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Add. Case: Thompson Everett v. Natl. Cable Advertising (4th Cir., 1995)--Thompson Everett
(TE) claimed it was illegally denied access to cable TV companies and the chance to earn
commissions from the sale of cable air time for spot advertising because three defendant
companies (“traditional cable representatives”) have exclusive contracts with cable TV
companies to serve as their sales agents to sell cable air time to advertisers. That arrangement
excluded TE from the cable representative business and the commissions earned in that business.
Court granted summary judgment for defendants.
Decision: Affirmed. The “exclusive agreements did not have a substantial anti-competitive
effect.” Exclusive contracts exist because the cable TV companies want stable, long-term
relationships with cable ad reps that have expertise in selling ads. The cable reps “maintain that
Boycotts—A boycott involves a conspiracy by a group to prevent another business from
operating effectively or to harm another business. Boycotts are often used to force compliance
with a price-fixing scheme or some other restraint of trade. Boycotts in these circumstances are
per se illegal. An early case was Eastern States Retail Lumber Dealers Association (1914), when
a group of lumber retailers agreed not to buy lumber from a lumber dealer that also sold to the
public. Even though the boycott had no effect, the Court struck it down as a per se violation of
the Sherman Act. Boycotts are typically efforts by horizontal competitors to restrict vertical
competition. Such efforts by horizontal competitors are held to be per se illegal because they
significantly restrict competition.
Add. Case: FTC v. Superior Court Trial Lawyers Assn. (S. Ct., 1990)--In DC, a group of
about 100 private attorneys worked mostly as court-appointed lawyers for indigent defendants.
These attorneys were paid by the District at a per hour rate set by the City. In 1983, the Superior
Court Trial Lawyers Association, to which the attorneys belonged, demanded that the District of
Columbia double the hourly rate they were paid. The District refused and the SCTLA organized
a boycott of the courts in which most of the attorneys participated. The criminal legal system in
the District was almost brought to a halt. The District buckled under and raised the fees of the
attorneys. The FTC sued, alleging a conspiracy to fix prices and use of unfair methods of
competition.
Decision: The Court noted that prior to the boycott the court-appointed attorneys competed with
each other by deciding, individually, how often to provide services to the District of Columbia.
The boycott instituted by the attorneys reflected an effort to restrict service and raise prices.
Add. Case: Eichorn v. AT&T (3rd Cir., 2001)--AT&T wanted to sell a subsidiary, Paradyne.
Since the skills of employees were key to Paradyne, AT&T wanted to give the buyer assurance
that AT&T would not hire away Paradyne employees. Paradyne was sold to Texas Pacific Group
(TPG) at the same time Lucent and NCR were divested from AT&T. The sale to TPG stated that
for eight months after the sale, AT&T, Lucent and NCR would not hire or solicit the services of
any Paradyne employee who earned over $50,000 a year. Former Paradyne employees sued
AT&T and TPG for an illegal boycott in violation of Section 1 of the Sherman Act for the no-hire
agreement. Court dismissed the suit. The plaintiffs appealed.
Decision: Affirmed. The rule of reason applies, which means the plaintiffs have the burden to
show that the challenged acts are unreasonably restrictive of competitive conditions. This
Add. Case: NYNEX v. Discon (S. Ct., 1998)--Discon provided services to a NYNEX subsidiary.
The buyer quit using Discon and bought the services from AT&T instead. Discon sued, claiming
the switch violated §1 of the Sherman Act, as the buyer paid AT&T more than it paid Discon.
NYNEX passed on the higher cost via its regulated telephone market. Discon claimed that AT&T
gave the buyer and NYNEX a rebate at the end of the year. Discon claimed it was driven out of
business by this anti-competitive boycott. Lower court decisions were mixed; NYNEX appealed.
Decision: Reversed. The per se group boycott rule does not apply to a single buyer’s decision to
buy from one seller rather than another. The per se rule does not apply because the case
THE ROBINSON-PATMAN ACT—This Act amended the Clayton Act in 1936 by stating that
price discrimination in commerce shall be unlawful where it substantially lessens competition or
tends to create monopolies. §2(a) of the Act is cited as the most controversial provision of the
antitrust laws. Because of criticism it has received, the government is reluctant to prosecute
under this act, so most Robinson-Patman actions are private actions.
