766
Chapter 47
Antitrust Law
Case 47.1
U.S.,2010.
American Needle, Inc. v. National Football League
130 S.Ct. 2201, 78 USLW 4431, 2010-1 Trade Cases P 77,019, 94 U.S.P.Q.2d 1673, 10 Cal. Daily Op. Serv.
6257, 2010 Daily Journal D.A.R. 7501, 22 Fla. L. Weekly Fed. S 347
Supreme Court of the United States
AMERICAN NEEDLE, INC., Petitioner,
v.
NATIONAL FOOTBALL LEAGUE et al.
No. 08-661.
Argued Jan. 13, 2010.
Decided May 24, 2010.
Justice STEVENS delivered the opinion of the Court.
“Every contract, combination in the form of a trust or otherwise, or, conspiracy, in restraint of trade” is made illegal by § 1 of the Sherman
Act, ch. 647, 26 Stat. 209, as amended, 15 U.S.C. § 1. The question whether an arrangement is a contract, combination, or conspiracy is
different from and antecedent to the question whether it unreasonably restrains trade. This case raises that antecedent question about the
business of the 32 teams in the National Football League (NFL) and a corporate entity that they formed to manage their intellectual property.
CHAPTER 47: ANTITRUST LAW 767
and jerseys. In 1963, the teams formed National Football League Properties (NFLP) to develop, license, and market their intellectual property.
Most, but not all, of the substantial revenues generated by NFLP have either been given to charity or shared equally among the teams.
The Court of Appeals for the Seventh Circuit affirmed. The panel observed that “in some contexts, a league seems more aptly described as a
single entity immune from antitrust scrutiny, while in others a league appears to be a joint venture between independently owned teams that
is subject to review under § 1.” 538 F.3d, 736, 741 (2008). Relying on Circuit precedent, the court limited its inquiry to the particular conduct
at issue, licensing of teams’ intellectual property. The panel agreed with petitioner that “when making a single-entity determination, courts
must examine whether the conduct in question deprives the marketplace of the independent sources of economic control that competition
assumes.” Id., at 742. The court, however, discounted the significance of potential competition among the teams regarding the use of their
II
As the case comes to us, we have only a narrow issue to decide: whether the NFL respondents are capable of engaging in a “contract,
combination …, or conspiracy” as defined by § 1 of the Sherman Act, 15 U.S.C. § 1, or, as we have sometimes phrased it, whether the alleged
activity by the NFL respondents “must be viewed as that of a single enterprise for purposes of § 1.” Copperweld Corp. v. Independence Tube
Corp., 467 U.S. 752, 771, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984).
[1] Taken literally, the applicability of § 1 to “every contract, combination … or conspiracy” could be understood to cover every conceivable
agreement, whether it be a group of competing firms fixing prices or a single firm’s chief executive telling her subordinate how to price their
company’s product. But even though, “read literally,” § 1 would address “the entire body of private contract,” that is not what the statute
means. National Soc. of Professional Engineers v. United States, 435 U.S. 679, 688, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978); see also Texaco Inc. v.
Dagher, 547 U.S. 1, 5, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006) (“This Court has not taken a literal approach to this language”); cf. Board of Trade
of Chicago v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 62 L.Ed. 683 (1918) (reasoning that the term “restraint of trade” in § 1 cannot
possibly refer to any restraint on competition because “[e]very agreement concerning trade, every regulation of trade, restrains. To bind, to
restrain, is of their very essence”). Not every instance of cooperation between two people is a potential “contract, combination …, or
conspiracy, in restraint of trade.” 15 U.S.C. § 1.
unlike independent action, “[c]oncerted activity inherently is fraught with anticompetitive risk” insofar as it “deprives the marketplace of
independent centers of decisionmaking that competition assumes and demands.” Id., at 768-769, 104 S.Ct. 2731. And because concerted
action is discrete and distinct, a limit on such activity leaves untouched a vast amount of business conduct. As a result, there is less risk of
768 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
deterring a firm’s necessary conduct; courts need only examine discrete agreements; and such conduct may be remedied simply through
FN2. If Congress prohibited independent action that merely restrains trade (even if it does not threaten monopolization), that
prohibition could deter perfectly competitive conduct by firms that are fearful of litigation costs and judicial error. See Copperweld,
467 U.S., at 768, 104 S.Ct. 2731 (“Judging unilateral conduct in this manner reduces the risk that the antitrust laws will dampen the
competitive zeal of a single aggressive competitor”); cf. United States v. United States Gypsum Co., 438 U.S. 422, 441, 98 S.Ct. 2864,
57 L.Ed.2d 854 (1978) (“[S]alutary and procompetitive conduct … might be shunned by businessmen who chose to be excessively
(1985); National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla., 468 U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984) (NCAA);
United States v. Topco Associates, Inc., 405 U.S. 596, 609, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972); Associated Press v. United States, 326 U.S. 1, 65
FN3. See, e.g., FTC v. Indiana Federation of Dentists, 476 U.S. 447, 106 S.Ct. 2009, 90 L.Ed.2d 445 (1986); Arizona v. Maricopa County
Medical Soc., 457 U.S. 332, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982); National Soc. of Professional Engineers v. United States, 435 U.S.
679, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978); Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975).
FN4. See, e.g., Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 108 S.Ct. 1931, 100 L.Ed.2d 497 (1988); Radiant
Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961) (per curiam); Fashion Originators’ Guild
of America, Inc. v. FTC, 312 U.S. 457, 61 S.Ct. 703, 85 L.Ed. 949 (1941).
(1951).
The decline of the intraenterprise conspiracy doctrine began in Sunkist Growers, Inc. v. Winckler & Smith Citrus Products Co., 370 U.S. 19, 82
S.Ct. 1130, 8 L.Ed.2d 305 (1962). In that case, several agricultural cooperatives that were owned by the same farmers were sued for violations
of § 1 of the Sherman Act. Id., at 24-25, 82 S.Ct. 1130. Applying a specific immunity provision for agricultural cooperatives, we held that the
three cooperatives were “in practical effect” one “organization,” even though the controlling farmers “have formally organized themselves
FN5. This focus on “substance, not, form,” Copperweld, 467 U.S., at 773, n. 21, 104 S.Ct. 2731, can also be seen in our cases about
whether a company and its agent are capable of conspiring under § 1. See, e.g., Simpson v. Union Oil Co. of Cal., 377 U.S. 13, 20-21,
84 S.Ct. 1051, 12 L.Ed.2d 98 (1964); see also E. Elhauge & D. Geradin, Global Antitrust Law and Economics 787-788, and n. 7 (2007)
(hereinafter Elhauge & Geradin) (explaining the functional difference between Simpson and United States v. General Elec. Co., 272
193–194 (noting that the “central evil addressed by Sherman Act § 1” is the “elimin[ation of] competition that would otherwise exist”).
[10] Thus, while the president and a vice president of a firm could (and regularly do) act in combination, their joint action generally is not the
sort of “combination” that § 1 is intended to cover. Such agreements might be described as “really unilateral behavior flowing from decisions
of a single enterprise.” Copperweld, 467 U.S., at 767, 104 S.Ct. 2731. Nor, for this reason, does § 1 cover “internally coordinated conduct of a
corporation and one of its unincorporated divisions,” id., at 770, 104 S.Ct. 2731, because “[a] division within a corporate structure pursues the
V
[11] The NFL teams do not possess either the unitary decisionmaking quality or the single aggregation of economic power characteristic of
independent action. Each of the teams is a substantial, independently owned, and independently managed business. “[T]heir general
corporate actions are guided or determined” by “separate corporate consciousnesses,” and “[t]heir objectives are” not “common.”
Copperweld, 467 U.S., at 771, 104 S.Ct. 2731; see also North American Soccer League v. NFL, 670 F.2d 1249, 1252 (C.A.2 1982) (discussing ways
that “the financial performance of each team, while related to that of the others, does not … necessarily rise and fall with that of the others”).
therefore of actual or potential competition. See NCAA, 468 U.S., at 109, n. 39, 104 S.Ct. 2948 (observing a possible § 1 violation if two
separately owned companies sold their separate products through a “single selling agent”); cf. Areeda & Hovenkamp ¶ 1478a, at 318
(“Obviously, the most significant competitive threats arise when joint venture participants are actual or potential competitors”).
In defense, respondents argue that by forming NFLP, they have formed a single entity, akin to a merger, and market their NFL brands through
a single outlet. But it is not dispositive that the teams have organized and own a legally separate entity that centralizes the management of
[12] It may be, as respondents argue, that NFLP “has served as the ‘single driver” of the teams’ “promotional vehicle,” “ ‘pursu[ing] the
common interests of the whole.’ ” Brief for NFL Respondents 28 (quoting Copperweld, 467 U.S., at 770-771, 104 S.Ct. 2731; brackets in
original). But illegal restraints often are in the common interests of the parties to the restraint, at the expense of those who are not parties. It
is true, as respondents describe, that they have for some time marketed their trademarks jointly. But a history of concerted activity does not
immunize conduct from § 1 scrutiny. “Absence of actual competition may simply be a manifestation of the anticompetitive agreement itself.”
FN6. As discussed infra, necessity of cooperation is a factor relevant to whether the agreement is subject to the Rule of Reason. See
NCAA, 468 U.S., at 101, 104 S.Ct. 2948 (holding that NCAA restrictions on televising college football games are subject to Rule of
Reason analysis for the “critical” reason that “horizontal restraints on competition are essential if the product is to be available at
all”).
FN7. In any event, it simply is not apparent that the alleged conduct was necessary at all. Although two teams are needed to play a
football game, not all aspects of elaborate interleague cooperation are necessary to produce a game. Moreover, even if leaguewide
agreements are necessary to produce football, it does not follow that concerted activity in marketing intellectual property is
necessary to produce football.
The Court of Appeals carved out a zone of antitrust immunity for conduct arguably related to league operations by reasoning that
352-354, 87 S.Ct. 1847.
