1.

Goals of antitrust policy

Pp1-5
 Sherman Act enacted in 1890 targeting monopoly power, price fixing and
market division
 Enforcement of antitrust laws varied in historical course
 Chicago school examines business behavior from a purely economic view and
argues that efficiency is the only justification for antitrust laws
 General agreement today that a competitive, free market system is the best
way to allocate resources. “The unrestrained interaction of competitive
forces will yield the best allocation of our economic resources, lowest prices,
the highest quality and the greatest material progress.” (Supreme Court) But
also widely shared view that private interests operating in free markets
unchecked by antitrust laws will harm efficiency and consumer welfare.
 Statements on antitrust values
o Sherman Act designed to preserve free competition; premise that the
unrestrained interaction of competitive forces will yield the best
allocation of economic resources, lowest prices, and highest quality
and greatest material progress, and provide environment conducive
to the preservation of democratic political and social institutions
o Congress desires to promote competition through the protection of
viable, small, locally owned businesses, while recognizing occasional
higher costs and prices from the maintenance of fragmented
industries and markets, resolving the tension in favor of
decentralization
o No excuse for monopolizing a market that the monopoly has not been
used to extract from the consumer more than a fair profit. There is
value to competition. It is possible to prefer a system of small
producers b/c indirect social or moral effect.
o The Sherman Act reflects a legislative judgment that competition is
the best method of allocating resources in a free market, assuming
occasional exceptions to the presumed consequences of competition.
The statutory policy precludes inquiry into the question whether
competition is good or bad.
o Hand cautioned that a wooden rule would deprive the leading firm the
incentive to exert its best efforts; it is unfair to condemn success when
the Sherman Act itself mandates competition.
o Liability turns on whether actions can be explained by “valid business
reasons” (Kodak)

Pp149-152
Market power and consumer loss
 Market power = abilities to reduce output below competitive level of
production + raise prices above the competitive level (can be achieved by
monopoly and cartel)
  Antitrust law is premised on the general principle that competition, as
opposed to monopoly or cartelization, tends to maximize the economic
performance of a market which involves:
o Economic efficiency: allocative efficiency-enough output is produced
to satisfy all the demand of consumers who value the product in
excess of its cost of production; productive efficiency- output is
produced a minimum cost)
o Wealth distribution: degree to which consumers do or do not pay a
market price for the product that equals the cost of production
o Speed of innovation (dynamic efficiency)
 Exercise of market power injures consumers
o Monopoly overcharge (wealth transfer; monopoly price > competitive
price)
o Deadweight loss (no wealth transfer; loss in economic efficiency)

2. History of antitrust and development of legal doctrine

Pp14-26
Early law on monopoly and contracts in restraint of trade
 Dyer’s case (1415)
o Contract (debt obligation) is void because the condition of non-
competition is against public interest
 Schoolmaster case
o Two masters of a school brought action against another master for
starting a school in the same town, seeking damages based on reduced
income
o Court: no cause of action
 The case of monopolies (Darcy v. Allein)
o P brought trespass action on D for selling playing cards while Bowes
holds a patent grant by the queen providing for exclusive trading of
playing cards for a period of time within the realm
o The court rule the patent is void for
 Monopoly against the common law
 All trades which prevent idleness and keep men in labor
are profitable to the commonwealth and therefore the
grant to P to have the sole making is against the
common law and the benefit and liberty of the subject
 Any monopoly is not only a damage to those that
exercise the same trade but also to others, for the end of
all these monopolies is the private gain of the patentees.
3 inseparable incidents to monopoly: price raised, lower
quality of commodity, impoverishment of competitors
 Queen was deceived in her grant
 The grant is a dangerous innovation
 Against divers acts of parliament
  Mitchel v. Reynolds (1711)
o D was assigned bakehouse for a term on condition of non-competition
o Standards for reasonableness of non-compete agreements (rule of
reason)
 General restraints of trade are void (monopoly against public
policy; presumed to be bad if nothing more)
 Particular restraints with consideration are good
o Here the restraint is proportioned to the consideration (term of five
years)
 US Supreme Court adopted the rule of reason test

Pp35-45
Early development of legal doctrine
 US v. Trans-Missouri Freight Association (1897; SC; Peckham)
o Challenged agreement by the association is alleged to control the
freight traffic in the region: fixing rates, establishing rules and
regulations for the traffic
o Trusts is bad because is motivated by individual/corporate
aggrandizement as against the public interest; reduce price; restrain
trade by driving out small businesses
o Combination of capital whose purpose is to control production of any
particular article is of the same nature as fixing rates of railroads
o Congress has prohibited all contracts or combinations in the form of
trusts entered into for the purpose of restraining trade and commerce
o Construction of statute: confined to contract or combination which is
only in unreasonable restraint of trade or commerce, or covers all
restrictive contracts?
o The statutory language “to protect trade and commerce against
unlawful restraints and monopolies” refers to and includes those
restraints and monopolies which are made unlawful in the body of the
statute
o The term “contract in restraint of trade” includes all contracts in
restraint of trade and not limited to those in unreasonable restraint of
trade
o Sales with bona fide consideration with the collateral effect of
enhancing price are not included within the statute
 US v. Joint-Traffic Association (1898; SC; Peckham)
o Recognized exceptions for ordinary contracts which might restrain
trade including traditional ancillary restraints
o An agreement entered into for the purpose of promoting the
legitimate business of an individual or corporation, with no purpose
to thereby affect or restrain interstate commerce, and which does not
directly restrain such commerce, is not covered by the act
 US v. Addyston Pipe & Steel Co. (1898; 6th Circuit)
 o Association of defendants fixed prices in reserved territories
o Trans-Missouri held that contracts in restraints of interstate
transportation were within the statute, whether the restraints would
be regarded as reasonable at common law
o If the contract was void and unenforceable at the common law
because in restraint of trade, it is within the inhibition of the statute if
the trade restrained was interstate
o The court rejected defendants’ argument that the contract should be
upheld because it is made to check ruinous competition and regulate
prices
o Contract was void at common law because in restraint of trade and
tending to a monopoly

