ANTITRUST LAW, POLICY AND PROCEDURE Cases, Materials, Problems Sixth Edition E. Thomas Sullivan Senior Vice President and Provost & Julius E. Davis Chair in Law University of Minnesota 'Law School Herbert Hovenkamp - Ben and Dorothy Willie Professor University of Iowa College of Law Howard A. Shelanski Professor of Law and Director, Berkeley Center for Law & Technology University of California Berkeley School of Law 2009 LexisNexis"
Chapter 1 INTRODUCTION TO THE COMPETITION MODEL... 1 I OVERVIEW: THE POLICIES AND GOALS OF ANTITRUST REGULATION :. : :! 1 R.H. LANDE, WEALTH TRANSFERS AS THE ORIGINAL AND PRIMARY CONCERN OF ANTITRUST: THE EFFICIENCY INTERPRETATION CHALLENGED : v ;. 6 II COMMON LAW LEGACIES 12 [A] English Foundations 12 W. LETWIN, LAW AND ECONOMIC POLICY IN AMERICA: THE EVOLUTION OF THE SHERMAN ANTITRUST ACT 12 [1] Contracts in Restraint of Trade 15 [2] Combinations in Restraint of Trade 16 [B] American Common Law Tradition 18 [C] Development of Legislation 20 [D] Early Interpretations 22 United States v. Trans-Missouri Freight Ass 'n 22 NOTES AND QUESTIONS. 24 United States v. Addyston Pipe & Steel Co 26 NOTES AND QUESTIONS 29 Chapter 2 FRAMEWORK FOR ANALYSIS 33 I THE ECONOMIC PROBLEM 33 [A] Introduction 33 [B] Law of Demand 33 [C] The Theory of Costs 36 II THE MARKET IN MOVEMENT..'... 41 [A] Perfect Competition 41 [B] Monopoly 44 [C] Relative Performances of Competition and Monopoly 46 III JUDICIAL EMPHASIS ON ECONOMIC REASONING 48 [A] Introduction 48 [B] Structuralist Analysis 48 [C] Efficiency Analysis 49 [D] Strategic Behavior Analysis 50 Chapter 3 SPECIAL PROBLEMS OF ANTITRUST ENFORCEMENT 53! I ENFORCEMENT 53 [A] Tripartite Approach 53 xv
[1] Department of Justice 53 [a] Civil Action 53 [b] Criminal Prosecutions 54 [2] Federal Trade Commission 57 [3] Private Suits 58 [a] Jurisdiction, Venue, and Service 60 [b] Statute of Limitations, 63 [c] Interstate Commerce Requirement 66 Summit Health, Ltd. v. Pinhas 67 NOTES AND QUESTIONS, 71 [d] Transnational Application of United States Antitrust Laws 73 NOTE: INTERNATIONAL ANTITRUST GUIDELINES 79 [e] The Direct Purchaser Requirement and the Problem of Passing On. 81 Illinois Brick Co. v. Illinois 81 NOTES AND QUESTIONS 88 [f] "Business or Property" Requirement. 96 Reiter v. Sonotone Corp. 96 NOTES AND QUESTIONS 99 [g] Antitrust Injury 99 Brunswick Corp. v. Pueblo Bowl-o-Mat, Inc. 100 NOTES AND QUESTIONS 103 Car gill, Inc. v. Monfort of Colorado, Inc 104 NOTES AND QUESTIONS 110 [h] Standing to Sue 115 Blue Shield of Virginia v. Mccready 115 Associated General Contractors v. California State Council of Carpenters 118 NOTES AND QUESTIONS 123 [B] Parens Patriae 124 [C] Advisory Opinions and Clearances Procedure 125 [D] Settlement 126 [E] Preclusion Effects of a Prior Judgment on Subsequent Private Suits... 129 [F] Antitrust Counterclaims 133 [G] Expert Testimony After Daubert 134 Concord Boat Corp. v. Brunswick Corp 135 NOTES AND QUESTIONS 138 II ADDITIONAL ANTITRUST DEFENSES 139 [A] First Amendment Protections 139 [1] Noerr-Pennington Doctrine 139 [2] Economic/Political Boycotts 140 [3] Overbroad Remedial Orders 140 [B] In Pari Delicto and the Unclean Hands Doctrine 142 Perma Life Mufflers, Inc. v. International Parts Corp. 142 NOTES AND QUESTIONS 145 xvi