FN8. See Areeda & Hovenkamp ¶ 1471; Elhauge & Geradin 786-787, and n. 6; see also Capital Imaging Assoc. v. Mohawk Valley
Medical Assoc., Inc., 996 F.2d 537, 544 (C.A.2 1993); Bolt v. Halifax Hospital Medical Center, 891 F.2d 810, 819 (C.A.11 1990);
Oksanen v. Page Memorial Hospital, 945 F.2d 696, 706 (C.A.4 1991); Motive Parts Warehouse v. Facet Enterprises, 774 F.2d 380,
387-388 (C.A.10 1985); Victorian House, Inc. v. Fisher Camuto Corp., 769 F.2d 466, 469 (C.A.8 1985); Weiss v. York Hospital, 745 F.2d
786, 828 (C.A.3 1984).
For that reason, decisions by the NFLP regarding the teams’ separately owned intellectual property constitute concerted action. Thirty-two
teams operating independently through the vehicle of the NFLP are not like the components of a single firm that act to maximize the firm’s
profits. The teams remain separately controlled, potential competitors with economic interests that are distinct from NFLP’s financial well-
FN9. For the purposes of resolving this case, there is no need to pass upon the Government’s position that entities are incapable of
conspiring under § 1 if they “have effectively merged the relevant aspect of their operations, thereby eliminating actual and
potential competition … in that operational sphere” and “the challenged restraint [does] not significantly affect actual or potential
competition … outside their merged operations.” Brief for United States as Amicus Curiae 17. The Government urges that the
choices “to offer only a blanket license” and “to have only a single headwear licensee” might not constitute concerted action under
772 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
Broadcasting System, Inc., 441 U.S. 1, 23, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979) ( “Joint ventures and other cooperative arrangements are also not
usually unlawful … where the agreement … is necessary to market the product at all”). And depending upon the concerted activity in
question, the Rule of Reason may not require a detailed analysis; it “can sometimes be applied in the twinkling of an eye.” NCAA, 468 U.S., at
109, n. 39, 104 S.Ct. 2948.
FN10. Justice Brandeis provided the classic formulation of the Rule of Reason in Board of Trade of Chicago v. United States, 246 U.S.
231, 238, 38 S.Ct. 242, 62 L.Ed. 683 (1918):
“The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition
or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider
Case 47.2
127 S.Ct. 2705
U.S.,2007.
Supreme Court of the United States
LEEGIN CREATIVE LEATHER PRODUCTS, INC., Petitioner,
v.
Tyler A. Baker, Fenwick & West, LLP, Mountain View, CA, Theodore B. Olson, Counsel of Record, Michael L. Denger, Joshua Lipton, Amir C.
Tayrani, Gibson, Dunn & Crutcher LLP, Washington, D.C., Jeffrey S. Levinger, Carrington, Coleman, Sloman & Blumenthal, LLP, Dallas, TX, Gary
Freedman, Law Offices of Gary Freedman, Santa Monica, CA, for petitioner.
Nelson J. Roach, D. Neil Smith, Nix, Patterson & Roach, L.L.P., Daingerfield, Texas, Stephen R. McAllister, Thompson, Ramsdell & Qualseth,
P.A., Lawrence, Kansas, Ken M. Peterson, Robert W. Coykendall, Counsel of Record, Tim J. Moore, Luke A. Sobba, Will B. Wohlford, Kristen D.
I
Petitioner, Leegin Creative Leather Products, Inc. (Leegin), designs, manufactures, and distributes leather goods and accessories. In 1991,
Leegin began to sell belts under the brand name “Brighton.” The Brighton brand has now expanded into a variety of women’s fashion
accessories. It is sold across the United States in over 5,000 retail establishments, for the most part independent, small boutiques and
specialty stores. Leegin’s president, Jerry Kohl, also has an interest in about 70 stores that sell Brighton products. Leegin asserts that, at least
for its products, small retailers treat customers better,*2711 provide customers more services, and make their shopping experience more
satisfactory than do larger, often impersonal retailers. Kohl explained: “[W]e want the consumers to get a different experience than they get
in Sam’s Club or in Wal-Mart. And you can’t get that kind of experience or support or customer service from a store like Wal-Mart.” 5 Record
127.
Respondent, PSKS, Inc. (PSKS), operates Kay’s Kloset, a women’s apparel store in Lewisville, Texas. Kay’s Kloset buys from about 75 different
manufacturers and at one time sold the Brighton brand. It first started purchasing Brighton goods from Leegin in 1995. Once it began selling
the brand, the store promoted Brighton. For example, it ran Brighton advertisements and had Brighton days in the store. Kay’s Kloset became
the destination retailer in the area to buy Brighton products. Brighton was the store’s most important brand and once accounted for 40 to 50
looking stores selling our products in a quality manner.” Ibid.
Leegin adopted the policy to give its retailers sufficient margins to provide customers the service central to its distribution strategy. It also
expressed concern that discounting harmed Brighton’s brand image and reputation.
