Articles Posted in Types of Antitrust Claims

Predatory-Pricing-300x200

Author: Steven Cernak

Your much larger competitor sells the same products as you do but at a much lower price, so low you think that it must be losing money on each sale. Can such “predatory pricing” ever violate the antitrust laws? It is a very difficult monopolization case to make but, as Uber recently discovered, not all such claims are quickly dismissed.

Monopolization is illegal under Sherman Act Section 2 of the antitrust laws. Such claims can only be lodged against a “monopolist,” a competitor with monopoly power. Finding “monopoly power” is a difficult question this blog covered here. But even a monopolist is only liable for “monopolization,” actions that help it acquire or maintain that monopoly. There is no general test to judge a monopolist’s actions; instead, courts have developed different tests for different actions, including predatory pricing.

Predatory pricing has been defined by the U.S. Supreme Court as “pricing below an appropriate measure of cost for the purpose of eliminating competitors in the short run and reducing competition in the long run”.¹ The Court expressed skepticism toward such claims several times for two reasons. First, it noted that “there is a consensus among commentators that predatory pricing schemes are rarely tried, and even more rarely successful”.² Second, it can be difficult to distinguish pro-competitive low prices from predatorily low ones; after all, “cutting prices in order to increase business often is the very essence of competition”.³

Because of that skepticism, the Court has established a test that is difficult for plaintiffs to meet. In Brooke Group, the Court evaluated claims that a cigarette producer was using low prices to discipline a competitor.⁴ The Court held that predatory pricing allegations will be upheld only if ”the prices complained of are below an appropriate measure of its rival’s costs … [and the defendant] had a … dangerous probability of recouping its investment in below-cost prices.⁵

On the “below cost” element, the Court has declined to specifically define the “appropriate measure” of costs.⁶ While commentators have developed several potential measures, the most popular are variations on prices below a manufacturer’s reasonably anticipated marginal costs,⁷ such as average variable costs.⁸ The rationale is that no competitor would knowingly spend the incremental costs to make one more product if it did not plan to sell it for a price that covered at least those incremental costs unless such pricing was part of an anti-competitive scheme.

The “recoupment” element itself has two parts. First, the low prices must be capable of driving competitors from the market: “This requires an understanding of the extent and duration of the alleged predation, the relative financial strength of the predator and its intended victim, and their respective incentives and will.”⁹ Second, those expelled competitors and any other new entrants must stay out of the market and the market must have other attributes, such as high entry barriers, necessary to sustain high monopoly pricing so that the costs of the low prices can be recouped.¹⁰

The Brooke Group test has proven difficult for plaintiffs to meet. Despite those difficulties, plaintiffs continue to make predatory pricing claims, as illustrated by two 2019 opinions. But a May 2020 case involving Uber shows that some predatory pricing claims can survive a motion to dismiss.

In Clean Water Opportunities, Inc. v. Willamette Valley Co., plaintiff claimed that defendant put it out of business through various tactics, including predatory pricing.¹¹ In an unpublished opinion, the Fifth Circuit affirmed dismissal of this claim because plaintiff’s claims were both conclusory and implausible.¹² Plaintiff only alleged that defendant’s discounts to plaintiff’s customers “were substantial and represented a benefit below [defendant’s] cost to produce [product].” The court affirmed the lower court’s ruling that this allegation required “further factual enhancement” to rise above mere conclusory allegations that the court was not bound to accept as true under the motion.¹³

The remainder of the allegations in the complaint made the possibility of such “factual enhancement” unlikely. Plaintiff alleged that its and defendant’s original undiscounted price both were well above the alleged competitive price. The court found that this allegation left plenty of room for defendant to undercut plaintiff’s price while staying above the competitive price, let alone any potential measure of defendant’s average variable costs.¹⁴

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exclusive-deailng-300x200

Author: Jarod Bona

Sometimes parties will enter a contract whereby one agrees to buy (or supply) all of its needs (or product) to the other. For example, maybe a supplier and retailer agree that only the supplier’s product will be sold in the retailer’s stores? This usually isn’t free as the supplier will offer something—better services, better prices, etc.—to obtain the exclusivity.

If you compete with the party that receives the benefit of the exclusive deal, this sort of contract can seem quite aggravating. After all, you have a great product, you offer a competitive price, and you know that your service is better. Then why is the retailer only buying from your competitor? Shouldn’t you deserve at least a chance? Isn’t that what the antitrust laws are for?