3. Market power, market definition, and the Cellophane fallacy

P112-122
 Scope note
o Sherman Act is a composite of two concepts—restraint of trade and
monopoly
o Issues
o Defining relevant market (measuring market shares)
o How do large market shares give rise to market power of
monopoly
o What business conduct of a monopoly firm do antitrust laws
tolerate
o Defining the relevant market
o Nature of the product and the ability or willingness of
consumers to substitute other products for it
 Threshold issue: determine which existing firms and
potential competitors have sufficient restraining
influence on the seller’s power over price to warrant
their inclusion as effective competitors
o Spatial and geographic consideration
o A firm’s power over price may be limited by the desire to
forestall possible competition that would enter the field if the
profits were to rise too high (depending on the costs and
barrier of entry)
 US v. Aluminum Co. of America (Alcoa; 1945)
o Single producer of virgin aluminum ingot
o Restrictive covenants with power suppliers + cartel with foreign
manufacturers with limitation on import
o Court concludes that the market share mounts to monopoly; complete
control within certain limits (raising price would evoke substitutes
and expansion of small producers)
 o It is no excuse for monopolizing a market that the monopoly has not
been used to extract from the consumer more than a fair profit
o Congress did not condone good trusts and condemn bad ones; it
forbade all (economic motives + indirect social and moral
considerations; inherent good in small businesses)
o A monopoly is always an unreasonable restraint of trade
o Court holds that the monopoly is the kind covered by Section 2, but it
does not follow that it monopolized the market
o It would be unfair and presumably contrary to the intent of congress
to include accidental monopolies
o The Act does not mean to condemn the resultant of those very force
which it is its prime object to foster, although the result of monopoly
may expose the public to its evils (successful competitor must not be
turned upon when he wins)
o Mere size is not an offense against the Act, but size carries with it an
opportunity for abuse that it is not to be ignored when the
opportunity is proved to have been utilized
o Alcoa has utilized its size for abuse
o Conduct is not illegal unless it is part of a plan to monopolize or to
gain such other control of a market
o Intent is not required as no monopolist monopolizes unconscious of
what he is doing
o Alcoa meant to keep and did keep complete and exclusive hold upon
the market- that was to monopolize the market and fell within section
2
 US v. DuPont (the Cellophane case; 1956)
o 75% of the cellophane sold in the US; 20% of all flexible packaging
material
o The ultimate consideration in relevant market determination is
whether the defendants control the price and competition in the
market for such part of trade of commerce as they are charged with
monopolizing
o Control of the relevant market depends on the availability of
alternative commodities (whether there is a cross-elasticity of
demand between cellophane and other wrappings)
o Interchangeability is gauged by the purchase of competing products
considering the price, characteristics and adaptability of the
competing products
o A party has monopoly power if it has a power of controlling prices or
unreasonably restricting competition (intention to monopolize may
be assumed)
o In determining the market under the Act, it is the use or uses to which
the commodity is put that control
 o Cellophane has to meet competition from other materials in every one
of its uses; a considerable degree of functional interchangeability
exists between the products; no unique quality; cross-elasticity
o Court concluded that cellophane’s interchangeability with other
materials suffices to make it part of the flexible packaging material
market
o No prove that Dupont had power to exclude any producer from the
flexible packaging market

4. Market definition
Pp152-171
 US v. Grinnell Crop. (1966)
o Defendants are a group of corps controlled by Grinnell in the central
station service business (87% of the business)
o Offense of monopoly under section 2 of Sherman Act has two
elements
 Possession of monopoly power in the relevant market
 Willful acquisition or maintenance of that power as
distinguished from growth or development as a consequence
of a superior product, business acumen or historic accident
o Monopoly power (power to control prices or exclude competition)
ordinarily may be inferred from the predominant share of the market
o Here 87% of central station service business leaves no doubt that Ds
have monopoly power; question is what is the relevant market
o Court combines different products/services (e.g. burglar alarm, fire
alarm etc) in a single market (i.e. protection of property through use
of central service station) where that combination reflects commercial
realities
o Court distinguishes products and services; “cluster of services” as a
distinct line of commerce
o Substitutes for the accredited central station service (e.g. non-
accredited) do not operate on the same level as to meet the du Pont
interchangeability test (submarket)
o The geographic market is national
o The monopoly was achieved in large part by unlawful and
exclusionary practices (restrictive agreements; pricing practices;
acquisitions)
o Relief: divesture of interests in subsidiaries
o Dissent: relevant market is local
 Relevant market
o No pure monopoly: at some point a further price increase will lead
some consumers to switch to less satisfactory products or to
withdraw from the market
 o Cellophane fallacy: circular reasoning; price set just high enough so
that if it raised the price another notch the price increase would lead
to loss of business (result: relevant market would include substitutes;
exclusionary conduct would be immunized to section 2 violation; false
negatives)
o One way of avoiding the cellophane fallacy is to focus on the degree of
cross-elasticity of demand at the price that would provide only
normal competitive profits
o Grinnell submarket: how large the class? How strong the preference?
o Difference between the market situations in Cellophane and Grinnell:
Grinnell involves services; it could raise price to users without
concern that they might be able to protect their position by buying
from others who paid a lower price (arbitrage transactions)
o For standardized products, market power derives from the relative
efficiency (i.e. unit costs of production); latent monopolist (regardless
of current market share)
o For differentiated products: overall market power at any given price
level depend on size of each group, strength of preference, relative
costs of substitutes, new entrants when price is higher, price
discrimination; data hard to obtain; other factors: time, barriers to
entry of potential competition, countervailing buyer power, conduct
evidence