A year after instituting the pricing policy Leegin introduced a marketing strategy known as the “Heart Store Program.” See id., at 962-972. It
offered retailers incentives to become Heart Stores, and, in exchange, retailers pledged, among other things, to sell at Leegin’s suggested
relying on the per se rule established by Dr. Miles. At trial PSKS argued that the Heart Store program, among other things, demonstrated
Leegin and its retailers had agreed to fix prices. Leegin responded that it had established a unilateral pricing policy lawful under § 1, which
applies only to concerted action. See United States v. Colgate & Co., 250 U.S. 300, 307, 39 S.Ct. 465, 63 L.Ed. 992 (1919). The jury agreed with
PSKS and awarded it $1.2 million. Pursuant to 15 U.S.C. § 15(a), the District Court trebled the damages and reimbursed PSKS for its attorney’s
fees and costs. It entered judgment against Leegin in the amount of $3,975,000.80.
or commerce among the several States.” Ch. 647, 26 Stat. 209, as amended, 15 U.S.C. § 1. While § 1 could be interpreted to proscribe all
contracts, see, e.g.,Board of Trade of Chicago v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 62 L.Ed. 683 (1918), the Court has never “taken
a literal approach to [its] language,”Texaco Inc. v. Dagher, 547 U.S. 1, 5, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006). Rather, the Court has repeated
time and again that § 1 “outlaw[s] only unreasonable restraints.” State Oil Co. v. Khan, 522 U.S. 3, 10, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997).
[2][3] The rule of reason is the accepted standard for testing whether a practice restrains trade in violation of § 1. See Texaco, supra, at 5, 126
rule, treating categories of restraints as necessarily illegal, eliminates the need to study the reasonableness of an individual restraint in light of
the real market forces at work, Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 723, 108 S.Ct. 1515, 99 L.Ed.2d 808 (1988);
and, it must be acknowledged, the per se rule can give clear guidance for certain conduct. Restraints that are per se unlawful include
horizontal agreements among competitors to fix prices, see Texaco,supra, at 5, 126 S.Ct. 1276, or to divide markets, see Palmer v. BRG of Ga.,
Inc., 498 U.S. 46, 49-50, 111 S.Ct. 401, 112 L.Ed.2d 349 (1990)(per curiam).
immediately obvious.” Khan, supra, at 10, 118 S.Ct. 275 (internal quotation marks omitted); see also White Motor Co. v. United States, 372
U.S. 253, 263, 83 S.Ct. 696, 9 L.Ed.2d 738 (1963) (refusing to adopt a per se rule for a vertical nonprice restraint because of the uncertainty
concerning whether this type of restraint satisfied the demanding standards necessary to apply a per se rule). And, as we have stated, a
“departure from the rule–of-reason standard must be based upon demonstrable economic effect rather than … upon formalistic line
drawing.” GTE Sylvania, supra, at 58-59, 97 S.Ct. 2549.
III
in 1628, but failed to discuss in detail the business reasons that would motivate a manufacturer situated in 1911 to make use of vertical price
restraints. Yet the Sherman Act’s use of “restraint of trade” “invokes the common law itself, … not merely the static content that the common
law had assigned to the term in 1890.” Business Electronics, supra, at 732, 108 S.Ct. 1515. The general restraint on alienation, especially in the
age when then-Justice Hughes used the term, tended to evoke policy concerns extraneous to the question that controls here. Usually
associated with land, not chattels, the rule arose from restrictions removing real property from the stream of commerce for generations. The
agreements, differences the Dr. Miles Court failed to consider.
The reasons upon which Dr. Miles relied do not justify a per se rule. As a consequence, it is necessary to examine, in the first instance, the
economic effects of vertical agreements to fix minimum resale prices, and to determine whether the per se rule is nonetheless appropriate.
See Business Electronics, 485 U.S., at 726, 108 S.Ct. 1515.
A
[7] Though each side of the debate can find sources to support its position, it suffices to say here that economics literature is replete with
warranted”); F.M. Scherer & D. Ross, Industrial Market Structure and Economic Performance 558 (3d ed.1990) (hereinafter Scherer & Ross)
(“The overall balance between benefits and costs [of resale price maintenance] is probably close”).
The few recent studies documenting the competitive effects of resale price maintenance also cast doubt on the conclusion that the practice
meets the criteria for a per se rule. See T. Overstreet, Resale Price Maintenance: Economic Theories and Empirical Evidence 170 (1983)
(hereinafter Overstreet) (noting that “[e]fficient uses of [resale price maintenance] are evidently not unusual or rare”); see also Ippolito,
Resale Price Maintenance: Empirical Evidence From Litigation, 34 J. Law & Econ. 263, 292-293 (1991) (hereinafter Ippolito).
The justifications for vertical price restraints are similar to those for other vertical restraints. See GTE Sylvania, 433 U.S., at 54-57, 97 S.Ct.
