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Chapter 50 - The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities
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CHAPTER 50
THE CLAYTON ACT, THE ROBINSON-PATMAN ACT,
AND ANTITRUST EXEMPTIONS AND IMMUNITIES
I. OBJECTIVES:
This chapter is designed to familiarize students with the Clayton and Robinson-Patman Acts, and
with the various statutory and judicially created exemptions and immunities from antitrust
scrutiny. After reading the chapter and attending class, a student should:
A. Understand the origins of both the Clayton and Robinson-Patman Acts.
B. Be familiar with the elements of Sections 3, 7, and 8 of the Clayton Act, the types of business
behavior at which each section is aimed, and the manner in which each section is applied by
the courts.
C. Be familiar with the various forms of price discrimination prohibited by the Robinson-Patman
Act, the proof required to prove a violation in each instance, and the defenses to liability
available under each section of the Act.
D. Be able to identify and explain the various exemptions and immunities from antitrust liability,
including their scope and origins in history and policy.
In addition, see the Learning Objectives that appear near the beginning of the chapter.
II. ANSWERS TO INTRODUCTORY PROBLEM:
III. SUGGESTIONS FOR LECTURE PREPARATION:
A. Introduction
1. Discuss the Clayton Act's origin as an enactment that resulted from Congressional
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2. Point out the Clayton Act's preventive thrust. Note this thrust's consequences in terms of
of the Clayton Act.
B. Clayton Act Section 3
1. Discuss the statutory language of Section 3. Note that it is considerably more detailed
commodities.
2. Discuss tying agreements and their treatment under Section 3. Note the controversy over
the required elements of proof necessary to establish tying liability under Section 3.
Emphasize, however, that the trend appears to be toward requiring the same elements in
Clayton Act-based tying contract cases as in Sherman Act-based tying contract cases. You
a. Note also that the "new business" and "quality control/protection of goodwill"
defenses available under Section 1 of the Sherman Act are also available in Section 3
cases. Example: Problem Case #1. For classic decisions rejecting business
justification defenses because of the availability of less restrictive alternatives, see
shorter-term contracts. This is because shorter-term contracts, all other things being equal,
necessarily involve less harm to competition.
Example: Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380 (7th Cir. 1984).
In Roland Machinery, the plaintiff (a construction equipment dealer of defendant Dresser's
dealing nature between it and Dresser. In addition, the Seventh Circuit concluded that
even if such an agreement existed, it would not unreasonably restrain trade and thus would
not violate Tampa Electric's qualitative (effectively rule of reason) standard. The Seventh
Circuit stressed that its "read" of the Supreme Court was that if the Court were
Tampa Electric approach.
Chapter 50 - The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities
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C. Clayton Act Section 7
non-horizontal mergers.
concentration. Recent administrations have given conflicting indications as to
that discussion.
2. Note how important the relevant market determination is in a Section 7 case. Only those
mergers that may have an anticompetitive effect are outlawed by Section 7. Whether a
challenged merger is likely to have such an effect can only be determined after examining
the relevant market affected by the merger.
a significant percentage of current consumers would shift in the event of a small but
significant and non-transitory increase in the price of the products of the merged
firms..
b. "Section of the country" (relevant geographic market) determinations. Discuss the
be only temporarily sustainable if the merged firms seek to exploit it by raising prices.
3. Discuss the application of Section 7 to horizontal mergers. Stress that such mergers
traditionally have been subjected to the most rigorous scrutiny because of their obvious
impact on concentration in the relevant market. To determine the legality of such a
the merging firms; a past history of acquisitions by the acquiring firm; and the nature
of the acquired firm.
Chapter 50 - The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
b. The Warren Court (the Supreme Court from the mid-1950s to 1969) plainly agreed
with the anticoncentration thrust of Section 7, and sometimes struck down mergers
whose potential anticompetitive effect was dubious at best. For an example, see
United States v. Von's Grocery Co., 384 U.S. 270 (1966), a case that may represent
the high-water mark of Section 7 enforcement.
c. Although the Burger Court (the Court from 1969 to 1986) did not expressly overrule
any of the Warren Court's major merger decisions, United States v. General
Dynamics, 415 U.S. 486 (1974), signaled an intent to insist on more in the way of
plaintiff-competitor had failed to demonstrate that the proposed merger posed a threat
of antitrust injury, and that losses or damage flowing from increased competition do
not constitute such an injury. The dissenters, Justices Stevens and White, argued that
the practical effect of the Court's decision was to prevent private parties from
the merger itself."
d. Discuss the approach to horizontal mergers adopted by the federal government's
merger guidelines.
