Articles Posted in Per Se Antitrust Violation

Toys R Us Antitrust ConspiracyLike life, sometimes antitrust conspiracies are complicated. Not everything always fits into a neat little package. An articulate soundbite or an attractive infograph isn’t necessarily enough to explain the reality of what is going on.

The paradigm example of an antitrust conspiracy is the smoke-filled room of competitors with their evil laughs deciding what prices their customers are going to pay. This is a horizontal conspiracy and is a per se violation of the antitrust laws.

Another, less dramatic, part of the real estate of antitrust law involves manufacturers, distributors, and retailers and the prices they set and the deals they make. This usually relates to vertical agreements and typically invites the more-detailed rule-of-reason analysis by courts. One example of this type of an agreement is a resale-price-maintenance agreement.

But sometimes a conspiracy will include a mixture of parties at different levels of the distribution chain. In other words, the overall agreement or conspiracy may include both horizontal (competitor) relationships and vertical relationships. In some circumstances, everyone in the conspiracy—even those that are not conspiring with any competitors—could be liable for a per se antitrust violation.

As the Ninth Circuit recently explained in In re Musical Instruments and Equipment Antitrust Violation, “One conspiracy can involve both direct competitors and actors up and down the supply chain, and hence consist of both horizontal and vertical agreements.” (1192). One such hybrid form of conspiracy (there are others) is sometimes called a “hub-and-spoke” conspiracy.

In a hub-and-spoke conspiracy, a hub (which is often a dominant retailer or purchaser) will have identical or similar agreements with several spokes, which are often manufacturers or suppliers. By itself, this is merely a series of vertical agreements, which would be subject to the rule of reason.

But when each of the manufacturers agree among each other to reach the challenged agreements with the hub (the retailer), the several sets of vertical agreements may descend into a single per se antitrust violation. To complete the hub-and-spoke analogy, the retailer is the hub, the manufacturers are the spokes and the agreement among the manufacturers is the wheel that forms around the spokes.

In many instances, the impetus of a hub-and-spoke antitrust conspiracy is a powerful retailer that wants to knock out other retail competition. In the internet age, you might see this with a strong brick-and-mortar retailer that wants to take a hit at e-commerce competitors (I receive many such calls about this scenario).

The powerful retailer knows that the several manufacturers need the volume the retailer can deliver, so it has some market power over these retailers. With market power—which translates to negotiating power—you can ask for stuff. Usually what you ask for is better pricing, terms, etc.

Continue reading →

Hospital Antitrust CasesWhat is great about practicing antitrust law is that you take deep dives into the intricacies of different markets from the shelf space in drug stores for condoms—an actual case from several years ago—to insurance brokerage pricing to processed eggs and everything in between.

There are, however, certain industries that repeat themselves in the antitrust world, which isn’t a surprise because some industries are more susceptible to antitrust issues than others. For example, the airline and pharmaceutical industries consistently face antitrust scrutiny because of the nature of their markets and the regulations surrounding them.

But the industry I’d like to discuss here is the health-care or medical industry, and more specifically, hospitals. I’ve found myself with many antitrust and non-antitrust cases involving health-care of one sort or another over the last couple years, so this area has become an interest of mine.

Lately, I have also spent more time than I will publicly admit consuming materials (mostly books, blogs, and podcasts) on health, nutrition, and fitness, which (combined with my health-care cases) has my family often reminding me that I am not a doctor after some well-meaning but often unwelcome advice.

If you follow antitrust, you will notice that there are a lot of cases about hospitals. Why is that? This might seem surprising at first glance because many hospitals are non-profits or government-owned and you probably don’t picture a hospital in your mind when you think of the term “monopolizing.”

(If you can make it through the explanation below, you can read about a recent Department of Justice antitrust action against some Michigan hospitals that apparently agreed not to compete with each other in particular ways).

First, non-profit status is not a defense to the antitrust laws. Whether you have stockholders or owners that keep residual profits or not, you have to play by the antitrust rules. Non-profit entities (and their officers) still seek power, influence and prestige. And, increasingly, state and local government entities are subject to the antitrust laws. I’ve written a lot about that on The Antitrust Attorney Blog; you can access those articles in the State-Action Immunity category.