Price Discrimination—Price discrimination may involve either the sale of the same product at
different prices in different markets or the use of bulk purchase discounting to large volume
retailers.
Predatory Pricing—The act of charging different prices in different markets in a effort to
undercut competitors to drive them out of business, so the survivor can control the market.
CASE: Weyerhaeuser v. Ross-Simmons Hardwood Lumber (Sup. Ct., 2007)—Ross contended
it was driven out of business by predatory bidding. Weyerhaeuser would outbid Ross for timber
to process into lumber. Ross sued for Robinson-Patman violation and was awarded $26 million
by the jury. Appeals court affirmed. Weyerhaeuser appealed.
Decision: Vacated and remanded. Predatory bidding, like predatory pricing, can violate R-P if
used as a tool to dominate a market. In such cases, a firm suffers losses in the short run by
bidding high prices so as to drive out the competition by controlling inputs, and then enjoys high
Questions: 1. The Supreme Court held that there was no basis for an antitrust suit based on a
claim of predatory bidding. Since Ross was driven from the market, why did its claim not hold?
It could not show that Weyerhaeuser was suffering a loss by outbidding Ross for the logs; in fact
2. If Weyerhaeuser was more profitable than Ross, why could Ross not show that Weyerhaeuser
had an unfair advantage in the market?
Antitrust does not protect the inefficient from more efficient competitors who can out bid or
Add. Info: Courts today are much more reluctant than in the past to find price cutters in
violation of antitrust law. There is growing appreciation that prices driven low by healthy
competition can too easily be mistaken for predatory low prices. In two cases, Matsushita
Electric Industrial Co., Ltd. v. Zenith Radio Corp. (106 S.Ct. 1348) and Brooke Group, the
Supreme Court raised the evidentiary burden on plaintiffs alleging predatory pricing. To win,
plaintiff must present clear evidence that (1) the defendant priced below cost; (2) these
below-cost prices genuinely threaten the survival of the defendant’s rivals; and (3) the defendant
would enjoy its monopoly long enough to recoup the losses it necessarily suffered during the
price war.
Add. Case: Brooke Group v. Brown & Williamson Tobacco (S. Ct., 1993)--Liggett (Brooke
Group) pioneered the production of generic cigarettes. Eventually, Brown & Williamson began
producing its own generic cigarettes. B&W charged lower prices (via large rebates) for its
generics than for its established brand-name cigarettes. Liggett sued B&W for violating the R-P
Act’s prohibition against price discrimination that threatens to lessen competition. Liggett
argued that B&W engaged in an elaborate conspiracy with four other tobacco companies to
drive Liggett out of the generic-cigarette business. B&W sold generics at predatory low prices
for the purpose of persuading Liggett to stop producing. Once Liggett quit generics, B&W and
the other tobacco companies would return to selling only brand-name cigarettes at monopoly
prices. The 4th Circuit held that the evidence did not support Liggett’s charge.
Decision: Affirmed. The Supreme Court found implausible Liggett’s argument that B&W could
be part of a coordinated conspiracy among five cigarette producers first to drive generic prices
Volume Discounts Legal?—Price discounts given to large volume retailers give those retailers a
competitive advantage. Competition in an area is injured and the Robinson-Patman Act may
forbid such activity. The parties must make sure they have a plausible defense.
Issue Spotter: Who Do You Sell What To and For How Much?
