978-0077733711 Chapter 50 Lecture Note Part 2

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Chapter 50 – The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities

D. Clayton Act Section 8

1. Discuss the language of Section 8 and the competitive threat at which the statute is

aimed.

a. Note the fairly recent changes in the statute’s language.

Example: Problem Case #10.

E. The Robinson-Patman Act

1. Discuss the historical origins of Section 2 of the Clayton Act and the concerns that led

Congress to amend Section 2 by passing the Robinson-Patman Act in 1936.

2. Note the narrower “in commerce” jurisdictional test that applies to the Robinson-Patman

Act. This test is delineated in Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186 (1974).

For another case on point, see Zoslaw v. MCA Distrib. Corp., 693 F.2d 870 (9th Cir.

1982).

3. Discuss the statutory language of Section 2(a) and note the limitations inherent in that

language.

a. The Act potentially applies only if contemporaneous sales have been made to

different purchasers at different prices. Thus, a sale to a wholly owned subsidiary

will not count as a sale to a different purchaser. See, e.g., Eximco v. Trane, 737 F.2d

505 (5th Cir. 1985). You may also want to note the existence of the “same seller”

doctrine, under which a wholly owned subsidiary’s sales are attributed to its parent

for purposes of Section 2(a) only if the parent actively controls the subsidiary or its

sales. See, e.g., Acme Refrigeration of Baton Rouge, Inc. v. Whirlpool Corp., 785

F.2d 1240 (5th Cir. 1986).

b. Because discriminatory sales are required for a violation, the statute does not apply

to:

1) Sellers who merely quote a discriminatory price or refuse to sell except at a

discriminatory price.

2) Price discrimination in lease and consignment transactions.

c. Because the statute only refers to price discrimination in the sale of “commodities,” it

does not apply to price discrimination involving real estate, intangibles, or services.

d. The commodities sold under discriminatory prices must be “of like grade or quality”

in order for a potential violation to have occurred. This generally means that some

physical difference is necessary to justify a differential price. See, e.g., Hartley &

Parker, Inc. v. Florida Beverage Corp., 307 F.2d 916 (5th Cir. 1952). Differences in

labels or brand names are insufficient to justify discriminatory pricing. See FTC v.

Borden Co., 383 U.S. 637 (1966).

e. Not all price discrimination in the sale of commodities to separate purchasers violates

Section 2(a). Only price discrimination that has a probable anticompetitive effect is

prohibited by the Act.

1) To prove a primary level violation of the Act, the plaintiff must show that the

defendant’s discriminatory pricing either threatened to injure competition with

the plaintiff or did in fact injure such competition. Thus, proof of either

predatory intent or a potential threat to competition is required. Proof of

“predatory pricing” is often offered in such cases. For a classic example, see

Utah Pie Co. v. Continental Baking Co., 386 U.S. 685 (1967). Be certain,

however, to discuss the Supreme Court’s most recent pronouncement on

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Chapter 50 – The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities

predatory pricing allegations in Robinson-Patman Act cases, Brooke Group Ltd.

v. Brown & Williamson Tobacco Corp. (to be discussed later).

Additional Example: Problem Case #7.

2) In secondary and tertiary level cases, courts tend to infer the existence of a

probable competitive injury if evidence is introduced showing substantial price

discrimination among competing purchasers over time. No injury is likely to be

inferred if the price discrimination was merely temporary or if the disfavored

buyer could have obtained the goods from another seller at the same price the

discriminating seller charged to the favored buyer.

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. (p. 1389): Although

the Supreme Court declines to hold that predatory price discrimination violative

of Robinson-Patman Act Section 2(a) cannot occur in the context of an oligopoly,

the Court notes that a successful claim of that nature would be unusual. The

Court holds that the plaintiff in this case failed to prove what was necessary to

sustain such a claim.

