Articles Posted in Antitrust Counseling

Articles about antitrust counseling and training.

Antitrust-and-Distribution-2021-300x200

Author:  Steven J. Cernak

Recently, I was researching antitrust developments in 2020 to update my Antitrust in Distribution and Franchising book.  While there were several developments last year, what struck me was the large number of potentially drastic changes to antitrust distribution law that started to play out in 2020 but are continuing into 2021.  Whether you think of them as shoes to drop or dogs yet to bark, these three potential changes are the key ones to watch in 2021.

Legislative Changes to the Antitrust Laws?

In the Fall of 2020, the U.S. House Judiciary Committee issued its Majority Report on its lengthy Investigation into Digital Markets. While the bulk of the Report focused on a few big tech companies like Google, Facebook, and Amazon, the Report also recommended that Congress override several “classic antitrust cases” that allegedly misinterpreted antitrust law applicable to all companies.  Because we have covered several of those recommendations in detail already (see below), I will just focus on potential applications to distribution here.

  1. Classic Antitrust Case: Will Congress Override Brooke Group, Matsushita, and Weyerhaeuser—and Resurrect Utah Pie?
  2. Classic Antitrust Cases: Trinko, linkLine and the House Report on Big Tech.
  3. What Happens if Congress Overrides the Classic Antitrust Platform Market Case of American Express?

First, the Report recommended overriding Trinko, a case that has made refusal to deal claims against monopolists very difficult to bring, as we detail in the next section. In Trinko, the Court practically limited such claims to those that are nearly identical to the claims in Aspen Skiing, namely that the monopolist ended a prior voluntary course of dealing with the plaintiff for no good reason. Might an override of Trinko make it easier for a plaintiff-retailer to object if a monopolist defendant-retailer kicks the plaintiff off the defendant’s platform?

Second, overriding Trinko might also alter one of its more famous holdings, that the mere possession of monopoly power and the ability to impose “high” prices does not violate Sherman Act Section 2. While most states have price gouging laws, Trinko found that charging a “high” price was not “monopolization.”  If Congress overrides Trinko—and adopts the broader “abuse of dominance” standard for Section 2 cases, as the Report also recommends — might we end up with a federal price gouging law?

Third, the Report also is concerned about monopolists charging too low a price and recommends overriding Brooke Group and its “recoupment” requirement for successful predatory pricing claims.  As we covered previously, the Supreme Court was worried about discouraging low prices for consumers by companies with large market shares and so adopted a two-part test in Brooke Group that is difficult for plaintiffs to meet.  Plaintiffs must show very low prices, usually below average variable costs, plus the probability that the defendant later will be able to raise prices to recoup its losses.  If Congress overrides the recoupment prong of Brooke Group, might we see less aggressive pricing from companies with high market shares?

Fourth, overriding the recoupment prong also might revive long-dormant primary line price discrimination claims under Robinson-Patman.  While there are few Robinson-Patman claims in total today, all of them are secondary line claims:  Manufacturer 1 sells the same commodity to Retailer A at a lower price than to Retailer B, who claims an injury to itself and competition. In Brooke Group, the Court looked at primary line discrimination claims and applied the same two-part test for predatory pricing to primary line claims:  Manufacturer 1’s lower prices to Retailer A must be below its average variable costs and Manufacturer 1 must be able to later recoup its losses before a court can find harm to competition and Manufacturer 2. Before Brooke Group, the Supreme Court’s test had been the one from the oft-criticized Utah Pie opinion that focused on the defendant’s intent to lower prices for the entire market.  If Congress overrides the recoupment prong of Brooke Group, might we see price discrimination claims from manufacturers who cannot, or do not want to, match the lower prices of their competitors?

As of this writing, Sen. Amy Klobuchar has introduced legislation that would drastically change the antitrust laws.  While most of the proposed changes relate to merger review, the proposed legislation would expand the definition of “exclusionary conduct” subject to the antitrust laws and create a presumption that such conduct by “dominant firms” is anticompetitive.  Might we see changes to the antitrust laws that drastically change how manufacturers, distributors, and retailers deal with one another?

