Articles Posted in Per Se Antitrust Violation

Law Library Books

Author: Jarod Bona

Law school exams are all about issue spotting. Sure, after you spot the issue, you must describe the elements and apply them correctly. But the important skill is, in fact, issue spotting. In the real world, you can look up a claim’s elements; in fact, you should do that anyway because the law can change (see Leegin and resale price maintenance).

And outside of a law-school hypothetical, it typically isn’t difficult to apply the law to the facts. Of course, what I like about antitrust is that the law evolves and is often unclear and applying it (whatever it is) challenges your thinking. Sometimes, you even need to ask your favorite economist for some help.

Anyway, if you aren’t an antitrust lawyer, it probably doesn’t make sense for you to advance deep into the learning curve so you are an expert in antitrust and competition doctrine. It might be fun, but it is a big commitment to get to where you would need to be, so you should consider devoting your extra time instead to something like CrossFit.

But you should learn enough about antitrust so you can spot the issues. This is important because you don’t want your company to violate the antitrust laws, which could lead to jail time, huge damage awards, and major costs and distractions. And as antitrust lawyers, we often counsel from this defensive position.

It is fun, however, to play antitrust from the offensive side of the ball. That is, utilize the antitrust laws to help your business. To do that, you need a rudimentary understanding of antitrust issues, so you know when to call us. Bona Law represents both plaintiffs and defendants in antitrust litigation of all sorts.

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Antitrust-Group-Boycott-300x200

Author: Jarod Bona

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

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

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

We receive many calls and messages 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. Typically either the government or plaintiff class-action attorneys have the biggest incentive to pursue these claims.

Group boycott activity, however, is usually directed toward one or very few victims. The harm is not diffused; it is concentrated. And it is often against a competitor that is just trying to establish itself in the market. The victim is often a company that seeks to disrupt the market, creating a threat to the established players.

The defendants may act like bullies to try to keep that upstart competitor from gaining traction in the market. Sometimes trade associations lead the anticompetitive charge.

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

Sometimes group boycott claims are further complicated when the established competitors—the bullies—use their relationships with government power to further suppress competition. Indeed, sometimes the competitors 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 I am very happy to see the Federal Trade Commission take a pro-active role against such anticompetitive thuggery.

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Author: Jarod Bona

Have you ever considered the idea that your business would be much more profitable if you didn’t have to compete so hard with that pesky competitor or group of competitors?

Unless you have no competition—which is great for profits, read Peter Thiel’s book—this notion has probably crossed your mind. And that’s okay—the government doesn’t indict and prosecute the antitrust laws for what is in your mind, at least not yet.

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But, except in limited instances, you should definitely not divide markets or customers. Indeed, you shouldn’t even discuss the idea with your competitors, or, really, anyone (many antitrust cases are made on inconveniently worded internal emails).

The reason that you shouldn’t discuss it is that market-allocation agreements are one of the few types of conduct that the antitrust laws consider so bad they attach the label “per se antitrust violation.” The other per se antitrust offenses are price-fixing, bid-rigging, maybe tying, and sometimes group boycotts.

What is a Market Allocation Agreement?

When competitors divide a market in which they can compete into sections in which one or more competitors decline to compete in favor of others, they have entered into a market allocation agreement.

The antitrust problem with a market allocation agreement is that a group of customers experiences a reduction in the number of suppliers that serve them. The companies dividing the markets benefit, of course, because they have less competition for at least some of the market, which means that it is easier to raise prices or reduce quality.

It doesn’t matter, from an antitrust perspective, how the competitors divide the markets or even whether they both end up competing for that product or service after the agreement.

For an obvious example ponder a small town with two large real-estate brokerage businesses—Northern Real Estate Brokers and Southern Real Estate Brokers. A river flows across the town, roughly dividing it into northern and southern regions. The Northern Real Estate Brokers mostly attract clients north of the river and the Southern Real Estate Brokers usually service clients south of the river. But the river is passable; there is a bridge and it isn’t that big of a river anyway. So sometimes agents of each brokerage will participate in transactions on the other side river from their normal client base.