Points for Discussion: Note the tremendous size of the jury verdict in favor of the

plaintiff. The verdict, of course, was set aside by the trial judge, whose action

was affirmed by the Fourth Circuit and by the Supreme Court. Even though the

defendant (Brown & Williamson) ultimately prevailed here, the fact that it

initially lost underscores the importance for businesspersons of being aware that

the path to victory may be long and costly. Brown & Williamson would have

incurred substantial costs–monetary and otherwise–en route to the ultimate

determination that it was not liable.

Many of the Court’s comments on predatory pricing allegations apply not only to

the Robinson-Patman Act but also to Sherman Act Section 2 because, as the

Court noted, the essence of a predatory pricing claim is essentially the same

under either statute. Discuss the Court’s repeated emphasis on recoupment as the

critical element of alleged predatory pricing schemes. Note why, in the Court’s

view, the general implausibility of predatory pricing–as indicated in Matsushita—

is increased in the context of an oligopoly. This case and Matsushita have the

combined effect of making predatory pricing claims exceedingly difficult for

plaintiffs to make out, regardless of whether they proceed under the Robinson-

Patman Act or under Sherman Act Section 2.

Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc. (p. 1391): The Supreme

Court reversed the Eighth Circuit’s decision that Volvo had engaged in

secondary-line price discrimination among its dealers by providing some Volvo

dealers higher discounts than others. The Court held that Reeder’s evidence was

mostly unprobative, and that the potentially probative portion was scant and

unsystematic.

Points for Discussion: If, in fact, the “other dealer” in one of the instances cited

by Reeder did possess greater market power than Reeder and managed to extract

higher discounts from Volvo than Reeder could, why is Volvo in court rather than

the other dealer (as a supposed inducer of a discriminatory discount)? The

strongman “other dealer” seems to be the bully here. Isn’t Volvo a victim? Why

should there be a cause of action against Volvo? Perhaps because Volvo is in the

best position to police against price discrimination, and because Volvo, as a

defendant, will create a clearer record for the sake of litigation than the “other

dealer.” Moreover, the “other dealer” might play the strongman by winks and

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Chapter 50 – The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities

nods rather than any clear message obtainable in discovery. The dealer might

even play the strongman without knowing it was doing so. Volvo, on the other

hand, keeps books; it knows, in hard numerical terms, what it charges to this

dealer and that dealer, and any evidence of discrimination should be parseable

relatively scientifically. But in the end, the Court concludes that Reeder doesn’t

have much to go on in this case.

Additional Examples: FTC v. Morton Salt Co., 334 U.S. 37 (1948) (secondary

level); Perkins v. Standard Oil Co., 395 U.S. 642 (1969) (tertiary level).

4. Discuss the various defenses to liability under Section 2(a).

a. Cost justification. Section 2(a) expressly provides for this defense. Difficulties

involved in proving actual cost savings limit its utility.

b. Changing conditions. Also explicitly allowed by Section 2(a), this defense is fairly

narrow in scope.

c. Meeting competition. Discuss this defense and note the type of competitive

responses that it is designed to protect. Example: Problem Case #8 (defendant held

not to be entitled to this defense, however). Point out that this defense is also

available in cases under Sections 2(d) and 2(e). You also may wish to note that

sellers who exchange price information in an attempt to verify each other’s prices

may run afoul of Section 1 of the Sherman Act. See United States v. U.S. Gypsum

Co., 438 U.S. 422 (1978).

5. Discuss the various forms of indirect price discrimination prohibited by the Act. Note the

types of harm these provisions of the Act are designed to prevent.

a. False brokerage (Section 2(c)). Note that no proof of probable harm to competition

is required for a violation, though plaintiffs must prove that they were injured in

order to recover damages. Some courts have applied this section to commercial

bribery cases.

