Outline

Tuesday, November 14, 2017

9:17 AM

Procedural
Per Se - ending early at SJ or at plea bargain - good for plaintiffs

Error Costs
RoR can solve one type of error cost by getting more information

Market Power
Market Power is the ability to hold price significantly above competitive level for a non-transitory
period of time
o Market share is just a proxy for market power, if there are barriers to entry
Geography
Product
o Are there substitutes
Supply Side - is there product that could be sold that is not, or are there alternatives
Demand Side - easy alternatives - Topco did not see them as interchangeable
Presence of other people in the market - CDA only 75% in CDA
Barriers to Entry
o Network Effect - Derivative of Switching Cost - Microsoft
There is additional value from having more users use the same platform - tending to
converge to one provider with secure market place
People want platform with lots of applications, developers want to develop
applications for a lot of users

Rule of Reason
Balancing AntiC with ProC and maybe least restrictive means
Three P's - What does this show - AntiC effects
o Price Power Purpose - Don't need to show all three (hard to show Causal connection
between restraint and elevation in price)
Question of degree and persuasiveness
Purpose
Naked v. Ancillary - ancillary purpose because there is no market Power - Topc

Tools - Reoccurring Ideas

Information/Label can indicate efficient price and expand output - ProC
o CBT - Brandeis argument about price being set for after market trading can increase output
by telling people the right price. People know there is a Stamp of approval.
o California Dental - Certification can say this is a good dentist
Saves consumer time
Lemons Problem
o Solved through info/labels
o Amount you pay for a product is discounted by the probability you get a bad product
because of a distorted market. Eventually only bad products will be in the market
 Interbrand and Intrabrand competition
o Closely related to Territorial Allocation and Promotional efforts
o Granting some monopoly to a brand like topco is beneficial because it creates an incentive
to promote the competition by disseminating information even though there is less
intrabrand comp
Past v Future Information
o Past info is ok its like SEC
o Future info means it is more like price fixing
Individualized v. Anonymous Info
o Indiv is an enforcement mech
o Anon/average price just reveals info
Public Reporting - Indicates AntiC
o Enforcement mechanism to maintain a cartel - SV
o Indirect Pricing Scheme - Certain spot purchases are publicly reported which serve as the
price of product for contract. Overpaying for this product is a way for indirect price fixing. -
SV
o Who is the info available to
Sellers only - antiC American Column
Standardization of Products -
o Turning hetero to homo - could go either way (collusion or parallel) - American Column
A way to enforce
Basepoint Pricing
o Making transportation costs all based on one location even if not all sold from there
Reducing Transaction Cost can increase output
o BMI
Market could not survive without price fixing - ProC
o BMI exception to get you out of Per SE
Least Restrictive Means
Price Discrimination and Windowing
o ICC
o This further could be a way to promote and disseminate info by giving them a monopoly -
response could just pay them to do this
o Charging different rates based on location
Terminal Railroad
Are the interests between the parties fully aligned - Defense? Possible anti C effect
o Price fixing while windowing may benefit distributor but not the studio
Identical vertical contracts indicates hub and spoke
o Assurances that others will participate - apple case
o Small numbers
o Communications
o Most favored nations clause - a way to enforce the cartel internally and from outsiders
Induces publishers to withhold from Amazon content

Types of Violation - Agreement- combination, conspiracy etc.

Tacit Collusion - Arguing that an agreement is present - ICC
o 1 - but for knowledge that competitors are doing it (collusion), individuals would not do this
because it is against their interest.
 o Plus factors indicating an agreement exists
2 - Enforcement Mechanism
3 - Easy to Monitor
4 - b/c small number of participants
5 - Products are very similar
Tacit Collusion - Hub and Spoke
o Do the separate agreements represent a single agreement
When a vertically distinct entity enforces price fixing through contracts which it could
not otherwise enter
Tacit Collusion - Information Exchange

Anti-C Practices
CBT
TOPCO
NCAA
BMI
CDA
o Code of ethics limiting advertising - limits competition by not competing on price/quality
o Expulsion

Cartel
Must show enforcement mechanism

Price Fixing
SV is the approach - Per Se Illegal
o Footnote 59 - need not market power, purpose, reasonableness
Formally under Topco is still good law, but not enforced this way
Output fixing is illegal
BMI - quick look ror
Twinkling of an eye rule of reason NCAA footnote 39

Flow Chart
Is it a single Entity?
o 1 - Is each party a separate decision making entity
o 2 - Does each party have a separate economic interest
In ICC - the parties have distinct interests