51-52, 97 S.Ct. 2549. The promotion of interbrand competition is important because “the primary purpose of the antitrust laws is to protect
[this type of] competition.” Khan, 522 U.S., at 15, 118 S.Ct. 275. A single manufacturer’s use of vertical price restraints tends to eliminate
intrabrand price competition; this in turn encourages retailers to invest in tangible or intangible services or promotional efforts that aid the
(1984) (hereinafter Marvel & McCafferty). If the consumer can then buy the product from a retailer that discounts because it has not spent
capital providing services or developing a quality reputation, the high-service retailer will lose sales to the discounter, forcing it to cut back its
services to a level lower than consumers would otherwise prefer. Minimum resale price maintenance alleviates the problem because it
prevents the discounter from undercutting the service provider. With price competition decreased, the manufacturer’s retailers compete
among themselves over services.
19–23.
Vertical price restraints also “might be used to organize cartels at the retailer level.” Business Electronics, supra, at 725-726, 108 S.Ct. 1515. A
group of retailers might collude to fix prices to consumers and then compel a manufacturer to aid the unlawful arrangement with resale price
maintenance. In that instance the manufacturer does not establish the practice to stimulate services or to promote its brand but to give
inefficient retailers higher profits. Retailers with better distribution systems and lower cost structures would be prevented from charging
request resale price maintenance to forestall innovation in distribution that decreases costs. A manufacturer might consider it has little choice
but to accommodate the retailer’s demands for vertical price restraints if the manufacturer believes it needs access to the retailer’s
distribution network. See Overstreet 31; 8 P. Areeda & H. Hovenkamp, Antitrust Law 47 (2d ed.2004) (hereinafter Areeda & Hovenkamp); cf.
Toys “R” Us, Inc. v. FTC, 221 F.3d 928, 937-938 (C.A.7 2000). A manufacturer with market power, by comparison, might use resale price
maintenance to give retailers an incentive not to sell the products of smaller rivals or new entrants. See, e.g., Marvel 366-368. As should be
per se rules. See, e.g.,GTE Sylvania, supra, at 50, n. 16, 97 S.Ct. 2549 (noting “per se rules tend to provide guidance to the business community
and to minimize the burdens on litigants and the judicial system”). That argument suggests per se illegality is the rule rather than the
exception. This misinterprets our antitrust law. Per se rules may decrease administrative costs, but that is only part of the equation. Those
rules can be counterproductive. They can increase the total cost of the antitrust system by prohibiting procompetitive conduct the antitrust
laws should encourage. See Easterbrook, Vertical Arrangements and the Rule of Reason, 53 Antitrust L.J. 135, 158 (1984) (hereinafter
price surveys “do not necessarily tell us anything conclusive about the welfare effects of [resale price maintenance] because the results are
generally consistent with both procompetitive and anticompetitive theories”). For, as has been indicated already, the antitrust laws are
designed primarily to protect interbrand competition, from which lower prices can later result. See Khan, 522 U.S., at 15, 118 S.Ct. 275. The
Court, moreover, has evaluated other vertical restraints under the rule of reason even though prices can be increased in the course of
promoting procompetitive effects. See, e.g.,Business Electronics, 485 U.S., at 728, 108 S.Ct. 1515. And resale price maintenance may reduce
matter, therefore, a single manufacturer will desire to set minimum resale prices only if the “increase in demand resulting from enhanced
service … will more than offset a negative impact on demand of a higher retail price.” Mathewson & Winter 67.
The implications of respondent’s position are far reaching. Many decisions a manufacturer makes and carries out through concerted action
can lead to higher prices. A manufacturer might, for example, contract with different suppliers to obtain better inputs that improve product
quality. Or it might hire an advertising agency to promote awareness of its goods. Yet no one would think these actions violate the Sherman
maintenance should be subject to more careful scrutiny, by contrast, if many competing manufacturers adopt the practice. Cf. Scherer & Ross
558 (noting that “except when [resale price maintenance] spreads to cover the bulk of an industry’s output, depriving consumers of a
meaningful choice between high-service and low-price outlets, most [resale price maintenance arrangements] are probably innocuous”);
Easterbrook 162 (suggesting that “every one of the potentially-anticompetitive outcomes of vertical arrangements depends on the uniformity
of the practice”).
practice to keep competitors away from distribution outlets.
The rule of reason is designed and used to eliminate anticompetitive transactions from the market. This standard principle applies to vertical
price restraints. A party alleging injury from a vertical agreement setting minimum resale prices will have, as a general matter, the information
and resources available to show the existence of the agreement and its scope of operation. As courts gain experience considering the effects
of these restraints by applying the rule of reason over the course of decisions, they can establish the litigation structure to ensure the rule
United States, 524 U.S. 236, 251, 118 S.Ct. 1969, 141 L.Ed.2d 242 (1998).
[11]Stare decisis is not as significant in this case, however, because the issue before us is the scope of the Sherman Act. Khan, supra, at 20, 118
S.Ct. 275 (“[T]he general presumption that legislative changes should be left to Congress has less force with respect to the Sherman Act”).