HI REMEDIES ; 147 [A]. Damages 147 [1]. Optimal Antitrust Damages 149. [2] The Optimal Deterrence Model and Treble Damages. 152 [B] Award^of Attorney's Fees '......' 153 [C] Injunctive Relief and Structural Remedies. ; 155.. California v.. American Stores Co. 157 )... NOTES AND QUESTIONS : 160 [D]. Contribution and Claim Reduction 161 Chapter 4 CARTELS AND OTHER JOINT CONDUCT BY COMPETITORS.; 163 I HORIZONTAL RESTRAINTS. 163 [A], The Development of Analytical and Evidentiary Rules. : 163 '' [1] Introduction: The Problems of Horizontal Arrangements 163 [2] Rules of Reason and Per Se Illegality..... 164 [3] Guidelines for Collaboration Among Competitors.. 165 [B] Price Fixing 166 ' [1] The Foundation Cases : 166 Chicago Board of Trade v. United States 166 NOTES AND QUESTIONS. ;...... 169 United States v. Trenton Potteries Co 169 NOTES AND QUESTIONS ; 171 Appalachian Coals, Inc. v. United States 172. NOTES AND QUESTIONS. : 176 [2], Supply or Output Restrictions.....:.."... : 177 United States v. Socony-Vacuum Oil Co.... : 177 NOTES AND QUESTIONS 182 [3] Agreements Limiting Price Competition... ; 185 [a] Introduction: Fee Schedules 185 "" [4] Data Dissemination and Information Exchanges';...: '.. 189 Maple Flooring Manufacturers Ass'nv. United States 191 NOTES AND QUESTIONS.'... 194 United States v. Container Corp. of America.'! 197 NOTES AND QUESTIONS 201 United States v. United States Gypsum Co r 202 NOTES AND QUESTIONS '.'. 206 [5] The Meaning and Scope of the Rule of Reason...:... 208 National Society of Professional Engineers v. United States... 208 NOTE. : 213 Broadcast Music, Inc.v. Columbia Broadcasting System 213 NOTES AND QUESTIONS :.,... 220 Catalano, Inc. v. Target Sales, Inc. : 222 xvii
Arizona v. Maricopa County Medical Society 224. NOTES AND QUESTIONS 231 National Collegiate Athletic Ass'n v.'boardofregents 232 NOTES AND QUESTIONS.. ; :,.......: 240 California Dental Ass'n v. Federal TradeComm'n '... 242 Texaco, Inc. v. Dagher 255 NOTES AND QUESTIONS. v.. : 258 [C] Proof of Agreement...". i...../,.:. ::.'. ; 264 [1] r Introduction <._...:.:,.'..-...~...-. : ; 264 [2] Conscious Parallelism and the Interstate Circuit Doctrine 265 Interstate Circuit v. United States. %... 265 NOTES AND QUESTIONS : 268 Theatre Enterprises, Inc. v. Paramount Film Distributing Corp.. 270 NOTES AND QUESTIONS... ' 271. Bell Atlantic Corp. v. Twombly :...:. 272 NOTES AND QUESTIONS... 281 [3] Delivered Pricing and Base-Point Pricing... 282 Federal Trade Commission v. Cement Institute : 282 NOTES AND QUESTIONS : 288 [4] Oligopoly Pricing and Facilitating Devices 290 E.I. Du Pont De Nemours & Co. v. FTC ; 296 [5] IntraTEnterprise Conspiracy 301 Copperweld Corp. v. Independence Tube Corp 302. NOTES AND QUESTIONS..." : 308 [6] Burdens of Proof and Summary Judgment Problems 314 Matsushita Electric Industrial Co. VJZenith Radio Corp 314 NOTES AND QUESTIONS' ; 327 [D] Market Allocation.., : 337 - [1] Joint Ventures and Cooperative Research Ventures..' 