Example: Metrix Warehouse v. Daimler-Benz Aktiengesellschaft, 828 F.2d 1033 (4th

Cir. 1987) (although Metrix’s payments of incentives to parts managers who ordered

parts from Metrix violated Section 2(c) because payments were not for any genuine

services to Metrix, Mercedes-Benz of North America (MBNA) loses Section 2(c)

counterclaim against Metrix due to failure to prove that Metrix’s violation caused

MBNA to experience any losses).

b. Discriminatory payments (Section 2(d)) and services (Section 2(e)). These sections

establish per se violations, as does Section 2(c). No “cost justification” defense is

available in Section 2(d) and Section 2(e) cases. A “meeting competition” defense is

possible, albeit difficult to prove.

6. Point out that buyers who knowingly induce a seller to give them an unlawful

discriminatory price or knowingly receive such a price are liable for violating Section

2(f). The A&P case discussed in the text significantly narrowed the scope of Section 2(f)

by allowing buyers to obtain shelter under the “umbrella” of any Section 2(b) defense

their sellers would have.

F. Antitrust Exceptions and Exemptions

1. Point out that each of the exceptions or exemptions to be discussed represents a point of

tension between our antitrust policy in favor of competition and some other social policy.

A discernible trend in recent antitrust opinions has been in the direction of narrowing the

scope of antitrust immunities and thus expanding the reach of the antitrust laws.

2. Discuss the statutory and nonstatutory exemptions from antitrust scrutiny enjoyed by

labor unions.

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Chapter 50 – The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities

3. Discuss the statutory exemptions enjoyed by agricultural cooperatives and by exporters.

4. Discuss the McCarran-Ferguson Act’s exemption for those aspects of the business of

insurance that are subject to state regulation. Note also the “exception” to the business of

insurance exemption: the exemption does not protect insurance companies from antitrust

scrutiny when they have engaged in a boycott.

Example: Hartford Fire Insurance Co. v. California, 509 U.S. 764 (1993). In this

antitrust case, 19 states and private plaintiffs sued Hartford and other insurers, alleging

that the defendants conspired with foreign reinsurers to force domestic competitors to

make certain changes in their standard form commercial general liability (CGL)

insurance policies. The district court had dismissed the plaintiffs’ complaint, but the

court of appeals reversed. The Supreme Court affirmed in part, reversed in part, and

remanded the case for further proceedings. The Court held (rejecting the plaintiffs’

argument) that in conspiring with foreign reinsurers, the defendant insurers did not step

outside the “business of insurance” and therefore did not lose their business of insurance

exemption under the McCarran-Ferguson Act. The Court also clarified the meaning of

“boycott,” for purposes of the boycott exception to the business of insurance exemption.

The Court held that a boycott occurs when, in order to coerce a target into certain terms

in one transaction, parties refuse to engage in other, unrelated transactions with the target.

Under this definition, it is not a boycott (but rather a permissible cartelization) when

parties refuse to engage in a particular transaction until the terms of that transaction are

agreeable. Some of the plaintiffs’ conspiracy allegations–those alleging refusals by the

reinsurers to engage in reinsurance transactions with domestic insurers regarding matters

unrelated to the CGL policies until the desired language change in the CGL policy form

was effected–were held sufficient to survive a motion to dismiss. Finally, the Court ruled

on an issue of foreign conduct and international comity (to be discussed in a later

subsection).

a. Note that the “business of insurance” exemption provided by the McCarran-Ferguson

Act has come under fire in recent years and may be a target for Congressional

narrowing. See, for instance, the flirted-with but abandoned effort noted at p. 1396 of

the text.

5. Discuss the antitrust immunity enjoyed by regulated industries and note the impact that

the current trend in favor of deregulation is having on the scope of such immunity. The

basic idea here stems from the “implied immunity” doctrine, which held that actions

authorized under regulatory statutes enacted subsequent to the antitrust laws were

impliedly immune from antitrust scrutiny.