In fact, after the Supreme Court’s decision in North Carolina State Board of Dental Examiners v. FTC, it seems like many litigants want to go after state boards of various sorts. Anyway, I’ve received many calls about this and there are a few active cases, including one in Texas that I’ve written about.

Second, the health-care industry encompasses a series of narrow product, service, and geographic markets. That is because, except in limited circumstances, most people don’t travel far for medical care. They want to go somewhere near their work or home. So geographic markets are usually regional to a metro area (with some exceptions).

Within each geographic region, there are usually a limited number of hospitals or other medical facilities for particular specialties. Thus, each geographic market, that is each region, has what may be considered an oligopoly, or a handful of competitors that all know and depend upon each other. Whereas the airline industry is effectively a worldwide oligopoly, the markets for hospitals and other medical facilities are often oligopolies within metro areas. From that perspective, it isn’t a surprise that we see many hospital antitrust cases because there are so many different metro areas with oligopolies.

Continue reading →

Antitrust Group BoycottMaybe everyone really is conspiring against you? If they are competitors—that is, they have a horizontal relationship—they may be committing a per se antitrust violation.

A group boycott occurs when two or more persons or entities conspire to restrict the ability of someone from competing. This is sometimes called a concerted refusal to deal, which unlike a standard refusal to deal requires, not surprisingly, two or more people or entities.

A group boycott can create per se antitrust liability. But the per se rule is applied to group boycotts like it is applied to tying claims, which means only sometimes. By contrast, horizontal price-fixing, market allocation, and bid-rigging claims are almost always per se antitrust violations.

I receive a lot of calls about potential group boycott actions. This is probably the most frustrating type of antitrust conduct to experience as a victim.

Many antitrust violations, like price-fixing, tend to hurt a lot of people a little bit. A price-fixing scheme may increase prices ten percent, for example. Price-fixing victims feel the pain, but it is diffused. Typically either the government or plaintiff class-action attorneys have the biggest incentive to pursue these claims.

Group boycott activity, however, is usually directed toward one or very few victims. The harm is not diffused; it is concentrated. And it is often against a competitor that is just trying to establish itself in the market. The defendants may act like bullies to try to keep that upstart competitor from gaining traction in the market. Sometimes trade associations lead the anticompetitive charge.

Group boycott activity often occurs when someone new enters a market with a different or better idea or way of doing business. The current competitors—who like things just the way they are—band together to use their joint power to keep the enterprising competitor from succeeding, i.e. stealing their customers.

Sometimes group boycott claims are further complicated when the established competitors—the bullies—use their relationships with government power to further suppress competition. Indeed, sometimes the competitors are government power.

This is what occurred in the NC Dental v. FTC case (discussed here, and here; our amicus brief is here): A group of dentists on the North Carolina State Board of Dental Examiners engaged in joint conduct, using their government power, to thwart teeth-whitening competition from non-dentists. Update: The US Supreme Court upheld the Fourth Circuit’s decision supporting the FTC in its antitrust claim against the North Carolina State Board of Dental Examiners.

This, in my opinion, is the most disgusting of antitrust violations: a group of bullies engaging government power to knock out innovation and competition. And I am very happy to see the Federal Trade Commission take a pro-active role against such anticompetitive thuggery.

Continue reading →

LIBOR Antitrust MDLThe US Supreme Court just issued its decision in an antitrust case called Ellen Gelboim v. Bank of America Corporation. This case arises out of major multi-district litigation (an MDL) centered on allegations that major banks conspired to manipulate the London InterBank Offered Rate (which you probably know as LIBOR) to lower their interest costs on financial instruments sold to investors.

For purposes of Gelboim, the intricate details of the alleged conspiracy are not relevant, but you should know that it led to over 60 actions filed in federal court against the banks.

That sounds like a lot of cases and you might infer from the large number that the defendants must have done something wrong if so many people are suing them. But that isn’t necessarily true.