Supreme Court Weighs in on Refusal to Deal Law?

As we have discussed several times (see here, here, and here), the courts are skeptical of claims that a monopolist’s refusal to deal with some other company, usually a competitor, is monopolization. Generally, even a monopolist has no duty to deal with its competitors. One of the few exceptions is when the facts are very close to Aspen Skiing where the Court did find such a violation of a duty to deal.

In Aspen Skiing, the Court found a refusal to deal violation because of what it saw as the defendant’s decision to terminate a “voluntary (and thus presumably profitable) course of dealing” and its “willingness to forego short-term profits to achieve an anti-competitive end.”  Many refusal to deal claims flounder because the defendant and plaintiff had never entered any sort of “course of dealing.”  But even if that prong is met, many lower court judges, such as then-Judge Gorsuch in the 10th Circuit’s Novell case, emphasize that a monopolist might “forego short-term profits” but for pro-competitive ends. Those cases, therefore, require a plaintiff to show that defendant’s conduct is “irrational but for its anticompetitive effect.”

The District Court in Viamedia, Inc. v. Comcast Corp. granted defendant’s motion to dismiss the refusal to deal claim, despite termination of a prior voluntary course of dealing, because the “potentially improved efficiency” resulting from the termination showed that the move was not “irrational but for its anticompetitive effect.”

The Seventh Circuit reversed, finding that a plaintiff only must allege that defendant’s termination was “predatory.”  As the concurring judge described it, a plaintiff need only allege some anticompetitive goal for the termination. A defendant’s assertion of other, procompetitive, rationales for the conduct was a question for summary judgment, not a motion to dismiss. If allowed to stand, the court’s ruling would make it much easier for refusal to deal plaintiffs to survive to discovery, thereby encouraging more such claims.

Comcast petitioned the Supreme Court for certiorari and in December 2020, the Court sought the views of the Solicitor General. Any response from the Solicitor General could indicate whether the Biden Administration supports any change, large or small, as to how the Court has interpreted the Sherman Act in refusal to deal cases. Might the Court weigh in on refusal to deal monopolization cases and, if so, how would such an opinion affect the chances of new antitrust legislation?

Changes Driven by Amazon? 

Of course, we could not post about distribution and antitrust and not mention Amazon.  As we discussed earlier, Amazon’s Jeff Bezos was one of several big tech executives who testified at a Fall 2020 Congressional hearing. At the time, we described some potential antitrust claims raised by that testimony and concluded that ones alleging illegal tying or monopolization had the best chance of succeeding—and that even those faced some real questions.

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Global Antitrust

Author: Jarod Bona

Just because your company isn’t based in the United States doesn’t mean it can ignore US antitrust law. In this interconnected world, there is a good chance that if you produce something, the United States is a market that matters to your company.

For that reason, I offer five points below that attorneys and business leaders for non-U.S. companies should understand about US antitrust law.

But maybe you aren’t from a foreign company? Does that mean you can click away? No. Keep reading. Most of the insights below matter to anyone within the web of US antitrust law.

This original version of this article is cross-posted in both English and French at Thibault Schrepel’s outstanding competition blog Le Concurrentialiste

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Antitrust Superhero

Author: Jarod Bona

Some lawyers focus on litigation. Other attorneys spend their time on transactions or mergers & acquisitions. Many lawyers offer some sort of legal counseling. Another group—often in Washington, DC or Brussels—spend their time close to the government, usually either administrative agencies or the legislature. And perhaps the most interesting attorneys try to keep their clients out of jail.

But your friendly antitrust attorneys—the superheroes of lawyers—do all of this. That is part of what makes practicing antitrust so fun. We are here to solve competition problems; whether they arise from transactions, disputes, or the government, we are here to help. Or perhaps you just want some basic advice. We do that too—all the time. We can even help train your employees on antitrust law as part of compliance programs.

Perhaps you are a new attorney, or a law student, and you are considering what area to practice? Try antitrust and competition law. Not only is this arena challenging and in flux—which adds to the excitement—but you also don’t pigeonhole yourself into a particular type of practice. You get to do it all—your job is to understand the essence of markets and competition and to help clients solve competition problems. And in the world of big tech, antitrust is kind of a big deal.