337 [2] Joint Ventures and Patent Licensing Under Intellectual Property Guidelines 341 [3] Horizontal Market Divisions 342 United States v. Topco Associates 343 NOTES AND QUESTIONS 348 Polk Bros. v. Forest City Enterprises...:...: 350 NOTE : 353 [E] Boycotts and Other Concerted Refusals to Deal.... : 355 [1] Development of a Per Se Analysis: Collective Agreements Aimed at. Competitors,'.' 356 Eastern States Retail Lumber Dealers' Ass'n v. United States... 356 NOTES AND QUESTIONS 357 Klor'Si Inc. v. Broadway-Hale Stores, Inc 358 NOTES AND QUESTIONS 359 NYNEX Corporation v. Discon, Inc... ; i 363 xviii
. NOTES.AND QUESTIONS. ; 368 [2] Toward a Limited Balancing Approach: Collective Agreements Aimed at Customer Dealings 369 Paramount Famous Lasky Corp. v. United States 369 NOTES AND QUESTIONS 371 [3] Industry Self-Regulation and Disciplinary Actions... 373. Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co : : 374 NOTES AND QUESTIONS.._...- 379 FTC v. Indiana Federation Of Dentists 380. NOTES AND QUESTIONS 387 [4] Naked and Ancillary Concerted Refusals to Deal 388 Associated Press v. United States 388 NOTES AND QUESTIONS 390 [5] Noncommercial Boycotts.' 392 Missouri v. National Organization For Women 393 NOTES AND QUESTIONS 397 Chapter 5 VERTICAL RESTRICTIONS 399 I INTRABRAND DISTRIBUTIONAL RESTRAINTS 399., [A] Rationales,., 399 [B] Resale Price Maintenance 401 [1] Setting Vertical Minimum Prices 401 Leegin Creative Leather Products, Inc. v. PSKS, Inc., dba Kay's Kloset... Kay's Shoes 401 NOTES AND QUESTIONS 420 [2] Consignment Contracts as Vertical Price Control Devices 427 [3] Unilateral Refusals to Deal and the Colgate Doctrine 429 United States v. Colgate & Co 429 NOTES AND QUESTIONS 430 [4] Vertical Maximum Price Fixing 431 State Oil Company v. Khan 432 NOTES AND QUESTIONS....-... 436 [5] Dealer Termination; Powerful Complaining Dealers 436 Monsanto Co. v. Spray-Rite Service Corp. 438 NOTES AND QUESTIONS 442 [C] Territorial and Customer Restraints: From White Motor to Sylvania.. 447 Continental TV., Inc. v. GTE Sylvania, Inc 449 NOTES AND QUESTIONS.. 7..<..' 457 [1] Dual Distribution Systems - Vertical or Horizontal 461 [D] Exclusive Dealerships... J 462 II INTERBRAND VERTICAL FORECLOSURE MAINLY, EXCLUSIVE DEALING AND TYING.. : 466 xix
[A] Exclusive Dealing Under the Rule of Reason 468 Tampa Electric Co. v. Nashville Coal Co:. 473 NOTES AND QUESTIONS 476 NOTE: EXCLUSIVE DEALING AND 2 OF THE SHERMAN ACT 479 [B] Tying Arrangements 480 [1] Introduction: Economics of Tying 480 [2] Development of Unique Per Se Rule for Tying Arrangements 484 Times-Picayune Publishing Co. v. United States 485 Northern PacificRailway.v. United States 488 NOTES AND QUESTIONS. 492 [3] Modern Doctrine Tying Product Power and Anticompetitive Effects. 494 Jefferson Parish Hospital District No. 2 v. Hyde 494 NOTES AND QUESTIONS ; 509 Eastman Kodak Co. v. Image Technical Services, Inc. 510 NOTES AND QUESTIONS 523 United States v. Microsoft Corp i.. 530 NOTE 533 United States v. Microsoft Corp.., 534 NOTES AND QUESTIONS 537 [4] Tying and Intellectual Property.' i 538 Illinois Tool Works, Inc. v. Independent Ink, Inc. ' 538 NOTES AND QUESTIONS ':: '.'