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.
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.
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.
The Tenth Circuit, following the Supreme Court’s guidance in Aspen, held that in order to state an antitrust claim for a refusal to deal with a competitor, Novell had to meet two requirements: (1) that there was a “preexisting voluntary and presumably profitable course of dealing between the monopolist and rival,” and (2) that “the monopolist’s discontinuation of the preexisting course of dealing must suggest a willingness to forsake short-term profits to achieve an anti-competitive end.”
In the end the Court concluded there was no antitrust violation because nothing about the discontinuation of such arrangement suggested “a willingness to sacrifice short-term profits, let alone in a manner that was irrational but for its tendency to harm competition.” Quite to the contrary. Microsoft showed there was an economic justification for its conduct other than an anticompetitive goal. It was motivated by its desire to increase profits and was unclear to what extent Microsoft lost or had expected to lose any revenues in the operating system market.
This recent Seventh Circuit case, however, was very different. Programming distributors sell spot cable advertising in two ways: (i) internally, in case they are vertically integrated, such as Comcast, (ii) or through independent representatives like Viamedia. In order to buy advertising time on cable networks, programming distributors enter into what is called an “interconnect”.
In 2012, the interconnect agreements between Comcast, and Viamedia were going to expire. Comcast informed Viamedia that they would no longer have access to Comcast’s interconnects. Viamedia filed an antitrust suit alleging that: (i) Comcast had unlawfully excluded Viamedia from the market––by denying Viamedia access to Comcast’s interconnects, and demanding two of its clients, who happened to also be Comcast’s competitors in the programming distribution market, turn all of their spot advertising over to Comcast; and that (ii) Comcast had also entered into an illegal tying arrangement with the same two clients by forcing them to enter into exclusive advertising agreements as a condition to keep their interconnect access in the relevant geographic markets.
On appeal, the Seventh Circuit held that Comcast had monopoly power in the relevant market and Viamedia’s customers “did not go willingly into Comcast’s arms,” and “they had economically rational reasons for seeking to avoid this entanglement.” In other words, under normal circumstances, none of them would have made the final decision to do business with Comcast.
In addition, Comcast terminated a pre-existing long-term voluntary relationship with Viamedia. During trial Viamedia succeeded to present evidence that, as a result of such decision, Comcast had lost $40 million in revenues. According to the Court, “Comcast deliberately adopted a strategy it knew would cost Comcast itself millions of dollars in the short run, but the strategy eventually gave it monopoly power in these local markets for advertising representation services.”
In the end, the Seventh Circuit held that the district court erred in dismissing the refusal to deal claim.
First you must determine whether you are dealing with a firm that has monopoly power in the relevant market.
Second, you must have a pre-existing, voluntary and presumably profitable business relationship with your supplier, the monopolist.
Third, you must show a decision by the monopolist to sacrifice short-term profits without any economic justification. In other words, you need to prove that the monopolist’s refusal to deal is part of a larger anticompetitive enterprise, such as for instance, to exclude a rival from the market The monopolist’s conduct must be irrational but for its anticompetitive effect, so it cannot come forward with evidence showing that there are any efficiency reasons for its conduct.
All aspects of the test above must be present for a refusal-to-deal monopolization claim to be viable.