Maybe. But most exclusive-dealing agreements are both pro-competitive and legal under the antitrust laws. That doesn’t mean that you can’t bring an antitrust action and it doesn’t mean you won’t win. But, percentage-wise, most exclusive-dealing arrangements don’t implicate the antitrust laws.

You can read our article about exclusive dealing at the Bona Law website here.

It is important that I deflate your expectations a little bit at the beginning like this because if you are on the outside looking in at an exclusive dealing agreement, you are probably quite angry and you may feel helpless. From your perspective, it will certainly seem like an antitrust violation. And your gut feeling about certain conduct is a good first filter about whether you have an antitrust claim. What I am trying to tell you is that with regard to exclusive dealing, your gut may give you some false positives.

Of course, the market is full of exclusive or partial-exclusive dealing agreements and there are relatively few of these that turn into federal antitrust litigation. So if you see an exclusive-dealing claim in federal litigation, it doesn’t mean it is not one of the rare instances of an exclusive-dealing antitrust violation. We receive a lot of calls about exclusive-dealing agreements that are antitrust violations or close to antitrust violations. But people don’t call us for most varieties of exclusive dealing, which is perfectly legal under the antitrust laws.

So what is an exclusive dealing agreement?

An exclusive dealing agreement occurs when a seller agrees to sell all or most of its output of a product or service exclusively to a particular buyer. It can also occur in the reverse situation: when a buyer agrees to purchase all or most of its requirements from a particular seller. Importantly, although the term used in the doctrine is “exclusive” dealing, the agreement need not be literally exclusive. Courts will often apply exclusive dealing to partial or de facto exclusive dealing agreements, where the contract involves a substantial portion of the other party’s output or requirements.

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Refusal-to-Deal-Aspen-Skiing-300x195

Author: Luis Blanquez

Good news––the answer is yes. The bad news, however, is that antitrust laws only help you in very limited scenarios.

As a general rule, “Businesses are free to choose the parties with whom they deal, as well as the prices, terms, and conditions of that dealing” Pacific Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438, 448 (2009). This means that firms, even those enjoying market power, are not typically required to cooperate with rivals by selling them products that would help them compete. Indeed, antitrust laws do not generally impose limitations on a competitor’s ability to “exercise his own independent discretion as to parties with whom he will deal.” Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 411 (2004).

So, most of the time, once your distribution contract expires, your supplier is free to either renew your contract or stop dealing with you. After all, this is what the free market is about: you are free to decide your own commercial strategy in order to make profits and beat your competitors. But this is not always the case, and the recent case from the Seventh Circuit, Viamedia, Inc. v. Comcast Corp., is a very good example of it.

The willingness to forsake short-term profits

Courts have been cautious to recognize an antitrust exception to the general rule that businesses are free to choose the parties with whom they deal, as well as the prices, terms, and conditions of that dealing. The cases below provide a road map to better understand what you would need to succeed.

Aspen Skiing Co. v. Aspen Highlands Skiing Co., 472 U.S. 585 (1985)

The U.S. Supreme Court has stated in the past that even an actual monopolist has no duty to deal with its competitors. A narrow exception to this rule, however, was established in Aspen Skiing. The Court provided some guidance to explain when a monopolist’s refusal to deal becomes contrary to antitrust rules.

In this case, the defendant monopolized the market for downhill skiing services in Aspen (Colorado). Defendant originally agreed to offer a joint lift ticket with plaintiff because it helped attract skiers. But defendant later decided to discontinue the successful joint-ticket program. By doing so, it rejected, for example, selling lift tickets to the plaintiff at full retail price. Defendant’s justifications included several administrative issues such as splitting revenues, suffering brand image injury, and others.

The Court concluded that defendant’s unilateral termination of a voluntary––and thus presumably profitable––course of dealing suggested a willingness to forsake short-term profits to achieve an anticompetitive end: to push plaintiff out of the market and achieve monopoly power to avoid any sort of competition.

Novell, Inc. v. Microsoft Corp 731 F.3d 1064 (10th Cir. 2013)

Microsoft provided independent software vendors access to a pre-release version of Windows 95––the so called “beta” version of the operating system available to all independent software vendors, including Novell––to facilitate their ability to write software for Windows 95. The reasoning behind this was to develop compatible programs while increasing both the utility of the operating system for users and the sales for Microsoft. Later on, however, Microsoft changed its strategy and revoked such access. It decided to give its proprietary applications the “competitive advantage” of “being the first applications useable on Windows 95.” Novell alleged that Microsoft intentionally altered its existing business practice of providing competitors with Windows technical information in order to monopolize the market for operation systems.

