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4
5
 Aspen Publishers is proud to offer Casenote Legal Briefs—continuing thirty years of publishing America’s
best-selling legal briefs.
Casenote Legal Briefs are designed to help you save time when briefing assigned cases. Organized under
convenient headings, they show you how to abstract the basic facts and holdings from the text of the actual
opinions handed down by the courts. Used as part of a rigorous study regimen, they can help you spend more
time analyzing and critiquing points of law than on copying bits and pieces of judicial opinions into your
notebook or outline.
Casenote Legal Briefs should never be used as a substitute for assigned casebook readings. They work best
when read as a follow-up to reviewing the underlying opinions themselves. Students who try to avoid reading
and digesting the judicial opinions in their casebooks or online sources will end up shortchanging themselves
in the long run. The ability to absorb, critique, and restate the dynamic and complex elements of case law
decisions is crucial to your success in law school and beyond. It cannot be developed vicariously.
Casenote Legal Briefs represents but one of the many offerings in Aspen’s Study Aid Timeline, which
includes:

• Casenote Legal Briefs

• Emanuel Law Outlines
• Examples & Explanations Series
• Introduction to Law Series
• Emanuel Law in a Flash Flash Cards
• Emanuel CrunchTime Series

Each of these series is designed to provide you with easy-to-understand explanations of complex points of
law. Each volume offers guidance on the principles of legal analysis and, consulted regularly, will hone your
ability to spot relevant issues. We have titles that will help you prepare for class, prepare for your exams, and
enhance your general comprehension of the law along the way.
To find out more about Aspen Study Aid publications, visit us online at www.AspenLaw.com or email us
at [email protected]. We’ll be happy to assist you.

6
A. Decide on a Format and Stick to It
Structure is essential to a good brief. It enables you to arrange systematically the related parts that are
scattered throughout most cases, thus making manageable and understandable what might otherwise seem to
be an endless and unfathomable sea of information. There are, of course, an unlimited number of formats that
can be utilized. However, it is best to find one that suits your needs and stick to it. Consistency breeds both
efficiency and the security that when called upon you will know where to look in your brief for the
information you are asked to give.
Any format, as long as it presents the essential elements of a case in an organized fashion, can be used.
Experience, however, has led Casenotes to develop and utilize the following format because of its logical flow
and universal applicability.

NATURE OF CASE: This is a brief statement of the legal character and procedural status of the case (e.g.,
“Appeal of a burglary conviction”).
There are many different alternatives open to a litigant dissatisfied with a court ruling. The key to
determining which one has been used is to discover who is asking this court for what.
This first entry in the brief should be kept as short as possible. Use the court’s terminology if you understand
it. But since jurisdictions vary as to the titles of pleadings, the best entry is the one that addresses who wants
what in this proceeding, not the one that sounds most like the court’s language.

RULE OF LAW: A statement of the general principle of law that the case illustrates (e.g., “An acceptance
that varies any term of the offer is considered a rejection and counteroffer”).
Determining the rule of law of a case is a procedure similar to determining the issue of the case. Avoid
being fooled by red herrings; there may be a few rules of law mentioned in the case excerpt, but usually only
one is the rule with which the casebook editor is concerned. The techniques used to locate the issue, described
below, may also be utilized to find the rule of law. Generally, your best guide is simply the chapter heading. It
is a clue to the point the casebook editor seeks to make and should be kept in mind when reading every case in
the respective section.

FACTS: A synopsis of only the essential facts of the case, i.e., those bearing upon or leading up to the issue.
The facts entry should be a short statement of the events and transactions that led one party to initiate
legal proceedings against another in the first place. While some cases conveniently state the salient facts at the
beginning of the decision, in other instances they will have to be culled from hiding places throughout the
text, even from concurring and dissenting opinions. Some of the “facts” will often be in dispute and should be
so noted. Conflicting evidence may be briefly pointed up. “Hard” facts must be included. Both must be
relevant in order to be listed in the facts entry. It is impossible to tell what is relevant until the entire case is
read, as the ultimate determination of the rights and liabilities of the parties may turn on something buried
deep in the opinion.
Generally, the facts entry should not be longer than three to five short sentences.
It is often helpful to identify the role played by a party in a given context. For example, in a construction
contract case the identification of a party as the “contractor” or “builder” alleviates the need to tell that that
party was the one who was supposed to have built the house.
It is always helpful, and a good general practice, to identify the “plaintiff” and the “defendant.” This may
seem elementary and uncomplicated, but, especially in view of the creative editing practiced by some casebook
editors, it is sometimes a difficult or even impossible task. Bear in mind that the party presently seeking
something from this court may not be the plaintiff, and that sometimes only the cross-claim of a defendant is
treated in the excerpt. Confusing or misaligning the parties can ruin your analysis and understanding of the
case.

ISSUE: A statement of the general legal question answered by or illustrated in the case. For clarity, the issue
is best put in the form of a question capable of a “yes” or “no” answer. In reality, the issue is simply the Rule of
Law put in the form of a question (e.g., “May an offer be accepted by performance?”).
The major problem presented in discerning what is the issue in the case is that an opinion usually purports
to raise and answer several questions. However, except for rare cases, only one such question is really the issue

7
in the case. Collateral issues not necessary to the resolution of the matter in controversy are handled by the
court by language known as “obiter dictum” or merely “dictum.” While dicta may be included later in the brief,
they have no place under the issue heading.
To find the issue, ask who wants what and then go on to ask why did that party succeed or fail in getting it.
Once this is determined, the “why” should be turned into a question.
The complexity of the issues in the cases will vary, but in all cases a single-sentence question should sum
up the issue. In a few cases, there will be two, or even more rarely, three issues of equal importance to the
resolution of the case. Each should be expressed in a single-sentence question.
Since many issues are resolved by a court in coming to a final disposition of a case, the casebook editor will
reproduce the portion of the opinion containing the issue or issues most relevant to the area of law under
scrutiny. A noted law professor gave this advice: “Close the book; look at the title on the cover.” Chances are,
if it is Property, you need not concern yourself with whether, for example, the federal government’s treatment
of the plaintiff’s land really raises a federal question sufficient to support jurisdiction on this ground in federal
court.
The same rule applies to chapter headings designating sub-areas within the subjects. They tip you off as to
what the text is designed to teach. The cases are arranged in a casebook to show a progression or development
of the law, so that the preceding cases may also help.
It is also most important to remember to read the notes and questions at the end of a case to determine what
the editors wanted you to have gleaned from it.

HOLDING AND DECISION: This section should succinctly explain the rationale of the court in arriving
at its decision. In capsulizing the “reasoning” of the court, it should always include an application of the
general rule or rules of law to the specific facts of the case. Hidden justifications come to light in this entry:
the reasons for the state of the law, the public policies, the biases and prejudices, those considerations that
influence the justices’ thinking and, ultimately, the outcome of the case. At the end, there should be a short
indication of the disposition or procedural resolution of the case (e.g., “Decision of the trial court for Mr.
Smith (P) reversed”).
The foregoing format is designed to help you “digest” the reams of case material with which you will be
faced in your law school career. Once mastered by practice, it will place at your fingertips the information the
authors of your casebooks have sought to impart to you in case-by-case illustration and analysis.

B. Be as Economical as Possible in Briefing Cases

Once armed with a format that encourages succinctness, it is as important to be economical with regard to
the time spent on the actual reading of the case as it is to be economical in the writing of the brief itself. This
does not mean “skimming” a case. Rather, it means reading the case with an “eye” trained to recognize into
which “section” of your brief a particular passage or line fits and having a system for quickly and precisely
marking the case so that the passages fitting any one particular part of the brief can be easily identified and
brought together in a concise and accurate manner when the brief is actually written.
It is of no use to simply repeat everything in the opinion of the court; record only enough information to
trigger your recollection of what the court said. Nevertheless, an accurate statement of the “law of the case,”
i.e., the legal principle applied to the facts, is absolutely essential to class preparation and to learning the law
under the case method.
To that end, it is important to develop a “shorthand” that you can use to make marginal notations. These
notations will tell you at a glance in which section of the brief you will be placing that particular passage or
portion of the opinion.
Some students prefer to underline all the salient portions of the opinion (with a pencil or colored
underliner marker), making marginal notations as they go along. Others prefer the color-coded method of
underlining, utilizing different colors of markers to underline the salient portions of the case, each separate
color being used to represent a different section of the brief. For example, blue underlining could be used for
passages relating to the rule of law, yellow for those relating to the issue, and green for those relating to the
holding and decision, etc. While it has its advocates, the color-coded method can be confusing and time-
consuming (all that time spent on changing colored markers). Furthermore, it can interfere with the
continuity and concentration many students deem essential to the reading of a case for maximum
comprehension. In the end, however, it is a matter of personal preference and style. Just remember, whatever
method you use, underlining must be used sparingly or its value is lost.
If you take the marginal notation route, an efficient and easy method is to go along underlining the key

8
portions of the case and placing in the margin alongside them the following “markers” to indicate where a
particular passage or line “belongs” in the brief you will write:

N (NATURE OF CASE)
RL (RULE OF LAW)
I (ISSUE)
HL (HOLDING AND DECISION, relates to the RULE OF LAW behind the decision)
HR (HOLDING AND DECISION, gives the RATIONALE or reasoning behind the decision)
HA (HOLDING AND DECISION, APPLIES the general principle(s) of law to the facts of the case to arrive at
the decision)

Remember that a particular passage may well contain information necessary to more than one part of your
brief, in which case you simply note that in the margin. If you are using the color-coded underlining method
instead of marginal notation, simply make asterisks or checks in the margin next to the passage in question in
the colors that indicate the additional sections of the brief where it might be utilized.
The economy of utilizing “shorthand” in marking cases for briefing can be maintained in the actual brief
writing process itself by utilizing “law student shorthand” within the brief. There are many commonly used
words and phrases for which abbreviations can be substituted in your briefs (and in your class notes also). You
can develop abbreviations that are personal to you and which will save you a lot of time. A reference list of
briefing abbreviations can be found on page xii of this book.

C. Use Both the Briefing Process and the Brief as a Learning Tool
Now that you have a format and the tools for briefing cases efficiently, the most important thing is to
make the time spent in briefing profitable to you and to make the most advantageous use of the briefs you
create. Of course, the briefs are invaluable for classroom reference when you are called upon to explain or
analyze a particular case. However, they are also useful in reviewing for exams. A quick glance at the fact
summary should bring the case to mind, and a rereading of the rule of law should enable you to go over the
underlying legal concept in your mind, how it was applied in that particular case, and how it might apply in
other factual settings.
As to the value to be derived from engaging in the briefing process itself, there is an immediate benefit
that arises from being forced to sift through the essential facts and reasoning from the court’s opinion and to
succinctly express them in your own words in your brief. The process ensures that you understand the case and
the point that it illustrates, and that means you will be ready to absorb further analysis and information
brought forth in class. It also ensures you will have something to say when called upon in class. The briefing
process helps develop a mental agility for getting to the gist of a case and for identifying, expounding on, and
applying the legal concepts and issues found there. The briefing process is the mental process on which you
must rely in taking law school examinations; it is also the mental process upon which a lawyer relies in serving
his clients and in making his living.

9
acceptance acp
affirmed aff
answer ans
assumption of risk a/r
attorney atty
beyond a reasonable doubt b/r/d
bona fide purchaser BFP
breach of contract br/k

cause of action c/a

common law c/l

Constitution Con
constitutional con

contract K
contributory negligence c/n

cross x
cross-complaint x/c

cross-examination x/ex
cruel and unusual punishment c/u/p

defendant D

dismissed dis
double jeopardy d/j

due process d/p

equal protection e/p

equity eq
evidence ev

exclude exc

exclusionary rule exc/r

felony f/n

freedom of speech f/s

good faith g/f

habeas corpus h/c

hearsay hr

husband H

injunction inj

in loco parentis ILP

inter vivos I/v

joint tenancy j/t

judgment judgt

jurisdiction jur

last clear chance LCC

long-arm statute LAS

10
majority view maj
meeting of minds MOM
minority view min
Miranda rule Mir/r
Miranda warnings Mir/w
negligence neg
notice ntc
nuisance nus
obligation ob

obscene obs
offer O
offeree OE
offeror OR
ordinance ord

pain and suffering p/s

parol evidence p/e

plaintiff P
prima facie p/f

probable cause p/c

proximate cause px/c

real property r/p

reasonable doubt r/d

reasonable man r/m

rebuttable presumption rb/p

remanded rem

res ipsa loquitur RIL

respondeat superior r/s

Restatement RS

reversed rev
Rule Against Perpetuities RAP

search and seizure s/s

search warrant s/w

self-defense s/d
specific performance s/p

statute S

statute of frauds S/F

statute of limitations S/L

summary judgment s/j

tenancy at will t/w

tenancy in common t/c

tenant t

third party TP
third party beneficiary TPB

transferred intent TI

11
unconscionable uncon
unconstitutional unconst
undue influence u/e
Uniform Commercial Code UCC
unilateral uni
vendee VE
vendor VR
versus v
void for vagueness VFV

weight of authority w/a

weight of the evidence w/e
wife W
with w/
within w/i

without w/o
without prejudice w/o/p

wrongful death wr/d

12
A Addyston Pipe & Steel Co., United States v. 3
Allied Tube & Conduit Corp. v. Indian Head, Inc. 145
Aluminum Co. of America, United States v. 80
American Can Co., United States v. 79
Appalachian Coals, Inc. v. United States 22
Arizona v. Maricopa County Medical Society 30
Aspen Skiing Co. v. Aspen Highlands Skiing Corp. 100
Associated General Contractors v. California State Council of Carpenters 12
Associated Press v. United States. 53

B Bell Atlantic Corp. v. Twombly. 38

Berkey Photo, Inc. v. Eastman Kodak Co. 86
Blue Shield of Virginia v. McCready 11
Borden Co., United States v. 137
Broadcast Music, Inc. v. Columbia Broadcasting System 28
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. 95
Brown Shoe Co. v. United States 113, 117
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc. 9

C California Dental Assn. v. FTC 32

California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc. 152
California v. American Stores Co. 16
California Computer Products v. IBM Corp. 87
Cargill, Inc. v. Monfort of Colorado, Inc. 10
Cascade Health Solutions v. PeaceHealth 98
Catalano, Inc. v. Target Sales, Inc. 29
Chicago Board of Trade v. United States 20
Citizen Publishing Co. v. United States 127
City of Columbia & Columbia Outdoor Advertising, Inc. v. Omni Outdoor Advertising, Inc. 154
Colgate & Co., United States v. 60
Columbia Steel Co., United States v. 111, 115
Concord Boat Corp. v. Brunswick Corp. 13
Container Corp. of America, United States v. 25
Continental Can Co., United States v. 125
Continental T.V., Inc. v. GTE Sylvania, Inc. 63
Copperweld Corp. v. Independence Tube Corp. 42
Credit Suisse Securities v. Billing 142

D Dentsply International, Inc., United States v. 104

E E.I. du Pont de Nemours & Co. v. FTC. 41

E.I. du Pont de Nemours & Co., United States v.,
351 U.S. 377 (1956) 83
E.I. du Pont de Nemours & Co., United States v.,
353 U.S. 586 (1957) 112
Eastern States Retail Lumber Dealers’ Assn. v. United States 46
Eastman Kodak Co. v. Image Technical Services, Inc. 69

13
F Falls City Industries v. Vanco Beverage, Inc. 139
FTC v. Borden Co. 136
FTC v. Cement Institute. 40
FTC v. Henry Broch & Co. 135
FTC v. H.J. Heinz Co. 122
FTC v. Indiana Federation of Dentists 52
FTC v. Morton Salt Co. 130
FTC v. Procter & Gamble Co. 126
FTC v. Staples, Inc. 120
FTC v. Superior Court Trial Lawyers Assn. 147
FTC v. Ticor Title Insurance Co. 155
Fisher v. City of Berkeley 151

G General Dynamics Corp., United States v. 119

Great Atlantic & Pacific Tea Co. v. FTC 140
Grinnell Corp., United States v. 85

H Hallie v. City of Eau Claire 153

Hospital Corp. of America v. FTC. 121

I Illinois Brick Co. v. Illinois 7

Illinois Tool Works, Inc. v. Independent Ink, Inc. 73
Independent Service Organizations Antitrust Litigation 93
Interstate Circuit v. United States 36

J J. Truett Payne Co. v. Chrysler Motors Corp. 134

Jefferson Parish Hospital District No. 2 v. Hyde. 67
Jerrold Electronics Corp., United States v. 75

K Klor’s, Inc. v. Broadway-Hale Stores, Inc. 47

L Leegin Creative Leather Products, Inc. v. PSKS, Inc., dba Kay’s Kloset Kay’s Shoes. 57

M Maple Flooring Manufacturers Association v. United States 24

Matsushita Electric Industrial Co. v. Zenith Radio Corp. 43
Microsoft Corp., United States v., 147 F.3d 935 (1998) 70
Microsoft Corp., United States v., 253 F.3d 34 (2001) 71, 88
Missouri v. National Organization for Women. 54
Monsanto Co. v. Spray-Rite Service Corp. 62

N National Collegiate Athletic Assn. v. Board of Regents 31

National Society of Professional Engineers v. United States 27
Northern Pacific Railway v. United States 66
Northern Securities Co. v. United States 114
Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co. 50
NYNEX Corporation v. Discon, Inc. 48

P Pacific Bell Telephone Co. dba AT&T California v. Linkline Communications, Inc. 106
Paramount Famous Lasky Corp. v. United States 49
Perma Life Mufflers, Inc. v. International Parts Corp. 15
Philadelphia National Bank, United States v. 118

14
 Polk Bros. v. Forest City Enterprises. 45
Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. 149

R Reiter v. Sonotone Corp. 8

S Sidney W. Winslow, United States v. 124

Socony-Vacuum Oil Co., United States v. 23
Spectrum Sports, Inc. v. McQuillan. 108
State Oil Company v. Khan 61
Summit Health, Ltd. v. Pinhas 6

T Tampa Electric Co. v. Nashville Coal Co. 64

Telex Corp. v. IBM Corp. 84
Texaco, Inc. v. Dagher. 35
Theatre Enterprises, Inc. v. Paramount Film Distributing Corp. 37
Times-Picayune Publishing Co. v. United States 65
Topco Associates, United States v. 44
Trans-Missouri Freight Assn., United States v. 2
Trenton Potteries Co., United States v. 21

U United Shoe Machinery Corp., United States v. 81

United States Gypsum Co., United States v. 26, 138

V Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP. 102, 144
Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc. 131

W Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc. 96

15
 Quick Reference Rules of Law
1. Early Case Law. The Sherman Act’s prohibition on agreements in restraint of trade is not limited to
unreasonable restraints. (United States v. Trans-Missouri Freight Assn.)

2. Early Case Law. A combination with the sole purpose to regulate price is violative of both public policy
and the Sherman Act. (United States v. Addyston Pipe & Steel Co.)

16
 United States v. Trans-Missouri Freight Assn.
Federal government (P) v. Cartel (D)
166 U.S. 290 (1897).

NATURE OF CASE: Review of dismissal of antitrust enforcement action.

FACT SUMMARY: Trans-Missouri Freight Association (D) contended that the Sherman Act prohibited
contracts in restraint of competition if they were unreviewable.

RULE OF LAW
The Sherman Act’s prohibition on agreements in restraint of trade is not limited to unreasonable
restraints.

FACTS: Eighteen western railroads created a cartel, the Trans-Missouri Freight Association (Trans-
Missouri) (D), in order to set fixed rates. The federal government (P) instituted an action under the Sherman
Act contending that Trans-Missouri (D) had entered into an agreement in restraint of competition. Trans-
Missouri (D) moved to dismiss on the grounds that its rates were reasonable and therefore its agreement was
not unlawful at common law or under the Sherman Act. The motion was granted, and the U.S. Supreme
Court granted review.
ISSUE: Is the Sherman Act’s prohibition on agreements in restraint of trade limited to unreasonable
restraints?
HOLDING AND DECISION: (Peckham, J.) No. The Sherman Act’s prohibition on agreements in
restraint of trade is not limited to unreasonable restraints. The words used in the Act are clear and
unambiguous; the Act prohibits “contracts in restraint of trade.” Congress included no limiting or qualifying
language with respect to reasonableness. A contract may be in restraint of trade and still be valid at common
law yet be in violation of the Act. In this case, Trans-Missouri (D) does not have the right to enter into a
combination with competing railroads to maintain fixed rates, no matter how reasonable those rates may be or
what the intent of the railroads may have been. Reversed.

ANALYSIS
This case represents the most expansive interpretation ever given as to the reach of the Sherman Act. It
interpreted the Act as reaching much further than common law antitrust rules, which only prohibited
unreasonable restraints. Today, antitrust law voids some types of agreements categorically, while other
types are subject to a reasonableness analysis.

Quicknotes
ANTITRUST LAW Body of federal law prohibiting business conduct that constitutes a restraint on trade.
Alliance of entities, for the purpose of impeding free trade, that results in a
COMBINATION (ANTITRUST DEFINITION)

monopoly, suppression of competition, or affecting prices.

RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

17
 United States v. Addyston Pipe & Steel Co.
Federal government (P) v. Manufacturing company (D)
85 F. 271 (6th Cir. 1898), aff’d, 175 U.S. 211 (1899).

NATURE OF CASE: Action to dissolve a combination which sought to regulate the price of pipe.
FACT SUMMARY: Addyston Pipe & Steel Co. (D) and other pipe manufacturers entered into an
agreement to artificially raise the price of pipe.

RULE OF LAW
A combination with the sole purpose to regulate price is violative of both public policy and the
Sherman Act.

FACTS: A majority of pipe manufacturers in the U.S. entered into an agreement to artificially regulate the
price of caste-iron pipe. The federal government (P) sought to dissolve this agreement as violative of the
Sherman Act’s prohibition against combinations in restraint of interstate commerce. Addyston Pipe and Steel
Co. (D), the named representative of this combination, argued that they still had to meet the price set by their
competition and lacked the power to absolutely fix prices. The price charged was fair, they argued, and
competition was not restrained.
ISSUE: Is an agreement to set prices violative of the Sherman Act?
HOLDING AND DECISION: (Taft, J.) Yes. An agreement with the sole purpose to artificially set prices
violates the Sherman Act. It is a combination in restraint of trade or commerce. Such agreements were also
illegal at common law. It is immaterial whether the combination can actually affect prices or whether the
prices charged are fair. It is sufficient that the sole purpose of the combination is to attempt to fix prices. A
complete monopoly is not required. The impermissible purpose of the combination is sufficient to violate § 1
of the Sherman Act. It is a combination in restraint of trade or commerce. The combination is ordered
dissolved. Reversed.

ANALYSIS
In U.S. v. American Tobacco Co., 221 U.S. 106 (1911), the Court held that not all combinations violated the
Sherman Act. It held that only those acts or contracts which operated to the prejudice of the public interest
by unduly restricting competition or trade were violative of § 1 of the Sherman Act. The exact amount and
nature of such restrictions on competition or restraints on trade must be handled on a case-by-case basis.

Quicknotes
COMBINATION (ANTITRUST DEFINITION) Alliance of entities, for the purpose of impeding free trade, that
results in a monopoly, suppression of competition, or affecting prices.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
PUBLIC POLICY Policy administered by the state with respect to the health, safety and morals of its people in
accordance with common notions of fairness and decency.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

18
19
 Quick Reference Rules of Law
1. Interstate Commerce Requirement. Violation of the Sherman Act is determined by the potential harm
that would ensue if a conspiracy were successful, not by actual occurrences. (Summit Health, Ltd. v.
Pinhas)

2. Direct Purchaser Requirement. Only direct purchasers from those engaged in unlawful price-fixing at
the manufacturing level may seek damages for antitrust violations.
(Illinois Brick Co. v. Illinois)

3. “Business or Property” Requirement. A consumer of retail goods and services has standing to sue for
damages for price-fixing under § 4 of the Clayton Act. (Reiter v. Sonotone Corp.)

4. Antitrust Injury. Antitrust damages are not available when the sole injury alleged by the plaintiff is that
the defendant’s conduct allowed a competitor of the plaintiff to remain in business. (Brunswick Corp. v.
Pueblo Bowl-O-Mat, Inc.)

5. Antitrust Injury. A plaintiff seeking injunctive relief under § 16 of the Clayton Act must show an injury
of the type the antitrust laws were designed to prevent. (Cargill, Inc. v. Monfort of Colorado, Inc.)

6. Standing to Sue. Standing to maintain an action under § 4 of the Clayton Act is limited to those
plaintiffs who can show a physical and economic nexus between the antitrust violation and their injury,
as well as a relationship between their injury and the type of injury § 4 was designed to remedy. (Blue
Shield of Virginia v. McCready)

7. Standing to Sue. Indirect, highly speculative damages that may not even be caused by the alleged
antitrust violation are not cognizable under § 4 of the Clayton Act. (Associated General Contractors v.
California State Council of Carpenters)

8. Expert Testimony After Daubert. Expert opinion is inadmissible where it does not incorporate all
aspects of the economic reality of a given market and where it does not separate lawful from unlawful

20
 conduct. (Concord Boat Corp. v. Brunswick Corp.)

9. In Pari Delicto and the Unclean Hands Doctrine. In pari delicto is not available as a defense to an action
based on antitrust violations. (Perma Life Mufflers, Inc. v. International Parts Corp.)

10. Injunctive Relief. A district court is empowered under § 16 of the Clayton Act to order a company to
divest itself of another. (California v. American Stores Co.)

21
 Summit Health, Ltd. v. Pinhas
Health care operator (D) v. Physician (P)
500 U.S. 322 (1991).

NATURE OF CASE: Appeal from order reversing dismissal of antitrust action.

FACT SUMMARY: Pinhas (P), a physician, alleged that Summit Health, Ltd. (D) conspired with several
doctors (D) to drive him out of practice after he refused to pad the cost of eye surgery by requiring a useless
second surgeon to be present during surgery.

RULE OF LAW
Violation of the Sherman Act is determined by the potential harm that would ensue if a conspiracy
were successful, not by actual occurrences.

FACTS: Pinhas (P) was an ophthalmologist employed at Midway Hospital (Midway) (D) operated by
Summit Health, Ltd. (Summit) (D), which operated numerous medical facilities in the western United States.
Pinhas (P) objected to Midway’s (D) requirement that a second surgeon assist during all eye surgeries. In
response, Midway (D) instituted a biased peer-review process that resulted in his termination. Midway (D)
also planned to disseminate defamatory material concerning Pinhas (P) to other potential employers, with the
intent of driving him out of practice. Pinhas (P) filed an action under the Sherman Act, alleging restraint of
trade on the practice of ophthalmological services. Summit (D) moved to dismiss, contending that because the
boycott of a single surgeon does not affect the adequate supply of surgeons market-wide, interstate commerce
had not been implicated. The district court granted the motion, but the Ninth Circuit reversed, reinstating
the claim. The U.S. Supreme Court granted review.
ISSUE: Is violation of the Sherman Act to be determined by the potential harm that would ensue if a
conspiracy were successful?
HOLDING AND DECISION: (Stevens, J.) Yes. Violation of the Sherman Act is to be determined by the
potential harm that would ensue if a conspiracy were successful. Thus, an attempt by a medical group to drive
a physician out of practice may create a claim under the Sherman Act. An activity or set of activities has a
sufficient nexus with interstate commerce so as to implicate the Sherman Act if it has an effect on interstate
commerce, even if the activity itself is local in character. The provision of ophthalmological services affects
interstate commerce because physicians perform services on out-of-state patients and receive payment from
out-of-state Medicare sources. In this case, the exclusion of Pinhas (P) from the Los Angeles market would
impact interstate commerce by reducing the provision of ophthalmological services there. Thus, Pinhas’s (P)
claim that Midway (D) conspired with others to abuse the peer-review process and deny him access to the Los
Angeles market for ophthalmological services has a sufficient nexus with interstate commerce to invoke
Sherman Act jurisdiction. Affirmed.
DISSENT: (Scalia, J.) Because the economic effects of “blackballing” a single service provider like Pinhas (P)
would not be felt throughout the Los Angeles market, the boycott alleged here does not substantially affect
interstate commerce by restricting competition. At most, the conspiracy involved one hospital; the only
anticompetitive scheme was the price “padding” that Pinhas (P) initially opposed.

ANALYSIS
A defendant arguing against Sherman Act jurisdiction today has a hard row to hoe. All that is required is
some effect on interstate commerce. With today’s economic globalization, it is questionable if any
economic activity can truly be characterized as local.

Quicknotes
BOYCOTT A concerted effort to refrain from doing business with a particular person or entity.
INTERSTATE COMMERCE Commercial dealings between two parties located in different states or located in
one state and accomplished through a point in another state or a foreign country; commercial dealings

22
transacted between two states.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

23
 Illinois Brick Co. v. Illinois
Manufacturer (D) v. State (P)
431 U.S. 720 (1977).

NATURE OF CASE: Damage action under § 4 of the Clayton Act.

FACT SUMMARY: lt was alleged that manufacturers of concrete blocks conspired to fix prices to
distributors who, in turn, passed on these price increases to customers.

RULE OF LAW
Only direct purchasers from those engaged in unlawful price-fixing at the manufacturing level may
seek damages for antitrust violations.

FACTS: Illinois (P) and various governmental entities brought a private damage action under § 4 of the
Clayton Act. It was alleged that the manufacturers of concrete blocks in the State (P) had engaged in price-
fixing activities. The blocks were sold to distributors who, in turn, sold them to general contractors.
Ultimately, the increased prices were passed on to consumers such as the State of Illinois (P). Illinois Brick
Co. (D) and the other manufacturers (D) alleged that even if they had conspired to fix prices, the indirect
damages suffered by those not purchasing from the manufacturers could not be used as a measure of damages
in an antitrust action.
ISSUE: May all parties in a distribution chain who are injured by price-fixing at any level maintain a damage
action under antitrust law?
HOLDING AND DECISION: (White, J.) No. We find that only direct purchasers of those engaged in
price-fixing at any level of the distribution chain should be allowed to seek damages for the antitrust
violations. Unless a pass-on theory can be used both offensively and defensively, inequitable results subjecting
parties to multiple liability would occur. We declared in Hanover Shoe v. United Shoe Mach. Corp., 392 U.S.
481 (1968), a pass-on defense was generally unavailable to those charged with price-fixing by direct
purchasers. Where the defense is not available, we must deny offensive use of the pass-on theory. We decide
in this manner because of considerations of stare decisis, i.e., Congress has not amended § 4 even though it
was aware of our decision in Hanover Shoe. Moreover, permitting damage actions predicated on a pass-on
theory would require an apportionment of damages all along the distribution chain. It would create an almost
unworkable analysis of the component parts of the chain to determine what percentage of markup was
associated with the price-fixing activity. It would subject all members of the distribution chain to multiple
litigation, and joinder of all claimants would be difficult, if not impossible, to achieve. Purchasers would be
involved in suits between middlemen and manufacturers or between contractors and middlemen or
manufacturers, etc. We reject attempts in suits between middlemen and manufacturers or between contractors
and middlemen or manufacturers, etc. We reject attempts to carve out numerous exceptions to the pass-on
theory. For all of these reasons we must reject the pass-on theory. Reversed.

ANALYSIS
A pass-on defense is permitted where the direct purchaser is owned or controlled by its customer, Perkins
v. Standard Oil Co., 395 U.S. 642 (1969). Another exception is found where the overcharge is essentially
determined in advance and is not dependent on the interaction of supply and demand, In re Western Liquid
Asphalt Cases, 487 F.2d 191 (1973).

Quicknotes
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anti-competitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting

24
prices below the natural market rate.
STARE DECISIS Doctrine whereby courts follow legal precedent unless there is good cause for departure.

25
 Reiter v. Sonotone Corp.
Consumer (P) v. Manufacturer (D)
442 U.S. 330 (1979).

NATURE OF CASE: Appeal from interlocutory review of standing in action seeking damages under the
Clayton Act.
FACT SUMMARY: Reiter (P), a consumer, sought damages under the Clayton Act for alleged price-fixing
among hearing aid manufacturers (D).

RULE OF LAW
A consumer of retail goods and services has standing to sue for damages for price-fixing under § 4 of
the Clayton Act.

FACTS: Reiter (P) brought a class-action suit in favor of purchasers of certain types of hearing aids against
five corporations (D), including Sonotone Corp. (D), who manufactured the products. The complaint alleged
price-fixing prohibited by the Clayton Act. The Ninth Circuit held that Reiter (P) did not have standing to
sue for damages under the Act because she had not been injured in her “business or property,” as required by §
4 of the Act. The U.S. Supreme Court granted review.
ISSUE: Does a consumer have standing to sue for damages under antitrust laws for price-fixing?
HOLDING AND DECISION: (Burger, C.J.) Yes. A consumer has standing to sue for damages under
antitrust laws for price-fixing. The Clayton Act gives standing to anyone who is damaged in his “business or
property.” The court of appeals held this to refer only to those whose commercial interests were damaged.
However, such a construction would render “business” synonymous with “property.” Statutes will not be
construed so as to make their terms redundant. “Property” is a different concept than “business” and
encompasses a different category of items, including, as relevant to this case, money. Consequently, the statute
is broad enough to include consumers within its protections. A consumer whose money has been diminished
by reason of an antitrust violation has been injured “in his … property” within the meaning of § 4. Reversed.

ANALYSIS
The present case was preceded by Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975). In that case,
aggrieved legal clients were allowed to sue a state bar association for treble damages under § 4. As a client
is a “consumer” of legal services, that case impliedly approved consumer standing.

Quicknotes
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anti-competitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
DAMAGES Monetary compensation that may be awarded by the court to a party who has sustained injury or
loss to his or her person, property or rights due to another party’s unlawful act, omission or negligence.
INTERLOCUTORY Intervening; temporary; refers to an issue that is determined during the course of a
proceeding and which does not constitute a final judgment on the merits.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.

26
27
 Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.
Manufacturer (D) v. Bowling alley (P)
429 U.S. 477 (1977).

NATURE OF CASE: Review of judgment awarding damages for antitrust violations.

FACT SUMMARY: Brunswick Corp. (D) engaged in the practice of buying and operating failing
competitors of local bowling alleys, thereby preventing the local alleys from enjoying increased market share.

RULE OF LAW
Antitrust damages are not available when the sole injury alleged by the plaintiff is that the defendant’s
conduct allowed a competitor of the plaintiff to remain in business.

FACTS: Brunswick Corp. (D) was a large manufacturer of bowling equipment. Starting in the 1960s,
Brunswick (D) began acquiring defaulting bowling alleys which purchased its equipment and operating them,
thus preventing them from going out of business. Over the years, Brunswick (D), as a result of these
acquisitions, became far and away the nation’s largest owner of bowling alleys. When Brunswick (D) acquired
several bowling centers in the same market as Pueblo Bowl-O-Mat, Inc. (Pueblo) (P), the latter brought an
action under the Clayton Act, seeking damages and injunctive relief. The district court, following a jury
verdict, awarded treble damages and injunctive relief to Pueblo (P), and the court of appeals affirmed.
Brunswick (D) appealed the award, and the U.S. Supreme Court granted review.
ISSUE: Are antitrust damages available when the sole injury alleged by the plaintiff is that the defendant’s
conduct allowed a competitor of the plaintiff to remain in business?
HOLDING AND DECISION: (Marshall, J.) No. Antitrust damages are not available when the sole injury
alleged by the plaintiff is that the defendant’s conduct allowed a competitor of the plaintiff to remain in
business. Antitrust law does not prohibit mergers and vertical integration per se; rather, it addresses only
anticompetitive conduct. Antitrust law protects competition, not individual competitors. Section 4 of the
Clayton Act provides treble damages to any “person who shall be injured in his business or property by reason
of anything forbidden in the antitrust laws.” Here, when Brunswick (D) acquired the defaulting alleys, Pueblo
(P) lost the windfall profits it would have received had the alleys failed. This is not an “injury” within the
meaning of § 4. Nor did Pueblo’s (P) loss occur “by reason of” the antitrust violation that made Brunswick’s
(D) acquisitions unlawful. Pueblo (P) has not proven an “antitrust injury,” that is, an actual decrease in
competition caused by an antitrust violation. Treble damages are therefore denied. Reversed.

ANALYSIS
One commentator has argued persuasively that Brunswick (D) was entitled to the “failing company”
defense. See Areeda, 89 Harv. L. Rev. 1127 (1976). That defense holds that the acquisition of one
company by another does not substantially lessen competition if the acquired company is on the brink of
collapse and the acquiring company is the only available purchaser. In the case above, Pueblo (P) claimed
that the acquired companies would have failed without the challenged merger. Therefore, Brunswick (D)
did not violate the antitrust laws because it was the only available purchaser of a failing company.

Quicknotes
ANTITRUST LAW Body of federal law prohibiting business conduct that constitutes a restraint on trade.
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anti-competitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
INJUNCTIVE RELIEF A court order issued as a remedy, requiring a person to do, or prohibiting that person
from doing, a specific act.

28
TREBLE DAMAGES An award of damages triple of the amount awarded by the jury and provided for by statute
for violation of certain offenses.

29
 Cargill, Inc. v. Monfort of Colorado, Inc.
Meat-packing plant (D) v. Meat-packing plant (P)
479 U.S. 104 (1986).

NATURE OF CASE: Review of injunction prohibiting a merger.

FACT SUMMARY: Monfort of Colorado, Inc. (P) sought to enjoin a proposed merger by Excel (D), a
larger competitor, on the ground that its potential for increased market share violated the Clayton Act.

RULE OF LAW
A plaintiff seeking injunctive relief under § 16 of the Clayton Act must show an injury of the type the
antitrust laws were designed to prevent.

FACTS: Monfort of Colorado, Inc. (Monfort) (P) operated three beef-packing plants. A competitor was
Excel Corp. (D), which operated five beef-packing plants. Excel (D) signed a merger agreement with Spencer
Beef, another meat-packing concern. Monfort (P) brought an injunctive action under § 16 of the Clayton
Act, alleging that the merger would give Excel (D) and its owner, Cargill, Inc. (D), a larger market share,
which would impair Monfort’s (P) ability to compete. The district court granted the injunction, and the court
of appeals affirmed. The U.S. Supreme Court granted review.
ISSUE: Must a plaintiff seeking injunctive relief under § 16 of the Clayton Act show an injury of the type
that the antitrust laws were designed to prevent?
HOLDING AND DECISION: (Brennan, J.) Yes. A plaintiff seeking injunctive relief under § 16 of the
Clayton Act must show an injury of the type that the antitrust laws were designed to prevent. A showing of
loss or damage due merely to increased competition does not constitute such injury. In other words, injunctive
relief is not available under the Clayton Act for activities by a competitor that increases its market share.
Antitrust laws are intended to prevent threats to competition. Acts by a company to increase its market share
are not inimical to competition; indeed, they represent vigorous competition and are not prohibited under the
Clayton Act. Moreover, the threat of loss of profits due to possible price competition following a merger like
Excel’s (D) does not constitute a threat of “antitrust injury.” On the other hand, predatory pricing, which
means using greater resources to drive competition out of business, is actionable under antitrust law. However,
Monfort (P) neither properly alleged nor proved predatory pricing threats in the proceedings below. Reversed
and remanded.

ANALYSIS
As stated in the opinion, § 4 of the Clayton Act provides money damages and § 16 provides injunctive
relief. The Court, in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977), had already held
that a § 4 remedy existed for diminution of competition flowing from an antitrust violation. To have held
otherwise with respect to § 16 would have created an illogical asymmetry in the Clayton Act.

Quicknotes
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anti-competitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
INJUNCTION A court order requiring a person to do or prohibiting that person from doing a specific act.
MERGER The acquisition of one company by another, after which the acquired company ceases to exist as an
independent entity.

30
31
 Blue Shield of Virginia v. McCready
Group health plan (D) v. Plan subscriber (P)
457 U.S. 465 (1982).

NATURE OF CASE: Appeal from award of treble damages under § 4 of the Clayton Act for antitrust
violations in a class action.
FACT SUMMARY: McCready (P), a Blue Shield (D) subscriber, sought treble damages under § 4 of the
Clayton Act when Blue Shield (D) refused to reimburse her for psychological consultations.

RULE OF LAW
Standing to maintain an action under § 4 of the Clayton Act is limited to those plaintiffs who can
show a physical and economic nexus between the antitrust violation and their injury, as well as a
relationship between their injury and the type of injury § 4 was designed to remedy.

FACTS: Blue Shield of Virginia (Blue Shield) (D) wrote a plan of medical insurance coverage that provided
reimbursement for psychiatric care but not for treatment by a psychologist. McCready (P), a Blue Shield (D)
subscriber who had submitted psychological treatment bills and had been denied benefits, sued for treble
damages under § 4 of the Clayton Act, alleging a conspiracy between Blue Shield (D) and the psychiatric
community to boycott psychological care providers. The court of appeals ruled that McCready (P) had
standing to seek damages under § 4. The U.S. Supreme Court granted review.
ISSUE: Is standing to maintain an action under § 4 of the Clayton Act limited to those plaintiffs who can
show a physical and economic nexus between the antitrust violation and their injury, as well as a relationship
between their injury and the type of injury § 4 was designed to remedy?
HOLDING AND DECISION: (Brennan, J.) Yes. Standing to maintain an action under § 4 of the Clayton
Act is limited to those plaintiffs who can show a physical and economic nexus between the antitrust violation
and their injury, as well as a relationship between their injury and the type of injury § 4 was designed to
remedy. Section 4 of the Clayton Act provided a remedy to “any person” injured “by reason of” anything
prohibited in the antitrust laws. The two-pronged inquiry stated above focuses on the remoteness of the
plaintiff’s injuries from an antitrust violation. In this case, the § 4 remedy cannot reasonably be restricted only
to psychologists whom the conspirators sought to eliminate from the market. As a medical plan purchaser
who uses the services of a psychologist, a plaintiff such as McCready is clearly within the area of the economy
endangered by a breakdown of competitive conditions caused by the alleged conspiracy. Since McCready (P)
had to pay more for her psychologist’s therapy due to Blue Shield’s (D) coercive pressure, she suffered an
injury due to an anticompetitive scheme. Her injury thus appears to be the type Congress had in mind when
enacting a § 4 private remedy, so she enjoys standing under that section. Affirmed.

ANALYSIS
The present decision represents a rejection of the “target area” theory of § 4 standing. Under that analysis,
only a person targeted by anticompetitive activities (here, for instance, psychological care providers) were
granted standing. This had been the rule, prior to this decision, in three of the federal circuits.

Quicknotes
BOYCOTT A concerted effort to refrain from doing business with a particular person or entity.
CLASS ACTION A suit commenced by a representative on behalf of an ascertainable group that is too large to
appear in court, who shares a commonality of interests and who will benefit from a successful result.
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anti-competitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”

32
STANDING Whether a party possesses the right to commence suit against another party by having a personal
stake in the resolution of the controversy.
TREBLE DAMAGES An award of damages triple of the amount awarded by the jury and provided for by statute
for violation of certain offenses.

33
 Associated General Contractors v. California State Council of Carpenters
Employer’s organization (D) v. Labor union (P)
459 U.S. 519 (1983).

NATURE OF CASE: Review of denial of motion to dismiss antitrust class action seeking treble damages.
FACT SUMMARY: The California State Council of Carpenters (the Union) (P), a labor union, contended
that Associated General Contractors (D), an employer’s organization, conspired to coerce builders and
developers to use nonunion labor, hereby entitling the Union (P) to treble damages under § 4 of the Clayton
Act.

RULE OF LAW
Indirect, highly speculative damages that may not even be caused by the alleged antitrust violation are
not cognizable under § 4 of the Clayton Act.

FACTS: The California State Council of Carpenters (the Union) (P) was an association of AFL-CIO locals
representing unionized carpenters. The Union (P) brought an action under § 4 of the Clayton Act, alleging
that Associated General Contractors (D), an organization composed of building contractors, coerced member
and nonmember contractors, as well as developers, to hire nonunion subcontractors as a way of circumventing
collective-bargaining agreements. The Ninth Circuit held that the Union (P) had standing under § 4, and the
U.S. Supreme Court granted review.
ISSUE: Are indirect, highly speculative damages that may not even be caused by the alleged antitrust
violation cognizable under § 4 of the Clayton Act?
HOLDING AND DECISION: (Stevens, J.) No. Indirect, highly speculative damages that may not even be
caused by the alleged antitrust violation are not cognizable under § 4 of the Clayton Act. Congress did not
intend for every interest potentially harmed by activities proscribed by antitrust law to be redressable by way of
a private right of action under § 4 of the Clayton Act. Rather, only those injured by decreased competition
have standing under the Act. Here, the Union (P) was neither a competitor nor a consumer in the market
allegedly being restrained. Also, the alleged acts by Associated General Contractors (D) do not necessarily
subvert competition, and antitrust law protects competition, not competitors. Finally, it is unclear whether it
would be possible to quantify the Union’s (P) damages; they are quite speculative. Consequently, the Union
(P) lacks standing under § 4. Reversed.

ANALYSIS
The textual scope of antitrust law is quite broad. If § 4 were literally interpreted, almost every person
affected by an antitrust law violation would have standing to bring an action for damages. Such a broad rule
has been uniformly rejected by the courts, which tend to look at congressional intent behind antitrust laws
in deciding standing.

Quicknotes
CLASS ACTION A suit commenced by a representative on behalf of an ascertainable group that is too large to
appear in court, who shares a commonality of interests and who will benefit from a successful result.
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anti-competitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
COLLECTIVE BARGAINING Negotiations between an employer and employee that are mediated by a specified
third party.
STANDING Whether a party possesses the right to commence suit against another party by having a personal
stake in the resolution of the controversy.

34
TREBLE DAMAGES An award of damages triple of the amount awarded by the jury and provided for by statute
for violation of certain offenses.

35
 Concord Boat Corp. v. Brunswick Corp.
Boat builder (P) v. Boat engine maker (D)
207 F.3d 1039 (8th Cir. 2000), cert. denied, 531 U.S. 979 (2000).

NATURE OF CASE: Appeal from denial of motion for judgment.

FACT SUMMARY: Concord Boat Corp.’s (P) expert, Hall—using evidence that was contrary to the
undisputed record evidence and was based on a theoretical economic model—testified that Brunswick Corp.
(D) had monopoly power in the stern drive engine market and used this power to engage in anticompetitive
behavior. The jury returned a verdict for Concord Boat (P), and Brunswick (D) moved for judgment.

RULE OF LAW
Expert opinion is inadmissible where it does not incorporate all aspects of the economic reality of a
given market and where it does not separate lawful from unlawful conduct.

FACTS: Concord Boat Corp. (P), a boat manufacturer, brought suit against Brunswick Corp. (D), a
manufacturer of stern drive engines used in boats, alleging anticompetitive conduct. Concord Boat’s (P)
expert, Hall, testified that Brunswick (D) had monopoly power in the stern drive engine market that enabled
it to use its market share discount programs to penalize boat builders and dealers who chose to purchase
engines from other manufacturers. He asserted that Brunswick (D) forced its competitors to charge
substantially lower prices to convince customers to purchase from them and forgo Brunswick’s (D) discount.
However, he contended that because Brunswick (D) had captured 78 percent of the stern drive market, other
manufacturers could not enter into the market, and, therefore, Brunswick’s (D) program was anticompetitive.
To determine damages, Hall relied on the Cournot model of economic theory, which posits that a firm
maximizes its profits by assuming the observed output of other firms as a given, and then equating its own
marginal revenue on that assumption. Based on this model, Hall postulated that a competitive (yet
hypothetical) stern drive market would have two equal 50 percent market share holders, and he concluded that
any market share over 50 percent had to be the result of anticompetitive conduct. Brunswick (D) argued that
Hall’s expert opinion should have been excluded because it was contrary to undisputed record evidence and
because it did not separate lawful from unlawful conduct, and Brunswick (D) moved for judgment. The
district court denied Brunswick’s (D) motion, and the court of appeals granted review.
ISSUE: Is expert opinion admissible where it does not incorporate all aspects of the economic reality of a
given market and where it does not separate lawful from unlawful conduct?
HOLDING AND DECISION: (Murphy, J.) No. Expert opinion is inadmissible where it does not
incorporate all aspects of the economic reality of a given market and where it does not separate lawful from
unlawful conduct. A thorough analysis of Hall’s economic model and his proffered opinion was necessary,
despite Concord Boat’s (P) assurances that his model would reflect the reality of the market. Under Daubert v.
Merrell Dow Pharmaceuticqls, Inc., 509 U.S. 579, 583 (1993), the district court must determine whether the
methodology underlying the expert opinion is scientifically valid and whether it can be applied to the facts in
issue. Here, not all relevant circumstances were incorporated into Hall’s analysis as it related to antitrust
liability. His opinion was not supported by the fact that some boat builders chose to purchase 100 percent of
their engines from Brunswick (D), even though they only needed 80 percent to qualify for the maximum
discount, and other evidence showed that the boat builders had influence over Brunswick (D). Also, his model
failed to account for the fact that Brunswick (D) achieved 75 percent market share before it started its
discount program, and before it acquired other stern drive engine manufacturers. The model also failed to take
into account market events, such as the recall of engines by other manufacturers. Accordingly, Hall’s expert
opinion should not have been admitted. Because the jury relied on his testimony when it assessed damages, it
could not be said that the verdict would have been the same without his opinion. Therefore, Brunswick’s (D)
motion for judgment should have been granted. Reversed.