From the beginning the Court has treated the Sherman Act as a common-law statute. See National Soc. of Professional Engineers v. United
States, 435 U.S. 679, 688, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978); see also Northwest Airlines, Inc. v. Transport Workers, 451 U.S. 77, 98, n. 42,
Department of Justice and the Federal Trade Commission-the antitrust enforcement agencies with the ability to assess the long-term impacts
of resale price maintenance-have recommended that this Court replace the per se rule with the traditional rule of reason. See Brief for United
States as Amicus Curiae 6. In the antitrust context the fact that a decision has been “called into serious question” justifies our reevaluation of
it. Khan, supra, at 21, 118 S.Ct. 275.
Other considerations reinforce the conclusion that Dr. Miles should be overturned. Of most relevance, “we have overruled our precedents
when subsequent cases have undermined their doctrinal underpinnings.” Dickerson v. United States, 530 U.S. 428, 443, 120 S.Ct. 2326, 147
L.Ed.2d 405 (2000). The Court’s treatment of vertical restraints has progressed away from Dr. Miles ‘ strict approach. We have distanced
ourselves from the opinion’s rationales. See supra, at 2713 – 2714; see also Khan, supra, at 21, 118 S.Ct. 275 (overruling a case when “the
views underlying [it had been] eroded by this Court’s precedent”); Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 480-
481, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (same). This is unsurprising, for the case was decided not long after enactment of the Sherman Act
when the Court had little experience with antitrust analysis. Only eight years after Dr. Miles, moreover, the Court reined in the decision by
holding that a manufacturer can announce suggested resale prices and refuse to deal with distributors who do not follow them. Colgate, 250
U.S., at 307-308, 39 S.Ct. 465.
In more recent cases the Court, following a common-law approach, has continued to temper, limit, or overrule once strict prohibitions on
vertical restraints. In 1977, the Court overturned the per se rule for vertical nonprice restraints, adopting the rule of reason in its stead. GTE
Sylvania, 433 U.S., at 57-59, 97 S.Ct. 2549 (overrulingUnited States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249
(1967)); see also 433 U.S., at 58, n. 29, 97 S.Ct. 2549 (noting “that the advantages of vertical restrictions should not be limited to the
categories of new entrants and failing firms”). While the Court in a footnote in GTE Sylvania suggested that differences between vertical price
763-764, 104 S.Ct. 1464. In Monsanto, the Court required that antitrust plaintiffs alleging a § 1 price-fixing conspiracy must present evidence
tending to exclude the possibility a manufacturer and its distributors acted in an independent manner. Id., at 764, 104 S.Ct. 1464. Unlike
Justice Brennan’s concurrence, which rejected arguments that Dr. Miles should be overruled, see 465 U.S., at 769, 104 S.Ct. 1464, the Court
“decline[d] to reach the question” whether vertical agreements fixing resale prices always should be unlawful because neither party
suggested otherwise, id., at 761-762, n. 7, 104 S.Ct. 1464.In Business Electronics the Court further narrowed the scope of Dr. Miles. It held that
the per se rule applied only to specific agreements over price levels and not to an agreement between a manufacturer and a distributor to
terminate a price-cutting distributor. 485 U.S., at 726-727, 735-736, 108 S.Ct. 1515.
Most recently, in 1997, after examining the issue of vertical maximum price-fixing agreements in light of commentary and real experience, the
CHAPTER 47: ANTITRUST LAW 779
Court overruled a 29-year-old precedent treating those agreements as per se illegal. Khan, 522 U.S., at 22, 118 S.Ct. 275 (overrulingAlbrecht v.
Herald Co., 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998 (1968)). It held instead that they should be evaluated under the traditional rule of
reason. 522 U.S., at 22, 118 S.Ct. 275. Our continued limiting of the reach of the decision in Dr. Miles and our recent treatment of other
vertical restraints justify the conclusion that Dr. Miles should not be retained.
The Dr. Miles rule is also inconsistent with a principled framework, for it makes little economic sense when analyzed with our other cases on
vertical restraints. If we were to decide the procompetitive effects of resale price maintenance were insufficient to overrule Dr. Miles, then
cases such as Colgate and GTE Sylvania themselves would be called into question. These later decisions, while they may result in less
intrabrand competition, can be justified because they permit manufacturers to secure the procompetitive benefits associated with vertical
price restraints through other methods. The other methods, however, could be less efficient for a particular manufacturer to establish and
sustain. The end result hinders competition and consumer welfare because manufacturers are forced to engage in second-best alternatives
knowledgeable of the subtle intricacies of the law. Or it might terminate longstanding distributors for minor violations without seeking an
explanation. See ibid. The increased costs these burdensome *2723 measures generate flow to consumers in the form of higher prices.