5. Price-fixing and the per se rule

Pp188-209
 Chicago Board of Trade v. US
o US sued CBT for adopting the Call rule (restriction on price-making
between call and opening of next market session)
o Every agreement / regulation restrains (to restrain is the very
essence)
o True test of legality is whether the restraint imposed in such as
merely regulates and perhaps thereby promotes competition or
whether it is such as may suppress or even destroy competition
o Factors court considers: particular facts, condition, nature of restraint,
evil, reason for remedy, purpose
o Intention helps to interpret facts and predict consequences
o Nature of rule: restriction on the period of price-making
o Small scope; no appreciable effect on general market prices nor
volume of grain coming to Chicago; improves market conditions
o The rule is a reasonable restraint of trade
 Appalachian Coals v. US
o Defendant corp organized as exclusive selling agent for producers of
coal in distressed conditions in the coal industry
o Supreme Court reversed lower court’s injunction
 o Objective scrutiny of particular conditions and purposes
o “The question of the application of the statute is one of intent and
effect”
o The statute did not preclude defendants from making an honest effort
to remove abuses, to make competition fairer, and thus to promote
the essential interests of commerce
o It is impossible to conclude that the defendants will be able to fix the
price in the consuming markets given the conditions
o The plan cannot be said either to contemplate or to involve the fixing
of market prices
 US v. Socony-Vacuum Oil Co.
o Buying programs of distress gasoline with direct purpose of raising
and maintaining spot market prices by elimination of distress gasoline
as a market factor
o Distinguished from Appalachian Coals in which the plan was not
designed to operate v.a.v. the general consuming market and to fix the
prices on that market; any effect was incidental; price-fixing would
per se constitute undue restraint on commerce
o Distinguished from Chicago Board of Trade in which the buying
program had no purpose or effect of manipulating prices
o Court has consistently adhered to the principle that price-fixing
agreements are unlawful per se under the Sherman Act; elimination
or alleviation of competitive abuses or evils is no defense
o Proof that there was a conspiracy, that its purpose was to raise price,
and that it caused or contributed to a price rise is proof of the actual
consummation or execution of a conspiracy under section 1 of the
Sherman Act
o Reasonableness of prices has no constancy; the thrust of the rule
reaches more than monopoly power; any combination which tampers
with price structures is engaged in an unlawful activity (regardless of
reasonableness or monopoly power)
o It is immaterial whether the prices were uniform and inflexible; prices
are fixed b/c they are agreed upon
o Under the Sherman Act, a combination formed for the purpose and
effect of raising, depressing, fixing, pegging or stabilizing the price of a
commodity in interstate or foreign commerce is illegal per se

6. Characterization of joint action

P211-229
 National Society of Professional Engineers v. US
o No negotiation of fees until client has selected engineers
o Engineers’ argument: competitive pressure is dangerous to public
welfare
 o Court: rule of reason (standard oil, Chicago board of trade) inquires
whether the challenged agreement is one that promotes competition
or one that suppresses competition
o Two categories of analysis
 Illegal per se: agreements whose nature and effect are so
plainly anticompetitive that no elaborate study of the industry
is need to establish their illegality
 Agreements whose competitive effect can only be evaluated by
analyzing the facts peculiar to the business, history, and reason
 Purpose is to judge competitive significance of restraint, not
whether competition is in the public interest (rule of reason
does not support a defense based on the assumption that
competition itself is unreasonable)
o Case distinguished from Chicago board of trade; here the rule is illegal
on its face b/c it operated as an absolute ban on competitive bidding
 Broadcast Music Inc. (BMI) v. Columbia Broadcasting System (CBS)
o BMI and ASCAP grant blanket licenses at fees negotiated by them
o The supreme court rejected court of appeals’ literal reading of “price
fixing”
o Literal price fixing does not equal the label “per se price fixing”
o Court does not expect that any market arrangements reasonably
necessary to effectuate the rights that are granted by copyright law
would be deemed a per se violation of the Sherman Act; otherwise the
commerce protected against restraint would not exist at all
o The blanket license is not a naked restraint of trade with no purpose
except stifling of competition; it is developed out of the practical
situation in the market
o The substantial lowering of costs differentiates the blanket license
from individual use licenses; ASCAP is not really a joint sales agency
offering the individual goods of many sellers but seller of a different
product where the individual compositions are raw material
o ASCAP made a market in which individual composers are inherently
unable to effectively compete
o Not all arrangements among actual or potential competitors that have
an impact on price are per se violations of the Sherman Act or even
unreasonable restraints (e.g. mergers)
o Holding: blanket license is not per se illegal; subject to rule of reason
test