ANALYSIS
A Daubert analysis assesses both the reliability and the relevance of the proposed expert testimony. In this
case, expert Hall was a professor of economics at Stanford University. Also, Brunswick (D) did not

36
 challenge the Cournot model as a scientific theory. Thus, there was no issue as to the reliability of his
testimony. The real issue was whether there was a “fit” with the facts of the case—which goes to relevance.
Essentially, the court ruled that Hall’s testimony and opinion did not fit with all the facts of the case—that
it was not entirely relevant.

Quicknotes
EXPERT TESTIMONY Testimonial evidence about a complex area of subject matter relevant to trial, presented
by a person competent to inform the trier of fact due to specialized knowledge or training.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.

37
 Perma Life Mufflers, Inc. v. International Parts Corp.
Franchisee (P) v. Parts distributor (D)
392 U.S. 134 (1968).

NATURE OF CASE: Review of order dismissing antitrust action seeking treble damages.
FACT SUMMARY: When International Parts Corp. (D) was sued for antitrust violations by Perma Life
Mufflers (P) it raised the defense of in pari delicto, arguing the plaintiff voluntarily took part in the illegal
scheme.

RULE OF LAW
In pari delicto is not available as a defense to an action based on antitrust violations.

FACTS: International Parts Corp. (International) (D), through its subsidiary, Midas, Inc. (D), distributed its
parts partially through franchise agreements. A franchisee, in exchange for the right to call itself a “Midas
Muffler Shop” in order to benefit from corporate advertising, agreed to carry only Midas parts and not sell in
the territory of other franchisees. Perma Life Mufflers, Inc. (Perma Life) (P), a dealer that had signed a
franchise agreement, later brought an action seeking treble damages and injunctive relief, claiming that
International’s (D) restrictive agreements constituted illegal restraints of trade. The court of appeals held
Perma Life (P) in pari delicto, that is, of equal fault, for voluntarily entering into the restrictive franchise
agreement and dismissed. The U.S. Supreme Court granted review.
ISSUE: Is in pari delicto available as a defense to an action based on antitrust law violations?
HOLDING AND DECISION: (Black, J.) No. In pari delicto is not available as a defense to an action based
on antitrust law violations. This common-law defense is largely limited to actions in equity when a plaintiff is
as equally at fault as a defendant. When a private suit serves important public purposes, however, the defense
is inappropriate because it can interfere with vindication of important public rights. There is an important
public component to antitrust actions, and therefore, in pari delicto is an inappropriate defense. Moreover,
since Perma Life (P) did not aggressively support the restrictions but was in fact forced to accept them in
order to benefit from Midas’ (D) offer, it was not at equal fault. Reversed.

ANALYSIS
Antitrust actions often seek both legal and equitable relief. In pari delicto is an equitable defense. Logically,
it should be applied if injunctive relief is sought. The court based its rejection on public policy rather than
analytical grounds.

Quicknotes
EQUITABLE RELIEF A remedy that is based upon principles of fairness as opposed to rules of law.
INJUNCTIVE RELIEF A court order issued as a remedy, requiring a person to do, or prohibiting that person
from doing, a specific act.
IN PARI DELICTO Doctrine that a court will not enforce an illegal contract in an action for losses incurred as a
result of the breach of that contract.
PUBLIC POLICY Policy administered by the state with respect to the health, safety and morals of its people in
accordance with common notions of fairness and decency.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
TREBLE DAMAGES An award of damages triple of the amount awarded by the jury and provided for by statute
for violation of certain offenses.

38
39
 California v. American Stores Co.
State (P) v. Owner of supermarkets (D)
495 U.S. 271 (1990).

NATURE OF CASE: Review of order dissolving injunction issued pursuant to antitrust laws.
FACT SUMMARY: American Stores Co. (D) contended that a district court was not empowered under §
16 of the Clayton Act to order a company to divest itself of another.

RULE OF LAW
A district court is empowered under § 16 of the Clayton Act to order a company to divest itself of
another.

FACTS: American Stores Co. (American) (D) was the owner of the fourth largest chain of supermarkets in
California. American (D) signed a merger agreement with Lucky Stores, Inc., the owner of the largest chain
in the state, wherein the latter corporation would be merged into the former. The State of California (P)
brought an action under § 16 of the Clayton Act, contending that the merger would be injurious to
competition. The district court agreed and issued a preliminary injunction prohibiting integration of the
corporations pending a final injunction ordering divestiture. The Ninth Circuit reversed, holding that § 16
did not authorize a divestiture order. The U.S. Supreme Court granted review.
ISSUE: Is a district court empowered under § 16 of the Clayton Act to order a company to divest itself of
another?
HOLDING AND DECISION: (Stevens, J.) Yes. A district court is empowered under § 16 of the Clayton
Act to order a company to divest itself of another. Section 16 empowers district courts, in suits by private
litigants, to render “injunctive relief … against threatened loss or damage.” This text represents a broad grant
and when Congress gives the district court equitable powers in a statute, it is assumed that Congress intended
to give the court its full range of authority. Beyond this, such a construction of § 16 is consistent with the
other provisions of the Clayton Act. For example, § 11 of the Act gives the federal government, through the
Federal Trade Commission, the power to issue cease-and-desist orders against violators; § 16 should be seen
as a grant of power to allow private litigants to obtain the same relief in court when faced with an
anticompetitive merger. Consequently, the Ninth Circuit’s reading of the statute was too narrow. Reversed
and remanded.

ANALYSIS
Note that the plaintiff here was the State of California. A state government is not generally considered to
be a “private litigant.” However, in the context of the Clayton Act, a state may bring a suit under parens
patriae theory on behalf of private consumers, thus becoming, in effect, a private litigant itself.

Quicknotes
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anti-competitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
DIVESTITURE The divestment of an interest in a corporation pursuant to court order.
INJUNCTION A court order requiring a person to do or prohibiting that person from doing a specific act.
PARENS PATRIAE Maxim that the government as sovereign is conferred with the duty to act as guardian on
behalf of those citizens under legal disability.

40
41
 Quick Reference Rules of Law

1. The Foundation. Restrictions that merely regulate conduct by imposing minimal restraints for a
reasonable purpose are lawful. (Chicago Board of Trade v. United States)

2. The Foundation. A combination to artificially set prices is a prima facie violation of the Sherman Act
regardless of the reasonableness of the prices charged. (United States v. Trenton Potteries Co.)

3. The Foundation. A cooperative enterprise that is neither an unreasonable restraint of trade nor an
attempt to monopolize is permissible under the Sherman Act. (Appalachian Coals, Inc. v. United
States)

4. Supply or Output Restrictions. Price-fixing by a group of competitors in a market is illegal per se.
(United States v. Socony-Vacuum Oil Co.)

5. Data Dissemination and Information Exchanges. Merely alleging that information dissemination has
the potential to cause price regulation does not establish a Sherman Act violation. (Maple Flooring
Manufacturers Assn. v. United States)

6. Data Dissemination and Information Exchanges. When the market is inelastic and the number in it is
small, the exchange of price information tends to restrain trade and restrict competition. (United States
v. Container Corp. of America)

7. Data Dissemination and Information Exchanges. For purposes of antitrust criminal prosecutions,
intent to fix prices is a separate element of the offense. (United States v. United States Gypsum Co.)

8. Rule of Reason. A restraint on competition cannot survive a Sherman Act challenge on the basis that it
promotes public safety. (National Society of Professional Engineers v. United States)

9. Rule of Reason. The blanket license is not a form of per se unlawful price-fixing. (Broadcast Music, Inc.

42
 v. Columbia Broadcasting System)

10. Rule of Reason. An agreement among wholesalers to eliminate credit to retailers is illegal per se without
further examination under the rule of reason. (Catalano, Inc. v. Target Sales, Inc.)

11. Rule of Reason. Price-fixing agreements are per se unlawful, even if they are horizontal, fix maximum
prices, and are among members of a profession. (Arizona v. Maricopa County Medical Society)

12. Rule of Reason. Limitations imposed upon members of a cooperative organization on the manner in
which the product is marketed are not illegal per se, but if such limitations hamper competition, they
violate the Sherman Act. (National Collegiate Athletic Assn. v. Board of Regents)

13. Rule of Reason. (1) The Federal Trade Commission has jurisdiction over a nonprofit organization that
confers substantial economic benefits on its for-profit members. (2) Where any anticompetitive effects
of given restraints are far from intuitively obvious, the rule of reason demands a more thorough inquiry
into the consequences of those restraints than provided by a “quick-look,” abbreviated analysis.
(California Dental Assn. v. FTC)
14. Rule of Reason. It is not per se illegal under § 1 of the Sherman Act for a lawful, economically
integrated joint venture to set the prices at which the joint venture sells its products. (Texaco, Inc. v.
Dagher)

15. Interstate Circuit Doctrine. An unlawful conspiracy in restraint of trade may be inferred from the facts,
such as concerted action departing from previous practices. (Interstate Circuit v. United States)

16. Interstate Circuit Doctrine. A conspiracy is not established merely because a group of competitors act in
a like manner. (Theatre Enterprises, Inc. v. Paramount Film Distributing Corp.)

17. Interstate Circuit Doctrine. Stating a claim under § 1 of the Sherman Act requires a complaint with
enough factual matter to suggest that an agreement was made, so that an allegation of parallel conduct
unfavorable to competition and a bare assertion of conspiracy without more are insufficient to make out
such a claim. (Bell Atlantic Corp. v. Twombly)

18. Base-Point Pricing. The use of a base-point delivered pricing system throughout an industry is an
unfair trade practice. (FTC v. Cement Institute)

19. Oligopoly Pricing and Facilitating Devices. Before business conduct in an oligopolistic industry may be
labeled “unfair,” there must be proof of collusion, an anticompetitive purpose, or absence of an

43
 independent legitimate reason for the conduct. (E.I. du Pont de Nemours & Co. v. FTC)

20. Intra-Enterprise Conspiracy. A parent corporation and its wholly owned subsidiary are legally
incapable of a § 1 Sherman Act conspiracy. (Copperweld Corp. v. Independence Tube Corp.)

21. Burdens of Proof and Summary Judgment Problems. To survive a defense motion for summary
judgment, a plaintiff must show direct evidence of concert of an action, as well as a plausible motive to
engage in predatory pricing. (Matsushita Electric Industrial Co. v. Zenith Radio Corp.)

22. Horizontal Market Divisions. Exclusive territorial assignments to independent retailers by a cooperative
is a horizontal restraint on competition which is per se unlawful. (United States v. Topco Associates)

23. Horizontal Market Divisions. A covenant not to compete may be legal if ancillary to a productive
venture. (Polk Bros. v. Forest City Enterprises)

24. Collective Agreements Aimed at Competitors. Compiling and circulating a list of undesirable
wholesalers is an antitrust violation, if done to obstruct interstate trade and to unduly suppress
competition. (Eastern States Retail Lumber Dealers’ Assn. v. United States)

25. Collective Agreements Aimed at Competitors. The use of a retailer’s large volume buying power to
restrict manufacturer’s power to deal with others is violative of the Sherman Act. (Klor’s, Inc. v.
Broadway-Hale Stores, Inc.)

26. Collective Agreements Aimed at Competitors. The antitrust rule that group boycotts are illegal per se
does not apply to a buyer’s decision to buy from one seller rather than another when that decision
cannot be justified in terms of ordinary competitive objectives. (NYNEX Corporation v. Discon, Inc.)

27. Collective Agreements Aimed at Customer Dealings. An industrywide practice of forcing retailers to
submit disputes to arbitration may violate the Sherman Act. (Paramount Famous Lasky Corp. v. United
States)

28. Industry Self-Regulation and Disciplinary Actions. Not all concerted refusals to deal should be
characterized as group boycotts limiting the ability to compete and therefore per se violative of § 1 of
the Sherman Act, 15 U.S.C. 1. (Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing
Co.)

29. Industry Self-Regulation and Disciplinary Actions. A horizontal conspiracy to deprive consumers of a

44
 service by a professional organization violates antitrust laws. (FTC v. Indiana Federation of Dentists)

30. Naked and Ancillary Concerted Refusals to Deal. When competitors band together, to deny their joint
product to others, the practice violates the Sherman Act. (Associated Press v. United States)

31. Noncommercial Boycotts. Using a boycott in a noncompetitive political arena for the purpose of
influencing legislation is not proscribed by the Sherman Act. (Missouri v. National Organization for
Women)

45
 Chicago Board of Trade v. United States
Trade organization (D) v. Federal government (P)
246 U.S. 231 (1918).

NATURE OF CASE: Antitrust action by the Government (P) to enjoin practice of limiting hours in which
“arriving grain” deals could be made.
FACT SUMMARY: The Chicago Board of Trade (Board) (D) passed a rule that its members could not
make deals on Chicago grain arrivals during periods in which the Board (D) was closed.

RULE OF LAW
Restrictions that merely regulate conduct by imposing minimal restraints for a reasonable purpose are
lawful.

FACTS: To correct the monopolistic practices of some of its members, the Chicago Board of Trade (Board)
(D) restricted deals on Chicago grain arrivals to hours during which the Board (D) was in operation. The
Government (P) obtained an injunction against this practice on the basis that it was an impermissible restraint
on competition. The Board (D) argued that the restraint was minimal; it only involved a small percentage of
grain deals; it did not restrict the right to buy grain arriving in other cities; it aided free competition; it was
only imposed to regulate prior impermissible conduct.
ISSUE: Is a minimal regulation of conduct for a legitimate purpose a violation of antitrust law?
HOLDING AND DECISION: (Brandeis, J.) No. 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
destroy competition. Here, the restriction is minimal, merely a regulation of hours. It forces those who are
dealing in arriving grain to abide by the final price quoted in the Board’s (D) call at the end of the trading day.
If a buyer wishes to pay less, he must wait until the next day when the optimum amount of free competition
will set the market price. The amount of grain involved is minimal and only affects Chicago grain arrivals. It is
imposed to eliminate sharp practices by some members. Under the circumstances, we do not see that the
regulation is an improper restraint of trade or free competition. Judgment reversed.

ANALYSIS
Where an advertised price is not the result of free competition, an agreement to abide by the price violates
antitrust law, Vandervelde v. Put & Call Brokers & Dealers Association, 344 F. Supp. 118 (S.D.N.Y. 1972).
The key difference in the Chicago Board of Trade case is that prices fluctuated from day to day based on
free-market pressures. The restraint only involved grain arriving after the Board (D) had closed for the day.
Members were free to wait until it reopened and could then obtain the grain for whatever price it
commanded in a free and open market.

Quicknotes
INJUNCTION A court order requiring a person to do or prohibiting that person from doing a specific act.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.

46
 United States v. Trenton Potteries Co.
Federal government (P) v. Pottery trade association (D)
273 U.S. 392 (1927).

NATURE OF CASE: Action against a combination engaged in price-fixing and limiting sales.
FACT SUMMARY: The trial judge withdrew from the jury the issue of whether restraints were reasonable.

RULE OF LAW
A combination to artificially set prices is a prima facie violation of the Sherman Act regardless of the
reasonableness of the prices charged.

FACTS: Trenton Potteries Co. (Trenton) (D) and others entered into a combination to set prices for vitreous
pottery and to limit sales. The Government (P) sought to dissolve the combination under § 1 of the Sherman
Act. At trial, the judge removed from the jury’s consideration the question of whether the restraint was
reasonable. Trenton (D) appealed an adverse finding on this basis.
ISSUE: Are all price-fixing combinations illegal restraints on trade?
HOLDING AND DECISION: (Stone, J.) Yes. The Sherman Act was enacted to preserve our competitive
economic society. Any agreement such as price-fixing which removes an element of pure competition is a per
se violation of the Act. The fact that the price charged is reasonable today does not mean that it will continue
to be reasonable. The reasonableness of the price charged is not a criterion as to whether the restraint is
reasonable. The power to fix prices is one element of a monopoly. It is never a reasonable restraint on trade. It
is an impermissible agreement which must be dissolved under the mandate of the Sherman Act. The trial
judge correctly removed the question from the jury. Reversed.

ANALYSIS
A cartel is a group of manufacturers who band together in an attempt to restrict the output of a given
commodity in the hope that this will stimulate prices upwards. These groups are held to violate the
Sherman Act for the same reasons that price-fixing combinations are violative. Other per se violative
combinations are those which restrict entry into a given field or those which attempt to squeeze others out
of the market.

Quicknotes
CARTEL An agreement between manufacturers or producers of the same product so as to form a monopoly.
COMBINATION (ANTITRUST DEFINITION) Alliance of entities, for the purpose of impeding free trade, that
results in a monopoly, suppression of competition, or affecting prices.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
PER SE VIOLATION Business transactions that in themselves constitute restraints on trade, obviating the need
to demonstrate an injury to competition in making out an antitrust case.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.
PRIMA FACIE VIOLATION Evidence presented by a party that is sufficient, in the absence of contradictory
evidence, to support the fact or issue for which it is offered
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

47
48
 Appalachian Coals, Inc. v. United States
Selling agent (D) v. Federal government (P)
288 U.S. 344 (1933).

NATURE OF CASE: Review of order enjoining marketing arrangement.

FACT SUMMARY: When 137 coal companies pooled their resources to create an exclusive selling agent,
the Justice Department (P) argued that the arrangement constituted a cartel that would fix prices.

RULE OF LAW
A cooperative enterprise that is neither an unreasonable restraint of trade nor an attempt to
monopolize is permissible under the Sherman Act.

FACTS: In response to depressed conditions in the coal industry during the early stages of the Great
Depression, 137 producers of coal created Appalachian Coals, Inc. (D), an exclusive selling agent for their
products. The company’s stated purpose was to organize and streamline the coal industry, thus avoiding over-
expansion and wasteful trade practices. The Justice Department (P) filed an action under the Sherman Act,
alleging that the coal companies were engaging in monopolistic behavior. A district court enjoined the
operations of Appalachian Coals, Inc. (D), and the U.S. Supreme Court granted review.
ISSUE: Is a cooperative enterprise that is neither an unreasonable restraint of trade nor an attempt to
monopolize, permissible under the Sherman Act?
HOLDING AND DECISION: (Hughes, C.J.) Yes. A cooperative enterprise that is neither an unreasonable
restraint of trade nor an attempt to monopolize does not necessarily violate the Sherman Act. The purpose of
the Sherman Act is to prevent undue restraints upon interstate commerce and to afford protection from
monopolistic endeavors. The essential standard is reasonableness. The mere fact that an arrangement restrains
competition is not sufficient to create a violation; every business agreement in some way restrains competition.
Only those arrangements that, in the context of the relevant circumstances, unreasonably restrain competition
are illegal. Intent, while not conclusive, is highly relevant. Here, the stated purpose behind the creation of
Appalachian Coals (D) was greater efficiency in the production and distribution of the product of a troubled
industry. There has been no showing that Appalachian Coals (D) will have monopoly control of any market,
nor the power to fix monopoly prices, and therefore, no Sherman Act violation has occurred. Reversed and
remanded.

ANALYSIS
The present opinion represented an important shift in Sherman Act analysis. In United States v. Trenton
Potteries Co., 273 U.S. 392 (1927), the Court had applied a per se rule regarding horizontal integration
rather than the “rule of reason” approach here. Prior to this case, all alleged antitrust violations were
regarded as unlawful without regard to the “reasonableness” of, for example, a fixed price.

Quicknotes
CARTEL An agreement between manufacturers or producers of the same product so as to form a monopoly.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

49
50
 United States v. Socony-Vacuum Oil Co.
Federal government (P) v. Oil company (D)
310 U.S. 150 (1940).

NATURE OF CASE: Review of order reversing convictions under the Sherman Act.
FACT SUMMARY: The Government (P) contended that a scheme to affect the flow of output and surplus
of oil by a consortium of oil companies (D) was illegal per se.

RULE OF LAW
Price-fixing by a group of competitors in a market is illegal per se.

FACTS: Beginning around 1926, increased production in the oil industry resulted in falling prices. The
National Industrial Recovery Act and regulations promulgated thereunder in 1933 proved unable to reverse
the trend. Beginning in 1935, several oil companies (D), representing 83 percent of all oil sold in the
Midwest, formed a gentleman’s agreement whereby they would purchase oil and gasoline on the spot-market
to prop up prices. A minimum price for spot-market purchases was established. The Government (P) charged
the oil companies (D) with price-fixing in violation of the Sherman Act. A jury returned a guilty verdict. The
court of appeals reversed and remanded, holding that a rule of reason should be applied to alleged price-fixing,
rather than the per se rule applied by the district court. The oil companies’ (D) activities were not unlawful,
the court concluded, unless they constituted an unreasonable restraint of trade. The U.S. Supreme Court
granted review.
ISSUE: Is price-fixing by a group of competitors in a market illegal per se?
HOLDING AND DECISION: (Douglas, J.) Yes. Price-fixing by a group of competitors in a market is per
se illegal. This Court, in interpreting the clear wording of the Sherman Act, has held that any agreement
among competitors to fix prices is illegal. Those cases that applied a rule of reason to anticompetitive conduct
involved agreements that did not purport to fix prices. The mandate of the Sherman Act is clear, and the fact
that competition may be ruinous to an industry is no justification for creating an exception to the per se rule.
Because Congress has spoken on this matter, this is a congressional policy decision. Here, the agreement by
oil companies (D) controlling the vast majority of the relevant market, although not an explicit price-fixing
agreement, did affect price and therefore falls in the price-fixing category. Consequently, the agreement was
per se illegal. Reversed.

ANALYSIS
A general proposition can be divined from reading the present case, along with is predecessor, Appalachian
Coals, Inc. v. United States, 288 U.S. 344 (1933). Agreements fixing prices are per se illegal, while
agreements in restraint of trade that do not directly set prices are subject to a reasonableness test. The per
se rule of illegality has been justified on two grounds: industries are on notice as to what constitutes
unlawful conduct, and courts are spared from conducting expensive and time-consuming inquiries to
determine whether schemes affecting prices are unreasonable.

Quicknotes
PER SE RULE OF VOIDABILITY Transactions by interested directors can be voided.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.

51
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.
SPOT MARKET In terms of the commodities market, refers to the immediate sale of the commodity as opposed
to its future sale.

52
 Maple Flooring Manufacturers Association v. United States
Association of manufacturers (D) v. Federal government (P)
268 U.S. 563 (1925).

NATURE OF CASE: Antitrust action for information dissemination.

FACT SUMMARY: The Maple Flooring Manufacturers Association (D) received voluntary information
from a majority of hardwood flooring manufacturers and published a periodic summary of the information.

RULE OF LAW
Merely alleging that information dissemination has the potential to cause price regulation does not
establish a Sherman Act violation.

FACTS: The Maple Flooring Manufacturers Association (Association) (D) contained 70 percent of the
hardwood flooring manufacturers in its membership. Members were encouraged to submit information as to
their stock, orders, and prices to the Association (D). This information was summarized to show average
prices by grade, freight rates, and stock information. A periodic letter with this information was sent to
members. The information was also published in trade journals and was sent to various governmental agencies
for statistical compilation purposes. The Government (P) argued that the dissemination of such information,
with or without an agreement between manufacturers, tended to stabilize and regulate prices. The direct and
necessary result was to limit free competition. The district court found for the Government (P).
ISSUE: Is the dissemination of information which may tend to regulate or stabilize price a violation of the
Sherman Act?
HOLDING AND DECISION: (Stone, J.) No. The information published by the Association (D) was not
much different than that which could be found in trade journals or statistical publications. No agreement to
set prices was either alleged or proved by the Government (P). The mere fact that the information tended to
stabilize prices and made them more uniform is not a per se violation of the Sherman Act. Merely gathering
and disseminating such information, without any agreement as to how it is to be used or some other factor
indicating the presence of a conspiracy, is not an unlawful restraint on trade. Reversed.

ANALYSIS
An unlawful conspiracy to restrain trade may be established by showing the presence of one or more of the
following factors: (1) an agreement to follow the reported prices; (2) excessive penalties for failure to report
minute details of everyday transactions; (3) requirements that immediate notice must be given if there are
departures from published prices; and/or (4) over-comprehensive information requirements, American
Linseed Oil Co. v. U.S., 262 U.S. 371 (1923).

Quicknotes
CONSPIRACY Concerted action by two or more persons to accomplish some unlawful purpose.
PER SE VIOLATION Business transactions that in themselves constitute restraints on trade, obviating the need
to demonstrate an injury to competition in making out an antitrust case.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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54
 United States v. Container Corp. of America
Federal government (P) v. Container manufacturer (D)
393 U.S. 333 (1969).

NATURE OF CASE: Antitrust action based on an alleged conspiracy to fix prices through the exchange of
price information.
FACT SUMMARY: Container manufacturers (D) exchanged price information on requests from other
manufacturers.

RULE OF LAW
When the market is inelastic and the number in it is small, the exchange of price information tends to
restrain trade and restrict competition.

FACTS: The Government (P) brought an antitrust action against container manufacturers, including
Container Corporation of America (D), alleging that the manufacturers (D) freely exchanged price
information on request with the expectation that there would be reciprocity when such information was
needed. While the arrangement was informal and sporadic, the Government (P) established that the container
market was inelastic, price being the basic variable. The manufacturers (D) tended to meet the price of their
competitors, and the pricing exchange arrangement tended to reduce competition. The district court refused
to enjoin the practice.
ISSUE: Is an informal exchange of price information in a small inelastic market violative of antitrust law?
HOLDING AND DECISION: (Douglas, J.) Yes. The exchange of the price information had the effect of
keeping prices within a fairly narrow ambit. This resulted in price stabilization through the means of an
informal agreement. Such an arrangement whereby price information was freely exchanged between
competitors on request tended to restrain competition. In a small inelastic market where price is the
determinative factor in most purchases, this practice lessened free competition. There is no justification for
the practice except to regulate prices. This was an impermissible restraint and was properly enjoined.
Reversed.
CONCURRENCE: (Fortas, J.) Merely exchanging price information is not a per se violation of antitrust
law. It is only where, as here, it is used for an impermissible purpose which can be independently established
that it becomes unlawful.
DISSENT: (Marshall, J.) This is a growing industry. Entry is relatively easy and the number of manufacturers
has almost doubled in eight years. It is not so oligopolistic that the mere exchange of price information stifles
free competition. There is no showing that it has been restricted and the natural pressures of a free market
appear to be working here.

ANALYSIS
In one case, buyers quoted false prices from other sources in an attempt to buy from manufacturers at lower
prices. In order to avoid this, the manufacturers (D) agreed to inform each other of quoted public prices
and to adhere to them. The court found that the exchange of presale prices to avoid fraud was reasonable,
but the agreement to abide by these prices was an impermissible restraint on trade, Wall Products Co. v.
National Gypsum Co., 326 F. Supp. 295 (N.D. Cal. 1971).

Quicknotes
OLIGOPOLISTIC A market condition in which the industry for a particular product is dominated by only a few
companies.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.

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56
 United States v. United States Gypsum Co.
Federal government (P) v. Gypsum board manufacturer (D)
438 U.S. 422 (1978).

NATURE OF CASE: Review of reversal of criminal antitrust convictions.

FACT SUMMARY: United States Gypsum Co. (D) and other companies in the gypsum board industry
were convicted of antitrust violations by a jury that had been instructed that intent to violate the Sherman Act
was to be conclusively presumed if price-fixing has occurred.

RULE OF LAW
For purposes of antitrust criminal prosecutions, intent to fix prices is a separate element of the offense.

FACTS: Gypsum board is a primary component of inner walls. In the 1960s and 1970s, the industry was very
concentrated, consisting of no more than nine producers. Producers engaged in a practice of obtaining quotes
from competitors before quoting prices to prospective customers. The Government (P) brought a criminal
prosecution against these producers (D), alleging Sherman Act violations. The district court instructed the
jury that if the producers’ (D) conduct had the effect of fixing or maintaining prices, the intent to achieve that
result should be conclusively presumed. The jury returned a guilty verdict. The court of appeals reversed,
ruling that intent was an element requiring independent proof. The U.S. Supreme Court granted review.
ISSUE: For purposes of antitrust criminal prosecutions, is intent to fix prices a separate element of the
offense?
HOLDING AND DECISION: (Burger, C.J.) Yes. For purposes of antitrust criminal prosecutions, intent to
fix prices is a separate element of the offense. In Anglo-American jurisprudence, mens rea as a separate
element of a criminal offense is the rule, not the exception. While the Government (P) may create strict
liability offenses without offending the constitution, the presumption is that a criminal statute incorporates a
mens rea element, and statutory language must clearly contravene this presumption if it is to create a strict
liability. The Sherman Act contains no such contravening language. While it lists certain types of conduct as
sanctionable, it says nothing of mental state. Consequently, mens rea will be required to be proven. While a
jury is free to infer intent from result, it cannot be compelled to do so, as the district court did here. Affirmed.

ANALYSIS
There are two basic approaches to evaluating potentially anticompetitive activities—the per se rule and the
rule of reason. The latter analysis is used on less egregious forms of potentially anticompetitive activities.
Since the exchange of price information, as seen in the case above does not necessarily tend to have
anticompetitive effects, it is subject to the rule of reason analysis. If an action does not rise to the level of an
unreasonable restraint of trade, then a civil defendant’s bad intent is probably irrelevant.

Quicknotes
MENS REA Criminal intent.
PER SE RULE OF VOIDABILITY Transactions by interested directors can be voided.
PRICE-FIXING An illegal combination in violation of the Sherman Antitrust Act entered into for the purpose
of setting prices below the natural market rate.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

57
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 National Society of Professional Engineers v. United States
Professional organization (D) v. Federal government (P)
435 U.S. 679 (1978).

NATURE OF CASE: Review of order enjoining enforcement of a private organization’s canon of ethics in
civil antitrust action.
FACT SUMMARY: The National Society of Professional Engineers (D) contended that its canon of ethics,
prohibiting competitive bidding, survived a rule of reason analysis under the Sherman Act because it
minimized the risk that competition would produce inferior engineering work, endangering the public’s
safety.

RULE OF LAW
A restraint on competition cannot survive a Sherman Act challenge on the basis that it promotes
public safety.

FACTS: The National Society of Professional Engineers (Society) (D) was an organization composed of
seasoned professionals in the engineering field. One of the provisions in the Society’s (D) canon of ethics was
a prohibition on competitive bidding by members. The stated rationale for this canon was that the bidding
process would result in inferior work, which would present a public hazard. Instead, the Society (D) sought to
preserve the traditional method of selecting an engineer, i.e., on the basis of background and reputation, not
price. The Government (P) filed an action seeking to prohibit enforcement of the canon, contending that it
violated the Sherman Act. The district court entered such an injunction, and the U.S. Supreme Court granted
review.
ISSUE: Can a restraint on competition survive a Sherman Act challenge on the basis that it promotes public
safety?
HOLDING AND DECISION: (Stevens, J.) No. A restraint on competition cannot survive a Sherman Act
challenge on the basis that it promotes public safety. The Society (D) contended that a restraint is reasonable
and legitimate if competition would be dangerous to public health, safety, and welfare. This is a serious
misunderstanding of the rule of reason. The rule of reason is applied when a particular practice may or may
not have an anticompetitive effect; the rule is applied to determine whether or not the effect is
anticompetitive. In the case of a clearly anticompetitive practice, the per se rule is applied instead. Any
argument that a practice promotes public benefit—its anticompetitive effects notwithstanding—must be
addressed to Congress not the courts. Here, the Society’s (D) canon is clearly anticompetitive, so the per se
rule is to be applied. Affirmed.

ANALYSIS
At various times, the learned professions have argued that antitrust law was created to regulate business and
should not apply to the professions. These protestations fall on deaf judicial ears. There is no such
limitation in the statutes, and courts have refused to read one into them.

Quicknotes
PER SE RULE OF VOIDABILITY Transactions by interested directors can be voided.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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60
 Broadcast Music, Inc. v. Columbia Broadcasting System
Clearinghouse (D) v. Television network (P)
441 U.S. 1 (1979).

NATURE OF CASE: Action charging violations of antitrust and copyright laws.

FACT SUMMARY: Columbia Broadcasting System (P) claimed that the issuance by ASCAP (D) and
Broadcast Music, Inc. (D) of blanket licenses to copyrighted musical composition on behalf of their members
constituted per se unlawful price-fixing.

RULE OF LAW
The blanket license is not a form of per se unlawful price-fixing.

FACTS: Both ASCAP (D) and Broadcast Music, Inc. (BMI) (D) function as “clearinghouses.” Music
copyright owners, composers, etc., grant them nonexclusive rights to license nondramatic performances of
their works in return for royalties distributed in accordance with a schedule reflecting the nature and amount
of the use of their music and other factors. Both organizations operate primarily through blanket licenses,
which give the licensees the right to perform any and all of the compositions owned by the members or
affiliates as often as the licensees desire for a stated term. Fees for blanket licenses are ordinarily a percentage
of total revenues or a flat dollar amount and do not directly depend on the amount or type of music used.
Columbia Broadcasting System (CBS) (P), which operates one of three national commercial television
networks and which held blanket licenses from both organizations, filed a complaint alleging that the blanket
license constitutes per se unlawful price-fixing. The district court ruled that the practice did not fall within the
per se rule, but the court of appeals held that the blanket license was indeed a form of price-fixing illegal per
se under the Sherman Act.
ISSUE: Is the blanket license a form of price-fixing illegal per se under the Sherman Act?
HOLDING AND DECISION: (White, J.) No. Certain agreements or practices are so “plainly
anticompetitive” and so often “lack … any redeeming virtue” that they are conclusively presumed illegal
without further examination under the Rule of Reason generally applied in Sherman Act cases, but the
blanket license cannot be so characterized. It is not a naked restraint of trade, with no purpose except stifling
of competition. Rather, it is a means by which individual composers and authors who are inherently unable to
effectively compete on their own can band together to make a market for their collective works. It may well be
that the blanket licensing arrangement at issue cannot survive scrutiny under the Rule of Reason, but that is
not the issue before this court. Reversed and remanded for further proceedings.

ANALYSIS
Not all courts were overly enthusiastic about this strict approach to the per se rule. For example, in U.S. v.
Southern Motor Carriers Rate Conference, 1979 Trade Cas. 62931 (N.D. Ga.), the Court warned that “overly
enthusiastic application of [this case] would abrogate the per se rule in its entirety.”

Quicknotes
PER SE RULE OF VOIDABILITY Transactions by interested directors can be voided.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 Catalano, Inc. v. Target Sales, Inc.
Brewing retailers (P) v. Brewing wholesalers (D)
446 U.S. 643 (1980).

NATURE OF CASE: Review of ruling holding certain agreements among wholesalers not to be a per se
antitrust violation.
FACT SUMMARY: Catalano, Inc. (P) contended that an agreement among wholesalers in its market not to
extend credit to retailers was a per se Sherman Act violation.

RULE OF LAW
An agreement among wholesalers to eliminate credit to retailers is illegal per se without further
examination under the rule of reason.

FACTS: Beginning in 1967, Target Sales, Inc. (D) and other brewing wholesalers (D) in the Fresno,
California, area secretly agreed to cease the practice of extending credit to brew-retailers and instead
demanded cash payment upon delivery. A class of brew-retailers (P) subsequently brought suit under federal
antitrust laws and made a motion to declare the case one of per se illegality. The district court denied the
motion and then certified a question to the Ninth Circuit as to whether the credit agreement was, if proven,
unlawful on its face. The Ninth Circuit ruled that an agreement among competitors to fix credit terms did not
violate the antitrust laws. The brew-retailers (P) appealed, and the U.S. Supreme Court granted review.
ISSUE: Is an agreement among wholesalers to eliminate credit to retailers illegal per se?
HOLDING AND DECISION: (Per curiam) Yes. An agreement among wholesalers to eliminate credit to
retailers is illegal per se without further examination under the rule of reason. Agreements to fix prices are so
plainly anticompetitive that they are conclusively presumed to be illegal under the Sherman Act; an agreement
among wholesalers to refuse to sell to retailers unless given payment in cash is merely one form of price-fixing.
Credit is part of the price of a good; it is the equivalent of a discount for the amount of time the good is held
before payment. Therefore, an agreement not to extend credit is a method of raising prices as plainly
anticompetitive as a direct agreement to raise prices. Such agreements are per se illegal, and no balancing of
anticompetitive versus beneficial aspects of the agreement need be undertaken. Reversed and remanded.

ANALYSIS
Horizontal agreements (agreements among competitors) tend to be given exacting scrutiny under the
Sherman Act. Agreements involving prices are likewise closely scanned. When the two are combined, as
here, the agreement has little chance of surviving a challenge.

Quicknotes
HORIZONTAL AGREEMENTS Agreements entered into by entities at the same level of production for the
purpose of restraining trade.
PER SE RULE OF VOIDABILITY Transactions by interested directors can be voided.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 Arizona v. Maricopa County Medical Society
State (P) v. Professional organization (D)
457 U.S. 332 (1982).

NATURE OF CASE: Review of decision ordering a trial in an antitrust action.

FACT SUMMARY: The practice of member physicians of Maricopa County Medical Society (D) of setting
uniform maximum fees reimbursable by insurance was challenged as a Sherman Act violation.

RULE OF LAW
Price-fixing agreements are per se unlawful, even if they are horizontal, fix maximum prices, and are
among members of a profession.

FACTS: The Maricopa County Medical Society (Society) (D) comprised 70 percent of the medical
practitioners of Maricopa County, Arizona. Member physicians agreed to a schedule of maximum fees for
particular services that could be charged back to various insurance carriers. Insurance agencies agreed to pay
the Society (D) doctors’ charges up to the maximum amounts, and in exchange, the doctors agreed to accept
those payments as payments in full for their services. The State of Arizona (State) (P) brought an action
challenging this practice as a violation of the Sherman Act. The Ninth Circuit held that triable issues of fact
justifying a trial were present. The State (P) appealed, and the U.S. Supreme Court granted review.
ISSUE: Are price-fixing agreements per se unlawful, even if they are horizontal, fix maximum prices, and are
among members of a profession?
HOLDING AND DECISION: (Stevens, J.) Yes. Price-fixing agreements are per se unlawful, even if they
are horizontal, fix maximum prices, and are among members of a profession. Therefore, an agreement among
physicians concerning a schedule of maximum fees reimbursable by insurance is per se illegal. The undisputed
rule is that all price-fixing agreements among competitors are per se Sherman Act violations. The rule is
violated by any price restraint that tends to reward all practitioners equally. This is no less true of maximum
price-fixing then it is of minimum price-fixing. The setting of fixed maximum prices may prevent buyers from
competing and surviving and may restrain sellers’ abilities to sell in accordance with their own judgment. Also,
the fact that, in this particular situation, a learned profession is involved is not relevant; the Society’s (D) claim
that their price restraint will make it easier for customers to pay does not distinguish the medical profession
from any other provider of goods or services. Furthermore, the per se rule need not be rejustified for every
industry and must be applied to all industries alike. Here, since a price-fixing agreement has been alleged and
not disputed, no further factual development is necessary for the State (P) to prevail. Reversed.
DISSENT: (Powell, J.) On the bare record, the agreement in question gives each physician considerably more
leeway in dealing with his patient than the classic cartel agreement allows cartel members. Application of the
per se rule is inappropriate on such a record.

ANALYSIS
The potential costs to consumers of minimum price-fixing are obvious. The costs of maximum fixed prices
are less readily discernible. Nonetheless, they are present. Suppliers of goods and services differ greatly in
quality. The fixing of maximum prices may distort high-end competition and discourage innovation.

Quicknotes
CARTEL An agreement between manufacturers or producers of the same product so as to form a monopoly.
PER SE RULE Rule that business transactions which in themselves constitute restraints on trade obviate the
need to demonstrate an injury to competition in making out an antitrust case.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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66
 National Collegiate Athletic Assn. v. Board of Regents
Amateur collegiate sports association (D) v. College board of regents (P)
468 U.S. 85 (1984).

NATURE OF CASE: Appeal from grant of injunctive relief for violation of the Sherman Antitrust Act.
FACT SUMMARY: The district court held that the National Collegiate Athletic Assn. (D) regulation of
television rights to college football games violated the Sherman Act.

RULE OF LAW
Limitations imposed upon members of a cooperative organization on the manner in which the
product is marketed are not illegal per se, but if such limitations hamper competition, they violate the
Sherman Act.

FACTS: The National Collegiate Athletic Assn. (the NCAA) (D) was an organization of colleges which
regulated the conduct of sporting competition. In 1951 it implemented a plan to regulate the granting of
television rights to member football games in order to alleviate the lost revenue from the decrease in
attendance owing to television. The regulations limited who could broadcast, and it regulated the amount of
times a particular school could be featured nationally. The plan also determined the amount each school
would receive for national and regional broadcasts. The universities of Georgia and Oklahoma (Universities)
(P) negotiated a television contract which fell outside the boundaries of the plan. In response to the NCAA’s
(D) threat to impose sanctions on them, they sued, contending the plan violated the Sherman Act. The
district court held for the Universities (P), and the court of appeals affirmed. The U.S. Supreme Court
granted certiorari.
ISSUE: Do limitations on the marketing of products by members of cooperative organizations which hamper
competition among such members violate the Sherman Act?
HOLDING AND DECISION: (Stevens, J.) Yes. Limitations imposed upon members of a cooperative
organization regulating the manner in which the product is marketed are not illegal per se, but if such
limitations hamper competition among the members, they violate the Sherman Antitrust Act. The product
marketed by the member schools is college sports competition. As such, some concerted action on the part of
the members is necessary to perpetuate the integrity of the product. As a result, the regulation of television
rights is not per se illegal. However, because the regulations hamper competition in that schools with greater
popularity cannot negotiate more favorable television rights, they do violate the Sherman Act. Affirmed.

ANALYSIS
It has been argued that the majority in this case failed to give proper consideration to the fact that the
NCAA’s (D) purpose in regulating the activity of the members is to perpetuate the amateurism of college
football. Limiting television exposure, it is argued, aids the association in limiting the corrupting influence
of professionalism on the college football market.

Quicknotes
CERTIORARI A discretionary writ issued by a superior court to an inferior court in order to review the lower
court’s decisions; the Supreme Court’s writ ordering such review.
INJUNCTIVE RELIEF A court order issued as a remedy, requiring a person to do, or prohibiting that person
from doing, a specific act.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 California Dental Assn. v. FTC
Nonprofit association (D) v. Federal agency (P)
526 U.S. 756 (1999).

NATURE OF CASE: Appeal from decision affirming the FTC’s jurisdiction and finding an antitrust
violation.
FACT SUMMARY: The Federal Trade Commission (FTC) (P), claimed that the California Dental Assn.
(CDA) (D), a voluntary nonprofit association that conferred significant economic benefits on its members,
violated § 5 of the Federal Trade Commission Act in applying its guidelines so as to restrict two types of
truthful, nondeceptive advertising. The CDA (D) argued the FTC (P) did not have jurisdiction, and that the
CDA (D) had not violated any antitrust laws.

RULE OF LAW
(1) The Federal Trade Commission has jurisdiction over a nonprofit organization that confers
substantial economic benefits on its for-profit members.
(2) Where any anticompetitive effects of given restraints are far from intuitively obvious, the rule of reason
demands a more thorough inquiry into the consequences of those restraints than provided by a “quick-
look,” abbreviated analysis.

FACTS: The California Dental Assn. (CDA) (D), a voluntary nonprofit association of local dental societies
to which about three-quarters of the State’s dentists belonged, provided, through for-profit subsidiaries,
desirable insurance and preferential financing arrangements for its members, and engaged in lobbying,
litigation, marketing, and public relations for members’ benefit. These services and programs had a value to
each member of between $22,739 and $65,127. Members agreed to abide by the CDA’s (D) Code of Ethics,
which, inter alia, prohibited false or misleading advertising. The CDA (D) also issued interpretive advisory
opinions and guidelines relating to advertising. The Federal Trade Commission (FTC) (P) brought a
complaint, alleging that the CDA (D) violated § 5 of the Federal Trade Commission Act (Act), 15 U.S.C. §
45, in applying its guidelines so as to restrict two types of truthful, nondeceptive advertising: (1) price
advertising, particularly discounted fees, and (2) advertising relating to the quality of dental services. An
Administrative Law Judge (ALJ) held the FTC (P) had jurisdiction over the CDA (D) and found a § 5
violation. The FTC (P) held that the advertising restrictions violated the Act under an abbreviated rule-of-
reason analysis. In affirming, the court of appeals sustained the FTC’s (P) jurisdiction and concluded that an
abbreviated or “quick look” rule-of-reason analysis was sufficient to justify certain advertising restrictions
adopted by the CDA (D). The U.S. Supreme Court granted certiorari.
ISSUE:
(1) Does the Federal Trade Commission have jurisdiction over a nonprofit organization that confers
substantial economic benefits on its for-profit members?
(2) Where any anticompetitive effects of given restraints are far from intuitively obvious, does the rule of
reason demand a more thorough inquiry into the consequences of those restraints than provided by a
“quick-look,” abbreviated analysis?
HOLDING AND DECISION: (Souter, J.)
(1) Yes. The Federal Trade Commission has jurisdiction over a nonprofit organization that confers
substantial economic benefits on its for-profit members. The Act gives the FTC (P) authority over any
persons, partnerships, or corporation, company, or association organized to carry on business for its own
profit or that of its members. The Act does not require that a supporting organization must devote itself
entirely to its members’ profits or say anything about how much of the entity’s activities must go to
raising the members’ bottom lines. There is thus no apparent reason to let the Act’s application turn on
meeting some threshold percentage of activity for this purpose or even a softer formulation calling for a
substantial part of the entity’s total activities to be aimed at its members’ pecuniary benefit. The Act does
not cover all membership organizations of profit-making corporations without more. However, the
economic benefits conferred upon CDA’s (D) profit-seeking professionals plainly fall within the object
of enhancing its members’ “profit,” which is the Act’s jurisdictional touchstone.

