Articles Posted in Types of Antitrust Claims

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Author: Luis Blanquez

Luis Blanquez is an antitrust attorney at Bona Law with fifteen years of competition experience in different jurisdictions within the European Union such as Spain, France, Belgium and the UK. 

You can read our article about the elements for monopolization under U.S. antitrust law here. We also wrote about monopolization on the Bona Law website.

Article 102 TFUE

In the European Union, the Directorate General for Competition of the European Commission (“the Commission”) together with the national competition authorities, directly enforces EU competition rules, Articles 101-109 of the Treaty on the Functioning of the European Union (TFEU).

Article 102 TFEU prohibits abusive conduct by companies that have a dominant position in a particular market.

Here is the language:

Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of  consumers; (c) applying  dissimilar  conditions  to  equivalent  transactions  with  other  trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to  commercial usage, have no connection with the subject of such contracts.

First, article 102 TFEU applies to “undertakings,” which is defined by EU case law as including every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed. (C-41/90 Höfner and Elsner v Macrotron [1991] ECR I-1979).

Natural persons, legal persons, and even states are included in the interpretation of undertakings. (So, as in the United States, governments in Europe might violate the competition laws).

Second, to qualify as an undertaking, the entity must be also engaged in an economic activity, i.e. offering goods and/or services within a relevant market.

Third, to fit within Article 102 TFUE’s prohibition, the conduct must have a minimum level of cross-border effect between member states within the EU.

The concept of dominance under EU antitrust rules

As explained above, article 102 TFEU prohibits abusive conduct by companies that have a dominant position in a particular market.

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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 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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In the most recent issue of The Antitrust Law Journal, attorney Sean P. Gates describes several possible approaches to these discounts, analyzing the good and the bad for each. His article, Antitrust by Analogy: Developing Rules for Loyalty Rebates and Bundled Discounts, is really quite good.

I identified this article as a must-read in a previous blog post, and finally had the opportunity to review it over the weekend (Note: I had been busy starting a new law firm, so fell behind on my reading). I am glad that I did. Since most of the country is having winter this year, I won’t point out that I read it on my San Diego outdoor patio while enjoying the whiff of freshly-cut lawn, the sight of palm trees, and the distraction of whether to eat a delicious orange right off the tree. I won’t mention it even though after many years in Minnesota—I put in my cold time—I would feel justified in doing so.

Anyway, I recommend the article generally, but more specifically for the following people: (1) antitrust attorneys that are into exclusionary conduct; (2) non-antitrust attorneys with clients that sell in a distribution network (including to retailers); (3) business people involved in pricing and marketing decisions for their company; and (4) antitrust law students that are looking for a good review of various types of exclusionary conduct.

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This article is cross-posted in both English and French at Thibault Schrepel’s outstanding competition blog Le Concurrentialiste. Like most antitrust issues today, questions about loyalty discounts are relevant across the globe as competition regimes and courts grapple with the best way to address them.

Companies like to reward their best customers with discounts. It happens everywhere from the local sandwich shop to markets for medical devices, pharmaceutical products, airline tickets, computers, consumer products, and many other products and services.

Customers like loyalty-discount programs (or rebates) because they get more for less. And the reason so many companies offer them is because they are successful.

Everyone wins, right?

Usually. But the program could very well violate antitrust and competition laws in the United States, the European Commission, or other jurisdictions.

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The Internet didn’t fall down after my first post, so I thought I’d try another.

In the US, certain conduct is so obviously anticompetitive that antitrust law labels it per se illegal. These restraints lack redeeming pro-competitive value in almost all instances, so the law allows plaintiffs an important short-cut to pleading and proving such a claim.

The short-cut is that a plaintiff asserting a per-se-antitrust claim need not demonstrate anticompetitive harm. The law presumes such harm. This is huge because this element is one of the most difficult and expensive to prove.

Proving anticompetitive harm is often tough. Plaintiffs usually start by defining the relevant product and geographic markets. This is obvious is some cases; difficult and disputed in others.

Within that defined market, the plaintiff will then usually have to show market or monopoly power, then actual competitive harm in that market that exceeds any competitive benefits from the challenged restraint. It doesn’t always go like this, but that is the typical journey.

Proving all of this almost always requires expert economic testimony, which is—again—almost always disputed by defendants’ economic expert.

So this anticompetitive harm element can become quite burdensome and expensive. That is why fitting a case into a per-se-antitrust package is so valuable for a plaintiff, and risky for a defendant.

Price-fixing agreements usually come to mind as the prototypical per se antitrust violation (keep in mind that antitrust views agreements to limit volume as effectively the same thing). Other examples are market-allocation agreements and certain boycotts.

Let’s talk about market-allocation agreements—as price-fixing is a bit too obvious—so we can see how dangerously easy it is for this per-se-antitrust violation to develop.

Market allocation is an antitrust problem because competitors are agreeing not to compete. The most simple market-allocation agreement is geographic—“you take customers West of the Mississippi, and we will take the ones to the East.”

But sometimes it develops more subtly.

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