For those of you that aren’t antitrust attorneys, I thought it might be useful if I explained what it is that we do.

Antitrust and Business Litigation

Although much of our litigation is, in fact, antitrust litigation, much of it is not. In the business v. business litigation especially, even in cases that involve an antitrust claim, there are typically several other types of claims that are not antitrust. As an example, we explain here how we see a lot of Lanham Act False Advertising claims in our antitrust and competition practice.

Businesses compete in the marketplace, but they also compete in the courtroom, for better or worse. And when they do, their big weapon is often a federal antitrust claim (with accompanying treble damages and attorneys’ fees), but they may also be armed with other claims, including trade secret statutes, Lanham Act (both false advertising and trademark), intellectual propertytortuous interference (particularly popular in business disputes), unfair competition, unfair and deceptive trade practices, and others.

In many instances, in fact, we will receive a call from a client that thinks they may have an antitrust claim. Perhaps they read this blog post. Sometimes they do, indeed, have a potential antitrust claim. But in other instances, an antitrust claim probably won’t work, but another claim might fit, perhaps a Lanham Act claim for false advertising, or tortuous interference with contract, or some sort of state unfair trade practice claim.

Antitrust lawyers study markets and competition and are the warriors of courtroom competition between competitors. If you have a legal dispute with a competitor, you should call your friendly antitrust attorney.

Antitrust litigation itself is great fun. The cases are usually significant, document heavy, with difficult legal questions and an emphasis on economic testimony. Some of them even involve class actions or multi-district litigation.

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Author: Jarod Bona

Let’s pretend that you sell three different types of protein powder: Whey Protein, Casein Protein, and Pea Protein. You sell them each for $10 per container. But for someone—like myself—that likes to include several types of protein in their morning smoothie, you offer a special deal of $25 total for purchasing all three types of protein at once (compared to $30 at the regular price).

Congratulations, you just offered a bundled discount, the subject of this article.

Should you worry that your bundled discount breached the antitrust laws?

Let’s dig in.

You probably recognized the maneuver above because bundled discounts are pervasive in a market system. Companies like it when customers purchase several products and may thus offer a discount—a reduction in margin—when customers do so. At the same time, customers like discounts, so they may purchase a second, third, or fourth product from the same company to obtain the discount.

So what is the problem?

Well, like many pricing policies, there exist a set of conditions such that certain bundled discounts create anticompetitive harm that exceeds their procompetitive benefits.

That sounds too formal, so let’s try this: Sometimes a big company that sells lots of different products can eliminate its competitors that sell fewer types of products by manipulating the prices of their bundles.

How does that work?

If your company has market or monopoly power, your profits are at least a little extra. This is sometimes called supra-competitive pricing or monopoly profits (or monopoly rents if you prefer economist-speak). If that is your world, you worry about not just competing, but also about maintaining your extra level of profits that only exist with market or monopoly power.

Because these extra profits can be so significant, those that have market or monopoly power will burn extraordinary resources to hold onto that power. This, of course, is one of the wasteful aspects of monopoly—the resources that go into maintaining it.

You must keep feeding the monopoly beast or it may grow weak and competition will kill it.

Anyway, monopolists are brilliant at manipulating pricing to exclude their competitors. And even though bundled discounts are usually pro-competitive, a monopolist in certain situations can employ them to exclude competition and protect their market power and, thus, their outsized profits.

In what situation can a monopolist manipulate bundled discounting to maintain or extend their monopoly?

Let’s turn to an actual case that made it to the Third Circuit a couple years after I graduated from law school: LePage’s, Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003).

You’ve probably heard of 3M—Minnesota Mining and Manufacturing Company. They are based in Saint Paul, Minnesota and they are important to the community. I am from Minnesota, originally, and as a local, you hear a lot of good about this innovative company. (Bona Law also has a Minnesota office).

3M makes many products, but relevant to this Third Circuit case, they manufacturer transparent tape (under the Scotch brand)—just like their upstart competitor, LePage’s. I am speaking, of course, from the time perspective of the lawsuit. I am certain that 3M still makes transparent tape, but I haven’t kept up with LePage’s.

