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Author: Jarod Bona

The Coronavirus crisis has created an unusual situation for the world, but also for antitrust and competition law. People around the globe are trying to cooperate to solve and move past the crisis, but cooperation among competitors is a touchy subject under antitrust and competition laws.

Of course, cooperation between or among competitors isn’t unheard of, even during non-crisis times. Joint ventures are prevalent and often celebrated, companies will often license their technology to each other, and the existence of certain professional sport leagues, for example, depend entirely upon cooperation among competing and separately owned teams. Indeed, the Department of Justice Antitrust Division and FTC have published guidance (in 2000) on collaborations among competitors.

Human beings everywhere are working together to defeat the Coronavirus and that will require cooperation, sometimes even among and between competitors. It is unlikely that antitrust and competition law will get in the way of that. Indeed, the Antitrust Division of the Department of Justice issued a Business Review Letter confirming that certain competitors can cooperate “to expedite and increase manufacturing, sourcing, and distribution of personal-protective equipment (PPE) and coronavirus-treatment-related medication.”

At the same time, the foundations of antitrust and competition law—the “faith in the value of competition,” as articulated by the US Supreme Court in National Society of Professional Engineers—is the motor that will accelerate us toward solutions.

Private enterprise and the incentives inherent within it have created the foundations and the machinery to “science” our way out of this crisis. Over-coordination through a central planner will detract from that because we would lose the feature of massive a/b testing, or really a/b/c/d/e/etc. testing, that comes from a bottom-up, decentralized approach to creating and distributing resources.

So—at least in my opinion—antitrust and competition law should maintain their role in supporting competition during this crisis (and the FTC agrees with me). But—as is already true of antitrust and competition law—when there is a strong pro-competitive reason for cooperation among competitors, the courts and antitrust agencies can adjust to let that conduct go forward (and they have here).

And once we are past this crisis, I suspect that antitrust and competition law will become an even more popular area of discussion because of the likely greater concentration of markets resulting from government intervention.

In the meantime, here are some articles that our antitrust team has written about antitrust, competition, and the Coronovirus Crisis:

 

 

 

Also, Steven Cernak is heavily quoted in this article from MiBiz: Coronavirus price gouging spurs efforts to rein in ‘bad actor’ resellers.

Finally, we recommend that you read the blog series from our friends at Truth on the Market entitled “The Law, Economics, and Policy of the Covid-19 Pandemic.” Lots of outstanding work by very smart people.

The other part of this, of course, is the economy. With stay-at-home orders throughout the country, there is a lot less commerce happening.

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Author: Steven Cernak

On March 24, 2020, the FTC and DOJ Antitrust Division issued a joint statement regarding their approach to coordination among competitors during the current health crisis. The agencies announced a streamlining of the usual lengthy Advisory Opinion or Business Review Letter processes for potentially problematic joint efforts of competitors. The statement also confirmed that the antitrust laws had not been suspended and, for instance, price fixing would still be prosecuted.

More importantly, however, the agencies reminded businesses that many kinds of joint ventures of competitors have long been allowed, even encouraged, under the antitrust laws. That message might have been lost in the blizzard of reports and client alerts focusing on the changes to the processes to judge only the riskiest joint efforts. Especially in economic crises, businesses should consider if certain joint ventures with others in their industry, including competitors, might be good for both the businesses and their customers. As explained below, the U.S. auto industry has been using such joint ventures for decades.

Joint Ventures

The term “joint venture” can cover any collaborative activity where separate firms pool resources to advance some common objective.  When that joint activity among competitors is likely to lead to faster introduction of a new product, lower costs, or some other benefits to be passed on to customers, antitrust law will balance those benefits with any loss of competition.  Two specific types of joint ventures—research & development and production—have received particular antitrust encouragement. Below, lessons from both types are explored using examples from the auto industry.

Research & Development Joint Ventures

The FTC and DOJ have described joint R&D as “efficiency-enhancing integration of economic activity” and, generally, pro-competitive. Getting scientists and engineers from competing firms to share data, test results, and best practices on basic areas that each company can then build on to create or improve competitive products can save money and reduce time to market.