. 546 [5] Full Line Forcing, Full System Contracts, and Franchise Arrangements 549 United States v. Jerrold Electronics Corp...' 550 NOTE 553 [6] Unfair Methods of Competition: Tying of Products Sold by Others Where There is a Financial Incentive 554 Chapter 6 MONOPOLY STRUCTURE, POWER, AND CONDUCT...;... 557 I THE PROBLEM OF MONOPOLY :.., : 557 United States v. American Can Co 557 NOTES.AND QUESTIONS 565 NOTE: THE ECONOMICS OF MONOPOLIZATION 567 United States v.aluminum Co. of America 570 NOTES AND QUESTIONS...'.....-. 580 United States v. United Shoe Machinery Corp 583 NOTES AND QUESTIONS 589 II THE MODERN MONOPOLIZATION OFFENSE: POWER 591 [A] Market Power, Barriers to Entry, and the Relevant Market 591 United States v. E.I. Du Pont De Nemours & Co... : 599 xx
NOTE: CROSS-ELASTICITY OF DEMAND 603 Telex Corp. v. IBM Corp. ;...: 605 NOTES AND QUESTIONS ;. 608 NOTE: BARRIERS TO ENTRY IN MONOPOLIZATION CASES ': '. 612 [B] The Geographic Market 616 United States v. Grinnell Corp: V 616 NOTES AND QUESTIONS..,.../.. 619 III THE MODERN MONOPOLIZATION OFFENSE: CONDUCT 622 [A] Innovation and Exclusion >...-... 622 Berkey Photo, Inc.v. Eastman Kodak.Co.:...-.-.. :...: 622 California Computer Products v. IBM Corp: I..-. 631 NOTES AND QUESTIONS...y, Vl 632 United States v. Microsoft Corp.. v. : 637 NOTES AND QUESTIONS /;.,.,._..,, 654 [B] Monopolization and the Intellectual Property Laws (Mainly Patent and Copyright)...,.... 657 [1] Improprieties in Procurement or Enforcement of an Invalid Patent.. 658 [2] Patent "Holdup"...,..-..-.. ; '..w.-.... :., 660 [3] Refusal to License IP Rights.....,... 662 Independent Service Organizations Antitrust Litigation 662 NOTES AND QUESTIONS 667 [4] Patent Accumulation '." :.. 668 [C] Predatory Pricing and Related Practices...: 669 [1] Structural Prerequisites for a Predatory Pricing Claim "Recoupment" :'.'.....:' 670 Brooke Group Ltd. v: Brown & Williamson Tobacco Corp 670 NOTES AND QUESTIONS J 680 NOTE: WHEN IS PREDATORY PRICING RATIONAL? 684 NOTE: PREDATORY PRICING AND THE ROBINSON-PATMAN '. ACT :..,...:..V 688 [2] Identifying the Predatory Price 690 NOTES AND QUESTIONS.<'..-..' '. 694 [3] Predatory Buying ' :.'.. :'.<. 697 Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc. "....'...... : : 697 [4] Anticompetitive Discounting Practices, Including Package Discounts..:..:...: 703 Cascade Health Solutions v. Peacehealth : 703 NOTES AND QUESTIONS,: /.... 712 [D] Vertical Integration, Refusals to Deal and Exclusionary Contracting.. 717 [1] The Monopolist's Refusal to Deal and the Essential Facility Doctrine...-..'.... 718 Aspen Skiing Co. v. Aspen Highlands Skiing Corp... 718 xxi