Anyway, unlike LePage’s, 3M also made many other products that they sold to major customers that purchased their Scotch tape. Importantly, 3M had monopoly power in the market for transparent tape.

So, according to the lawsuit, here is what 3M did: They offered discounts to major customers (retailers, etc.) conditioned on those customers purchasing products from each of six of 3M’s product lines. 3M linked the size of the rebate to the number of product lines in which the customer met purchasing targets. And the number of targets (i.e. minimum purchases in separate product lines) would determine the rebate that the customer would receive on all of its purchases. So each customer had a substantial incentive to meet targets across all product lines, to maximize the discounts/rebates.

LePage’s sold transparent tape, but not all of the other products. So they didn’t stand a chance to compete because the customers for transparent tape would purchase from 3M because by doing so, they receive substantial discounts on a bunch of other products too.

The Third Circuit explained that “[t]he principal anticompetitive effect of bundled rebates as offered by 3M is that when offered by a monopolist, they may foreclose portions of the market to a potential competitor who does not manufacture an equally diverse group of products and who therefore cannot make a comparable offer.” (155).

Of course, if there were a competitor of 3M, even separate from LePage’s, that could offer these product lines, the Court may have held that there wasn’t anticompetitive harm or antitrust injury.

If you are inclined toward numbers, you might spit out your drink and say—“Gosh darn it! Hold on a Second! How do we know whether the discount forecloses the market or is even anticompetitive without getting into the actual prices and discounts? If LePage’s is super inefficient or insists on crazy-high prices, should they really be able to utilize the machinery of the federal government to stop a benevolent monopolist from reducing their prices?”

Good instincts!

LePage’s was a controversial decision for that reason. While 3M’s bundling could have been anticompetitive, the Court didn’t go deep enough into the analysis to really understand if they were.

For some number crunching, let’s travel west to the Ninth Circuit and see what they did a few years later in Cascade Health Solutions v. PeaceHealth, 515 F.3d 973 (updated Feb. 1, 2008).

The Discount-Attribution Test for Bundled Discounts

In PeaceHealth, the Ninth Circuit overturned a jury verdict against defendant for violating Section 2 of the Sherman Act by bundling (among other conduct). The trial court erred in providing the jury with a LePage’s instruction on bundling that didn’t include specific price-cost requirements.

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Author: Steven J. Cernak

It happens all the time.  You read about a merger in your industry, maybe between two suppliers or competitors.  If the merger involves suppliers, maybe your sales rep makes a courtesy call.  You then get back to your business, preparing to adjust as necessary.  A short time later, you get a call.  Some attorney from the Federal Trade Commission or Department of Justice Antitrust Division is “conducting a non-public investigation” in your industry and you deduce that it is about the merger.  Is this normal?  What can — or should — you do next?

Relax.  That attorney most likely is just doing her job as part of the Hart-Scott-Rodino merger review process.  She is asking you to play a role in that process.  Most times, your role will be small as you act as a good corporate citizen and, perhaps, learn something about what is going on in your industry.  Still, you will want to seek assistance and take the right steps to ensure that your actions do not distract you from your daily business.

HSR Basics

To determine if a merger is good or bad for competition, the FTC and DOJ need information about the merging parties and the relevant industries.  For most large mergers, they gather that information through the Hart-Scott-Rodino (HSR) process.

HSR requires the parties to submit certain information and documents and then wait for approval before closing the transaction.  The FTC and DOJ then have 30 days to determine if they will allow the merger to proceed or seek much more detail through a “second request” for information.  A second request can take months, often over a year, to play out.  If the agency still has competition concerns at the end of the process, it can sue to block the merger.

Throughout the process, the reviewing agency will reach out to third parties — suppliers, experts, and, especially, customers — for relevant information to help the agency predict the potential effect of the proposed merger on competition.  That is where you come in.

Immediate Next Steps

After you get that call from the reviewing agency, it is a good idea to get with your friendly, neighborhood antitrust attorney.  That attorney can guide you through the process, saving you time in dealing with the agency attorney and helping you understand the specialized language of merger review.  (While covering hundreds of these matters in-house at General Motors, I often said that my role was to use my “automotive to antitrust” decoder ring for the good of both sides.)