GM, Ford and then-Chrysler started doing joint R&D on battery technology and other basic building blocks of motor vehicles in 1990. In 1992, all these efforts were put under the umbrella of the United States Council for Automotive Research or USCAR.  Through USCAR and other joint efforts, these fierce competitors cooperate on technologies like advanced powertrains, manufacturing and materials, and various types of energy storage and then compete on their applications in their vehicles.

Similarly, GM and Ford shared design responsibilities for advanced 9- and 10-speed transmissions. After the cooperating on design, each company then manufactured the transmissions and competed on the vehicles that used them.

Production Joint Ventures

In 1983, GM and Toyota formed a production-only joint venture, NUMMI, to produce vehicles for each parent that were then marketed separately. In 1984, the FTC barely approved the joint venture and insisted on an Order imposing reporting requirements and limits on communication.  By 1993, the FTC had grown comfortable with NUMMI’s operation and so unanimously voted to vacate the Order as no longer necessary given changed conditions.

NUMMI’s success in navigating through antitrust concerns led to other production joint ventures in the industry including a Ford-Mazda one for vehicles, a Chrysler-Mitsubishi-Hyundai joint venture on engines, and a GM-Chrysler joint venture on manual transmissions. None of them were as controversial or received the same level of antitrust scrutiny as NUMMI.

The National Cooperative Research and Production Act

At about that same time as NUMMI’s formation, Congress was clarifying the antitrust laws to ensure that certain cooperative efforts that could benefit consumers were not inappropriately stifled by the antitrust laws. In 1984, the National Cooperative Research Act confirmed that most R&D joint ventures would be judged under the rule of reason. To further encourage such pro-competitive cooperation, the law also allowed the parties to file a very short notice describing the joint venture with the FTC and DOJ. Once such a notice is published in the Federal Register, any antitrust liability for the joint venture and its parents is limited to actual, not treble, damages and attorney fees. In 1993, the law was expanded to cover certain joint production ventures and standard development organizations and retitled the National Cooperative Research and Production Act or NCRPA.

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Authors: Aaron Gott and Jarod Bona

The United States is in lockdown to “flatten the curve” of COVID-19 cases because our hospital system has even less capacity to handle a surge of cases than Italy—where overload has led physicians to have to make tough decisions about which patients deserve treatment priority. New York, the U.S. epicenter of the coronavirus, is expected to reach capacity in a matter of days and some hospitals have already exceeded their intensive-care capacity.

Hundreds of thousands of people may die directly as a result of inadequate hospital capacity in the United States, which is at its lowest in decades. In fact, the U.S. had nearly 8 hospital beds per 1,000 people in 1970, a number that has steadily declined to 2.9 per 1000 people today. Our elected officials have issued orders and recommendations that have our economy screeching to a halt, while Congress is considering unprecedented economic relief measures in the trillions of dollars to soften the fallout.

What put us in this position? There are many reasons. But one major culprit that is at least partially to blame for our current predicament has been nearly 50 years in the making: state certificate of public need laws (often called CON laws) that artificially limit the supply of hospital beds and medical equipment.

In 1974, Congress passed the National Health Planning Resources Development Act, which encouraged states to enact certificate-of-need laws for medical capital investment. Nearly every state enacted them. State bureaucrats, rather than the free market, would thereafter determine whether we “need” more ICU capacity, more testing labs, and more equipment like ventilators. The idea behind CON laws, proven wrong long before COVID-19, is that allowing states to control supply would reduce runaway healthcare costs and improve access to care.

Here is how a CON law generally works: it is illegal (often with criminal consequences) to build any kind of medical facility or make a capital medical equipment purchase without first obtaining a certificate allowing you to do so from the state health agency. It can cost millions of dollars and take several years to get one, if you can get one at all. In some states, your competitors have a right to object to the issuance of the certificate. In the worst states, monopolist and oligopolist hospital systems prevent competition because they have such a stranglehold on state bureaucrats and processes that most would-be competitors don’t even bother trying to get a certificate of need.

New York, by the way, is one of those states that still has a draconian certificate of need law on its books. New York requires a certificate of need for the “establishment, construction, renovation and major medical equipment acquisitions of health care facilities.” Any project that would add new hospital and/or ICU beds would require a certificate of need, and it is likely that adding new ICU-grade ventilators would also require a certificate of need because they individually cost tens of thousands of dollars.

