978-1259638855 Chapter 49 Part 2

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Chapter 49 – Antitrust: The Sherman Act

49-9

manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

competition. Absent such a showing with respect to a cooperative buying

arrangement, courts should apply a rule of reason analysis.”

You may also wish to note two other Supreme Court decisions involving horizontal

boycotts. In FTC v. Indiana Federation of Dentists, 476 U.S. 447 (1986), the Court

competition in violation of Section 5 of the FTC Act. Significant, for our purposes, is

the fact that the Court applied a rule of reason analysis rather than a per se approach.

authorized higher hourly rates of pay for their services. Two factors seem to explain

the Court’s insistence on the per se rule rather than the rule of reason option chosen in

receives per se treatment.

Additional Example: Problem Case #3.

6. Tying Agreements. Explain the nature of a tying agreement and identify the harm to

by the seller’s tying agreements. From an economic standpoint, the seller is attempting to

treated fairly harshly.

a. Note that tying contracts may also violate Section 3 of the Clayton Act if they involve

commodities.

b. Point out that the Court has made it more difficult for plaintiffs to win tying cases by

insisting on a higher degree of proof of the seller’s market power in the tying product

patent no longer gives rise to a presumption of market power concerning the tying

product.

Points for Discussion: The Court’s opinion hinges on an amendment to the Patent

Act, which provides that when a patent holder is alleged to have engaged in patent

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to the analysis of tying cases, it would not make sense to retain the patent-as–

point is the Supreme Court’s 1947 opinion in International Salt Co. v. United States,

International Salt, however, have involved amounts as low as $200,000, and in one

case, $61,000.

rather than by requiring them to purchase such products from the seller. The

Siegel case cited above addresses this point also.

e. Discuss the Chicago School criticisms of the traditional judicial treatment of tying

contracts.

Browser to its Windows operating system).

7. Discuss reciprocal dealing agreements, the threat they pose to competition under

their legality.

8. Discuss exclusive dealing agreements and requirements contracts. Note that while the

next chapter.

Example: Problem Case #6.

9. Discuss joint ventures, noting that they can sometimes amount to contracts in restraint of

statute to facilitate joint production ventures.

E. Section 2—Monopolization

1. Note that the language of Section 2 does not outlaw monopolies—it outlaws the act of

beginning of the chapter.

2. To prove monopolization, the plaintiff must show that the defendant had both an intent to

monopolize and monopoly power.

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49–11

a. Monopoly power has been defined as the power to fix prices or exclude competitors.

It is ordinarily proven by demonstrating that the defendant has captured a high

percentage share of the relevant market (roughly 70% or more). There are two

components to the relevant market test: the relevant geographic market and the

relevant product market.

text.

b. Early Section 2 cases, most notably the Court’s opinion in the Standard Oil case,

required a showing that the defendant either acquired monopoly power by predatory

or coercive means or abused monopoly power once it was acquired. Under this

way for the Clayton Act.

c. In 1945, Judge Learned Hand’s decision in the Alcoa case provided the modern

definition of monopoly power: the willful acquisition or maintenance of monopoly

United States v. Microsoft Corp. (p. 1360): The D.C. Circuit Court of Appeals

affirms the federal district court’s determination that Microsoft engaged in

monopolization of the worldwide market for Intel-compatible operating systems.

Points for Discussion: This case almost certainly has been the most-publicized

case.

Discuss each of the elements the government had to prove in order to establish that

Microsoft engaged in monopolization: (1) that Microsoft possessed monopoly power

in the relevant market; and (2) that Microsoft exhibited intent to monopolize. Ask the

class what factors caused the district court and the D.C. Circuit to define the relevant

discussions of Microsoft‘s actions with regard to software vendors and developers of

middleware applications. Discuss the court’s comments on Microsoft’s attempts to

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49–12

manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Computer. Note the court’s discussion of the means used by Microsoft to counteract

the threat posed by Java. What do your students think of the court’s assessment

Microsoft’s conduct as a whole? Do they agree that Microsoft “placed an oppressive

thumb on the scale of competitive fortune, thereby effectively guaranteeing its

continued dominance in the relevant market”? (The quoted language comes from the

district court’s opinion.) What do your students think of Microsoft’s contention that

the firm had revolutionalized the state of computing and had greatly benefited

consumers and society, but was now being penalized for its success?

and the U.S. government.

The Global Business Environment box that appears earlier in the chapter (at p. 1359)

reveals that Microsoft has faced similar legal action in the European Union, and has

been fined substantially for its repeated failures to comply with the European

Commission’s injunctions.

to ski on any of the slopes. Although it recognized that a firm with monopoly power

has no general duty to engage in joint marketing with a competitor, the Court observed

that “the absence of an unqualified duty to cooperate does not mean that every time a

firm declines to participate in a cooperative venture, that decision may not have

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3. Discuss attempted monopolization and what must be proven to establish a violation of this

portion of Section 2.

attempted to monopolize the Web browser market. (See the text’s discussion, at p.