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(2) Yes. Where any anticompetitive effects of given restraints are far from intuitively obvious, the rule of
reason demands a more thorough inquiry into the consequences of those restraints than provided by a
“quick-look,” abbreviated analysis. An abbreviated or “quick-look” analysis is appropriate when an
observer with even a rudimentary understanding of economics could conclude that the arrangements in
question have an anticompetitive effect on customers and markets. This case fails to present a situation in
which the likelihood of anticompetitive effects is obvious, because the CDA’s (D) advertising restrictions
might plausibly be thought to have a net procompetitive effect or possibly no effect at all on competition.
The discount and nondiscount advertising restrictions are, on their face, designed to avoid false or
deceptive advertising in a market characterized by striking disparities between the information available
to the professional and the patient. The existence of significant challenges to informed decision making
by the customer for professional services suggests that advertising restrictions arguably protecting patients
from misleading or irrelevant advertising call for more than cursory treatment. In applying cursory
review, the court of appeals brushed over the professional context and described no anticompetitive
effects from the discount advertising bar. The CDA’s (D) price advertising rule appears to reflect the
prediction that any costs to competition associated with eliminating across-the-board advertising will be
outweighed by gains to consumer information created by discount advertising that is exact, accurate, and
more easily verifiable. This view may or may not be correct, but it is not implausible; and neither a court
nor the FTC (P) may initially dismiss it as presumptively wrong. The CDA’s (D) plausible explanation
for its nonprice advertising restrictions, namely that restricting unverifiable quality claims would have a
procompetitive effect by preventing misleading or false claims that distort the market, likewise rules out
the use of abbreviated “quick-look” rule-of-reason analysis for those restrictions. The obvious
anticompetitive effect that triggers such analysis has not been shown. However, requiring a more
extended examination of the possible factual underpinnings than was given, is not necessarily to call for
the fullest market analysis. Not every case attacking a restraint not obviously anticompetitive is a
candidate for plenary market examination. There is generally no categorical line between restraints giving
rise to an intuitively obvious inference of anticompetitive effect and those that call for more detailed
treatment. What is required is an inquiry that matches the circumstances of the case, looking to a
restraint’s circumstances, details, and logic. Here, a less quick look was required for the initial assessment
of the CDA’s (D) advertising restrictions. Vacated and remanded.
CONCURRENCE AND DISSEENT: (Breyer, J.) The majority is correct that the FTC (P) has
jurisdiction, and that more than a “quick-look” analysis is required in this case, but it is incorrect in its
application of those principles. Instead, a traditional application of the rule of reason to the facts of the case
requires affirming the FTC (P) on the merits, which is supported by “substantial evidence” as to each of the
four traditional antitrust questions. The first of these classical questions is: what is the restraint at issue? Here,
there are three restraints created by the CDA’s (D) ethical rule relating to advertising: (1) preclusion of
advertising that characterized a dentist’s fees as being low, reasonable, or affordable; (2) preclusion of
advertising of across the board discounts; and (3) prohibition of all quality claims. A review of the evidence
before the FTC (P) and the court of appeals shows that intervention by this Court is not warranted, as the
question of “substantial evidence” is a matter for the lower courts, unless the standard has been grossly
misapplied or misapprehended. Thus, the second classical question is reached: what are the likely
anticompetitive effects of the restraints? Here, the restraint of truthful advertising as to pricing and quality of
service will likely restrain competition in respect to price, which arguably is unlawful per se (as the FTC (P)
found) and will restrain competition over the quality of service. Therefore, the restraints have anticompetitive
tendencies. The third classical question is whether there are offsetting procompetitive justifications for the
restraints or some other redeeming virtues. Here, arguably, the question is a close one as it is plausible as the
CDA (D) held, that the restrictions are inextricably tied to a legitimate effort to prevent false or misleading
advertising. However, such an argument is merely theoretical, and the CDA (D) has failed to support it with
empirical evidence. In the usual Sherman Act § 1 case, the defendant bears the burden of establishing a
procompetitive effect—here, the CDA (D) has failed to meet its burden. The final classical question that
must be answered is whether the parties have sufficient market power to make a difference. Here, there was
sufficient evidence to establish that the CDA (D) had enough market power to harm competition through its
standard setting in the area of advertising. In some markets, the CDA’s (D) members made up 90 percent of
the marketplace, and on average, they accounted for 75 percent. This would likely make a difference because
potential patients might not respond readily to discount advertising by a small number of dentists (e.g., 10%),
leaving the remaining 90 percent less likely to engage in price competition. The majority contends that the
analysis conducted by the court of appeals was inadequate, but a close look at the court of appeal’s decision
reveals that it did not fail to properly address or resolve each of the traditional antitrust questions. Applying

70
ordinary antitrust principles, the court of appeals reached an unexceptional legal conclusion. Finally, the form
of analysis presented here, and used by the court of appeals, should not be abandoned, as it represents an
allocation of burdens that represents a careful blending of procompetitive objectives of the law with
administrative necessity.

ANALYSIS
On remand, the court of appeals held that the FTC (P) had failed to prove that the CDA’s (D) restrictions
had a net anticompetitive effect on price and quality of service. Arguably, the case should be read narrowly
in the context not of any advertising, but of professional advertising—an issue a closely divided Court has
been grappling with for over two decades. At a minimum, however, the case should be read to require
plaintiffs in both professional and non-professional advertising cases to have an empirical basis for why a
restraint harms consumers, but not more.

Quicknotes
FEDERAL TRADE COMMISSION ACT Establishes the Federal Trade Commission for the purpose of preventing
persons or entities from using unfair methods of competition in or affecting commerce, and unfair or
deceptive acts or practices in or affecting commerce.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.

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 Texaco, Inc. v. Dagher
Oil company (D) v. Service station owner (P)
126 S. Ct. 1276 (2006).

NATURE OF CASE: Appeal from reversal of summary judgment for defendants in price-fixing action.
FACT SUMMARY: Texaco, Inc. (D) and Shell Oil Co. (D), which had collaborated in a joint venture,
Equilon Enterprises (Equilon), contended that it was not per se illegal under § 1 of the Sherman Act for
Equilon to set the prices at which it sold gasoline to service station owners (P).

RULE OF LAW
It is not per se illegal under § 1 of the Sherman Act for a lawful, economically integrated joint venture
to set the prices at which the joint venture sells its products.

FACTS: Texaco, Inc. (D) and Shell Oil Co. (D) had been competitors in the oil and gasoline market. Then
they formed a joint venture, Equilon Enterprises (Equilon), through which Equilon gasoline would be sold to
downstream purchasers under the original Texaco (D) and Shell Oil (D) brand names. The companies agreed
to pool their resources and share the risks of and profits from Equilon’s activities, and Equilon’s board of
directors was comprised of representatives from each company. Equilon’s formation was approved by the
Federal Trade Commission (FTC) and state attorneys general. Service station owners (P) brought suit,
alleging that by unifying gasoline prices under the two brands, Texaco (D) and Shell Oil (D) had violated the
per se rule against price-fixing found in § 1 of the Sherman Act. Finding that the rule of reason, rather than
the per se rule applied, the district court granted summary judgment to Texaco (D) and Shell Oil (D), but the
court of appeals reversed. The U.S. Supreme Court granted certiorari.
ISSUE: Is it per se illegal under § 1 of the Sherman Act for a lawful, economically integrated joint venture to
set the prices at which the joint venture sells its products?
HOLDING AND DECISION: (Thomas, J.) No. It is not per se illegal under § 1 of the Sherman Act for a
lawful, economically integrated joint venture to set the prices at which the joint venture sells its products.
Although § 1 prohibits “[e]very contract [or] combination … in restraint of trade,” this Court has not taken a
literal approach to that language, recognizing, instead, that Congress intended to outlaw only unreasonable
restraints. Under rule of reason analysis, antitrust plaintiffs must demonstrate that a particular contract or
combination is in fact unreasonable and anticompetitive. Per se liability is reserved for “plainly
anticompetitive” agreements. While “horizontal” price-fixing agreements between two or more competitors
are per se unlawful, this litigation does not present such an agreement, because Texaco (D) and Shell Oil (D)
did not compete with one another in the relevant market—i.e., gasoline sales to western service stations—but
instead participated in that market jointly through Equilon. When those who would otherwise be competitors
pool their capital and share the risks of loss and opportunities for profit, they are regarded as a single firm
competing with other sellers in the market. As such, Equilon’s pricing policy may be price-fixing in a literal
sense, but it is not price-fixing in the antitrust sense. The court of appeals erred in reaching the opposite
conclusion under the ancillary restraints doctrine, which governs the validity of restrictions imposed by a
legitimate joint venture on nonventure activities. That doctrine has no application here, where the challenged
business practice involves the core activity of the joint venture itself—the pricing of the very goods produced
and sold by Equilon. Reversed.

ANALYSIS
The ancillary restraints doctrine, invoked by the court of appeals, governs the validity of restrictions
imposed by legitimate business collaboration, such as a business association or joint venture, on nonventure
activities. Under the doctrine, courts must determine whether the nonventure restriction is a naked
restraint on trade, and thus invalid, or one that is ancillary to the legitimate and competitive purposes of
the business association, and thus valid. The court, which found the doctrine inapplicable to the facts
presented, noted that even if it had permitted invocation of the doctrine, Equilon’s pricing policy was
clearly ancillary to the sale of its own products and would have been valid under the doctrine.

72
Quicknotes
JOINT VENTURE Venture undertaken based on an express or implied agreement among the members, with a
common purpose and interest, and an equal power of control.
PER SE VIOLATION Business transaction that in itself constitutes restraint on trade, obviating the need to
demonstrate an injury to competition in making out an antitrust case.

73
 Interstate Circuit v. United States
Film distributors (D) v. Federal government (P)
306 U.S. 208 (1939).

NATURE OF CASE: Action against a conspiracy in restraint of trade.

FACT SUMMARY: Interstate Circuit (D) and other distributors conspired to force theater owners to set
admission prices for the showing of first- and second-run films.

RULE OF LAW
An unlawful conspiracy in restraint of trade may be inferred from the facts, such as concerted action
departing from previous practices.

FACTS: Several national film distributors, including Interstate Circuit (Interstate) (D), agreed to impose
price restrictions on local theater owners showing subsequent-run films. Interstate (D) and the others met
with local distributors and convinced them to require theater owners to charge a minimum admission of at
least $0.25. At the time the admission price for subsequent-run films was less than $0.25 at most theaters.
The Government (P) brought an antitrust action against Interstate (D) and the others to enjoin this practice.
The conspiracy was established by circumstantial evidence and inference. It was shown that after the alleged
conspiracy was entered, all subsequent-run theaters raised their prices to $0.25. At trial, no officers or
directors of Interstate (D) or the others testified that no agreement had been reached. They left such
testimony to the local distributors that the decision had been independently reached. The court, based on the
facts, found that an unlawful conspiracy in restraint of trade had been formed and enjoined the arrangement.
ISSUE: Does the existence of an agreement have to be definitely established to find a conspiracy in restraint
of trade?
HOLDING AND DECISION: (Stone, J.) No. Often, in such situations, no formal agreement has been
reached. To impose such a requirement would unduly restrict the enforcement of antitrust laws. It is sufficient
to show that concerted action occurred that was an unusual departure from previous conduct. If this fact, if
not explained away, is added to other factors from which a conspiracy may be inferred, an antitrust violation
has been made. No formal plan or communication between competitors is even required. Where competitors
learn of a plan to restrict competition and elect to join in it, they are guilty of participating in a conspiracy
even if no formal agreement exists and even if their participation was unsolicited. It is sufficient that the
overall result of the conspiracy is to restrain trade in violation of the Sherman Act. There was ample proof
adduced at trial that the distributors, including Interstate (D), were aware that a plan was in operation to
regulate the price charged by subsequent-run theaters. Having joined in its effectuation, they are guilty of a
conspiracy. Affirmed.
DISSENT: (Roberts, J.) The majority was incorrect in finding a conspiracy under the stipulated facts. Earlier
courts have not viewed the kinds of agreements at issue in this case as conspiracies under the Sherman Act.

ANALYSIS
An individual manufacturer may, under certain circumstances, require retailers to adhere to price schedules
on threat of no further dealings for violations. However, such practices are illegal where the manufacturer
or distributor occupies a monopoly position in the market or conspires with others (including competitors)
to effectuate the plan.

Quicknotes
CONSPIRACY Concerted action by two or more persons to accomplish some unlawful purpose.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that result in a
monopoly, the suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

74
75
 Theatre Enterprises, Inc. v. Paramount Film Distributing Corp.
Theatre owner (P) v. Film distributor (D)
346 U.S. 537 (1954).

NATURE OF CASE: Action for damages for a conspiracy to restrict distribution.

FACT SUMMARY: Paramount Film Distributing Corp. (D) and other distributors refused to grant Theatre
Enterprises, Inc. (P), a first-run license for one of its suburban theaters.

RULE OF LAW
A conspiracy is not established merely because a group of competitors act in a like manner.

FACTS: Theatre Enterprises, Inc. (P) owned a suburban theater, the Crest. It approached various film
distributors for a license to show first-run pictures. All of the distributors refused. Reasons assigned were that
the arrangement was economically unfeasible and the downtown Baltimore theaters were larger and appealed
to a wider audience. The downtown theater owners had the contractual authority to require the distributor to
refuse licensing to owners in the same competitive area. Theatre Enterprises (P) brought suit against the
distributors (D) asking treble damages for restraint of trade. To bolster its case, Theatre Enterprises (P) made
reference to a previous conspiracy in restraint of trade in which Paramount Film Distributing Corp. (D) and
the others had been engaged. The court found that no conspiracy existed and denied relief.
ISSUE: Is evidence of parallel actions sufficient to establish a conspiracy?
HOLDING AND DECISION: (Clark, J.) No. The mere fact that competitors pursue similar courses of
action does not establish a conspiracy. This is especially true when, as here, the practice is economically sound,
is long-standing, and, at least in part, is compelled by contract. While conspiracies may be inferred from the
facts and need not be shown by proving a formal agreement, mere parallelism of action is insufficient. The
fact that previous unlawful restraints had been practiced by the parties does not establish a present conspiracy.
Judgment affirmed.

ANALYSIS
A conspiracy cannot be shown simply because a distributor refuses to deal with a prospective licensee unless
others in the field agree to deal with him. In Delaware Valley Marine Supply Co. v. American Tobacco Co.,
297 F. 2d 199 (3rd Cir. 1961), the court held that the evidence of numerous refusals by competitors was
sufficient to establish “conscious parallelism” but fell short of the minimum necessary to establish a
conspiracy. There must be sufficient evidence to allow the jury to reasonably infer the existence of a
conspiracy.

Quicknotes
CONSPIRACY Concerted action by two or more persons to accomplish some unlawful purpose.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
TREBLE DAMAGES An award of damages triple of the amount awarded by the jury and provided for by statute
for violation of certain offenses.

76
 Bell Atlantic Corp. v. Twombly
Local telephone and Internet service provider (D) v. Local telephone and Internet service
subscriber (P)
127 S. Ct. 1955 (2007).

NATURE OF CASE: Appeal from reversal of dismissal of complaint in action for antitrust conspiracy under
§ 1 of the Sherman Act.
FACT SUMMARY: Providers of local telephone and/or high speed Internet services (defendants) (D)
contended that representatives of a class of subscribers of local telephone and/or high speed Internet services
(plaintiffs) (P) had not stated a claim against the defendants (D) under § 1 of the Sherman Act by merely
alleging parallel conduct and making a bald assertion of conspiracy, without more.

RULE OF LAW
Stating a claim under § 1 of the Sherman Act requires a complaint with enough factual matter to
suggest that an agreement was made, so that an allegation of parallel conduct unfavorable to competition
and a bare assertion of conspiracy without more are insufficient to make out such a claim.

FACTS: Representatives of a class of subscribers of local telephone and/or high speed Internet services
(plaintiffs) (P) brought suit against certain providers of local telephone and/or high speed Internet services
(defendants) (D) for claimed violations of § 1 of the Sherman Act, which prohibits “[e]very contract,
combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the
several States, or with foreign nations.” The complaint alleged that the defendants (D) conspired to restrain
trade (1) by engaging in parallel conduct in their respective service areas to inhibit the growth of upstart
competitive local exchange carriers (CLECs) (e.g., by making unfair agreements with the competitive carriers,
by providing inferior connections to the networks, overcharging, and billing in ways designed to sabotage the
upstarts’ relations with their owns customers); and (2) by agreeing to refrain from competing against one
another, as indicated by their common failure to pursue attractive business opportunities in contiguous
markets. The district court dismissed the complaint, concluding that parallel business conduct allegations,
taken alone, do not state a claim under § 1; the court ruled that plaintiffs must allege additional facts tending
to exclude independent self-interested conduct as an explanation for the parallel actions. Reversing, the court
of appeals held that the plaintiffs’ (P) parallel conduct allegations were sufficient to withstand a motion to
dismiss because the defendants (D) failed to show that there was no set of facts that would permit the
plaintiffs (P) to demonstrate that the particular parallelism asserted was the product of collusion rather than
coincidence. The U.S. Supreme Court granted certiorari.
ISSUE: Does stating a claim under § 1 of the Sherman Act require a complaint with enough factual matter to
suggest that an agreement was made, so that an allegation of parallel conduct unfavorable to competition and
a bare assertion of conspiracy without more are insufficient to make out such a claim?
HOLDING AND DECISION: (Souter, J.) Yes. Stating a claim under § 1 of the Sherman Act requires a
complaint with enough factual matter to suggest that an agreement was made, so that an allegation of parallel
conduct unfavorable to competition and a bare assertion of conspiracy without more are insufficient to make
out such a claim. Because § 1 prohibits “only restraints effected by a contract, combination, or conspiracy,” the
key question is whether the challenged anticompetitive conduct stems from an independent decision or from
an agreement. While a showing of parallel business behavior is admissible circumstantial evidence from which
the requisite agreement may be inferred, it falls short of conclusively establishing such agreement or
constituting a § 1 violation. This is true even where there is “conscious parallelism” by interdependent
companies in a concentrated market. Therefore, courts avoid making false inferences from identical behavior
at a number of points in the trial sequence, e.g., at the summary judgment stage, unless the plaintiff can show
that the defendants were not acting independently. Under the Federal Rules of Civil Procedure, only a “short
and plain statement of the claim showing that the pleader is entitled to relief” is required. While detailed
factual allegations are not necessary, mere labels or conclusions are insufficient, as they do not provide a
defendant with grounds for the plaintiff’s entitlement to relief. Factual allegations must be enough to raise a
right to relief above the speculative level on the assumption that all of the complaint’s allegations are true. In
the context of a § 1 claim, this means that a complaint must contain enough factual matter to suggest an

77
agreement. Thus, because lawful parallel conduct fails to give rise to unlawful conspiracy or agreement, an
allegation of parallel conduct and a bare assertion of conspiracy are insufficient. Instead, such allegations, to be
plausible, must be made in a factual context that raises a suggestion of preceding agreement. Because antitrust
discovery can be expensive and can cause defendants to settle even anemic claims, taking care to require
allegations that reach the level suggesting conspiracy will help avoid the potentially enormous expense of
discovery in cases with no “reasonably founded hope that the [discovery] process will reveal relevant evidence”
to support a § 1 claim. Applying these principles here, it is clear that the plaintiffs’ (P) claim of conspiracy in
restraint of trade comes up short. There is no allegation of actual agreement by the defendants (D); there are
merely allegations of the absence of meaningful competition, followed by the assertion of parallel action, from
which agreement is inferred. These allegations on their own do not invest the defendants’ (D) actions or
inactions with a plausible suggestion of conspiracy, since they can be construed as covering each defendant’s
(D) unilateral actions or reactions to the CLECs; there was just no need for joint encouragement for each
defendant (D) to want to avoid dealing with the CLECs, and each defendant (D) had ample reasons for
attempting to keep the CLECs out, regardless of the actions of the other defendants (D). Finally, the
requirement of a factual context that supports conspiracy does not amount to a requirement of heightened fact
pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face. Because the
plaintiffs (P) here have not nudged their claims across the line from conceivable to plausible, their complaint
must be dismissed. Reversed and remanded.
DISSENT: (Stevens, J.) The plaintiffs (P) have alleged a horizontal agreement among potential competitors,
and such allegation has not even been denied. The majority’s charge that such an allegation is not “plausible”
is not a legally acceptable reason to dismiss the complaint. The plaintiffs (P) describe a variety of
circumstantial evidence that supports an allegation of a classic per se violation of the Sherman Act, and these
factual allegations must be accepted as true. While the majority’s concern for the enormous expense of
antitrust litigation is valid, the answer is careful case management, not dismissal of an adequately pleaded
complaint. The majority’s decision is driven by its appraisal of the plausibility of the ultimate factual
allegations rather than their legal sufficiency. In dismissing the complaint, the majority scraps the precedential
“no set of facts” language, but this formulation has hitherto not been questioned and, contrary to the
majority’s assertion, it does mean that the Federal Rules of Civil Procedure require, or invite, the pleading of
facts. Instead, the majority formulates an evidentiary standard that while appropriate for the summary
judgment stage, is not appropriate at the pleading stage. Moreover, an antitrust case such as the one at bar is a
poor vehicle for enunciating a new pleading rule, given that in antitrust cases, the proof is largely in the hands
of the alleged conspirators, and dismissals prior to giving the plaintiff ample opportunity for discovery should
be granted very sparingly. This principle is supported by the Sherman Act itself, which encourages the
bringing of private enforcement actions through the recovery of treble damages and attorneys’ fees for
successful plaintiffs. Thus, the majority’s rule marches contrary to congressional intent.

ANALYSIS
The Court has declined to limit its holding in this case to antitrust cases, and has ruled that it applies in all
civil actions. Thus, in all such cases, plaintiffs must now plead sufficient factual matter to state a claim to
relief that is plausible on its face, which means that the facts must support more than a sheer possibility
that a defendant has acted unlawfully. Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).

Quicknotes
COLLUSION An agreement between two or more parties to engage in unlawful conduct or in other activities
with an unlawful goal, typically involving fraud.
HORIZONTAL AGREEMENTS Agreements entered into by entities at the same level of production for the
purpose of restraining trade.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.

78
79
 FTC v. Cement Institute
Federal agency (P) v. Trade association (D)
333 U.S. 683 (1948).

NATURE OF CASE: Review of order setting aside regulatory sanctions.

FACT SUMMARY: The Federal Trade Commission (P) contended that the cement industry (D) restrained
competition by charging identical prices for cement no matter where the cement shipped from, a form of
“base-point pricing.”

RULE OF LAW
The use of a base-point delivered pricing system throughout an industry is an unfair trade practice.

FACTS: The Federal Trade Commission (FTC) (P) brought an enforcement action against the Cement
Institute (D), a trade association composed of most companies involved in the U.S. cement industry. The
FTC (P) alleged a decades-old practice of multiple basing point system of pricing. This system worked as
follows: The seller fixed a price for goods that included the cost of delivery to the buyer, but the cost of
delivery was always set relative to a location chosen by the Cement Institute (D) and not necessarily the
location that the goods were actually sent from. The alleged effect was that the “delivered prices” of producers
in every locality were always identical, regardless of the producers’ actual freight costs. The FTC (P)
determined a violation of the Federal Trade Act and issued sanctions. The court of appeals reversed, holding
that an economist’s testimony that uniform prices were the result of market forces was determinative. The
U.S. Supreme Court granted review.
ISSUE: Is the use of a base-point delivered pricing system throughout an industry an unfair trade practice?
HOLDING AND DECISION: (Black, J.) Yes. The use of a base-point delivered pricing system throughout
an industry is an unfair trade practice. It is well established that an industry practice may constitute a Sherman
Act violation and still fall within the FTC’s (P) jurisdiction. Indeed, a Sherman Act violation is probably per
se an unfair trade practice. Consequently, if the FTC (P) finds an industry practice to constitute concerted
action in restraint of trade, it is entitled to impose sanctions. Here the evidence was mixed, with economists
hired by the Cement Institute (D) testifying that uniformity of prices was the result of competition. The FTC
(P), however, was not compelled to accept this testimony, and its findings were supported by substantial
evidence. Reversed.

ANALYSIS
Antitrust violations are the province of the Department of Justice. Unfair trade practices are investigated by
the FTC. Early in its life, the argument was made that the FTC did not have jurisdiction over
anticompetitive behavior, as such conduct was within the Justice Department’s jurisdiction exclusively.
Those arguments were uniformly rejected.

Quicknotes
COMBINATION (ANTITRUST DEFINITION) Alliance of entities, for the purpose of impeding free trade, that
results in a monopoly, suppression of competition, or affecting prices.
FEDERAL TRADE COMMISSION ACT Establishes the Federal Trade Commission for the purpose of preventing
persons or entities from using unfair methods of competition in or affecting commerce, and unfair or
deceptive acts or practices in or affecting commerce.

80
81
 E.I. du Pont de Nemours & Co. v. FTC
Manufacturer (D) v. Federal agency (P)
729 F.2d 128 (2d Cir. 1984).

NATURE OF CASE: Appeal from administrative cease-and-desist order.

FACT SUMMARY: The Federal Trade Commission (FTC) (P) ordered Ethyl Corp. (D) and E.I. du Pont
de Nemours & Co. (D), the two main players in the oligopolistic gasoline antiknock compound industry, to
cease certain practices, even though the practices were not concerted actions and were done for legitimate
business reasons.

RULE OF LAW
Before business conduct in an oligopolistic industry may be labeled “unfair,” there must be proof of
collusion, an anticompetitive purpose, or absence of an independent legitimate reason for the conduct.

FACTS: For much of the era of the automobile, lead antiknock compounds have been a regular additive to
gasoline. The industry manufacturing antiknock compounds is oligopolistic, with less than a dozen companies
supplying these products to gasoline refiners. In the early 1980s, the Federal Trade Commission (FTC) (P)
began an investigation into certain industry practices, namely (1) sale of the product at a delivered price, i.e.,
including transportation costs; (2) lengthy advance notice to buyers of price increases; and (3) uniform sale
pricing to all buyers. The FTC (P) was unable to find that these practices were the result of concerted action.
Also, legitimate business reasons for the practices existed. Nonetheless, pursuant to § 5 of the Federal Trade
Commission Act, the FTC (P) issued a cease-and-desist order, finding that the practices had the collective
effect of lessening competition by removing price uncertainties. Ethyl (D) and E.I. du Pont de Nemours &
Co. (du Pont) (D) appealed.
ISSUE: Before business conduct in an oligopolistic industry may be labeled “unfair,” must there be proof of
collusion, an anticompetitive purpose, or the absence of a legitimate reason for the conduct?
HOLDING AND DECISION: (Mansfield, J.) Yes. Before business conduct in an oligopolistic industry
may be labeled “unfair,” there must be proof of collusion, an anticompetitive purpose, or absence of an
independent legitimate reason for the conduct. The FTC may not prohibit an arguably anticompetitive
practice in an oligopolistic industry if each company undertakes it for legitimate business reasons. That an
industry is oligopolistic does not mean that it is inherently suspect in terms of competitiveness; it may well be
that the industry is oligopolistic as a result of competitive conditions. Without further evidence of collusion or
the absence of legitimate business reasons for the challenged conduct, oligopoly parallel pricing by Ethyl (D)
and du Pont (D) cannot be said to be “unfair” in the sense of FTC (P) § 5 sanctionability. To hold otherwise
would be to invest the FTC (P) with such unbridled discretion that arbitrary decision-making would become
a matter of course. Here, there was no evidence of industrywide collusion, and legitimate business reasons for
all the challenged practices were offered. Consequently, the FTC (P) erred in its decision. Vacated.

ANALYSIS
Numerous reasons may exist to explain an industry’s naturally oligopolistic tendencies, independent of
anticompetitive practices by the market players. One reason is the prohibitive initial investment cost.
However, even though a market may be not be influenced by anticompetitive behavior, suspicions are easily
aroused in regulators when a market is as centralized as the antiknock additive market in this case.

Quicknotes
CEASE AND DESIST ORDER An order from a court or administrative agency prohibiting a person or business
from continuing a particular course of conduct.
COLLUSION An agreement between two or more parties to engage in unlawful conduct or in other activities
with an unlawful goal, typically involving fraud.
FEDERAL TRADE COMMISSION ACT Establishes the Federal Trade Commission for the purpose of preventing

82
persons or entities from using unfair methods of competition in or affecting commerce, and unfair or
deceptive acts or practices in or affecting commerce.
OLIGOPOLISTIC A market condition in which the industry for a particular product is dominated by only a few
companies.

83
 Copperweld Corp. v. Independence Tube Corp.
Steel tube manufacturer (D) v. Steel tube manufacturer (P)
467 U.S. 752 (1984).

NATURE OF CASE: Review of judgment awarding damages for Sherman Act violations.
FACT SUMMARY: Copperweld Corp. (D) and its wholly owned subsidiary were sued under § 1 of the
Sherman Act for conspiracies in restraint of trade.

RULE OF LAW
A parent corporation and its wholly owned subsidiary are legally incapable of a § 1 Sherman Act
conspiracy.

FACTS: Copperweld Corp. (D) was engaged in the steel tubing business. In 1972, it purchased the Regal
Division of Lear Siegler, Inc., which it incorporated as a subsidiary, named Regal Tube Co. (D). Subsequent
to this, the former head of the Regal Division (D) started another corporation, Independence Tube Corp.
(Independence) (P), as a competitor to Copperweld (D). Copperweld (D) contended that Independence (P)
and its principal were bound by agreements not to compete and actively discouraged potential customers and
creditors of Independence (P) with legal threats. Independence (P) brought an action against Copperweld (D)
and Regal Tube (D) under § 1 of the Sherman Act, alleging a conspiracy between them in restraint of
competition. A jury awarded $2,499,009, which the court trebled to $7,497,027. The Seventh Circuit
affirmed, and the U.S. Supreme Court granted review.
ISSUE: Are a parent corporation and its wholly owned subsidiary legally capable of a Sherman Act
conspiracy?
HOLDING AND DECISION: (Burger, C.J.) No. A parent corporation and its wholly owned subsidiary
are legally incapable of a § 1 Sherman Act conspiracy. Section 1 of the Sherman Act only applies to situations
where two or more market players conspire to restrain trade. Efforts to do so by only one player are addressed
in § 2. Section 1 of the Act clearly contemplates untoward cooperation between two entities who do not
otherwise share an identity of interest. This is not the case with a parent and a subsidiary, as they already enjoy
such an identity. It is well established that a company cannot conspire, for § 1 purposes, with one of its
unincorporated divisions. To hold to the contrary with respect to a parent and a subsidiary would elevate form
over substance. In essence, the anticompetitive threat that § 1 seeks to address does not exist between a parent
and a subsidiary, and therefore § 1 will not be applied in such situations. Reversed.

ANALYSIS
Section 1 of the Sherman Act deals with intercompany conspiracies while § 2 deals with monopolistic
behavior by a single player. Section 1 prohibits all agreements in restraint of trade; § 2 only deals with
restraints of trade that become monopolistic. The reason that § 1 is more draconian than § 2 is that the
drafters of the Act considered conspiracies in restraint of trade to be a bigger threat to competition than
single-entity restraints.

Quicknotes
CONSPIRACY Concerted action by two or more persons to accomplish some unlawful purpose.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.
TREBLE DAMAGES An award of damages triple of the amount awarded by the jury and provided for by statute
for violation of certain offenses.

84
85
 Matsushita Electric Industrial Co. v. Zenith Radio Corp.
Japanese electronics manufacturer (D) v. American electronics manufacturer (P)
475 U.S. 574 (1986).

NATURE OF CASE: Review of reversal of summary judgment dismissing antitrust action.

FACT SUMMARY: Zenith Radio Corp. (P), an American electronics manufacturer, brought an antitrust
action against twenty-one Japanese manufacturers (D), but the district court denied summary judgment
because it had no evidence of a motive and evidence of a conspiracy was ambiguous.

RULE OF LAW
To survive a defense motion for summary judgment, a plaintiff must show direct evidence of concert
of an action, as well as a plausible motive to engage in predatory pricing.

FACTS: Zenith Radio Corp. (Zenith) (P) filed a § 1 Sherman Act action against twenty-one Japanese
companies (D) involved in manufacturing consumer electronics, mostly televisions. The complaint alleged
that the Japanese companies (D) had conspired for nearly twenty years to sell their products at artificially low
prices in the United States, in an effort to drive U.S. companies out of the market. Zenith (P) alleged that this
conspiracy was underwritten by the ability of the Japanese companies (D) to keep prices artificially high in
Japan, due to government compliance. At the time the case was filed, Zenith (P) had a larger market share
than any of its Japanese counterparts (D). The Japanese companies (D) collectively moved for summary
judgment, which the district court granted. Finding direct evidence of conspiratorial behavior in Japan and
inferences from this of conspiratorial behavior in the United States, the Third Circuit reversed. The U.S.
Supreme Court granted review.
ISSUE: To survive a defense motion for summary judgment, must a plaintiff show direct evidence of
concerted action and a plausible motive to engage in predatory pricing?
HOLDING AND DECISION: (Powell, J.) Yes. To survive a defense motion for summary judgment, a
plaintiff must show direct evidence of concert of an action, as well as a plausible motive to engage in predatory
pricing. To survive a motion for summary judgment, a plaintiff opposing it must put forth evidence that there
are genuine issues of triable, controverted facts so as to negate the contention that the moving party is entitled
to judgment as a matter of law. Factual inferences are allowable, but they must be reasonable; they cannot be
mere speculation or allegations. In this case, the direct evidence cited by the Third Circuit in reversing the
district court and declining summary judgment was the Japanese companies’ (D) anticompetitive acts in Japan.
However, a conspiracy to increase profits in one market does not tend to show a conspiracy to sustain losses in
another. In light of the absence of any rational motive to conspire, neither the Japanese companies’ (D)
practices nor their conduct in the Japanese market nor their agreements regarding prices or distribution here
in the United States are sufficient to create a “genuine issue for trial” under Fed. R. Civ. P. 56(e).
Consequently, summary judgment in favor of the Japanese companies (D) was proper. Reversed and
remanded.
DISSENT: (White, J.) The standard used by the court here seems to require that a judge hearing a
defendant’s motion for summary judgment in an antitrust case should go beyond the traditional summary
judgment inquiry and decide for himself whether the weight of the evidence favors the plaintiff.

ANALYSIS
In federal court, a defendant can prevail in a summary judgment motion if he can produce evidence tending
to show that the plaintiff cannot prove one or more elements of his cause of action. Upon such evidence,
the plaintiff must put forth evidence showing that he can in fact prove the element. This standard should
be compared to that still used in many states, which requires a defendant to actually disprove an element in
order to prevail.

Quicknotes

86
CONSPIRACY Concerted action by two or more persons to accomplish some unlawful purpose.
SUMMARY JUDGMENT Judgment rendered by a court in response to a motion by one of the parties, claiming
that the lack of a question of material fact in respect to an issue warrants disposition of the issue without
consideration by the jury.

87
 United States v. Topco Associates
Federal government (P) v. Independent grocers’ cooperative (D)
405 U.S. 596 (1972).

NATURE OF CASE: Antitrust action under § 1 of the Sherman Act.

FACT SUMMARY: Topco Associates (D), a cooperative for grocers, assigned exclusive territories for the
members’ business.

RULE OF LAW
Exclusive territorial assignments to independent retailers by a cooperative is a horizontal restraint on
competition which is per se unlawful.

FACTS: A number of independent grocers formed a cooperative called Topco Associates (Topco) (D).
Topco (D) allowed members to purchase goods at the same price as chain stores. Topco (D) expanded into
different areas as it grew in size. The low prices at which goods could be obtained from Topco (D) allowed its
members to compete with the chain stores in these areas. Topco’s (D) members were assigned exclusive
territories so that they would not be competing with each other. The Government (P) brought an antitrust
action under § 1 of the Sherman Act to enjoin these practices as an impermissible restraint on trade. The
Government (P) alleged that the arrangement constituted a horizontal restraint to eliminate competition
between the grocer members.
ISSUE: Is an exclusive territorial grant by a cooperative to its independent members a per se violation of the
Sherman Act?
HOLDING AND DECISION: (Marshall, J.) Yes. Topco (D) members are all independent businessmen
who would normally be in competition with each other. Any practice which would restrict or eliminate such
potential competitors is an unlawful restraint on trade. Exclusive territorial assignments constitute a horizontal
restraint, which is a per se violation of the Sherman Act. It is immaterial that the motive behind the exclusive
territorial grant was not motivated by an impermissible purpose or that this is the only way in which the
independents can successfully compete with the chain stores. Unless permitted by specific legislation, all
horizontal restraints are unlawful per se. Reversed and remanded.
DISSENT: (Burger, C.J.) There was no agreement herein to restrain trade. Topco’s (D) exclusive territorial
grants had the purpose and effect of promoting competition rather than restraining it. A per se rule should not
be automatically applied to all situations where the objective facts indicate that it is not applicable. It is only
the majority’s decision which creates an automatic application of a previously flexible per se rule. Where an
arrangement does not have as its primary purpose and effect the reduction of competition, it should be
allowed.

ANALYSIS
Certain practices such as price-fixing agreements and horizontal restraints have been deemed illegal per se.
Their mere existence, regardless of the reason or justification, is deemed a violation of the Sherman Act.
Most other arrangements are tested under a “rule of reason” and will only be found to be illegal based on
the objective facts of the case. Where the Sherman Act’s application diminishes competition and furthers
monopolistic or oligopolistic tendencies, it is illogical to apply it.

Quicknotes
HORIZONTAL RESTRAINT ON COMPETITION Agreement entered into by entities at the same level of
production for the purpose of restraining trade.
PER SE RULE Rule that business transactions which in themselves constitute restraints on trade obviate the
need to demonstrate an injury to competition in making out an antitrust case.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman

88
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 Polk Bros. v. Forest City Enterprises
Appliance store (P) v. Hardware store (D)
776 F.2d 185 (7th Cir. 1985).

NATURE OF CASE: Appeal from order invalidating restrictive covenant.

FACT SUMMARY: Forest City Enterprises (D), which had covenanted not to sell certain products in
competition with cotenant Polk Bros. (P), contended that the covenant was an illegal restraint of trade.

RULE OF LAW
A covenant not to compete may be legal if ancillary to a productive venture.

FACTS: Polk Bros. (Polk) (P) and Forest City Enterprises (Forest City) (D) agreed to build a store large
enough to house sales outlets for both companies. As part of the agreement, Polk (P) agreed not to sell Forest
City’s (D) type of merchandise, i.e., building materials, and Forest City (D) agreed not to sell appliances,
which were part of Polk’s (P) product line. Years later, Forest City’s (D) desire to sell appliances compelled it
to inform Polk (P) that it considered the covenant invalid. Polk (P) sued to enforce the covenant. The district
court held that the covenant was an unlawful contract allocating products and markets under the antitrust
laws. Polk (P) appealed.
ISSUE: May a covenant not to compete be evaluated under the rule of reason if ancillary to a productive
venture?
HOLDING AND DECISION: (Easterbrook, J.) Yes. A covenant not to compete may be evaluated under
the rule of reason if ancillary to a productive venture. The per se rule under antitrust law applies to “naked”
restraints of trade, that is, restraints that serve no purpose other than to lessen competition. On the other
hand, restraints that require extensive cooperation toward a mutual goal of productivity are termed “ancillary.”
These restraints, which serve the function of facilitating some productive purpose, would not be practical
absent the restraint. Covenants not to compete are an example of this. Here, the agreement between Polk (P)
and Forest City (D) clearly falls within the latter category. By agreeing not to directly compete with each
other, Polk (P) and Forest City (D) were able to build a large sales outlet which would not have been
profitable had they been competing against each other. This productive cooperation, and thus the restraint,
was ancillary to the purpose of expansion and should have been subjected to the rule of reason, not to a per se
analysis. Polk (P) is entitled to a permanent injunction. Reversed.

ANALYSIS
Probably the most common type of agreement in this area is the employer-employee or vendor-vendee
agreement not to compete. The paradigmatic situation is when a person buys a business and the vendor
agrees not to compete against the vendee. Such an arrangement, if reasonable, does not violate antitrust.

Quicknotes
PER SE RULE Rule that business transactions which in themselves constitute restraints on trade obviate the
need to demonstrate an injury to competition in making out an antitrust case.
PERMANENT INJUNCTION A remedy imposed by the court ordering a party to cease the conduct of a specific
activity until the final disposition of the cause of action.
RESTRICTIVE COVENANT A promise contained in a deed to limit the uses to which the property will be made.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.

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91
 Eastern States Retail Lumber Dealers’ Assn. v. United States
Lumber trade association (D) v. Federal government (P)
234 U.S. 600 (1914).

NATURE OF CASE: Appeal from conviction of conspiracy under the Sherman Act.
FACT SUMMARY: The Government (P) challenged, as an antitrust violation, the practice of members of
Eastern States Retail Lumber Dealers’ Association (D), a retail trade association, of compiling and circulating
a list of wholesalers who sold lumber retail directly to consumers.

RULE OF LAW
Compiling and circulating a list of undesirable wholesalers is an antitrust violation, if done to obstruct
interstate trade and to unduly suppress competition.

FACTS: The Eastern States Retail Lumber Dealers’ Association (Association) (D) was a trade association
composed of lumber retailers. The Association (D) habitually circulated a list of “undesirable” wholesalers.
These were wholesalers who sold lumber directly to the public as well as to the retailers; the Association (D)
considered this an invasion of their domain. Although there was no official boycott of the wholesalers found
on the “blacklist,” in practice, most Association (D) members refused to deal with these wholesalers. The
Government (P) brought an antitrust prosecution against the Association (D). The Association (D) was
convicted and appealed.
ISSUE: Is circulating a list of undesirable wholesalers an antitrust violation if done to obstruct trade and
unduly suppress competition?
HOLDING AND DECISION: (Day, J.) Yes. Circulating a list of undesirable wholesalers is an antitrust
violation if done to obstruct trade and unduly suppress competition. The Sherman Act prohibits agreements
in restraint of trade. It is rare that overt proof of such an agreement will be found. Rather, such an agreement
may be inferred if such restraint is a natural consequence of an industry practice. Here, the Association (D)
mounted what essentially was a boycott of wholesalers who chose to compete with its members. That this was
done via a blacklist rather than by an official agreement is irrelevant for Sherman Act purposes. The
conspiracy to impair the trade of blacklisted wholesalers may be inferred. Affirmed.

ANALYSIS
Boycotts are not necessarily violations of the Sherman Act. What matters is the ultimate goal and effect of
the boycott. A boycott undertaken for political or social reasons, rather than for business reasons, will
probably pass Sherman Act scrutiny.

Quicknotes
BOYCOTT A concerted effort to refrain from doing business with a particular person or entity.
CONSPIRACY Concerted action by two or more persons to accomplish some unlawful purpose.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 Klor’s, Inc. v. Broadway-Hale Stores, Inc.
Appliance store (P) v. Department store (D)
359 U.S. 207 (1959).

NATURE OF CASE: Antitrust action for treble damages.

FACT SUMMARY: Klor’s, Inc. (P) alleged that Broadway-Hale Stores, Inc. (D) used its large volume
purchasing power to influence manufacturers not to deal with Klor’s (P).

RULE OF LAW
The use of a retailer’s large volume buying power to restrict manufacturer’s power to deal with others
is violative of the Sherman Act.

FACTS: Klor’s, Inc. (P) operated an appliance store next to one of Broadway-Hale Stores, Inc.’s (Broadway-
Hale) (D) stores. Klor’s (P) was unable to obtain merchandise from many manufacturers and received poor
terms from others. It alleged that this was the result of coercive pressures from Broadway-Hale (D) which was
using its large volume purchasing power to freeze Klor (P) out of business. Broadway-Hale (D) did not deny
the charge. It merely alleged that there were numerous other appliance stores in the area and the public was
not being injured by its actions. Since the public was not being injured, there was no violation of the Sherman
Act. Both the district court and the court of appeals found for Broadway-Hale (D) on this basis.
ISSUE: Where the freedom of manufacturers and sellers is inhibited by the actions of a single retailer has the
Sherman Act been violated?
HOLDING AND DECISION: (Black, J.) Yes. Broadway-Hale’s (D) actions resulted in a group boycott of
Klor’s (P). Such actions violate the Sherman Act. It results in Klor’s (P) being excluded from competitive
markets; manufacturers being denied certain customers; and the advancement of monopolistic tendencies.
These are impermissible trade practices which inhibit free competition. The spirit of the Sherman Act may be
violated where retailers are denied free access to manufactured goods. Based on the admissions by Broadway-
Hale (D), its practices are a clear violation of the Sherman Act. Reversed and remanded.

ANALYSIS
Restraints on dealing may be allowed for the purpose of imposing disciplinary sanctions. In Molinas v.
National Basketball Assn., 190 F. Supp. 241 (S.D.N.Y. 1961), the court held that a player might be
suspended indefinitely for severe infractions of league rules. No antitrust violation is present even though
no other club could hire him until the suspension was lifted.

Quicknotes
BOYCOTT A concerted effort to refrain from doing business with a particular person or entity.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 NYNEX Corporation v. Discon, Inc.
Telephone company (D) v. Telephone company (P)
525 U.S. 128 (1998).

NATURE OF CASE: Antitrust suit.

FACT SUMMARY: Discon, Inc. (P) alleged that NYNEX Corporation (D) engaged in unfair, improper,
and anticompetitive activities in order to hurt Discon and benefit its competitor AT&T.

RULE OF LAW
The antitrust rule that group boycotts are illegal per se does not apply to a buyer’s decision to buy from
one seller rather than another when that decision cannot be justified in terms of ordinary competitive
objectives.

FACTS: Discon, Inc. (P) sold removal services to NYNEX Corporation (D) and its subsidiaries (D). Discon
(P) alleged that NYNEX (D) engaged in unfair, improper, and anticompetitive activities in order to hurt
Discon and benefit its competitor AT&T. The district court dismissed the complaint for failure to state a
claim. The court of appeals affirmed the dismissal with an exception for Discon’s (P) claim that Materiel
Enterprises switched its purchases from Discon (P) to AT&T as part of an attempt to defraud local telephone
service customers.
ISSUE: Does the antitrust rule that group boycotts are illegal per se apply to a buyer’s decision to buy from
one seller rather than another when that decision cannot be justified in terms of ordinary competitive
objectives?
HOLDING AND DECISION: (Breyer, J.) No. The antitrust rule that group boycotts are illegal per se does
not apply to a buyer’s decision to buy from one seller rather than another when that decision cannot be
justified in terms of ordinary competitive objectives. The present case deals with only a vertical agreement and
restraint that takes the form of depriving a supplier of a potential customer. To apply the per se rule here
would convert business transactions that are improper for other reasons into treble-damages antitrust cases
and would discourage firms from changing suppliers, even where no harm is posed to the competitive process.
Vacated and remanded.

ANALYSIS
As the Court held in Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207 (1959), in order for the per se
rule to apply in the boycott context, there must be a horizontal agreement. A vertical restraint cannot be
illegal per se unless it includes some agreement on price or price levels.

Quicknotes
BOYCOTT A concerted effort to refrain from doing business with a particular person or entity.
PER SE RULE Rule that business transactions which in themselves constitute restraints on trade obviate the
need to demonstrate an injury to competition in making out an antitrust case.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
TREBLE DAMAGES An award of damages triple of the amount awarded by the jury and provided for by statute
for violation of certain offenses.

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95
 Paramount Famous Lasky Corp. v. United States
Film producer/distributor (D) v. Federal government (P)
282 U.S. 30 (1930).

NATURE OF CASE: Antitrust action.

FACT SUMMARY: A standard film exhibition contract used in the film industry required film exhibitors to
submit disputes to arbitration.

RULE OF LAW
An industrywide practice of forcing retailers to submit disputes to arbitration may violate the Sherman
Act.

FACTS: An agreement existed among ten motion picture distributors (D), who collectively controlled over
60 percent of all films seen in the United States, to impose a standard exhibition agreement upon film
exhibitors. One clause in the standard agreement required the exhibitors to submit all disputes to arbitration.
If the exhibitor refused, it was forced to pay an additional fee in order to exhibit one of the distributor’s (D)
films. Furthermore, the ten distributors (D) refused to contract with any exhibitor who failed to observe the
agreement. The Government (P) challenged this as an antitrust violation. A district court agreed, and the U.S.
Supreme Court granted review.
ISSUE: May an industrywide practice of forcing retailers to submit disputes to arbitration violate the
Sherman Act?
HOLDING AND DECISION: (McReynolds, J.) Yes. An industrywide practice of forcing retailers to
submit disputes to arbitration may violate the Sherman Act. When such a practice involves, as it does here,
concerted action by manufacturers and/or distributors to restrict the retailers’ liberty of action, the kind of
anticompetitive, coercive activity prohibited by the Sherman Act is present. Such action constitutes a
limitation on freedom of trade. Although arbitration may be appropriate for this industry, it may not be used
as a guise to enter into an unusual agreement to suppress normal competition. Affirmed.

ANALYSIS
At the time of this opinion, arbitration was not a favored remedy. The Federal Arbitration Act has since
reversed this judicial attitude. Even so, the present case certainly remains vital, as it deals with the boycott
aspect of the distributors’ (D) agreement.

Quicknotes
ARBITRATION An agreement to have a dispute heard and decided by a neutral third party, rather than through
legal proceedings.
COERCION The overcoming of a person’s free will as a result of threats, promises, or undue influence.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co.
Purchasing cooperative (D) v. Wholesale/retailer (P)
472 U.S. 284 (1985).

NATURE OF CASE: Appeal from decision finding per se antitrust violation.

FACT SUMMARY: Northwest Wholesale Stationers, Inc. (D) appealed from a decision of the court of
appeals that its expulsion of Pacific Stationery & Printing Co. (Pacific) (P) without procedural safeguards was
a group boycott limiting Pacific’s (P) ability to compete and was, therefore, a per se violation of § 1 of the
Sherman Act.

RULE OF LAW
Not all concerted refusals to deal should be characterized as group boycotts limiting the ability to
compete and therefore per se violative of § 1 of the Sherman Act, 15 U.S.C. 1.