Late one evening, in the middle of the bridge, the leaders of the two companies meet and agree that from that point on, each company would only sell properties on their side of the river.

This is a market allocation agreement and the leaders could find themselves in antitrust litigation, or even jail (the Department of Justice will often prosecute per se antitrust violations).

While the geographic boundary made for an obvious way for the two companies to divide markets, they also could have agreed not to steal each other’s customers. So if a real estate agent from northern brokerage firm claimed a customer, no agent from the southern brokerage firm would compete for their business.

This customer allocation agreement is also a per se antitrust violation. To see how this type of antitrust offense can develop in a seemingly innocent way, read our article on the anatomy of a per se antitrust violation.

In this way, the antitrust laws actually encourage stealing customers.

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Golden Gate Bridge California

Author: Jarod Bona

In an earlier blog post, 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. 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. Several 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 a New York office.

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 2018, 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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Tying Agreement (Rope)

Author: Jarod Bona

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

Most vertical agreements—like loyalty discounts, bundling, exclusive dealing, (even resale price maintenance agreements under federal law) etc.—require courts to delve into the pro-competitive and anti-competitive aspects of the arrangements before rendering a judgment. Tying is a little different.

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

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

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

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

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

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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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Author: Saurabh Vishnubhakat, Associate Professor of Law and Associate Professor of Engineering, Texas A&M University. 

This guest post is based upon Professor Vishnubhakat’s innovative new paper applying antitrust concepts to patent law, which is now published in the Seton Hall Law Review: “The Antitrusting of Patentability”

Courts facing difficult questions of patent validity are increasingly turning to a form of decision-making that has long been familiar to antitrust lawyers: using per se analysis rather than the rule of reason.  In this post, I will discuss the analytical origins of this trend, fresh empirical data on how it is emerging, and some thoughts for improvement.

The Patent-Antitrust Interface

To begin, it is worth noting the very fact that antitrust law and patent law are intersecting so directly.  The complexity and specialization of these fields can often stand in the way of dialogue between them, though the need for such dialogue is plain.  One of antitrust law’s main concerns is fostering competition and promoting economic efficiency.  Meanwhile, patent rights by design restrict competition and efficiency in the short run.  A patent owner can exclude others from quintessentially economic activities: making, using, selling, offering, and importing the patented invention.

This is meant to produce gains for inventor and society alike, but on different timelines.  Market power and the ability to charge higher prices are today’s reward for the patent owner in return for developing the invention in the first place.  Society’s reward comes tomorrow, when the patent expires and the technical know-how becomes freely available to make and sell, to use in follow-on innovation, and so on.  Another important reward to society is the credible incentive to future would-be innovators that their efforts, too, will enjoy a similar benefit.

Theoretically, this tradeoff between static current losses to competition and efficiency in favor of dynamic future gains could be made entirely within patent law itself.  However, antitrust has much to say on these systemic choices, too, and the proper treatment of so-called “patent monopolies” has been a source of perennial debate and even tension in the law since the 19th century.

The Origins of Per Se Analysis in Patent Law

In this longstanding debate, the use of per se-style analysis in patent law is a recent development aimed at solving a specific problem.  Inventions are evaluated, and patents are granted, by Patent Office examiners with expertise in the relevant technology.  Federal judges and juries who later confront these patents in litigation generally have no such expertise, but they must frequently decide whether a patent is valid.  In doing so, they must pass judgment on whether an expert agency—one that deals every day with the law and the science of patents—got it wrong.

Under the best of circumstances, this is intimidating.  Making this decision accurately is costly and time-consuming, even with compelling stories from attorneys and authoritative opinions from expert witnesses.  If one could dispense with the thorny question of patent validity early in litigation, things would be simpler.