NOTES AND QUESTIONS 725 NOTE: THE ESSENTIAL FACILITY DOCTRINE 730 Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP.. 732 NOTES AND QUESTIONS,. 739 [2] Exclusionary Contracting by the Monopolist '. 740 United States v. Dentsply International, Inc. ;... 740 NOTES AND QUESTIONS..'. 750 NOTE: TYING AND EXCLUSIVE DEALING BY THE MONOPOLIST 751 [3] Vertical Integration and the Price "Squeeze"..:'...".-':: 753 Pacific Bell Telephone Co. dba AT&T California v. Linkline Communications, Inc '..:..'.- 753 NOTES AND QUESTIONS'.." 758 IV THE OFFENSE OF ATTEMPT TO MONOPOLIZE 760 Spectrum Sports, Inc. v. McQuillan... : 760 NOTES AND QUESTIONS 763 NOTE: CONSPIRACY TO MONOPOLIZE :.. ; 766 NOTE: INDUSTRIAL CONCENTRATION AND NON-DOMINANT FIRMS: FROM MONOPOLIZATION TO MERGER POLICY 767 Chapter 7 MERGERS AND ACQUISITIONS 771 I, VERTICAL INTEGRATION THROUGH MERGER 771 United States v. Columbia Steel Co : 771 NOTES AND QUESTIONS 774 United States v. E.I. Du Pont De Nemours & Co 774 NOTES AND QUESTIONS,'... 778 Brown Shoe Co. v. United States 779 NOTE \ ':. : 782 NOTE: THE ECONOMICS OF VERTICAL MERGERS 783 Silicon Graphics...-. 787 NOTES AND QUESTIONS 790 NOTE: MERGER GUIDELINES AND VERTICAL MERGERS 791 NOTES AND QUESTIONS 794 II MERGERS OF COMPETITORS.< 794 [A] The Development of Horizontal Merger Law Under the Sherman Act. 795 Northern Securities Co. v. United States 795 NOTES AND QUESTIONS.. > 798 United States v. Columbia Steel Co 799 -NOTES AND QUESTIONS,.801 [B] Horizontal Mergers Under Section 7 of the Clayton Act and Its 1950 Amendments 802 xxii
Brown Shoe Co. v. United States 803 NOTES AND QUESTIONS 809 United States v. Philadelphia National Bank 811 NOTES AND QUESTIONS 814 United States v. General Dynamics Corp 816 NOTES AND QUESTIONS 820 NOTE: PARTIAL ACQUISITIONS 822 [1] The 1992 Horizontal Merger Guidelines 824 NOTES AND QUESTIONS, 824 [2] Judicial Responses to the Merger Guidelines. 830 FTCv. Staples, Inc 830 NOTES AND QUESTIONS 836 NOTE: THE HERFINDAHL-HIRSCHMAN INDEX 837 Hospital Corp. of America v. FTC 839 NOTES AND QUESTIONS 842 NOTE: AN EFFICIENCY DEFENSE IN MERGER CASES? 848 Federal Trade Comm'n v. H.J. Heinz Co 851 NOTE: "UNILATERAL" ANTICOMPETITIVE EFFECTS OF HORIZONTAL MERGERS 859 NOTE: MERGERS AND INNOVATION 863 NOTE: GOVERNMENT GUIDELINES ON MERGER REMEDIES 865 III MERGERS OF POTENTIAL COMPETITORS 872 United States v. Sidney W. Winslow 872 NOTES AND QUESTIONS 873 United States v. Continental Can Co 874 NOTES AND QUESTIONS 879 FTC v. Procter & Gamble Co. 883 NOTES AND QUESTIONS 886 POTENTIAL COMPETITION 891 NOTE: THE COMMON CARRIER IMMUNITY FROM 7 893 IV THE FAILING COMPANY DEFENSE '.. 894 Citizen Publishing Co. v. United States 894 NOTES AND QUESTIONS 896 V PRIVATE ENFORCEMENT OF SECTION 7 898 Car gill, Inc. v. Monfort of Colorado, Inc 900 NOTES AND QUESTIONS 900 VI INTERLOCKING DIRECTORATES UNDER SECTION 8 OF THE CLAYTON ACT :. 902 Vn SHOULD WE REGULATE BIGNESS? 902 xxni
