Here, the evidence shows that the freeriding story is inverted. The manufacturers wanted a business strategy under
which they distributed their toys to as many different kinds of outlets as would accept them: exclusive toy shops, TRU,
discount department stores, and warehouse clubs. Rightly or wrongly, this was the distribution strategy that each one
believed would maximize its individual output and profits. The manufacturers did not think that the alleged “extra
services” TRU might have been providing were necessary. This is crucial, because the most important insight behind
What TRU wanted or did not want is neither here nor there for purposes of the free rider argument. Its economic
interest was in maximizing its own profits, not in keeping down its suppliers’ cost of doing business. Furthermore, we
note that the Commission made a plausible argument for the proposition that there was little or no opportunity to
“free” ride on anything here in any event. The consumer is not taking a free ride if the cost of the service can be
D. Remedy
Last, we consider TRU’s challenge to the remedial provisions the Commission ordered. TRU’s basic point here is that
the Commission has commanded it to do things that it would have been free to refuse, and conversely to refrain from
actions it would have been free to take, in the absence of its violation of FTC Act § 5. So that its arguments can be
fully understood, we set forth Section II of the decree in its entirety here:
IT IS ORDERED that respondent, directly or indirectly, through any corporation, subsidiary, division or other device, in
connection with the actual or potential purchase or distribution of toys and related products, in or affecting commerce,
as “commerce” is defined in the Federal Trade Commission Act, forthwith cease and desist from:
A. Continuing, maintaining, entering into, and attempting to enter into any agreement or understanding with any
supplier to limit supply or to refuse to sell toys and related products to any toy discounter.
B. Urging, inducing, coercing, or pressuring, or attempting to urge, induce, coerce, or pressure, any supplier to limit
supply or to refuse to sell toys and related products to any toy discounter.
PROVIDED, however, that nothing in this order shall prevent respondent from seeking or entering into exclusive
arrangements with suppliers with respect to particular toys.
TRU makes a perfunctory, one-paragraph argument that paragraphs II(B), II(C), II(D), and II(E)(1) impose a “gag
order” that contravenes the Supreme Court’s recognition in Monsanto Co. v. Spray-Rite Corp., supra, that
manufacturers and distributors have a legitimate need for a free flow of information between them. This order, they
claim, will create an irrational dislocation in the market to the detriment of toy suppliers, retailers, and consumers.
We consider first TRU’s challenges to parts II(B) through II(D) of the order. (It has not mentioned II(A) in its brief, and
thus it has waived any challenge to that part of the order.) In general, if a retailer had some kind of restricted
distribution arrangement with a manufacturer, Monsanto holds that it is permissible for the retailer to urge the
manufacturer to respect the limits of that agreement. The retailer may communicate complaints about the provision of
product to discounters, if that runs afoul of the promises in the distribution agreement. Colgate indicates that the
retailer would also be within its rights to tell the manufacturer that it will no longer stock the manufacturer’s product, if
it is unhappy with the company it is keeping (i.e. if the manufacturer is sending too many goods to discounters, stores
with a reputation for rude and sloppy service, or other undesirables).
Two facts distinguish these general rules from the situation in which TRU finds itself. First, unilateral actions of the
sort protected by Monsanto and Colgate are not the same thing as a retailer’s request to the manufacturer to change
the latter’s business practice. Under paragraph II(B) of the decree, TRU must not tell the manufacturer what to do; it
The second point also applies to TRU’s objections to paragraphs II(C) and II(D). In addition, we note that the retailer
should not have any reason to obtain its suppliers’ business records about shipments to the retailer’s competitors.
That is the supplier’s concern. TRU is protected as long as it can ensure that it receives what was promised to it.
Paragraph II(E) appears to be the one that causes the greatest concern to TRU. This strikes us as a closer call, but in
this connection the standard of review becomes important. The Commission has represented in its brief to this court
that the decree “leaves [TRU] free to make stocking decisions based on a wide range of business reasons; it must
simply make those decisions-for a period of five years-independent of whether clubs or other discounters are carrying
the same item.” FTC Brief at 58. The attempt to use its market clout to harm the warehouse clubs lies at the heart of
this case, and so it is easy to see why the Commission chose to prohibit reliance on the supplier’s practices vis … vis
order.