FACTS: Northwest Wholesale Stationers, Inc. (Northwest) (D) was a purchasing cooperative, consisting of
approximately 100 office supply retailers, acting as a wholesaler and a warehousing concern for the retailers.
Pacific Stationery & Printing Co. (Pacific) (P) was a wholesaler and retailer of office supplies and had been a
member of Northwest since 1958. Northwest (D) had a provision in its bylaws prohibiting its members from
operating on both the wholesale and retail levels, but Pacific’s (P) rights were preserved by a grandfather
clause. When the controlling ownership of Pacific (P) changed, this change was not officially brought to the
attention of Northwest’s (D) directors, apparently in violation of its bylaws. In 1978 the membership of
Northwest (D) voted to expel Pacific (P). The parties disputed the reasons for the expulsion, Pacific (P)
contending that it was expelled because it maintained a wholesale operation. There was no evidence of any
competitive injury as a result of the expulsion. Pacific (P) brought suit in 1980, alleging that its expulsion from
Northwest (D) without procedural safeguards was therefore a per se violation of § 1 of the Sherman Act. The
district court disagreed and, applying the rule of reason, found no anticompetitive effect and granted summary
judgment for Northwest (D). The court of appeals reversed, finding a per se violation of § 1 of the Sherman
Act, and from this decision, Northwest (D) appealed.
ISSUE: Should all concerted refusals to deal be characterized as group boycotts limiting the ability to compete
and therefore per se violative of § 1 of the Sherman Act?
HOLDING AND DECISION: (Brennan, J.) No. Not all concerted refusals to deal should be characterized
as group boycotts limiting the ability to compete and therefore per se violative of § 1 of the Sherman Act.
While the court of appeals found the type of expulsion shielded by a mandate in the Robinson-Patman Act, it
also felt the rule of reason should apply, and in the absence of procedural safeguards, the Robinson-Patman
immunity did not shield the expulsion. But the focus of that inquiry is misdirected: the crucial question is
whether the decision to expel falls within a category that is conclusively presumed to be anticompetitive. Cases
relied on by the court of appeals evidence a broad mandate for self-regulation, but the mandate laid out in
Robinson-Patman cannot be construed as such. No narrowing of the Sherman Act is necessary in order to
accomplish the congressional policy of discretionary self-policing. Lack of procedural violations does not
convert challenged actions into per se violations of the Sherman Act. The existence of a purchasing
cooperative increases economic efficiency and tends to promote, rather than inhibit, competition. Expulsion
does not necessarily imply anticompetitive animus. Unless the cooperative (D) possesses market power or
exclusive access to an element essential to effective competition, the conclusion that expulsion is always
anticompetitive is not warranted. The district court appears to have followed the correct path of analysis and
in light of the absence of a showing of anticompetitive effect, properly entered judgment. Reversed and
remanded.

ANALYSIS
The Court’s opinion in the present case seems to evidence the intent to limit per se violations to currently
existing categories of anticompetitive practices. Strict adherence to this view will prevent the recognition of
new per se categories perhaps at the expense of administrative efficiency in the handling of antitrust claims.

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Quicknotes
BOYCOTT A concerted effort to refrain from doing business with a particular person or entity.
PER SE RULE Rule that business transactions which in themselves constitute restraints on trade obviate the
need to demonstrate an injury to competition in making out an antitrust case.
ROBINSON-PATMAN ACT Makes price discrimination unlawful if the intent is to harm competition.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
SUMMARY JUDGMENT Judgment rendered by a court in response to a motion by one of the parties, claiming
that the lack of a question of material fact in respect to an issue warrants disposition of the issue without
consideration by the jury.

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 FTC v. Indiana Federation of Dentists
Federal agency (P) v. Professional organization (D)
476 U.S. 447 (1986).

NATURE OF CASE: Appeal from an antitrust violation.

FACT SUMMARY: The Federal Trade Commission (FTC) (P) contended that the Indiana Federation of
Dentists (D) pursued an unfair method of competition by encouraging member dentists to refuse to submit
X-rays with insurance claim forms.

RULE OF LAW
A horizontal conspiracy to deprive consumers of a service by a professional organization violates
antitrust laws.

FACTS: The Indiana Federation of Dentists (D) encouraged its member dentists to refuse to send patient X-
rays to insurance companies, frustrating the latter’s ability to evaluate the necessity of proposed treatment. The
Federal Trade Commission (FTC) (P) concluded this eliminated competition among dentists willing to
provide X-rays and those unwilling to do so, and thus violated antitrust laws. The court of appeals reversed,
and the U.S. Supreme Court granted certiorari.
ISSUE: Does a horizontal conspiracy to deprive consumers of a service by a professional organization violate
antitrust laws?
HOLDING AND DECISION: (White, J.) Yes. A horizontal conspiracy to deprive consumers of a service
by a professional organization violates antitrust laws. In this case, if no conspiracy existed, some dentists
would refuse to send X-rays, and patients would be forced to go elsewhere or lose insurance benefits. Thus, an
element of competition existed on this point. The conspiracy eliminated this competition and violated the
antitrust laws. This conspiracy is analogous to a group boycott and is thus improper. Reversed.

ANALYSIS
Even though the issue in this case did not specifically involve the provision of dental services, the type of
anticompetitive action was viewed as sufficiently material to constitute a violation. The collection of
insurance benefits is a major part of modern health care, and the stated purpose of the concerted action in
this case was the maintenance of the dentists’ economic viability. A decrease in compensation could result
if the insurer insisted upon a less expensive yet effective alternative treatment. The absence of insurance
benefits renders the dentist less favorable to the consumer, and thus the issue in this case was material.

Quicknotes
BOYCOTT A concerted effort to refrain from doing business with a particular person or entity.
CERTIORARI A discretionary writ issued by a superior court to an inferior court in order to review the lower
court’s decisions; the Supreme Court’s writ ordering such review.
HORIZONTAL CONSPIRACY Agreement entered into by entities at the same level of production for the purpose
of restraining trade.

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 Associated Press v. United States
Publishers’ cooperative (D) v. Federal government (P)
326 U.S. 1 (1945).

NATURE OF CASE: Antitrust action under the Sherman Act.

FACT SUMMARY: The bylaws of the Associated Press (AP) (D) restricted the ability of members to sell
AP news to nonmembers and granted members the right to block the admission of new members.

RULE OF LAW
When competitors band together, to deny their joint product to others, the practice violates the
Sherman Act.

FACTS: The Associated Press (AP) (D) was the largest news gathering agency in the United States. Its
members pooled their individual news gathering facilities for the common benefit of all members. AP’s (D)
bylaws prohibited the sale of AP news to any nonmember. Members are also given the power to block
membership applications of nonmembers. The Government (P) brought an antitrust action against AP (D)
alleging that its bylaws violated the Sherman Act since they constituted an unreasonable restraint of
competition. AP (D) alleged that it did not occupy a monopoly position in the market; other comparable
alternative services were available; individuals should be allowed to determine with whom they wish to
associate and to whom they wish to sell their product; and the public suffered no injury since it could read AP
(D) news in any member newspaper. The district court found that the bylaws constituted a prima facie
violation of the Sherman Act regardless of any actions pursuant to them.
ISSUE: May, competitors band together to deny their product to third parties?
HOLDING AND DECISION: (Black, J.) No. A business may deal with whomever it chooses. However,
this freedom does not extend to combinations formed to restrict access of their joint product to third parties;
where many entities combine to restrict their competitive market the practice violates the Sherman Act. A
monopoly is not required. The Sherman Act does not require that the government wait until the monopoly
has been accomplished. Thus, the fact that alternatives to AP (D) exist is immaterial. Through its members,
AP (D) controls a large share of the news gathering and reporting market. AP’s (D) bylaws not only foreclose
access to such news to nonmembers, but it also allows members to block membership in AP (D). Both of
these practices constitute unreasonable and impermissible restraints on competition on their face, regardless of
their actual effect. These restraints also have the effect of blocking potential entrants into the field by creating
roadblocks to such entry. The fact that the public can obtain AP (D) news is also immaterial. The public’s
choice of newspapers has been unreasonably restricted. It is the combination which is unlawful with its
potential for injury to competition. Independent businesses may not associate to stifle competition. The
bylaws are unlawful, and an injunction against them, adherence to them by members or similar bylaws is
issued. Affirmed.

ANALYSIS
In Dalmo Sales Co. v. Tysons Corner Regional Shopping Center, 308 F. Supp. 988 (D.D.C. 1970), the court
refused to issue an injunction against a shopping center which refused to allow discount stores space. Three
department store tenants and the center agreed that discount stores would be excluded. The court held that
this was not a combination in restraint of trade.

Quicknotes
COMBINATION (ANTITRUST DEFINITION) Alliance of entities, for the purpose of impeding free trade, that
results in a monopoly, suppression of competition, or affecting prices.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or

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service.
PRIMA FACIE An action in which the plaintiff introduces sufficient evidence to submit an issue to the judge or
jury for determination.
RESTRAINT OF COMPETITION Agreement between entities, for the purpose of impeding free trade, that result
in a monopoly, the suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 Missouri v. National Organization for Women
State (P) v. Women’s organization (D)
620 F.2d 1301 (8th Cir. 1980), cert. denied, 449 U.S. 842 (1980).

NATURE OF CASE: Appeal from dismissal of action for damages under the Sherman Act.
FACT SUMMARY: The National Organization for Women (D) urged organizations not to hold their
conventions in Missouri until Missouri (P) ratified the Equal Rights Amendment.

RULE OF LAW
Using a boycott in a noncompetitive political arena for the purpose of influencing legislation is not
proscribed by the Sherman Act.

FACTS: In response to Missouri’s failure to ratify the Equal Rights Amendment, the National Organization
for Women (NOW) (D) organized a convention boycott of Missouri (P) products and facilities. The State of
Missouri (P) filed an action, contending that the boycott violated § 1 of the Sherman Act. The district court
held no violation to have occurred and dismissed the case. Missouri (P) appealed.
ISSUE: Is a boycott, politically motivated to achieve a legislative goal, proscribed by the Sherman Act?
HOLDING AND DECISION: (Stephenson, J.) No. Using a boycott in a noncompetitive political arena for
the purpose of influencing legislation is not proscribed by the Sherman Act. The focus of the Sherman Act is
upon commercial activity. When the goal of economic activity is political rather than commercial, application
of the Sherman Act would not further the purpose behind the law. Further, to apply the Act to politically
motivated activities would raise serious First Amendment concerns. Had Congress intended to enter such a
constitutionally sensitive area, it would have explicitly done so. In this case, NOW’s (D) efforts to influence
the legislature’s action on the Equal Rights Amendment are beyond the scope and intent of the Sherman Act.
NOW’s (D) boycott activities are privileged based on the First Amendment right to petition and the U.S.
Supreme Court’s recognition of that important right when it collides with the commercial effects of trade
restraints. Affirmed.

ANALYSIS
The Supreme Court arrived at a similar conclusion in a subsequent case, NAACP v. Claiborne Hardware
Co., 458 U.S. 886 (1982). The Court found that a civil rights boycott by the NAACP against local store
owners was entitled to First Amendment protection, insofar as assembly, petition, and speech were used to
further the boycott’s aims. The purpose of the NAACP was not to destroy the legitimate competition, but
to influence governmental action to further social and racial justice.

Quicknotes
BOYCOTT A concerted effort to refrain from doing business with a particular person or entity.
EQUAL RIGHTS AMENDMENT Its passage would have mandated a stricter review of classifications based on sex,
but it failed to gain the support of thirty-eight states necessary for adoption.
FIRST AMENDMENT Prohibits Congress from enacting any law respecting an establishment of religion,
prohibiting the free exercise of religion, abridging freedom of speech or the press, the right of peaceful
assembly and the right to petition for a redress of grievances.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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103
 Quick Reference Rules of Law
1. Setting Vertical Minimum Prices. Vertical price restraints are to be judged by the rule of reason and are
not per se illegal. (Leegin Creative Leather Products, Inc. v. PSKS, Inc., dba Kay’s Kloset … Kay’s
Shoes)

2. The Colgate Doctrine. So long as no monopoly is present, a manufacturer is free to impose conditions
on retailers as a condition precedent to further sales. (United States v. Colgate & Co.)

3. Vertical Maximum Price Fixing. Vertical maximum price fixing is not a per se violation of § 1 of the
Sherman Act. (State Oil Company v. Khan)

4. Dealer Termination. To state a cause of action for price-fixing a plaintiff distributor must prove that
the manufacturer and other distributors were acting in concert to illegally fix prices. (Monsanto Co. v.
Spray-Rite Service Corp.)

5. Territorial and Customer Restraints. A nonprice vertical restraint should be judged under the rule of
reason. (Continental T.V., Inc. v. GTE Sylvania, Inc.)

6. Exclusive Dealing under the Rule of Reason. Where the buyer and seller are in the same state, the
relevant market may still be found to be regional or even national. (Tampa Electric Co. v. Nashville
Coal Co.)

7. Per Se Rule for Tying Arrangements. A tying arrangement is only illegal under the Sherman Act where
a monopolistic position is held and a substantial volume of commerce in the “tied” product is restrained.
(Times-Picayune Publishing Co. v. United States)

8. Per Se Rule for Tying Arrangements. Where a seller exercises economic dominance over a market so
that the purchaser’s free exercise of judgment is curtailed, no tying arrangements are permissible.
(Northern Pacific Railway v. United States)

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 9. Tying Product Power and Anticompetitive Effects. Tie-in agreements are illegal only if the market
power of the owner of the tying product allows him to unilaterally affect prices. (Jefferson Parish
Hospital District No. 2 v. Hyde)

10. Tying Product Power and Anticompetitive Effects. Lack of market power as to primary equipment
does not preclude market power in derivative aftermarkets. (Eastman Kodak Co. v. Image Technical
Services, Inc.)

11. Tying Product Power and Anticompetitive Effects. A product is integrated where it combines the
functionalities of two separate products to produce benefits that only the unified combination can
achieve. (United States v. Microsoft Corp.)

12. Tying Product Power and Anticompetitive Effects. The rule of reason, rather than per se analysis,
governs the legality of tying arrangements involving platform software products. (United States v.
Microsoft Corp.)

13. Tying and Intellectual Property. The mere fact that a tying product is patented does not support the
presumption of market power in the patented product. (Illinois Tool Works, Inc. v. Independent Ink,
Inc.)

14. Full System Contracts and Franchise Arrangements. A full system sales unit may be reasonable where
there are legitimate reasons for selling normally separate items in a combined form and economic
conditions justify a policy of compulsory service. (United States v. Jerrold Electronics Corp.)

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 Leegin Creative Leather Products, Inc. v. PSKS, Inc., dba Kay’s Kloset …
Kay’s Shoes
Manufacturer (D) v. Retailer (P)
551 U.S. 877 (2007).

NATURE OF CASE: Appeal from judgment finding a per se violation of § 1 of the Sherman Act.
FACT SUMMARY: Leegin Creative Leather Products, Inc. (Leegin) (D) stopped selling to PSKS, Inc.’s
(PSKS’s) (P) Kay’s Kloset store when Leegin (D) discovered that Kay’s Kloset had been marking down
Leegin’s (D) goods, and PSKS (P) sued for violation of § 1 of the Sherman Act. Leegin (D) contended that
the U.S. Supreme Court’s longstanding rule of per se illegality for vertical price restrains should be overruled
and replaced with a rule of reason.

RULE OF LAW
Vertical price restraints are to be judged by the rule of reason and are not per se illegal.

FACTS: Given its policy of refusing to sell to retailers that discounted its goods, including its Brighton line
of fashion accessories, below suggested prices, Leegin Creative Leather Products, Inc. (Leegin) (D) stopped
selling to PSKS, Inc.’s (PSKS’s) (P) Kay’s Kloset store when Leegin (D) discovered that Kay’s Kloset had
been marking down the entire Brighton line. PSKS (P) filed suit, alleging, inter alia, that Leegin (D) violated
the antitrust laws by entering into vertical agreements with its retailers to set minimum resale prices. The U.S.
Supreme Court granted certiorari in the case, and Leegin (D) contended that the Court’s longstanding rule of
per se illegality for vertical price restrains should be overruled and replaced with a rule of reason. [The
procedural posture of the case is not indicated in the casebook extract.]
ISSUE: Are vertical price restraints to be judged by the rule of reason and are not per se illegal?
HOLDING AND DECISION: (Kennedy, J.) Yes. Vertical price restraints are to be judged by the rule of
reason and are not per se illegal. This case raises the issue of whether the rule of per se illegality for vertical
price restraints, first handed down in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911),
should be replaced with a rule of reason. The accepted standard for testing whether a practice restrains trade
in violation of § 1 is the rule of reason, which requires the fact finder to weigh “all of the circumstances,”
including “specific information about the relevant business” and “the restraint’s history, nature, and effect.”
Resort to per se rules is confined to restraints “that would always or almost always tend to restrict competition
and decrease output.” Thus, a per se rule is appropriate only after courts have had considerable experience with
the type of restraint at issue, and only if they can predict with confidence that the restraint would be
invalidated in all or almost all instances under the rule of reason. Accordingly, any departure from the rule-of-
reason standard must be based on demonstrable economic effects rather than on formalistic line drawing. The
reasons upon which Dr. Miles relied, including a treatise published in 1628, do not justify a per se rule
governing the American economy today, given that those reasons did not consider economic effects or
procompetitive effects, of vertical price restraints. Therefore, 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. Economics literature is replete with procompetitive justifications for a
manufacturer’s use of resale price maintenance, and the few recent studies on the subject also cast doubt on
the conclusion that the practice meets the criteria for a per se rule. The justifications for vertical price
restraints are similar to those for other vertical restraints. Minimum resale price maintenance can stimulate
interbrand competition among manufacturers selling different brands of the same type of product by reducing
intrabrand competition among retailers selling the same brand. This is important because the antitrust laws’
primary purpose is to protect interbrand competition. A single manufacturer’s use of vertical price restraints
tends to eliminate intrabrand price competition; this in turn encourages retailers to invest in services or
promotional efforts that aid the manufacturer’s position as against rival manufacturers. Resale price
maintenance may also give consumers more options to choose among low-price, low-service brands; high-
price, high-service brands; and brands falling in between. Absent vertical price restraints, retail services that
enhance interbrand competition might be underprovided because discounting retailers can free ride on
retailers who furnish services and then capture some of the demand those services generate. Retail price

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maintenance can also increase interbrand competition by facilitating market entry for new firms and brands
and by encouraging retailer services that would not be provided even absent free riding. Setting minimum
resale prices may also have anticompetitive effects; and unlawful price fixing, designed solely to obtain
monopoly profits, is an ever-present temptation. Resale price maintenance may, for example, facilitate a
manufacturer cartel or be used to organize retail cartels. It can also be abused by a powerful manufacturer or
retailer. Thus, the potential anticompetitive consequences of vertical price restraints must not be ignored or
underestimated. Notwithstanding the risks of unlawful conduct, it cannot be stated with any degree of
confidence that retail price maintenance “always or almost always tend[s] to restrict competition and decrease
output.” Vertical retail-price agreements have either procompetitive or anticompetitive effects, depending on
the circumstances in which they were formed; and the limited empirical evidence available does not suggest
efficient uses of the agreements are infrequent or hypothetical. A per se rule should not be adopted for
administrative convenience alone. Such rules can be counterproductive, increasing the antitrust system’s total
cost by prohibiting procompetitive conduct the antitrust laws should encourage. And a per se rule cannot be
justified by the possibility of higher prices absent a further showing of anticompetitive conduct. The antitrust
laws primarily are designed to protect interbrand competition from which lower prices can later result. The
argument for a per se rule overlooks that, in general, the interests of manufacturers and consumers are aligned
with respect to retailer profit margins. Resale price maintenance has economic dangers. If the rule of reason
were to apply, courts would have to be diligent in eliminating their anticompetitive uses from the market.
Factors relevant to the inquiry are the number of manufacturers using the practice, the restraint’s source, and a
manufacturer’s market power. The rule of reason is designed and used to ascertain whether transactions are
anticompetitive or procompetitive. This standard principle applies to vertical price restraints. As courts gain
experience with these restraints by applying the rule of reason over the course of decisions, they can establish
the litigation structure to ensure the rule operates to eliminate anticompetitive restraints from the market and
to provide more guidance to businesses. Moreover, stare decisis does not compel continued adherence to the
per se rule here. Because the Sherman Act is treated as a common-law statute, its prohibition on restraints of
trade evolves to meet the dynamics of present economic conditions. The rule of reason’s case-by-case
adjudication implements this common-law approach. Here, respected economics authorities suggest that the
per se rule is inappropriate. Also, both the 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
agreements—recommend replacing the per se rule with the rule of reason. In addition, this Court has
“overruled [its] precedents when subsequent cases have undermined their doctrinal underpinnings.” It is not
surprising that the Court has distanced itself from Dr. Miles’ rationales, because the case was decided not long
after the Sherman Act was enacted, when the Court had little experience with antitrust analysis. Only eight
years after Dr. Miles, the Court reined in the decision, holding that a manufacturer can suggest resale prices
and refuse to deal with distributors who do not follow them. More recently, the Court has tempered, limited,
or overruled once strict nonprice vertical restraint prohibitions. The Dr. Miles rule is also inconsistent with a
principled framework for it makes little economic sense when analyzed with the Court’s other vertical restraint
cases. Deciding that procompetitive effects of resale price maintenance are insufficient to overrule Dr. Miles
would call into question cases those other cases. Finally, PSKS’s (P) arguments for reaffirming Dr. Miles based
on stare decisis do not require a different result, as there is little economic justification for the current
differential treatment of vertical price and nonprice restraints. In sum, the per se rule for vertical price
restraints is a flawed antitrust doctrine that does not serve the interests of consumers. Accordingly, Dr. Miles
is overruled, and vertical price restraints are to be judged according to the rule of reason. [Reversed.]
DISSENT: (Breyer, J.) The economic arguments the majority uses to justify disregarding principles of stare
decisis have been know for over half a century, yet Congress has repeatedly found in these argument
insufficient grounds for overturning the per se rule. The problem with these economics-based arguments is
that sometimes they point to beneficial aspects of vertical price restraints and sometimes they point to
anticompetitive consequences. For example agreements setting minimum resale prices may have serious
anticompetitive effects by diminishing or eliminating price competition among dealers of single or multiple
brands. Such agreements can also help reinforce competition-inhibiting behaviors of companies in
concentrated industries. Empirical studies have shown that in most cases resale price maintenance tends to
produce higher consumer prices than would otherwise be the case. On the other hand, there are
procompetitive consumer benefits that may arise from such agreements, including the facilitation of new entry
and elimination of free riding. Moreover, where a producer and not a group of dealers, seeks a resale price
maintenance agreement, there can be procompetitive benefits because, other things being equal, producers
should want to encourage price competition among their dealers. By doing so they will often increase profits
by selling more of their product. However, because law, unlike economics, is an administrative system based

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on rules and precedents, before concluding that courts should apply a rule of reason, the frequency of benefits
vs. harms should be determined. Because it is not easy for courts to identify instances in which the benefits are
unlikely to outweigh potential harms, Dr. Miles’s bright-line, century-old rule should be retained. Without
such a rule, it might be impractical for enforcement officials to bring criminal proceedings, and since
enforcement resources are limited, that loss may tempt some producers or dealers to enter into agreements
that are, on balance, anticompetitive. Additionally, the ordinary criteria for overruling an earlier case have not
been met here. First, this is a statutory case, rather than a constitutional case, and the Court applies stare
decisis more rigidly to statutory cases. Second, the case being overruled, and all the cases that have affirmed it,
is 100 years old; Dr. Miles is not a new decision that may have been wrongly decided. Third, the per se rule
has not created an unworkable legal regime. To the contrary, the administration of the per se rule has been
practical. Fourth, the per se rule is well-settled. Fifth, because contract rights and possibly property rights are
at issue militates against overruling, as does longstanding reliance on the rule by Congress and entire sectors of
the economy. The majority wrongly minimizes the importance of this reliance and its impact on consumers.
Sixth, the fact that a rule of law has become “embedded” in our “national culture” argues strongly against
overruling. The only stare decisis justification the majority provides for overturning Dr. Miles is that the Court
has treated the Sherman Act as a common-law statute. However, the common law tradition would not have
permitted overruling Dr. Miles, as common-law courts rarely overruled well-established earlier rules outright.
Modifying the per se rule to make an exception, for example, for new entry, would be consistent with the
common law tradition, but not the approach adopted by the majority. In sum, every state decisis concern the
Court has hitherto mentioned counsels against overruling here.

ANALYSIS
The effect of the per se rule on antitrust cases is that proof of market power or anticompetitive effects is
not necessary. Thus, under the per se rule, evidence of procompetitive effects is excluded, and here, the
district court excluded such evidence and the court of appeals affirmed. Under a rule of reason, such
evidence would be admitted. Accordingly, the case was remanded for the court’s weighing of this and other
evidence as to market power and anticompetitive or procompetitive effects.

Quicknotes
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
STARE DECISIS Doctrine whereby courts follow legal precedent unless there is good cause for departure.
VERTICAL AGREEMENTS Agreements entered into by entities at different levels of production for the purpose
of restraining trade.

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 United States v. Colgate & Co.
Federal government (P) v. Manufacturer (D)
250 U.S. 300 (1919).

NATURE OF CASE: Antitrust action for price controls.

FACT SUMMARY: Colgate & Co. (D) informed retailers that it would refuse to sell to them if they failed
to follow Colgate’s price list.

RULE OF LAW
So long as no monopoly is present, a manufacturer is free to impose conditions on retailers as a
condition precedent to further sales.

FACTS: Colgate & Co. (Colgate) (D) refused to sell its products to retailers who refused to abide by
Colgate’s price list. The Government (P) charged that such practices violated the Sherman Act as a restraint
on trade and competition. The trial court found that Colgate (D) had no monopolistic control of the market.
It had the power and right to deal with anyone it chose. While the retailers could sell to anyone they chose,
Colgate (D) was also free to not deal with retailers not conforming to price schedules.
ISSUE: May, a manufacturer make the adherence to price schedules a condition precedent to further orders?
HOLDING AND DECISION: (McReynolds, J.) Yes. Colgate (D) does not control the market. The public
may buy numerous “like-kind” products. Colgate (D) is free to sell to anyone it wishes. If it wishes to impose
price schedules on retailers carrying its products, it may do so if no formal agreement exists which requires or
restricts the retailer’s freedom. The coercive practice of refusing to deal with retailers not following price
schedules is within Colgate’s (D) power to deal as it chooses with its products. This practice does not violate
antitrust law. Affirmed.

ANALYSIS
Colgate hinges on the fact that the retailer is not obligated to follow price lists. However, if a retailer wishes
to continue carrying Colgate’s (D) products, it must accede to the price schedule. Price-fixing agreements
violate antitrust law and are unenforceable. It is difficult to see the difference between the two forms of
price-fixing. Both are equally anticompetitive and the sanction for the violation of either form is a
withholding of future orders. The Court is engaged in an argument over semantics.

Quicknotes
CONDITION PRECEDENT The happening of an uncertain occurrence, which is necessary before a particular
right or interest may be obtained or an action performed.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
PRICE-FIXING An illegal combination in violation of the Sherman Antitrust Act entered into for the purpose
of setting prices below the natural market rate.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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110
 State Oil Company v. Khan
Lessor (D) v. Lessee (P)
522 U.S. 3 (1997).

NATURE OF CASE: Action alleging violation of § 1 of the Sherman Act.

FACT SUMMARY: Khan (P) claimed that State Oil Company (D) violated § 1 of the Sherman Act by
preventing Khan (P) from raising or lowering gas prices.

RULE OF LAW
Vertical maximum price fixing is not a per se violation of § 1 of the Sherman Act.

FACTS: Khan (P) entered into an agreement with State Oil Company (D) to lease and operate a gas station
and convenience store. The agreement provided that Khan (P) would obtain the station’s gasoline supply from
State Oil (D) at a price equal to the suggested retail price set by State Oil (D), less a margin of 3.25 cents a
gallon. Khan (P) fell behind in lease payments and State Oil (D) brought eviction proceedings. Khan (P)
brought suit alleging State Oil (D) had engaged in price fixing in violation of § 1 of the Sherman Act by
preventing Khan (P) from raising or lowering gas retail prices. The district court entered summary judgment
for State Oil (D) on the basis that Khan (P) failed to state a per se Sherman Act violation or antitrust injury or
harm to competition. The court of appeals reversed and the U.S. Supreme Court granted certiorari.
ISSUE: Is vertical maximum price fixing a per se violation of § 1 of the Sherman Act?
HOLDING AND DECISION: (O’Connor, J.) No. Vertical maximum price fixing is not a per se violation
of § 1 of the Sherman Act. The Court in Albrecht v. Herald Co., 390 U.S. 145 (1968), held that vertical
maximum price fixing is a per se violation of that statute. In reconsidering this decision, the Court has
recognized that low prices benefit consumers regardless of how those prices are set, so long as they are above
predatory levels and do not threaten competition. Thus it is difficult to maintain that vertically imposed
maximum prices could harm consumers or competition to the extent necessary to justify their per se
invalidation, but rather could exacerbate problems related to the unrestrained exercise of market power by
monopolist-dealers. Therefore, vertical maximum price fixing should be evaluated under the rule of reason.

ANALYSIS
Section 1 violations are typically analyzed under a rule-of-reason approach, requiring the fact finder to
decide whether the practice in issue poses an unreasonable restraint on trade, taking into account certain
factors. Per se treatment is only appropriate once the court’s experience with a particular type of restraint
allows it to predict with confidence that the rule of reason will forbid it. Courts are reluctant to adopt per
se rules.

Quicknotes
CERTIORARI A discretionary writ issued by a superior court to an inferior court in order to review the lower
court’s decisions; the Supreme Court’s writ ordering such review.
PER SE RULE Rule that business transactions which in themselves constitute restraints on trade obviate the
need to demonstrate an injury to competition in making out an antitrust case.
PRICE-FIXING An illegal combination in violation of the Sherman Antitrust Act entered into for the purpose
of setting prices below the natural market rate.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
SUMMARY JUDGMENT Judgment rendered by a court in response to a motion by one of the parties, claiming
that the lack of a question of material fact in respect to an issue warrants disposition of the issue without
consideration by the jury.

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112
 Monsanto Co. v. Spray-Rite Service Corp.
Manufacturer (D) v. Distributor (P)
465 U.S. 752 (1984).

NATURE OF CASE: Appeal from award held that Spray-Rite Service Corp. (P) survived a directed verdict
by showing Monsanto Co. (D) terminated its price-cutting distributorship in response to complaints from
other distributors.
FACT SUMMARY: Monsanto Co. (D) contended that, for it to be shown that it had engaged in price-
fixing with its distributors, evidence that they were acting in concert with each other was required.

RULE OF LAW
To state a cause of action for price-fixing a plaintiff distributor must prove that the manufacturer and
other distributors were acting in concert to illegally fix prices.

FACTS: Spray-Rite Service Corp. (Spray-Rite) (P) was a distributor of herbicides, some of which were
manufactured by Monsanto Co. (D). Monsanto (D) canceled Spray-Rite’s (P) distributorship, and Spray-Rite
(P) sued, contending the cancellation was induced by complaints from other Monsanto (D) distributors
concerning the low price at which Spray-Rite (P) sold the products. It contended this showed a price-fixing
scheme in violation of the Sherman Act. Monsanto (D) moved for a directed verdict on the basis that Spray-
Rite (P) had failed to meet its burden of proving a price-fixing scheme. The jury found for Spray-Rite (P),
and the court of appeals affirmed the denial of the directed verdict motion. The U.S. Supreme Court granted
certiorari.
ISSUE: Can a cause of action for price-fixing be stated merely by showing a distributorship was canceled due
to price-cutting complaints from other distributors to the manufacturer?
HOLDING AND DECISION: (Powell, J.) No. To state a cause of action for price-fixing, a plaintiff
distributor must prove that the manufacturer and the other distributors were acting in concert to illegally fix
prices. The evidentiary standard adopted by the appellate court ignores the danger of failing to distinguish
between independent action of the manufacturer and illegal price-fixing. Illegal price-fixing requires more
than a showing of cancellation due to distributor complaints. It requires a showing of concerted action. Thus,
the standard adopted by the court of appeals was inadequate. However, evidence was presented to show
Monsanto (D) had in fact threatened price-cutting distributors with cancellation. Such distributors then
agreed to sell at Monsanto’s (D) price. This clearly established the requisite concerted action. Affirmed.
CONCURRENCE: (Brennan, J.) The Court correctly upholds long-standing precedent in reaffirming the
rule upon which it relied today.

ANALYSIS
It must be borne in mind that not all activities jointly undertaken by manufacturers and distributors are
illegal. Nonprice restrictions may be improved by the manufacturer and agreed to by distributors without
running afoul of the antitrust laws. These restrictions may of course cross the line of prohibition and are,
therefore, judged by the “Rule of Reason.” Concerted actions relating to price are per se illegal.

Quicknotes
CERTIORARI A discretionary writ issued by a superior court to an inferior court in order to review the lower
court’s decisions; the Supreme Court’s writ ordering such review.
DIRECTED VERDICT A verdict ordered by the court in a jury trial.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as

113
demonstrated by actual harm.

114
 Continental T.V., Inc. v. GTE Sylvania, Inc.
Franchisee (D) v. Franchisor (P)
433 U.S. 36 (1977).

NATURE OF CASE: Appeal from reversal of an award for damages in an action based on restraint of trade.
FACT SUMMARY: GTE Sylvania, Inc. (P), a manufacturer, argued that its prohibition against the sale of
its products other than from specified locations should be analyzed under the rule of reason, while
Continental T.V., Inc. (D), its franchisee, recommended a per se approach.

RULE OF LAW
A nonprice vertical restraint should be judged under the rule of reason.

FACTS: To increase its declining market share in national television sales, GTE Sylvania, Inc. (Sylvania) (P)
adopted a franchise plan, limiting the number of franchises for any given area and requiring each franchisee to
sell his Sylvania (P) products only from the location or locations at which he was franchised. One of Sylvania’s
(P) franchisees, Continental T.V., Inc. (Continental) (D), protested Sylvania’s (P) decision to grant a new
franchise only a mile from Continental’s (D) San Francisco location. Sylvania (P) later denied Continental’s
(D) application for a franchise in Sacramento. As relations between the two deteriorated, Sylvania (P) reduced
Continental’s (D) credit line, after which Continental (D) withheld all payments owed. Sylvania (P)
terminated Continental’s (D) franchises and filed a diversity action to recover the moneys owed and the
secured merchandise held by Continental (D). Continental (D) filed a cross-claim, alleging restraint of trade
in violation of the Sherman Act. The jury was instructed that, if it found territorial restrictions on Sylvania’s
(P) part, it must conclude that a per se violation of the Sherman Act had occurred. The jury did so find and
awarded damages to Continental (D). The court of appeals reversed, having concluded that a rule of reason
applied. Continental (D) appealed.
ISSUE: Should a nonprice vertical restraint be judged under the rule of reason?
HOLDING AND DECISION: (Powell, J.) Yes. A nonprice vertical restraint should be judged under the
rule of reason. The district court’s jury instruction in this case was based on the rationale of United States v.
Arnold, Schwinn & Co., 388 U.S. 365 (1967). However, per se rules of illegality like the one stated in Schwinn
are appropriate only when they relate to conduct that is manifestly anticompetitive. Vertical restrictions like
Sylvania’s (P) location clause promote interbrand competition by allowing the manufacturer to achieve certain
efficiencies in the distribution of his products. These “redeeming virtues” are implicit in every decision
sustaining vertical restrictions under the rule of reason. Because there is no persuasive support for expanding
the per se rule of Schwinn, it must be overruled. Thus, the rule of reason governs the vertical restriction at
issue here, and the decision of the court of appeals is affirmed.
CONCURRENCE: (White, J.) While the location clause at issue here is not a per se violation of the
Sherman Act and should be judged under the rule of reason, this result does not require overruling Schwinn.
This case is distinguishable from Schwinn because Sylvania’s (P) conduct carried with it less potential for
restraint of intrabrand competition and more potential for stimulating interbrand competition.

ANALYSIS
Section 1 of the Sherman Act prohibits every contract, combination, or conspiracy in restraint of trade or
commerce. Since the early years of this century, a judicial gloss on the statutory language of § 1 of the
Sherman Act has established the “rule of reason” as the prevailing standard of analysis. The Court noted
that the great weight of scholarly opinion had been critical of the Schwinn decision, and a number of the
federal courts confronted with analogous vertical restrictions had sought to limit its reach.

Quicknotes
COMBINATION (ANTITRUST DEFINITION) Alliance of entities, for the purpose of impeding free trade, that
results in a monopoly, suppression of competition, or affecting prices.

115
CONSPIRACY Concerted action by two or more persons to accomplish some unlawful purpose.
DIVERSITY ACTION An action commenced by a citizen of one state against a citizen of another state or against
an alien, involving an amount in controversy of $10,000 or more, over which the federal court has jurisdiction.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

116
 Tampa Electric Co. v. Nashville Coal Co.
Public utility (D) v. Coal company (P)
365 U.S. 320 (1961).

NATURE OF CASE: Defense under § 3 of the Clayton Act to a breach of contract action.
FACT SUMMARY: Tampa Electric Co. (D) entered into a 20-year coal requirements contract with
Nashville Coal Co. (P).

RULE OF LAW
Where the buyer and seller are in the same state, the relevant market may still be found to be regional
or even national.

FACTS: Tampa Electric Co. (Tampa) (D) entered into a 20-year contract with Nashville Coal Co. (P) to
purchase all of its coal requirements to operate its generators. Tampa (D) subsequently refused to honor its
contract and commitments. Nashville Coal (P) sued, and Tampa (D) alleged as a defense that the contract
violated § 3 of the Clayton Act. Tampa (D) alleged that its obligation foreclosed a substantial share of the
Florida coal market to competitors. The court found that the relevant market was Florida and the contract
involved 18 percent of the total coal sold there. Summary judgment was rendered in favor of Tampa (D) on
this basis. Nashville Coal (P) appealed alleging that the relevant market was composed of a number of
Southern states and the contract only constituted a small share of this market.
ISSUE: Where the buyer and seller are from the same state, should the state rather than the natural multistate
market be deemed the relevant market for antitrust purposes?
HOLDING AND DECISION: (Clark, J.) No. In determining the appropriate market it is necessary to
consider the area in which the seller and its competitors do business. An artificial market based on the seller
and purchaser cannot be created. Here, Nashville Coal (P) does business in an area composed from several
states. Its contract with Tampa (D) constitutes less than one percent of this larger market. It is immaterial
that the contract, over the 20-year period, will be worth $128 million. The total sales in the relevant market
exceed $1 billion per year. Moreover, utilities must be able to obtain adequate power sources to operate their
generators. The public’s need for power must be protected. Requirements contracts are not per se unlawful
and will only be violative of § 3 where they foreclose a substantial share of the market. The contract herein has
no such anticompetitive effect. Reversed.

ANALYSIS
Tampa Electric differs from most exclusive dealings cases in that Tampa (D) sought the long-term contract.
It then sought to escape from its liabilities by alleging that antitrust law had been violated. It would seem
that where a buyer requests a long-term contract, antitrust policy should not be violated. Tampa (D) was
not attempting any anticompetitive practice. It appears that the court focused on the activities of the wrong
party in deciding this case.

Quicknotes
BREACH OF CONTRACT Unlawful failure by a party to perform its obligations pursuant to contract.
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anti-competitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
REQUIREMENTS CONTRACT An agreement pursuant to which one party agrees to purchase all his required
goods or services from the other party exclusively for a specified time period.
SUMMARY JUDGMENT Judgment rendered by a court in response to a motion by one of the parties, claiming
that the lack of a question of material fact in respect to an issue warrants disposition of the issue without

117
consideration by the jury.

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 Times-Picayune Publishing Co. v. United States
Publishing company (D) v. Federal government (P)
345 U.S. 594 (1953).

NATURE OF CASE: Action to enjoin an advertising tying arrangement.

FACT SUMMARY: In order to place an ad in the Times-Picayune, the only morning paper in New Orleans,
an ad had to be placed in an affiliated afternoon paper.

RULE OF LAW
A tying arrangement is only illegal under the Sherman Act where a monopolistic position is held and
a substantial volume of commerce in the “tied” product is restrained.

FACTS: The Times-Picayune Publishing Co. (Times-Picayune) (D) published the only morning paper in
New Orleans. The city had two afternoon papers, the States (affiliated with the Times-Picayune) and the Item.
In order to secure more advertising for the States, Times-Picayune (D) required that all advertising placed in
the Times-Picayune also be placed in the States. The Government (P) brought suit under § 1 of the Sherman
Act, alleging that this was an impermissible restraint on commerce and competition. The district court
granted an injunction, finding that many advertisers could not afford to place ads in both afternoon papers
and were forced to use the States if they wished to advertise in the Times-Picayune (D). Times-Picayune (D)
argued that it was not a monopoly and therefore the tying arrangement did not violate the Sherman Act.
ISSUE: Where no monopoly is present, does a tying arrangement which restrains trade violate the Sherman
Act?
HOLDING AND DECISION: (Clark, J.) No. To violate § 1 of the Sherman Act, both a monopolistic
position must be held and free commerce in the “tied” product must be restrained. To establish a monopolistic
condition only the Times-Picayune’s dominance may be considered. The Times-Picayune controlled only about
40 percent of the advertising dollars spent on newspaper ads. This was not a dominant position in the market
since if split in thirds, its share would be 33 percent. This small increment over average did not give the
Times-Picayune the type of dominance over the market which the Sherman Act’s prohibitions are directed at.
It had no copyright or patent on the news and advertisers were free to reject the “package deal” and to
advertise in the Item. If the Government (P) had brought its action under § 3 of the Clayton Act it would
only have had to prove monopolistic dominance or a significant restraint, not both as is required under the
Sherman Act. Here, legitimate business aims caused the tying arrangement. The mere refusal to sell one’s
product or service is not a per se violation. Reversed.

ANALYSIS
Market dominance is presumed where a patented or copyrighted article is involved. The position in the
Times-Picayune case of economic dominance has been gradually eroded by such cases as Northern Pacific
Railway Co. v. U.S., 356 U.S. 1 (1958) and U.S. v. Loew’s, Inc., 371 U.S. 38, 45-47 (1962). These cases
held that sufficient economic power with respect to the tying product was sufficient. This is an amorphous
standard involving the buyer’s freedom of choice.

Quicknotes
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.
TYING CONTRACT An agreement that a seller will only sell a specified product to a buyer if the buyer also
agrees to purchase another product.

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 Northern Pacific Railway v. United States
Railroad (D) v. Federal government (P)
356 U.S. 1 (1958).

NATURE OF CASE: Action to enjoin tying agreements in leases and deeds to real property.
FACT SUMMARY: Northern Pacific Railway (D) sold a vast amount of land containing preferential
shipping agreements to various purchasers.

RULE OF LAW
Where a seller exercises economic dominance over a market so that the purchaser’s free exercise of
judgment is curtailed, no tying arrangements are permissible.

FACTS: As an inducement to build a railroad, Northern Pacific Railway (Railway) (D) was given vast
amounts of land by the Government (P) and a number of states. It later sold or leased a large portion of this
land. As a condition of lease or sale it was agreed that any shipping to be done would be given to the railroad
if it met the price of competitors and gave equal service. The Government (P) argued that this type of tying
arrangement violated the Sherman Act, and that the vast amount of land owned by the Railway (D) gave it a
position of economic dominance so that buyers had no choice but to accept the arrangement. The Railway
(D) argued that it was not a monopoly within the meaning of Times-Picayune, 345 U.S. 594 (1953), and the
restriction was not unreasonable per se. It further argued that it had agreed to meet the price and service of its
competition.
ISSUE: Where a seller occupies a position of economic dominance in a market, is a tying arrangement
restraining competition illegal per se?
HOLDING AND DECISION: (Black, J.) Yes. Tying arrangements are unreasonable whenever a party has
sufficient economic power with respect to the tying product to appreciably restrain free competition in the
market for the tied product, and a “not insubstantial” amount of interstate commerce is affected. The
preferential shipping clause restrained trade and free competition. By virtue of its land sales, its competitors
were denied a substantial amount of business. As an interstate railroad, a substantial amount of interstate
commerce was affected. The vast land holdings with many preferential locations gave the Railway (D) a
position of economic dominance that it used to restrain competition. Dominance is merely sufficient
economic power to restrain free competition in the tied product. Having been established here, the
arrangement is illegal per se, and reasonableness will not be considered. Affirmed.

ANALYSIS
Tying arrangements may be legal if (1) the purchaser is free to use or not use the tied product; (2) there are
reasonable alternatives; and (3) the seller does not occupy a monopolistic position in the market. In any
situation such as this, it is important to show that the tying agreement was reasonable. C.f. F.T.C. v.
Sinclair Refining Co., 261 U.S. 463 (1923).

Quicknotes
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.
TYING AGREEMENT An agreement that a seller will only sell a specified product to a buyer if the buyer also
agrees to purchase another product.

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 Jefferson Parish Hospital District No. 2 v. Hyde
Hospital (D) v. Physician (P)
466 U.S. 2 (1984).

NATURE OF CASE: Appeal from denial of damages for violation of antitrust regulations.
FACT SUMMARY: The court of appeals held that Jefferson Parish Hospital District No. 2’s (D) contract
with a group of anesthesiologists was illegal per se under the antitrust laws.

RULE OF LAW
Tie-in agreements are illegal only if the market power of the owner of the tying product allows him to
unilaterally affect prices.

FACTS: Jefferson Parish Hospital District No. 2 (Jefferson) (D) executed a contract agreeing to require all
consumers of their hospital operating rooms to use anesthesiologists employed by Roux and Associates. Hyde
(P) sued after being denied hospital privileges based on the contract, contending the contract illegally tied the
purchase of operating room use with a fixed source of anesthesiological services, in violation of antitrust laws.
Jefferson (D) argued that since only 30 percent of the market for operating rooms belonged to other hospitals,
it had an insufficient market share to manipulate consumers into using unwanted anesthesiologists. The
district court dismissed the complaint, and the court of appeals reversed, holding the contract illegal per se.
The U.S. Supreme Court granted certiorari.
ISSUE: Are tie-in agreements illegal per se regardless of the market power of the seller of the tying product?
HOLDING AND DECISION: (Stevens, J.) No. Tie-in agreements are illegal only if the market power of
the owner of the operating rooms at Jefferson (D) went to other hospitals. Thus, Jefferson (D) did not have a
sufficient market share to force patients to buy the tied product—the anesthesiologists affiliated with Roux.
As a result, the agreement did not illegally fix prices. Reversed and remanded.
CONCURRENCE: (Brennan, J.) This agreement was not illegal per se.
CONCURRENCE: (O’Connor, J.) This agreement was not per se illegal. However, rather than analyzing it
under the per se test, it should have been analyzed under the “Rule of Reason.” Yet, even under this standard,
it was not illegal. Tying arrangements have been subject to per se analysis only where there is proof that there
is market power and anticompetitive effect. This requires an elaborate inquiry into the economic effects of the
tying arrangement. Thus, applying a per se test in tying cases involves the costs of the rule of reason approach
without achieving its benefits. Applying the per se test in tying cases has also led to a great deal of confusion.
Therefore, the per se label applied to tying arrangements should be abandoned in favor of an inquiry on
adverse economic effects, as well as potential economic benefits. Under the rule of reason, tying arrangements
should be disapproved only where the tie-ins have a demonstrable exclusionary impact in the tied product
market, or where the tie-ins facilitate the harmful exercise of market power that the seller possesses in the
tying product market. To find economically harmful tying, power in the market for the tying product must be
used to create additional market power in the market for the tied product, and the two markets and the two
tied products must satisfy three threshold criteria. First, the seller must have power in the tying product
market. Second, there must be a substantial threat that the tying seller will acquire market power in the tied-
product market. Third, there must be a coherent economic basis for treating the tying and the tied products as
distinct. However, under the rule of reason analysis, even where all three of these threshold requirements are
met, a tying arrangement may be lawful where it entails economic benefits as well as harms and those benefits
outweigh the harms. Here, applying these criteria, Jefferson (D) has market power, and it also poses a threat
of acquiring market power over the provision of anesthesiological services by tying the sale of anesthesia to the
sale of other hospital services. Nonetheless, the third threshold criteria, is not satisfied here: there is no sound
economic reason for treating surgery and anesthesia services as separate services. Patients are interested in
purchasing anesthesia only in connection with other hospital services, so Jefferson (D) cannot acquire
additional market power by selling the two services together. Even if these services are distinct, here, tying
does not violate § 1 of the Sherman Act because tying will not increase the seller’s already absolute power over
the volume of production of the tied product. On the other hand, such tying will confer significant benefits on
Jefferson (D) and the patients it serves by improving patient care and efficient hospital operation. Finally, the

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contract here does not constitute exclusive dealing. There is no evidence that Jefferson (D) will block the
availability of anesthesiologists that might deprive other hospitals of access to needed services, or that Roux
associates will unreasonably narrow the range of choices available to other anesthesiologists in search of a
hospital or patients. Therefore, the arrangement must be sustained under the rule of reason.