1) Note the obvious need to examine the degree of concentration in the existing
market and the increase in concentration that would result from the proposed
merger.
2) Discuss the nonmarket share factors that the Justice Department and the FTC will
consider in deciding whether to challenge a merger: the existence of barriers to the
ProMedica Health System, Inc. v. FTC (p. 1377): The U.S. Court of Appeals
upholds the FTC’s determination that a merger between ProMedica and one of its
services (except for OB) and secondary inpatient services, and (2) OB services.
Chapter 50 - The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities
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Then, without moving too deeply into the HHI weeds, note the court’s discussion
of likely concentration effects the merger would have regarding the relevant
product markets. Ask the students how consumers would benefit from this
properly identified a statutory violation.
Federal Trade Commission v. Staples, Inc. (p. 1381): Holding that the FTC
demonstrated a likelihood of success on its Clayton Act Section 7 claim, the
Points for Discussion: This case illustrates a number of issues that arise in
horizontal merger cases. Begin discussion with the relevant market issues. Ask the
class why the court concluded that the relevant product market was consumable
the planned merger would have had a significantly better chance of clearing the
antitrust hurdle posed by the Clayton Act.)
With the relevant market defined as consumable office supplies sold by office
supply superstores in 42 metropolitan areas, note the huge market shares that a
combined Staples-Office Depot would have had (100 percent in 15 metropolitan
areas, and shares ranging from 45 percent to 94 percent in the other 27
might expand their office supply offerings seemed rather remote and unlikely to
have any meaningful competitive effect even if the possibility became reality. Ask
savings projections were unrealistically large.)
Additional Example: Problem Case #2.
4. Discuss the application of Section 7 to vertical mergers.
a. Note the various potential anticompetitive effects that have traditionally been thought
to be associated with some vertical mergers.
Chapter 50 - The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities
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1) Vertical mergers may foreclose competitors from a share of the relevant market.
resulting from the merger, rather than by a contractual arrangement that is subject
to change in the future.
2) Vertical mergers may result in increased barriers to entry for new competitors.
3) Vertical mergers may eliminate potential competition by depriving the relevant
market of the moderating influence of a potential entrant "waiting in the wings,"
competitor than by doing so via internal expansion or a toehold acquisition. From
a traditional antitrust policy standpoint, however, either of the latter two strategies
de minimis, then look at other economic and historical factors. For a classic example
of this approach, see Brown Shoe Co. v. United States, 370 U.S. 294 (1962). For an
approaches, see Problem Case # 3.
c. Discuss the approach to vertical mergers adopted by the federal government's merger
guidelines. Note that federal regulators are likely to be more inclined to consider
concentration in the relevant market, the existence of barriers to entry, and the market
share of the acquired firm.
conglomerate mergers:
1) diversification of product lines.
2) enhancement of corporate growth image.
3) elimination of start-up costs (it may be cheaper to acquire needed technology,
diversify operations, or enter new geographic markets by merger than by internal
development or expansion).
stock prices and encourages a takeover.
d. Critics of conglomerate mergers argue that they:
Chapter 50 - The Clayton Act, the Robinson–Patman Act, and Antitrust Exemptions and Immunities
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1) Increase aggregate concentration in the economy, resulting in a decline in the
of independence, and the increased chance of "ripple effects" throughout the
2) May reduce efficiency by diverting management attention away from corporate
operations in favor of strategies designed to avoid hostile takeovers (e.g., "going
prospective suitor).
e. However one comes out on these arguments, there is widespread sentiment that
Section 7 was not designed to deal with conglomerate mergers and that new
concern.
f. Discuss the theories that courts traditionally have used to attack conglomerate mergers
under Section 7. Note that some conglomerate mergers may not be covered by any of
these theories.
decided by the Supreme Court.
2) Elimination of potential competition. This theory was adopted by the Court in
FTC v. Procter & Gamble Co., 386 U.S. 568 (1967). Note that the Court's later
3) Entrenchment (or "Unfair Advantage"). This theory was also adopted in Procter
& Gamble. Note that it would not be applicable to a "toehold" acquisition.
g. Note that in recent years, the Justice Department has focused on elimination of
potential competition theories as the primary modes of analysis in conglomerate
basically the same track.
h. The Global Business environment box at p. 1386 of the text discusses the European
Union’s approach to merger issues.
D. Clayton Act Section 8
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
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For another case on point, see Zoslaw v. MCA Distrib. Corp., 693 F.2d 870 (9th Cir.
1982).
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,
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.
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.
Supreme Court's most recent pronouncement on 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.
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