III.
We conclude that the Commission’s decision is supported by substantial evidence on the record, and that its remedial
decree falls within the broad discretion it has been granted under the FTC Act. The decision is hereby Affirmed.
C.A.7,2000.
Toys “R” Us, Inc. v. F.T.C.
221 F.3d 928, 2000
The court found that TRU had violated the Clayton Act. Notice the remedy – TRU is under a five-year consent decree
– an order that was renewed a number of times and it was not until April of 2014 that the FTC lifted the
record-keeping requirements that the 2000 court decision imposed. There was a 14-year period the company lived
through as a sanction for the attempt to control the toy market pricing and distribution.
Ethical issues include the use of duress and the unwillingness to compete on the basis of price or quality of
merchandise.
C. Boycotts and refusals to deal
D. Mergers among competitors
1. Premerger notification – Department of Justice’s opportunity to review proposed merger
2. Takeover laws
a. Congress regulates hostile takeovers through share acquisitions
DISCUSSION POINTS: Thinking Things Through
Teeth Whitening and the Antitrust Laws
The market for teeth whitening began in the 1990s. North Carolina dentists grew a market for the application of
concentrations of peroxide to teeth to create a chemical reaction that results in whiter teeth. In about 2003,
non-dentists also started offering teeth-whitening services, often at a significantly lower price than the dentists. Day
spas, chain whitening franchises, and other businesses offered the service. Shortly thereafter, dentists began
complaining to the North Carolina State Board of Dental Examiners and sought to have the non-dentist whitening
services shut down because allowing such services to be performed by non-dentists created public health, safety,
and welfare concerns.
After receiving complaints from dentists, the Board opened an investigation into teeth-whitening services performed
by non-dentists. As a result of the investigations, the Board issued 47 cease-and-desist letters to 29 non-dentist
The FTC filed a complaint against the Board charging it with unfair competition. The Board moved to dismiss the
complaint, but an administrative law judge refused to grant the dismissal. In response, the Board filed a federal
declaratory action, requesting that a federal court stop the administrative proceeding against it. The district court
dismissed that action as an improper attempt to enjoin ongoing administrative procedure.
The FTC issued a final order that prohibited the Board from issuing the cease-and-desist orders, and the Board
appealed the final decision. The federal court of appeals held that:
(1) board did not satisfy the requirements for immunity under state action doctrine;
The Board appealed and the U.S. Supreme Court heard oral arguments. The justices, through their questions,
seemed skeptical in believing that the Board’s actions were necessary for the public health, safety, and welfare.
North Carolina State Bd. of Dental Examiners v. F.T.C., 135 S. Ct. 1101 (2015).
DISCUSSION POINTS: E-Commerce & Cyberlaw
Steve Jobs’s E-Mails in Apple’s Antitrust Litigation
Discuss the following key points with the students:
E-mail is evidence
E-mail at work is not private
Offer the Jennings’ principles:
Think before you write.
When in doubt, ask before you write.
Think before you send.
When in doubt, ask before you send.
Re-read before you send.
Sleep on an e-mail before you send it.
III. How Does the Government Regulate the Supply Chain and Vertical Markets?
A. Prohibited price discrimination
1 Prohibits discrimination between different buyers of like commodities where the effect of the
discrimination is to lessen competition or create a monopoly
B. Permitted price discrimination
1. Differences in grade, quality or quantity
2. Differences in cost of transportation
CASE BRIEF: Utah Pie Co. v. Continental Baking Co.
386 U.S. 685 (1967)
FACTS: Utah Pie is a Utah corporation that has been baking and selling pies in Utah and the surrounding
areas for thirty years. Continental Baking, Pet Milk, and Carnation, primarily based out of
California, sell pies in Utah on a delivered price basis. The major competitive weapon in the Utah
market became price. Utah Pie was selling at a price of $4.15 per dozen and by the time the suit
was filed was selling at $2.75 per dozen. Continental was selling for $5.00 per dozen and finished
at $2.85 per dozen. Pet’s prices went from $4.92 to $3.46 and Carnation’s went from $4.82 to
$3.30. Utah Pie sued for price discrimination. The District Court found price discrimination and the
Court of Appeals reversed.
