Articles Posted in Classic antitrust cases

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Resale Price Maintenance

Author: Jarod Bona

Some antitrust questions are easy: Is naked 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.

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Antitrust Pleading StandardsI won’t hide the ball; I’ll just tell you the answer: Federal district courts deciding motions to dismiss an antitrust case too often apply the summary-judgment standard to conspiracy allegations, particularly when confronted with non-parallel-conduct cases.

This isn’t scientific or empirical—it is my observation and is enough of an issue that more than one federal appellate court has complained about it over the last few years.

The motion to dismiss standard for antitrust conspiracies is, to be fair, somewhat confusing thanks to a case called Bell Atlantic v. Twombly. You can read my prior article about Twombly and pleading standards here.

Before the US Supreme Court decided Twombly in 2007, courts applied a very deferential standard to antitrust motions to dismiss, including conspiracy allegations.

Courts used to follow an old Supreme Court case called Conley v. Gibson (1957) (which you will find cited in many, maybe even most, motion-to-dismiss decisions preceding Twombly). Under Conley, a complaint satisfied specificity requirements if it stated facts that made it “conceivable” that plaintiff could prove its legal claims. A court could only dismiss a claim if it appeared that a plaintiff could prove—the famous phrase—“no set of facts” in support of his or her claim that would entitle the plaintiff to relief.

The Twombly Decision

I remember when I read the Supreme Court’s Twombly decision for the first time. Justice Souter wrote the majority opinion. At the time, I was with DLA Piper and represented a defendant in the In re Insurance Brokerage Antitrust Litigation (Here is an article about the litigation from Bill Kolasky, who was one of the joint defense group leaders). The case was still with the trial court during one of the motion-to-dismiss briefing rounds. (Usually when a court dismisses an antitrust complaint for the first time, it will do so without prejudice and with leave to amend, which leads to another round of motion-to-dismiss briefing).

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Supreme Court amicus briefAs an attorney defending an antitrust class action, your job is to get your client out of the case as expeditiously and inexpensively as possible. There are several exit points.

For example, with a little help from the US Supreme Court’s Twombly decision, you might find your way out with a motion to dismiss, asserting (among other potential arguments) that plaintiffs fail to allege sufficient allegations that a conspiracy is plausible. This is usually the first battle.

Next, you could reach a settlement with class-action plaintiffs (and have it approved by the Court). This could happen at any point in the case. Oftentimes, case events that change expectations will prompt a settlement—i.e. a Department of Justice decision to drop an investigation or an indictment.

Third, you might prevail on summary judgment (or at least partial summary judgment). One means to winning on summary judgment is to disqualify plaintiff’s expert with a Daubert motion.

Fourth, you can win at trial.

Fifth, if you lose at trial, it is time to find a great appellate lawyer.

So far, these methods to get out of court look just like any other antitrust case (or commercial litigation matter). An attorney defending an antitrust class action, however, has extra way to get its client out of the case: Defeating Class Certification.

Defense attorneys are increasingly turning to class certification as a primary battle point to get their clients out of federal antitrust class actions.

An antitrust class action usually alleges some form conduct that is a per se antitrust violation in which the damages are a small amount for each class member. For example, an antitrust class action plaintiff might allege a price-fixing conspiracy among the major manufacturers in a particular industry. Plaintiffs may allege that the damage is just a few dollars or cents per plaintiff, but collectively the damages are in the millions or tens or hundreds of millions (or more).

Thus, if the Court denies plaintiffs’ motion to certify a class (barring appeal), each individual plaintiff must sue. And since each only has damages of a few dollars or less, litigation just doesn’t make sense. That, in fact, is the point of Federal Rule 23 and class actions generally—to allow relief when the aggregate harm is great but the individual harm is miniscule.

[See this article that I co-authored with Carl Hittinger on the private-attorney general purpose of class actions.]

A defendant that can defeat class certification effectively wins the case.

The US Supreme Court made this task easier for attorneys defending antitrust class actions in the 2013 classic antitrust case of Comcast Corporation v. Behrend, written by the late Justice Antonin Scalia.

Back in my DLA Piper days, I wrote about the Comcast case for the Daily Journal shortly after the Supreme Court published it.

