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Music: Machine is Uninterested in Music
TODAY• OTHER CONDUCT THAT MIGHT
VIOLATE §2
• INTRODUCTION TO THE STATE ACTION DOCTRINE
Conduct Requirement: Very Testable Issue
• Lots of Caselaw & Significant Policy Concerns
• Review Problem #5 is an old test question based on case in materials on BarBri (Am. Prof. Testing Servs.)
• Spring 2008 Question I explored conduct requirement
• Issue in many years in Question II
Conduct Requirement: Very Testable Issue
• Remember lower court decisions aren’t binding outside of own jurisdiction
• Remember that Supreme Court has shifted right since Aspen and even more since approving Alcoa and Shoe Machinery
Conduct Requirement: General Standards
From Alcoa:
• OK if survivor of group of competitors by virtue of “superior skill, foresight, or industry.”
• OK if passive beneficiary of monopoly
Conduct Requirement: General Standards
From Grinnell: • Violation if “willful acquisition or
maintenance of monopoly power”
• OK if “growth or development as a consequence of a superior product, business acumen or historic accident."
Conduct Requirement: General Standards
From Barry Wright: • Exclusionary conduct is conduct other than
competition on the merits or restraints reasonably necessary to competition on the merits, that reasonably appears capable of making a significant contribution to creating or maintaining monopoly.
Conduct Requirement: General Standards
From Berkey Photo:
• Cross-market benefits OK if any integrated firm could do (efficient production; complementary products; reduced transaction costs)
• Not OK if “using” monopoly power
Conduct Requirement: Recurring Concerns
Tension Between:• Harms caused by monopoly (high
price; low output)
• Fear of deterring innovation and aggressive competition by monopolists
Conduct Requirement: Recurring Concerns
Context for Conduct Requirement• Must show Monopoly Power or DPS
before finding liability • Greater Market Power Greater
Range of Conduct is Problematic• Liability often found re conduct that
would be fine for a non-monopolist
Conduct Requirement: Recurring Concerns
Aggregation Question• Can you find liability by aggregating
two or more types of conduct that, standing alone, would be insufficient?
• Several cases seem to allow this.
Conduct Requirement: Recurring Concerns
Aggregation Question: Policy• If overall effect of aggregate conduct
meets is to create or maintain monopoly power, should be actionable
• BUT: Very hard for monopolist to know what is allowed
• Also don’t want to make AT case out of sporadic examples of business torts
Conduct Requirement: Recurring Concerns
Aggregation Question: Approach1. Discuss whether aggregation should be
allowed at all
2. Discuss whether this particular set of acts should be actionable
OTHER CONDUCT THAT MIGHT VIOLATE §2
• Non-Predatory Pricing• Exclusive Dealing Contracts
• Predatory Hiring
• Other Predatory Conduct
• False Advertising & Other Bad Behavior
NON-PREDATORY PRICING
1. Monopoly Pricing2. Limit Pricing
3. Price Squeezes
NON-PREDATORY PRICING
Monopoly Pricing• Not bad conduct for §2 purposes
• See Berkey Photo; USFL (2d Cir. 1988)– Not anti-competitive; invites competition
– Can see as reward for innovation/skill
– Can be evidence of market power
NON-PREDATORY PRICING
1. Monopoly Pricing
2. Limit Pricing3. Price Squeezes
NON-PREDATORY PRICING
Limit Pricing• Price above monopolist’s marginal
cost, but low enough that– Existing rivals can’t meet AND/OR
– Potential rivals won’t enter
• Arises in Alcoa (re foreign producers); IBM Cases; BarBri case/Rev. Prob. #5
NON-PREDATORY PRICING
Limit Pricing: Legal Treatment• Suggestions in some lower court
cases that can violate §2
• Language in Brooke Group re price below cost suggests otherwise
• Liability may be more plausible if aggregated with other conduct
NON-PREDATORY PRICING
1. Monopoly Pricing
2. Limit Pricing
3. Price Squeezes
NON-PREDATORY PRICING
Price Squeeze• Monopolist re a raw material also makes
finished product using that raw material.– Monopolist sets price of raw material high;
finished product’s price low.– Rivals re finished product have trouble
meeting monopolist’s price.
• Form of Limit Pricing
NON-PREDATORY PRICING
Price Squeeze: Benign?• Hovencamp: Low price of finished product
may result from efficiencies of vertical integration.
• Monopolist at two levels may not be any worse in short run; can only extract same amount of monopoly profit from ultimate consumer.
NON-PREDATORY PRICING
Price Squeeze: Concerns• 2-Level Monopoly Increases Entry Barriers
(more expensive to enter on both levels)
• Monopolist cautiously pricing on one level may feel freer to take full monopoly profit
• Rivalry at one level can encourage innovation and non-price competition
NON-PREDATORY PRICING
Price Squeeze: Legal Treatment• Alcoa says improper conduct (in dicta).
• Some courts have found liability.
• Good discussion in Town of Concord (1st Cir. 1990) (Breyer) (no liability in highly regulated industry)
• After Brooke Group & Trinko: maybe only actionable if predatory.
OTHER CONDUCT THAT MIGHT VIOLATE §2
• Non-Predatory Pricing
• Exclusive Dealing Contracts• Predatory Hiring
• Other Predatory Conduct
• False Advertising & Other Bad Behavior
Exclusive Dealing Contracts
• Contracts with Suppliers or Purchasers Requiring That They Only Do Business with Monopolist
• E.g., Alcoa (pre-1912) contracts with power companies
Exclusive Dealing Contracts
Can be pro-competitive: • Insures that a dealer focuses on
your product
• Guarantees sufficient supplies from supplier
• Reduces negotiation costs for party granting exclusivity
Exclusive Dealing Contracts
Problems if Monopolist or Cartel: • Raises costs to rivals b/c fore-
closes some customers/suppliers
• If widespread, difficult for rivals to do business at all
Exclusive Dealing Contracts
Leading Case: Lorain Journal (1951) • Newspaper had effective monopoly of
news & advertising in one Ohio city.