ISSUE: Was there price discrimination in the Utah market?
HOLDING: Yes.
REASONING: The California companies were selling at different prices in Utah. The price discrimination made it
difficult for competitive entry into the market and affected Utah Pie.
DISCUSSION POINTS: Have the students discuss predatory pricing using the Utah Pie Co. v. Continental Baking
Co. case.
C. Right to refuse to deal for discounting
1. At one time was a per se violation
CASE BRIEF: Leegin Creative Leather Products, Inc. v. PSKS, Inc.
551 U.S. 877 (2007)
FACTS: Leegin Creative Leather Products, Inc. (Leegin) (petitioner), designs, manufactures, and distributes
leather goods and accessories under the brand name “Brighton.” The Brighton brand has now
expanded into a full line of women’s fashion accessories and is sold across the United States in
over 5,000 retail stores. PSKS, Inc., (PSKS) (respondent) runs Kay’s Kloset, a Brighton retailer in
Lewisville, Texas.
Leegin’s president, Jerry Kohl, who also has an interest in about 70 stores that sell Brighton
products, believes that small retailers treat customers better, provide customers more services,
and make their shopping experience more satisfactory than do larger, often impersonal retailers. In
1997, Kohl instituted the “Brighton Retail Pricing and Promotion Policy,” which banished retailers
that discounted Brighton goods below suggested prices. The policy had an exception for products
not selling well that the retailer did not plan on reordering.
In December 2002, Leegin discovered Kay’s Kloset had been marking down Brighton’s entire line
by 20 percent. Kay’s Kloset said it did so to compete with nearby retailers who also were
undercutting Leegin’s suggested prices. Leegin, nonetheless, requested that Kay’s Kloset cease
discounting. Its request refused, Leegin stopped selling to the store. The loss of the Brighton brand
had a considerable negative impact on the store’s revenue from sales (about 40-50% of its profits
were from Brighton).
PSKS sued Leegin for violation of the antitrust laws. Leegin asked to introduce expert testimony
describing the procompetitive effects of its pricing policy. The District Court excluded the testimony,
relying Leegin’s conduct to be a per se violation of federal antitrust laws.
The jury awarded PSKS $1.2 million in damages and the judge trebled the damages and
reimbursed PSKS for its attorney’s fees and costs, for a judgment against Leegin of $3,975,000.80.
The Court of Appeals affirmed. Leegin appealed. The U.S. Supreme Court granted certiorari.
ISSUE: Is the enforcement of a resale price maintenance agreement a per se violation or rule of reason
issue?
REASONING: The enforcement of these agreements is a rule of reason decision because the manufacturer may
DISCUSSION POINTS: Have the students discuss resale price maintenance using the Leegin Creative Leather
Products, Inc. v. PSKS, Inc.
D. Resale price maintenance
1. Permitted if competition overall is good
CASE BRIEF: State Oil v. Khan
522 U.S. 3 (1997)
FACTS: Barkat Khan leased a gas station from State Oil. Khan would buy gas from State at a price equal
to a suggested retail price less 3.25 cents margin per gallon. If Khan charged more than suggested
ISSUE: Was there price fixing and a violation of the law? Is vertical price fixing a per se violation?
REASONING: There is still interbrand competition. Rule-of-reason analysis applies. Remanded for trial under
rule-of-reason standard.
DISCUSSION POINTS: Have students discuss price controls using the State Oil v. Khan case.
E. Tying sales to unwanted product is prohibited
CASE BRIEF: Illinois Tool Works Inc. v. Independent Ink, Inc.
547 U.S. 28 (2006)
FACTS: Trident, Inc., and its parent, Illinois Tool Works Inc. (Petitioners), manufacture and market printing
systems that include: (1) a patented piezoelectric impulse ink jet printhead; (2) a patented ink
container, consisting of a bottle and valved cap, which attaches to the printhead; and (3) specially
designed, but unpatented, ink. These products are sold to original equipment manufacturers
The federal district court granted summary judgment for Illinois, and Independent appealed. The
appellate court reversed the decision and Illinois appealed.
ISSUE: Was there an illegal tying arrangement and can a non-patented product be tied to a patented
product?