What happens is that a government agency announces an investigation (or it leaks) or someone has the idea that there is price-fixing, market-allocation, bid-rigging or some related horizontal per se antitrust violation going on.

There are plaintiff law firms all over the country that specialize in bringing these types of lawsuits and when one appears, you see many more very quickly. They follow each other and an antitrust blizzard ensues. It is, in fact, an extremely competitive market among plaintiff firms. And when a big set of cases develop, the plaintiff lawyers are often fighting each other for bigger pieces of the pie more than they battle defendants’ attorneys.

Fortunately, there is a set of procedures that deal with such a situation—Section 1407. This statute created the Judicial Panel on Multidistrict Litigation (JPML), which may transfer the many related actions “involving one or more common questions of fact” to one district court for coordinated or consolidated pretrial proceedings.

Importantly, as the Supreme Court points out, this does not mean that all of the cases are transferred forever into the one district court. They are just there for pre-trial proceedings. Of course, practically speaking, they rarely leave that court as most of these cases are either dismissed or settled. If not, the statute requires that each individual action “shall be remanded by the panel at or before the conclusion” of the pretrial proceedings to the original district court.

Continue reading →

Golden Gate Bridge CaliforniaIn an earlier blog post, we discussed Leegin and the controversial issue of resale-price maintenance agreements under the federal antitrust laws. I’ve also written about these agreements here. As you might recall, in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (Kay’s Closet), the US Supreme Court reversed a nearly 100-year-old precedent and held that resale-price maintenance agreements are no longer per se illegal. They are instead subject to the rule of reason.

But what many people don’t realize is that there is another layer of antitrust laws that govern market behavior—state antitrust law. A few years ago, I co-authored an article with Jeffrey Shohet about this topic. In many instances, state antitrust law directly follows federal antitrust law, so state antitrust law doesn’t come into play. (Of course, it will matter for indirect purchaser class actions, but that’s an entirely different topic).

For many states, however, the local antitrust law deviates from federal law—sometimes in important ways. If you are doing business in such a state—and many companies do business nationally, of course—you must understand the content of state antitrust law. Two examples of states with unique antitrust laws and precedent are California, with its Cartwright Act, and New York, with its Donnelly Act.

California and the Cartwright Act

This blog post is about California and the Cartwright Act. Although my practice, particularly my antitrust practice, is national, I am located in San Diego, California and concentrate a little extra on California.

As I’ve mentioned before, the Supreme Court’s decision in Leegin to remove resale-price maintenance from the limited category of per se antitrust violations was quite controversial and created some backlash. There were attempts in Congress to overturn the ruling and many states have reaffirmed that the agreements are still per se illegal under their state antitrust laws, even though federal antitrust law shifted course.

The Supreme Court decided Leegin in 2007. It is 2015, of course. So you’d think by now we would have a good idea whether each state would follow or depart from Leegin with regard to whether to treat resale-price maintenance agreements as per se antitrust violations.

But that is not the case in California, under the Cartwright Act. Indeed, it is an open question.

Continue reading →

real estate agent antitrustI’ve often written about real estate on this blog. There are two reasons for this.

The first and most important reason is because my wife and I invest in real estate and thus talk about real estate, so it is on my mind. In fact, I have my California real-estate license. Bona Law PC also offers real-estate litigation services.

The second reason is that real-estate, in addition to its many advantages, creates many unique competition issues. Real-estate agents often engage in cut-throat competition with each other, sometimes even within the same brokerage firm. Yet, the nature of their job requires them to work together for almost every transaction.

In addition, the markets to sell real-estate are primarily local, even though national brokerage firms may dominate each individual geographic area. Within each locality, there are often a handful of large brokerage firms.

Finally, the market for real-estate services and commissions suggests some supra-competitive pricing in that most firms in a certain area will charge approximately the same commission. And the splits between the buying and selling agents are often equal as well. In the Minneapolis, Minnesota area for example, at least as of a few years ago, selling agents would often receive 3.3% and buying agents 2.7% of the purchase price. In my current market, a small village in North San Diego County, the buying and selling agents typically split the 5% commission.