7. The quick look approach

 NCAA
 Cal Dental

8. Limits to per se illegality; Market division

 Texaco Inc. v. Dagher
 o Whether per re rule against price fixing applies to joint venture
o Texaco and Shell formed joint venture to consolidate operations,
ending competition; share risks and profits
o Not horizontal price-fixing agreement (would fall into the per se
category) b/c they did not compete in the relevant market but
participated the market jointly (single entity, not competing entities)
o Ancillary restraints doctrine does not apply (ancillary v. naked) b/c
the challenged business practice involves the core activity of the joint
venture
 US v. Topco
o Topco is a purchasing association wholly owned and operated by
independent member supermarket chains
o Members’ veto power over new members + allocation of exclusive
territories: insulate members from competition in Topco brand goods
o Topco argues that territorial divisions (restricting competition in the
sales of topco brands) is necessary for competing with national chains
o District court held topco’s practice is pro-competitive (anti-
competitive effect on sale of topco brands is outweighed by increased
competition with national chains)
o Supreme ct: the restraint is horizontal territorial limitations and a per
se violation of section 1 (agreement between competitors at the same
level of the market structure is a classic example of per se violation);
district ct erred in failing to make a determination of per se horizontal
territorial restraints and applying rule of reason
o Court unable to weigh anti-competition effect in on sector against
pro-competition in another sector; reason for per rule
o Court has consistently rejected the notion that naked restraints of
trade are to be tolerated b/c pro-competition effect
o Topco has no authority under the Sherman Act to determine the
respective values of competition in various sectors of the economy;
decision is to be made by Congress
 Palmer v. BRG
o HBJ (barbri) and BRG entered into allocation agreement where BRG
stays in Georgia and HBJ receives the rest of the US; revenue sharing
o District ct: per se horizontal price fixing requires explicit agreement
on prices
o App ct: per se violation requires subdivision some relevant market in
which they had previously competed
o SC: citing Socony (a combination for purpose of manipulating price is
illegal per se); Topco (horizontal territorial limitations are naked
restraints of trade and per se violation)
o Horizontal territorial allocation agreements are anticompetitive
regardless of whether the parties split a market within which both do
business or whether they reserve one market for each
9. Boycotts and refusals to deal
 Fashion Originators’ Guild of America (FOGA) v. FTC (per se rule)
o FOGA members in combination intentionally boycotted retailers who
sell garments copied by other manufacturers; retailers coerced into
the practice; other restrictive conducts independent of fight against
copying
o The practice constitutes unfair method of competition b/c its purpose
and effect of directly suppressing competition from copied designs
o Extra-governmental agency prescribing rules for the regulation and
restraint of interstate commerce
o Sufficient control and power to exclude non-conforming
manufacturers and retails to have the tendency of monopoly
o Price fixing, limiting production, causing deterioration in quality are
not exhaustive categories banned by Sherman and Clayton Acts
o The practice constituted an unfair method of competition
o Not an error that FTC refused to hear evidence of justification
(reasonableness and necessity)
 Klor’s v. Boardway-Hale Stores (per se rule)
o BH and manufacturers and distributors of appliance brands conspired
to refuse to deal with Klor’s or sell at discriminatory prices
o District and app cts dismissed b/c lack of public injury required by a
violation of Sherman Act (“private quarrel”)
o SC thinks Klor’s case is one type of trade restraint and public harm the
Sherman Act forbids
o Group boycotts (concerted refusals by traders to deal with other
traders) have long been held to be in the forbidden category; not
saved by reasonableness nor failure to show price fixing, limiting
production or deterioration in quality (citing FOGA)
o Boycott agreements cripple the freedom of traders and restrain their
ability to sell in accordance with their own judgment
o This case involves a wide combination consisting of manufacturers,
distributors and a retailer
o The combination takes from Klor’s its freedom to buy appliances in an
open competitive market and drives it out of business; also deprives
manufacturers and distributors freedom to sell to Klor’s on the same
terms—interferes with the natural flow of interstate commerce
o It has a monopolistic tendency
o Not to be tolerated merely b/c the victim is just one merchant (court
inferred injury to the competitive process itself from the nature of the
boycott agreement)
 NYNEX v. Discon
o Discon, seller of removal services, alleged that NYNEX engaged in
anticompetitive activities to benefit its competitor AT&T
 o Issue: whether and when the per se group boycott rule applies to a
decision by a purchaser to favor on supplier over another (after
examining purchaser’s justifications)
o Cir ct invited D to introduce evidence of justification: per se rule
would apply only if no pro-competitive justification were to be found
o H: boycott-related per se rule does not apply; plaintiff must prove
harm, not just to a single competitor, but to the competitive process,
i.e. competition itself
o Precedent limits the per se rule to cases involving horizontal
agreements among direct competitors (FOGA; Klor’s)
o This case concerns only a vertical agreement
o The freedom to switch suppliers lies close to the heart o the
competitive process that the antitrust laws seek to encourage
o Other laws provide remedies for competitive practices thought to be
offensive to business morality