Robinson-Patman suits, based on this sort of situation, are among the most common of all private
antitrust suits. Obviously you want the Home Depot business, so will think hard about how to cut
the price for them. It allows your production to run smoothly for a long time, assuring a good
revenue flow. The cost of shipping a refrigerator to Bob’s in Kansas City is little different than
shipping refrigerators to Home Depot in Kansas City, so there is not much of a transport cost
difference that will affect price. If Bob’s can show that you sold to Home Depot for less than you
sold to Bob’s, you may have an R-P violation. One way to avoid that is to offer quantity
discounts to all buyers, so you are not being selective in who you give price breaks to. If Bob’s
orders a lot, Bob’s gets a price cut too. That may lessen, but not eliminate the problem, since it
can be argued that is just a way to get around the R-P problem. Easier yet, to avoid the problem,
just do not sell to Bob’s. Then Bob’s cannot sue for price discrimination.
Defenses—Defenses to suits brought under Robinson-Patman include cost justification for a
price difference (transportation costs may result in a legal price difference). This defense is
difficult to prove and rarely successful. Another defense under the Act is the meeting competition
defense. A company that cuts prices in response to a price cut by a competitor might use this
defense. However, if the first price cut is illegal under the Robinson-Patman Act, subsequent
price cuts might also be illegal. The party using the defense must prove that the cut was made in
good faith in order to stay competitive and not in an effort to harm competition.
Add. Case: Texaco v. Hasbrouck (S. Ct., 1990)--Texaco sold gasoline to Hasbrouck and other
retailers in Spokane, Washington. Texaco gave discounts to Gull and Dompier; but refused to
give similar discounts to Hasbrouck and other independent retailers. Texaco refused such
discounts even after Hasbrouck offered to adopt Dompier’s practice of using its own trucks to
pick up gasoline from Texaco. Gasoline sales by Hasbrouck and other independents fell from 76
to 49 percent of Texaco retail sales in the area. Hasbrouck and others sued Texaco under the R-P
Act, alleging that Texaco’s refusal to offer them the same discounts offered to Gull and Dompier
was illegal price discrimination--price discrimination not justified by cost differences and that
imperiled competition in the retail gasoline market. The court awarded treble damages to
Hasbrouck; the court of appeals affirmed. On appeal, Texaco justified its discounts by pointing
to R-P language that permits discounts that compensate buyers for services such buyers provide
to sellers.
Decision: Affirmed. The Court reiterated its long-held view that all price differences for the
same good amount to price discrimination under R-P. The Court also found that there was ample
Add. Case: Boise Cascade v. FTC (D.C. Cir., 1988)--Boise, an integrated forest products
company, operated as a double distributor in office products. It bought products from
manufacturers as a wholesaler (and received discounts from manufacturers on this basis), and
resold these products to consumers in a retail capacity. The government brought suit, alleging
that this constituted price discrimination and was a violation of §2(a) of the R-P Act.
Decision: The discount was a hybrid (both trade and functional) of a form common in the office
products industry. The discount entices wholesalers to undertake some distribution and
marketing functions for which the manufacturer would otherwise be responsible. Although other
wholesalers did not receive discounts from manufacturers like those received by Boise, it did not
conspire with the manufacturers to obtain lower prices; it simply negotiated. No evidence was
Add. Case: Acadia Motors v. Ford Motor (1st Cir., 1995)--Maine law, which regulates
manufacturer-dealer relationships, requires car manufacturers to reimburse dealers—at retail
prices—for parts the dealers use to perform repairs under warranty. In other states the dealers
are reimbursed by Ford and other makers at less than retail prices [since, obviously, the dealers
buy at wholesale]. Ford estimated “that in order to recover this increase in its costs of doing
business in Maine, it would ... increase the wholesale price of each new vehicle sold, through
assessment of a surcharge [in Maine] of approximately $160 per vehicle.” Thirty-two Maine
Ford dealers sued Ford for violation of R-P for charging higher prices for vehicles in Maine
than in other states.