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Robinson-Patman-Act-Antitrust-300x200

Author: Steven Cernak

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

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

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

The Basics of the Robinson-Patman Act

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

Section 2(a) Price Discrimination – Elements

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

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

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

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

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

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

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

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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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large-monopoly-bus-300x169

Author: Jarod Bona

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

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

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

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

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

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

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

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

  • The possession of monopoly power in the relevant market.
  • The willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

The Possession of Monopoly Power in the Relevant Market

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

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

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Toys R Us Antitrust Conspiracy

Author: Jarod Bona

Like life, sometimes antitrust conspiracies are complicated. Not everything always fits into a neat little package. An articulate soundbite or an attractive infograph isn’t necessarily enough to explain the reality of what is going on.

The paradigm example of an antitrust conspiracy is the smoke-filled room of competitors with their evil laughs deciding what prices their customers are going to pay, or how they are going to divide up the customers. This is a horizontal conspiracy and is a per se violation of the antitrust laws.

Another, less dramatic, part of the real estate of antitrust law involves manufacturers, distributors, and retailers and the prices they set and the deals they make. This usually relates to vertical agreements and typically invites the more-detailed rule-of-reason analysis by courts. One example of this type of an agreement is a resale-price-maintenance agreement.

But sometimes a conspiracy will include a mixture of parties at different levels of the distribution chain. In other words, the overall agreement or conspiracy may include both horizontal (competitor) relationships and vertical relationships. In some circumstances, everyone in the conspiracy—even those that are not conspiring with any competitors—could be liable for a per se antitrust violation.

As the Ninth Circuit explained in In re Musical Instruments and Equipment Antitrust Violation, “One conspiracy can involve both direct competitors and actors up and down the supply chain, and hence consist of both horizontal and vertical agreements.” (1192). One such hybrid form of conspiracy (there are others) is sometimes called a “hub-and-spoke” conspiracy.

In a hub-and-spoke conspiracy, a hub (which is often a dominant retailer or purchaser) will have identical or similar agreements with several spokes, which are often manufacturers or suppliers. By itself, this is merely a series of vertical agreements, which would be subject to the rule of reason.

But when each of the manufacturers agree among each other to enter the agreements with the hub (the retailer), the several sets of vertical agreements may develop into a single per se antitrust violation. To complete the hub-and-spoke analogy, the retailer is the hub, the manufacturers are the spokes and the agreement among the manufacturers is the wheel that forms around the spokes.

In many instances, the impetus of a hub-and-spoke antitrust conspiracy is a powerful retailer that wants to knock out other retail competition. In the internet age, you might see this with a strong brick-and-mortar retailer that wants to take a hit at e-commerce competitors.

The powerful retailer knows that the several manufacturers need the volume the retailer can deliver, so it has some market power over these retailers. With market power—which translates to negotiating power—you can ask for stuff. Usually what you ask for is better pricing, terms, etc.

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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 our article 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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Fraudulent-Concealment-Antitrust-Statute-of-Limitations-300x152

Authors: Aaron Gott and Nick McNamara

Antitrust conspiracies, like most conspiracies, are typically carried out in secret and often actively concealed by their participants for many years. But the statute of limitations for antitrust claims is only four years. So what happens if you discover that you were harmed by an antitrust conspiracy years after the fact? The answer could depend on which of the U.S. Court of Appeals has jurisdiction in your case.

Imagine you’re a retail grocer in the business of selling farm-fresh produce. Your store sources all of its carrots from local farms, many of which belong to a trade association of carrot growers (these carrot growers weren’t organized as a farm cooperative, which could provide them with a limited antitrust exemption you can read about here). Since you opened your grocery store several years ago, the price of carrots sold by these farms has been stable and reasonable. Then, all of a sudden, you notice that the price of locally farmed carrots has increased by 10%—overnight and for no apparent reason. Soon after you learn of the price hike, you receive an explanatory letter from the farm that sold the store its most recent batch of carrots. The letter apologizes for the increased price, which it attributes to a virus which has been harming local carrot crops. According to the letter, the farm hired plant biologists who confirmed the presence of the virus in the area.

You have never heard of a virus affecting carrots, but you have little reason to doubt the explanation provided by the farm. You review the scientific documentation attached to the letter and read up about the virus on Wikipedia; it turns out it is indeed a real virus that does affect carrots. You also hear that other grocers in the area have also received similar letters from other local carrot growers (but you didn’t talk to them directly because your antitrust compliance program forbids it). On top of it all, you have always had very cordial business relations with the sales representatives of the carrot farms. You decide to eat the lost profits, knowing that discontinuing the sale of locally farmed carrots would disappoint many loyal customers.