Collusion/ Agreement is present

But for question
And Plus factors indicate presence of an agreement, combination conspiracy
o 1 - but for knowledge that competitors are doing it (collusion), individuals would not do this
because it is against their interest.
o Plus factors
2 - Enforcement Mechanism
3 - Easy to Monitor
4 - b/c small number of participants
 5 - Products are very similar
Info Exchange
Despite SV, we can see info exchange are not per se, but will always be subject to some form of
Rule of Reason

CRD
Traits
o Multiple people in group
o Denying access to nonmembers
o Foreclosure Theory
Can't get access to something - input or customer
1 - Essential facility
2 - Market power
Per Se if
o Essential Facility and MP otherwise RoR
CRD and Discount Retailers - brand image, promotional efforts and free riding -klors

Restrict distribution for brand

Unani consent indicates crd - or Veto right

This is a problem under CRD
Exclusivity can be ok - AP
But unanimous approval can be bad

Question is an agreement present - are the plus factors relevant for all cases to determine if an
agreement is present or just tacit collusion cases?
Some cases evaluating under Per Se Just run it as whether the agreement

Is the adjudicative standard (Per Se or RoR) more an approach we evaluate potential violations under, or
is more of an conclusion of how a violation will be treated.

Intro
Naked - Per Se And Ancillary get RoR- Addyson Pipe
SV - Per Se
o BMI - Presumption of RoR, not per se
o CDA - Sliding Scale to figure out which will apply
What is an agreement
o Single entity - immunity
o Joint venture - tough case
o American Needle - is there an agreement
Remedies
Microsoft - Heightened evidentiary standard DOJ abandons pursuit of structural remedies (break
up)
 o If you want this - you need to win on per se. Very tough to break up the largest company on
fact specific close cases

Standing to Sue
Indirect Purchaser - Illinois Brick
o Does not limit government
o Only Direct Purchasers may sue
o When Indirect Purchasers can sue
1 - Cost Plus contract between mfr and direct purchaser (the middleman).
2 - Vertical conspiracy between mfr and the direct purchaser (middleman) to fix the
price paid by the indirect purchaser (consumer)
3 - Costumers of the direct purchaser own or control it; or conspiring mfrs own or
control the middleman
If this did not exist any cartel could form subsidiaries and be blocked by Illinois
brick
Catchall - Other Circuits - Rejected by 9th
Whenever the middleman has a rational exception not to sue the exception
should not apply
State Action Doctrine
o What is insufficient - NC Dentists
Part time employees, State name
Authority to enforce and enjoin
Enacted by state legislature
Rules reviewed by state actor
Weary of entity "captured" by market to be regulated
o Non State Actor gets state action immunity if (Midcal):
The restraint is clearly articulated and affirmatively expressed as state policy and
The policy is actively supervised by the state
Foreign Actor
o Section 1 - 7 of this title shall not apply to conduct involving trade or commerce (other than
import trade or import commerce) with foreign nations unless
o 1 - Such conduct has a direct substantial and reasonably foreseeable effect
A - On trade or commerce which is not trade or commerce with foreign nations,
or on import trade or import commerce with foreign nations or
B - On export trade or export commerce with foreign nations, of a person
engaged in such trade or commerce in the United states AND
o 2 - Such effect gives rise to a claim under the provisions of section 1-7 of this title,
other than this section
(must be the type of activity that but for, it is a good antitrust claim)

Indirect Purchaser
In Re ATM - who is paying the fee is there an incentive to raise the price?

Section 1 cases
Tacit Collusion including (hub and spoke)
 o Can be Per Se - Apple Case
o But Most time its RoR
o Is there an agreement
ICC - But for and Plus Factors (distinguishing from parallel and bad conduction) - cartel
Info sharing (Tacit Collusion)
o Todd
Ror applied
Factors - (trying to figure out if its ProC sharing or disguised Price Controls)
Past v future
Open v closed
Random v individualized info
Group Boycott
o Per se applies if MP and Cutting off Essential Facility otherwise RoR - NW Stationers
In most cases some type of RoR

Section 2 Cases
RoR
Retail Price Maintenance not a way to extract monopoly profit

RPM
Presumptively RoR
Single Monopoly Profit
People adjust consumption based on retail price
Can promote interbrand and intraband comp
if you see RPM, either the dealer has leverage over the mfr, the mfr is colluding with the other mfr
(and sharing profits with the dealer) or its actually good (promoting good will, preserves brand
value)
Switching Costs in general - RPM and Tying
o Distinguishing between new and old customers
Business are disciplined so long as they are looking to get new customers - kodak
o Are customers aware of the high price they pay for some goods - are they adjusting
consumption for price of one thing
Competitors have an incentive to inform them
Consumers have incentive to inform themselves for expensive products
Leegin Vertical Price Restraints get RoR
o When its bad
Coordination amongst retailers with MP, telling mfr or distributor to agree to RPM to
protect against discounters
Retailer with MP enforcing coordination amongst publishers
9/25 summary of section 1
10/30 For a good summary