One straightforward way to front-loading an issue, of course, is to decide it as a matter of law without delving much into idiosyncratic facts.  This is where per se analysis of patent validity begins.  Of the major requirements for a patent to be granted—and for a granted patent to be found valid—most require a good deal of factual detail about the state of the art and what people trained in that art knew at the time of the invention.  But one does not: the threshold question of the invention is even patent-eligible subject matter.  This is primarily a legal question, and so the subject matter eligibility doctrine is a good candidate for reducing the decision costs associated with determining patent validity.

How the Per Se Analysis of Patent Validity Actually Works

The way it works, in essence, is that a court applies the subject matter eligibility doctrine to find a patent invalid rather than reaching the same conclusion through other, more fact-intensive doctrines.  Patent lawyers tend to think of the different patentability requirements as separate hurdles to be cleared, but it turns out that these requirements reflect similar, overlapping concerns.

To be patentable, an invention must be useful and new as compared to the prior state of knowledge.  It must be nonobvious, which means it must embody more than trivial combinations or extensions of existing inventions or pieces of knowledge.  These requirements are intended to ensure that an invention is innovative enough to merit a patent.

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Author: Jarod Bona

If you are looking for controversy, you came to the right place. Today, we discuss resale price maintenance, one of the most contentious issues in all of antitrust. If you look around and see a bunch of antitrust economists, hide your screen so they don’t start arguing with each other. Trust me; that is the last thing you want to experience.

Let’s start with some background: A resale price maintenance agreement is a deal between, for example, a supplier and a retailer that the retailer will not sell the supplier’s product to an end user (or anyone, for that matter) for less than a certain amount. It is a vertical price-fixing agreement.

That type of agreement has a storied—and controversial—past. Over a hundred years ago, the Supreme Court in a case called Dr. Miles declared that this type of vertical price fixing is per se illegal under the federal antitrust laws. This is a designation that is now almost exclusively limited to horizontal agreements.

During the ensuing hundred years or so, economists and lawyers debated whether resale price maintenance (RPM) really should be a per se antitrust violation. After all, there are procompetitive reasons for certain RPM agreements and the per se label is only supposed to apply to activity that is universally anticompetitive.

After a trail of similar issues over the years, the question again landed in the Supreme Court’s lap in a case called Leegin in 2007. In a highly controversial decision that led to backlash by certain states, the Supreme Court lifted the per se veil from these controversial vertical agreements and declared that, at least as far as federal antitrust law is concerned, courts should analyze resale price maintenance under the rule of reason.

You can read more about Leegin and how courts analyze these agreements in our prior article. And if you want to learn more about how certain states, like California, handle resale price maintenance agreements, you can read this article. Finally, if you are looking for a loophole to resale price maintenance agreements, read our article about Colgate policies and related issues.

Minimum advertised pricing policies (MAP) are related to resale price maintenance: you can read our article on MAP pricing and antitrust here.

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As a regular reader of The Antitrust Attorney Blog, you understand that setting prices or allocating markets with your competitor is a terrible idea. Doing so is likely to lead to civil litigation and perhaps even criminal penalties.

Price fixing and market allocation agreements are per se antitrust violations. That means they are the worst of the worst of anticompetitive conduct.

There is, however, a limited circumstance in which what would normally be a per se antitrust violation is instead treated by Courts and government antitrust agencies under the rule of reason:

An ancillary restraint.

You shouldn’t put ancillary restraints in your agreements without the help of an antitrust lawyer. That would be like juggling knives that are on fire. You might be able to do it, but if you make a mistake, you won’t like the results.

What is an Ancillary Restraint?

This isn’t an easy question to answer and, in fact, if you can answer it, you will often know whether your restraint will survive antitrust scrutiny.

Let’s back up a little bit.

In a typical situation, if two competitors agree to fix prices or to split a market (perhaps they will agree to limit their competition for each other’s customers), they commit what is called a per se antitrust violation. What that means is that this type of restraint is so consistently anticompetitive that courts won’t even examine the circumstances—it is per se illegal.

Obviously you should avoid committing per se antitrust violations, unless, of course, you want to experience an antitrust blizzard.