Chapter 8 SECONDARY-LINE DIFFERENTIAL PRICING AND THE ROBINSON-PATMAN ACT 909 I INTRODUCTION 909 [A] The Economics of Price Discrimination 910 [1] Perfect Price Discrimination 911 [2] Imperfect Price Discrimination 913 [B] Antitrust Policy and the Robinson-Patman Act 914 [C] The Technical Coverage of the Robinson-Patman Act 915 II PRIMARY-LINE DISCRIMINATION 917 III SECONDARY-LINE DISCRIMINATION 917 [A] "Price Discrimination" and "Injury to Competition" Under the Robinson- Patman Act 918 FTC v. Morton Salt Co 918 NOTES AND QUESTIONS 919 Volvo Trucks North America, Inc. v. Reeder-Simco Gmc, Inc 921 NOTES AND QUESTIONS 927 J. Truett Payne Co. v. Chrysler Motors Corp. 931 NOTES AND QUESTIONS 933 FTC v. Henry Broch & Co 934 NOTE 936 [B]. Commodities of "Like Grade and Quality" 936 FTCv. Borden Co 936 NOTES AND QUESTIONS 938 [C] Defenses 938 [1] The "Cost Justification" Defense 939 United States v. Borden Co 939 NOTES AND QUESTIONS 942 [2] The "Meeting Competition" Defense 943 United States v. United States Gypsum Co 943 NOTES AND QUESTIONS 946 Falls City Industries v. Vanco Beverage, Inc 946 NOTES AND QUESTIONS 950 [D] Robinson-Patman Violations by Buyers 951 Great Atlantic & Pacific Tea Co. v. FTC 951 NOTES AND QUESTIONS 956 IV CRIMINAL VIOLATIONS OF THE ROBINSON-PATMAN ACT 957 Chapter 9 ANTITRUST, OTHER FORMS OF REGULATION, AND EXEMPTIONS 959 I ANTITRUST AND AGENCY REGULATION 959 [A] Overview 959 [B] Theories of Regulation and the Movement Toward Deregulation 960 xxiv
[1] The Rise and Rationale of Regulation 961 [2] Natural Monopoly, Contestability, and Deregulation 962 ' [3] NETWORK DEREGULATION, INTERCONNECTION, AND ANTITRUST ; 966 [4] TECHNOLOGICAL CHANGE AND DEREGULATION 968 [C] Jurisdictional and Prudential Problems of Antitrust Enforcement in Regulated Industries 971 Credit Suisse Securities LLCv. Billing 971 NOTES AND QUESTIONS. 979 [1] Prudential Considerations After Trinko 981 Verizon Communications, Inc. v. Law Offices of Curtis V... Trinko, LLP 981 NOTES AND QUESTIONS... 982 [D] Antitrust Exemptions,. 983 [i] Labor Organizations 983 [2] Export Associations 988 [3] Insurance 990 [4] Agricultural Organizations 992 [5] Professional Sports 993 [6] National Sovereign Immunity 995 II PETITIONS TO THE GOVERNMENT 996 [A] Political Process, "Rent- Seeking," and the Antitrust Laws 996 Allied Tube & Conduit Corp. v. Indian Head, Inc 998 NOTES AND QUESTIONS 1002 FTC v. Superior Court Trial Lawyers Ass'n 1004 NOTES AND QUESTIONS 1009 [B] The "Sham" Exception 1010 Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. 1011 NOTES AND QUESTIONS 1017 m PROBLEMS OF FEDERALISM: PREEMPTION AND THE "STATE ACTION" DOCTRINE 1021 [A] Preemption 1021 Fisher v. City of Berkeley 1021 NOTES AND QUESTIONS..'. 1023 [B] The "State Action" Doctrine 1024 California Retail Liquor Dealers Ass 'n v. Midcal Aluminum, Inc.. 1026 NOTES AND QUESTIONS 1027 NOTE: FEDERALISM AND THE "STATE ACTION" DOCTRINE 1029 [1] The Authorization Requirement and the Problem of Local Government Antitrust Liability 1030 Hallie v. City ofeau Claire 1032 NOTES AND QUESTIONS 1035 XXV
City of Columbia & Columbia Outdoor Advertising, Inc. v. Omni Outdoor Advertising, Inc 1037 NOTES AND QUESTIONS 1041 [2] The "Active Supervision" Requirement 1044 FTC v. Ticor Title Insurance Co ; 1046 NOTES AND QUESTIONS 1050 APPENDIX A: DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION HORIZONTAL MERGER GUIDELINES, APRIL 2,1992...:.' App A-l APPENDIX B: SELECTED ANTITRUST STATUTES App B-l TABLE OF CASES TC-1 INDEX TC-1 XXVI