ANALYSIS
In this case the Court points out tying arrangements carry pernicious qualities which must be closely
scrutinized in light of the Sherman Act. However, they should only be condemned if they restrain
competition by forcing purchases which would otherwise not be made.

Quicknotes
CERTIORARI A discretionary writ issued by a superior court to an inferior court in order to review the lower
court’s decisions; the Supreme Court’s writ ordering such review.
PER SE RULE Rule that business transactions which in themselves constitute restraints on trade obviate the
need to demonstrate an injury to competition in making out an antitrust case.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
TYING AGREEMENT An agreement that a seller will only sell a specified product to a buyer if the buyer also
agrees to purchase another product.

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 Eastman Kodak Co. v. Image Technical Services, Inc.
Photo equipment manufacturer (D) v. Independent servicers (P)
504 U.S. 451 (1992).

NATURE OF CASE: Appeal from reversal of summary judgment dismissal of an antitrust action.
FACT SUMMARY: Eastman Kodak Co. (D), accused of antitrust violations with respect to repair of its
units, contended that its lack of market power in the original equipment market necessarily precluded market
power in repair of these units.

RULE OF LAW
Lack of market power as to primary equipment does not preclude market power in derivative
aftermarkets.

FACTS: Eastman Kodak Co. (Kodak) (D), a manufacturer of photocopy equipment, held a significant
segment of the market for this equipment, although the market remained competitive. Kodak (D) also
provided repair and servicing of its equipment. In the early 1980s, small businesses began to appear offering
independent servicing of Kodak (D) equipment. Kodak (D) responded by limiting replacement parts to buyers
who agreed to use Kodak’s (D) aftermarket services. The independent servicers, unable to obtain spare parts,
largely were driven out of the market. In 1987, a class-action suit was brought by various independent
servicing concerns. Kodak (D) successfully moved for summary judgment in the district court. The Ninth
Circuit reversed, and the U.S. Supreme Court granted review.
ISSUE: Does lack of market power as to primary equipment preclude market power in derivative
aftermarkets?
HOLDING AND DECISION: (Blackmun, J.) No. Lack of market power as to primary equipment does
not preclude market power in derivative aftermarkets. Section 1 of the Sherman Act prohibits “tying,” that is,
an agreement to sell one product only on the condition that the buyer also purchase a tied product, provided
that the seller has “appreciable economic power” in the tying market and the arrangement affects a substantial
volume of commerce in the tied market. The tying market here is parts, the tied market is service. Kodak (D)
urges adoption of a general rule, with which the district court agreed, that lack of monopoly power in the
primary equipment market necessarily precludes market power in the aftermarkets. This is based on the
contention that elasticity in the primary market necessitates elasticity in the aftermarket as a buyer who finds
the aftermarket unappealing may go to a different primary market. This may be true in some cases but is not
so necessarily true as to be capable of statement as a rule of law. Lack of consumer product information can
undercut this analysis. Also, high initial investment cost may lead a consumer to remain in a noncompetitive
aftermarket. Instead, Kodak (D) has raised an issue to be passed upon by the trier of fact. For this reason, the
court of appeals properly reversed the summary judgment as to § 1 of the Sherman Act. [The Court also
agreed that Kodak (D) had engaged in predatory behavior, in violation of § 2 of the Sherman Act.] Affirmed.
DISSENT: (Scalia, J.) This Court has never before embraced the majority’s thesis that a seller’s inherent
control over the unique parts for its own brand amounts to the sort of “market power” sufficient to apply the
per se rule against tying arrangements. Since Kodak (D) lacked such market power, it also lacked the
monopoly power to warrant heightened scrutiny of its exclusionary behavior.

ANALYSIS
It would seem that a manufacturer could evade the scope of the Court’s decision. The requirement of
“appreciable economic power” in the tying market would not be met if the manufacturer could create a level
of consumer demand for “original equipment” replacement parts (the tying product) for the original
product that would turn consumers away from competitor-manufactured parts. The original manufacturer
could do this by including an attractive warranty valid only when the product is serviced and repaired by
authorized dealers using original replacement parts.

Quicknotes

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CLASS ACTION A suit commenced by a representative on behalf of an ascertainable group that is too large to
appear in court, who shares a commonality of interests and who will benefit from a successful result.
SUMMARY JUDGMENT Judgment rendered by a court in response to a motion by one of the parties, claiming
that the lack of a question of material fact in respect to an issue warrants disposition of the issue without
consideration by the jury.
TYING Selling a specified product to a buyer only if the buyer also agrees to purchase another product.

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 United States v. Microsoft Corp.
Federal government (P) v. Software corporation (D)
147 F.3d 935 (D.C. Cir. 1998).

NATURE OF CASE: Antitrust suit for violation of consent decree barring tying of separate products.
FACT SUMMARY: A consent decree prohibited Microsoft Corp. (D) from tying “other products,” other
than integrated products, to the sales of its personal computers. The Government (P) brought suit alleging
that Microsoft’s (D) bundling of its Internet browser with Windows 95 violated the consent decree.

RULE OF LAW
A product is integrated where it combines the functionalities of two separate products to produce
benefits that only the unified combination can achieve.

FACTS: A consent decree entered into in 1995 prohibited Microsoft Corp. (D) from tying “other products,”
other than integrated products, to the sales of its personal computers. Microsoft (D) was barred from entering
into any license agreement that was conditioned upon the licensing of any separate product. The Government
(P), fearing that Microsoft (D) was using its Internet browser (the tied product) to gain an unfair advantage
on Netscape, its main rival as an Internet service provider, brought suit alleging that Microsoft’s (D) bundling
of its Internet browser with Windows 95 violated the consent decree. The district court ordered a preliminary
injunction pending discovery. The court of appeals granted review.
ISSUE: Is a product integrated where it combines the functionalities of two separate products to produce
benefits that only the unified combination can achieve?
HOLDING AND DECISION: (Williams, J.) Yes. A product is integrated where it combines the
functionalities of two separate products to produce benefits that only the unified combination can achieve.
First, integration requires a degree of unity, so that a product that can be created simply by combining two
separate, independent products is not an integrated product. With regard to computer software and hardware,
this means that where an end user can buy separate products and combine them to form a single product, the
single product, if offered by a manufacturer, is not an “integrated” product. Here, Windows 95 unites the
functionality of a browser, Internet Explorer (IE), with the functionality of an operating system in a way that
purchasers could not. Also, the combination offered by the manufacture must be better in some respect than
offering the two functionalities separately. This understanding is consistent with tying law, but does not mean
that a court must find that an integrated product is superior to its stand-alone rivals; the combination must
merely bring some advantage. On the facts of this case, Microsoft (D) has met its burden of providing
plausible benefits that accrued from its integrated design as compared to an operating system combined with a
stand-alone browser, such as Netscape’s Navigator. Finally, there must be not only some benefits to the
combination, but there must also be some reason that the manufacturer, and not the OEM or end user is
doing the combining. Based on the available record, the Windows 95/IE package is a genuine integration,
and, therefore, Microsoft (D) is not barred from offering it as one product under the consent decree.
Reversed.

ANALYSIS
In a more recent case involving Microsoft’s (D) operating system and Internet browser, the district court
found that Microsoft’s (D) combination of Windows 98 and Internet Explorer (IE) constituted an illegal
tying arrangement because the products were separate and consumers were forced to pay for the tied
product even if the price of the product was zero. The court of appeals reversed again, this time finding
that the tying arrangements must be considered under a rule of reason, and not per se, analysis. Although it
gave weight to the separate products test, it added that the analysis did not stop there; also to be considered
was whether the bundling of the two products could result in efficiencies, United States v. Microsoft, 87 F.
Supp. 2d 30 (D.D.C. 2000), rev’d 253 F.3d 34 (D.C. Cir. 2001).

Quicknotes

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CONSENT DECREE A decree issued by a court of equity ratifying an agreement between the parties to a
lawsuit; an agreement by a defendant to cease illegal activity.
PRELIMINARY INJUNCTION A judicial mandate issued to require or restrain a party from certain conduct; used
to preserve a trial’s subject matter or to prevent threatened injury.
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.

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 United States v. Microsoft Corp.
Federal government (P) v. Software company (D)
253 F.3d 34 (D.C. Cir.), cert. denied, 534 U.S. 952 (2001).

NATURE OF CASE: Appeal from judgment finding defendant engaged in illegal tying.
FACT SUMMARY: The Government (P) alleged that Microsoft Corp. (D) had created an illegal tying
arrangement by bundling the Internet Explorer web browser with its Windows operating system (OS).

RULE OF LAW
The rule of reason, rather than per se analysis, governs the legality of tying arrangements involving
platform software products.

FACTS: The Government (P) alleged (among other things) that Microsoft Corp. (D) had created an illegal
tying arrangement by bundling the Internet Explorer (IE) web browser with its Windows operating system
(OS). The facts underlying the tying allegation were that Microsoft (D): (1) required Windows licensees to
license IE at a single price; (2) refused to allow OEMs to uninstall or remove IE from the Windows desktop;
(3) designed Windows so users could not remove IE; and (4) designed Windows to override users’ choice of
default Web browser. The district court concluded that Microsoft’s (D) contractual and technological
bundling of the IE web browser (the “tied” product) with its Windows OS (the “tying” product) resulted in a
tying arrangement that was per se unlawful. Microsoft (D) argued that the OS and IE were not separate
products. The court of appeals granted review.
ISSUE: Does the rule of reason, rather than per se analysis, govern the legality of tying arrangements
involving platform software products?
HOLDING AND DECISION: (Per curiam) Yes. The rule of reason, rather than per se analysis, governs
the legality of tying arrangements involving platform software products. The district court concluded that
Microsoft’s (D) contractual and technological bundling of IE with the Windows OS resulted in a tying
arrangement that was per se unlawful. Under the separate-products test, as announced in Jefferson Parish
Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984), whether one or two products are involved does not turn on
the functional relation between them, so even if one product is completely useless without the other, that does
not make them a single product for tying law. Also, there must be sufficient consumer demand for the
purchase of the tied product separate from the tying product to identify a separate, distinct market in which it
is efficient to offer the tied product on its own. The core concern is that tying prevents goods from competing
directly for consumer choice on their merits. However, not all ties are bad. For example, bundling can save
distribution and consumer transaction costs, and can capitalize on economies of scope. This separate-products
test, however, is not a direct inquiry into the efficiencies of a bundle. Instead, the test chooses proxies that
balance cost savings against reducing consumer choice. In fact, there is merit to Microsoft’s (D) argument that
the entire consumer demand test would chill innovation to the detriment of consumers by preventing firms
from integrating into their products new functionality previously provided by stand-alone products. In other
words, the separate-products element of the per se rule may not give newly integrated products a fair shake.
As the U.S. Supreme Court has warned, it is only after considerable experience with certain business
relationships that courts classify them as per se violations. Here, Microsoft (D) argues that IE and Windows
is an integrated physical product and that the bundling of IE APIs with Windows makes the latter a better
applications platform for third-party software. But it is unclear how the benefits from IE APIs could be
achieved by quality standards for different browser manufacturers. That is why a per se test that conclusively
presumes the illegality of novel purported efficiencies from a software firm’s decision to sell multiple
functionalities as a single package, without elaborate inquiry as to the precise harm caused by such bundling, is
troubling. The failure of the separate-products test to screen out certain cases of productive integration is
particularly troubling in platform software markets. Not only is integration common in such markets, but it is
common among firms without market power. In this case, there is not enough empirical evidence regarding
the effect of Microsoft’s (D) practice on the amount of consumer surplus created or consumer choice
foreclosed by the integration of added functionality into platform software to exercise sensible judgment
regarding that entire class of behavior. There is a need to know more than we do about the actual impact of
these arrangements on competition to decide whether they should be classified as per se violations of the
Sherman Act. Until then, the tying arrangements at issue in this case must be remanded for evaluation under

129
the rule of reason. On remand, the Government (P) will have to show that Microsoft’s (D) conduct
unreasonably restrained competition, by making an inquiry into the actual effect of Microsoft’s (D) conduct
on competition in the tied good market (the putative market for browsers). Vacated and remanded.

ANALYSIS
Because the Government (P) had lost on the question of market power as it related to the Government’s
(P) claim that Microsoft (D) had attempted to monopolize the browser market, the court prohibited the
Government (P) from relying on any theory on remand that would require the definition of a browser
market or a showing of high entry barriers to such a market. This became moot because on remand, the
Government (P) settled the case with Microsoft (D) and, as part of that settlement, dropped its tying
claim.

Quicknotes
RULE OF REASON The standard for determining whether there has been a violation of § 1 of the Sherman
Antitrust Act, requiring a determination of whether the activity unreasonably restrains competition as
demonstrated by actual harm.
TYING Selling a specified product to a buyer only if the buyer also agrees to purchase another product.

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 Illinois Tool Works, Inc. v. Independent Ink, Inc.
Patent holder (D) v. Manufacturer (P)
547 U.S. 28 (2006).

NATURE OF CASE: Appeal from reversal of summary judgment for defendant in action for, inter alia,
violation of § 1 of the Sherman Act.
FACT SUMMARY: Independent Ink, Inc. (P), an ink manufacturer, contended that Trident, Inc. and its
parent company, Illinois Tool Works, Inc. (D), which held a patent on a printhead system and tied its
unpatented ink to the printhead system, necessarily had market power in the market for the tying product as a
matter of law solely by virtue of the patent on its printhead system, thereby rendering the tying arrangements
per se violations of § 1 of the Sherman Act.

RULE OF LAW
The mere fact that a tying product is patented does not support the presumption of market power in
the patented product.

FACTS: Trident, Inc. and its parent company, Illinois Tool Works, Inc. (collectively “Trident”) (D)
manufactured and marketed printing systems that included a patented printhead and ink container and
unpatented ink, which they sold to original equipment manufacturers (OEMs) who agreed that they would
purchase ink exclusively from Trident (D) and that neither they nor their customers would refill the patented
containers with ink of any kind. Independent Ink, Inc. (Independent) (P) developed ink with the same
chemical composition as Trident’s (D) ink. Trident (D) brought a patent infringement action against
Independent (P), but after that action was dismissed, Independent (P) filed suit seeking a judgment of
noninfringement and invalidity of Trident’s (D) patents on the ground that Trident (D) was engaged in illegal
“tying” and monopolization in violation of §§ 1 and 2 of the Sherman Act. Granting summary judgment for
Trident (D), the district court rejected Independent’s (P) argument that Trident (D) necessarily had market
power as a matter of law by virtue of the patent on the printhead system, thereby rendering the tying
arrangements per se violations of the antitrust laws. The court of appeals reversed as to the § 1 claim,
concluding that it had to follow the U.S. Supreme Court’s precedents. The Supreme Court granted certiorari.
ISSUE: Does the mere fact that a tying product is patented support the presumption of market power in the
patented product?
HOLDING AND DECISION: (Stevens, J.) No. The mere fact that a tying product is patented does not
support the presumption of market power in the patented product. Courts encountered tying arrangements in
the course of patent infringement litigation, but over the years, the Court’s strong disapproval of tying
arrangements has substantially diminished, as the Court has moved from relying on assumptions to requiring
a showing of market power in the tying product. The assumption in earlier decisions that such “arrangements
serve hardly any purpose beyond the suppression of competition,” was rejected in cases involving unpatented
tying products, and nothing in the subsequent cases suggested a rebuttable presumption of market power
applicable to tying arrangements involving a patent on the tying good. The presumption that a patent confers
market power initially arose outside the antitrust context as part of the patent misuse doctrine, and
subsequently migrated to antitrust law through the Court’s precedent. When Congress codified the patent
laws for the first time, it initiated the untwining of the patent misuse doctrine and antitrust jurisprudence.
While the Court’s antitrust jurisprudence continued to rely on the assumption that tying arrangements
generally serve no legitimate business purpose, Congress began chipping away at that assumption in the
patent misuse context. Congress eventually amended the Patent Code to eliminate the presumption in the
patent misuse context. While that amendment does not expressly refer to the antitrust laws, it invites
reappraisal of the Court’s per se rule. Based on the congressional judgment reflected in the amendment to the
Patent Code, tying arrangements involving patented products should not be evaluated under a per se rule.
Instead, any conclusion that an arrangement is unlawful must be supported by proof of power in the relevant
market rather than by a mere presumption thereof. Moreover, Independent’s (P) alternatives to retention of
the per se rule—that the Court endorse a rebuttable presumption that patentees possess market power when
they condition the purchase of the patented product on an agreement to buy unpatented goods exclusively
from the patentee, or differentiate between tying arrangements involving requirements ties and other types of

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tying arrangements—are rejected as there is no support for them—either in case law or in the vast majority of
academic literature, which recognizes that a patent does not necessarily confer market power. However,
because Independent (P) reasonably relied on the Court’s prior opinions in moving for summary judgment
without offering evidence of the relevant market or proving Trident’s (D) power within that market,
Independent (P) should be given a fair opportunity to develop and introduce evidence on that issue, as well as
other relevant issues, when the case returns to the district court. Vacated and remanded.

ANALYSIS
Some commentators have expressed apprehension that after this decision, big businesses, arguably those
more likely to have market power, will be able to tie patented products in the marketplace with no concern
for consumer welfare and virtually no fear of negative consequences since the burden of proof will be on
those presumably small businesses that claim to have been injured. Others, however, believe that this is not
the case, since plaintiffs who have been injured by anticompetitive effects may still prove market power and
recover damages, just as in all other tying cases.

Quicknotes
ASSUMPTION Act of acceptance or presumption of truth without proof of demonstration.
PRESUMPTION A rule of law requiring the court to presume certain facts to be true based on the existence of
other facts, thereby shifting the burden of proof to the party against whom the presumption is asserted to
rebut.
TYING CONTRACT An agreement that a seller will only sell a specified product to a buyer if the buyer also
agrees to purchase another product.

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 United States v. Jerrold Electronics Corp.
Federal government (P) v. Electronics Co. (D)
187 F. Supp. 545 (E.D. Pa.), aff’d per curiam, 365 U.S. 567 (1961).

NATURE OF CASE: Action based on antitrust violations.

FACT SUMMARY: Because Jerrold Electronics Corp. (Jerrold) (D) would only sell its television antenna
systems as a single package, the Government (P) argued that Jerrold’s (D) policy was a disguised tie-in.

RULE OF LAW
A full system sales unit may be reasonable where there are legitimate reasons for selling normally
separate items in a combined form and economic conditions justify a policy of compulsory service.

FACTS: Jerrold Electronics Corp. (Jerrold) (D) sold its television antenna systems only as full systems, rather
than as separate components, and only in conjunction with a compulsory service policy. Jerrold (D) considered
this policy necessary to maintain the integrity of its equipment, which was considered the best available.
Others in the field did not sell their systems exclusively as a single package. The number of pieces in each
system varied considerably so that hardly any two versions of the alleged product were the same. Although
Jerrold (D) sold its system as a single package, it priced each item of equipment individually. Moreover,
Jerrold (D) required that only the electronic equipment in the system be purchased from Jerrold (D).
Antennas and cable could be purchased elsewhere. The Government (P) brought this action, alleging that
Jerrold’s (D) policy constituted a tying arrangement in violation of federal antitrust law. Jerrold (D) contended
this was not a case of tying the sale of one product to another, but merely the sale of a single product.
ISSUE: May, a full system sales unit be reasonable where there are legitimate reasons for selling normally
separate items in a combined form and economic conditions justify a policy of compulsory service?
HOLDING AND DECISION: (Van Dusen, J.) Yes. A full system sales unit may be reasonable where there
are legitimate reasons for selling normally separate items in a combined form and economic conditions justify
a policy of compulsory service. Initially, Jerrold (D) could not have rendered the service it promised if the
customer had been permitted to purchase any kind of equipment he desired. The limited knowledge and
instability of equipment made specifications an impractical, if not impossible, alternative. However, as
circumstances changed and the need for compulsory service contracts disappeared, the economic reasons for
exclusively selling complete systems have been eliminated. Jerrold (D) has not established a need for the
continued existence of its policy. Thus, its policy of selling full systems only was lawful at its inception but
constituted a violation of § 1 of the Sherman Act and § 3 of the Clayton Act during part of the time it was in
effect.

ANALYSIS
The full system contract described above is usually challenged as applying to dealers, rather than to
consumers. The downside of such contracts is that they may prevent dealers from purchasing competing
lines of products and parts. On the other hand, full system contracts allow for economies of scale in
production and distribution, resulting in lower prices.

Quicknotes
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anti-competitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.
TYING AGREEMENT An agreement that a seller will only sell a specified product to a buyer if the buyer also
agrees to purchase another product.

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 Quick Reference Rules of Law
1. The Problem of Monopoly. The right to dissolve a company shall be reserved until such time as the
company’s dominance and control over an industry make dissolution expedient. (United States v.
American Can Co.)

2. The Problem of Monopoly. An unlawful monopoly exists where a company has sufficient market power
to dominate an industry and where it acquired that power by engaging in anticompetitive, or
monopolistic, acts. (United States v. Aluminum Co. of America)

3. The Problem of Monopoly. Where market control and industry dominance is not solely due to the
elimination of competition through the unfettered effect of the free enterprise system, an unlawful
monopoly may be found. (United States v. United Shoe Machinery Corp.)

4. Market Power. Where competitive substitutes are available, dominance over a single process does not
constitute monopolistic control over the market. (United States v. E.I. du Pont de Nemours & Co.)

5. Market Power. In determining whether the power exists to control prices or to exclude competition, the
relevant market of a product must include all products reasonably interchangeable with that product.
(Telex Corp. v. IBM Corp.)

6. Geographic Market. A distinctive type of service within a larger market may be deemed a monopoly
where no comparable alternative service exists. (United States v. Grinnell Corp.)

7. Innovation and Exclusion. Any firm, even a monopolist, may keep its innovations secret from its rivals
as long as it wishes. (Berkey Photo, Inc. v. Eastman Kodak Co.)

8. Innovation and Exclusion. Even where a company is a monopolist, it has the right to redesign its
products to make them more attractive to buyers, whether by reason of lower manufacturing cost and
price or improved performance. (California Computer Products v. IBM Corp.)

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 9. Innovation and Exclusion. (1) Monopoly power of a company may be inferred where the company has
a 95 percent share of the relevant market, where there are significant barriers to entry in that market,
and the company owns a monopoly product in that market. (2) The conduct of a monopolist that has
exclusionary anticompetitive effect, and for which there is no procompetitive justification, supports a
claim of monopolization under § 2 of the Sherman Act. (3) To prevail, a plaintiff seeking liability under
§ 2 of the Sherman Act does not have to present direct proof that a defendant’s continued monopoly
power is precisely attributable to its anticompetitive conduct. (4) A court’s remedies decree must be
vacated where the court fails to hold a remedies-specific evidentiary hearing when there are disputed
facts; the court fails to provide adequate reasons for its decreed remedies; and the scope of liability has
been altered by a higher court. (United States v. Microsoft Corp.)

10. Refusal to License IP Rights. If a patent or copyright is lawfully acquired, the patent or copyright
holder’s unilateral refusal to sell or license its patented invention or copyrighted expression, is not
unlawful exclusionary conduct, where the exercise of the intellectual property right does not exceed the
scope of the intellectual property right. (Independent Service Organizations Antitrust Litigation)

11. Recoupment. To establish competitive injury due to a rival’s low prices, a plaintiff must prove that the
prices are below its rival’s costs and that the competitor has a reasonable prospect of recoupment.
(Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.)

12. Predatory Buying. To prevail on a predatory-bidding claim, a plaintiff must show that that the alleged
predator’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 and that the alleged predator has a dangerous probability of
recouping the losses incurred in bidding up input prices through the exercise of monopsony power.
(Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc.)

13. Anticompetitive Discountng Practices. To prove that a bundled discount is exclusionary or predatory
under § 2 of the Sherman Act, a plaintiff must show that, after allocating the discount given by the
defendant on the entire bundle of products to the competitive product or products, the defendant sold
the competitive product or products below its average variable cost of producing them. (Cascade Health
Solutions v. PeaceHealth)

14. Refusal to Deal. If there is support in the record for a jury’s conclusion that no valid business decision
exists for the refusal of a firm with monopoly power to deal with smaller competitions, its judgment of a
monopoly laws violation will be sustained. (Aspen Skiing Co. v. Aspen Highlands Skiing Corp.)

15. The Essential Facility Doctrine. A complaint alleging breach of an incumbent local exchange carrier’s
duty under the Telecommunications Act of 1996 to share its network with competitors does not state a

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 claim under § 2 of the Sherman Act. (Verizon Communications, Inc. v. Law Offices of Curtis V.
Trinko, LLP)

16. Exclusionary Contracting. An exclusivity policy imposed by a monopolist manufacturer on its dealers
violates Section 2 of the Sherman Act where it forecloses competition and has no business justification.
(United States v. Dentsply International., Inc.)

17. Vertical Integration and the Price “Squeeze.” A price-squeeze claim may not be brought under § 2 of
the Sherman Act when the defendant has no antitrust duty to deal with the plaintiff at wholesale.
(Pacific Bell Telephone Co. dba AT&T California v. Linkline Communications, Inc.)

18. The Offense of Attempt to Monopolize. A violation of § 2 of the Sherman Act does not occur absent
proof of an intent to monopolize and dangerous probability of such monopolization. (Spectrum Sports,
Inc. v. McQuillan)

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 United States v. American Can Co.
Federal government (P) v. Can combine (D)
230 F. 859 (D. Md. 1916), appeal dismissed, 256 U.S. 706 (1921).

NATURE OF CASE: An action to dissolve a company for antitrust violations.

FACT SUMMARY: After a small number of men formed a “combination” that drove almost all other can
makers out of the business, the Government (P) sought to dissolve American Can Co. (D) for antitrust
violations.

RULE OF LAW
The right to dissolve a company shall be reserved until such time as the company’s dominance and
control over an industry make dissolution expedient.

FACTS: Norton (D), the Moores (D), and a few others developed a scheme to form a can combine, which
eventually resulted in American Can Co. (D). They induced other can makers to sell out by convincing them
that their only choices were to go out voluntarily or be driven out. What was most feared was that a can maker
who did not go into the combine would have difficulty in getting tin plate, the raw material of his business. In
every case, the option prices offered by American Can (D) were much more than the companies were worth.
Almost all the options contained a covenant not to compete in can making for fifteen years. In addition, for
six years American Can (D) cut off its competitors from the companies making the best can-making
machinery. The Government (P) filed suit, seeking to dissolve American Can (D) for violations of the Anti-
Trust Act of 1890.
ISSUE: Shall the right to dissolve the company be reserved until such time as the company’s dominance and
control over the industry make dissolution expedient?
HOLDING AND DECISION: (Rose, J.) Yes. When a company becomes large and powerful through
unlawful acts, but uses that power without injury to the public, the right to dissolve the company shall be
reserved until such time as the company’s dominance and control over the industry make dissolution
expedient. At trial, a great many consumers of cans testified that the price has tended downward. The cans
have been more uniformly well made, the manufacturing cost is now less, each employee now receives more
wages, and can users are protected against serious delays in delivery. Before the need to use the power reserved
arises, Congress will hopefully find some method other than dissolution to deal with the problems that arise
when a single corporation absorbs a large part of the productive capacity in any one line.

ANALYSIS
The record showed that while American Can’s (D) power was great, it was limited by a large volume of
actual competition and by potential competition. Those in the trade were satisfied with American Can (D)
and did not want it dissolved. The court noted that one who sells only one-half of the cans that are sold
does not possess a monopoly in the same sense as he would if he sold all or nearly all of them.

Quicknotes
COMBINATION (ANTITRUST DEFINITION) Alliance of entities, for the purpose of impeding free trade, that
results in a monopoly, suppression of competition, or affecting prices.
DISSOLUTION Annulment or termination of a formal or legal bond, tie or contract.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.

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139
 United States v. Aluminum Co. of America
Federal government (P) v. Aluminum producer (D)
148 F.2d 416 (2d Cir. 1945).

NATURE OF CASE: Appeal from a judgment for the defendant in a suit to dissolve a company for violation
of federal antitrust law.
FACT SUMMARY: Arguing that Aluminum Co. of America (Alcoa) (D) was the nation’s only producer of
aluminum for almost thirty years, the Government (P) sought dissolution of Alcoa (D) for monopolistic
behavior.

RULE OF LAW
An unlawful monopoly exists where a company has sufficient market power to dominate an industry
and where it acquired that power by engaging in anticompetitive, or monopolistic, acts.

FACTS: Aluminum Co. of America (Alcoa) (D), a producer of virgin aluminum ingot, entered into four
successive “cartels” with foreign manufacturers of aluminum. Alcoa (D) secured covenants from the foreign
producers either not to import ingots into the United States (P) at all or to do so under restrictions, which in
some cases involved the fixing of prices. As a result of these and other practices, the Government (P) filed suit
against Alcoa (D) in 1912, in which a consent decree was entered, declaring several of these covenants
unlawful and enjoining their performance. In 1937, the Government (P) again filed suit, seeking additional
relief, including dissolution of Alcoa (D) for violating federal antitrust law against monopolistic behavior. The
trial court ruled in Alcoa’s (D) favor, finding that Alcoa (D) had only 33 percent of the market share. In
arriving at that figure, the court included both the virgin ingot and the secondary (scrap) aluminum markets.
The Government (P) appealed.
ISSUE: Does an unlawful monopoly exist where a company has sufficient market power to dominate an
industry and where it acquired that power by engaging in anticompetitive, or monopolistic, acts?
HOLDING AND DECISION: (Hand, J.) Yes. An unlawful monopoly exists where a company has
sufficient market power to dominate an industry and where it acquired that power by engaging in
anticompetitive, or monopolistic, acts. However, a company is an “innocent” monopolist where that
dominance has been thrust upon it by its own skill or efficiency. Alcoa’s (D) size has never been anything
other than a monopoly, and it utilized that size for abuse. Given Alcoa’s (D) position in 1940, it was not an
“innocent” monopolist. The district court incorrectly included the secondary market in its calculation of
Alcoa’s (D) market share. Alcoa’s (D) market share of the virgin ingot market was over 90 percent. Thus, its
monopoly of ingot was of the kind covered by § 2 of the Sherman Act, and that part of the judgment which
held that it was not, must be reversed.

ANALYSIS
Because of Alcoa’s (D) increased efficiency, it was able to sell its ingots at higher prices to independent
firms manufacturing aluminum “sheets” while pricing its own sheets lower, thereby effectuating a “price
squeeze.” Although Judge Hand’s court did not find that the price squeeze was part of Alcoa’s (D) attempt
to monopolize the market, he did articulate a price squeeze test, making it unlawful for a monopolist to
charge more than a “fair price” for a primary product while at the same time charging so little for a
secondary product that its second-level competitors cannot make a “living profit.” However, it is possible
that prices that squeeze a “second level” may actually benefit consumers whenever the “second-level” firm is
itself a monopolist.

Quicknotes
CARTEL An agreement between manufacturers or producers of the same product so as to form a monopoly.
COVENANT A written promise to do, or to refrain from doing, a particular activity.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to

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manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 United States v. United Shoe Machinery Corp.
Federal government (P) v. Shoe machine manufacturer (D)
110 F. Supp. 295 (D. Mass. 1953), aff’d per curiam, 347 U.S. 521 (1954).

NATURE OF CASE: Antitrust action against a monopoly.

FACT SUMMARY: Through patents, service, technological advances and long-term leases of its equipment,
United Shoe Machinery Corp. (D) occupied a dominant position in the shoe machinery field.

RULE OF LAW
Where market control and industry dominance is not solely due to the elimination of competition
through the unfettered effect of the free enterprise system, an unlawful monopoly may be found.

FACTS: United Shoe Machinery Corp. (United Shoe) (D) controlled approximately 85 percent of the
domestic shoe machinery business in the United States. It had achieved this position of dominance through
patents, excellent machinery, prompt free repair service, and close working ties with shoe manufacturers. Each
year United Shoe (D) spent millions on research seeking to improve its machines. It produced a full line of all
machines necessary to handle the many steps necessary to producing shoes. Its major machines were leased
rather than sold. Typical leases were for ten years with favorable terms and deposit returns if the machines
were kept for the full period or replaced by United Shoe (D) equipment. Equipment actually sold was based
on a sliding rate. If United Shoe (D) had competition in the market, it operated on a small profit margin. If
no competition existed, it charged a higher price. The Government (P) brought an antitrust action against
United Shoe (D). It alleged (1) that United Shoe (D) had secured its monopoly position through unlawful
methods in restraint of trade in violation of §§ 1 and 2 of the Sherman Act (U.S. v. Aluminum Co. of America,
148 F.2d 416 (2d Cir. 1945)); (2) that United Shoe (D) had the power to exclude competition and had
exercised it (U.S. v. Griffith, 334 U.S. 100 (1948)); and (3) that United Shoe (D) had violated a broader
approach suggested in Griffith by acquiring market dominance through the use of methods which were not
solely the result of unfettered free competition. The Government (P) argued that the long-term leases, price
differentials based on the existence of competition and free service had, as its primary purpose and effect, the
establishment and perpetuation of United Shoe’s (D) monopoly position. These practices placed entry barriers
on the market and were secured by United Shoe’s (D) market dominance.
ISSUE: May a manufacturer who has secured its position of dominance through lawful means still be guilty of
unlawful monopolistic practices?
HOLDING AND DECISION: (Wyzanski, J.) Yes. United Shoe (D) has not engaged in any unlawful
practices; therefore, the Government’s (P) first position cannot prevail under the rationale stated in Aluminum
Company. A business should not be penalized for obtaining control of the market because it puts out a better
product, works harder, etc. Where dominance has been achieved solely through lawful means and within the
context of the free enterprise system, no violation of antitrust law has occurred. However, where its practices,
even though lawful, are designed to tie customers to it and make entry into the market more difficult, a
violation may occur. Whenever such practices are not required by market demands, a violation occurs. Here,
United Shoe (D) could have sold its machinery outright. Even though leasing was an industry practice, United
Shoe (D) could have been competitive through outright sales. Secondly, its use of a sliding price scale
depending on the existence of competition allowed it to take advantage of its size and dominant position.
Finally, free service made entry more difficult. Since there were no independent service dealers, a new entrant
had to hire and train its personnel in order to compete. Together, these practices show that United Shoe (D)
attempted to tie its customers to it by long-term leases, favorable rates and free service. These practices were
not strictly the result of free competition and made entry more difficult and expensive. Under the two theories
enumerated in Griffith, United Shoe’s (D) actions violate § 2 of the Sherman Act. Monopolistic motive or
intent is immaterial. It is the power or potential to exercise its dominant position which must be curbed. The
remedy should attempt to rectify the effect of the monopolistic practices complained of by the Government
(P). However, the remedy must be realistically possible. Since United Shoe (D) did most of its business out of
one main plant, it was not feasible to break it up. It was also not possible to forbid all leasing. This would
drive many manufacturers out of business if they were unable to pay for the equipment. This court cannot
regulate United Shoe’s (D) pricing structure. There are too many factors which enter into this area. Further,

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some price regulation must be expected from large manufacturers. The court agrees with the Government (P)
that the leases should be purged of all restrictive covenants, all equipment should be offered for sale, and sales
terms should be monitored for fairness. Since United Shoe (D) has placed itself in a monopoly position, it
cannot complain of different treatment from the rest of the industry. The sale of machinery should eventually
create a secondary used machinery market which will curb United’s (D) monopoly power. The purging of
lease restrictions will remove several entry barriers. Judgment for the Government (P).

ANALYSIS
It is difficult to imagine how any business controlling a dominant share of a market would not violate one
of the three tests enumerated here. No business is conducted to make free competition easy. The strictures
of a competitive market make it both desirable and necessary to operate in a method calculated to keep old
customers and to acquire new ones. United Shoe (D), as compared to most monopolists prosecuted by the
Government (P), was “pure as the driven snow.” The key to this decision is the leasing practice. This was
calculated to secure for United Shoe (D) a greater share of and control over the market than it would have
had through outright sales.

Quicknotes
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT § 2 Makes it a felony to monopolize or attempt to monopolize, or combine or conspire with any
other person(s) to monopolize, any part of the trade or commerce among the states or with a foreign country.
TYING AGREEMENT An agreement that a seller will only sell a specified product to a buyer if the buyer also
agrees to purchase another product.

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 United States v. E.I. du Pont de Nemours & Co.
Federal government (P) v. Manufacturer (D)
351 U.S. 377 (1956).

NATURE OF CASE: Action to enjoin a monopoly.

FACT SUMMARY: E.I. du Pont de Nemours & Co. (D) claimed that its position in the entire flexible
packaging materials industry must be considered to determine whether its control of cellophane constituted a
monopoly.

RULE OF LAW
Where competitive substitutes are available, dominance over a single process does not constitute
monopolistic control over the market.

FACTS: E.I. du Pont de Nemours & Co. (du Pont) (D) controlled 75 percent of the cellophane market. The
Government (P) argued that du Pont (D) was an unlawful monopoly under § 2 of the Sherman Act. The
district court found that cellophane was merely one segment of the flexible packaging material market. There
were sufficient competitive alternatives available to prevent du Pont (D) from being able to control or affect
prices. Du Pont (D) argued that the fact that its patents and know-how prevented competition in the
cellophane industry did not constitute a monopoly due to the existence of other competitive substitutes.
ISSUE: Can a monopoly be shown where there are competitive alternatives available to the monopolized
process?
HOLDING AND DECISION: (Reed, J.) No. In order to determine the existence of a monopoly, the entire
market must be considered. The market is determined by considering all reasonably interchangeable
alternatives based on price, use and quality. If other products may be used instead of the alleged monopolistic
product and their cost and quality is comparable, no monopoly exists. The district court found that cellophane
only constituted 7 percent of the flexible packaging material sold. Several other processes were available for
any use to which cellophane could be put. Du Pont (D) could not arbitrarily set the price for cellophane
without an adverse effect on demand. Finally, du Pont (D) could not exclude competitors from the market,
even as to cellophane (though this is immaterial). Since du Pont (D) cannot set price or restrict competition in
the flexible packaging material market, it is not a monopoly within the meaning of § 2 of the Sherman Act.
Affirmed.

ANALYSIS
In some cases, the control of a distinct submarket is sufficient to find a monopoly. In International Boxing
Club v. United States, 358 U.S. 242 (1959), the Court held that control of championship fights was a
monopoly even though it was only a minor segment of the boxing industry. The market was deemed to be
championship fights rather than the industry as a whole.

Quicknotes
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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145
 Telex Corp. v. IBM Corp.
Marketer (P) v. Computer manufacturer (D)
510 F.2d 894 (10th Cir.), cert. dismissed, 423 U.S. 802 (1975).

NATURE OF CASE: Appeal from a judgment defining the relevant market for a product in an action based
on federal antitrust law.
FACT SUMMARY: Telex Corp. (P), which marketed peripheral devices compatible with central processing
units (CPUs) in IBM Corp.’s (D) computers, charged IBM (D) with monopolization in the manufacture,
distribution, sale, and leasing of plug compatible peripheral products attached to its CPUs.

RULE OF LAW
In determining whether the power exists to control prices or to exclude competition, the relevant
market of a product must include all products reasonably interchangeable with that product.

FACTS: Telex Corp. (P) marketed peripheral devices that were plug-compatible with IBM Corp.’s (D)
CPUs in its computers. Those devices included magnetic tape drives, magnetic disk drives, magnetic drums,
magnetic strip files, printers, and memory units. Telex (P) filed a complaint, charging IBM (D) with
monopolization in the manufacture, distribution, sale, and leasing of plug compatible peripheral products
attached to its CPUs. The court concluded that while IBM (D) did not have monopoly power in the industry
as a whole, the products market was practically restricted. IBM (D) contended, however, that the court’s
determination of the relevant market for peripheral products was incorrect because it was limited mainly to
peripheral products plug compatible with IBM’s (D) equipment. Thus it failed to include other peripheral
equipment marketed by Telex (P). IBM (D) appealed.
ISSUE: Must the relevant market of a product include all products reasonably interchangeable with that
product in determining whether there existed the power to control prices or to exclude competition?
HOLDING AND DECISION: (Per curiam) Yes. In determining whether the power exists to control prices
or to exclude competition, the relevant market of a product must include all products reasonably
interchangeable with that product. Peripherals manufactured for one CPU can easily be adapted for use by
other systems through the use of an interface. Manufacturers of peripherals that were plug-compatible with
IBM’s (D) CPUs were free to adapt their products through interface changes to plug into non-IBM systems.
IBM (D) has thus proven reasonable interchangeability. Hence, the market should include all peripheral
products. Cross-elasticity exists because these products, although not fungible, are fully interchangeable and
may be interchanged with minimal financial outlay. The lower court’s very restrictive definition of the product
market was plain error. Reversed.

ANALYSIS
While the trial court recognized the presence of interchangeability of use and the presence of cross-
elasticity, it thought that these factors were not sufficiently immediate. Cross-elasticity of demand requires
that the market include close substitutes as part of the product category. Cross-elasticity of supply is also
considered in making a determination of market power.

Quicknotes
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.

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147
 United States v. Grinnell Corp.
Federal government (P) v. Alarm manufacturer (D)
384 U.S. 563 (1966).

NATURE OF CASE: Action seeking an injunction under § 2 of the Sherman Act.

FACT SUMMARY: Grinnell Corp. (D) controlled 87 percent of the automatic central alarm system market.

RULE OF LAW
A distinctive type of service within a larger market may be deemed a monopoly where no comparable
alternative service exists.

FACTS: Grinnell Corp. (D) controlled 87 percent of the automatic central alarm system market. In certain
areas serviced by Grinnell (D), competitors were present. Alternatives such as guards, dogs, etc. were also
available to those who did not wish to use Grinnell (D). Most insurance companies gave preferential rates to
businesses using automatic alarm systems such as was supplied by Grinnell Corp. (D). Because of the
existence of other competitors and services, Grinnell (D) could not arbitrarily set prices. The Government (P)
brought an antitrust action under §§ 1 and 2 of the Sherman Act to enjoin price-fixing activities, activities in
restraint of trade, and to dissolve the monopoly. The court found that the central automatic alarm system was
a distinct submarket in the security field. It found that no reasonable alternative existed and that 87 percent
control of the submarket constituted a monopoly. It found that certain offices were operated at a loss to injure
competition and that these factors constituted violations of §§ 1 and 2 of the Sherman Act.
ISSUE: Is control of a significant portion of a submarket for which no reasonable alternative exists sufficient
to constitute a monopoly?
HOLDING AND DECISION: (Douglas, J.) Yes. A distinctive type of service within a larger market may
be deemed a monopoly where no comparable alternative service exists. The existence of the larger market does
not foreclose a finding that the submarket is the appropriate level of inquiry to determine if a monopoly is
present. Here, the automatic central alarm system provides a unique and superior method of property
protection. It allows property owners to obtain favorable rates and does not require the presence of obtrusive
guards and/or dogs. Eighty-seven percent control of the market is sufficient control to constitute a monopoly.
Grinnell’s (D) market dominance must be deemed established when it can afford to operate certain offices at a
loss to prevent competition. Where one occupying a position of market dominance uses its power to drive out
competition or to restrict entry into the market, such practices constitute a violation of §§ 1 and 2 of the
Sherman Act. Grinnell (D) is ordered to divest itself of control of its stock in these companies.
DISSENT: (Fortas, J.) The majority has failed to consider the relevant market and product lines carefully
enough. The Government (P) has defined the market as “insurance accredited central station protection
services.” This narrows the market too severely. The market is deemed to be nationwide, yet the nature of the
services is local, i.e., fixed locations, nonmovable equipment and premises, etc. The correct geographical
market herein is local and the line of commerce is the entire security products market.

ANALYSIS
Grinnell (D) was also guilty of price discrimination under § 2 of the Clayton Act. When prices are lowered
in a given area to below that of one’s competitors for the purpose of driving them out of business it is an
unlawful method of competition which may be enjoined. However, to invoke the Clayton Act’s
prohibitions it would be necessary to show that Grinnell (D) was dealing in a product since the Act is not
directed to services. Since a central alarm system involves both a product and a service, the Government (P)
probably proceeded under the Sherman Act to prevent this problem from being raised before the court.

Quicknotes
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anticompetitive business practices and gave

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labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT § 1 Prohibits price-fixing.
SHERMAN ACT § 2 Makes it a felony to monopolize or attempt to monopolize, or combine or conspire with any
other person(s) to monopolize, any part of the trade or commerce among the states or with a foreign country.

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 Berkey Photo, Inc. v. Eastman Kodak Co.
Photofinisher (P) v. Photo equipment manufacturer (D)
603 F.2d 263 (2d Cir. 1979), cert. denied, 444 U.S. 1093 (1980).

NATURE OF CASE: Appeal from a jury award of damages in an antitrust action.

FACT SUMMARY: Berkey Photo, Inc. (P), a photofinisher and a competitor of Eastman Kodak Co.
(Kodak) (D), brought suit, alleging that Kodak’s (D) introduction of its 110 camera system, tied to
introduction of its Kodacolor II film, constituted a violation of § 2 of the Sherman Act.

RULE OF LAW
Any firm, even a monopolist, may keep its innovations secret from its rivals as long as it wishes.

FACTS: Berkey Photo, Inc. (Berkey) (P) competed with Eastman Kodak Co. (Kodak) (D) in providing
photo-finishing services and had formerly manufactured and sold cameras as well. Berkey (P) did not
manufacture film but purchased Kodak (D) film for resale to its customers and also bought photofinishing
equipment and supplies from Kodak (D). Berkey (P) filed suit, alleging that every aspect of its association
with Kodak (D) had been infected by Kodak’s (D) monopoly power, willfully acquired, maintained, and
exercised in violation of § 2 of the Sherman Act. Berkey (P) specifically alleged that Kodak’s (D) policy of
tying the introduction of its 110 photographic system to introduction of its Kodacolor II film constituted both
an attempt to monopolize and actual monopolization of the camera market. Further, Berkey (P) argued that
Kodak (D) had a duty to disclose limited types of information to certain competitors under specific
circumstances. The jury awarded damages to Berkey (P). Kodak (D) appealed.
ISSUE: May any firm, even a monopolist, keep its innovations secret from its rivals as long as it wishes?
HOLDING AND DECISION: (Kaufman, J.) Yes. Any firm, even a monopolist, may keep its innovations
secret from its rivals as long as it wishes forcing them to catch up on the strength of their own efforts after a
new product is introduced. A monopolist is encouraged by § 2 to compete aggressively, and any success that it
achieves through innovation, is clearly tolerated by the antitrust laws. Kodak’s (D) introduction of a new
format was not rendered an unlawful act of monopolization in the camera market because the firm also
manufactured film to fit the camera. Moreover, no court has ever imposed the duty to disclose that Berkey (P)
seeks to create here. Finally, although the restriction of Kodacolor II to the 110 format may have been
unjustified, there was no evidence that Berkey (P) was injured by this course of action. Thus, the facts of this
case do not justify an award of damages to Berkey (P). Reversed.

ANALYSIS
The existence of monopoly power is tolerated insofar as is necessary to preserve competitive incentives and
to be fair to the firm that has attained its position innocently. An integrated business like Kodak (D) does
not offend the Sherman Act whenever one of its departments benefits from association with a division
possessing a monopoly in its own market. So long as a firm competes in several fields, it is to be expected
that it will seek the competitive advantages of its broad-based activity.

Quicknotes
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
SHERMAN ACT § 2 Makes it a felony to monopolize or attempt to monopolize, or combine or conspire with any
other person(s) to monopolize, any part of the trade or commerce among the states or with a foreign country.
TYING Selling a specified product to a buyer only if the buyer also agrees to purchase another product.

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 California Computer Products v. IBM Corp.
Manufacturer of computer products (P) v. Computer manufacturer (D)
613 F.2d 727 (9th Cir. 1979).

NATURE OF CASE: Appeal from a judgment for the defendant in an action for violation of federal
antitrust law.
FACT SUMMARY: After IBM Corp. (D) developed a new line of computers that integrated disk drive and
memory functions into the CPU itself, California Computer Products (P), a manufacturer of peripheral
products such as disk drives and memory units compatible with IBM’s (D) mainframe computers and central
processing units (CPUs), filed suit, alleging illegal monopolistic behavior in violation of the Sherman Act.

RULE OF LAW
Even where a company is a monopolist, it has the right to redesign its products to make them more
attractive to buyers, whether by reason of lower manufacturing cost and price or improved performance.