• Radio station opens nearby
• Paper refuses to run print ads for those advertising w radio station.
• SCt finds attempt to monopolize.
Exclusive Dealing Contracts
More on Legal Treatment • Seen as clearest example of bad conduct
• Like Prototype I boycotts
• PepsiCo = case in materials similar to Lorain Journal
• Might be defensible if monopolist can show significant efficiencies result
OTHER CONDUCT THAT MIGHT VIOLATE §2
• Non-Predatory Pricing
• Exclusive Dealing Contracts
• Predatory Hiring• Other Predatory Conduct
• False Advertising & Other Bad Behavior
“Predatory Hiring”
• Monopolist hires away key employees or potential employees of rivals
• Effect may be to make it harder for rivals to do business
• Claim can be seen as a subset of exclusive dealing
“Predatory Hiring”
General Concerns• Normal competition to want to hire
best in the field
• Can only be problematic if limited supply of that type of employee
• Don’t want to impede ability of employee to market skills/self
“Predatory Hiring”
General Concerns• Most likely to be problematic if
“predatory”:– Cost of employee to monopolist is
greater than benefits
– Only makes sense as way to harm rivals
“Predatory Hiring”
Legal Treatment• Several circuits have said claim might
be actionable in some circumstances
• Some examples of tests in materials
“Predatory Hiring”
Legal TreatmentMost courts want greater showing than
mere hiring away from rival. E.g.,
• that employee didn’t help monopolist (BUT can be predatory even if help)
• evidence of harm to price or output
• part of larger pattern of bad conduct
“Predatory Hiring”
Wichita Clinic (D.Kansas 1997) • Seems to require least, although facts most
compelling• Following allegations state cause of action
– D runs largest hospital in Wichita area. – P clinic refused D’s merger overtures – D hired away 20% of P’s doctors w intent to
monopolize Wichita health care
• Note: rests a lot on intent w/o objective evidence of harm or predation
“Predatory Hiring”
Abcor (4th Cir. 1990) • D hired 2 of Ps employees
• Not actionable where– P had hired # of employees from D, so
“fighting back”
– Both employees had strong personal reasons to leave & initiated contact w D
• Suggests very fact-specific inquiry
OTHER CONDUCT THAT MIGHT VIOLATE §2
• Non-Predatory Pricing
• Exclusive Dealing Contracts
• Predatory Hiring
• Other Predatory Conduct• False Advertising & Other Bad Behavior
Other Predatory Conduct
• Conduct that is not cost-justified in the short run.
• Sensible only if intending to recoup through long-term monopoly profits.
Other Predatory Conduct
Alcoa: Predatory Expansion Theory
• Possible harms discussed in presentation of case & in outline
• Hovenkamp: Has pro-competitive aspect– Makes supplier very attractive to buyers
– Insures won’t run out of supplies
Other Predatory Conduct
Exclusion Cases that Require Predation
• Arguably Aspen/Trinko
• Some predatory hiring cases
Other Predatory Conduct
Photovest v. Fotomat (7th Cir. 1979) • D both owns and franchises kiosk
photofinishing services
• P gets contract to run 15 franchises
• D discovers that company-owned kiosks are more profitable than franchises
Other Predatory Conduct
Photovest v. Fotomat (7th Cir. 1979) Steps taken to eliminate franchises in
the aggregate = attempt to monop.:
• Increases prices to franchises
• Conceals available discounts
• Placement of new kiosks
Other Predatory Conduct
Photovest v. Fotomat (7th Cir. 1979) Kiosk placement predatory:• Opened many kiosks to reduce value of
franchises so D could buy back cheaply.
• E.g., 14 kiosks in Indianpolis, more than 1/2 on overlapping sites
• Evidence that new kiosks operating at below break-even point
Other Predatory Conduct
Photovest v. Fotomat (7th Cir. 1979)
Q: Should attempt by monopolist to rearrange own distribution system
be actionable under AT laws (as opposed to breach of contract
suits by franchisees)
OTHER CONDUCT THAT MIGHT VIOLATE §2
• Non-Predatory Pricing
• Exclusive Dealing Contracts
• Predatory Hiring
• Other Predatory Conduct
• False Advertising & Other Bad Behavior
False Advertising & Other Bad Conduct
• Possible to interfere w rival’s business through lying, coercion, etc.
• Q is when should we treat as AT violation (v. use of other laws)
• Facts of three cases described in materials (Note that two of them are aggregate conduct cases)
False Advertising & Other Bad Conduct
False Advertising (in Rev. Prob #5) • Problem if discourages purchasers from
using rivals’ products (tho can combat w own ads)
• At least 2 circuits say possible §2 claim
• Tests in cases in materials basically require harm to competition
The State Action Doctrine
• Sherman Act not intended to restrain ability of states to do economic regulation
• Acts that would otherwise violate AT laws immune if fall within exception
• E.g., Parker v. Brown (1943)
The State Action Doctrine
• Easy Cases: State officials acting pursuant to legislative scheme
• Harder cases (We’ll Discuss in Turn):– Private citizens acting pursuant to
state scheme – Acts by municipalities
The State Action Doctrine
Private citizens acting pursuant to state scheme: 2-prong test
1. “Clearly articulated and firmly expressed as state policy"
2. Conduct must be “actively supervised by State itself"