10. Cabining the reach of the boycott per se rule

 Northwest Wholesale Stationers v. Pacific Stationary & Printing
o Issue: whether per se rule applies to a cooperative buying agency
comprising various retailers expels a member without providing any
procedural means for challenging the expulsion (when per se rule is
applied to joint activity that is susceptible of being characterized as a
concerted refusal to deal)
o District ct refused to apply per se rule and applied ROR, found no anti-
competitive effect; cir ct applied per se rule on ground of concerted
refusal to deal (ROR is only appropriate if the coop had provided
procedural safeguards)
o SC reversed
o The expulsion is a restraint of trade in the sense that every
commercial agreement restrains trade; whether it violates section 1
depends on if it is unreasonable restraint
o Per se rule applies to business practices that have proved to be
predominantly anticompetitive
o Certain concerted refusals to deal (group boycott) are so likely to
restrict competition without any offsetting efficiency gains that they
are condemned as per se violation of section 1
o The absence of procedural safeguards cannot determine antitrust
analysis b/c antitrust laws do not themselves impose on joint
ventures a requirement of process
o Per se cases generally involve 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
 o Frequently the boycotting firms possess a dominant position in the
relevant market
o The practices were generally not justified by enhancing efficiency;
likelihood of anticompetitive effects is clear
o Not every cooperative activity involving a restraint or exclusion
shares with the per se forbidden boycotts the likelihood of
predominantly anticompetitive consequences (e.g. NCAA)
o Cooperative arrangement here seem to be designed to increase
economic efficiency and render markets more competitive (economics
of scale)
o Expulsion from a wholesale cooperative does not necessarily imply
probability of anticompetitive effect; nor is expulsion
characteristically likely to result in predominantly anticompetitive
effects
o Unless the cooperative possess market power or exclusive access to an
element essential to effective competition, the conclusion of
anticompetitive effect is not warranted; ROR should be applied
 FTC v. Indiana Federation of Dentists
o FTC alleged that the federation’s efforts to prevent members from
submitting x-rays to insurers constitutes an unfair method of
competition in violation of section 5 of the FTCA
o Cir ct found that the allegation that the conspiracy suppressed
competition among dentists was not supported by evidence
o SC thinks competition among dentists wrt cooperation with the
requests of insurers was restrained; question is whether the restraint
is unreasonable
o SC declines to apply per se rule; although this case resembles group
boycotts
o Follows Northwest Stationers: per se rule is limited to cases in which
firms with market power boycott suppliers or customers in order to
discourage them from doing business with competitors
o SC generally does not apply per se rule to professional associations
o SC applies ROR: horizontal agreement; refusal to compete wrt the
package of services offered to customers (no less than price fixing)
impairs the ability of the market to advance social welfare by ensuring
the provision of desired goods and services to consumers at a price
approximating the marginal cost; cannot pass ROR absent
countervailing precompetitive virtue (e.g. creation of efficiency)
o D argues that it lacks market power; SC cites NCAA: absence of proof
of market power does not justify a naked restriction on price or
output, such restriction requires competitive justification; proof of
actual detrimental effects can obviate the need for inquiry into market
power
o Concerted effort disrupts the proper functioning of the price setting
mechanism of the market, can be condemned even absent proof that it
 results in higher prices; D is not entitled to pre-empt the working of
the market
o Quality of care argument is illegitimate (professional engineers)

