Author: Jarod Bona
Do you feel paranoid? Maybe everyone really is conspiring against you? If they are competitors with each other—that is, if they have a horizontal relationship—they may even 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 to compete. 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. This antitrust claim fits into Section 1 of the Sherman Act, which requires a meeting of the minds, i.e an agreement or conspiracy.
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.
We receive a lot of questions about potential group boycott actions. This is probably the most frustrating type of antitrust conduct to experience as a victim. Companies often feel blocked from competing in their market. They might be the victim of marketplace bullying.
You can also read our Bona Law article on five questions you should ask about possible group boycotts.
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 pain among many. Typically either the government antitrust authorities or plaintiff class-action attorneys have the biggest incentive to pursue these claims.
Perpetrators of group-boycott activity, by contrast, usually direct their action 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 victim is often a company that seeks to disrupt the market, creating a threat to the established players. This is common. Of course, excluding or limiting competitors from a market may also create diffused harm among customers or sellers for those excluded competitors.
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 and market share.
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 actually exercise governmental 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.
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 we, at least in the past, have watched the Federal Trade Commission take a pro-active role against such anticompetitive thuggery.
Group Boycotts and ESG
An increasingly prominent example of a group boycott that you should watch for are companies that coordinate their ESG policies such that they exclude competitors that decline to accept these rigid restrictions. You can see how this could develop: A group of companies in an industry decide that they want to win some PR points by announcing ESG policies, but quickly realize that this decision increases their own costs such that they can’t offer products or services that are of competitive quality and price with those in their industry that focus on the consumer. So they coordinate together and try to stop suppliers from dealing with this consumer-friendly company, or engage in other collective tactics to exclude this lower-priced competition. There is a good chance that these actions create antitrust liability for the coordinating ESG companies. And as the FTC recently reiterated, ESG does not create antitrust immunity.
When Are Group Boycotts Per Se Antitrust Violations?
Per se antitrust claims are much easier to prove than rule of reason claims because the plaintiff need not demonstrate every element that is typically required of an antitrust claimant—like market power, for example.
So a major issue in some cases is whether the Court will analyze the case under the per se or rule of reason standard. Increasingly, however, courts are using a middle standard, often called a quick look, which is sort of like a truncated rule-of-reason analysis. But this isn’t the blog post for that discussion.
The answer to the question whether a group boycott is a per se antitrust violation has meandered through a number of US Supreme Court cases, which you can read at your leisure:
- Fashion Originators’ Guild of American v. Federal Trade Commission (1941);
- Klors, Inc. v. Broadway-Hale Stores, Inc. (1959);
- United States v. General Motors Corp. (1966);
- Northwest Wholesale Stationers, Inc. v. Pacific Stationary and Printing Company (1985);
- FTC v. Superior Court Trial Lawyers Association (1990); and
- NYNEX Corp. v. Discon, Inc. (1998).
I will just give you the bottom line: As the US Supreme Court case law stands now, if you want the per se standard for your group-boycott claim, you need to show a horizontal element to the conspiracy. That is, the group-boycott activity must involve two or more competitors. They do not, however, necessarily have to be your competitors; the conduct may, for example, involve an agreement among two or more of your suppliers and your competitor.
The strongest group boycott claims thus involve agreements among competitors, at least, to engage in the exclusionary conduct. Sometimes the agreement will also have what is called a vertical aspect, which means that a supplier or customer of the competitors may also be part of the agreement.
Although the US Supreme Court has not resolved the issue, for per se antitrust scrutiny, some lower courts also require group-boycott plaintiffs to show that the scheme included exercise of either (shared) market power or control over an essential resource or facility.
Finally, and this is important, if defendants’ conduct is not commercially motivated activity, it is not subject to group-boycott antitrust liability. This is an established exception, with a well-developed doctrine. I won’t go into detail here, but when you read the cases, you will notice that a lot of them involve the NCAA or high school sport leagues and associations.
The antitrust doctrine of group boycotts is both interesting and important. It is still undergoing changes, and I wouldn’t be surprised to see some significant developments over the next several years. I don’t think the courts have it completely figured out yet, particularly when it comes to state-assisted bullying.