FACTS: California Computer Products (CalComp) (P) manufactured peripheral products such as disk drives
and memory units, which were compatible with IBM Corp. (D) mainframe computers and CPUs. When new
technology allowed IBM (D) to introduce a new line of computers, integrating disk drive and memory
functions into the CPU itself, CalComp (P) filed suit, alleging that IBM’s (D) new design was illegal
monopolization in violation of § 2 of the Sherman Act. CalComp (P) characterized IBM’s (D) design
changes as “technological manipulation” that did nothing to improve performance, and complained that the
newly integrated functions were priced below their nonintegrated counterparts. The trial court found for IBM
(D). CalComp (P) appealed.
ISSUE: Even where a company is a monopolist, does it have the right to redesign its products to make them
more attractive to buyers, whether by reason of lower manufacturing cost and price or improved performance?
HOLDING AND DECISION: (Choy, J.) Yes. Even where a company is a monopolist, it has the right to
redesign its products to make them more attractive to buyers, whether by reason of lower manufacturing cost
and price or improved performance. Price and performance are inseparable parts of any competitive offering,
and equivalent performance at lower cost represents a superior product from the buyer’s point of view. At trial,
one of CalComp’s (P) own witnesses stated that, in general, the manufacturer will try and minimize his costs,
and where he integrates the control unit the assumption must be that he is achieving a lower cost solution.
CalComp’s (P) chairman also stated that, as a result of integration, the customer used less floor space, which
tends to be relatively expensive in a computer room. IBM (D) was under no duty to help CalComp (P) or
other peripheral equipment manufacturers survive or expand. Affirmed.

ANALYSIS
CalComp (P) developed its peripheral products by “reverse engineering,” i.e., copying IBM’s (D)
peripheral products. In this case then, CalComp (P) could be considered a free rider. The express purpose
of patent laws is to give innovative companies, such as IBM (D), monopoly profits to reward them for their
innovations. Such rewards provide a continued incentive to innovate.

Quicknotes
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 United States v. Microsoft Corp.
Federal government (P) v. Software company (D)
253 F.3d 34 (D.C. Cir.), cert. denied, 534 U.S. 952 (2001).

NATURE OF CASE: Appeal from judgment finding defendant in violation of the Sherman Act and
ordering various remedies.
FACT SUMMARY: The Government (P) and several States (P) alleged that Microsoft Corp. (D), the
nation’s largest manufacturer of Intel-compatible PC operating systems (OS), had committed several
violations of §§ 1 and 2 of the Sherman Act.

RULE OF LAW
(1) Monopoly power of a company may be inferred where the company has a 95 percent share of the
relevant market, where there are significant barriers to entry in that market, and the company owns a
monopoly product in that market.
(2) The conduct of a monopolist that has exclusionary anticompetitive effect, and for which there is no
procompetitive justification, supports a claim of monopolization under § 2 of the Sherman Act.
(3) To prevail, a plaintiff seeking liability under § 2 of the Sherman Act does not have to present direct
proof that a defendant’s continued monopoly power is precisely attributable to its anticompetitive
conduct.
(3) A court’s remedies decree must be vacated where the court fails to hold a remedies-specific evidentiary
hearing when there are disputed facts; the court fails to provide adequate reasons for its decreed
remedies; and the scope of liability has been altered by a higher court.

FACTS: In 1998, the Government (P) and several States (P) alleged that Microsoft Corp. (D), the nation’s
largest manufacturer of Intel-compatible PC operating systems (OS), had violated §§ 1 and 2 of the Sherman
Act. The plaintiffs charged four distinct violations of the Sherman Act: (1) unlawful exclusive dealing
arrangements in violation of § 1; (2) unlawful tying of Internet Explorer (IE) to Windows 95 and Windows
98 in violation of § 1; (3) unlawful maintenance of a monopoly in the PC operating system market in
violation of § 2; and (4) unlawful attempted monopolization of the Internet browser market in violation of §
2. The States (P) also brought pendent claims charging Microsoft (D) with violations of various State
antitrust laws. The district court adopted an expedited trial schedule and received evidence through summary
witnesses, and found that Microsoft (D) had committed antitrust violations by (a) maintaining a monopoly in
the market for Intel-compatible PC operating systems in violation of § 2; (b) attempting to gain a monopoly
in the market for Internet browsers (especially Netscape’s Navigator) in violation of § 2; and (c) illegally tying
two purportedly separate products, Windows and IE, in violation of § 1. Accordingly, the district court issued
a Final Judgment that required Microsoft (D) to submit a proposed plan of divestiture, with the company to
be split into an operating systems business and an applications business. Microsoft (D) challenged the district
court’s legal conclusions as to its liability for all alleged antitrust violations. The court of appeals granted
review.
ISSUES:
(1) Can monopoly power of a company be inferred where the company has a 95 percent share of the relevant
market, where there are significant barriers to entry in that market, and the company owns a monopoly
product in that market?
(2) Does the conduct of a monopolist that has exclusionary anticompetitive effect, and for which there is no
procompetitive justification, support a claim of monopolization under § 2 of the Sherman Act?
(3) To prevail, must a plaintiff seeking liability under § 2 of the Sherman Act present direct proof that a
defendant’s continued monopoly power, is precisely attributable to its anticompetitive conduct?
(4) Must a court’s remedies decree be vacated where the court fails to hold a remedies-specific evidentiary
hearing when there are disputed facts; the court fails to provide adequate reasons for its decreed
remedies; and the scope of liability has been altered by a higher court?
HOLDING AND DECISION: (Per curiam)
II. MONOPOLIZATION

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A. Monopoly Power
(1) Yes. Monopoly power of a company may be inferred where the company has a 95 percent share of the
relevant market, where there are significant barriers to entry in that market, and the company owns a
monopoly product in that market. A necessary element of the offense of monopolization is the possession of
monopoly power in the relevant market. The district court was correct in defining the relevant market as
Intel-compatible PC operating systems, and in finding that Microsoft (D) had a 95 percent share of the
market, and that its position was protected by a substantial entry barrier. Microsoft (D) argues that the district
court improperly excluded three types of competing products: non-Intel compatible operating systems (e.g.,
Apple’s Mac OS), operating systems for non-PC devices (e.g., handheld computers), and “middleware”
products, which are software products that expose their own Application Programming Interfaces (APIs). As
to non-Intel compatible operating systems, such as Mac OS, Microsoft (D) failed to challenge the district
court’s factual finding, i.e., that consumers would not switch from Windows to Mac OS in response to a
substantial price increase because of the costs of acquiring the new hardware needed to run Mac OS, and the
great learning curve in switching systems. The same is true as to non-PC based competitors—Microsoft (D)
did not challenge the district court’s findings, in particular, that most consumers would use them only as a
supplement, not as a substitute for, their PCs. Finally, as to middleware, every OS has different APIs.
Ostensibly, if middleware were written for multiple operating systems, Microsoft (D) argues, middleware
could usurp the operating system’s platform function and might eventually take over other operating system
functions. The district court found, however, that no middleware product could now, or in the near future,
expose enough APIs to serve as a platform for popular applications, much less take over all operating system
functions. Again, Microsoft (D) failed to challenge these findings. The district court also found a structural
barrier to entry—the “applications barrier to entry”—which stems from two characteristics of the software
market: (1) most consumers prefer operating systems for which a large number of applications have already
been written; and (2) most developers prefer to write for operating systems that already have a substantial
consumer base. This situation ensures that applications will continue to be written for the already dominant
Windows, which in turn ensures that consumers will continue to prefer it over other operating systems. The
success of middleware would eradicate that “chicken and egg” problem, but, as the district court found, that
prospect is a long way off.
B. Anticompetitive Conduct
(2) Yes. The conduct of a monopolist that has exclusionary anticompetitive effect, and for which there is no
procom-petitive justification, supports a claim of monopolization under § 2 of the Sherman Act. To be
condemned as exclusionary, a monopolist’s conduct must have an anticompetitive effect, by harming the
competitive process and thereby consumers. Under § 2 of the Sherman Act, if a prima facie case demonstrates
anticompetitive effect, the monopolist may offer a procompetitive justification for its conduct, and if it does
so, the burden shifts back to the plaintiff to rebut that claim. If the procompetitive justification is unrebutted,
the plaintiff, to prevail, must show that any anticompetitive harm outweighs any procompetitive effect. The
district court held Microsoft (D) liable for: (1) the way in which it integrated IE into Windows; (2) its various
dealings with Original Equipment Manufacturers (OEMs), Internet Access Providers (IAPs), Internet
Content Providers (ICPs), Independent Software Vendors (ISVs), and Apple Computer (Apple); (3) its
efforts to contain and to subvert Java technologies; and (4) its course of conduct as a whole.
1. Licenses Issued to OEMs

As to licenses Microsoft (D) issued to OEMs, the district court found that restrictions in these licenses
reduced usage share of Netscape’s browser and, thereby, protected Microsoft’s (D) operating system monopoly
by keeping rival browsers from gaining the critical mass of users necessary to attract developer attention away
from Windows as the platform for software development. Thus, by gaining market share in the browser
market, Microsoft (D) could protect threats to its monopoly in the OS market. In particular, Microsoft (D)
prohibited OEM’s from removing desktop icons, folders, and Start menu entries providing access to IE,
which prevented the OEMs from installing a second browser out of increased support costs associated with
servicing confused customers. There was evidence that the fear of such confusion deterred many OEMs from
installing multiple browsers. Microsoft (D) also prohibited the OEMs from modifying the initial boot
sequence, which prevented the OEMs from enabling users to choose from a list of IAPs (many of which used
Netscape Navigator rather than IE in their Internet access software). Along with other similar restrictions that
prevented OEMs from promoting rival browsers and IAPs, the case has been made that Microsoft (D)
reduced rival browsers’ usage share not by improving its own product, but, rather, by preventing OEMs from
taking actions that could increase rivals’ share of usage. Microsoft (D) attempts to justify the license

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restrictions by asserting that it is simply exercising its rights as the holder of valid copyrights. This argument
borders on the frivolous, because Microsoft (D) is wrong in asserting that it has an unfettered right to use its
intellectual property in any way it wishes. The only license restriction Microsoft (D) seriously defends as
necessary to prevent a substantial alteration of its copyrighted work is the prohibition on OEMs from
automatically launching a substitute user interface upon completion of the boot process. Insofar as this
restriction prevented the Windows desktop from ever being seen by the user, it is upheld as non-exclusionary.
Accordingly, with the exception of the one restriction prohibiting OEMs from automatically launching a
substitute user interface upon completion of the boot process, all the other restrictions represent Microsoft’s
(D) use of its market power to protect its monopoly, and, therefore, they violate § 2 of the Sherman Act.

2. Integration of IE and Windows

Microsoft (D) bound IE more tightly to Windows as a technical matter, by having IE software as an
irremovable component of Windows, which prevented OEMs from pre-installing other browsers and deterred
consumers from using them. Any attempt to remove IE would cripple Windows. Although the courts are
deferential to product innovation, this does not mean that a monopolist’s product design changes are per se
lawful. Again, this change reduced the usage share of rival browsers not by making Microsoft’s (D) own
browser more attractive to consumers, but, rather, by discouraging OEMs from distributing rival products.
Therefore, this change had anticompetitive effects that protected Microsoft’s (D) own operating system
monopoly. This integration also discouraged consumers from using a browser other than IE by systematically
overriding the users’ preference of browser, if other than IE. Finally, Microsoft (D) commingled IE code with
critical operating system files, so that any attempt to eliminate the browser code would cripple Windows.
Such commingling also had anticompetitive, exclusionary effect. Thus, a prima facie case is made out on this
issue. Microsoft (D) attempts to justify the integration of IE with Windows by claiming that, at least with
respect to its override of the user’s choice of default browser, there were valid technical reasons for such an
override. These included that fact that certain Windows features were not supported by Navigator. Because
the government (P) did not rebut this justification, Microsoft (D) cannot be held liable for this aspect of its
product design.

3. Agreements with Internet Access Providers

The district court found that Microsoft’s (D) agreements with various IAPs were exclusionary because
Microsoft (D) offered IE free of charge to the IAPs, and then offered a bounty for each customer the IAP
signed up for service using the IE browser. In effect, the court concluded that Microsoft (D) was acting to
preserve its monopoly by offering IE to IAPs at an attractive price. Similarly, the district court held Microsoft
(D) liable for developing the IE Access Kit (IEAK), a software package that allows an IAP to “create a
distinctive identity for its service in as little as a few hours by customizing the [IE] title bar, icon, start and
search pages,” and offering the IEAK to IAPs free of charge, on the ground that those acts, too, helped
Microsoft (D) preserve its monopoly. Finally, the district court found that Microsoft (D) agreed to provide
easy access to IAPs’ services from the Windows desktop in return for the IAPs’ agreement to promote IE
exclusively and to keep shipments of internet access software using Navigator under a specific percentage,
typically 25 percent. Because the law does not condemn even a monopolist from offering its product at an
attractive price, Microsoft (D) cannot be liable for offering either IE or the IEAK free of charge or even at
negative prices. Therefore, Microsoft’s (D) development of the IEAK does not violate the Sherman Act.
With regard to Microsoft’s (D) exclusive contracts with IAPs concerning desktop placement, the plaintiffs
must prove that the probable effect of the exclusive deals would be to foreclose competition in a substantial
share of the relevant market. Under § 1 of the Sherman Act, the district court found that because Microsoft
(D) had not completely excluded Netscape from reaching any potential user by some means of distribution, no
matter how ineffective, such agreements did not violate that section. However, the district court found that
the agreements severely restricted Netscapes’ access to those distribution channels leading most efficiently to
the acquisition of browser usage share, and held, therefore, that the agreements violated § 2. Microsoft (D)
argued that a holding of no liability under § 1 should preclude a finding of liability under § 2. Although the
prudential concerns of both sections are the same, a monopolist’s use of exclusive contracts may give rise to a §
2 violation. Here, the plaintiffs have demonstrated that Microsoft (D) managed to preserve its monopoly by
entering into exclusive contracts with IAPs, which constitute one of the two major channels by which
browsers can be distributed. Therefore, the contracts with the IAPs were exclusionary devices that violated §
2.

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 4. Dealings with … Apple Computer

The district court held that Microsoft’s (D) dealings with Apple violated the Sherman Act, by having Apple
agree to switch from promoting Navigator to bundling the most current version of IE with Mac OS. This
exclusive deal had a substantial impact on the distribution of rival browsers. If a browser developer ports its
product to a second operating system, such as the Mac OS, it can continue to display a common set of APIs.
Thus, usage share, not the underlying operating system, is the primary determinant of the platform challenge
a browser may pose. Pre-installation of a browser is one of the two most important methods of browser
distribution, and Apple had a not insignificant share of worldwide sales of operating systems. Accordingly,
Microsoft’s (D) deal with Apple must be regarded as anticompetitive. Because Microsoft (D) offers no
procompetitive justifications for this exclusive deal with Apple, it is held violative of § 2.

5. Java

Java is a set of technologies developed by Sun Microsystems that enables software written to Java to run on
almost any computer operating system. The district court found that Microsoft (D) took four steps to exclude
Java from developing as a viable cross-platform threat: (a) designing a Java Virtual Machine (JVM)
incompatible with the original one; (b) entering into contracts, the so-called “First Wave Agreements,”
requiring major ISVs to promote Microsoft’s JVM exclusively; (c) deceiving Java developers about the
Windows-specific nature of the tools it distributed to them; and (d) coercing Intel to stop participating in the
improvement of Java technologies. First, the JVM Microsoft (D) developed runs faster in Windows, and per
se does not have an anticompetitive effect. A monopolist does not violate the antitrust laws simply by
developing a product that is incompatible with those of rivals. Therefore, the district court’s finding of liability
is reversed as to Microsoft’s (D) development of its own JVM. Second, the First Wave Agreements, which
conditioned receipt of Windows technical information on the ISVs agreement to promote Microsoft’s (D)
JVM exclusively, had an anticompetitive effect on the promotion of original JVM since, as a practical matter,
developers were required to make Microsoft’s (D) JVM the default in the software they developed. Because
the cumulative effect of this deal was anticompetitive—because it had the effect of seriously impeding the
distribution of Sun’s JVM and foreclosed a substantial portion of the field for JVM distribution—and because
Microsoft (D) offered no procompetitive justification for it, it violates the Sherman Act. Third, Microsoft (D)
intended to and did deceive developers into unwittingly writing Java applications that ran only on Windows
by making the developers think that they were using Microsoft (D) tools for developing cross-platform
applications, when in fact those tools could produce applications that could run only on Windows. This
conduct served to protect Microsoft’s (D) monopoly of the operating system in a way not attributable to the
superiority of the OS or to the acumen of its makers, had no procompetitive justification, and violates § 2.
Finally, Microsoft (D) prevented firms such as Intel from aiding in the creation of cross-platform interfaces.
After coercive pressure from Microsoft (D), Intel abandoned such efforts. This had anticompetitive effect, as
intended by Microsoft (D). Again, Microsoft (D) offers no procompetitive justifications for this conduct,
which, therefore, is held to violate § 2.

C. Causation
(3) No. To prevail, a plaintiff seeking liability under § 2 of the Sherman Act does not have to present direct
proof that a defendant’s continued monopoly power is precisely attributable to its anticompetitive conduct.
Microsoft (D) argues that there is no causal link between its anticompetitive conduct, in particular its
foreclosure of Netscape’s and Java’s distribution channels, and the maintenance of its operating system
monopoly. It argues, wrongly, that to prove such a link, the district court would have had to find that
Navigator and Java would have developed into serious cross-platform threats to erode the applications barrier
to entry. There is no precedent that, as to § 2 liability in an equitable enforcement action, plaintiffs must
present direct proof that a defendant’s continued monopoly power is precisely attributable to its
anticompetitive conduct. Courts may infer causation when exclusionary conduct is aimed at producers of
nascent technologies, even though it is impossible to recreate “a product’s hypothetical technological
development in a world absent the defendant’s exclusionary conduct.” Microsoft’s (D) causation argument is
more pertinent to the question of the appropriate remedy, i.e., whether the court should impose a structural
remedy or merely enjoin the offensive conduct, than to the question of liability.
V. REMEDY
(4) Yes. A court’s remedies decree must be vacated where the court fails to hold a remedies-specific
evidentiary hearing when there are disputed facts; the court fails to provide adequate reasons for its decreed

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remedies; and the scope of liability has been altered by a higher court. The district court’s remedies order must
be vacated because: (1) the court failed to hold a remedies-specific evidentiary hearing when there were
disputed facts; (2) the court failed to provide adequate reasons for its decreed remedies; and (3) this Court has
revised the scope of Microsoft’s (D) liability and it is impossible to determine to what extent that should affect
the remedies provisions. On remand, the district court must reconsider whether the use of the structural
remedy of divestiture is appropriate with respect to Microsoft (D), which argues that it is a unitary company.
The dissolution of unitary companies has not traditionally been ordered, in part because to do so entails great
logistical difficulty and threatens to greatly reduce the company’s efficiency, and because this remedy has been
used primarily for antitrust violations whose heart is intercorporate combination and control. In devising an
appropriate remedy, the district court, in addition to considering whether Microsoft (D) is a unitary company,
also should consider whether plaintiffs have established a sufficient causal connection between Microsoft’s (D)
anticompetitive conduct and its dominant position in the OS market. Mere existence of an exclusionary act
does not itself justify full feasible relief against the monopolist to create maximum competition. Rather,
structural relief, which is designed to eliminate the monopoly altogether, requires a clearer indication of a
significant causal connection between the conduct and creation or maintenance of the market power. Absent
such causation, the antitrust defendant’s unlawful behavior should be remedied by an injunction against
continuation of that conduct.

ANALYSIS
This case has been one of the most widely discussed antitrust cases in recent decades. The court in this case
also reversed the district court’s finding that Microsoft (D) unlawfully attempted to monopolize the
browser market, on the grounds that the relevant browser market had not been properly defined and
because entry barriers into this market were not shown to be high. More importantly, the court held that
the rule of reason, rather than per se analysis, governs the legality of tying arrangements involving platform
software products. This holding is seen as a significant contribution to tying doctrine. The U.S. Supreme
Court denied certiorari in this case, letting stand the court of appeals’ pronouncement on the applicability
of the rule of reason to tying cases involving software platforms. Finally, as the court discusses in the
opinion, this case raises a practical issue of how meaningful antitrust litigation is in an industry, such as the
computer industry, where by the time a large and complex case is resolved, many of the products, firms,
and marketplace are likely to have changed dramatically.

Quicknotes
CERTIORARI A discretionary writ issued by a superior court to an inferior court in order to review the lower
court’s decisions; the Supreme Court’s writ ordering such review.
EVIDENTIARY HEARING Hearing pertaining to the evidence of the case.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 Independent Service Organizations Antitrust Litigation
Independent service organizations (P) v. Intellectual property owner/seller (D)
203 F.3d 1322 (Fed. Cir. 2000).

NATURE OF CASE: Appeal from dismissal of antitrust action on summary judgment.

FACT SUMMARY: Xerox (D), a manufacturer, seller, and servicer of copiers established a policy of not
selling its patented copier parts or copyrighted software to independent service organizations (ISOs),
including CSU (P), unless they were also end-users. CSU (P) brought suit alleging that Xerox’s (D) refusal to
sell or license its patented parts and copyrighted software violated the Sherman Act. Xerox (D)
counterclaimed for patent and copyright infringement.

RULE OF LAW
If a patent or copyright is lawfully acquired, the patent or copyright holder’s unilateral refusal to sell or
license its patented invention or copyrighted expression, is not unlawful exclusionary conduct, where the
exercise of the intellectual property right does not exceed the scope of the intellectual property right.

FACTS: Xerox (D) manufactures, sells, and services copiers. It established a policy of not selling parts unique
to some of its copiers to independent service organizations (ISOs), including CSU (P), unless they were also
end-users of the copiers. To maintain its existing business of servicing Xerox (D) equipment, CSU (P) used
parts cannibalized from used Xerox (D) equipment, parts obtained from other ISOs, and parts purchased
through a limited number of its customers. CSU (P) filed suit alleging that Xerox (D) violated the Sherman
Act by setting the prices on its patented parts much higher for ISOs than for end-users to force ISOs to raise
their prices. This would eliminate ISOs in general and CSU (P) in particular, as competitors in the relevant
service markets for copiers and printers. Xerox (D) counterclaimed for patent and copyright infringement and
contested CSU’s (P) antitrust claims as relying on injury solely caused by Xerox (D)’s lawful refusal to sell or
license patented parts and copyrighted software. The district court granted summary judgment to Xerox (D).
The court of appeals granted review.
ISSUE: If a patent or copyright is lawfully acquired, is the patent or copyright holder’s unilateral refusal to sell
or license its patented invention or copyrighted expression unlawful exclusionary conduct where the exercise of
the intellectual property right does not exceed the scope of the intellectual property right?
HOLDING AND DECISION: (Mayer, C.J.) No. If a patent or copyright is lawfully acquired, the patent or
copyright holder’s unilateral refusal to sell or license its patented invention or copyrighted expression, is not
unlawful exclusionary conduct, where the exercise of the intellectual property right does not exceed the scope
of the intellectual property right. The applicable law respecting Xerox’s (D) refusal to sell its patented parts is
federal circuit law, which has exclusive jurisdiction over patent issues. The applicable law respecting Xerox’s
(D) refusal to sell or license its copyrighted manuals and software is the law of the regional circuit in which
the district court sits (here, the Tenth Circuit). Determination of whether a patent holder meets the Sherman
Act elements of monopolization or attempt to monopolize is governed by the rules of application of the
antitrust laws to market participants, with due consideration to the exclusivity that inheres in the patent grant.
Even where an intellectual property owner has market power, such market power does not impose on the
owner an obligation to license the use of that property to others. Although no court has imposed antitrust
liability for a unilateral refusal to sell or license a patent, the patent owner’s right to exclude is not without
limit. Where the patent owner brings an enforcement action that has an anticompetitive effect, the owner is
exempt from the antitrust law unless the intellectual property to be licensed was fraudulently obtained, or the
infringement claim is a sham to conceal an attempt to harm a competitor. Here, CSU (P) makes no claim that
Xerox (D) obtained its patents through fraud. Also, to prove that a suit falls within the sham exception to
immunity, an antitrust plaintiff must prove that the suit was both objectively baseless and subjectively
motivated by a desire to impose collateral, anticompetitive injury rather than to obtain a justifiable legal
remedy. Accordingly, if a suit is not objectively baseless, an antitrust defendant’s subjective motivation is
immaterial. CSU (P) has alleged that Xerox (D) misused its patents, but has not claimed that Xerox’s (D)
patent infringement counterclaims were shams. CSU (P) instead alleges that Xerox (D) illegally sought to
leverage its dominance in the equipment and parts market into dominance in the service market. However,
absent exceptional circumstances, a patent may confer the right to exclude competition altogether in more

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than one antitrust market. The rebuttable presumption, whereby it is presumed that a monopolist’s exercise of
the statutory right to exclude provides a valid business justification for consumer harm, requires, for an
assessment of pretext, an evaluation of the patent holder’s subjective motivation for exercising its intellectual
property rights. This rebuttable presumption is inapposite in this jurisdiction, where precedent provides that if
a patent suit is not objectively baseless, an antitrust defendant’s subjective motivation, is immaterial. In the
absence of any indication of illegal tying, fraud, or sham litigation, the patent holder may enforce the statutory
right to exclude others from making, using, or selling the claimed invention free from liability under the
antitrust laws so long as any anticompetitive effect does not illegally extend beyond the statutory patent grant.
It is the infringement defendant and not the patentee that bears the burden to show that one of these
exceptional situations exists, and, in the absence of such proof, the patentee’s motivations for asserting his
statutory right to exclude will not be evaluated. Even in cases where the infringement defendant has met this
burden, which CSU (P) has not, he must then also prove the elements of the Sherman Act violation. Here,
Xerox’s (D) refusal to sell its patented parts did not exceed the scope of the patent grant and, therefore, Xerox
(D) is not liable in antitrust. The property right granted by copyright law cannot be used without limits to
extend power in the marketplace beyond what Congress intended. Neither the Supreme Court nor the
regional court of appeals has directly addressed the antitrust implications of a unilateral refusal to sell or
license copyrighted expression. A different court of appeals rejected a claim of illegal tying that was supported
only by evidence of a unilateral decision to license copyrighted material to some but not to others. Yet another
court of appeals has approached this issue by creating a rebuttable presumption that an author’s desire to
exclude others from use of his copyrighted work is presumptively a business justification for any immediate
harm to consumers—the burden to overcome this presumption is firmly on the antitrust plaintiff. Under this
approach, the subjective motivation of the copyright owner is not examined absent any evidence that the
copyrights were obtained unlawfully or were used to gain monopoly power beyond the statutory copyright
granted by Congress. In the absence of such definitive rebuttal evidence, Xerox’s (D) refusal to sell or license
its copyrighted works was squarely within the rights granted by Congress to the copyright holder and did not
constitute a violation of the antitrust laws. Affirmed.

ANALYSIS
In this case, the court appears to conclude that any condition placed on a license is exempt from antitrust
laws unless the intellectual property to be licensed was fraudulently obtained, an infringement claim by the
property holder is a sham to conceal an attempt to harm a competitor, or the refusal is part of a tie-in sales
strategy.

Quicknotes
COPYRIGHT Refers to the exclusive rights granted to an artist pursuant to Article I, section 8, clause 8 of the
United States Constitution over the reproduction, display, performance, distribution, and adaptation of his
work for a period prescribed by statute.
INFRINGEMENT Conduct in violation of statue or that interferes with another’s rights pursuant to law.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
PATENT A limited monopoly conferred on the invention or discovery of any new or useful machine or process
that is novel and nonobvious.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

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 Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.
Tobacco company (P) v. Tobacco company (D)
509 U.S. 209 (1993).

NATURE OF CASE: Appeal from a judgment for the defendant as a matter of law after an award of treble
damages to the plaintiff in an antitrust action.
FACT SUMMARY: After Brown & Williamson Tobacco Corp. (D) entered the generic cigarette market in
competition with Brooke Group Ltd. (Liggett) (P), Liggett (P) filed suit, alleging predatory pricing which
violated federal antitrust law.

RULE OF LAW
To establish competitive injury due to a rival’s low prices, a plaintiff must prove that the prices are
below its rival’s costs and that the competitor has a reasonable prospect of recoupment.

FACTS: To increase its market share, Brooke Group Ltd. (Liggett) (P) introduced generic cigarettes. As the
economy market expanded, other firms entered since the growth of generics came at the expense of their
branded cigarettes. Brown & Williamson Tobacco Corp. (B & W) (D) produced its own generic brand, not
only matching Liggett’s (P) prices, but beating them. Liggett (P) and B & W (D) engaged in a price war at
the wholesale level, with B & W (D) maintaining a real advantage. Liggett (P) then filed suit, alleging that B
& W’s (D) price discrimination had a reasonable possibility of injuring competition, that it was integral to a
scheme of predatory pricing, and that B & W (D) had cut prices below its costs. The jury awarded damages to
Liggett (P), which the district court trebled. However, after review, the court held that B & W (D) was
entitled to judgment as a matter of law. The court of appeals affirmed. Liggett (P) appealed.
ISSUE: To establish competitive injury due to a rival’s low prices, must a plaintiff prove that the prices are
below its rival’s costs and that the competitor has a reasonable prospect of recoupment?
HOLDING AND DECISION: (Kennedy, J.) Yes. To establish competitive injury due to a rival’s low
prices, a plaintiff must prove that the prices are below its rival’s costs and that the competitor has a reasonable
prospect of recoupment. Here, the record contains sufficient evidence from which a reasonable jury could
conclude that B & W (D) envisioned or intended an anticompetitive course of events and that for about
eighteen months the prices on its generic cigarettes were below its costs. A jury could further conclude that
this below-cost pricing imposed losses on Liggett (P) that it was unwilling to sustain. However, Liggett (P)
has failed to demonstrate competitive injury as a matter of law because the evidence is inadequate to show that
B & W (D) had a reasonable prospect of recouping its losses from below-cost pricing through slowing the
growth of generics. Affirmed.
DISSENT: (Stevens, J.) The Robinson-Patman Act was designed to reach price discriminations in their
incipiency, before the harm to competition is effected. It is enough that they “may” have the proscribed effect.
Thus, Liggett (P) need not show any actual harm to competition but only the reasonable possibility that such
harm would flow from B & W’s (D) conduct. When the facts are viewed in the light most favorable to
Liggett (P), it is clear that there is sufficient evidence in the record that the “reasonable possibility” of
competitive injury required by the statute actually existed.

ANALYSIS
The Robinson-Patman Act, which amended § 2 of the original Clayton Act, offers no exclusion from
coverage when primary-line injury occurs in an oligopoly setting. Unlike the provisions of the Sherman
Act, which speak only of various forms of express agreement and monopoly, the Robinson-Patman Act is
phrased in broader, disjunctive terms, prohibiting price discrimination “where the effect of such
discrimination may be substantially to lessen competition or tend to create a monopoly.” Liggett’s (P)
theory of competitive injury through oligopolistic price coordination depends upon a complex chain of
cause and effect. Although the majority found Liggett’s (P) theory of liability was within the reach of the
Act as an abstract matter, relying on tacit coordination among oligopolists as a means of recouping losses
from predatory pricing was “highly speculative.”

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Quicknotes
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anticompetitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
OLIGOPOLISTIC A market condition in which the industry for a particular product is dominated by only a few
companies.
PREDATORY PRICING Pricing below the cost of production of a product with the intent of driving competitors
out of business.
ROBINSON-PATMAN ACT § 2 Makes price discrimination unlawful if the intent is to harm competition.
TREBLE DAMAGES An award of damages triple of the amount awarded by the jury and provided for by statute
for violation of certain offenses.

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 Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc.
Timber company (D) v. Sawmill (P)
127 S. Ct. 1069 (2007).

NATURE OF CASE: Appeal from affirmance of judgment for plaintiff in predatory bidding action under §
2 of the Sherman Act.
FACT SUMMARY: Ross-Simmons Hardwood Lumber Co., Inc. (Ross-Simmons) (P), a sawmill, alleged
that Weyerhaeuser Co. (D), a timber company, drove Ross-Simmons (P) out of business by bidding up the
price of sawlogs to a level that prevented Ross-Simmons (P) from being profitable. Weyerhaeuser Co. (D)
contended that the appropriate test for predatory bidding should be based on the test for predatory pricing
formulated in the U.S. Supreme Court’s Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S.
209 (1993).

RULE OF LAW
To prevail on a predatory-bidding claim, a plaintiff must show that that the alleged predator’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 and that the alleged predator has a dangerous probability of recouping the losses incurred in
bidding up input prices through the exercise of monopsony power.

FACTS: Ross-Simmons Hardwood Lumber Co., Inc. (Ross-Simmons) (P), an alder hardwood sawmill, was
the first to operate a sawmill in a certain geographic area, but eventually Weyerhaeuser Co. (D) had six mills
in the same area. While Weyerhaeuser (D) made significant capital investments in its operations and
increased efficiency, Ross-Simmons (P) made few such investments. Logs represent up to 75 percent of a
sawmill’s total costs, 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 mills’ profit margins, and
Ross-Simmons (P) suffered heavy losses during this time, leading to the closure of the mill in 2001. Ross-
Simmons (P) filed suit under § 2 of the Sherman Act, alleging that Weyerhaeuser Co. (D) drove it out of
business by bidding up the price of alder sawlogs to a level that prevented Ross-Simmons (P) from being
profitable. Proceeding on this “predatory-bidding” theory, Ross-Simmons (P) argued that Weyerhaeuser (D)
had overpaid for alder sawlogs to cause sawlog prices to rise to artificially high levels as part of a plan to drive
Ross-Simmons (P) out of business. As proof that this practice had occurred, Ross-Simmons (P) pointed to
Weyerhaeuser’s (D) large share of the alder purchasing market, rising alder sawlog prices during the alleged
predation period, and Weyerhaeuser’s (D) declining profits during that same period. The district court, inter
alia, rejected Weyerhaeuser’s (D) proposed predatory-bidding jury instructions that incorporated elements of
the test applied to predatory-pricing claims in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509
U.S. 209 (1993). The jury returned a verdict against Weyerhaeuser (D), and the court of appeals affirmed
rejecting Weyerhaeuser’s (D) argument that Brooke Group’s standard should apply to predatory-bidding
claims. The U.S. Supreme Court granted certiorari.
ISSUE: To prevail on a predatory-bidding claim, must a plaintiff show that the alleged predator’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 and that the alleged predator has a dangerous probability of recouping the losses incurred in bidding
up input prices through the exercise of monopsony power?
HOLDING AND DECISION: (Thomas, J.) Yes. To prevail on a predatory-bidding claim, a plaintiff must
show that that the alleged predator’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 and that the alleged predator has a dangerous
probability of recouping the losses incurred in bidding up input prices through the exercise of monopsony
power. Predatory pricing is a scheme in which the predator reduces the sale price of its product hoping to
drive competitors out of business and, once competition has been vanquished, raises prices to an above
competitive level. Brooke Group established two prerequisites to recovery on a predatory-pricing claim: First, a
plaintiff must show that the prices complained of are below cost, because allowing recovery for above-cost
price cutting could chill conduct—price cutting—that directly benefits consumers. Second, a plaintiff must
show that the alleged predator had “a dangerous probability of recouping its investment in below-cost
pricing,” because without such a probability, it is highly unlikely that a firm would engage in predatory

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pricing. The costs of erroneous findings of predatory pricing liability are quite high because the mechanism by
which a firm engages in predatory pricing, i.e., lowering prices, is the same mechanism by which a firm
stimulates competition, and, therefore, mistaken liability findings would chill the very conduct the antitrust
laws are designed to protect. Predatory bidding involves the exercise of market power on the market’s buy, or
input, side. To engage in predatory bidding, a purchaser bids up the market price of an input so high that rival
buyers cannot survive, thus acquiring monopsony power, which is market power on the buy side of the
market. Once a predatory bidder causes competing buyers to exit the market, it will attempt to drive down
input prices to reap above competitive profits that will at least offset the losses it suffered in bidding up input
prices. Predatory-pricing and predatory-bidding claims are thus analytically similar, and the close theoretical
connection between monopoly and monopsony suggests that similar legal standards should apply to both sorts
of claims. Both involve the deliberate use of unilateral pricing measures for anticompetitive purposes and both
require firms to incur certain short-term losses on the chance that they might later make above competitive
profits. More importantly, predatory bidding mirrors predatory pricing in respects deemed significant in
Brooke Group. Because rational businesses will rarely suffer short-term losses in hopes of reaping supra
competitive profits, Brooke Group’s conclusion that “predatory pricing schemes are rarely tried, and even more
rarely successful,” applies with equal force to predatory-bidding schemes. Actions taken in a predatory-
bidding scheme, like those in a predatory-pricing scheme, are often at the heart of competition and may
ultimately benefit the consumer if the scheme fails. In fact, there are numerous legitimate reasons for bidding
up the cost of inputs. Predatory bidding also presents less of a direct threat of consumer harm than predatory
pricing, which achieves ultimate success by charging higher prices to consumers, because a predatory bidder
does not necessarily rely on raising prices in the output market to recoup its losses. Given these similarities,
Brooke Group’s two-pronged test should apply to predatory-bidding claims. A predatory-bidding plaintiff must
prove that the predator’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 the risk of chilling procompetitive behavior with too
lax a liability standard is as serious here as it was in Brooke Group, only higher bidding that leads to below-cost
pricing in the relevant output market will suffice as a basis for predatory-bidding liability. A predatory-
bidding plaintiff also must prove that the defendant has a dangerous probability of recouping the losses
incurred in bidding up input prices through the exercise of monopsony power. Making such a showing will
require a close analysis of both the scheme alleged by the plaintiff and the relevant market’s structure and
conditions. Because Ross-Simmons (P) has conceded that it has not satisfied the Brooke Group standard, its
predatory-bidding theory of liability cannot support the jury’s verdict. Affirmed.

ANALYSIS
There are myriad legitimate reasons—ranging from benign to affirmatively procompetitive—why a buyer
might bid up input prices. A firm might bid up inputs as a result of miscalculation of its input needs or as a
response to increased consumer demand for its outputs. A more efficient firm (such as Weyerhaeuser (D)
here) might bid up input prices to acquire more inputs as a part of a procompetitive strategy to gain market
share in the output market. A firm that has adopted an input-intensive production process might bid up
inputs to acquire the inputs necessary for its process. Or a firm might bid up input prices to acquire excess
inputs as a hedge against the risk of future rises in input costs or future input shortages. Thus, this sort of
high bidding is essential to competition and innovation on the buy side of the market.

Quicknotes
PREDATORY PRICING Pricing below the cost of production of a product with the intent of driving competitors
out of business.

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 Cascade Health Solutions v. PeaceHealth
Hospital operator (P) v. Hospital operator (D)
515 F.3d 883 (9th Cir. 2008).

NATURE OF CASE: Cross-appeals in action for, inter alia, monopolization, conspiracy to monopolize,
exclusive dealing, attempted monopolization, and price discrimination.
FACT SUMMARY: McKenzie-Willamette Hospital (P), a hospital operator, claimed that PeaceHealth (D),
also a hospital operator, committed various antitrust violations by offering insurers bundled discounts on
certain types of services (tertiary) if the insurers made PeaceHealth (D) their sole preferred provider for all
hospital services.

RULE OF LAW
To prove that a bundled discount is exclusionary or predatory under § 2 of the Sherman Act, a
plaintiff must show that, after allocating the discount given by the defendant on the entire bundle of
products to the competitive product or products, the defendant sold the competitive product or products
below its average variable cost of producing them.

FACTS: McKenzie-Willamette Hospital (McKenzie) (P) operated a hospital in a certain geographical area,
while PeaceHealth (D) operated three. McKenzie’s (P) hospital provided only primary and secondary acute
care, whereas PeaceHealth (D) also offered tertiary care (more complex medical services). PeaceHealth (D)
had a 75 percent share of primary and secondary services. PeaceHealth (D) offered insurers its services at a
discounted reimbursement rate. The reimbursement rate is the price paid by the insurer for the hospital’s
services. McKenzie (P) brought suit alleging that PeaceHealth (D) had committed various antitrust violations,
including monopolization, conspiracy to monopolize, exclusive dealing, attempted monopolization, and price
discrimination. On its monopolization and attempted monopolization claims, McKenzie (P) theorized that
PeaceHealth’s (D) conduct was anticompetitve when it offered insurers bundled discounts of 35–40 percent
on certain tertiary services if the insurers made PeaceHealth (D) their sole preferred provider for all hospital
services—primary, secondary and tertiary. Bundling is the practice of offering, for a single price, two or more
goods or services that could be sold separately. A bundled discount occurs when a firm sells a bundle of goods
or services for a lower price than the seller charges for the goods or services purchased individually. The jury
returned a verdict for PeaceHealth (D) on the monopolization, conspiracy to monopolize, and exclusive
dealing claims, but found in favor of McKenzie (P) on the attempted monopolization and price discrimination
claims. The district court trebled the damages awarded by the jury, and the court of appeals granted review.
ISSUE: To prove that a bundled discount is exclusionary or predatory under § 2 of the Sherman Act, must a
plaintiff show that, after allocating the discount given by the defendant on the entire bundle of products to the
competitive product or products, the defendant sold the competitive product or products below its average
variable cost of producing them?
HOLDING AND DECISION: (Gould, J.) Yes. To prove that a bundled discount is exclusionary or
predatory under § 2 of the Sherman Act, a plaintiff must show that, after allocating the discount given by the
defendant on the entire bundle of products to the competitive product or products, the defendant sold the
competitive product or products below its average variable cost of producing them. Bundled discounts
generally favor buyers and can result in savings for the seller. Therefore, the Supreme Court has indicated that
such price cutting is a practice that the antitrust laws aim to promote, since it can benefit consumers.
Nevertheless, it is theoretically possible for a seller to use a bundled discount to exclude an equally or more
efficient competitor, thus reducing consumer welfare. One example is where a competitor sells only a single
product in the bundle and produces that product at a lower cost than the seller, but cannot match profitably
the price created by the multi-product discount. This is true even if the post-discount prices for both the
entire bundle and each product in the bundle are above the seller’s cost. Here, the district court applied a rule
that did not require below-cost pricing for any bundled-discount pricing practice to be deemed exclusionary.
The problem with this standard, however, as noted by the Antitrust Modernization Commission (AMC) is
that it does not consider whether the bundled discounts constitution competition on the merits, but simply
concludes that all bundled discounts offered by a monopolist are anticompetitive with respect to competitors
that do not have an equally diverse product line. Thus, this standard can protect a less efficient competitor to

165
the detriment of consumer welfare. Moreover, this standard does not offer a clear standard by which a seller
can assess whether its bundled rebates are anticompetitive. Given the endemic nature of bundled discounts
throughout all spheres of the economy, this standard is rejected in favor of a standard that provides that the
exclusionary conduct element of a claim arising under § 2 of the Sherman Act cannot be satisfied by reference
to bundled discounts unless the discounts result in prices that are below an appropriate measure of the
defendant’s costs. The next issue that must be resolved, therefore, is how to define the appropriate measure of
the seller’s costs and how to determine whether discounted prices have fallen below that mark. PeaceHealth
(D) urges adopting an “aggregate discount” measure, which would condemn bundled discounts as
anticompetitive only if the discounted price of the entire bundle does not exceed the seller’s incremental cost
to produce the entire bundle. Such a rule, however, is not necessary in multi-product discounting cases, since
alternative rules exist that are more likely to identify anticompetitive bundled discounting practices while
simultaneously causing little harm to competition. One such rule deems a bundled discount exclusionary if the
plaintiff can show that it was an equally efficient producer of the competitive product, but the defendant’s
bundled discount made it impossible for the plaintiff to continue to produce profitably the competitive
product. Under this standard, a plaintiff must prove either that the monopolist has priced below its average
variable cost or the plaintiff is at least as efficient a producer of the competitive product as the defendant, but
that the defendant’s pricing makes it unprofitable for the plaintiff to continue to produce. Thus, under this
standard, above-cost prices are not per se legal. Instead, below-cost prices are simply one beacon for
identifying discounts that create the risk of excluding firms that are as efficient as the defendant—the unique
anticompetitive risk posed by bundled discounts. A downside of this standard, however, is that it does not
provide guidance to sellers who wish to offer procompetitive bundled discounts because the standard looks to
the actual plaintiff’s costs, which the seller likely will not know, and might encourage more litigation than
necessary. Yet another alternative cost-based rule, which is adopted here, is a “discount attribution” standard,
whereby the full amount of the discounts given on the bundle are allocated to the competitive product or
products. If the resulting price of the competitive product or products is below the defendant’s incremental
cost to produce them, the trier of fact may find that the bundled discount is exclusionary. This standard makes
the defendant’s bundled discounts legal unless the discounts have the potential to exclude a hypothetical
equally efficient producer of the competitive product—rather than an actual plaintiff. This rule thus has the
benefit of providing clear guidance to sellers as to whether their bundled discounts will run afoul of the
antitrust laws, since the seller can ascertain its own prices and cost of production. Such an approach is also
supported by leading antitrust commentators and judges. While liability under this rule has to the potential to
sweep more broadly than under the other standards, it will permit courts to obtain the experience necessary for
determining whether bundled discounts are anticompetitive. Finally, the appropriate measure of incremental
cost is marginal cost—the increase to total cost that occurs as a result of producing one additional unit of
output. However, because the incremental cost of making and selling the last unit cannot readily be inferred
from conventional business accounts, which typically go no further than showing observed average variable
cost, variable cost is a suitable surrogate for marginal cost. Accordingly, prices below average variable cost can
indicate predation. Therefore, in the bundled discounts context, the appropriate measure of costs for the cost-
based standard is average variable cost. Because the district court’s jury instruction was premised on the wrong
legal standard, it contained an error of law. Reversed.

ANALYSIS
The Antitrust Modernization Commission (AMC) has proposed that courts should adopt a three-part test
to determine whether bundled discounts or rebates violate § 2 of the Sherman Act. To prove a violation of
§ 2, a plaintiff should be required to show each one of the following elements (as well as other elements of
a § 2 claim): (1) after allocating all discounts and rebates attributable to the entire bundle of products to the
competitive product, the defendant sold the competitive product below its incremental cost for the
competitive product; (2) the defendant is likely to recoup these short-term losses; and (3) the bundled
discount or rebate program has had or is likely to have an adverse effect on competition. The first element
would subject bundled discounts to antitrust scrutiny only if they could exclude a hypothetical equally
efficient competitor and provide sufficient clarity for businesses to determine whether their bundled
discounting practices run afoul of § 2.

Quicknotes
SHERMAN ACT § 2 Makes it a felony to monopolize or attempt to monopolize, or combine or conspire with any

166
other person(s) to monopolize, any part of the trade or commerce among the states or with a foreign country.

167
 Aspen Skiing Co. v. Aspen Highlands Skiing Corp.
Ski mountain operator (P) v. Ski mountain operator (D)
472 U.S. 585 (1985).

NATURE OF CASE: Appeal from decision affirming finding of violation of antimonopoly laws.
FACT SUMMARY: Aspen Skiing Co. (D) appealed from a court of appeals decision affirming a judgment
finding a violation of the antimonopoly laws, contending that the judgment could not stand as a matter of law
because it rested with an assumption that a firm with monopoly power has a duty to cooperate with smaller
rivals in a marketing arrangement in order to avoid the violation.

RULE OF LAW
If there is support in the record for a jury’s conclusion that no valid business decision exists for the
refusal of a firm with monopoly power to deal with smaller competitions, its judgment of a monopoly laws
violation will be sustained.