At this point in the process, responding substantively to the agency call is voluntary; however, both the FTC and DOJ have processes that they can tap to compel cooperation if they think your information is key to their investigation.  As you will see below, cooperating with the request usually is not too burdensome and can be the better long-term decision.

If it is not obvious from the initial request, you should obtain assurances that this really is a third-party request and you are not the subject of the investigation.  Because HSR filings are confidential, the agency might not be able to explicitly confirm that they are investigating the merger; however, they can confirm if you are a subject of the investigation or merely a witness.

Then, you should do a quick check with the right people in your organization to ensure that there is no reason why the investigation might suddenly turn on you.  Did you recently try and fail to negotiate a merger with one of the companies?  Did you just finish some acrimonious negotiations where one of the companies accused you of acting anticompetitively?

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Author: Luis Blanquez

If you read our articles regularly, you know an antitrust compliance policy is a strong tool to educate directors and employees to avoid risks of anticompetitive conduct. Companies articulating such programs are in a better position to detect and report the existence of unlawful anticompetitive activities, and if necessary, be the first ones to secure corporate leniency from antitrust authorities.

Antitrust Compliance Programs in the US and the European Union

But make no mistake––not any antitrust compliance policy is sufficient to convince the Antitrust Division of the Department of Justice (DOJ) that you are a good corporate citizen. You must show the authorities how your compliance program is truly effective and meets the purpose of preventing and detecting antitrust violations.

And how do you do that? As a start, you should get familiar with the following key documents.

Make sure you read them carefully because they have significantly changed the way DOJ credits compliance programs at the charging stage; and how it evaluates them at the sentencing stage. But that’s not all. For the first time, they also provide public guidance on how DOJ analyzes compliance programs in criminal antitrust investigations.

In this article, we focus on the new DOJ Policy for incentivizing antitrust compliance, as well as the 2019 and 2020 Guidance Documents. We also provide an overview of the most recent Deferred Prosecution Agreements (DPAs) and indictments from DOJ.

If you also want to review the new changes to the Justice Manual, you can see them here. In a nutshell, the new revisions impact the evaluation of compliance programs at the charging and sentencing stage. In the past the Justice Manual stated that “credit should not be given at the charging stage for a compliance program.” That text has now been deleted. The new additions also impact DOJ processes for recommending indictments, plea agreements, and the selection of monitors.

If you discover or suspect your company is under investigation for antitrust violations, you should, of course, consider hiring your own antitrust attorney.

The 2019 DOJ New Policy for Incentivizing Antitrust Compliance

In the past, if a company did not win the race for leniency, the DOJ’s approach was to insist that it plead guilty to a criminal charge with the opportunity to be an early-in cooperator, and potentially receive a substantial penalty reduction for timely, significant, and useful cooperation. This all-or-nothing philosophy highlighted the value of winning the race for leniency. The new Policy departs from this approach.

In July 2019, the DOJ announced the new policy to incentivize antitrust compliance.

Antitrust News: The Department of Justice Wants You to Have a Strong Antitrust Compliance Policy

The new policy was presented by AAG Makan Delrahim on July 11, 2019, at the Program on Corporate Compliance and Enforcement at the New York University School of Law: Wind of Change: A New Model for Incentivizing Antitrust Compliance Programs. Delrahim explained that, unlike in the past, corporate antitrust compliance programs will now factor into prosecutors’ charging and sentencing decisions and may allow companies to qualify for deferred prosecution agreements (DPAs) or otherwise mitigate exposure, even when they are not the first to self-report criminal conduct.

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Author: Jarod Bona

We see many antitrust issues in the distribution world—and from all business perspectives: supplier, wholesale distributor, authorized retailer, and unauthorized retailer, among others. And at the retail level, we hear from both internet and brick-and-mortar stores.

The most common distribution issues that come up are resale-price-maintenance (both as an agreement and as a Colgate policy), terminated distributors/retailers, and Minimum Advertised Pricing Policies or MAP.