Furthermore, depending on the type of product it sells, a manufacturer might be able to achieve the procompetitive benefits of resale price
maintenance by integrating downstream and selling its products directly to consumers. Dr. Miles tilts the relative costs of vertical integration
and vertical agreement by making the former more attractive based on the per se rule, not on real market conditions. See Business
Electronics, supra, at 725, 108 S.Ct. 1515; see generally Coase, The Nature of the Firm, 4 Economica, New Series 386 (1937). This distortion
might lead to inefficient integration that would not otherwise take place, so that consumers must again suffer the consequences of the
suboptimal distribution strategy. And integration, unlike vertical price restraints, eliminates all intrabrand competition. See, e.g.,GTE Sylvania,
433 U.S., at 57, n. 26, 97 S.Ct. 2549.
There is yet another consideration. A manufacturer can impose territorial restrictions on distributors and allow only one distributor to sell its
goods in a given region. Our cases have recognized, and the economics literature confirms, that these vertical nonprice restraints have
impacts similar to those of vertical price restraints; both reduce intrabrand competition and can stimulate retailer services. See, e.g.,Business
Electronics, supra, at 728, 108 S.Ct. 1515;Monsanto, supra, at 762-763, 104 S.Ct. 1464; see also Brief for Economists as Amici Curiae 17-18. Cf.
Scherer & Ross 560 (noting that vertical nonprice restraints “can engender inefficiencies at least as serious as those imposed upon the
consumer by resale price maintenance”); Steiner, How Manufacturers Deal with the Price-Cutting Retailer: When Are Vertical Restraints
Efficient?, 65 Antitrust L.J. 407, 446-447 (1997) (indicating that “antitrust law should recognize that the consumer interest is often better
780 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
conduct, the rule of reason promotes the same objective.
Respondent also relies on several congressional appropriations in the mid-1980’s in which Congress did not permit the Department of Justice
or the Federal Trade Commission to use funds to advocate overturning Dr. Miles. See, e.g., 97 Stat. 1071. We need not pause long in
addressing this argument. The conditions on funding are no longer in place, see, e.g., Brief for United States as Amicus Curiae 21, and they
were ambiguous at best. As much as they might show congressional approval for Dr. Miles, they might demonstrate a different proposition:
that Congress could not pass legislation codifying the rule and reached a short-term compromise instead.
Reliance interests do not require us to reaffirm Dr. Miles. To be sure, reliance on a judicial opinion is a significant reason to adhere to it, Payne
v. Tennessee, 501 U.S. 808, 828, 111 S.Ct. 2597, 115 L.Ed.2d 720 (1991), especially “in cases involving property and contract rights,”Khan, 522
U.S., at 20, 118 S.Ct. 275. The reliance interests here, however, like the reliance interests in Khan, cannot justify an inefficient rule, especially
because the narrowness of the rule has allowed manufacturers *2725 to set minimum resale prices in other ways. And while the Dr. Miles rule
is longstanding, resale price maintenance was legal under fair trade laws in a majority of States for a large part of the past century up until
1975.
It is also of note that during this time “when the legal environment in the [United States] was most favorable for [resale price maintenance],
no more than a tiny fraction of manufacturers ever employed [resale price maintenance] contracts.” Overstreet 6; see also id., at 169 (noting
that “no more than one percent of manufacturers, accounting for no more than ten percent of consumer goods purchases, ever employed
Case 47.3
U.S.,2007.
Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc.
549 U.S. 312, 127 S.Ct. 1069, 166 L.Ed.2d 911, 75 USLW 4091, 2007-1 Trade Cases P 75,601, 07 Cal. Daily
Op. Serv. 1758, 20 Fla. L. Weekly Fed. S 77
verdict in favor of Ross-Simmons on its monopolization claim, and the Ninth Circuit affirmed. We granted certiorari to decide
whether the test we applied to claims of predatory pricing in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S.
209, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993), also applies to claims of predatory bidding. We hold that it does. Accordingly, we
vacate the judgment of the Court of Appeals.
I
This antitrust case concerns the acquisition of red alder sawlogs by the mills that process those logs in the Pacific Northwest.
owned. Id., at 160a. In addition to increasing production, Weyerhaeuser used “state–of-the-art technology,” id., at 500a,
including sawing equipment, to increase the amount of lumber recovered from every log, id., at 500a, *316 549a. By contrast,
Ross-Simmons appears to have engaged in little efficiency-enhancing investment. See id., at 438a-441a.
**1073 Logs represent up to 75 percent of a sawmill’s total costs. See id., at 169a. And from 1998 to 2001, the price of alder
sawlogs increased while prices for finished hardwood lumber fell. These divergent trends in input and output prices cut into the
Simmons pointed to Weyerhaeuser’s large share of the alder purchasing market, rising alder sawlog prices during the alleged
predation period, and Weyerhaeuser’s declining profits during that same period.
Prior to trial, Weyerhaeuser moved for summary judgment on Ross-Simmons’ predatory-bidding theory. Id., at 6a-24a. The
District Court denied the motion. Id., at 58a-69a. At the close of the 9-day trial, Weyerhaeuser moved for judgment as a matter
of law, or alternatively, for a new *317 trial. The motions were based in part on Weyerhaeuser’s argument that Ross-Simmons
standard for claims of predatory pricing should also apply to claims of predatory bidding. The Ninth Circuit disagreed and
affirmed the verdict against Weyerhaeuser. Confederated Tribes of Siletz Indians of Ore. v. Weyerhaeuser Co., 411 F.3d 1030,
1035-1036 (2005).