FACTS: Aspen Highlands Skiing Corp. (Highlands) (P) operated a ski mountain facility in the Aspen area
of Colorado. Three other mountain skiing facilities operated in the same area. These mountains were
operated by Aspen Skiing Co. (Skiing) (D). Throughout the years, the operations in the area offered all-
Aspen ticket programs of various designs, which allowed skiers in the area to utilize all the facilities in the area
with a minimum of difficulties. Although there were some monitoring difficulties associated with the all-
Aspen ticket, sales of the ticket were good, and the program was generally well received. During the 1970s,
Skiing (D) became increasingly dissatisfied with the all-Aspen ticket and in 1977–78 refused to offer such a
ticket unless Highlands (P) would accept a fixed share of the ticket revenues at a level lower than traditionally
achieved by Highlands (P). For 1978–79 the fixed percentage offered by Skiing (D) was further reduced, and
Skiing (D) refused to accept any counterproposals from Highlands (P). Highlands (P) attempted to market its
own multi-area package, but Skiing (D) made it very difficult for it to do so. Skiing (D) refused to accept any
vouchers from Highlands (P) and refused to sell Highlands (P) any ski lift tickets that they could package.
Without the convenience of the previous tickets, Highlands’ (P) program met with considerable resistance,
and Highlands’ (P) revenues began to drop off. Highlands (P) filed a complaint alleging violations of the
Sherman Act’s antimonopoly laws. The jury returned a $2.5 million verdict, and the district court awarded
treble damages. The court of appeals affirmed, and from this decision, Skiing (D) appealed.
ISSUE: If there is support in the record for a jury’s conclusion that no valid business reason exists for the
refusal of a firm with monopoly power to deal with smaller competitors, will its judgment of a violation of the
antimonopoly laws be sustained?
HOLDING AND DECISION: (Stevens, J.) Yes. If there is support in the record for a jury’s conclusion that
no valid business decision exists for the refusal of a firm with monopoly power to deal with smaller
competitors, its judgments for violation of the antimonopoly laws will be sustained. Clearly, a business does
not have the duty to cooperate with competitors, but the right is not unqualified. In the present case, Skiing
(D) has elected to make an important change in the pattern of distribution that had existed in the skiing
industry for many years and had served to further enhance that competitive market. Construing the record
most favorably to Highlands (P), it is assumed that the jury followed the court’s instructions. As such it must
have concluded that no valid business reasons existed for Skiing’s (D) refusal to cooperate in the marketing of
the all-Aspen ticket. There is ample evidence in the record to support this conclusion. The superior quality of
the all-Aspen ticket is attested to by its previous popularity, and it could be concluded that consumers were
adversely affected by the elimination of the ticket. It is also readily apparent that Highlands’ (P) share of the
market declined as a result of the elimination of the all-Aspen ticket. Finally, Skiing (D) has offered no
efficiency justification whatsoever for its pattern of conduct. Indeed, it appeared that Skiing (D) was willing to
forgo substantial benefits associated with the ticket. Although not bold, relentless, and predatory, ample
evidence exists for the conclusion that there was deliberate effort to discourage its customers from doing
business with Highlands (P). Affirmed.

ANALYSIS

168
 This case is clearly an example of the Court’s concern for the consumer. The Court in this particular case
targeted the relative market as the purchaser of the all-area ticket. While Skiing’s (D) activities clearly had
an effect on Highlands (P), no particular consumer was prevented from skiing at either location. Had
Skiing (D) not been so obvious in its effects but had merely allowed Highlands (P) to absorb the costs of
the program, antitrust liability would not have been assessed.

Quicknotes
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.
TREBLE DAMAGES An award of damages triple of the amount awarded by the jury and provided for by statute
for violation of certain offenses.

169
 Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP
Incumbent local telephone company (D) v. Local telephone service customer (P)
540 U.S. 398 (2004).

NATURE OF CASE: Appeal from reversal of dismissal for failure to state a claim of action under § 2 of the
Sherman Act.
FACT SUMMARY: Verizon Communications, Inc. (Verizon) (D), the incumbent local exchange carrier
(LEC) serving New York State, contended that Law Offices of Curtis V. Trinko, LLP (P), a local telephone
service customer of AT&T, failed to state a claim under § 2 of the Sherman Act when it alleged that Verizon
(D) denied interconnection services to rivals in order to limit entry and had filled rivals’ orders on a
discriminatory basis as part of an anticompetitive scheme to discourage customers from becoming or
remaining customers of competitive LECs.

RULE OF LAW
A complaint alleging breach of an incumbent local exchange carrier’s duty under the
Telecommunications Act of 1996 to share its network with competitors does not state a claim under § 2 of
the Sherman Act.

FACTS: The Telecommunications Act of 1996 imposes upon an incumbent local exchange carrier (LEC)
the obligation to share its telephone network with competitors, including the duty to provide access to
individual network elements on an “unbundled” basis. New entrants, so-called competitive LECs, combine
and resell these unbundled network elements (UNEs). Verizon Communications, Inc. (Verizon) (D) was the
incumbent local exchange carrier (LEC) serving New York State. To foster increased competition, Verizon
(D) had signed interconnection agreements with rivals such as AT&T, detailing the terms on which it would
make its network elements available. Verizon (D) also entered the long-distance market. Competitive LECs
complained that Verizon (D) was violating its obligation to provide access. A consent decree and orders issued
from the state regulatory agency (PSC) and the Federal Communications Commission (FCC), which led to
the imposition of financial penalties, remediation measures, and additional reporting requirements on Verizon
(D). Law Offices of Curtis V. Trinko, LLP (P), a local telephone service customer of AT&T, then filed a
class action alleging, inter alia, that Verizon (D) had filled rivals’ orders on a discriminatory basis as part of an
anticompetitive scheme to discourage customers from becoming or remaining customers of competitive LECs
in violation of § 2 of the Sherman Act. The district court dismissed the complaint, concluding that the
allegations of deficient assistance to rivals failed to satisfy § 2’s requirements. The court of appeals reversed
and reinstated the antitrust claim, and the U.S. Supreme Court granted certiorari.
ISSUE: Does a complaint alleging breach of an incumbent local exchange carrier’s duty under the
Telecommunications Act of 1996 to share its network with competitors state a claim under § 2 of the
Sherman Act?
HOLDING AND DECISION: (Scalia, J.) No. A complaint alleging breach of an incumbent local exchange
carrier’s duty under the Telecommunications Act of 1996 to share its network with competitors does not state
a claim under § 2 of the Sherman Act. The 1996 Act has no effect upon the application of traditional
antitrust principles. Its saving clause, which provides that “nothing in this Act … shall be construed to
modify, impair, or supersede the applicability of any of the antitrust laws,” preserves claims that satisfy
established antitrust standards, but does not create new claims that go beyond those standards. Established
antitrust principles make clear that the mere possession of monopoly power, and the concomitant charging of
monopoly prices, is not by itself unlawful, and, in fact, is part of the free-market system. Such power is only
unlawful when it is accompanied by an element of anticompetitive conduct. Thus, the issue here is whether
Verizon’s (D) activities violate pre-existing antitrust standards or fits within existing exceptions. The leading
case imposing § 2 liability for refusal to deal with competitors is Aspen Skiing Co. v. Aspen Highlands Skiing
Corp., 472 U.S. 585 (1985), in which the Court concluded that the defendant’s termination of a voluntary
agreement with the plaintiff suggested a willingness to forsake short-term profits to achieve an
anticompetitive end. Aspen is at or near the outer boundary of § 2 liability, and the present case does not fit
within the limited exception it recognized. Because the complaint does not allege that Verizon (D) ever
engaged in a voluntary course of dealing with its rivals, its prior conduct sheds no light upon whether its lapses

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from the legally compelled dealing were anticompetitive. Moreover, the Aspen defendant turned down its
competitor’s proposal to sell at its own retail price, suggesting a calculation that its future monopoly retail
price would be higher, whereas Verizon’s (D) reluctance to interconnect at the cost-based rate of
compensation available under the 1996 Ac, § 251(c)(3) is uninformative. More fundamentally, the Aspen
defendant refused to provide its competitor with a product it already sold at retail, whereas here the
unbundled elements offered pursuant to § 251 (c)(3) are not available to the public, but are provided to rivals
under compulsion and at considerable expense. The Court’s conclusion would not change even if it considered
to be established law the “essential facilities” doctrine crafted by some lower courts and which was used by the
court of appeals to conclude that the complaint might state a claim. The indispensable requirement for
invoking that doctrine is the unavailability of access to the “essential facilities”; where access exists, as it does
here by virtue of the 1996 Act, the doctrine serves no purpose, and the argument based on it is rejected.
Finally, traditional antitrust principles do not justify adding the present case to the few existing exceptions
from the proposition that there is no duty to aid competitors. Antitrust analysis must always be attuned to the
particular structure and circumstances of the industry at issue. When a regulatory structure designed to deter
and remedy anticompetitive harm exists, the additional benefit to competition provided by antitrust
enforcement will tend to be small, and it will be less plausible that the antitrust laws contemplate such
additional scrutiny. Here, Verizon (D) was subject to oversight by the FCC and the PSC, both of which
responded to certain deficiencies raised in the complaint by imposing fines and other burdens on Verizon (D).
Thus, the regulatory regime was an effective steward of the antitrust function. Against the slight benefits of
antitrust intervention here must be weighed a realistic assessment of its costs. Allegations of violations of §
251 (c)(3) duties are both technical and extremely numerous, and hence difficult for antitrust courts to
evaluate. Applying § 2’s requirements to this regime can readily result in “false positive” mistaken inferences
that chill the very conduct the antitrust laws are designed to protect. Reversed and remanded.
CONCURRENCE: (Stevens, J.) The court of appeals’ decision should have been reversed on standing
grounds.]

ANALYSIS
Part of the Court’s concern is that allegations of violations of § 251(c)(3) duties are difficult for antitrust
courts to evaluate, not only because they are highly technical, but also because they are likely to be
extremely numerous, given the incessant, complex, and constantly changing interaction of competitive and
incumbent LECs implementing the sharing and interconnection obligations. As the Court notes, such
difficulty for the generalist courts could lead to “false positives.” An example of one false-positive risk is
that an incumbent LEC’s failure to provide a service with sufficient alacrity might have nothing to do with
exclusion. The Court is also concerned that even if the problem of false positives did not exist, conduct
consisting of anticompetitive violations of § 251 could well be beyond the practical ability of a judicial
tribunal to control, since effective remediation of violations of regulatory sharing requirements will
ordinarily require continuing supervision of a highly detailed degree. In short, the Court finds that the
matter is one to be handled by more expert regulatory agencies rather than generalist antitrust courts.

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 United States v. Dentsply International, Inc.
Federal government (P) v. Manufacturer of artificial teeth (D)
399 F.3d 181 (3d Cir. 2005), cert. denied, 546 U.S. 1089 (2006).

NATURE OF CASE: Appeal from denial of injunctive relief and from judgment for defendant in action
under, inter alia, § 2 of the Sherman Act.
FACT SUMMARY: The Government (P) contended that Dentsply International, Inc. (D), a manufacturer
of artificial teeth, acted unlawfully to maintain its monopoly through its use of an exclusivity policy that
discouraged or prevented its dealers from adding competitors’ teeth to their lines of products.

RULE OF LAW
An exclusivity policy imposed by a monopolist manufacturer on its dealers violates § 2 of the Sherman
Act where it forecloses competition and has no business justification.

FACTS: Dentsply International, Inc. (Dentsply) (D), a manufacturer of artificial teeth, dominated the
market for prefabricated artificial teeth, enjoying a 75–80 percent market share on a revenue basis, and 67
percent on a unit basis. Dentsply (D) also manufactured other dental products, which were sold through a
network of dealers. Dealers competed among themselves, as well as with manufacturers who sold directly to
dental laboratories. For many years, Dentsply (D) operated under a policy that discouraged its dealers from
adding competitors’ teeth to their lines of products. Dentsply (D) eventually adopted “Dealer Criterion 6,”
which provides that to effectively promote Dentsply (D) products, authorized dealers “may not add further
tooth lines to their product offering.” This policy was enforced against dealers with the exception of those who
had carried competing products before the policy went into effect. Although dissatisfied with the policy, none
of the dealers gave up the popular Dentsply (D) teeth to sell competitors’ products. Dentsply (D), which had
considered selling directly, decided not to for fear that dealers would retaliate by refusing to buy its other
products. Dentsply (D) effected aggressive price increases, and its profits from its artificial teeth business were
the company’s “cash cow.” The Government (P) brought suit alleging various antitrust violations, including
unlawful maintenance of a monopoly in violation of § 2 of the Sherman Act. Although the district court
found that Dentsply’s (D) business justification for Dealer Criterion 6 was pretextual and designed expressly
to exclude its rivals from access to dealers, it concluded that other dealers were available and that direct sales to
laboratories was a viable method of doing business. Additionally, the district court concluded that Dentsply
(D) had not created a market with above competitive pricing; dealers were free to leave the network at any
time; and Dentsply’s (D) actions were not proven to have been successful in preventing new or potential
competitors from gaining a foothold in the market. The Government (P) appealed, contending that a
monopolist that prevents rivals from distributing through established dealers has maintained its monopoly by
acting with predatory intent and violates § 2. The court of appeals granted review.
ISSUE: Does an exclusivity policy imposed by a monopolist manufacturer on its dealers violate § 2 of the
Sherman Act where it forecloses competition and has no business justification?
HOLDING AND DECISION: (Weis, J.) Yes. An exclusivity policy imposed by a monopolist manufacturer
on its dealers violates § 2 of the Sherman Act where it forecloses competition and has no business
justification. Exclusive dealing arrangements, while not per se illegal, may be improper if exercised by a
monopolist to anticompetitive effect. Even if these elements are established, however, a monopolist still
retains a business justification defense. Unlawful maintenance of a monopoly is demonstrated by proof that a
defendant has engaged in anticompetitive conduct that reasonably appears to be a significant contribution to
maintaining monopoly power. The first inquiry is thus whether Dentsply (D) had monopoly power. Here, the
district court found that the relevant market was “the sale of prefabricated artificial teeth in the United States.”
The consumers in this market are dental laboratories, and manufacturers may provide product to this market
directly, through dealers, or through a hybrid system. The relevant market thus can include sales both to the
final consumer and a middleman. Therefore, the relevant market should be “the sale of artificial teeth in the
United States both to laboratories and to the dental dealers.” A prima facie case of monopoly power is made
where the defendant has a 55 percent market share or greater, so here Dentsply’s (D) share is more than
adequate to establish a prima facie case of power. Maintenance of market share is a hallmark of monopoly
power, and here, Dentsply (D) maintained its dominant share for more than ten years. The district court’s

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conclusion that Dentsply (D) did not preclude competition from marketing to laboratories is flawed, since the
reality is that over a period of years, because of Dentsply’s (D) domination of dealers, direct sales were not a
practical alternative for most manufacturers, whose access to key dealers was blocked. In other words, the
apparent lack of aggressiveness by competitors was not a matter of apathy, but a reflection of the effectiveness
of Dentsply’s (D) exclusionary policy. Market realities, rather than theoretical possibilities of competition,
must govern the determination of market power. As a reflection of market reality, Dentsply (D) managers
testified that the purpose of Dealer Criterion 6 was to block competitive distribution points and to deny
laboratories a choice among competing products. Thus, the policy was clearly part of a plan to maintain
monopolistic power. In addition to clear evidence of exclusion, there was evidence that Dentsply (D)
controlled pricing—another indicator of monopoly power. Dentsply (D) did not reduce its prices when
competitors elected not to follow its increases, and its profit margins kept growing over the years. The picture
was of a manufacturer that set prices with little concern for its competitors, “something a firm without a
monopoly would have been unable to do.” Accordingly, the Government (P) established that Dentsply (D)
possessed market power. The next inquiry, therefore, is whether Dentsply (D) used that power “to foreclose
competition.” While foreclosure need not be complete, it must be substantial. By keeping sales of competing
teeth below the critical level necessary for any rival to seriously challenge Dentsply’s (D) market position,
Dealer Criterion 6 was “a solid pillar of harm to competition.” One detrimental effect was that it locked in
benefits provided by dealers to laboratories, including one-stop shopping, extensive credit services, discounts,
and tooth returns (which accompany 30 percent of purchases). Manufacturers do not provide these benefits.
Dealers also provide benefits to manufacturers, including efficiency of scale. Although a laboratory that buys
directly from a manufacturer may be able to avoid the marginal costs associated with dealers, any savings must
be weighed against the benefits, savings, and convenience offered by those dealers. Finally, dealers offer
manufacturers more marketplace exposure and sales representative coverage than the manufacturers could
generate on their own. Because of the benefits provided by dealers, the district court’s conclusion that direct
sales were a “viable” distribution method is flawed insofar as such viability is merely a theoretical possibility,
rather than a practical or feasible option. Merely because an insignificant number of manufacturers engage in
direct sales does not mean that such a distribution method is an effective means of competition. The proper
inquiry is not whether direct sales enable a competitor to “survive” but rather whether direct selling “poses a
real threat” to Dentsply’s (D) monopoly; the answer is that it does not. Here, too, the economic realities of the
market render the exclusive dealing arrangement, while technically at-will, as effective as those in written
contracts. Another anticompetitive effect is that the laboratories’ choice of products is effectively limited, since
dealers are unable to fulfill a request for a competing product. Yet another anticompetitive effect is that
competitors are effectively barred from entry into the marketplace, as there is no evidence that competitors
could get dealers to switch to them from Dentsply (D), thanks to Dentsply’s (D) longtime, vigorous and
successful enforcement actions. The levels of sales that competitors could project in wooing dealers were
miniscule compare to Dentsply’s (D). Also, dealers were left with an all-or-nothing choice, and clearly
acceded to the accompanying economic pressure. This effect was multiplied because the market for artificial
teeth is not a dynamic one. Dentsply’s (D) grip on its dealers effectively choked off the market for artificial
teeth, leaving only a small sliver for competitors. For these reasons, the Government (P) established that
Dentsply’s (D) exclusionary policies and particularly Dealer Criterion 6 violated § 2. Dentsply (D) has offered
no procompetitive business justification for its conduct or policies, and the district court was correct in
concluding that any offered justifications, when compared to reality, were pretextual. Therefore, Dentsply’s
(D) exclusionary practices were not excused. This finding of liability supports a judgment against Dentsply
(D). Reversed and remanded.

ANALYSIS
In this case, the Government (P) also asserted claims for violations of § 3 of the Clayton Act (entering into
illegal restrictive dealing agreements) and § 1 of the Sherman Act (use of unlawful agreements in restraint
of interstate trade), which the district court rejected. The Government (P) did not appeal the rulings on
these claims. While the district court had indicated that because it had found no liability under the stricter
standards of § 3 of the Clayton Act, it followed that there was no violation of § 2 of the Sherman Act. The
court of appeals rejected this reasoning, finding instead that a ruling in Dentsply’s (D) favor on the § 1 and
§ 3 claims did not preclude the application of evidence of exclusive dealing to support the § 2 claim. As all
of the evidence in the case also applied to the § 2 claim, liability under that section could support a
judgment against Dentsply (D). Because different theories may be presented to establish a cause of action,
a court’s refusal to accept one theory rather than another neither undermines the claim as a whole, nor the

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 judgment applying one of the theories. Thus, the Government (P) could obtain all the relief to which it
was entitled under § 2 without reference to § 1 of the Sherman Act or § 3 of the Clayton Act.

Quicknotes
PRIMA FACIE EVIDENCE Evidence presented by a party, that is sufficient in the absence of contradictory
evidence to support the fact or issue for which it is offered.
SHERMAN ACT § 2 Makes it a felony to monopolize or attempt to monopolize, or combine or conspire with any
other person(s) to monopolize, any part of the trade or commerce among the states or with a foreign country.

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 Pacific Bell Telephone Co. dba AT&T California v. Linkline
Communications, Inc.
Incumbent telephone company (D) v. Independent Internet service provider (P)
129 S. Ct. 1109 (2009).

NATURE OF CASE: Appeal from affirmance of judgment in action under § 2 of the Sherman Act.
FACT SUMMARY: AT&T (D), which owned infrastructure and facilities needed to provide digital
subscriber line (DSL) service, contended that because it had no antitrust duty to deal with independent
Internet service providers (ISPs) (P) who were using AT&T’s (D) infrastructure and facilities to provide DSL
service, the ISPs (P) did not state a claim for price-squeezing under § 2 of the Sherman Act when they
asserted that AT&T (D) set a high price for the wholesale DSL transport service it sold and a low price for its
own retail DSL service, thus squeezing the ISPs (P) and placing them at a competitive disadvantage.

RULE OF LAW
A price-squeeze claim may not be brought under § 2 of the Sherman Act when the defendant has no
antitrust duty to deal with the plaintiff at wholesale.

FACTS: AT&T (D) owned infrastructure and facilities needed to provide digital subscriber line (DSL)
service, a method of connecting to the Internet at high speeds over telephone lines. As a condition for a recent
merger, the Federal Communications Commission (FCC) required AT&T (D) to provide wholesale DSL
transport service to independent firms at a price no greater than the retail price of AT&T’s DSL service.
Independent Internet service providers (ISPs) (P) that competed with AT&T (D) in the retail DSL market in
California did not own all the facilities needed to supply DSL service, and therefore had to lease wholesale
DSL transport service from AT&T (D). The ISPs (P) filed suit under § 2 of the Sherman Act, asserting that
AT&T (D) unlawfully “squeezed” their profit margins by setting a high price for the wholesale DSL transport
service it sold and a low price for its own retail DSL service. This maneuver allegedly placed the ISPs (P) at a
competitive disadvantage, allowing AT&T (D) to maintain monopoly power in the DSL market. AT&T (D)
defended on the ground that the claims were foreclosed by Verizon Communications Inc. v. Law Offices of Curtis
V. Trinko, LLP, 540 U.S. 39 (2004), in which the U.S. Supreme Court held that a firm with no antitrust duty
to deal with its rivals has no obligation to provide those rivals with a “sufficient” level of service. The district
court ruled that Trinko was not controlling because it did not address price-squeeze claims; the court of
appeals concurred. The U.S. Supreme Court granted certiorari.
ISSUE: May a price-squeeze claim be brought under § 2 of the Sherman Act when the defendant has no
antitrust duty to deal with the plaintiff at wholesale?
HOLDING AND DECISION: (Roberts, C.J.) No. A price-squeeze claim may not be brought under § 2 of
the Sherman Act when the defendant has no antitrust duty to deal with the plaintiff at wholesale. Businesses
are generally free to choose the parties with which they will deal, as well as the prices, terms, and conditions of
that dealing. In rare circumstances, a dominant firm may incur antitrust liability for purely unilateral conduct,
such as charging “predatory” prices. There are also limited circumstances in which a firm’s unilateral refusal to
deal with its rivals can give rise to antitrust liability. Here, the ISPs (P) do not allege predatory pricing, and
the district court concluded that there was no antitrust duty to deal. Here, the challenge is to a different type
of unilateral conduct in which a firm “squeezes” its competitors’ profit margins. This requires the defendant to
operate in both the wholesale (“upstream”) and retail (“downstream”) markets. By raising the wholesale price
of inputs while cutting its own retail prices, the defendant can raise competitors’ costs while putting
downward pressure on their revenues. Price-squeeze plaintiffs assert that defendants must leave them a “fair”
or “adequate” margin between wholesale and retail prices. The issue, therefore, is whether a price-squeeze
claim can stand where the defendant has no obligation under the antitrust laws to deal with the plaintiff at
wholesale. Any challenge to AT&T’s wholesale prices is foreclosed by a straightforward application of Trinko,
which made clear that a firm with no antitrust duty to deal in the wholesale market certainly has no obligation
to deal under terms and conditions favorable to its competitors. Had AT&T (D) simply stopped providing
DSL transport service to the ISPs (P), it would not have run afoul of the Sherman Act. Thus, it was not
required to offer this service at the wholesale prices the ISPs (P) would have preferred. The other component

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of a price-squeeze claim is the assertion that the defendant’s retail prices are “too low.” Here too there is no
support in existing antitrust doctrine for the ISPs’ (P) claim. “[C]utting prices in order to increase business,
often is, the very essence of competition.” To avoid chilling aggressive price competition, the Court has
carefully limited the circumstances under which plaintiffs can state a Sherman Act claim by alleging that the
defendant’s prices are too low. Specifically, to prevail on a predatory pricing claim, a plaintiff must
demonstrate that: (1) “the prices complained of are below an appropriate measure of its rival’s costs”; and (2)
there is a “dangerous probability” that the defendant will be able to recoup its “investment” in below-cost
prices. (Brooke Group). The complaint here has not alleged that AT&T’s (D) conduct met either Brooke Group
requirement. Recognizing a price-squeeze claim where the defendant’s retail price remains above cost would
invite the precise harm the Court sought to avoid in Brooke Group: Firms might raise retail prices or refrain
from aggressive price competition to avoid potential antitrust liability. Thus, the ISPs’ (P) claim, looking to
the relation between wholesale and retail prices, is thus nothing more than an amalgamation of meritless
claims at each level. If there is no duty to deal at the wholesale level and no predatory pricing at the retail
level, then a firm is certainly not required to price both of these services in a manner that preserves its rivals’
profit margins. Institutional concerns also militate against recognizing such a price-squeezing claim. The
Court has repeatedly emphasized the importance of clear rules in antitrust law, and recognizing price-squeeze
claims would require courts simultaneously to police both the wholesale and retail prices to ensure that rival
firms are not being squeezed. Courts would be aiming at a moving target, since it is the interaction between
these two prices that may result in a squeeze. Moreover, firms seeking to avoid price-squeeze liability will have
no safe harbor for their pricing practices. The most commonly articulated standard for price squeezes is that
the defendant must leave its rivals a “fair” or “adequate” margin between wholesale and retail prices; this test is
nearly impossible for courts to apply without conducting complex proceedings like rate-setting agencies. Some
amici argue that a price squeeze should be presumed if the defendant’s wholesale price exceeds its retail price.
However, if both the wholesale price and the retail price are independently lawful, there is no basis for
imposing antitrust liability simply because a vertically integrated firm’s wholesale price is greater than or equal
to its retail price. On remand, the district court should consider whether an amended complaint filed by the
ISPs (P) states a claim upon which relief may be granted. Reversed and remanded.

ANALYSIS
Those disagreeing with the Court’s decision, including the Federal Trade Commission, emphasize that
price squeezing has long been recognized in the lower courts and that price squeezing risks competitive
harms by deterring competition at the wholesale level, where new entrants not only face the basic barriers
to entry that have led to the monopoly in the first place, but also face the prospect that the price squeezing
has driven away most potential customers. There is also potential harm at the retail level through the
removal of competition that would put pressure on the monopolist to improve not only price, but quality of
service. The Court addressed these concerns by saying that given developments in economic theory and
antitrust jurisprudence, the Court’s recent decisions in Trinko and Brooke Group are more pertinent to the
issue.

Quicknotes
UNILATERAL One-sided; involving only one person.

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 Spectrum Sports, Inc. v. McQuillan
Distributor (D) v. Distributor (P)
506 U.S. 447 (1993).

NATURE OF CASE: Review of verdict awarding damages for antitrust violations.

FACT SUMMARY: The McQuillans (P) contended that Hamilton-Kent and Spectrum Sports, Inc. (D)
had violated the Sherman Act, although they had no proof that they would monopolize the market or had
intent to do so.

RULE OF LAW
A violation of § 2 of the Sherman Act does not occur absent proof of an intent to monopolize and
dangerous probability of such monopolization.

FACTS: Hamilton-Kent Manufacturing, through its parent corporation, owned the patent on Sorbothane, a
type of polymer useful in various applications, including athletic and equestrian products. The McQuillans (P)
purchased exclusive distribution rights to Sorbothane equestrian products. They later received the rights to
distribute athletic equipment. Subsequently, Hamilton elected to terminate their position as athletic
equipment distributors. When the McQuillans (P) balked at this, Hamilton terminated its entire contract
with the McQuillans (P), awarding it to Spectrum Sports, Inc. (Spectrum) (D). The McQuillans (P) sued for
antitrust violations. At trial, no evidence was presented of intent to monopolize any given market by Spectrum
(D) or that a dangerous probability of such monopolization existed. The jury found a violation of § 2 of the
Sherman Act. A verdict of nearly $2 million was rendered, which the court trebled. The Ninth Circuit
affirmed, and the U.S. Supreme Court granted review.
ISSUE: Does a violation of § 2 of the Sherman Act occur absent proof of an intent to monopolize and
dangerous probability of such monopolization?
HOLDING AND DECISION: (White, J.) No. A violation of § 2 of the Sherman Act does not occur
absent proof of an intent to monopolize and dangerous probability of such monopolization. While § 1 of the
Act forbids conspiracies in restraint of trade, § 2 of the Act deals with single firms that monopolize. Section 2
forbids monopolization or attempts to monopolize. The elements of monopolization are undefined in the
statute. Unlike a price-fixing scheme, which is clearly monopolistic behavior, the line between legitimate hard
work by a single firm and monopolistic behavior can be quite hard to draw. For that reason, all courts of
appeal which have considered the issue, apart from the Ninth Circuit in this case, have held that elements of a
§ 2 violation are intent to monopolize and a dangerous probability of monopolization. This Court agrees with
this approach. To hold otherwise would run the risk of punishing a business for being successful due to hard,
aggressive work, which is not a result contemplated by § 2. Consequently, as these conditions precedent to
liability were absent here, there can be no liability. Reversed.

ANALYSIS
Section 1 of the Sherman Act deals with anticompetitive acts by two or more entities, and § 2 deals with
such behavior by single firms. Since conspiracies in restraint of trade are perceived as more dangerous than
acts by lone businesses, the sanctions under § 1 tend to be more draconian than those under § 2.

Quicknotes
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
SHERMAN ACT § 1 Prohibits price-fixing.
SHERMAN ACT § 2 Makes it a felony to monopolize or attempt to monopolize, or combine or conspire with any
other person(s) to monopolize, any part of the trade or commerce among the states or with a foreign country.

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TREBLE DAMAGES An award of damages triple of the amount awarded by the jury and provided for by statute
for violation of certain offenses.

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 Quick Reference Rules of Law
1. Vertical Integration Through Merger. Exclusive dealings between companies, brought about by vertical
integration or otherwise, are legal unless they unreasonably restrict the opportunities of competitors to
market their product. (United States v. Columbia Steel Co.)

2. Vertical Integration Through Merger. Where a stock acquisition has the tendency to foreclose a
substantial share of a market to competitors, § 7 of the Clayton Act may be used to compel divestiture
of the shares. (United States v. E.I. du Pont de Nemours & Co.)

3. Vertical Integration Through Merger. The relevant market in horizontal mergers is those areas in
which the merged companies were competitors. (Brown Shoe Co. v. United States (I))

4. The Development of Horizontal Merger Law Under the Sherman Act. A combination which tends to
restrain interstate or international trade or commerce or tends to create a monopoly in such trade or
commerce and deprives the public of the advantages that flow from free competition violates federal
antitrust law. (Northern Securities Co. v. United States)

5. The Development of Horizontal Merger Law Under the Sherman Act. Elimination of competition
through horizontal integration is not an unlawful restraint of trade where the competition between the
acquiring company and the acquired company occurs in a national market and consumers would not be
injured by the elimination of the competition; the types of products sold by the respective companies are
different and direct competition as to those products is insubstantial; and any preclusion of potential
future competition is speculative. (United States v. Columbia Steel Co.)

6. Horizontal Mergers Under § 7 of the Clayton Act. Where the effects of a merger may be to
substantially lessen competition in any significant market or in any section of the country, the merger, at
least to that extent, is proscribed. (Brown Shoe Co. v. United States (II))

7. Horizontal Mergers Under § 7 of the Clayton Act. A merger which produces a firm controlling an
undue percentage share of the relevant market, significantly increasing the concentration of firms in that

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 market, is so inherently likely to lessen competition substantially that it must be enjoined. (United
States v. Philadelphia National Bank)

8. Horizontal Mergers Under § 7 of the Clayton Act. A prima facie case based on a statistical showing of
market dominance may be overcome by establishing that concentration is due to reduced demand
and/or the ineffective ability to compete. (United States v. General Dynamics Corp.)

9. Judicial Responses to the Merger Guidelines. In a suit for a preliminary injunction to enjoin the
consummation of a proposed merger, the court must first determine the FTC’s likelihood of success on
the merits in its case under § 7 of the Clayton Act and then balance the equities. (FTC v. Staples, Inc.)

10. Judicial Responses to the Merger Guidelines. Acquisitions that create an appreciable danger of collusive
practices in the future are unlawful. (Hospital Corp. of America v. FTC)

11. Judicial Responses to the Merger Guidelines. A merger must be preliminarily enjoined where the
Federal Trade Commission makes out a prima facie case, which is not rebutted by sufficient evidence,
that there is likelihood the merger may lessen competition. (FTC v. H.J. Heinz Co.)

12. Mergers of Potential Competitors. Where several companies that do not compete with one another
combine in an effort to create greater efficiency, that combination is not unlawful. (United States v.
Sidney W. Winslow)

13. Mergers of Potential Competitors. The acquisition by one firm of another firm which is a potential
competitor is likely to substantially lessen competition, thus violating federal antitrust law. (United
States v. Continental Can Co.)

14. Mergers of Potential Competitors. Where a giant corporation diversifies by merging with the leading
producer in a related field, there is an anticompetitive effect which violates § 7. (FTC v. Procter &
Gamble Co.)

15. The Failing Company Defense. The failing company defense can be applied only if the resources of one
company are so depleted that the business failure is probable and no other prospective purchaser is
available. (Citizen Publishing Co. v. United States)

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 United States v. Columbia Steel Co.
Federal government (P) v. Steel company (D)
334 U.S. 495 (1948).

NATURE OF CASE: Appeal from the denial of an injunction against the acquisition of a company in an
action under §§ 1 and 2 of the Sherman Act.
FACT SUMMARY: When United States Steel Corporation (D), a producer of rolled steel products used in
fabrication, attempted to acquire Consolidated Steel, the largest independent steel fabricator on the west
coast, the Government (P) sought to enjoin the acquisition, alleging restraint of competition in part through
vertical integration.

RULE OF LAW
Exclusive dealings between companies, brought about by vertical integration or otherwise, are legal
unless they unreasonably restrict the opportunities of competitors to market their product.

FACTS: United States Steel Corporation (D) produced rolled steel products, the major component used in
the fabrication of finished steel products. United States Steel (D) and its subsidiaries [including Columbia
Steel Co. (Columbia) (D)] planned to purchase Consolidated, the largest independent steel fabricator on the
west coast. The Government (P) argued that the acquisition of Consolidated constituted an illegal restraint of
interstate commerce, in part through vertical integration, because all manufacturers except United States Steel
(D) would be excluded from supplying Consolidated’s requirements for rolled steel products. United States
Steel (D) argued that the market for rolled steel should be the national market, of which Consolidated’s
market share was less than one-half of one percent. The Government (P) argued that the relevant market was
the 11-state area in which Consolidated sold its products. The district court ruled in United States Steel’s (D)
favor. The Government (P) appealed, and the U.S. Supreme Court granted review.
ISSUE: Are exclusive dealings between companies, brought about by vertical integration or otherwise, legal
unless they unreasonably restrict the opportunities of competitors to market their product?
HOLDING AND DECISION: (Reed, J.) Yes. Exclusive dealings between companies, brought about by
vertical integration or otherwise, are legal unless they unreasonably restrict the opportunities of competitors to
market their product. In determining the legality of vertical integration, it is important to characterize the
nature of the market to be served and the leverage on the market which the particular vertical integration
creates or makes possible. The so-called vertical integration resulting from the acquisition of Consolidated
does not unreasonably restrict the opportunities of the competitor producers of rolled steel to market their
product. The relevant competitive market is the total demand for rolled steel products in the 11-state area.
Over the past ten years, Consolidated has accounted for only three percent of that demand, and if expectations
as to the development of the western steel industry are realized, Consolidated’s proportion may be expected to
be lower than that in the future. Affirmed.

ANALYSIS
The Court applied the standards laid down in United States v. Paramount Pictures, 334 U.S. 131 (1948). In
Paramount, the Court held that control by the major producers-distributors of nearly 75 percent of the
first-run theaters in cities with a population over 100,000 was not in itself illegal. In addition to the nature
of the market and leverage, a second test considered important in the Paramount case was the intent or
purpose with which the combination was conceived.

Quicknotes
COMBINATION (ANTITRUST DEFINITION) Alliance of entities, for the purpose of impeding free trade, that
results in a monopoly, suppression of competition, or affecting prices.
INJUNCTION A court order requiring a person to do or prohibiting that person from doing a specific act.
RESTRAINT OF COMPETITION Agreement between entities, for the purpose of impeding free trade, that results

181
in a monopoly, the suppression of competition, or affecting prices.
VERTICAL INTEGRATION The ownership of the entire chain of production of a product from raw materials to
the final merchandise.

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 United States v. E.I. du Pont de Nemours & Co.
Federal government (P) v. Multinational corporation (D)
353 U.S. 586 (1957).

NATURE OF CASE: Action under § 7 of the Clayton Act against a vertical merger.
FACT SUMMARY: E.I. du Pont de Nemours & Co. (D) purchased a 23 percent stock interest in General
Motors, a firm with which it did a large business.

RULE OF LAW
Where a stock acquisition has the tendency to foreclose a substantial share of a market to competitors,
§ 7 of the Clayton Act may be used to compel divestiture of the shares.

FACTS: E.I. du Pont de Nemours & Co. (du Pont) (D) purchased 23 percent of General Motors’ shares. Du
Pont (D) sold General Motors most of its finishes and fabrics. The Government (P) brought an antitrust
action against du Pont (D) alleging that its contracts with General Motors were not the result of pure
competition. The Government (P) alleged that du Pont’s (D) acquisition of General Motors’ stock gave it the
power to foreclose a substantial share of the automotive market in fabrics and finishes from competitors. This
practice violated § 7’s prohibition against mergers and acquisitions in restraint of commerce. Du Pont (D)
maintained that § 7 did not apply to stock acquisitions of noncompetitors and that General Motors’ purchases
represented a small percentage of the fabric and finish markets.
ISSUE: Does § 7 apply to stock acquisitions of non-competitors which have the potential to restrain a
significant amount of competition in a given market?
HOLDING AND DECISION: (Brennan, J.) Yes. Section 7 applies to all stock acquisitions whether they
involve competitors (horizontal) or potential customers (vertical). Where the stock acquisition gives the party
the power to foreclose a substantial share of a market or tends to create a monopoly in a line of commerce, § 7
may be used to compel divestiture of the shares. Here, the relevant market is the automotive industry, not, as
du Pont (D) maintains, the entire fabric and finish industry. Since General Motors sells between 40 percent
and 50 percent of the automobiles in the United States, the power to affect its business involves a substantial
share of the industry. Since du Pont (D) supplies General Motors with most of its fabrics and finishes, it has
foreclosed a substantial share of the industry to competitors. Du Pont’s (D) dominant stock holding was
acquired for the purpose of obtaining General Motors’ business. This is sufficient without more to find that
du Pont’s (D) contracts with General Motors did not result from pure competition. Such vertical acquisitions
are prohibited under § 7.
DISSENT: (Burton, J.) The Court ignores a critical issue, the lawfulness or unlawfulness of the stock
acquisition at the time it occurred, and focuses instead on the probable anticompetitive effects of the
continued holding of the stock at the time of the suit, some thirty years later. The result subjects a good-faith
stock acquisition, lawful when made, to the hazard that its continued holding may make the acquisition illegal
through unforeseen developments. Furthermore, the Court’s characterization of the relevant market is
incorrect.

ANALYSIS
It is not necessary under § 7 to show that the stock acquisition actually achieved monopoly. It is sufficient
that it brought the defendant measurably closer to that end. Transamerica Corp. v. Board of Governors, 206
F. 2d 163 (1953). The dissent in du Pont fixed on the fact that du Pont (D) did most of its fabric and finish
business outside the auto industry. They felt that General Motor’s share of the entire industry was minimal
and no antitrust problem existed under the circumstances. Courts have a great deal of latitude in defining
the relevant market, and this often is a deciding factor in a given case.

Quicknotes
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement

183
the Sherman Antitrust Act of 1890. The act prohibited various anticompetitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
DIVESTITURE The divestment of an interest in a corporation pursuant to court order.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.

184
 Brown Shoe Co. v. United States (I)
Shoe manufacturer (D) v. Federal government (P)
370 U.S. 294 (1962).

NATURE OF CASE: Action to prevent merger under § 7 of the Clayton Act.

FACT SUMMARY: Brown Shoe Co. (D) purchased Kinney Shoes (D), the largest retailer of shoes in the
country.

RULE OF LAW
The relevant market in horizontal mergers is those areas in which the merged companies were
competitors.

FACTS: Brown Shoe Co. (Brown) (D), the third-largest shoe manufacturer, purchased Kinney Shoes (D),
the largest retail shoe outlet in the country. Brown (D) also sold its shoes in numerous outlets throughout the
country. The acquisition of Kinney (D) allowed Brown (D) to capture a larger share of the market and to
exert more style setting power in its manufacturing operation. The Government (P) brought an antitrust
action alleging that the merger both horizontally and vertically violated § 7 of the Clayton Act. The
Government (P) argued that the merger with Kinney (D), which also has a small manufacturing division,
increased the oligopolistic tendency of the market (vertical merger effect). The Government (P) also alleged
that the horizontal effect of the merger was to give Brown (D) a larger share of the retail market, control
outlets which would otherwise be free to stock the shoes of other manufacturers, grant Brown (D) a larger
share in setting styles, etc. The Government (P) alleged that consolidation of manufacturing and/or retail
outlets placed entry barriers on the market and foreclosed a substantial share of the market to competitors and
that the relevant market was the entire United States. The Government (P) alleged that the appropriate
market was those areas in which Kinney (D) and Brown (D) had been competitors.
ISSUE: Is the appropriate market for testing the validity of horizontal and vertical mergers the area in which
the merged companies had been actual competitors?
HOLDING AND DECISION: (Warren, C.J.) Yes. Basically stated, where competitors are merged,
competition is diminished. The proper market to test the validity of the merger is those areas in which the
merged companies had been actual competitors. These are the appropriate areas to test the effect of the
acquisition in order to determine whether or not the merger had an anticompetitive effect. Here, the
prevailing practice in the industry is for the large manufacturers to take over other manufacturers, creating an
oligopolistic tendency in the market. This condition is further exacerbated by acquisition of retail outlets. This
tends to foreclose merchandising outlets to many manufacturers. This procedure places entry barriers on both
the manufacturing and retail market since it eliminates potential customers for new manufacturers and limits
the supply of shoes available to independent retailers. Section 7 of the Clayton Act does not require the
United States (P) to wait until a monopoly or oligopoly exists. Section 7 may be employed to prevent such
situations at their inception. Reductions in a competitive market not justified by business exigencies may be
enjoined. If the procedure herein is not checked, competition will be significantly foreclosed. The acquisition
of the largest retail chain by the third-largest manufacturer cannot be deemed a minimal effect on the market.
The merger is enjoined.

ANALYSIS
Several justifications are available for mergers. It may be shown that the merged business was failing or that
it had inadequate resources to compete. It may also be argued that the combination was necessary to enter
the market or to compete with other firms. Finally, if the two merged corporations only competed in a
relatively small area of the country, that fact alone would not save the merger if competition was
substantially affected in that area. However, it would affect the relief which might be granted in the case.
United States v. Jerrold Electronics Corp., 187 F. Supp. 545 (D.C.E.D. Pa. 1960)

Quicknotes

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CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anticompetitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
COMBINATION (ANTITRUST DEFINITION) Alliance of entities, for the purpose of impeding free trade, that
results in a monopoly, suppression of competition, or affecting prices.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
OLIGOPOLISTIC A market condition in which the industry for a particular product is dominated by only a few
companies.

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 Northern Securities Co. v. United States
Holding company (D) v. Federal government (P)
193 U.S. 197 (1904).

NATURE OF CASE: Appeal from a judgment finding a violation of federal antitrust law.
FACT SUMMARY: Northern Securities Co. (D), a holding company, acquired two large, parallel railroads
which were essentially in competition with each other.

RULE OF LAW
A combination which tends to restrain interstate or international trade or commerce or tends to create
a monopoly in such trade or commerce and deprives the public of the advantages that flow from free
competition violates federal antitrust law.

FACTS: Northern Securities Co. (D), a holding company, was formed to acquire two large, parallel railroads
operating in the northern United States. The railroad lines were competitors for long and short hauls. The
Government (P) filed suit, alleging that acquisition of the two railroads violated § 1 of the Sherman Act. The
Government (P) alleged that the railroads ceased, under such a combination, to be in active competition for
trade and commerce along their respective lines and became, practically, one powerful consolidated
corporation. The lower court ruled in the Government’s (P) favor. Northern Securities (D) appealed.
ISSUE: Does a combination which tends to restrain interstate or international trade or commerce or tends to
create a monopoly in such trade or commerce and deprives the public of the advantages that flow from free
competition violate federal antitrust law?
HOLDING AND DECISION: (Harlan, J.) Yes. A combination which tends to restrain interstate or
international trade or commerce or tends to create a monopoly in such trade or commerce and deprives the
public of the advantages that flow from free competition violates federal antitrust law. The combination at
issue here is a combination in restraint of interstate and international commerce, and that is enough to bring it
under the condemnation of the Sherman Act. If such combination is not destroyed, all the advantages that
would naturally come to the public under the operation of the general laws of competition, as between the two
railroads, will be lost, and the entire commerce of the immense territory in the northern part of the United
States between the Great Lakes and the Pacific at Puget Sound will be at the mercy of a single holding
corporation.
DISSENT: (Holmes, J.) Great cases, like hard cases, make bad law. The court below argued as if maintaining
competition were the expressed object of the Act. The Act says nothing about competition. The exact words
hit two classes of cases and only two—contracts in restraint of trade and combinations or conspiracies in
restraint of trade. Combinations in restraint of trade are regarded as contrary to public policy because they
monopolize, or attempt to monopolize, commerce among the states. But every railroad monopolizes, in a
popular sense, the trade of some area. Under the majority’s ruling today, even a partnership would become a
combination in restraint of trade.

ANALYSIS
Justice Brewer, in a concurring opinion, contended that: “It must also be remembered that under present
conditions a single railroad is, if not a legal, largely a practical, monopoly, and the arrangement by which
the control of these two competing roads was merged in a single corporation broadens and extends such
monopoly.” The decade immediately following passage of the Sherman Act contained the greatest merger
movement in the nation’s history. One possible explanation for this phenomenon is that since the Sherman
Act prohibited consolidations through contract among competing companies, they chose to merge instead,
thus creating the economies of scale that made business consolidations efficient.

Quicknotes
COMBINATION (ANTITRUST DEFINITION) Alliance of entities, for the purpose of impeding free trade, that

187
results in a monopoly, suppression of competition, or affecting prices.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
PUBLIC POLICY Policy administered by the state with respect to the health, safety and morals of its people in
accordance with common notions of fairness and decency.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT § 1 Prohibits price-fixing.

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 United States v. Columbia Steel Co.
Federal government (P) v. Steel company (D)
334 U.S. 495 (1948).

NATURE OF CASE: Appeal from the denial of an injunction against the acquisition of a company in an
action under §§ 1 and 2 of the Sherman Act.
FACT SUMMARY: When United States Steel Corporation (D), a producer of rolled steel products used in
fabrication, attempted to acquire Consolidated Steel, the largest independent steel fabricator on the west
coast, the Government (P) sought to enjoin the acquisition, alleging restraint of competition in part on the
basis of horizontal integration that allegedly would eliminate direct competition between the two companies
as to steel fabrication.

RULE OF LAW
Elimination of competition through horizontal integration is not an unlawful restraint of trade where
the competition between the acquiring company and the acquired company occurs in a national market and
consumers would not be injured by the elimination of the competition; the types of products sold by the
respective companies are different and direct competition as to those products is insubstantial; and any
preclusion of potential future competition is speculative.