New York has just 3,200 ICU beds but expects it will need between 18,600 and 37,200 to handle the expected wave of hospitalizations.

As antitrust and competition lawyers, certificate of need laws long have been on our minds. They are terrible, immoral policies even in the best of times.

We’re not alone in this thinking: even Congress quickly saw the error of its ways. In 1984, recognizing that the program was a failure, Congress repealed the provisions that encouraged certificate of need laws. Some states repealed their CON laws in the years since, but 35 states still have them on the books, largely because monopolist and oligopolist healthcare systems don’t like competition, and they have lobbying strangleholds over many state legislatures.

For years, the U.S. Department of Justice Antitrust Division and the Federal Trade Commission have jointly pleaded for states to repeal their anticompetitive certificate of need laws (and criticism of CONs features prominently in their comprehensive guide on improving competition in healthcare). Yet states still have them, and courts have often refused to strike them down under the U.S. Constitution despite their disastrous effect on interstate commerce.

One example is Colon Health Centers v. Hazel, a case by our friends at the Institute of Justice challenging the constitutionality of Virginia’s parochial certificate-of-need law under the dormant Commerce Clause. The plaintiffs in that case sought to open state-of-the-art clinics with MRI machines and CT scanners that would improve and cheapen certain types of cancer screenings, but they could not do so without first risking millions of dollars in a certificate of need process that was likely to be contested by existing providers, eventually resulting in denial.

We filed an amicus brief on behalf of law and economics scholars in that case to argue that states’ claims of cost-controlling benefits of CON laws are unsupported by empirical evidence. Nevertheless, the Fourth Circuit upheld the law on summary judgment, finding that the putative benefits of the law were not speculative (even in the face of evidence showing no such benefit), and that those benefits outweighed the effect the law has on interstate commerce.

That case may have been decidedly differently if it were heard today.

Now, in the face of an unprecedented pandemic and an economy that has come screeching to a halt as a result of shelter-in-place orders and social distancing recommendations—put in place primarily to “flatten the curve” and avoid the overload our inadequately supply of healthcare facilities—these laws have proven not just ineffective, but completely unconscionable.

More importantly, CON laws could now prevent us from quickly building up temporary medical infrastructure to deal with the surge of cases. We cannot rely on government alone to rise to the occasion with military resources; CON laws must get out of the way so that private enterprise can help fill in the gaps.

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Author: Jarod Bona

Antitrust law evolves in such a way that opinions from federal appellate courts are always interesting in how they affect the doctrine. But there are a select few judges who earn even closer attention when they write an antitrust opinion. Judge Diane P. Wood of the United States Court of Appeals for the Seventh Circuit is one of those judges.

In Marion Healthcare, LLC v. Becton Dickinson & Company, the Seventh Circuit, through Judge Wood’s opinion, effectively articulates the co-conspiracy exception to the Illinois Brick rule. The opinion is significant not because it marks a departure in the prevailing law, but because it explains it so well. This is an example of an opinion that courts and attorneys will likely cite in the future when this issue comes up.

So I thought it would be helpful to tell you about it.

Indirect Purchasers and Illinois Brick

You might need a little bit of background first. The indirect-purchaser rule—derived from a Supreme Court decision known as Illinois Brick—prohibits indirect-purchaser plaintiffs from using for damages under federal antitrust law. This typically arises in a class action, but the doctrine isn’t limited to class cases.

We discuss the indirect-purchaser rule in more detail in a two-part article:

  1. Indirect Purchaser Lawsuits, Illinois Brick and Apple v. Pepper (Part 1): This article describes the background and basics of the indirect-purchaser prohibition.
  2. Apple v. Pepper, Indirect Purchaser Antitrust Class Actions, and the Future of Illinois Brick (Part 2): This article describes the Supreme Court’s recent Apple v. Pepper decision and what it means for the future of Illinois Brick and the indirect-purchaser rule.

If you haven’t already read those two articles, go read them and come back. We will wait for you.

