement of
2.
c) Held, there was adequate evidence to support the jurys finding that 3M violated 2.
d) Majority. An equally efficient competitor could still be pushed out of the market where 3M sold
above its cost, because the single-competitor could not compete with the rebate on that single product
alone.
e) Crane. AT THE VERY LEAST, if the aggregated rebate still permits plaintiff to sell above cost
(appropriately defined), then there is no violation. This should be a THRESHOLD REQUIREMENT.
f) Dissent. Although traditional predatory pricing rules should not apply, at least the defendant must
have priced below cost if you apply the entire rebate to the product in question (transparent tape) order
to prove anticompetitive conduct. If the cost aggregated rebate = profits, then there is no
violation.
g) Solicitor General. We just dont know what the test of legality is in LePages.
h) Analogy to tying. Tying= no sale of A unless you buy B. Bundling = either buy A + B together
at a discount or buy them separately at a higher price.
i) THE PROBLEM: Many customers still choose to buy a la carte (so not so coercive).
j) Business Context
(1) The practice of price-discounting is a GOOD THING and totally PERVASIVE.
(2) The problem with this case is that it fails to articulate a workable TEST of legality.
(3) The majoritys reasoning does not account for the pressure exerted on the pricediscounter by competitors in the OTHER product categories and the limits this places on the
ability to drop the aggregate discount.

37

(a) BUT, if the defendant has a monopoly in the other product markets, it may
leverage its monopoly in order to offer a discount large enough to drive out the
competitors.
k) Hypo
(1) Shampoo and conditioner. Cost to produce conditioner is 2.50 and 1.50 for shampoo.
Prior to discount, firm A offered at $5 and $3. A then lowers its price to $3 conditioner and
$2.25 for shampoo when bought together.
(a) There is no predatory pricing; sales are made above cost (firm is operating at a
profit).
(b) If customer forgoes the package, he must still pay $5 for the conditioner. Thus,
the competitors are effectively excluded.
(i) This demonstrates why predatory pricing is the wrong analysis.
(c) Crane: Should take all defendants discount and apply it to the product in the
competitors market.
(i) Question is whether, after applying all of the rebates to the transparent
tape market, 3M is selling above cost.
G. EXCLUSIVE DEALING
1. Overview
a) Requirements Ksbuyer will fill all reqs
(1) Presumptive good reasons
b) Output Ksseller will sell all output
2. RULE: EXCLUSIVE DEALING MAY BE TREATED UNDER EITHER 3 OF THE CLAYTON
ACT (IF IT INVOLVES THE SALE OF GOODS) OR 1 OF THE SHERMAN ACT
3. STANDARD FASHION CO. v. MAGNETTE-HOUSTON (1922)
a) FACTS: CLOTHES MANUFACTURER (2/ mkt share) and RETAIL CLOTHES STORE
ENTER INTO A REQUIREMENTS K WHERE THE RETAIL STORE AGREES NOT TO SELL
ANY OTHER MANUFACTURERS CLOTHES.
b) ISSUE: Does the K fall under 3 of the Clayton Act because the covenant not to sell the patterns
of others may be to substantially lessen competition or tend to create monopoly?
c) HELD: Yes. The restriction of each merchant to one pattern manufacturer must in hundreds,
perhaps thousands of small communities amount to giving such single pattern manufacturer a
monopoly of the business in such community.
d) CRANE: bad fact for this opinion: the geographic location of the particular store Boston; in
Boston there are many retail outlets in small towns this could be a problem. if the did this
across the country certainly that would be anticompetitve as a matter of real concern about
competition seems that there is nothing to worry about on the record of this case
4. FTC v. BROWN SHOE (1966) Invalidating Restriction on Resale of Competitor Shoes
a) FACTS: -shoe manufacturer made Ks with a substantial number of independent retail shoe
stores which require them to restrict their purchases of shoes for resale to the Brown lines and which
prohibit them from purchasing competitors shoes. in exchange for getting requirements Ks from
retail outlets Brown Shoe gives them a franchise agreement, architectural plans, service all
benefits from being an exclusive Brown shoe distributor
b) HELD: 5 of the FTC ACT gives the FTC the power to arrest trade restraints in their incipiency
without proof that they amount to an outright violation of 3 of the Sherman Act
c) Reasoning
(1) The ct. distinguishes btwn. 3 of the Clayton Act and 5 of the FTC act might be
hard to prove 3 violation but ftc act gives ftc the power to go further (The FTC ACT was
designed to supplement and bolster the Sherman Act)
d) Discussion
(1) Strong free rider story here
(2) Franchisors are idd with the Browns brand
(3) BUT, would Brown plausibly share monopoly profits with retailers?