6. Discuss the “state action” exemption and the Supreme Court’s tendency in recent decades

to narrow the scope of this important exemption. Here, the Court’s deference to

principles of federalism (often expressed in other contexts) runs head-on into the Court’s

hostility toward anticompetitive activities. The Armstrong case (discussed shortly as part

of the section on the Noerr-Pennington doctrine) illustrates the application of the state

action exemption and shows how it sometimes relates to Noerr-Pennington.

Additional Examples: Federal Trade Commission v. Ticor Title Insurance Co. (Problem

Case #5); Patrick v. Burget, 486 U.S. 94 (1988); Southern Motor Carriers Rate

Conference, Inc. v. United States, 471 U.S. 548 (1985). In Patrick, the Court held that an

Oregon hospital peer-review committee’s decision to terminate a physician’s hospital

privileges was not shielded from antitrust scrutiny by the state action doctrine. The Court

emphasized that a challenged activity cannot qualify for immunity under the state action

doctrine unless it is “clearly articulated and affirmatively expressed as state policy” and

“actively supervised by the state.” The peer-review process at issue in Patrick, although

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Chapter 50 – The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities

mandated by state law, failed to meet the second part of the test because no state entity

actively reviewed peer review decisions to ensure their compliance with state policy. In

Southern Motor Carriers, the Court held that the state action exemption shielded the

activities of two privately operated motor carrier rate bureaus whose collective rate-

making activities were authorized, but not compelled, by state law. The Court rejected

the government’s argument that the challenged activity must be affirmatively compelled

by the state.

a. Note the antitrust problems that confronted municipalities in the wake of the City of

Boulder decision (referred to, though not by name, in the text). These problems

caused Congress to pass the Local Government Antitrust Act of 1984. A later

decision by the Supreme Court has further narrowed the potential antitrust exposure

of municipalities. In Town of Hallie v. City of Eau Claire, 471 U.S. 34 (1985) a

Wisconsin statute empowered cities to establish sewage treatment facilities and to

refuse service to areas outside their boundaries. Eau Claire, Wisconsin created such a

facility and allegedly used its monopoly to force neighboring towns to agree to

annexation. Because such actions were a foreseeable consequence of the statute in

question, the Court held that this was sufficiently akin to a “clearly articulated” state

policy to satisfy the state action requirement. The Court also exempted cities from

the “active state supervision” requirement. Town of Hallie still leaves home-rule

cities with some antitrust exposure, however, because some actions taken by

home-rule cities will not be shielded by a state statute of the sort at issue in Town of

Hallie. Also, it is worth noting that the Local Government Antitrust Act does not

shield, from treble damages liability, municipal officials who acted outside the scope

of their official powers.

7. Discuss the Noerr-Pennington doctrine’s application to attempts to persuade the

legislative or executive branch to take certain action. Also note its application to the

filing and pursuit of a lawsuit. The scope of Noerr-Pennington became a matter of debate

in Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988). There, the

Supreme Court held that a manufacturer’s attempts to lobby a private standard-setting

association were not immune from antitrust scrutiny under Noerr–Pennington even

though the private association’s standards were often adopted by state and local

governments.

Armstrong Surgical Center, Inc. v. Armstrong County Memorial Hospital (p. 1397): The

Third Circuit Court of Appeals holds that the state action exemption and the Noerr–

Pennington doctrine protect the Hospital Defendants against liability on the Surgical

Center’s Sherman Act claims, and that the district court therefore properly dismissed the

Surgical Center’s complaint.

Points for Discussion: This case illustrates the interaction that sometimes exists between

the state action exemption (the Parker doctrine) and the Noerr-Pennington doctrine. Note

the court’s use of the quotation from the Supreme Court’s Omni decision about the two

exemptions being “complementary expressions of the principle that the antitrust laws

regulate business, not politics.”

Ask the class why the state action exemption applies here. (The certificate of need

process was well-established under state law and was actively supervised by the state.)

