411
CHAPTER 47
ANTITRUST LAW
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 47.1—QUESTIONS (PAGE 916)
THE LEGAL ENVIRONMENT DIMENSION
What did the Court mean when it stated that “the agreement is likely to survive the Rule of Reason”?
Not all restraints of trade that allegedly violate Section 1 of the Sherman Act are illegal. Under a rule of
reason analysis, if a court finds that a restraint on trade is reasonable, it is not illegal. In the NFL case,
the Court found that the NFL’s conduct constituted concerted activity under Section 1 of the Sherman
Act and was thus subject to Section 1 analysis. The Court indicated, however, that the per se rules of
illegality were inapplicable and that the restraint must be judged under the rule of reason. The Court
also noted that the agreement at issue was “likely to survive the Rule of Reason.” In other words, on
remand, the court would likely be able to justify the restraint. The court noted that several features of
the NFL may “save” agreements among the teams. The Court pointed out that “the fact that the NFL
teams had a shared interest in making the entire league successful and profitable, and that they must
cooperate in the production and scheduling of games, provides a perfectly sensible justification for
making a host of collective decisions.” The Court also noted that “the interest in maintaining a
competitive balance” among athletic teams is “legitimate and important.” According to the Court, this
interest could well justify a variety of collective decisions made by the teams. Generally, these special
characteristics of the industry could provide justification for many types of agreements. Thus, under a
rule of reason analysis, the restraint on trade caused by the NFL agreement relating to its intellectual
property would likely be a permissible restraint and not declared illegal.
THE ECONOMIC DIMENSION
412 UNIT NINE: GOVERNMENT REGULATION
Does the Court’s ruling mean that the NFL activities with respect to the marketing of their intellectual
property through the NFLP were illegal? Explain. The Court did not hold that the NFL agreement at
CASE 47.2—QUESTIONS (PAGE 920)
1A. Should the Court have applied the doctrine of stare decisis to hold that minimum resale price
maintenance agreements are still subject to the per se rule? Why or why not? The Court explained that
the doctrine of stare decisis did not block the overruling of the previous common law application of the
per se rule to minimum resale price maintenance agreements primarily because of “the dynamics of pre-
sent economic conditions.” In other words, the economic situation had changed since the per se rule
was first applied to these agreements. Also, as is indicated in the text’s discussion of other practices
among competitors, the trend in antitrust law has been away from the application of such per se rules.
2A. What factors might the courts consider in applying the rule of reason to minimum resale price
maintenance agreements? The Court acknowledged that “[r]esale price maintenance, it is true, does
CASE 47.3—QUESTIONS (PAGE 923)
WHAT IF THE FACTS WERE DIFFERENT?
Logs represent up to 75 percent of a mill’s total costs. Efficient equipment can increase the speed at
which lumber can be recovered from a log and the amount of lumber recovered. The Court noted that
“Ross-Simmons appears to have engaged in little efficiency–enhancing investment.” If Ross-Simmons had
invested in state-of-the-art technology, how might the circumstances in this case have been different? If
Ross-Simmons had installed technology that allowed it to process more logs more quickly, with a greater
production of lumber from each log, the firm might have been able to survive the downturn in the
market, or at least compete longer. This ability may have discouraged Weyerhaeuser from attempting
predatory bidding (if in fact it did).
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THE ECONOMIC DIMENSION
Why does a plaintiff alleging predatory bidding have to prove that the defendant’s “bidding on the buy
side caused the cost of the relevant output to rise above the revenues generated in the sale of those
outputs”? Because without proof of a likely recoupment of the losses suffered to allegedly drive
competitors out of the market, a strategy of predatory bidding would not make economic sense—it
would involve a short-term loss that was not likely to be offset by a long-term gain.
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Per se v. rule of reason
Because ICANN is at a higher level of the distribution process than Verisign, it is imposing a vertical
restraint. Since the vertical restraint that Verisign complains of involves restrictions on services that
Verisign can offer (customer restrictions) and the setting of prices at which Verisign can sell its services
(resale price maintenance agreement), ICANN’s action should be judged under the rule of reason.
2A. Horizontal v. vertical restraint
Because ICANN and Verisign are firms at different levels in the distribution of top-level domain names,
the actions that Verisign complains of are a vertical restraint. ICANN, which is Verisign’s superior, is
allegedly placing restrictions on what services Verisign can offer, and how much it can charge for its
services. This amounts to a vertical restraint.
4A. Best defense
ICANN’s best defense is to assert that a standardized set of registry services is efficient and has the
effect of promoting competition rather than suppressing it. Under the rule of reason, as long as an
agreement is merely regulatory and does not unreasonably restrain trade, it should not be considered
illegal.
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE AT
THE END OF THE CHAPTER
414 UNIT NINE: GOVERNMENT REGULATION
The Internet and the rise of e-commerce have rendered our current antitrust concepts and laws
obsolete. When our antitrust laws were written, the possibility of intense nationwide and even global
competition was not possible. Today, in contrast, the Internet has increased competition to such a
degree that few, if any, sellers of most products can maintain prices that are significantly higher than
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While it may be true that the Internet has increased competitive forces throughout the world,
we still need old-fashioned antitrust laws and enforcement of those laws. After all, big companies have
ANSWERS TO QUESTIONS AND CASE PROBLEMS
AT THE END OF THE CHAPTER
47-1A. Group boycott
(Chapter 47— Page 917)
47–2A. QUESTION WITH SAMPLE ANSWER: Section 1 of the Sherman Act
Yes. The major antitrust law being violated is the Sherman Act, Section 1. Allitron and Donovan are
47-3A. Price fixing
(Chapter 47—Pages 916–917)
The court issued a summary judgment in favor of the defendants. On appeal, the U.S. Court of Appeals
for the Ninth Circuit reversed part of the judgment, but on further appeal, the United States Supreme
Court reversed this ruling. Price-fixing agreements between two or more competitors are per se
unlawful. Here, however, “Texaco and Shell Oil did not compete with one another in the relevant
market—namely, the sale of gasoline to service stations in the . . . United States—but instead
participated in that market jointly through their investments in [the joint ventures]. In other words, the
pricing policy challenged here amounts to little more than price setting by a single entity . . . and not a
pricing agreement between competing entities with respect to their competing products.” Texaco and
Shell Oil shared in the profits of the ventures “in their role as investors, not competitors.” Thus, “[i]n this
416 UNIT NINE: GOVERNMENT REGULATION
case, nothing more radical is afoot than the fact that an entity, which now owns all of the production,
transportation, research, storage, sales and distribution facilities for engaging in the gasoline business,
also prices its own products. It decided to price them the same, as any other entity could. What could be
more integral to the running of a business than setting a price for its goods and services?”