11. Joint ventures

 Intro
o Joint venture has some characteristic of a group boycott
o Industry wide JV has two effects: reduction of production costs
(efficiency) and monopoly power
o To maintain monopoly profits: rent-seeking/ R&D
o Consumer welfare standard v. social welfare standard
 Terminal Railroad
o Terminal companies formed association to use facilities exclusively
o SC ruled the combination constituted restraint of trade in violation of
sherman act
o “Essential facilities doctrine”, suitable only for JVs in which the most
efficient arrangement required near-universal access to the venture
 Associated Press
o Bylaws of AP prohibits members to sell news to non-members
o Effect is to block all non-members from opportunities to buy news
from AP or members
o SC: the combination (bylaws) on the face, without regard to past
effect, constitute restraint of trade
o That AP has not achieved a complete monopoly is irrelevant
o Trade restraints of this character, aimed at the destruction of
competition, tend to bock the initiative which brings newcomers into
a field of business and to frustrate the free enterprise system which it
was the purpose of the Sherman act to protect
o Court dismissed D’s argument of freedom to dispose of property
o Holding: combinations designed to stifle competition cannot be
immunized by adopting a membership device accomplishing that
purpose
 US v. Visa (2nd cir)
o Visa and Mastercard as open JVs enforced exclusionary rules
prohibiting member banks from issuing Amex or Discovery cards
o ROR applies (whether anticompetitive effects of a restraint are
outweighed by precompetitive justification
o Relevant market
 General purpose card market (issuers and cardholders are
seller and buyer): distinct market from other forms of payment
(SSNIP analysis)
 Network services market (networks and issuers are seller and
buyer): 4 payment card networks; no reasonably
interchangeable products
 o Market power
 May be proven by evidence of power to affect price or exclude
competition or alternatively to control a large market share
 Sufficient evidence to find market power
o Harms to competition
 Total exclusion of Amex and Discovery: network services
market is seriously damaged; price, output, innovation
 D argues harms to competitors v to competition; analogy to
exclusive distributorship which is presumptively legal
 Exclusive distributorship analogy is wrong b/c Visa and
Mastercard JV is a horizontal restraint
 Fact that the rules harms competitors does not mean they do
not harm competition
o Precompetitive justifications
 Promote cohesion within Mastercard and Visa so they compete
effectively; the exclusionary rules are ancillary
 The rules are not necessary; in any event the anticompetitive
effects outweigh the precompetitive
12. Noerr immunity, sham exception, and Parker immunity
 Eastern Railroad Presidents Conference v. Noerr Motor Freight
o Truckers challenged railroad for publicity campaign directed at
lawmaking and enforcement authorities
o DC found the campaign malicious in purpose and fraudulent in the use
of third party technique (although DC conceded that railroads
influence on passage of legislation is not a ground)
o SC: no violation of Sherman Act can be predicated upon mere
attempts to influence the passage or enforcement of laws; where a
restraint upon trade or monopolization is the result of valid
government action, no violation of the Act can be made out
o Sherman Act does not prohibit two or more persons from associating
together in am attempt to persuade the legislature wrt a law that
would produce a restraint or a monopoly (otherwise would impair the
power of government to take actions through legislature and
executive to retrain trade)
o Other factors in the case (purpose, third party technique) do not
transform conduct otherwise lawful into a violation of the Sherman
Act (Sherman Act is not code of ethics)
o Sham exception: Sherman Act would be justified in situations in which
a publicity campaign, ostensibly directed toward influencing
governmental action, is a mere sham to cover what is actually nothing
more than an attempt to interfere directly with the business
relationships of a competitor
 Pennington
o Noerr shields from the Sherman Act a concerted effort to influence
public officials regardless of intent or purpose
 California Motor Transport
o Scope of exception expanded to actions designed “to harass and deter
respondents in their use of administrative and judicial proceedings”
 PREI v. Columbia Pictures
o Definition of sham exception to the doctrine of antitrust immunity; no
sham unless the litigation is “objectively baseless”
o Columbia picture sued for copyright infringement, PREI
counterclaimed that the copyright action was a mere sham
o Question: can litigation e sham merely b/c a subjective expectation of
success does not motivate the litigant
o Answer: an objectively reasonable effort to litigate cannot be sham
regardless of subjective intent
o Sham is private action that is not genuinely aimed at procuring
favorable government action as opposed to a valid effort to influence
government action
o Government action cannot be characterized as a sham
o Anticompetitive intent or purse alone cannot transform other
legitimate activity into a sham
o Neither Noerr immunity nor its sham exception turns on subjective
intent alone
o Two-part definition of sham litigation
 Objectively baseless: no reasonable litigant could realistically
expect success on the merits
 Attempt to interfere directly with the business relationships of
a competitor
o Plaintiff must disprove the suit’s legal viability before the court will
hear evidence of its economic viability
o Plaintiff still must prove a substantive antitrust violation; sham
merely deprives D of immunity
o The existence of a probable cause to institute legal proceedings
precludes a finding that an antitrust D has engaged in sham litigation
 Parker v. Brown
o Plaintiff challenged proration marketing program under a California
Statute
o Nothing in the language of the Sherman Act or in its history suggest
that its purpose was to restrain a state or its officers or agents from
activities directed by its legislature
o The Act is applicable to persons including corporations; does not
apply to anticompetitive restraints imposed by the States (sovereigns)
as an act of government
 Columbia v. Omni Outdoor Advertising
o Columbia controlled 95% of relevant market and have strong
relationship with the city’s political leaders
o Omni challenged Columbia’s seeking the enactment of zoning
ordinances that would restrict billboard construction; anticompetitive
conspiracy between Columbia and the city stripped both parties of
any immunity
o It could be argued that the city’s ordinance is not “authorized” b/c it is
not substantively and procedural correct under State law
o But court is concerned about undermining federalism and concludes
no more than its unquestioned zoning power is needed to establish
the city’s authority to regulate billboards, for parker purposes
o Parker defense also requires clear articulation of a state policy to
authorize anticompetitive conduct in connection with regulation
o Explicit permits by delegating statute is not required; enough if
suppression of competition is the foreseeable result of what the
statute authorizes
o Ordinance here necessarily protects existing billboards against some
competition from newcomers
o Court clarified that here is no conspiracy exception to Parker
immunity (such an exception would virtually swallow up the parker
rule)
o Court rejected Omni’s suggestion that conspiracy be narrowed to not
in public interest; judgment in government regulation should not be
shifted from officials to judges and juries
o Other laws to combat political corruption; insofar as the Sherman Act
sets up a code of ethics at all, it is a code that condemns trade
restraints, not political activity
o Any action that qualifies as state action is ipso facto exempt from the
operation of the antitrust law; but states may not exempt private
action
o Noerr doctrine corollary to Parker: antitrust laws do not regulate the
conduct of private parties in seeking anticompetitive action from the
government
o Antitrust laws are tailored for the business world, not appropriate for
application in the political arena
o The sham exception to Noerr encompasses situations in which
persons use the governmental process, as opposed to outcome of that
process, as an anticompetitive weapon
o Columbia did not set out to “directly” disrupt Omni’s business
relationship; it sought to do so not through the very process of
lobbying but rather through the ultimate product of the lobbying
o A conspiracy exception to Noerr is rejected for the same reason as in
the rejection of a conspiracy exception to Parker (Parker and Noerr
are complementary expressions of the principle that antitrust law
regulates business, not politics)
o Both the city and Columbia are entitled to immunity under Parker and
Noerr
13. Proving collusion
 Interstate Circuit
o DC found defendant distributors’ agreement and conspiracy among
themselves and with defendant exhibitors (Interstate) to impose
restrictions on subsequent-run exhibitors constituted combination
and conspiracy in restraint of interstate commerce in violation of
Sherman Act
o SC: to establish agreement, government is compelled to rely on
inferences drawn from the course of conduct of the conspirators
o Such agreement is not a prerequisite to an unlawful conspiracy; it is
enough that concerted action was contemplated and invited, the
distributors gave their adherence to the scheme and participated in it
o Acceptance by competitors, without previous agreement, of an
invitation to participate in a plan, the necessary consequence of
which, if carried out, is restraint of interstate commerce, is sufficient
to establish an unlawful conspiracy under the Sherman Act
 Plus factors (in re baby food)
o Additional facts or factors required to be proved as a prerequisite to
finding that parallel action amounts to a conspiracy
o Necessary conditions for the conspiracy inference
o E.g. defendants acted contrary to their economic interests; were
motivated to enter into a price fixing conspiracy
 Theatre Enterprise
o Defendant producers and distributors charged with conspiring to
restrict first run pictures to downtown theatres thus confining
plaintiff suburban theatre to subsequent runs; lower courts found for
defendants
o Plaintiff approached defendants separately; no direct evidence of
illegal agreement between distributors; no charge on downtown
exhibitors
o Policy of granting first run licenses only to noncompeting theatres;
downtown theatres offer greater opportunities
o Crucial question: whether defendants’ conduct stemmed from
independent decision or from an agreement (ie contract, combination,
or conspiracy under Section 1)
o Proof of parallel business behavior is circumstantial evidence, but SC
has never held such proof conclusively establishes agreement
o Conscious parallelism has not read conspiracy out of the Sherman Act
entirely