This case involved a class action against Comcast that alleged that Comcast’s policy of “clustering” violated Section 1 of the Sherman Act. Clustering is a strategy of concentrating operations within a particular region. Plaintiffs alleged that Comcast would trade cable systems outside of their targeted region for competitor systems within their region. This would limit competition for both parties, by concentrating the market for each region with fewer cable providers.

But that wasn’t the issue the Supreme Court addressed. The Supreme Court in Comcast v. Behrend instead sought to determine whether the district court properly certified the class action under Federal Rule of Civil Procedure, Rule 23(b)(3), which is known as the predominance requirement.

You can read our article about a California antitrust decision rejecting class certification here.

If you want to learn more about how Bona Law approaches the defense of antitrust class action cases, read here.

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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.

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Baseball Antitrust ExemptionBaseball is special. How do we know that? Is it the fact that it has been declared America’s Pastime? Or is it the feelings we have when we smell the freshly cut grass on a sunny spring day? Or is it the acoustics of a wood bat striking a leather-wrapped baseball? The answer is that  we know that baseball is special because the US Supreme Court has told us so.

Over the course of ninety-two years, the Supreme Court has consistently affirmed and re-affirmed a special exemption from the antitrust laws for the “business of providing public baseball games for profit between clubs of professional baseball.” There is a state action exemption, an insurance exemption, a labor exemption, and a  . . . baseball exemption? That’s right. A baseball exemption from the federal antitrust laws.

The Ninth Circuit—in an opinion courtesy of Judge Alex Kozinski—just applied this exemption in City of San Jose v. Office of the Commissioner of Baseball, which rejected San Jose’s antitrust lawsuit challenging Major League Baseball’s “attempt to stymie” the relocation of the Oakland Athletics to San Jose, California.

Update: On October 6, 2015, the US Supreme Court, without comment, declined to hear this case. Because the Supreme Court rejects the vast majority of petitions for cert., I wouldn’t read too much into this. Of course, if at least four Justices had wanted to revisit the historical exemption, they could have done so.

Why is There a Baseball Exemption from the Antitrust Laws?

In the 1920’s, the Supreme Court decided a case called Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs, which held that the Sherman Act didn’t apply to the business of baseball because such “exhibitions” are purely state affairs. As Judge Kozinski explained, the reasoning behind the Supreme Court’s decision reflected the “era’s soon-to-be-outmoded interpretation of the Commerce Clause.” In other words, back in the day, courts didn’t assume that almost every economic activity was within federal jurisdiction.

Thirty-years later in Toolson v. New York Yankees, Inc., the Supreme Court affirmed Federal Baseball on different grounds. The Court recognized that the Commerce Clause reasoning no longer applied, but observed that despite the Federal Baseball governing law that the federal antitrust laws don’t apply to baseball, Congress hasn’t legislated to the contrary. So it left the baseball exemption.

Finally, in 1972, the Supreme Court decided the Classic Antitrust Case of Curt Flood v. Kuhn, which is the famous baseball exemption case. The Court specifically addressed baseball’s reserve clause, which essentially prohibited free agency. When a player’s contract ended, the team still retained the player’s rights. Once again, the Supreme Court upheld the baseball exemption based upon Congress’ inaction.

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Antitrust Injury and Brunswick

photo credit: ginnerobot via photopin cc

Antitrust injury is one of the most commonly fought battles in antitrust litigation. It is also one of the least understood antitrust concepts.

No matter what your antitrust theory, it is almost certain that you must satisfy antitrust-injury requirements to win your case. So you ought to have some idea of what it is.

The often-quoted language is that antitrust injury is “injury of the type the antitrust laws were intended to prevent and that flows from that which makes the defendant’s acts unlawful.” You will see this language—or some variation—in most court opinions deciding antitrust-injury issues. The language and the analysis are from the Classic Antitrust Case entitled Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., decided by the US Supreme Court in 1977.

You may also enjoy our article on the Bona Law website describing antitrust injury.

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.

If your antitrust attorney is drafting a brief on your behalf and antitrust injury is in dispute—which is quite likely—he or she will probably cite Brunswick Corp.

Since antitrust injury is synonymous with Brunswick Corp., let’s talk about the actual case for a moment. If you are passionate about the market for bowling alleys, you’ll love this case.