Suspiciously, while technology and other competition has reduced relative prices for many professionals, commission percentages have held relatively steady for real-estate agents, despite the fact that buyers and sellers (especially buyers) can do much of their own homework online. How many of you have purchased a house without spending a lot of time online yourself looking at listings?

So does that mean that real-estate brokerage firms and agents are violating the antitrust laws all over the country? Should we coordinate a dramatic—made for the movies—event whereby federal agents knock down the doors of real-estate firms all over the country one morning, handcuffing and booking the agents that would do anything to get you in their car to show you some houses?

Probably not yet.

In November of this year, the Sixth Circuit decided a case called Hyland v. Homeservices of America, Inc. that nicely illustrates the line between antitrust violation and what is often called conscious parallelism or oligopolistic price coordination.

In Hyland, a class of people who sold residential real estate in Kentucky and used certain real-estate agents sued several real-estate brokerages as a class action under Section 1 of the Sherman Act. Plaintiffs alleged that defendants participated in a horizontal conspiracy to fix the commissions charged in Kentucky real-estate transactions at an anticompetitive rate.

Like agents in many localities, defendants each charged a typical or standard commission rate of 6%, and mostly resist any attempts to negotiate a lower rate. The buying agent’s commission is typically 3%. These numbers may look familiar to you if you bought or sold real estate recently, as real-estate services for most residential real-estate markets are similarly priced.

Continue reading →

White TeethThe trade association necessitates a delicate balancing act between anticompetitive conduct condemned by the antitrust laws and pro-competitive information-sharing and best practices that ultimately help consumers.

Trade associations should have antitrust policies and should consistently consult with an antitrust attorney. Antitrust law reserves its greatest scorn to the horizontal agreements—the deals between and among competitors. And a trade association is, by definition, an entity created to bring these competitors together.

Competition Policy International (CPI) published an Antitrust Chronicle this week about trade associations and industry information sharing and I was fortunate that they invited me to publish an article in this issue. My article is called “’But the Bridge Will Fall’ is Not a Valid Defense to an Antitrust Lawsuit.” I discuss one of my favorite Supreme Court cases of all time: National Society of Professional Engineers v. United States.

There are a couple of ways that trade associations—and, really, any group of industry competitors—harm competition and risk antitrust liability. The first and most obvious concern is that the competitors will conspire against their customers or suppliers (don’t forget that buying conspiracies may be illegal too).

For example, a group of competitors may reach agreements on price, output, geographic or product and service markets, contractual terms, etc. These are per se antitrust violations, condemned with little analysis other than whether there was, indeed, an agreement.

The other conspiratorial harm that trade associations or groups of industry competitors can inflict is on competitors from another industry or profession. In my view, this harm is underrated and under-considered. I discussed this concern in a law review article a couple years ago.

Continue reading →

Tying Agreement (Rope)Yes, in some instances, they do. Whether you arrive at the “tying-arrangement” issue from the perspective of the person tying, the person buying the tied products, or the person competing with the person tying, you should know when the antitrust laws forbid the practice.

Most vertical agreements—like loyalty discounts, bundling, exclusive dealing, etc.—require courts to delve into the pro-competitive and anti-competitive aspects of the arrangements before rendering a judgment. Tying is a little different.

Tying agreements—along with price-fixing, market allocation, bid-rigging, and certain group boycotts—are considered per se antitrust violations. That is, a court need not perform an elaborate market analysis to condemn the practice because it is inherently anticompetitive, without pro-competitive redeeming virtues. Even though tying is often placed in this category, it doesn’t quite fit there either. Again, it is a little different.

Proving market power isn’t typically required for practices considered per se antitrust violations, but it is for tying. And business justifications don’t, as a rule, save the day for per se violations either. But, in certain limited circumstances, a defendant to an antitrust action premised on tying agreements might defend its case by showing exactly why they tied the products they did.