Today, we will talk about MAP Policies and how they relate to the antitrust laws.

What is a Minimum Advertised Price Policy (more commonly known as a MAP policy)?

A MAP policy is one in which a supplier or manufacturer limits the ability of their distributors to advertise prices below a certain level. Unlike a resale-price-maintenance agreement, a MAP policy does not stop a retailer from actually selling below any minimum price.

In a resale price maintenance policy or agreement, by contrast, the manufacturer doesn’t allow distributors to sell the products below a certain price.

As part of a “carrot” for following MAP policies, manufacturers often pair the policy with cooperative advertising funds for the retailer.

Typical targets of MAP policies are online retailers and straight price competition. These policies also do not typically restrict in-store advertising. The manufacturers that employ MAP policies often emphasize branding in their corporate strategy or have luxury products and fear that low listed prices for those products will make them seem less luxurious. But these policies exist in many different industries.

In any event, MAP policies are accelerating in the marketplace. Indeed, brick and mortar retailers that fear “showrooming,” will often pressure manufacturers to implement either vertical pricing restrictions or MAP policies. Not surprisingly, the impetus to implement and enforce MAP policies often come from established retailers.

We receive a lot of calls and emails with questions about MAP policies, from both those that want to implement them and those that are subject to them.

Do MAP Policies Violate the Antitrust Laws?

MAP policies don’t—absent further context—violate the antitrust laws by themselves. But, depending upon how a manufacturer structures and implements them, MAP policies could violate either state or federal antitrust law. So the answer is the unsatisfying maybe.

But we can add further context to better understand the level of risk for particular MAP policies.

There is some case law analyzing MAP policies, but it is limited, so if you play in this sandbox, you can’t prepare for any one approach. I had considered going through the cases here, but I think that has limited utility.  The fact is that there isn’t a strong consensus on how courts should treat MAP policies themselves. So the best tactic is to understand the core competition issues and make your risk assessments from that.

Because of the limited case law, you should consider, as we do, that there will be a greater variance in expected court decisions about MAP policies, which creates additional risk. This may particularly be the case at the state level because state judges have little experience with antitrust.

In any event, you will need an antitrust attorney to help you through this, so the best I can do here for you to is to help you spot the issues and understand if you are moving in the right direction.

If you are familiar with resale price maintenance or Colgate policies, you will notice a lot of overlap with MAP policy issues. But there are important differences.

A minimum advertised price policy is not strictly a limit on pricing. From a competitive standpoint, that helps, but not necessarily a lot. The reality is that a MAP policy can be—for practical reasons—a significant hurdle for online distributors to compete on price for the restricted product. That is, for online retailers, sometimes the MAP policy price is the effective minimum price.

Resale Price Maintenance

Before we go further, let’s review a little bit. A resale price maintenance agreement is a deal between a manufacturer and some sort of distributor (including a retailer that sells to the end user) that the distributor will not sell the product for less than a set price. Up until the US Supreme Court decided Leegin in 2007, these types of agreements were per se illegal under the federal antitrust laws.

Resale price maintenance agreements are no longer per se federal antitrust violations, but several states, including California, New York, and Maryland may consider them per se antitrust violations under state law, so most national manufacturers avoid the risk and implement a unilateral Colgate policy instead.

Under federal law, courts now usually analyze resale-price-maintenance agreements under the antitrust rule of reason.

Colgate Policies

Colgate policies are named after a 1919 Supreme Court decision that held that it is not a federal antitrust violation for a manufacturer to unilaterally announce in advance the prices at which it will allow its product to be resold, then refuse to deal with any distributors that violate that policy. You can read our article about Colgate policies here.

The bottom line with Colgate is that in most situations the federal antitrust laws do not forbid one company from unilaterally refusing to deal with another. There are, of course, exceptions, so don’t rely on this point without consulting an antitrust lawyer.

Back to MAP Policies and Antitrust

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Author: Jon Cieslak

The United States Department of Justice Antitrust Division recently announced changes to its Civil Investigative Demand (CID) forms and deposition process.  While these changes are cosmetic—the Antitrust Division acknowledges that the changes “are consistent with long-standing division policies”—they serve as a good reminder of risks that always exist when communicating with the government.

