Horizontal Restraints Flashcards
Elements of a Sherman Act § 1 claim
- An agreement
- That unreasonably restrains trade
- And has an effect on interstate commerce (toothless and no need to address)
What kinds of horizontal restraints are per se illegal and how do you know if it is?
Only NAKED restraints of trade are per se illegal.
How do you know if something is naked?
- Rule: A restraint is naked if its profitability depends on an exercise of market power (artificially constraining market output to drive up price and increase profit). – Hovenkamp Treatise
How do you know if profitability depends on market power?
Ask: (different ways of asking same question)
(1) Does this agreement make business sense for the parties even if the parties don’t reduce output and drive up price?
- Reducing output can be either qualitative or quantitative.
(2) Would this practice make business sense if the parties didn’t have market power?
- If no market power, cannot impact price (think price theory)
Is nakedness of a restraint a sufficient condition to apply per se treatment?
No. Nakedness is necessary, but not sufficient for per se treatment.
Must also:
1. Have significant judicial experience with the type of restraint at issue. – Broadcast Music Inc. AND
- But it’s not experience with the industry—it’s experience with the PRACTICE (type of restraint) – Maricopa County Medical Society
2. Not be necessary in order to create the product/network joint venture. – NCAA v. Board of Regents
- Classic network joint ventures are things involving technology standards (ex: Blueray DVDs have to use to same disc type and reader so it all works; Lamberts case involving merger of sports networks streaming service; have to have price fixing per play of songs for creation of radio stations BMI)
Be careful not to jump to the conclusion that it is a network joint venture too quickly.
- Can you create the same product/benefit without the horizontal agreement?
- Maybe franchise/franchisee?
Horizontal per se treatment of learned professionals
Learned professionals may deserve different treatment. – Professional Engineers
Professionals still subject to per se unless it’s justified by public service/ethical consideration (then it gets ROR probably) – Maricopa County Medical Society
If naked + judicial experience + not necessary for joint venture
Per se illegal full stop.
Irrebuttable presumption of anticompetitive effect. Defendant doesn’t even get to come forward with a rebuttal. It’s over.
If you have a naked restraint that is not a novel practice (courts have had expeirence) it’s going to be per se illegal – Catalano (per se rule still has bite)
You don’t need market power to get per se treatment if you have naked price fixing. – Socony Vaccum
BUT NCAA v. Alston weird argument oddly endorsed by SCOTUS that there should be a quick look to exonerate if the defendant lacks market power (hasn’t been confirmed).
What does a court do if the horizontal restraint is not subject to per se treatment?
Ask: which story is more plausible (the procompetitive one or the anticompetitive one) and then we put the initial burden on the other party.
If plaintiff’s anticompetitive story is more plausible = ROR
If defendant’s procompetitve story is more plausible = quick look
What are courts most concerned with when seeing if the restraint is pro/anti-competitive?
Output.
Enhance market output = procompetitive
Decrease market output = anticompetitive
Rule of reason & the “greater good”
We do not care if the agreement would make the world a better place. We ONLY ask whether the agreement increases or decreases competition. That’s it. – Professional Engineers
Congress says competition is good, so unless you can get an exception from Congress (see Patent Act), antitrust law doesn’t care.
Horizontal ROR: how does a plaintiff meet their burden of showing anticompetitive effect?
“This is the type of anticompetitive activity that could lead to an exercise of market power, or in other words, that an exercise of market power is plausible.
How helpful is the practice in facilitating collusion?
Market structure factors:
1. participation rate
2. market concentration
3. ease of entry
4. fungibility
5. elasticity of demand
6. exclusivity of venture
Horizontal restraint quick look.
What is it?
Court presumes unreasonableness of restraint, but instead of foreclosing defenses, it will consider them. Burden is on the defendant to come forward with a really strong procompetitive justification.
Professional Engineers is the genesis of quick look.
Horizontal ROR: How does the defendant show procompetitive benefit?
Start here for quick look.
Is there strong evidence that the challenged practice creates substantial efficiencies by reducing participant’s cost or improving product/service quality? If not, the practice is illegal.