Ask why Noerr-Pennington protects the defendants. (They were petitioning the

government in an effort to obtain a certain result from a government process.) Ask why

the “sham” exception to Noerr-Pennington doesn’t apply. (The defendants weren’t trying

to use the governmental process an anticompetitive weapon. Rather, they were trying to

influence the outcome of the process and use the outcome to their advantage.) Note how

the court distinguishes and explains the Trial Lawyers case.

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Chapter 50 – The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities

Are your students troubled by the court’s conclusion that the Hospital Defendants’

supposed use of false statements would not deprive them of Parker and Noerr–

Pennington immunity? Note the court’s reasoning on this point and its assertion that

parties such as then Surgical Center have recourses other than antitrust lawsuits at their

disposal when they think that other parties have used false and fraudulent statements in

an effort to influence government action.

You may also wish to have the class consider the Ethics in Action box that appears near

the end of the chapter (at p. 1399). It deals with this case.

a. Discuss the “sham” exception to the Noerr-Pennington doctrine. Note Armstrong‘s

discussion of the sham exception. In Professional Real Estate Investors, Inc. v.

Columbia Pictures Industries, Inc. (Problem Case #11), the Supreme Court held that

when the filing and prosecution of a lawsuit is the activity challenged on antitrust

grounds, the party who brought the lawsuit is not deprived of Noerr-Pennington

immunity on the basis of the sham exception unless the lawsuit was “objectively

baseless.” If the lawsuit was not objectively baseless, the filing party’s subjective

intent–even subjective intent that he, she, or it could not win the case–does not make

the lawsuit a sham.

8. Discuss the patent licensing doctrine and the competing social policies that it seeks to

reconcile.

9. Discuss the various doctrines that shield some foreign commercial activities from

antitrust scrutiny.

a. Sovereign immunity.

b. Act of state doctrine.

Example: Problem Case #9.

c. Sovereign compulsion.

Examples: See Continental Ore Co. v. Union Carbide & Carbon Co., 370 U.S. 690

(1962); Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287 (1979); Hartford

Fire Insurance Co. v. California, 509 U.S. 764 (1993). Hartford‘s major facts and

holdings on other issues were discussed previously in the subsection dealing with the

“business of insurance” exemption. In holdings not summarized there but relevant

here, the Court ruled that the Sherman Act applies to foreign conduct that was meant

to produce and did in fact produce some substantial effect in the United States (such

conduct being present here), and that principles of international comity did not

counsel against obtaining antitrust jurisdiction over the foreign defendants. The Court

reached this conclusion on the international comity issue because foreign law neither

required nor approved the foreign defendants’ conduct (meaning that there was no

conflict between U.S. law and foreign law). Given its disposition of the international

comity issue, the Court presumably would have ruled the same way regarding the

sovereign compulsion doctrine: that it would not protect the defendants from antitrust

scrutiny.

IV. RECOMMENDED REFERENCES:

A. PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW.

B. PHILLIP E. AREEDA & LOUIS KAPLOW, ANTITRUST ANALYSIS: PROBLEMS, TEXT, CASES.

C. HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY.

D. ROBERT BORK, THE ANTITRUST PARADOX.

E. PERRY GOLDBERG, MERGERS AND THE FEDERAL ANTITRUST LAWS.

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Chapter 50 – The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities

F. Robert Pitofsky, New Definitions of Relevant Market and the Assault on Antitrust, 90 COLUM.

L. REV. 1805 (1991).

G. William J. Baer & David A. Balto, New Myths and Old Realities: Recent Developments in

Antitrust Enforcement, 2 COLUM. BUS. L. REV. 207 (1999).

H. Andrew I. Gavil, Secondary Line Price Discrimination and the Fate of Morton Salt: To Save

It, Let It Go, 48 EMORY L.J. 1057 (1999).

I. Thomas M. Jorde, Antitrust and the New State Action Doctrine: A Return to Deferential

Economic Federalism, 75 CALIF. L. REV. 227 (1987). A broad overview of the development

of the state action doctrine, emphasizing the competing social policies at the heart of the

doctrine.

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