HOLDING AND
DISCUSSION POINTS: Sports & Entertainment Law
Ticket Issues and Antitrust
The ticket resale market tends to be a changing and evolving one. This merger was approved, but it has proven to
have impact on the ticket resale market that was not foreseen. The presence of this large integrated company has
driven smaller ticket sellers out of business. The result has been that consumers have lost a different form of
competition, which was the service benefits as well as package deals of the smaller ticket resellers. In addition, the
size of the merged company has given it lobbying power to change ticket resale laws in the states that also have
driven smaller ticket resellers out of business.
F. Mergers along the supply chain
IV. What are the Penalties and Remedies Available When There is Anticompetitive Behavior?
A. Powers used to protect business
1. Examine some matters using a per se rule (automatic violation)
2. Use the rule of reason on other matters – primary goal is to foster competition
3. Remedies
a. Criminal penalties
iii. 10-year terms
b. Civil remedies
i. Treble damages
ii. Class action suits
iii. Attorney general (parens patriae) suit
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. Monopolization. Yes, they can recover. This case is one of many in which highly integrated industries were
found to be fixing prices. The expansion of the definition of interstate commerce, began by NLRB, continued with
the Mandeville decision. The court looked beyond the artificial and mechanical separation of “manufacturing”
from “commerce” to arrive at its decision. Highly-integrated industry and manufacturing became the norm during
the industrial revolution and the law began to catch up with this reality after 1937. Prior to 1937, the Court limited
2. Monopolization. A monopolist has market power, or the ability to control prices and exclude competition. Market
share is an indicator of market power, and defining the market controls how great the market share will be.
At the time of the issue, Starbucks had a 73 percent market share in coffee shops, but if the combination
doughnut and coffeehouses were included, its share was less than 50 percent. However, Starbucks did and does
dominate certain geographic areas. The situation presents a potential monopolist situation because of
3. Tying. Tying is illegal if the company doing the tying has market power (the ability to command a tying
arrangement) unless the tied product is something required to maintain quality, such as in a franchise for
purposes of quality or goodwill. Dunkin’ Donuts is a franchise organization that has a brand to protect and wants
4. Monopolization; price-fixing. The elements for price fixing are that competitors act together to keep prices at a
certain level or agree to price. A price maximum is a form of price fixing, and here the NCAA had imposed a
The NCAA might have had the best of intentions, but the NCAA is a group of college and university competitors
acting in concert to control coaches’ salaries (prices). The result was that coaches’ salaries were kept artificially
5. Price discrimination. Yes. The providing of anything free to one and not to other competitors is an unlawful price
discrimination. The net effect of what Hines did was that some shops purchased merchandise, a demonstrator,
6. Price discrimination in interstate commerce. No. Although the price discrimination occurred only locally, it was
Authors’ Comment: The effect of this decision is to amend the federal statute so that it is violated whenever the
business discriminating as to prices is an interstate business. The Court is concerned with the danger that the
7. Price discrimination. Yes, the different prices violate Robinson-Patman unless there are differences in cost,
8. Vertical price controls. This case is the Leegin case with a different product that depends on quality and
customer relations.
9. Tying. The District Court dismissed the suit. Court of Appeals reversed and held the contract with Roux was
illegal per se. There was no illegal per se tying arrangement – i.e., people who used Jefferson had to use Roux?
10. Monopolization. The parties are dividing up markets, not competing. They are also controlling prices. Their
conduct is a violation of the Sherman Act. [Palmer v. BRG of Georgia, Inc., 498 U.S. 46]
11. Functional price discrimination. Yes. It was obvious to Favorite Foods that the practical result of the “open
policy” was the same as if it had set a standard price for everyone, then secretly gave a discount to the two large
12. Tying. Requiring stations to take one program in order to get the program that they want would be an illegal tying
13. Monopolization. No. Quickie has its position because of market niche, not unlawful conduct. They devote time
14. Price discrimination. No. Quantity discounts are not price discrimination because there are differences in
15. Anticompetitive behavior. Under certain circumstances, a refusal to cooperate with rivals can constitute
anticompetitive conduct and violate § 2 of the Sherman Act. We have been very cautious in recognizing such
LAWFLIX
Antitrust (2001) (R)
A movie based on Bill Gates and Microsoft.
management system for classroom use. s