The Court of Appeals reasoned that “buy-side predatory bidding” and “sell–side predatory pricing,” though similar, are
materially different in that predatory bidding does not necessarily benefit consumers or stimulate competition in the way that
at 1045. We granted certiorari to decide whether Brooke Group applies to claims of predatory bidding. 548 U.S. 903, 126 S.Ct.
2965, 165 L.Ed.2d 948 (2006). We hold that it does, and we vacate the Court of Appeals’ judgment.
II
[2][3] In Brooke Group, we considered what a plaintiff must show in order to succeed on a claim of predatory pricing under § 2
of the Sherman Act.FN1In a typical predatory-pricing scheme, the predator reduces the sale price of its product (its output) to
FN1. Brooke Group dealt with a claim under the Robinson-Patman Act, but as we observed, “primary-line competitive
injury under the Robinson-Patman Act is of the same general character as the injury inflicted by predatory pricing
schemes actionable under § 2 of the Sherman Act.” 509 U.S., at 221, 113 S.Ct. 2578. Because of this similarity, the
standard adopted in Brooke Group applies to predatory-pricing claims under § 2 of the Sherman Act. Id., at 222, 113
588-589, 106 S.Ct. 1348. For that investment to be rational, a firm must reasonably expect to recoup in the long run at least its
original investment with supracompetitive profits. Ibid.; Brooke Group, 509 U.S., at 224, 113 S.Ct. 2578. Without such a
reasonable expectation, a rational firm would not willingly suffer definite, short-run losses. Recognizing the centrality of
recoupment to a predatory-pricing scheme, we required predatory-pricing plaintiffs to “ demonstrate*320 that there is a
CHAPTER 47: ANTITRUST LAW 783
that rival buyers cannot survive (or compete as vigorously) and, as a result, the predating buyer acquires (or maintains or
increases its) monopsony power.” Kirkwood, Buyer Power and Exclusionary Conduct, 72 Antitrust L.J. 625, 652 (2005)
(hereinafter Kirkwood). Monopsony power is market power on the buy side of the market. Blair & Harrison, Antitrust Policy and
Monopsony, 76 Cornell L.Rev. 297 (1991). As such, a monopsony is to the buy side of the market what a monopoly is to the sell
side and is sometimes colloquially called a “buyer’s monopoly.” See id., at 301, 320; Piraino, A Proposed Antitrust Approach to
FN2. If the predatory firm’s competitors in the input market and the output market are the same, then predatory
bidding can also lead to the bidder’s acquisition of monopoly power in the output market. In that case, which does not
appear to be present here, the monopsonist could, under certain market conditions, also recoup its losses by raising
output prices to monopolistic levels. See Salop 679-682 (describing a monopsonist’s predatory strategy that depends
upon raising prices in the output market).
IV
A
FN3. Predatory bidding on inputs is not analytically different from predatory overbuying of inputs. Both practices fall
under the rubric of monopsony predation and involve an input purchaser’s use of input prices in an attempt to exclude
rival input purchasers. The economic effect of the practices is identical: input prices rise. In a predatory-bidding
scheme, the purchaser causes prices to rise by offering to pay more for inputs. In a predatory-overbuying scheme, the
purchaser causes prices to rise by demanding more of the input. Either way, input prices increase. Our use of the term
FN4. Higher prices for inputs obviously benefit existing sellers of inputs and encourage new firms to enter the market
for input sales as well.
Brooke Group also noted that a failed predatory-pricing scheme may benefit consumers. 509 U.S., at 224, 113 S.Ct. 2578. The
FN5. Consumer benefit does not necessarily result at the first stage because the predator might not use its excess
inputs to manufacture additional outputs. It might instead destroy the excess inputs. See Salop 677, n. 22. Also, if the
same firms compete in the input and output markets, any increase in outputs by the predator could be offset by
decreases in outputs from the predator’s struggling competitors.
In addition, predatory bidding presents less of a direct threat of consumer harm than predatory pricing. A predatory-pricing
CHAPTER 47: ANTITRUST LAW 785
predatory pricing and predatory bidding convince us that our two-pronged Brooke Group test should apply to predatory-bidding
claims.
The first prong of Brooke Group’s test requires little adaptation for the predatory-bidding context. A plaintiff must prove that
the alleged predatory bidding led to below-cost pricing of the predator’s outputs. That is, the predator’s bidding on the buy side
must have caused the cost of the relevant output to rise above the revenues generated in the sale of those outputs. As with
predatory pricing, the exclusionary effect of higher bidding that does not result in below-cost output pricing “is beyond the
practical ability of a judicial tribunal to control without courting intolerable risks of chilling legitimate” procompetitive conduct.
509 U.S., at 223, 113 S.Ct. 2578. Given the multitude of procompetitive ends served by higher bidding for inputs, the risk of
chilling procompetitive behavior with too lax a liability standard is as serious here as it was in Brooke Group. Consequently, only