14. Facilitating practices

 Price coordination is difficult
o Oligopolists must agree on, achieve, and maintain the outcome
 o Likelihood of success depends on: short-term benefits from cheating,
longer-term loss from not cooperating, and detection lag
 Structural factors
o High concentration
o Barriers to entry
o Open sales
o Homogenous products
o Lumpy sales
o Excess capacity
o Static demand (rivals can detect cheating by looking at sales)
o Similarity
 Facilitating practices
o Two distinct effects: information exchange and incentive management
o Information exchange
 Eliminates uncertainty about rivals’ actions
 Shortens or eliminates detection lags by competitors
o Incentive management
 Directly altering payoffs (e.g. monetary penalty on price
discounts; contracts)
o Most-favored-nation (MFN) clause: require seller to pay a monetary
penalty if it lowers its price; high oligopoly price can be stabilized
o Meeting competition clause (MCC)/ Meet or release (MOR) clause:
insurance protection for buyer against lost opportunity if offered a
lower price; seller is protected against losing sales to rival offering
undetected discount (information exchange); facilitates entry
deterrence
 Todd v. Exxon
o Oil companies shared information on employee compensation and
used the information in setting artificially low salaries
o Case survives motion to dismiss b/c complaint alleges a plausible
product market, market structure susceptible to collusive activity,
information exchange with anticompetitive potential, and antitrust
injury
o Information exchange is an example of facilitating practice that can
help support an inference of price-fixing agreement (plus factor)
o Information exchange can itself be a violation of section 1; not illegal
per se, but can be found unlawful under ROR
 Information exchange does not always have anticompetitive
effects; can increase economic efficiency and enhance
competition
 Factors including market structure and the nature of the
information exchange are considered
o ROR analysis
 Market power
  Relevant market: plausible
 Anticompetitive effect (as indication of market power)
 Susceptibility of the market
 Susceptible markets tend to be highly concentrated
(oligopolistic), have fungible products subject to
inelastic demand
 Concentration
o Information exchange can be unlawful despite a
relatively large number of sellers (market
concentration not dispositive)
o Here 14 companies sharing 80-90% market
share is not so unconcentrated as to warrant a
dismissal where the nature of the exchange
appears anticompetitive
 Fungibility
o Ability to compare the job positions
 Inelastic demand
o How economically feasible for buyers to abstain
from purchasing
o Labor is a classic example of inelastic supply
 Nature of information exchanged
 Time frame
 Specificity
 Whether the date are public available
 Effect on competition and antitrust injury
 Blomkest
o PCS (nonprofit canadian potash producer) dumped product in the US
at low price
o PCS was privatized, and US gov negotiated a suspension agreement to
set a min price to sell in the US
o Class action charged that producers colluded to increase price based
on the theory of conscious parallelism
o Agreement is inferred from conscious parallelism only when certain
plus factors exist (plaintiff burden); court then determine whether the
evidence tends to exclude the possibility of independent action
o Plaintiffs’ plus factors
 Interfirm communications
 No logical relationship between the communications
and price increases
 Price verification communications concerned concern
completed sales, not future market prices
 To survive SJ, there must be evidence that the exchange
of information had an impact on pricing decisions
 
There is strong evidence of independent action (with
the background of PCS privatization, suspension
agreement and its price leadership in the oligopolistic
industry, it would be ridiculous for other companies to
not raise price)
 Actions against self-interest
 On inference of conspiracy can be drawn if there is an
independent business justification
 Class failed to rebut independent business justification
(increased revenues and avoided litigation)
 Expert testimony
o SJ affirmed