1366, of this aspect of Microsoft.) Additional example: Problem Case #11.

Patman Act but contains discussion relevant to predatory pricing allegations under

Sherman Act Section 2. See also the Ethics in Action box that appears in the text at p.

1367.

4. Discuss conspiracy to monopolize and the disagreement among the lower federal courts

shed light on the proper resolution of this disagreement among the lower courts. An

approach that deemphasizes the need for proof of the relevant market may be vulnerable to

IV. RECOMMENDED REFERENCES:

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

C. HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY.

D. ROBERT BORK, THE ANTITRUST PARADOX.

E. Norman W. Hawker, Maximum Resale Price Maintenance Under the Rule of Reason, 51

BAYLOR L. REV. 441 (1999).

UCLA L. REV. 1447 (1993).

V. ANSWERS TO PROBLEM CASES:

1. In Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328 (1990), the Supreme Court held

that USA could not show antitrust injury resulting from ARCO’s actions, even if it were

levels. The Court’s reasoning seems to indicate that the only party likely to be able to

complain successfully about a vertical maximum price-fixing scheme would be a dealer who

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danger of this) because the mandated maximum prices are too low to enable the dealer to

remain in business. As for whether vertical maximum price-fixing is governed by the per se

rule, the Supreme Court noted that it was assuming, arguendo, the correctness of such

treatment for that configuration of price-fixing case. This rather lukewarm endorsement,

coupled with other hints dropped by the Court, led to speculation that the Court could be

evaluated under the rule of reason.)

2. No. This was a horizontal agreement between two competitors to refrain from competing for

absence of such justifications undercut their argument for applying the rule of reason. United

3. No. The Supreme Court held that the per se group boycott rule does not apply “to a buyer’s

decision to buy from one seller rather than another, when that decision cannot be justified in

observed that the freedom to switch suppliers “lies close to the heart of the competitive process

that the antitrust laws seek to encourage.” Although Discon alleged that Materiel hoped to

especially where the complaint’s description of the removal business suggested that entry into

the business was relatively easy. Finally, to apply the per se rule in this case would be to

(1998).

4. The U.S. Court of Appeals for the Seventh Circuit held that per se treatment controlled

because the alleged behavior giving rise to the case would, if proven, amount to horizontal

violate § 1 of the Sherman Act if it is proven, and effectively amounted to a version of rule of

reason analysis. The Seventh Circuit emphasized the longstanding precedents, including those

5. Yes. It is well established that evidence of informal communications among several parties

does not unambiguously support an inference of conspiracy. Such mutual awareness, without

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

services provided by buyers’ brokers required a different policy than for standard sellers‘

brokers. Market Force, Inc. v. Wauwatosa Realty Co., 906 F.2d 1167 (7th Cir. 1990).

6. Yes to both. The Third Circuit held that rule of reason analysis applied and that the district

revenue for Miramax than the much smaller and less reliable Ritz would. As for the effects on

7. Parts and service are distinct. The Court rejected the argument that, because there could be no

demand for service without demand for parts, the two necessarily comprised the same market.

had raised a significant issue of fact concerning Kodak’s market share, the court held there

was a material issue as to Kodak’s market power as well: the fact of competition in the

8. The Supreme Court held that fire-protection services and burglary-protection services were not

too different to be part of the same market. The Court saw no barrier to combining, in a single

terms of the scope of the protection provided. According to the Court, the central station

service market should be see as national, given Grinnell and other companies conducted their

9. No. The federal district court noted that in order to determine whether e-mail advertising was

the relevant product or service market, it needed to consider whether there were any

involving AOL) were available and needed to be considered as part of the relevant market.

The court refused to restrict the relevant market to AOL subscribers “because it is improper to

service, . . . those entities are part of the relevant market.” The court went on to dismiss

Martindale’s counterclaim against AOL. America Online, Inc. v. Greatdeals.net, 49 F. Supp.

2d 851 (E.D. Va. 1999).

Chapter 49 – Antitrust: The Sherman Act

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Parish to go to East Jefferson, the closest hospital. Thirty percent preferred East Jefferson—a

preference that was not indicative of significant market power. The fact that 70 percent of the

patients residing in Jefferson Parish entered hospitals other than East Jefferson caused the

Court to conclude that East Jefferson’s supposed dominance over persons residing in Jefferson

Parish was far from overwhelming. Hence, Hyde failed to prove a critical element of a per se

11. No. The U.S. Supreme Court noted that the precedent relied upon by the Ninth Circuit was

defendant’s ability to lessen or destroy competition in it. Spectrum Sports, Inc. v. McQuillan,

506 U.S. 447 (1993).