Decision: Since Ford was forced to incur additional costs by the Maine law, it could recover the
Discussion Question
Monopoly and monopolistic practices are often difficult to define precisely. The effects of many
practices are genuinely unclear, and many other practices both restrain competition in one area
and enhance it in another. For example, nonprice vertical restraints often increase competition
among brands but only by reducing competition among sellers of the same brand. Congress
arguably understood when it enacted the Sherman Act that business practices are so varied that
an effective antitrust policy requires that courts have ample discretion to weigh the likely effects
on competition of specific challenged business practices. Of course, if Congress had written a
more precise antitrust statute, managers would face less uncertainty in knowing whether a
particular practice is legal or illegal. However, greater specificity by Congress would also make
it more difficult for courts to excuse business behavior that is clearly pro-competitive but which
inadvertently falls into a prohibited class of actions. Likewise, greater specificity would prevent
courts from punishing wrongful actions that happen to escape any specified prohibition in the
statute.
Case Questions
1. The Society of Professional Engineers got little sympathy from the Supreme Court. The
Society prohibited competitive bidding as unethical, saying that engineers should live on their
reputations. The Court said that under the rule of reason the Society had no basis to justify the
2. (answer on Internet for students) The court held that because there was a collective bargaining
agreement between the NBA and the players’ union, the antitrust laws could not apply to the
terms of the agreement due to the labor exemption from antitrust. Employers (teams) can bargain
3. No. The district court struck down the statute and the court of appeals agreed. The Parker
Doctrine does not apply, so the state is not entitled to antitrust immunity. The statute mandating a
minimum mark-up on gas is a per se violation of Section 1 of the Sherman Act as a restraint of
trade. Therefore, the state law violated the Supremacy Clause of the Constitution and the law is
4. (answer on Internet for students) The Supreme Court upheld the judgment against the larger
ski company, holding it liable for $2.5 million in damages which were trebled under the Sherman
Act to $7.5 million. The Court noted that it was common practice in the skiing industry for
5. No monopolization. The Second Circuit found that the relevant market is soft drinks, not
fountain syrup, since the products are close substitutes. There was no evidence of a conspiracy
between Coke and the IFDs. Most importantly, Pepsi had access to other methods of distribution
6. (answer on Internet for students) The government sued Syufy for unlawfully monopolizing
the market for exhibiting first-run movies in the Las Vegas area. The appellate court rejected the
government’s suit. Although Syufy did at one point acquire all of Las Vegas’s movie theaters
devoted to first-run movies, the court pointed out that no harm to competition resulted because
entry into the movie-exhibition industry is easy (thus restraining the ability of an exhibitor to
7. (answer on Internet for students) Affirmed. Johnson lacked standing to maintain an antitrust
claim. There was no antitrust injury arising from the hospital’s decision not to grant her the
money to start her own practice. The initial oral discussions with the hospital recruiter did not
8. No; the decision was reversed. Even if there was a tying arrangement, it was not illegal since
there was no evidence that the arrangement had an adverse effect on competition. The hamburger
9. Utah Pie won. The Supreme Court found that Robinson-Patman had been violated because
defendant large national frozen pie company sold frozen pies in the relevant Salt Lake City
Ethics Question
This illustrates difficulties in the Robinson-Patman Act, which serves to subsidize less efficient
stores at the expense of large discounters. If there is a social policy that the public should
One could argue that it would be unethical not to cut price if the price cut was going to result in
If the price cut is requested by the retailer because the retailer knows it is important to the
producer--and there is no mention of a cut in retail prices--then there is a strategic bargaining
problem that economists call opportunistic behavior. The big retailer can exploit the producer
Internet Assignment
FindLaw Supreme Court Docket, Weyerhaeuser Company v. Ross-Simmons Hardwood Lumber
Company No. 05-381:
http://supreme.lp.findlaw.com/supreme_court/docket/2006/november/05-381-weyerhauser-v-ros
s-simmons.html
Materials Relevant to Weyerhaeuser Company v. Ross-Simmons Hardwood Lumber Company,
Inc., Supreme Court of the United States No. 05-381:
www.alderantitrust.com/
American Bar Association, Preview of Unites States Supreme Court Cases:
www.abanet.org/publiced/preview/briefs/home. html
Two websites provide legal briefs related to Weyerhaeuser Co. v. Ross-Simmons Hardwood
Lumber Co. (127 S.Ct. 1069 (2007)), a case in the text. The ABA website provides previews of
cases that have or are coming before the U.S. Supreme Court.