47-4A. Restraint of trade
(Chapter 47—Page 928)
The plaintiffs might base their claim for relief (damages and an injunction, for example) on an allegation
that the taverns, in agreeing to eliminate drink specials on Friday and Saturday nights after 8:00 P.M.,
47–5A. Price discrimination
(Chapter 47—Page 924)
The elements of a price discrimination claim under Section 2 of the Clayton Act include (1) sales in
interstate commerce, (2) products of the same grade or quality, (3) the seller’s discrimination in price
47–6A. Tying arrangement
(Chapter 47—Page 925)
47–7A. CASE PROBLEM WITH SAMPLE ANSWER: Monopolization
No. DVRC’s action does not represent an attempt to monopolize in violation of the Sherman Act. DVRC
merely returned to a position that it had a right to from the beginning. In their contract DVRC had
47-8A. Price fixing
(Chapter 47—Pages 916–917)
Yes. Although the district court dismissed the complaint, the appeals court vacated and remanded. It
47–9A. A QUESTION OF ETHICS: Section 1 of the Sherman Act
(a) In his appeal, Rose contended in part that the price-fixing and market-allocating
conspiracy among the competitors had expired before he had become the president of DuCoa, citing the
increase in competitive activity among the companies at the time that he assumed the presidency. The
U.S. Court of Appeals fro the Fifth Circuit affirmed the lower court’s sentence. The appellate court
pointed out that “Rose determined whether DuCoa would be part of the conspiracy once he knew of the
agreement to fix prices and allocate customers.” Based on the testimony of other participants in the
crimes, the court reasoned that if Rose had refused to cooperate, the anticompetitive activities among
the three companies would have ceased.
418 UNIT NINE: GOVERNMENT REGULATION
The court concluded, “The evidence reasonably supports the conclusion that Rose, as president
of DuCoa, had the authority to decide what bids would be submitted to customers and in fact exercised
that control . . . . At a minimum, Rose exercised management responsibility over the property, assets,
or activities of a criminal organization.”
Rose also argued that he did not recruit the other companies or their officers into the conspiracy.
In fact, he asserted, the others had been involved in the conspiracy long before he became the president
(b) Rose’s participation in the price-fixing and market-allocating conspiracy among the
chlorine chloride competitors could be perceived as unethical in part because his activities were illegal.
Section 1 of the Sherman Act (and other statutes not at issue in this case) prohibit price-fixing and
market allocation. If ethics is defined as morally correct behavior, and compliance with the law is a
component of moral conduct, then a violation of the law is immoral and unethical. This same standard
could be applied to the other participants in the anticompetitive conspiracy.
Rose’s activities—and the conduct of the other participating individuals and companies—might
also be viewed as unethical based on that behavior’s effect on chorine chloride’s customers. The
conspiracy to fix the price of, and allocate the customers for, the vitamin may have stabilized the market
for its makers, but the conspiracy made the product more costly for those customers to buy. The
conspiratorial deception foisted on the customers by the competitors may also be interpreted as
unethical.
In Rose’s favor, he might be judged to have been behaving unethically only after he knew of the
conspiracy among the competitors. When was that moment? At the trial in the lower court, the
47–10A. SPECIAL CASE ANALYSIS: Resale price maintenance
Case No. 47.2
Leegin Creative Leather Products, Inc. v. PSKS, Inc.
Supreme Court of the United States, 2007.
551 U.S. 877,
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127 S.Ct. 2705,
168 L.Ed.2d 623.
a. Issue: The dispute in this case was between which parties and turned on what legal
issue? The dispute in this case arose between a distributor (seller) and a retailer (buyer and reseller) of
branded fashion accessories. The legal question on which the Court focused was whether a minimum
resale price maintenance agreement, which the distributor imposed on its buyers, should be treated as a
per se violation of the antitrust laws.
c. Applying the Rule of Law: What reasons did the Court give to justify its change to the
law, and how did the new rule apply in this case? The Court first pointed out that the rule of reason is
the “accepted standard for testing whether a practice restrains trade in violation of” antitrust laws. The
reasons for applying a per se rule to minimum resale price maintenance agreements were “based on
formalistic legal doctrine rather than demonstrable economic effect.” Although vertical agreements
were once treated like horizontal agreements, which are often subject to a per se rule, recent cases
considered “the appreciated differences in economic effect between vertical and horizontal
agreements.” Minimum price resale maintenance agreements can stimulate competition in some cases,
the Court explained, and they may have anticompetitive effects in other cases. Because the application
of a per se rule would “proscribe a significant amount of procompetitive conduct, these agreements
appear ill suited for per se condemnation.”
d. Conclusion: In whose favor did the Court rule and why? The retailer had filed a suit in a