Exclusive Dealing
Is it a service? Then it must be brought under section 1 or 2
Section 1 - RoR Slyvania
Section 2 - RoR
Section 3 - Quasi RoR
o Clayton act does not do full blown RoR
 o Cannot be a product at issue
Analysis
o 1 - Market Power
o 2 - Foreclosure Effect Factors (Trying to figure out if competitors are foreclosed):
Length of contract
Termination Penalties - Switching Costs
(implicit or explicit)
Alternate Channels of Distribution
(similarly efficient channel) - Dentsply and Microsoft
Bargaining power of each party
o 3 - Balance Against Economic Efficiencies of the Exclusive Dealing
Promotional efforts
Knowledge they will have a product - protecting against pricing volatility
Recoupment of fixed costs - ex: might not want to develop a pipeline
o 4 - (sometimes) - least restrictive means
Section 2 - monopolization - 3 elements:
o 1 - Market power
o 2 - Illegitimate or exclusionary practices to maintain or acquire power
Are there practices based on competition on the merits?
o 3 - No sufficiently redeeming legit business justification
Themes
o Don't need actual contract to enforce it - dentsply
o Switching Costs - Dentsply
A cost for consumers or Competitors
o May not be comp on merits
Just because there are alternatives (which are not as cost effective) - dentsply
When competitors offer only 1 product but you offer many - dentsply
If its the best practice - you don't need exclusionary practices
o Declining Cost Termination fee

Tying
o Do you need to justify the reason for the tie
Different Standards upon the section
Holding International Salt :
o Tying is subject to Per Se Rule of Illegality if tying forecloses competitors from a substantial
portion of the tied product market
Jefferson Parish - Tying is Per Se Illegal If:
o 1 - There is Market Power
o 2 - The tied products are actually separate
People want anthes with surgery
Even if billed separately
Do competitors only sell products separately?
o 3 - The defendant can substantially affect the tied market
o 4 - Defense to tying: Unless its a Technologically Justified Tie
o If these fail then RoR

Market Power in Tying market, trying to monopolize tied

 o Independent ink - A patent alone is not enough to infer market Power. Most patents are
commercially valueless can be designed around
Single Monopoly Profit
o Want to maximize profit not price - not price (they want a lower cost of the tied product)
o Consumers take into account the price of the tying product and the tied product when
purchasing a good:
Makes sense for an expensive product - not much for something thats cheap
As a result they adjust their consumption - paying more for tied product means they
will consume less of tying product
Themes
o Lease only contract - to control for agency problems - even though incurring repair costs -
Intl Salt
o Metering - can be a negative, determining who uses a lot and who uses a little in order to
extract profit from tied product - but in Intl Salt, the tied salt was at market rate
o Recoupment of Fixed Costs through Economies of Scale - Intl Salt - assuring they have a
market for their salt
o Goodwill - incurring costs to assure that service of product is good Kodak and Intl Salt
o Competition in Tying market will discipline in tied market - Kodak
For new and existing customers
Foreclosing access to parts does not create incremental harm to consumers - Kodak
o When it can be bad
Tying up so much of the market that others are forced out of the market
Monopoly profit is not extracted from other people buying both products but
from the people just buying the tied product.
Forcing competitors to enter into the market at two points - raising the cost of
entry
o Tech Efficiencies required

Current Case law on Tying

Section 1 and Clayton 3
o Section 1 - Using MP in tying market to establish MP in tied market
o Jefferson Parish whether section 1 or section 3
Per Se Illegal if:
MP in tying product
Economically distinguishable products and
Substantially effects tied market
Single monopoly profit theory makes this tough kodak
Posner - preventing somebody just as efficient from entering the market
through entry barriers - contract
Raising Rival's Cost - Creating Foreclosure Effect/Entry Barriers - Microsoft
Forcing competitors to enter market at multiple points
Practical Matter, Courts Follow something like O'Connor
In most cases these conditions aren't met so they do something like RoR