38

e) CRANE: there is insufficient evidence to show the anticompetitive effect

5. TAMPA ELECTRIC CO. v. NASHVILLE COAL CO. (1961)
a) Held, requirements K did not violate of the Clayton act and therefore the K is enforceable.
b) Reasoning
c) 3 parts to the test for exclusive dealing
(1) Determine the line of commerce
(2) Relevant geographic mkt
(a) Here, coal producers.
(3) Foreclosed competition must be substantial
(a) Notice, not looking to Ds mkt share but what competition is foreclosed.
(b) Time of req K will affect amount of comp foreclosed.
d) Strong advantages to having this type of K in context of public utility.
H. MERGERS
1. Overview
a) Most merger issues are guide by the FTC Guidelines.
b) For Monday, read the merger guidelines.
c) Hart-Scott Rodina Act. A notification statute; establishes requirements for parties seeking to
merge. Once a merger is challenged, Rodino is not relevant.
d) Clayton Act governs the substantive issues in merger cases.
e) In practice, parties are focused on convincing the FTC to take no action. (Note that, they never
technically approve something.)
f) BOTH FTC and DOJ can take jurisdictioncontributes to uncertainty for the parties. Recently,
the agencies try to allocate the industries to make it more predictable. FTC is somewhat more
independent (less politically accountable) than the DOJ.
2. Clayton Act, Section 7.
3. Brown Shoe Discusses Purposes of Section 7
a) Plug the asset loophole.
(1) Previously, Clayton Act only applied to stock acquisitions. Companies could thus
accomplish merger via asset acquisitions.
b) Deleting the acquired-acquiring language to clarify that section 7 applied to vertical and
conglomerate mergers as well as mergers by horizontal competitors.
c) Stem the rising tide of concentration.
d) Protect competition, not individual competitors.
e) SC has stated that Congress wanted to avoid mathematical tests, and favored a qualitative
approach.
(1) When we get to the guidelines, what happended to this approach.
f) View mergers functionally.
g) Wordsmay substantially lessen competition indicate that Congress was concerned with
probabilities, not certainties or ephemeral possibilities.
4. Reasons to Merge
a) Pro-Competitive
(1) Economies of Scale
(a) The efficiency of greater (or lesser) production capacity on a single product.
(2) Economies of Scope
(a) Efficiencies gained by producing multiple products/services.
(3) Better use of R&Dex: combining patents
(4) Better Management
b) Anti-Competitive
(1) Obtain a Monopoly

39

5. Compare to J/V Cases

a) ROR b/c strong pro-competitive potential
6. Types of Merger
a) Horizontal-the most concern
b) Vertical
c) Conglomeratealmost no concern anymore
7. US v. Philadelphia National Bank (1963)
a) Held, proposed merger b/w banks
b) Reasoning
(1) Product mkt = comml banking
(2) Geo mkt = 4-county area
(3) Merger here would (1) produce a firm controlling undue percentage of mkt, (2) give rise
to significant increase in concentration, (3) will likely significantly lessen competition.
Therefore, injunction proper unless procomp fx.
(4) Fundamental purpose of 7 is to stop incipient concentration.
c) Discussion
(1) Assume that the relevant mkt is the Philly metro banking market. 30% mkt share. What
is the courts concern with this level of mkt share.
(2) Maverick TheorySmall firm that is pushing down prices/competing on other levels
aggressively. Role of these firms in disrupting tacit collusion makes it undesirable that they
merge.
(3) A primary concern of merger policy; prevention of tacit collusion: Coordinated Effects
(4) Unlike the Theaters case, merger policy is concerned with market structure not conduct.
(5) What evidence is relevant here?
(a) Concentration: Market share of top 2 (36%) and top 4 (78%) firms.
(6) What are the merging companies defenses?
(a) Following customers out into the burbs.
(i) Court: The banks can just open branches. (There is a less restrictive
alternative.)
(ii) This is not really truemore efficient to merge.
(b) Trying to compete with the larger banks.
(i) Court says you can go to NY for larger credit.
(a) Maybe this is evidence that the market definition is too broad.
(c) The merger would be good for Philly.
(i) This concern not really relevant to merger review; only question is
competitiveness.
(ii) Congress role to change.
8. Mergers during the 1960s
a) Gvt. Always seemed to win.
b) Accusation that Court seemed to gerrymander market definition to fit the defendant.
c) In per se cases, not necessary to define relevant market; NOT SO IN MERGER cases.
(1) In merger, the structure of the market is a primary concern.
d) Government suits commenced years after merger.
(1) Defendants would assert that there was no anticompetitive effect.
(a) Response 1: Post-merger evidence irrelevant; question is potential at time of
merger.
(b) Concerned with probability not certainties; gvt. Need not even show a
probability.
e) Hart-Scott Rodino Act almost ended the post-merger suit.
9. General Dynamics (1976).
a) Facts. Material Service (later acquired by GD) obtained United Electric controlling share in
1959, and continued to acquire its stock to 100% in 1966. MS deep-mined coal; UE strip-mined coal.
UE had deep-mined coal eight years prior to 1959.
b) Held, DC decision of no 7 liability affd.
c) Discussion
(1) Market definition is not controlling in GD.
(a) Court didnt address because gvt. Didnt meet its case regardless.

40

I.