At this stage, you might be asking, “what the heck is tying?” Do the antitrust laws prohibit certain types of knots? Do they insist that everyone buy shoes with Velcro instead of shoestrings? The antitrust laws can be paternalistic, but they don’t go that far.

A tying arrangement is where a customer may only purchase a particular item (the “tying” item) if the customer agrees to purchase a second item (the “tied” item), or at least agree not to purchase that second item from the seller’s competitors. It is sort of like bundling, but there is an element of coercion.

With bundling, a seller may offer a lower combined price to buyers that purchase two or more items, but the buyers always have the right to just purchase one of the items (and forgo the discount). With tying, by contrast, the buyer cannot just purchase the one item; if it wants the first item, it must purchase the second.

Continue reading →

Resale Price MaintenanceSome antitrust questions are easy: Is price-fixing among competitors a Sherman Act violation? Yes, of course it is.

But there is one issue that is not only a common occurrence but also engenders great controversy among antitrust attorneys and commentators: Is price-fixing between manufacturers and distributors (or retailers) an antitrust violation? This is usually called a resale-price-maintenance agreement and it really isn’t clear if it violates the antitrust laws.

For many years, resale-price maintenance—called RPM by those in the know—was on the list of the most forbidden of antitrust conduct, a per se antitrust violation. It was up there with horizontal price fixing, market allocation, bid rigging, and certain group boycotts and tying arrangements.

There was a way around a violation, known as the Colgate exception, whereby a supplier would unilaterally develop a policy that its product must be sold at a certain price or it would terminate dealers. This well-known exception was based on the idea that, in most situations, companies had no obligation to deal with any particular company and could refuse to deal with distributors if they wanted. Of course, if the supplier entered a contract with the distributor to sell the supplier’s products at certain prices, that was an entirely different story. The antitrust law brought in the cavalry in those cases.

You can read my blog post about the Colgate exception here: The Colgate Doctrine and Other Alternatives to Resale-Price-Maintenance Agreements.

In 2007, the Supreme Court dramatically changed the landscape when it decided Leegin Creative Leather Products, Inc. v. PSKS, Inc. (Kay’s Closet). The question presented to the Supreme Court in Leegin was whether to overrule an almost 100-year old precedent (Dr. Miles Medical Co.) that established the rule that resale-price maintenance was per se illegal under the Sherman Act.

Continue reading →

It dependsOLYMPUS DIGITAL CAMERA. But probably not. Outside of California, courts may enforce these non-compete agreements arising out of an employment contract. Of course, most courts, no matter what the law and state, view them skeptically. In California, however, the policy against these agreements is particularly strong.

A restrictive covenant is often part of an employment agreement that restricts the employee’s actions after leaving employment. They typically prohibit the employee from competing in particular markets for a period of time after leaving the employer, but may also keep the employee from soliciting the company’s customers or even employees after leaving.

They are, unquestionably, restraints on trade. But are they unreasonable restraints on trade? In many states that is the issue—if they are reasonable, a court will enforce them. What does reasonable mean? Again, it depends. But typically, like other restraints on trade, they must usually be narrowly tailored to serve their purpose. They should contain “reasonable” limitations as to time, geographic area, and scope of activity.

The laws, of course, vary from state to state. But as a practical matter, most judges are skeptical. Some courts will actually rewrite the agreements to make them reasonable.

The purpose of these restraints is to offer protection to an employer that must necessarily share trade secrets and sensitive customer or financial information with their employees. The concern is that this information is so sensitive and easily exploited by a competitor that the employer needs the restrictive covenant to keep an employee from leaving and benefiting from the information as a competitor. It also reduces the likelihood of free-riding on training.

Despite these benefits, California law and courts take a hard stand against certain restrictive covenants. The California Supreme Court in Edwards v. Arthur Anderson LLP explained, for example, that “judges assessing the validity of restrictive covenants should determine only whether the covenant restrains a party’s ability to compete and, if so, whether one of the statutory exceptions to Section 16600 applies.” (exceptions include the sale of goodwill or corporate stock of a business).

Continue reading →