Background on Civil Investigative Demands

Golden Gate Bridge California

Author: Jarod Bona

In an earlier article, we discussed Leegin and the controversial issue of resale-price maintenance agreements under the federal antitrust laws. We’ve also written about these agreements here. And these issues often come up when discussing Minimum Advertised Price (MAP) Policies, which you can read about 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 consider is that there is another layer of antitrust laws that govern market behavior—state antitrust law. Many years ago during my DLA Piper days, 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 and application 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 our antitrust practice, is national, I am located in San Diego, California and concentrate a little extra on California. Bona Law, of course, also has offices in New York office, Minneapolis, and Detroit.

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 2020, 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.

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Author: Steven J. Cernak

As I prepare again to teach an antitrust survey course, part of the preparation involves rereading some of the classic foundational U.S. antitrust cases.  Many of them make some sweeping statements about how the Sherman Act embodies a national policy to order our entire economy through competition.  “The heart of our national economic policy long has been faith in the value of competition” comes from Standard Oil in 1911.  The Court went even further in 1958 in Northern Pacific Railway:

The Sherman Act … rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.

Twenty years later in Professional Engineers, the Court described an argument that asserted competition might be unethical as “nothing less than a frontal assault on the basic policy of the Sherman Act.”

Were such broad statements true then?  Do they remain true now?  Is the Sherman Act “the Magna Carta of free enterprise” as the Court asserted in Topco in 1972?  After all, we have had exemptions, both legislative and court-made, for decades.  But even beyond those official exceptions, there are plenty more examples of our frequent desire for experts, not the competitive process, to supersede market outcomes.

One personal anecdote helps illustrate the point.  I have been involved in the ABA Antitrust Law Section for decades.  The ABA, like any good trade association of competitors, has its own counsel to ensure that it does not run afoul of the antitrust laws.  Years ago, however, when my day job was in-house antitrust lawyer at General Motors and my ABA assignment involved antitrust aspects of trade associations, I was asked by the Section to lead a compliance presentation for another ABA group consisting of several law school admission deans.

Our presentation started with the antitrust basics for trade associations:  The antitrust laws want to preserve competition among competitors, Sherman Act Section 1 is suspicious of agreements among competitors, trade associations are gatherings of competitors where such agreements can be reached, and law schools compete with each other in various ways, including to attract students.

After about fifteen minutes, one of the deans raised his hand and posed this hypothetical:  Some students change schools between first and second year.  Such transfers are not good for the student – usually, any issues leading to a transfer go beyond a particular school and the student should try to get help with any underlying concerns.  But the transfers also hurt the law schools – after all, we have spent considerable time, effort, and money to make that student one of ours and transfers destroy that investment.  So, could this ABA group make it unethical for law schools to solicit, or even accept, most transfer students?

My fellow presenters were taken aback and silent for a few seconds.  Had this dean not been listening when we had said a few minutes earlier that agreements not to compete among competing members of a trade association were antitrust violations?  Finally, I broke the silence.  I did a facepalm and said “D’oh!  What a great idea!  Why didn’t we think of that?  We could have gone to Toyota thirty years ago and said ‘you know, we spent considerable time, effort, and money to make those current Chevy owners ours and you selling to them will just destroy that investment.  How about we agree that you will only market to folks who have never purchased a car?’”

It took a few seconds but then the lightbulbs went off over the heads of the audience:  Yes, the competitive processes for legal education might be a little different than those for motor vehicles, but that competition still exists and antitrust law is designed to protect it.  Any agreements to short-circuit that process by having experts at the competitor-suppliers determine the customer’s best interest would be at least suspect.  My GM clients would have understood that my Toyota hypothetical was an antitrust problem.  Why didn’t this law school dean?

Was it because the deans saw themselves as “professionals” and so in some way exempt from the need to compete?  Perhaps, although the Court made clear in Professional Engineers that any hint of an antitrust exemption for professionals that some saw in Goldfarb was incorrect.  Professionals might compete in different ways but the antitrust laws still protect that competition to yield the best results for customers.

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