15. Vertical restraints

 Continental TV v. Sylvania
o Sylvania (TV manufacturer) limits the member of retailer franchises
for any given area and requires franchisee to sell only from the
franchised locations
o Continental (retailer) filed section 1 claim alleging the franchise
agreement prohibited the sale of Sylvania products other than from
specified locations
o DC gave jury instruction under per se rule; COA reversed: ROR
o SC in Schwinn
 Prohibition of restrictions on retailer’s freedom as to where
and to whom it will resell the products
 Per se rule illegality of vertical restrictions: unreasonable for a
manufacturer to seek to restrict areas or persons with whom
an article may be traded after the manufacturer has parted
with dominion over it
 But ROR governs when the manufacturer retains title,
dominion, and risk and the position and function of the dealer
are indistinguishable from those of an agent or salesman of the
manufacturer
o Court does not distinguish this case from Schwinn in intent and
competitive impact
o Sylvania sought to reduce but not to eliminate competition among its
respective retailers through the franchise system; within the scope of
Schwinn
o The impact of vertical restrictions is complex: simultaneous reduction
of intrabrand competition and stimulation of interbrand competition
o Schwinn court did not justify the distinction between nonsale and sale
transactions; unrelated to economic impact
o Vertical restrictions promote interbrand competition by enhancing
efficiencies (eg eliminating free riding)
 o The Schwinn distinction between sale and nonsale transactions is not
sufficient to justify the application of per se/ROR
o Per se rule in Schwinn overruled; ROR on vertical restrictions
 Business Electronic Corp. v. Sharp
o Issue: line between per se rule and ROR
o Sharp terminated price cutter retailer Business Electronic upon
request by competitor in the same region (concern of low price and
free riding)
o SC: per se rule should be narrow in the context of vertical restraints;
emphasis on distinguishing intrabrand and interbrand competition
(Sylvania), antitrust law should be concerned with the latter;
distinction between vertical nonprice and vertical price restraints
(vertical price restraints facilitate cartelizing)
o Presumption of ROR; departure from that standard must be justified
by demonstrable economic effect (e.g. facilitation of cartelizing) rather
than formalistic distinctions
o Interbrand competition is the primary concern of the antitrust laws
o Vertical price restraints or restraints that affect price should not be
the standard for per se rule
o A vertical restraint is not illegal per se unless it includes some
agreement on price or price levels

16. Resale price maintenance

 Leegin Creative Leather Products, Inc. v. PSKS, Inc.
o Facts: Leegin sells Brighton belts through small retailers (better
service); policy by which refused to sell to retailers who discounted
goods below suggested prices; Kay’s discounted; Leegin stopped
selling to them
o Issue: Whether the Miles per se rule against resale price fixing should
be overruled
o Holding (Kennedy): Yes, Miles overruled; these cases under RoR
 RoR is norm; per se used where courts have considerable
experience in restraint
 Procompetitive effects of resale price maintenance
 (1) Free Riding: Reduces intrabrand competition, which
incentivizes investing in serves/promotions, which
stimulates interbrand competition
 (2) More Consumer Options: low-price, low-service;
high-price, high-service
 (3) Facilitating market entry for new firms: Restrictions
can be used to induce aggressive retailers to make
investment of capital/labor
 (4) Encourage services that wouldn’t be available
absent freeriding: offering retailer guaranteed margin,
threatening termination, induces better services
 Anticompetitive effects of retail price maintenance
 (1) Facilitate manufacturer cartel: can assist cartel in
identifying price-cutting manufacturers who benefit
from the lower prices they offer
 (2) Facilitate retail cartels: Retailers could collude to fix
prices, then get manufacturer to aid arrangement with
retail price maintenance
 (3) Abuse by powerful manufacturer or retailer:
o Dominant retailer could request maintenance to
forestall innovation that decreases cost
o Manufacturer may use it to give retailers
incentive not to sell to smaller rivals or new
entrants
 Should Per Se Apply if this were an original matter? NO
 Costs of false positives > Administrative convenience of
per se rule
 Resale price maintenance may raise prices, but other
RoR restraints do too
 *Interests of manufacturers and consumers are aligned
 Should Per Se Apply Given Stare Decisis? NO
 Stare decisis not as significant, since common-law
statute
 Miles decided when court had little antitrust
experience; focused on outdated views of restraints on
alienation
 Court moved away from per se for vertical (undermined
doctrinal underpinnings):
o Monsanto: for agreement on prices, must tend to
exclude independent action
o Business Electronics: per se rule applies only to
specific agreements on price levels (not
terminating price-cutting distributor)
o Khan: vertical max price-fixing agreements no
longer per se
 Inefficient to force manufacturer to take these lawful
loophole measures:
o (1) Exercising Colgate right to refuse to deal,
even with stringent Monsanto and BE standards,
can be wasteful
o (2) Could incentivize integrating downstream,
when would otherwise be the less efficient
alternative
 Factors relevant to future RoR inquiry:
 (1) Uniformity of practice among retailers
 o If only some impose retail price maintenance,
then natural, and market will sort it out; if
everyone does it, more like cartel
 (2) Who is source for retail price maintenance?
o If manufacturer, less suspicious; if retailer, more
suspicious
o *Retailer cartel story more worrisome than
manufacturer cartel story
 (3) Does manufacturer or retailers have market power?
o If they are dominant, more likely to be colluding
 (4) Real evidence of procompetitive effects?
o Must really be a credible free-riding story