Five years later, you are tipped off by a former employee of one of the local carrot growers that the presence of the virus in the area was a complete fabrication, as was the supporting documentation submitted by the purported scientists. The ex-employee further informs you that the plan was hatched by the carrot growers’ trade association. Feeling cheated, you search the web for the antitrust statute of limitations, which you learn is four years.

But the good news is that the statute of limitations is not necessarily fatal to a claim involving an antitrust conspiracy. In fact, courts have long recognized that the distinguishing feature of illegal conspiracies is that they are almost always hidden from public view by design—and as a result, they often harm unwitting victims unaware they are being harmed. And, in some cases, courts have applied the equitable doctrine of fraudulent concealment to “toll” the statute of limitations in cases where the statute of limitations otherwise would have barred the claim.

You may have heard of a similar doctrine called the “discovery rule.” Under the discovery rule, a claim does not accrue—and the statute of limitations does not begin to run—until a reasonably diligent plaintiff discovers or should have discovered its injury. But there is a key difference: the discovery rule is a legal doctrine governing the point at which a statute of limitations begins to run, while tolling for fraudulent concealment is an equitable doctrine that assumes that the claim has already accrued and the statute of limitations has already run. In practice, the two doctrines have a nearly identical effect, so an antitrust plaintiff can typically plead both in the alternative. Both doctrines also have a due diligence requirement, so you can’t rely on them if, under the circumstances, a reasonable person would have investigated potential claims (for example, an unexplained, sudden price hike could give rise to a duty to investigate).

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bid-rigging-antitrust-300x200

Author: Jarod Bona

In the market, there are many ways to buy and sell products or services.

For example, if you want to purchase some almond milk, you can walk into a grocery store, go to the milk section, examine the prices of the different brands, and if one of them is acceptable to you, carry that milk to the register and pay the listed price.

Similarly, if you want to purchase a Fitbit Versa 2, you find the Fitbit manufacturer’s product in a store or online and pay the listed price. Oftentimes products like this, from a specific manufacturer, are the same price wherever you look because of resale price maintenance or a Colgate policy (to be clear, I am not aware of whether Fitbit has any such program or policy). But these vertical price arrangements are not the subject of this article.

Another approach—and the true subject of this article—is to accept bids to purchase a product or service. Governments often send out what are called Requests for Proposals (RFPs) to fulfill the joint goals of obtaining the best combination of price and service/product and to minimize favoritism (which doesn’t always work).

But private companies and individuals might also request bids. Have you ever renovated your house and sought multiple bids from contractors? If so, that is what we are talking about. If you’ve done this as a real-estate investor, you should read our real-estate blog too.

What is Bid-Rigging?

Let’s say you are a bidder and you know that two other companies are also bidding to supply tablets and related services to a business that provides its employees with tablets. The bids are blind, which means you don’t know what the other companies will bid.

You will likely calculate your own costs, add some profit margin, try to guess what the other companies will bid, then bid the best combination of price, product, and services that you can so the buyer picks your company.

This approach puts the buyer in a good position because each of the bidders doesn’t know what the others will bid, so each potential seller is motivated to put together the best offer they can. The buyer can then pick which one it likes best.

But instead of bidding blind, what if you met ahead of time with the other two bidding companies and talked about what you were going to bid? You could, in fact, decide among the three of you which one of you will win this bid, agreeing to allow the others to win bids with other companies. In doing this, you will save a lot of money.

The reason is that you don’t have to put forth your best offer—you just have to bid something that the buyer will take if it is the best of the three bids. You can arrange among the three bidders for the other two bidders to either not bid (which may arouse suspicion) or you could arrange for them to bid a much worse package, so your package looks the best. The three bidders can then rotate this arrangement for other requests for proposals. Or you offer each other subcontracts from the “winner.”

If you did this, you’d save a lot of money, in the short run.

Of course, in the medium and long run, you might be in jail and find yourself on the wrong side of civil antitrust litigation.

This is what is called bid-rigging. It is one of the most severe antitrust violations—so much so that the courts have designated it a per se antitrust violation.

Bid rigging is also a criminal antitrust violation that can lead to jail time. Bid-rigging conduct also leads to civil antitrust litigation. Many years ago, when I was still with DLA Piper, I spent a lot of time on a case that included bid-rigging allegations in the insurance and insurance brokerage industries called In re Insurance Brokerage Antitrust Litigation.

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