(2) Context
(a) Signals an end to SCs aggressive merger policy.
(b) Post-GD, merger policy is more technocratic.
(3) Coal Reserves
(a) Important to the Courts decision.
(b) Of UEs coal reserves, most was already committed at a set price in long-terms
Ks.
(c) Dissent: UE is a potential entrant into deep-shaft mining. Therefore, a likely
future competitor.
(4) Failing Firm Defense
(a) Majority disclaims the failing firm defense Says that market share is just not
as relevant as it is in other cases. Market share does not = mkt power here.
MERGER GUIDELINES
1. From GD Guidelines
a) Last SC case applying substantive antitrust
b) Signals departure from pro-gvt. Approach
c) Now, merger review is a bureaucratic function.
d) Horizontal merger guidelines important policy statement.
2. What would happen if there is a small but significant and non-transitory price increase?
3. Market Definition
4. 1.3 ID Market Participants
a) 1.31 Current Producers or Sellers
(1) ex. Barge transportation in the great lakes.
(a) Forward-integrated coal producers that owned bargeds were counted because
they were potential entrants.
b) 1.32 Firms That Participate Through Supply Response (uncommitted firms)
(1) Firms likely to enter
(2) Entry must be w/in one year
(3) Would recoup within one year
(4) Entry must not require significant sunk costs
c) 1.322
(1) Potential supply respondent could be a firm with no closely related assets where barriers
to entry are low (ex. Adult film anyone can get a videotape and a couple of actors).
(2) Sunk costa terminal, not a plane. If the cost ca be redeployed in a different market it
is not sunk.
5. 1.4 Calculating Market Shares
a) 1.41
(1) Look at current sales/capacity as well as the capacity that would be deployed in the event
of a SBNPI.
(2) If lots of product differentiation, use dollar sales to measure. If product is comparable,
use unit sales. Otherwise, maybe use reserves (i.e. Gen Dynamics).
6. 1.5 Market Concentration
a) Herfindahl-Hirschman Index (HHI)
(1) Sum the squares of the individual market shares of all the participants.
(2) Max: 10,000 (1002).
(3) Lowest: near 0.
b) Calculate Pre-Merger HHI
c) Calculate Post-Merger HHI
7. 1.51
a) Post-Merger HHI Below 1000 is unconcentrated.
b) Post-Merger 1000-1800 is moderately concentrated
(1) If Delta < 100, no big deal.
(2) If Delta > 100, problematic.
c) Above 1800 is highly concentrated.
(1) If Delta < 50, probably ok.
(2) If Delta > 50-100, you got problems.
(3) Delta > 100, call a priest, yer fucked.

41

8. 2 Potential Adverse Competitive Effects of Mergers

a) Two Types
(1) Coordinated Interaction
(a) Posner. Merger policy is primarily motivated against collusion.
(2) Unilateral Effects
(3) Subsidiary Question
(a) 2.1 Is the market susceptible to market coordination/collusion? Factors:
(i) Past collusion.
(ii) Susceptible to detection and punishment of deviations (cheating)
9. 2.12 Conditions Codusive to Detecting and Punishing
a) Maverick Firms may limit potential, therefore acquisition/merger of such firms is problematic
10. 2.21 Firms Distinguished Primarily by Differentiated Products
a) Where the merging firms are considered the best substitutes for each other
11. 3.0 Entry Analysis
a) Must be sufficiently timely and profitable
b) Timely
(1) Is the threat of entry sufficient to restrain the anticompetitive effect in the market?
(2) Affected by nature of product (refrigerator v. toilet paper). Owner of refrig. May hold out
for cheaper price making threat of new entry more significant even though takes a while for
the entry.
c) Profitable at pre-merger prices
d) Likelihood
e) Suffciency
12. 4. Efficiencies
a) Must be merger-specific
b) If an alternative source of efficiency, they dont count in favor of the merger.
c) Efficiencies must be proven, not vague or speculative.
d) Efficiencies must be sufficient to offset the anticompetitive effects.
e) Not all efficiencies are created equal.
(1) Combining or shifting production functions in a way that lowers the cost of production is
highly favored (marginal costs)
(2) R&D synergies are more speculative but will be considered.
(3) Reduction of procurement costs, capital costs, management costs, etc (fixed costs) are
less persuasive b/c they are justified by any merger. But, why
13. 5 the failing firm defense (hail mary pass)
a) IF the acquiring firm is a acquiring a competitor who would otherwise go out of biz and whose
assets would otherwise leave the market, what is the harm?
b) Requirements
(1) Failing firm could not meet financial obligations
(2) Could not successfully reorganize under ch 11
(3) Has made good faith unsuccessful effort to be acquired by a firm that posed less of a
threat
(4) Absent the acquisition, the assets leave the market
J. VERTICAL MERGERS (NOT ON EXAM)
1. Chicago.
a) Vertical monopoly is not a concern b/c monopoly products in one market would decrease
demand in the other.
b) Opp Cost to the firm means it cant really save be selling below cost.
2. Post-Chicago
a) This assumes that there is a one-to-one relationship.
3. Vertical Merger Guidelines (not covered)
a) Primary concern is with the creation of barriers to entry

42