Marion Healthcare, LLC v. Becton Dickinson & Company

Healthcare markets are complicated, distorted, and a little bit confusing. The government plays a major role, which distorts markets. In addition, there are so many layers of entities that participate in every aspect of healthcare that the markets aren’t always easy to unpack. And, of course, insurance companies pay much of the costs, but the decisions on spending are a combination of patients, insurance companies, doctors, governments and healthcare facilities, among others.

In this case, plaintiffs are healthcare companies that purchased medical devises from Becton Dickson & Company. But they don’t purchase them directly from Becton. Instead, they and other purchases rely on a GPO to negotiate prices with Becton (and other manufacturers). Once the GPO and manufacturer reach an agreement, the company that needs the supplies can accept or reject it. If they accept it, they actually purchase the product through a distributor (pursuant to the GPO-negotiated contract), who then enters contracts with both the purchaser (the healthcare provider) and the supplier (in this case, Becton).

You might anticipate at this point that figuring out whether the plaintiff is a direct purchaser could get confusing.

In this case, plaintiffs alleged that Becton (the supplier), the GPOs (that negotiated the deal), and the distributors were all part of the conspiracy, engaging in a variety of anticompetitive conduct, including exclusive dealing.

The district court dismissed the case, holding that the conspiracy rule (more on that below) didn’t apply because the case didn’t involve simple vertical price-fixing.

The Seventh Circuit held that the district court erred.

The Co-Conspirator Exception to Illinois Brick

For the Court to apply Illinois Brick, it must determine which entity is the seller and which entity is the direct purchaser. As you might recall, the Supreme Court grappled with this in Apple v. Pepper.

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Author: Steven Cernak

Like many crisis situations, the Coronavirus Pandemic has created concerns and even outcry about price gouging for certain products.

If your company manufactures one of these products and your dealers and retailers have suddenly jacked up prices for them, what can you do?

Real Estate

Author: Jarod Bona

I am an antitrust attorney and CEO of a growing business, but my wife loves real estate and we have been investors over the years. You may have seen our real-estate investing website. So when antitrust and real-estate issues combine, I pay close attention. Not surprisingly, we receive a lot of calls about antitrust violations or issues in the real-estate industry. In fact, the Department of Justice and FTC have recently been studying antitrust/real-estate issues.

Antitrust law is especially relevant to real-estate professionals like brokers and salespeople because (1) competitor brokers both compete and cooperate on a daily basis; (2) prices and commission splits are often announced and well-known; (3) there is a history of tension and battles between a traditional business model and new business models (this can create antitrust litigation in any market); (4) associations and cooperative Multiple-Listing Services (MLS) play large roles in the industry; (5) US antitrust enforcers, like the Department of Justice and FTC, have seriously scrutinized the real-estate industry.

Here are five antitrust issues that real-estate professionals should understand:  Continue reading →

Robinson-Patman-Act-Antitrust-300x200

Author: Steven Cernak

When I first started practicing antitrust law in the “80’s, the Robinson-Patman Act was already an object of derision.¹ With Chicago School thinking riding high in academia and the courts and antitrust law’s focus shifting to effects on consumers, not rivals, RP cases seemed to be dwindling down to nothing. My colleagues and I were convinced that RP would soon be dead and we would never again need to deal with its tortured language² and questionable economics.

But not all my colleagues. One insisted that Robinson-Patman would never be repealed—after all, what member of Congress would vote against protecting small business?—and the private right of action would mean that the threat of litigation would always at least affect negotiations even if the federal agencies stopped bring new cases.³  Despite our constant ridicule of his outdated ways, he insisted that I learn the intricacies of the statute and cases, analyze the latest changes to the Fred Meyer Guides, and otherwise prepare to take over from him the counseling of a client that sold goods “of like grade and quality” in at least three overlapping channels.

I’m glad he did. He was right. To this day, suppliers and retailers negotiate in the shadow of RP and require counseling about its sometimes-obscure details. Every year, new private litigation gets filed and generates opinions and even jury verdicts on Robinson-Patman issues.⁴  Fewer than in the “60’s but still greater than zero.  So for all the suppliers and the retailers through whom they sell—along with their respective counselors—here is a summary of what you need to know about RP in the 21st Century:

The Basics of the Robinson-Patman Act

There are two kinds of discrimination that RP is meant to prevent and where some litigation is still filed today. Section 2(a) prohibits the sale of the same commodity at different prices to two competing buyers by one seller if the result is harm to competition. It has several elements that must be met and potential defenses, all of which narrow the scope of its application. Sections 2(d) and 2(e) are per se prohibitions of the discriminatory provision of or payment for certain promotional aids meant to assist in resale of a seller’s commodity. Again, several elements must be met to prove a violation. In addition, Robinson-Patman applies only to commodities sold for use or resale in the U.S.