Without further context, such a restraint is often called a naked restraint of trade. That doesn’t mean that the cartel meets at a nudist colony; it means that it is an anticompetitive agreement with nothing surrounding it. Such agreements are almost always done to gain greater profits from the restraint itself.

So what does a non-naked restraint of trade look like? Interesting question. I will answer it, but you have to read through most of this article.

Sometimes two or more parties, even competitors, will put together a joint venture or collaboration that creates what antitrust lawyers often call efficiency. You might normally think of efficiency as running more smoothly or at the same or better result with fewer resources.

But when antitrust attorneys use the term “efficiency” or “efficiency enhancing,” they often mean that the venture or combination will create economic value for the marketplace as a whole that wouldn’t exist but for the agreement. The term often comes up in the merger context, as an antitrust analysis of a merger will examine whether the benefits through efficiency and more exceed any potential anticompetitive harm.

An Ancillary Restraint Example

Sometimes it is easier to understand with an example: Let’s say you have a company called Research that is full of people with PhDs that spend all of their days trying to figure out how to make the world a better place. If someone at Research comes up with a good idea, the company will sometimes manufacture and sell the finished product itself.

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Bona Law filed an antitrust lawsuit on behalf of our client in the Northern District of Georgia alleging antitrust violations in the cement and ready mix concrete markets. More on that later.

But first I am going to tell you a fictional story about your nine-year-old son and his first entrepreneurial endeavor. If you don’t want to hear about your son, you can skip to the next section, about Bona Law’s new case.

The Lemonade Stand

You don’t have a nine-year-old son? Well … you do for this story. Congratulations, it’s a boy!

As you know, your son’s name is Johnny. You call him Little Johnny, but he is growing so fast, you are not sure how much longer the “Little” will last. But you treasure these times because they grow up so quickly.

And speaking of growing up quickly, Johnny sure is maturing. You tried to get him to clean-up around the house for an allowance, but he turned you down. He said he doesn’t want to be an employee and taking a job with you will just lead him into the rat race. Why would he want to do that?

Instead, Johnny says, he wants to start his own business. Ownership is where the money is, he says. Johnny wants to build cash flow, so he can just skip the rat race. Smart kid.

Okay, you say, “why don’t you start a lemonade stand?”

Johnny is excited. This is his first business—his first taste of Capitalism!

“Yes, I’ll build the best lemonade stand in the neighborhood, will serve the best tasting lemonade, and will be very careful with my costs, so I can charge a lower price and sell the most lemonade.”

Apparently Johnny has been paying attention to the business podcasts you have been listening to in the car.

As you know, you just moved to a wonderful neighborhood in the San Diego area. After years on the east coast, dealing with the harsh weather and sometimes harsh people, you are excited that you are now in paradise. The weather is incredible all year here and the constant sunshine puts you in a great mood.

Of course, it is tough to move to a new area, especially for kids. Johnny is excited, but a little nervous. He doesn’t know many kids in the neighborhood yet, and doesn’t start school until the fall—it is still July.

You and he have both noticed, however, that the neighborhood has a few lemonade stands—and many thirsty neighbors—so this might be a good way for him to make some friends and get to know the neighborhood.

You help Johnny build a stand, but to his credit he does most of the work—his enthusiasm for the venture has produced a work ethic in him you’ve never seen. You also admire his efforts to plan out his purchase of supplies, opting for Costco so he can buy what he needs in bulk at a low cost per glass (as he explained to you).

Johnny now has everything ready for his business: a stand with an attractive sign, cups, a money box, raw materials to make lemonade, a cooler, a couple chairs for him and his friend (or you, when you want to stop by), and, most importantly, the joy of ownership from starting his own business. You’ve never seen him so happy.

You drive around the neighborhood with him and discover that other kids seem to be selling lemonade at $7 per glass, which seems a little high, but it is a wealthy neighborhood, so perhaps that is the market price? It has been a warm, surprisingly humid summer in San Diego. You discuss with Johnny how that weather pattern increases demand. Of course, it did seem odd to you that everyone was selling lemonade at exactly $7 per glass, but you dismiss it.

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