If you were around in the 1950s, you probably know that bowling was a big deal. The industry expanded rapidly, which was great for manufacturers of bowling equipment. But sometimes good things come to an end and the bowling industry went into a sharp decline in the early 1960s. These same manufacturers began to have trouble, as bowling alleys starting paying late or not at all for their leased equipment.

A particular bowling-equipment manufacturer—Brunswick Corp—began acquiring and operating defaulted bowling centers when they couldn’t resell the leased equipment.  For a period of seven years, Brunswick acquired 222 centers, some that it either disposed of or closed. This buying binge turned it into the largest operator of bowling centers, by far.

This was a problem for a competing bowling-alley operator and competitor, Pueblo Bowl-O-Mat, who sued under the Clayton Act, arguing that certain acquisitions in their territory “might substantially lessen competition or tend to create a monopoly.” Without the acquisition, the purchased bowling alleys would have gone out of business, which would have benefited Pueblo, a competitor.

The case eventually made its way to the US Supreme Court, which rejected the Clayton Act claim for lack of antitrust injury. The reason is that even though Pueblo was, indeed, harmed by the acquisition, it wasn’t a harm that the antitrust laws were meant to protect. The acquisition actually increased competition. Absent the acquisition, Pueblo would have gained market share. But with the acquisition, the market included both Pueblo and the bowling alleys that would have left the market—i.e. more competition.

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American Needle (Football)When you think about antitrust cases, you usually consider the question—often framed at the motion to dismiss stage as a Twombly inquiry—whether the defendants actually engaged in an antitrust conspiracy.

But, sometimes, the question is whether the defendants are actually capable of conspiring together.

That isn’t a commentary on the intelligence or skills of any particular defendants, but a serious antitrust issue that can—in some instances—create complexity.

So far I’ve been somewhat opaque, so let me illustrate. Let’s say you want to sue a corporation under the antitrust laws, but can’t find another entity they’ve conspired with so you can invoke Section 1 of the Sherman Act (which requires a conspiracy or agreement). How about this: You allege that the corporation conspired with its President, Vice-President, and Treasurer to violate the antitrust laws. Can you do that?

Probably not. In the typical case, a corporation is not legally capable of conspiring with its own officers. The group is considered, for purposes of the antitrust laws, as a “single entity,” which is incapable of conspiring with itself. Of course, the situation is complicated if we aren’t talking about the typical corporate officers, but instead analyzing a case with a corporation and corporate agents (or perhaps in a rare case, even employees) that are acting for their own self-interest and not as a true agent of the corporation. The question, often a complex one, will usually come down to whether there is sufficient separation of economic interests that the law can justify treating them as separate actors.

A lot of tricky issues can arise when dealing with companies and their subsidiaries as well. In Copperweld Corp. v. Independence Tube Corporation, for example, the United States Supreme Court held that the coordinated activities of a parent and its wholly-owned subsidiary are a single enterprise (incapable of conspiring) for purposes of Section 1 of the Sherman Act.

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Engineers and BridgeAs an antitrust attorney, over time you see the same major cases cited again and again. It is only natural that you develop favorites. Here at The Antitrust Attorney Blog, we will, from time-to-time, highlight some of the “Classic Antitrust Cases” that we love, that we hate, or that we merely find interesting.

The Supreme Court decided National Society of Professional Engineers in the late 1970s—when I was two-years old—and before the Reagan Revolution. But the views that the author, Justice John Paul Stevens, expressed on behalf of the Supreme Court perhaps ushered in the faith in competition often associated with the 1980s.

The National Society of Professional Engineers thought that its members were above price competition. Indeed, it strictly forbid them from competing on price.

The reason was simple: “it would be cheaper and easier for an engineer ‘to design and specify inefficient and unnecessarily expensive structures and methods of construction.’ Accordingly, competitive pressure to offer engineering services at the lowest possible price would adversely affect the quality of engineering. Moreover, the practice of awarding engineering contracts to the lowest bidder, regardless of quality, would be dangerous to the public health, safety, and welfare.” (684-85).

So price competition will cause bridges to collapse? I suppose the same argument could be made for any market where greater expense can improve the health or safety of a product or service. We better not let the car manufacturers compete to provide us with cars because they will skimp on the brakes.

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