Section 2(a) Price Discrimination – Elements

The elements of a Section 2(a) claim are usually summarized as prohibiting (1) a difference in price (2) in reasonably contemporaneous sales to two buyers purchasing from a single seller, (3) involving commodities, (4) of like grade and quality (5) that may injure competition.

While price discrimination is “merely a price difference”, actual net prices must be compared, after taking into account all discounts, rebates and other factors affecting price. If the lower price is “functionally available” to the plaintiff but plaintiff chooses not to accept it, courts have held that such proof “essentially negates the discrimination element” of plaintiff’s price discrimination claim.⁵

The two sales at different prices must be reasonably contemporaneous, a question of fact that depends on the seasonal quality of the sales and overall market conditions. Also, those two contemporaneous transactions must be “sales”, not something else like leases, licenses or an offer to sell. Finally, two completed sales are required and so at least one court has held that this element is not met in competitive bid situations where the commodity is only purchased if the dealer’s bid is successful.⁶

Section 2(a), as well as sections 2(d) and 2(e), apply only to “commodities”, a term left undefined by the statute. Courts have consistently interpreted the term to mean tangible products. Intangible items that have been held not to be commodities include medical services, cable television programming, and advertising, including online advertising.

The two commodities sold at different prices must be “of like grade and quality” for Section 2(a) to apply. When interpreting that statutory language, lower courts have followed the US Supreme Court’s lead in FTC v. Borden Co. and focused on physical differences in the products that affect consumer marketability. In that case, the Court found two varieties of the defendant’s evaporated milk to be “of like grade and quality” because the products were physically identical, even though the higher-price branded version had gained consumer preference over the lower-priced private label version.⁸

The final element of a Section 2(a) violation is whether “the effect of such discrimination may be substantially … to lessen competition or tend to create a monopoly …”, which has been interpreted to mean that a plaintiff need not show an actual adverse effect on competition, only a “reasonable possibility” of such an effect.

Injury to competition generally is found at the level of a rival to the discriminating seller (“primary line injury”) or of the disfavored customer (“secondary line injury”). The Supreme Court’s Brooke Group opinion clarified that a successful primary line claim must meet the same difficult test required of predatory pricing plaintiffs.⁹ As a result, secondary line cases now predominate.

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Author: Jarod Bona

Do you or your competitor have a monopoly in a particular market? If so, your conduct or their conduct might enter the territory of the Sherman Act—Section 2—called monopolization.

If you are in Europe or other jurisdictions outside of the United States, instead of monopoly, people will refer to the company with extreme market power as “dominant.”

Of course, it isn’t illegal itself to be a monopolist or dominant (and monopoly is profitable). But if you utilize your monopoly power or obtain or enhance your market power improperly, you might run afoul of US, EU, or other antitrust and competition laws.

In the United States, Section 2 of the Sherman Act makes it illegal for anyone (person or entity) to “monopolize any part of the trade or commerce among the several states, or with foreign nations.” But monopoly, by itself, is not illegal. Nor is it illegal for a monopolist to engage in competition on the merits.

As an aside, I have heard, informally, from companies that are considered “dominant” in Europe that the label of “dominant” effectively diminishes their ability to engage in typical competitive behavior because they are under such heavy scrutiny by EU Competition authorities.

If you are interested in learning more about abuse of dominance in the EU, read this article.

In the United States, monopolists have more flexibility, but they are still under significant pressure and could face lawsuits or government investigations at any time, even when they don’t intend to violate the antitrust laws. There is often a fine line between strong competition on the merits and exclusionary conduct by a monopolist.

Here are the elements of a claim for monopolization under Section 2 of the Sherman Act:

  • The possession of monopoly power in the relevant market.
  • The 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.

The Possession of Monopoly Power in the Relevant Market

To determine whether an entity has monopoly power, courts and agencies usually first define the relevant market, then analyze whether the firm has “monopoly” power within that market.