Monopolization
Single Firm - Need Market Power
Section 2
o No per se rule, always RoR
 o You have MP you are maintain or acquire it illegitimately
Defendant Must Prove
o Market share is due to Competition on te
Patent, better product, lower cost, better brand, inventive skill, better distribution
process
Natural monopoly is ok - only way to survive is to be a big product
May be sole survivor
o Market Share is not Due to Illegitimate Means
Posner - preventing somebody just as efficient from entering the market
What is the legit reason for practice? - if none illegit - United Shoe
Predatory Pricing
Duty to Deal
o If Court accepting of Duty to Deal through Essential Facility - illegal to monopolize by
denying a competitor access to an essential facility. 4 elements:
1 - Monopolist controls the facility
2 - Facility cannot be practicably duplicated by competitors
Can't build more mountains
3 - Facility is being denied to competitors
They aren't accepting vouchers
4 - Facility can be practicably shared with competitors
It has been accepted in the past
o Limited Further - to Facts of Aspen - and where Prior Profitable Agreement existed in past
Predatory Pricing - Brooke and Williamson
o Period 1 must establish loss, and the product is sold below cost - can use either one
Below Average Variable Cost (Defendant Friendly) or Below Average Total Cost
(Plaintiff Friendly)
o Period 2 recoupment period
Must have market power
Need to know entry barriers
Themes
o Declining Return charge and repeat customer discount makes big switching costs
o Minimum usage fee - obligated to use this machine b/c a consumer would not want to pay
for 2 products if you want to switch
o Every consumer and competitor has this long term lease - means it is an opportunity to
recoup and people like it - relationship with customers
o Not a good argument
Only through monopoly can enough funding for r/d be gathered. United Shoe
o Raising Rival Cost Requiring a competitor to enter the market at two points
o Incurring a cost and you get a loss without a legit bus justification - Aspen Skiing
o Microsoft - switching cost - giving away browser for free - people will not pay the extra cost
o ProC efficiency - default browser creates standard and system as a whole to benefit
consumers - microsoft
Even when preventing users from removing IE from system

Courts Section 2 Microsoft Example

1 - P must show market power and use of exclusionary practices to secure MP. ED must not be
comp on merits
 2 - if P meets burden, d must offer ProC justification
3 - fi D means burden, p must show that Anti C effects exceed ProC effect and section 2 violation
4 - if p meets burden then court determines remedy

Horizontal Mergers
More Concerning than Vertical
Framework (same as RoR)
o 1 Define relevant market in which a significant and non-transitory price can be maintained
for at least 12 months
o 2 assess increase in market concentration as a result of the proposed merger, based on HHI
index
o 3 assess probability that the increase will yield antiC effects, taking into account ease of
entry
o 4 assess efficiency benefits of the merger (esp economies of scale), taking into account
alternative means to achieve those benefits
o 5 additional factor (favoring nonaction): whether acquired firm is failing or exiting the
market
HHI Calculation
o Square of each market share
o Weighs firms with larger market shares. That distinguish between 2 markets with similar
numbers of producers but different allocation of revenues among producers
o Low HHI below 1500 - challenge unlikely
o Moderate HHI - 1500 - 2500 - increase by more than 100 raises significant competitive
concerns
o High HHI: above 2500 - if greater than 100, raises significant competitive concerns if greater
than 200, then transaction presumed likely to enhance market power
o Example
Pre merger is 1500-2500 zone. Increases by 2 - makes no difference - challenge
unlikely
Premerger is 2170, and increase by 1250 - challenge is likely
Benefit of Mergers
o 1 - Courts ask what are the efficiencies to Market Power
o 2 - how much of those cost savings will pass onto consumers
With less competitors what are the incentives to pass them on. - Staples

Vertical Mergers
The Good and Bad of Vertical Mergers
Bad
o Foreclosure effects - raise rival costs of accessing input/customers or force competitors to
integrate forward or backward to complete the supply chain - forcing them to enter at two
points
Ex:
Exclusivity policy in dent supply
Quasi ED contracts in Microsoft
o If increased access costs disadvantage competitors or deter entry it may result in pricing
power
Good
 o Lower transaction costs
Less monitoring, contracting, etc. cheaper to do with one company
o Reduce supply risk
Integrating backwards to make sure they have the supplies they need to sell
Can create an upstream foreclosure effect
o Reduce distribution risk
Integrate forward - buying retail gas stations eliminates need to make contracts with
service stations. Assures you have a way to sell your product
But creates foreclosure risk for other retailers
o Avoid holdup
Self service can bargain for a lot more than the supplier will. Supplier will give up
everything to sell one additional unit.
Supplier has made a huge investment but supplier has not - in bargaining for
division of profits the supplier would give up much more to make some return
People don't want to be held up by supplier
o Avoid double marginalization
Ex: smart phone has thousands of patents with no equivalent tech. each holder only
licenses the tech. Each will select fee to maximize their own profits not taking into
account fees by other patent holders. Where the total license fee Samsung pays to all
will be so high that the phone will be too expensive or at some price that will not
maximize profits for samsung or its patent holders (losing more customers than you
lose)
Aka fee stacking or royalty stacking
Goes away because all patent holders will work for one company

Organize by Practice and under what section it would arise under