But because the purpose of that analysis is to figure out whether certain conduct or an arrangement harms competition or has the potential to do so, evidence of the actual detrimental effects on competition might obviate the need for a full market analysis. If you want to learn more about this point, read FTC v. Indiana Federation of Dentists (and subsequent case law and commentary). Now that I think about it, this should probably be a future blog post.

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Author: Jarod Bona

This is part two of an article about the Supreme Court’s 2019 decision in Apple v. Pepper, the classic antitrust cases of Illinois Brick and Hanover Shoe, indirect purchaser lawsuits, and state antitrust claims. If you haven’t read that article, you should because it provides the background for this article.

If you read it, but it has been awhile because we published it a long time ago—yes, we’ve been busy opening offices and hiring new attorneys (and attorneys and attorneys)—here is where we left off:

We described how the US Supreme Court decided to deal with the issue of both direct purchasers and indirect purchasers wanting damages for alleged antitrust violations. The Supreme Court first prohibited defendants from raising the defense that direct purchasers “passed-on” any damages to indirect purchasers (Hanover Shoe).

Later, the Supreme Court prohibited indirect purchasers from seeking damages for federal antitrust claims (Illinois Brick).

When the indirect purchasers—represented by a resourceful bunch—then ran to the states and brought actions under state antitrust law, the Supreme Court reviewed whether those claims should be preempted by federal law. They (perhaps surprisingly), let the claims continue to go forward (California v. ARC America Corp.).

So the Supreme Court left a bit of a mess in the antitrust class action world. Defendants can’t argue that direct purchasers passed on any damages, indirect purchasers can only bring injunctive actions under federal antitrust law, and indirect purchasers bring damage actions under state antitrust laws (but only some state antitrust laws because not all of them allow indirect purchaser damage claims). Antitrust class actions are certainly complex.

By the way, before we dig into the issues, just a reminder that we at Bona Law are biased in favor of antitrust class action defendants because we defend class action lawsuits. We don’t represent plaintiff classes in class actions (despite many requests to do so).

The Supreme Court and Apple v. Pepper

The US Supreme Court took up Apple v. Pepper and had to determine whether certain plaintiffs were direct or were indirect purchasers in this antitrust class action. Phrased that way, the case doesn’t look that interesting. But before the decision came out, there was some speculation about whether the Supreme Court would gut the entire indirect/direct purchaser structure. The present structure doesn’t make much sense and isn’t based upon statute anyway (like much of federal antitrust law, I suppose).

Apple v. Pepper involves an antitrust class action lawsuit by consumers purchasing Apps from Apple and App developers (indeed—the actual source of their purchase is part of the controversy). They contend that Apple “has monopolized the retail market for the sale of apps and has unlawfully used its monopolistic power to charge consumers higher-than-competitive prices.” (slip p. 1).

For those of you that recently arrived from 1985, here is how the Apple App Store works: If you own an IPhone and want to add an app to your phone, you have no choice but to purchase it through the Apple App Store, which—according to the US Supreme Court—contains about 2 million apps available for download.

You might think to yourself, “Wow, Apple has been busy; it must be a lot of work to create 2 million separate apps.” But, no, Apple isn’t doing that themselves and they aren’t even hiring out to do it. Instead, independent app developers create the apps and, through contract, the apps are sold in the app store to consumers (my use of passive voice here is purposeful—as telling you who is selling them takes a position in this case; sort of, anyway).

The app developers pay Apple a $99 membership fee and get to pick the price for their app, so long as it ends in $0.99—an old marketers trick. No matter what the sales price, Apple keeps 30 percent of the revenue for each sale.

Apple asserted that the consumers can’t sue for damages under federal antitrust law because they are indirect purchasers under Illinois Brick, and the App developers are the direct purchasers from Apple. Plaintiffs, by contrast, allege that they are—literally—direct purchasers because they purchase Apps from Apple in the Apple App Store.

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Toys R Us Antitrust Conspiracy

Author: Jarod Bona

Like 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, or how they are going to divide up the customers. 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 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 enter the agreements with the hub (the retailer), the several sets of vertical agreements may develop 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.

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.

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