FACTS: United States Steel Corporation (D) produced rolled steel products, the major component used in
the fabrication of finished steel products. United States Steel (D) and its subsidiaries [including Columbia
Steel Co. (Columbia) (D)] planned to purchase Consolidated, the largest independent steel fabricator on the
west coast. The Government (P) argued that the acquisition of Consolidated constituted an illegal restraint of
interstate commerce, in part through horizontal integration, because allegedly competition between
Consolidated and United States Steel’s subsidiaries would be eliminated. United States Steel (D) argued that
the appropriate market for fabricated structural steel products should be the national market, in which
Consolidated had 84,533 tons of bookings compared with 10,000,000 tons of bookings nationwide over six
years. The Government (P) argued that the relevant market was the 11-state area in which Consolidated sold
its products. In that “Consolidated market,” for the same time period, United States Steel’s (D) share was 17
percent and Consolidated’s 5 percent. For a later, one-year period, United States Steel (D) had 13 percent
market share and Consolidated and Bethlehem Steel each had 11 percent. The next largest structural
fabricators had 9 percent, 6 percent, and 3 percent of the total, respectively. United States Steel (D) also
argued that that the bookings for fabricated structural steel products were of little significance because
Consolidated and United States Steel (D) made different types of structural steel products insofar as
Consolidated did only light and medium fabrication, whereas United States Steel (D) did heavy fabrication.
Finally, United States Steel (D) argued that there was little direct competition between the companies since
only a small proportion of Consolidated’s business fell in the category of structural steel products (16 percent
of Consolidated’s business was in structural steel products and 70 percent in plate fabrication), and that as to
plate fabrication and miscellaneous work there was no competition with United States Steel (D) whatsoever.
The district court ruled in United States Steel’s (D) favor. The Government (P) appealed, and the U.S.
Supreme Court granted review.
ISSUE: Is elimination of competition through horizontal integration an unlawful restraint of trade where the
competition between the acquiring company and the acquired company occurs in a national market and
consumers would not be injured by the elimination of the competition; the types of products sold by the
respective companies are different and direct competition as to those products is insubstantial; and any
preclusion of potential future competition is speculative?
HOLDING AND DECISION: (Reed, J.) No. Elimination of competition through horizontal integration is
not an unlawful restraint of trade where the competition between the acquiring company and the acquired
company occurs in a national market and consumers would not be injured by the elimination of the
competition; the types of products sold by the respective companies are different and direct competition as to
those products is insubstantial; and any preclusion of potential future competition is speculative. As to the size
of the geographical market, the figures on which the Government (P) relies demonstrate that competition in
structural steel products has been conducted on a national scale, and even the structural fabricators with the

189
largest sales in the Consolidated market perform their fabrication operations outside the area, including
United States Steel (D) and Bethlehem Steel. Purchasers of fabricated structural products have been able to
secure bids from fabricators throughout the country, and therefore statistics showing the share of United
States Steel (D) and Consolidated in the total consumption of fabricated structural products in any given
geographical area do not indicate the extent to which consumers of these products would be injured through
elimination of competition between the two companies. Regarding the comparison of the products made by
United States Steel (D) and Consolidated, where one company engages in light and medium fabrication while
the other engages in heavy fabrication, a showing that the two companies submitted bids for the same project
in a very small number of cases by itself does indicate conclusively that there is lack of competition, since
knowledge that one party has submitted a bid may discourage others from bidding. However, the
Government (P) has failed to adduce evidence that the types of structural steel products made by the
respective companies are in fact similar. Based on the statistics that were presented, however, it would seem
that competition between the two companies in the manufacture and sale of fabricated structural steel
products is not substantial. Finally, the Government’s (P) argument that permitting the acquisition would
restrain substantial potential competition in the production and sale of other steel products than fabricated
structural steel and pipe rests on speculation. The Government’s (P) premise, that United States Steel (D) will
be a stronger competitor through its acquisition of Consolidated, is not in doubt, but there is no evidence in
the record that it would engage in certain areas of production, or that if it did, it would do so to such an extent
as to unduly restrain trade. In other words, the possibilities of interference with future competition are too
attenuated to warrant a finding of unlawful restraint. Affirmed.

ANALYSIS
The Court’s decision was driven, in part, by evidence that the U.S. west coast steel industry was
developing, and that east coast fabricators would find it difficult to meet competition from west coast
fabricators in the western market, since cheaper western rolled steel and freight rates would be a handicap
to eastern fabricators. In view of the number of west coast fabricators and the ability of out-of-the-area
fabricators to compete because of the specialized character of structural steel production in regard to orders
and designs, the Court concluded that the acquisition was permissible. However, the Court cautioned that
its holding did not imply that additional acquisitions of fabricating facilities for structural steel would not
become monopolistic.

Quicknotes
COMBINATION (ANTITRUST DEFINITION) Alliance of entities, for the purpose of impeding free trade, that
results in a monopoly, suppression of competition, or affecting prices.
INJUNCTION A court order requiring a person to do or prohibiting that person from doing a specific act.
RESTRAINT OF COMPETITION Agreement between entities, for the purpose of impeding free trade, that results
in a monopoly, the suppression of competition, or affecting prices.
HORIZONTAL INTEGRATION A merger of direct competitors producing or selling similar goods or services in
the same geographic area.

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 Brown Shoe Co. v. United States (II)
Shoe manufacturer (D) v. Federal government (P)
370 U.S. 294 (1962).

NATURE OF CASE: Appeal from a judgment finding that a proposed merger would violate federal
antitrust law.
FACT SUMMARY: When Brown Shoe Co. (D) and Kinney Shoe Co. (D) contemplated a merger, the
United States (P) brought suit, alleging that the merger would substantially lessen competition in the shoe
industry, thus violating § 7 of the Clayton Act.

RULE OF LAW
Where the effects of a merger may be to substantially lessen competition in any significant market or
in any section of the country, the merger, at least to that extent, is proscribed.

FACTS: A merger was contemplated between Kinney Shoe Co. (D), the eighth-largest seller of shoes in the
United States, and Brown Shoe Co. (Brown) (D), the third-largest seller. Both companies also manufactured
shoes. Thus, the proposed merger was both vertical and horizontal. The Government (P) contended that such
a merger could substantially lessen competition in the manufacture and sale of shoes in the national market.
Brown (D) contended that the merger would be shown not to endanger competition if the lines of commerce
and the sections of the country were properly determined. Brown (D) also contended that competition in the
shoe industry would not be diminished by the proposed merger because Kinney (D) manufactured less than
0.5 percent and retailed less than 2 percent of the nation’s shoes. The district court found that the merger of
the retail outlets would tend to substantially lessen competition. Brown (D) appealed.
ISSUE: Where the effects of a merger may be substantially to lessen competition in any significant market or
in any section of the country, is the merger, at least to that extent, proscribed?
HOLDING AND DECISION: (Warren, C.J.) Yes. Where the effects of a merger may be substantially to
lessen competition in any significant market or in any section of the country, the merger, at least to that
extent, is proscribed. The record fully supports the district court’s definition of the relevant geographic
markets. In this fragmented industry, even if the combination controls a small share of a particular market, the
fact that this share is held by a large national chain can adversely affect competition. One factor lending
support to the district court’s conclusion that this merger may substantially lessen competition is the history of
tendency toward concentration in the industry. Brown (D) presented no mitigating factors nor demonstrated
a need for combination to enable it to compete better with those dominating the relevant markets. Thus, the
Government (P) has sustained its burden of proof.

ANALYSIS
As a result of this merger, Brown (D) moved into second place nationally in terms of retail stores directly
owned, giving Brown (D) about 7.2 percent of the nation’s retail shoe stores. Of course, some of the results
of large integrated or chain operations are beneficial to consumers. But the Court recognized Congress’s
desire to promote competition through the protection of viable, small, locally owned businesses.

Quicknotes
CLAYTON ACT, § 7 Prohibits the acquirement of stock or assets if the effect of such acquisition is to
substantially lessen competition or create a monopoly.
VERTICAL INTEGRATION The ownership of the entire chain of production of a product from raw materials to
the final merchandise.

191
192
 United States v. Philadelphia National Bank
Federal government (P) v. Bank (D)
374 U.S. 321 (1963).

NATURE OF CASE: Appeal from a judgment for the defendant in an antitrust action seeking to enjoin a
merger as violative of federal antitrust law.
FACT SUMMARY: When a merger was proposed between Philadelphia National Bank (D) and Girard
Trust Corn Exchange Bank (D), the Government (P) sought to enjoin the merger for violating § 7 of the
Clayton and Sherman Acts.

RULE OF LAW
A merger which produces a firm controlling an undue percentage share of the relevant market,
significantly increasing the concentration of firms in that market, is so inherently likely to lessen
competition substantially that it must be enjoined.

FACTS: The Philadelphia National Bank (PNB) (D) and Girard Trust Corn Exchange Bank (Girard) (D)
proposed a merger. They were, respectively, the second- and third-largest of forty-two commercial banks with
head offices in the Philadelphia metropolitan area. The Government (P) sought to enjoin the merger,
contending that concentration of commercial banking was inimical to the free play of competitive forces. The
district court found that the products and services available at commercial banks composed a distinct line of
commerce and that the area in which PNB (D) and Girard (D) had their offices was the relevant section of
the country. The Government (P) appealed the court’s ruling in favor of PNB (D).
ISSUE: Is a merger which produces a firm controlling an undue percentage share of the relevant market,
significantly increasing the concentration of firms in that market, so inherently likely to lessen competition
substantially that it must be enjoined?
HOLDING AND DECISION: (Brennan, J.) Yes. A merger which produces a firm controlling an undue
percentage share of the relevant market, significantly increasing the concentration of firms in that market, is
so inherently likely to lessen competition substantially that it must be enjoined. This will be true unless clear
evidence shows that the merger is not likely to have such anticompetitive effects. The appropriate “section of
the country”—i.e., the relevant geographical market in which the anticompetitive effects of merger should be
appraised—is the four-county Philadelphia metropolitan area. Presently, PNB (D) and Girard (D) control
between them approximately 44 percent of the area’s commercial banking business. After the merger they will
control 59 percent. This increase is significant, thus raising an inference that the effect of the proposed merger
may be substantially to lessen competition. It must, therefore, be enjoined.

ANALYSIS
Congressional opposition to the holding in this case resulted in the Bank Merger Act of 1966. The Act
that exempted bank mergers from the reach of the Clayton Act occurred before Philadelphia National Bank
was decided. The Act also provides a defense for certain mergers: where the anticompetitive effects of a
merger are outweighed by meeting a community’s convenience and needs, the merger will not be illegal.

Quicknotes
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anticompetitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
ENJOIN The ordering of a party to cease the conduct of a specific activity.
MERGER The acquisition of one company by another, after which the acquired company ceases to exist as an
independent entity.

193
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

194
 United States v. General Dynamics Corp.
Federal government (P) v. Diversified corporation (D)
415 U.S. 486 (1974).

NATURE OF CASE: Divestiture action under § 7 of the Clayton Act.

FACT SUMMARY: General Dynamics Corp. (D) acquired a significant share of the regional coal market
through a merger.

RULE OF LAW
A prima facie case based on a statistical showing of market dominance may be overcome by
establishing that concentration is due to reduced demand and/or the ineffective ability to compete.

FACTS: General Dynamics Corp. (General) (D) owned a strip mine. General (D) acquired Material Services
Corp. (Material) (D) through a merger. Material (D) owned United Electric Coal Companies (United) (D),
whose regional coal holdings, when combined with those held by General (D), gave General (D) significant
control in the regional coal market. The Government (P) brought an antitrust action under § 7 of the Clayton
Act seeking divestiture on the grounds that the acquisition had an anticompetitive effect. The Government
(P) alleged that the coal industry was already oligopolistic and the loss of even a single competitor had an
anticompetitive effect by further centralizing control. The district court made extensive findings of fact and
finally dismissed the action. It found that because of the presence of so many alternatives to coal, the relevant
market was the energy market, which was not oligopolistic and which was highly competitive. It found that
coal had declined in importance, and this was the major cause of the oligopolistic tendency in the market.
Most coal was being purchased by utilities or under long-term leases. It found that United (D) had already
committed most of its resources to long-term contracts, and it had insufficient reserves to compete with any
other producer. Moreover, the distance between General’s (D) mines and those owned by United (D) was too
distant to allow for effective competition. Finding that these and other factors negated the anticompetitive
effect inference raised by the Government’s (P) statistical information, no violation of § 7 was found.
ISSUE: May a statistical case be overcome through a showing that a merger will not have an anticompetitive
effect?
HOLDING AND DECISION: (Stewart, J.) Yes. A statistical case may be overcome through a showing
that a merger will not have an anticompetitive effect. Statistical evidence is only valid insofar as it presents an
accurate picture of the market. Such evidence may always be refuted to establish that no violation of antitrust
law has occurred. Since United’s (D) coal was almost entirely committed to existing long-term contracts, it
had no power to effect competition in the market since it could not compete for new business. Moreover, the
decline in market competitors was almost solely related to natural causes rather than a concentration of
ownership through merger and acquisition. Acquisition of a business which cannot compete should not
produce an anticompetitive effect. We are not dealing with the “failing business” defense, only United’s (D)
market position and the effect of its acquisition on the relevant market. A purely speculative supposition that
United (D) might have strengthened its market position by future acquisition is unpersuasive, and an
anticompetitive effect cannot be created in such a manner. The Government’s (P) prima facie case was
overcome, and it failed to carry its burden of proof. We need not reach the question of what constitutes the
relevant market since it is unnecessary to our decision. Affirmed.

ANALYSIS
General Dynamics delves quite deeply into defining the relevant market. Where transportation costs are a
major factor in the price at which a commodity may be offered, the relevant market must be based on the
location of a given plant or mine in relationship to its competitors. Where substitutes exit, there is a
question of whether the product is part of a submarket or of the larger market. Anticompetitive effects may
be found in specific cities in diverse parts of the country, and these may or may not be deemed the relevant
market. Market determination is one of the most crucial factors in antitrust litigation. The result often
hinges on this factor.

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Quicknotes
CLAYTON ACT § 7 Prohibits the acquirement of stock or assets if the effect of such acquisition is to
substantially lessen competition or create a monopoly.
DIVESTITURE The divestment of an interest in a corporation pursuant to court order.
OLIGOPOLISTIC A market condition in which the industry for a particular product is dominated by only a few
companies.
PRIMA FACIE An action in which the plaintiff introduces sufficient evidence to submit an issue to the judge or
jury for determination.

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 FTC v. Staples, Inc.
Federal agency (P) v. Corporation (D)
970 F. Supp. 1066 (D.C. Cir. 1997).

NATURE OF CASE: Motion for preliminary injunction.

FACT SUMMARY: The Federal Trade Commission (P) sought a preliminary injunction to enjoin the
consummation of any acquisition of Office Depot (D) by Staples, Inc. (D).

RULE OF LAW
In a suit for a preliminary injunction to enjoin the consummation of a proposed merger, the court
must first determine the Federal Trade Commission’s likelihood of success on the merits in its case under §
7 of the Clayton Act and then balance the equities.

FACTS: Office Depot (D) and Staples, Inc. (D) are both corporations that sell office products through retail
office supply superstores. Office Depot (D) is the largest such chain in the United States, and Staples (D) the
second largest. The Federal Trade Commission (FTC) (P) sought a preliminary injunction to enjoin the
consummation of any acquisition of Office Depot (D) by Staples (D).
ISSUE: In a suit for a preliminary injunction to enjoin the consummation of a proposed merger, must the
court first determine the FTC’s likelihood of success on the merits in its case under § 7 of the Clayton Act
and then balance the equities?
HOLDING AND DECISION: (Hogan, J.) Yes. In a suit for a preliminary injunction to enjoin the
consummation of a proposed merger, the court must first determine the FTC’s likelihood of success on the
merits in its case under § 7 of the Clayton Act and then balance the equities. Likelihood of success on the
merits means the likelihood that the FTC (P) will succeed in proving after a full administrative trial on the
merits, that the effect of a merger between Staples (D) and Office Depot (D) may be substantially to lessen
competition or to tend to create a monopoly in violation of § 7 of the Clayton Act. The FTC (P) need only
show there is a reasonable probability that the challenged transaction will substantially impair competition.
The evidence provides a compelling showing that even where Staples (D) and Office Depot (D) charge higher
prices, certain consumers will not go elsewhere for their supplies. Thus, there is a low cross-elasticity of
demand between consumable office supplies sold by the superstores and those sold by other sellers. In
addition, the concentration statistics in many of the geographic markets are at problematically high levels even
before the proposed merger.

ANALYSIS
The court here also found that the balancing of equities favored the granting of a preliminary injunction.
The defendants must rebut the presumption that the merger will substantially lessen competition by
showing the FTC’s (P) evidence gives an inaccurate prediction of the probable effect of the proposed
transaction. Such evidence must, however, be credible. Here the court found that Staples (D) and Office
Depot (D) failed to meet that burden.

Quicknotes
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anticompetitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
PRELIMINARY INJUNCTION A judicial mandate issued to require or restrain a party from certain conduct; used
to preserve a trial’s subject matter or to prevent threatened injury.

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 Hospital Corp. of America v. FTC
Hospital chain (D) v. Federal agency (P)
807 F.2d 1381 (7th Cir. 1986), cert. denied, 481 U.S. 1038 (1987).

NATURE OF CASE: Appeal from an agency ruling that an acquisition violated federal antitrust law.
FACT SUMMARY: When Hospital Corp. of America (D) acquired two other hospital corporations in the
Chattanooga, Tennessee area it became the second-largest provider of hospital services in the area.

RULE OF LAW
Acquisitions that create an appreciable danger of collusive practices in the future are unlawful.

FACTS: Hospital Corp. of America (Hospital Corp.) (D), initially owned, one hospital in Chattanooga,
Tennessee. It then acquired two other hospital corporations in the Chattanooga area. Hospital Corp. (D) also
assumed the contracts of one of the hospitals to manage two other Chattanooga-area hospitals. As a result of
the acquisitions, Hospital Corp. (D) owned or managed five of the eleven hospitals in the area. The
acquisitions reduced the number of competing hospitals in the Chattanooga market from eleven to seven.
After a complaint, the Federal Trade Commission (FTC) (P) ruled that the acquisitions violated § 7 of the
Clayton Act. Hospital Corp. (D) appealed.
ISSUE: Are acquisitions that create an appreciable danger of collusive practices in the future unlawful?
HOLDING AND DECISION: (Posner, J.) Yes. Acquisitions that create an appreciable danger of collusive
practices in the future are unlawful. Section 7 does not require proof that an acquisition has actually caused
higher prices. The fewer competitors there are in a market, the easier it is for them to coordinate their pricing
without committing detectable violations of § 1 of the Sherman Act. As a result of the acquisitions, the four
largest firms controlled 91 percent of the market, and the problem of coordination was therefore reduced to
one of coordination among these four. It may be true that hospital services are complex and heterogeneous,
and heterogeneity makes collusion more difficult. But the FTC (P) was not required to give this speculation
any conclusive weight. Moreover, Hospital Corp.’s (D) nonprofit status does not necessarily affect its
willingness to cooperate to reduce competition. Finally, Hospital Corp.’s (D) observation that the
complainant who first contacted the FTC (P) was a competitor and was thus concerned about lower, not
higher, prices does not advance Hospital Corp’s (D) argument. Since the complainant was a nonprofit
hospital, in attributing the complaint to fear of lower prices, Hospital Corp. (D) is contradicting its own
argument that the nonprofit sector of the hospital industry does not obey the laws of economic self-interest.
The FTC’s (P) order is affirmed and enforced.

ANALYSIS
When an economic approach is taken in a § 7 case, the ultimate issue is whether the challenged acquisition
is likely to facilitate collusion aimed at pushing up the market price. Guidelines applicable to horizontal
mergers only were issued in 1992 by the Department of Justice and the FTC jointly. However, since they
are merely guidelines, no court is bound by them until an appropriate judge so holds.

Quicknotes
CLAYTON ACT, § 7 Prohibits the acquirement of stock or assets if the effect of such acquisition is to
substantially lessen competition or create a monopoly.
COLLUSION An agreement between two or more parties to engage in unlawful conduct or in other activities
with an unlawful goal, typically involving fraud.

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 FTC v. H.J. Heinz Co.
Federal agency (P) v. Food corporation (D)
246 F.3d 708 (D.C. Cir. 2001).

NATURE OF CASE: Appeal from denial of request for preliminary injunction of merger by the Federal
Trade Commission (P).
FACT SUMMARY: H.J. Heinz Co. (Heinz) (D), the second-largest producer of jarred baby food in the
U.S., entered into a merger agreement with Milnot Holding Corp. (Beech-Nut) (D), the third-largest
producer of baby-food, to acquire all of Beech-Nut (D). The Federal Trade Commission (FTC) (P) sought a
preliminary injunction of the planned merger.

RULE OF LAW
A merger must be preliminarily enjoined where the Federal Trade Commission makes out a prima
facie case, which is not rebutted by sufficient evidence, that there is likelihood the merger may lessen
competition.

FACTS: H.J. Heinz Co. (Heinz) (D), the second-largest producer of jarred baby food in the U.S., entered
into a merger agreement with Milnot Holding Corp. (Beech-Nut) (D), the third-largest producer of baby-
food, to acquire all of Beech-Nut (D). The jarred baby food market is dominated by Gerber Products Co.
(Gerber), which enjoys a 65 percent market share, whereas Heinz (D) has 17.4 percent and Beech-Nut (D)
has 15.4 percent. Gerber’s products are sold in 90 percent of the nation’s supermarkets, whereas Heinz (D) is
sold in 40 percent of supermarkets. Beech-Nut (D) is carried in 45 percent of all grocery stores. The price
difference between each brand is only a few cents. At the wholesale level, Heinz (D) and Beech-Nut (D)
make lump-sum payments called “fixed trade spending” to supermarkets to obtain shelf placement. Gerber,
with its strong name recognition and brand loyalty, does not make such payments. The Federal Trade
Commission (FTC) (P) sought a preliminary injunction of the planned merger. The district court denied the
requested injunction, and the court of appeals granted review.
ISSUE: Must a merger be preliminarily enjoined where the FTC makes out a prima facie case, which is not
rebutted by sufficient evidence, that there is likelihood the merger may lessen competition?
HOLDING AND DECISION: (Henderson, J.) Yes. A merger must be preliminarily enjoined where the
FTC makes out a prima facie case, which is not rebutted by sufficient evidence, that there is likelihood the
merger may lessen competition. To prevail on its request, the FTC (P) must show that the merger would
produce a firm controlling an undue percentage share of the relevant market, and would result in a significant
increase in the concentration of firms in that market. Such a showing establishes a “presumption” that the
merger will substantially lessen competition. To rebut the presumption, the defendants must produce evidence
that shows that the market-share statistics give an inaccurate account of the merger’s probable effects on
competition in the relevant market. If the defendant successfully rebuts the presumption of illegality, the
burden of producing additional evidence of anticompetitive effect shifts to the government, and merges with
the ultimate burden of persuasion, which remains with the government at all times.
II. a. Prima Facie Case
As to the FTC’s (P) prima facie case, an increase in the concentration of a market raises the likelihood of
anticompetitive conduct. Because the proposed merger will raise the concentration in the baby food market, as
supported by statistics (HHI scores), the elimination of competition between two of three major competitors,
and because of high barriers to market entry, the FTC (P) has made out its prima facie case—no court has
ever approved a merger to duopoly under similar circumstances.
II. b. Rebuttal Arguments
1. Extent of Pre-Merger Competition

As to the defendants’ rebuttal evidence, they make three arguments that the district court accepted. First, they
argue that Heinz (D) and Beech-Nut (D) do not really compete against each other at the retail level, because
consumers do not regard their products as substitutes, and generally only one of the two brands is available on

201
the shelves of any given store. This argument is rejected because the two companies price against each other
and depress each other’s prices where they are both in the same area; because there is a single national market
for jarred baby food and consumers will switch between them in response to small price increases; and because
the merger will eliminate competition at the wholesale level between the only two competitors of the “second
shelf” position—as to this argument, the district court committed clear legal error because it held that the
elimination of such competition was irrelevant and because it ruled that the FTC (P) must prove with
certainty the impact on consumers of such eliminated competition. There is no precedent that a reduction in
competition for wholesale purchasers is not relevant unless the plaintiff can prove impact at the consumer
level, and, in any event, the FTC (P) does not bear the burden of proving such impact with certainty. To the
contrary, the antitrust laws assume that a retailer faced with an increase in costs of one of its inventory items
will try to pass that cost to consumers to the extent allowed by competition.

2. Post-Merger Efficiencies

Second, the defendants argue that any anticompetitive effects of the merger will be offset by post-merger
efficiencies that will increase competition against Gerber. Although evidence of such efficiencies may
constitute a valid defense, given the high market concentration in this case, to be sustained on rebuttal, there
must be proof of “extraordinary efficiencies” which the defendants have failed to supply. The only cost
reduction the district court quantified as a percentage of pre-merger costs, however, was the so-called “variable
conversion cost”: the cost of processing the volume of baby food now processed by Beech-Nut (D). The court
accepted the claim that this cost would be reduced by 43 percent if the Beech-Nut (D) production were
shifted to Heinz’s (D) plant. However, “variable conversion cost” is only a percentage of the total variable
manufacturing cost. A large percentage reduction in only a small portion of the company’s overall variable
manufacturing cost does not necessarily translate into a significant cost advantage to the merger. Thus, for
cost reduction to be relevant, the percentage of Beech-Nut’s (D) total variable manufacturing cost that would
be reduced as a consequence of the merger must be considered. Using this method cuts the cost savings to
22.3 percent. Also, the relevant figures is not the percentage reduction in Beech-Nut’s (D) costs, but the cost
reductions measured across the new entity’s combined production. Finally, any efficiencies must be merger-
specific, i.e., not capable of being achieved by either company alone. However, there was no inquiry by the
district court into why Heinz (D) could not, on its own, achieve efficiencies of the kind that allegedly would
be created by the merger.

3. Innovation

Third, the defendants claim the merger is necessary to enable Heinz (D) to innovate, and, thus, improve its
competitive position against Gerber. Given that Heinz (D) is actually the world’s largest baby food
manufacturer this is a difficult defense to prove, especially because the evidence presented on this point was
highly speculative and not necessarily statistically significant. Accordingly, the district court had no basis to
conclude that the FTC’s (P) showing was rebutted by an innovation defense.

4. Structural Barriers to Collusion

As a final matter, the combination of a concentrated market and barriers to entry is a recipe for price
coordination. Where rivals are few, firms will be able to coordinate their behavior, either by overt collusion or
implicit understanding, in order to restrict output and achieve profits above competitive levels. The creation of
a durable duopoly affords both the opportunity and incentive for both firms to coordinate to increase prices.
Because the district court failed to specify any “structural market barriers to collusion” that are unique to the
baby food industry, its conclusion that the ordinary presumption of collusion in a merger to duopoly was
rebutted is clearly erroneous. Because the FTC (P) succeeded in “raising questions going to the merits so
serious, substantial, difficult and doubtful as to make them fair ground for thorough investigation, study,
deliberation and determination,” it is entitled to the preliminary injunction it requested. The court does not
decide whether the FTC (P) will ultimately prove its case, but whether injunctive relief will be in the public
interest. Weighing the equities in this case favors a preliminary injunction that will enable the FTC (P) to
investigate the serious and substantial questions it has raised. Reversed and remanded.

ANALYSIS
The most difficult mergers to assess are those that combine both negative and positive market effects. Such

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 mergers create market power that increases the risk of oligopolistic pricing while at the same time creating
efficiencies that reduce production or marketing costs. Here, the court determined that any potential
positive effects would not outweigh any potential negative effects. Presumably, the merging parties agreed,
because they abandoned the merger shortly after the court rendered its decision.

Quicknotes
ENJOIN The ordering of a party to cease the conduct of a specific activity.
MERGER The acquisition of one company by another, after which the acquired company ceases to exist as an
independent entity.
PRIMA FACIE An action in which the plaintiff introduces sufficient evidence to submit an issue to the judge or
jury for determination.

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 United States v. Sidney W. Winslow
Federal government (P) v. Shoemaking machine company (D)
227 U.S. 202 (1913).

NATURE OF CASE: Writ of error to determine if the counts in an indictment charged offenses under
federal antitrust law.
FACT SUMMARY: After three manufacturers of shoemaking machinery, including Sidney W. Winslow
(D), combined to form one company, the Government (P) filed suit, alleging violation of the Sherman Act.

RULE OF LAW
Where several companies that do not compete with one another combine in an effort to create greater
efficiency, that combination is not unlawful.

FACTS: Three companies, including Sidney W. Winslow (Winslow) (D), made the majority of the machines
used in making shoes worn in the nation. Each company made machines that performed different functions
from the machines made by the other two, and the machines were patented. The three companies combined
to form the United Shoe Machinery Company (United Shoe) (D), building a single new factory which then
made all the machines which had previously been made by the three companies at different locations. The
Government (P) filed suit, alleging that the combination was formed with the intent to extend the companies’
monopolies, rights, and control over commerce in the states at the expense of the public and to discourage
others from inventing and manufacturing machines for the work done by United Shoe (D), thus violating the
Sherman Act. Winslow (D) and the others (D) argued the indictment did not charge offenses under the
Sherman Act.
ISSUE: Where several companies that do not compete with one another combine in an effort to create greater
efficiency, is that combination unlawful?
HOLDING AND DECISION: (Holmes, J.) No. Where several companies that do not compete with one
another combine in an effort to create greater efficiency, that combination is not, unlawful. On its face, the
combination here was an effort to achieve greater efficiency. The machines were patented, therefore making
the machines a monopoly in any case. It was said that 70–80 percent of all the shoe machinery business was
put into a single hand. This is inaccurate. But even one corporation making 70 percent of three noncompeting
groups of patented machines is not more objectionable than three corporations making one group each. The
Sherman Act does not extend to reducing all manufacture to isolated units of the lowest degree.

ANALYSIS
As an analogy, Justice Holmes declared that it is as lawful (and far cheaper) for one corporation to make
every part of a steam engine and to then put the machine together as it would be for one corporation to
make the boilers and another to make the wheels. While Winslow (D) and the others were not actual
competitors, Justice Holmes never considered that they were even potential competitors. There was a likely
possibility that each of them might enter into the businesses run by the others.

Quicknotes
COMBINATION (ANTITRUST DEFINITION) Alliance of entities, for the purpose of impeding free trade, that
results in a monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.
WRIT OF ERROR A writ issued by an appellate court, ordering a lower court to deliver the record of the case so
that it may be reviewed for alleged errors.

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 United States v. Continental Can Co.
Federal government (P) v. Metal container producer (D)
378 U.S. 441 (1964).

NATURE OF CASE: Appeal from a judgment for the defendant in an antitrust action involving a merger.
FACT SUMMARY: After Continental Can Co. (D) acquired Hazel-Atlas Glass Company, the
Government (P) filed suit to obtain a divestiture order, alleging that the acquisition violated § 7 of the
Clayton Act.

RULE OF LAW
The acquisition by one firm of another firm which is a potential competitor is likely to substantially
lessen competition, thus violating federal antitrust law.

FACTS: Continental Can Co. (Continental) (D), the nation’s second-largest producer of metal containers,
acquired Hazel-Atlas Glass Company (Hazel-Atlas), the nation’s third-largest producer of glass containers.
Before the merger, Continental (D) had actively and vigorously sought to make inroads in the glass industry’s
hold on baby food, soft drink, and beer containers. The Government (P) brought suit, seeking a judgment
that the acquisition violated § 7 of the Clayton Act and requesting an appropriate divestiture order. The
district court held that the geographical market was the entire United States, while the product markets were
metal containers, glass containers, and metal and glass beer containers. Trying the case without a jury, the
district court found that the Government (P) had failed to prove reasonable probability of anticompetitive
effect in any line of commerce and dismissed the complaint. The Government (P) appealed.
ISSUE: Is the acquisition by one firm of another firm which is a potential competitor likely to substantially
lessen competition, thus violating federal antitrust law?
HOLDING AND DECISION: (White, J.) Yes. The acquisition by one firm of another firm which is a
potential competitor is likely to substantially lessen competition, thus violating federal antitrust law. The
district court was correct as to the geographical market but erred as to the product market. The record
compellingly reveals the past competitive relationships between metal and glass containers. Based on that
record, the relevant product market is the combined glass and metal container industries and all end uses for
which they compete. Continental (D) was positioned as a major player in the relevant product market prior to
the merger. When Continental (D) acquired Hazel-Atlas, it added significantly to its position in the relevant
line of commerce. The acquisition of Hazel-Atlas by a company engaged in intense efforts to effect a change
from glass to metal in the soft drink and baby food lines cannot help but diminish the likelihood of Hazel-
Atlas’ realizing its potential as a significant competitor in either line.

ANALYSIS
This decision clearly shows that the danger of any merger or acquisition is related to how the relevant
markets are defined. Cross-elasticity of demand also indicates whether products are competitive or
complementary, thus demonstrating the degree of actual competition that exists between any two
companies. Comparing the instant case with the United States v. Sidney W. Winslow, 227 U.S. 202 (1913),
it is apparent that the complementary products, i.e., machines that produce different shoe parts produced
in Winslow, had a very low cross-elasticity of demand, as opposed to the products produced by Continental
Can (D) and Hazel-Atlas, which had a high cross-elasticity of demand.

Quicknotes
CLAYTON ACT § 7 Prohibits the acquirement of stock or assets if the effect of such acquisition is to
substantially lessen competition or create a monopoly.
DIVESTITURE The divestment of an interest in a corporation pursuant to court order.
MERGER The acquisition of one company by another, after which the acquired company ceases to exist as an
independent entity.

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 FTC v. Procter & Gamble Co.
Federal agency (P) v. Corporation (D)
386 U.S. 568 (1967).

NATURE OF CASE: Action to compel divestment of merged company.

FACT SUMMARY: Procter & Gamble Co. (D) purchased Clorox, the leading company in the bleach
market.

RULE OF LAW
Where a giant corporation diversifies by merging with the leading producer in a related field, there is
an anticompetitive effect which violates § 7.

FACTS: Clorox was the leading bleach producer in the nation. It controlled nearly 50 percent of the market
and, in certain geographic areas, controlled a much larger share. Eighty percent of the market was controlled
by four firms. In many areas of the country, the other three firms did not even compete with Clorox. Other
than Purex, Clorox was the only firm with more than one plant. The low mark-up and high transportation
cost limited effective marketing to a radius of 300 miles from the plant. Procter & Gamble Co. (Procter) (D),
a giant in the household products field, had been looking for areas in which to diversify and purchased Clorox.
The Federal Trade Commission (FTC) (P) found that the merger had an anticompetitive effect. First, it
removed Procter (D) as a potential entrant into the market. Secondly, it would tend to suppress competition
for fear that Procter (D) would retaliate by selling Clorox at a loss while making it up with its other products.
Thirdly, since all bleach has the same chemical formula, advertising is the key to success in the area. In 1957,
Clorox spent $5.4 million on advertising. Procter (D) spent $127 million. With this large of an advertising
budget, Procter (D) could further dominate an already oligopolistic market. The court of appeals reversed.
ISSUE: Where a giant corporation diversifies by merging with the leading producer in a related field, is there
an anticompetitive effect that violates § 7?
HOLDING AND DECISION: (Douglas, J.) Yes. Where a giant corporation diversifies by merging with
the leading producer in a related field, there is an anticompetitive effect that violates § 7. Clorox could not
exert its maximum market control for fear of entry by one of the financial giants of a related field. Its control
was further limited by a fairly small advertising budget. It did not command preferred treatment by retailers.
Procter & Gamble’s (D) acquisition of Clorox changed all of this because Procter (D) had a large advertising
budget, did not fear new entrants, and controlled a preferred mode of treatment by retailers. Fear of retaliation
diminishes existing competitors and the movement of new entrants into the market. The findings of the FTC
(P) were more than warranted by these facts. The order is reinstated.

ANALYSIS
The rationale in Procter is limited to situations where entry would become more difficult or the oligopolistic
market would be further centralized. Where the acquiring financial giant cannot make effective use of its
size, no violation will probably be present. Where advertising is of minimal value and economies of size
have already been reached, there is little potential for the acquiring of additional market control. When this
is added to a highly competitive market which may be easily entered, no antitrust violations occur from
acquisitions. Beatrice Food Co., 1972 Trade Reg. Rep. 1120121.

Quicknotes
CLAYTON ACT, § 7 Prohibits the acquirement of stock or assets if the effect of such acquisition is to
substantially lessen competition or create a monopoly.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.

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OLIGOPOLISTIC A market condition in which the industry for a particular product is dominated by only a few
companies.

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 Citizen Publishing Co. v. United States
Publishing company (D) v. Federal government (P)
394 U.S. 131 (1969).

NATURE OF CASE: Appeal from a ruling for the plaintiff in an antitrust action.
FACT SUMMARY: After the Citizen (D), a daily newspaper, acquired its competitor, the Star (D), the
Citizen (D) asserted the failing company doctrine as a defense to the Government’s (P) charge of a violation
of the Clayton Act.

RULE OF LAW
The failing company defense can be applied only if the resources of one company are so depleted that
the business failure is probable and no other prospective purchaser is available.

FACTS: Tucson, Arizona, had two daily newspapers which competed vigorously with each other. However,
the Star (D) operated at a profit, while the Citizen (D) operated at a loss. Despite its losses, the Citizen (D)
was purchased by two men, one of whom was prepared to finance the paper’s losses for a while. They did not
seek to sell the Citizen (D), nor was it about to go out of business. They did, however, negotiate a joint
operating agreement between the papers, except for their news and editorial departments. Thus, all
commercial rivalry between the papers ceased. Competing publishing operations were also foreclosed. The
Government (P) filed suit, alleging violation of the Clayton Act. Citizen (D) asserted the “failing company”
defense. The district court rejected the defense, finding that Citizen (D) was not on the verge of going out of
business at the time of the agreement. Citizen (D) appealed.
ISSUE: May the failing company defense be applied where business failure is probable and no other
prospective purchaser is available?
HOLDING AND DECISION: (Douglas, J.) Yes. The failing company defense may be applied where
business failure is probable and no other prospective purchaser is available. Acquisition of a company faced
with the grave probability of a business failure does not substantially lessen competition within the meaning of
federal antitrust law. However, in this case, there is no evidence that the joint operating agreement was the
last straw at which Citizen (D) grasped. Indeed, it continued to be a significant threat to the Star (D). The
Star (D) would hardly be willing to enter into an agreement to share its profits with the Citizen (D) if it were
truly on the brink of collapse, as the Star (D) now claims. Furthermore, the failing company doctrine plainly
cannot be applied unless it is established that the acquiring company is the only available purchaser. Citizen
(D) has not carried its burden of proof.

ANALYSIS
The Court noted that the record was silent on what the market, if any, for the Citizen (D) might have
been, since it was not offered for sale. Further, experience had demonstrated that companies reorganized
under Chapters X or XI of the Bankruptcy Act often emerge as strong competitive companies. The
prospects of reorganization of the Citizen (D) at the time of the agreement would have had to be dim or
nonexistent to make the failing company doctrine applicable to this case.

Quicknotes
CLAYTON ACT Legislation passed by the U.S. Congress in 1914 as an amendment to clarify and supplement
the Sherman Antitrust Act of 1890. The act prohibited various anticompetitive business practices and gave
labor certain rights in disputes with management. It declared that “the labor of a human being is not a
commodity or article of commerce.”
FAILING COMPANY DOCTRINE Exemption, from Clayton Act, that permits an otherwise unlawful merger if it
is shown that the failing company was bankrupt or in danger of becoming bankrupt.

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 Quick Reference Rules of Law

1. “Price Discrimination” and “Injury to Competition.” Quantity discounts may be justified only if actual
savings result to the manufacturer; e.g., freight costs. (FTC. v. Morton Salt Co.)

2. “Price Discrimination” and “Injury to Competition.” A manufacturer may not be held liable for
secondary-line price discrimination under § 2 of the Clayton Act as amended by the Robinson-Patman
Price Discrimination Act in the absence of a showing that the manufacturer discriminated between
dealers competing to resell its product to the same retail customer. (Volvo Trucks North America, Inc. v.
Reeder-Simco GMC, Inc.)

3. “Price Discrimination” and “Injury to Competition.” In order to receive damages under the Robinson-
Patman Act a plaintiff must show an actual violation of § 2(a) and that the violation caused an actual
antitrust injury. (J. Truett Payne Co. v. Chrysler Motors Corp.)

4. “Price Discrimination” and “Injury to Competition.” Section 2(c) makes it unlawful for any person to
discriminate in granting price reductions. This includes the reduction of brokerage fees. (FTC v. Henry
Broch & Co.)

5. “Like Grade and Quality.” Brand names and consumer preferences are not factors to be considered when
determining if a product is of “like grade and quality” for the purposes of § 2(a) of the Robinson-Patman
Act. (FTC v. Borden Co.)

6. “Cost Justification.” Discounts which are based on cost savings may not be passed on to arbitrarily drawn
classes of customers. (United States v. Borden Co.)

7. “Meeting Competition.” A good-faith belief, rather than absolute certainty, that a price concession is
being offered to meet an equally low price offered by a competitor is sufficient to satisfy the Robinson-
Patman Act’s § 2(b) meeting-competition defense. (United States v. United States Gypsum Co.)

8. “Meeting Competition.” The “meeting competition” defense may be used by a defendant who in good

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 faith raises its price on a territorial basis in response to the competition. (Falls City Industries v. Vanco
Beverage, Inc.)

9. Robinson-Patman Violations by Buyers. If a seller has a valid meeting-competition defense, there is no

prohibited price discrimination. (Great Atlantic & Pacific Tea Co. v. FTC)

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 FTC v. Morton Salt Co.
Federal agency (P) v. Salt manufacturer (D)
334 U.S. 37 (1948).

NATURE OF CASE: Action against quantity discount rates.

FACT SUMMARY: Morton Salt Co. (D) sold its products to retailers and wholesalers at a standard price.
Discounts were offered to all volume purchasers.

RULE OF LAW
Quantity discounts may be justified only if actual savings result to the manufacturer; e.g., freight costs.

FACTS: Morton Salt Co. (Morton) (D) sold its products to wholesalers and retailers. It offered discounts
based on the quantity purchased. Only five large retail chains were able to take advantage of the lowest
discount rate. The Federal Trade Commission (FTC) (P) entered a cease and desist order for price
discrimination under § 2 of the Robinson-Patman Act. Morton (D) appealed on the basis that its discounts
were available to all purchasers on an equal basis.
ISSUE: Are uniform quantity discounts unlawful?
HOLDING AND DECISION: (Black, J.) Yes. Uniform quantity discounts reward those who are large
enough to take advantage of them at the expense of smaller competitors. Section 2 of the Robinson-Patman
Act makes this an illegal practice unless actual savings to the manufacturer are being passed along to the
volume purchaser. If large quantities can be manufactured and shipped more cheaply, this type of savings can
be passed along. Morton (D) had the burden of justifying its discount policy. This it failed to meet. The Act
does not require a finding of actual injury. It may be invoked if there is a reasonable possibility that injury may
result from the practice. Affirmed.

ANALYSIS
A discount on a product having a small retail price which involves only a small percentage of the retailer’s
business may have no anticompetitive effect. However, if each of the many products sold by the retailer
could be obtained less expensively, the aggregate savings when passed on to customers would injure smaller
retailers who could not buy in large quantities. For another case in this area, see Goodyear Tire and Rubber
Co. v. FTC, 101 F.2d 620 (6th Cir. 1939).

Quicknotes
CEASE AND DESIST ORDER An order from a court or administrative agency prohibiting a person or business
from continuing a particular course of conduct.
ROBINSON-PATMAN ACT § 2 Makes price discrimination unlawful if the intent is to harm competition.

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 Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc.
Truck manufacturer (D) v. Authorized dealer (P)
546 U.S. 164 (2006).

NATURE OF CASE: Appeal from affirmance of judgment for plaintiff in discriminatory pricing action
under § 2 of the Clayton Act as amended by the Robinson-Patman Price Discrimination Act.
FACT SUMMARY: Volvo Trucks North America, Inc. (Volvo) (D), a truck manufacturer, contended that
Reeder-Simco GMC, Inc. (Reeder) (P), one of Volvo’s (D) authorized regional dealers, suffered no
competitive injury under § 2 of the Clayton Act as amended by the Robinson-Patman Price Discrimination
Act when it gave Reeder (P) lower price concessions than it gave to other Volvo (D) dealers vis-à-vis non-
Volvo dealers, but did not discriminate against Reeder (P) when Reeder (P) and another Volvo (D) dealer
were seeking concessions with regard to the same ultimate customer.

RULE OF LAW
A manufacturer may not be held liable for secondary-line price discrimination under § 2 of the
Clayton Act as amended by the Robinson-Patman Price Discrimination Act in the absence of a showing
that the manufacturer discriminated between dealers competing to resell its product to the same retail
customer.

FACTS: Reeder-Simco GMC, Inc. (Reeder) (P), an authorized dealer of heavy-duty trucks manufactured by
Volvo Trucks North America, Inc. (Volvo) (D), generally sold those trucks through an industrywide
competitive bidding process, whereby the retail customer describes its specific product requirements and
invites bids from dealers it selects based on such factors as an existing relationship, geography, and reputation.
Once a Volvo (D) dealer receives the customer’s specifications, it requests from Volvo (D) a discount or
“concession” off the wholesale price. Volvo (D) decides on a case-by-case basis whether to offer a concession.
The dealer then uses its Volvo (D) discount in preparing its bid; it purchases trucks from Volvo (D) only if
and when the retail customer accepts its bid. Reeder (P) was one of many regional Volvo (D) dealers.
Although nothing prohibited a Volvo (D) dealer from bidding outside its territory, Reeder (P) rarely bid
against another Volvo (D) dealer. In the atypical case in which a retail customer solicited a bid from more
than one Volvo (D) dealer, Volvo’s (D) stated policy was to provide the same price concession to each dealer.
Volvo (D) eventually announced a program it called “Volvo Vision,” which had as its goal to enlarge the size
of its dealers’ markets and to reduce by almost half the number of its dealers. After Volvo Vision went into
effect, Reeder (P) learned that Volvo (D) had given another dealer a price concession greater than the
discounts Reeder (P) typically received. Reeder (P) suspected that it was one of the dealers Volvo (D) sought
to eliminate, and filed suit under § 2 of the Clayton Act, as amended by the Robinson-Patman Price
Discrimination Act alleging that its sales and profits declined because Volvo (D) offered other dealers more
favorable price concessions. At trial, Reeder (P) presented evidence of two instances when it bid against
another Volvo (D) dealer for a particular sale. In the first, although Volvo (D) initially offered Reeder (P) a
lower concession, Volvo (D) ultimately matched the concession offered to the competing dealer. Neither
dealer won the bid. In the second, Volvo (D) initially offered the two dealers the same concession, but
increased the other dealer’s discount after it, rather than Reeder (P), was selected. Reeder (P) primarily relied
on comparisons between concessions it received on four occasions when it bid successfully against non-Volvo
dealers (and thus purchased Volvo (D) trucks), with more favorable concessions other successful Volvo (D)
dealers received in bidding processes in which Reeder (P) did not participate. Reeder (P) also compared
concessions Volvo (D) offered it on several occasions when it bid unsuccessfully against non-Volvo dealers
(and therefore did not purchase Volvo (D) trucks), with more favorable concessions accorded other Volvo (D)
dealers who gained contracts on which Reeder (P) did not bid. The jury found a reasonable possibility that
discriminatory pricing may have harmed competition between Reeder (P) and other Volvo (D) dealers, and
that Volvo’s (D) discriminatory pricing injured Reeder (P). The district court entered judgment for Reeder
(P), and the court of appeals affirmed. The U.S. Supreme Court granted certiorari.
ISSUE: May a manufacturer be held liable for secondary-line price discrimination under § 2 of the Clayton
Act as amended by the Robinson-Patman Price Discrimination Act in the absence of a showing that the
manufacturer discriminated between dealers competing to resell its product to the same retail customer?

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HOLDING AND DECISION: (Ginsburg, J.) No. A manufacturer may not be held liable for secondary-
line price discrimination under § 2 of the Clayton Act as amended by the Robinson-Patman Price
Discrimination Act in the absence of a showing that the manufacturer discriminated between dealers
competing to resell its product to the same retail customer. Under the Clayton Act and Robinson-Patman
Act, price discrimination is proscribed only to the extent that it threatens to injure competition. A hallmark of
the requisite competitive injury is the diversion of sales or profits from a disfavored purchaser to a favored
purchaser. A permissible inference of competitive injury may arise from evidence that a favored competitor
received a significant price reduction over a substantial period of time. Here, however, Reeder (P) cannot
establish the competitive injury required under the Act, since it did not actually compete with a favored Volvo
(D) dealer. Reeder (P) presented the following comparisons at trial: (1) comparisons of concessions Reeder
(P) received for four successful bids against non-Volvo dealers, with larger concessions other successful Volvo
(D) dealers received for different sales on which Reeder (P) did not bid (purchase-to-purchase comparisons);
(2) comparisons of concessions offered to Reeder (P) in connection with several unsuccessful bids against non-
Volvo dealers, with greater concessions accorded other Volvo (D) dealers who competed successfully for
different sales on which Reeder (P) did not bid (offer-to-purchase comparisons); and (3) comparisons of two
occasions on which Reeder (P) bid against another Volvo (D) dealer (head-to-head comparisons). Because the
purchase-to-purchase and offer-to-purchase comparisons fail to show that Volvo (D) sold at a lower price to
Reeder’s “competitors,” those comparisons do not support an inference of competitive injury. In none of the
discrete instances on which Reeder (P) relied did it compete with beneficiaries of the alleged discrimination
for the same customer. Nor did Reeder (P) even attempt to show that the compared dealers were consistently
favored over it. Reeder simply paired occasions on which it competed with non-Volvo dealers for a sale to
Customer A with instances in which other Volvo (D) dealers competed with non-Volvo dealers for a sale to
Customer B. The compared incidents were tied to no systematic study and were separated in time by as many
as seven months. An inference of competitive injury from evidence of such a mix-and-match, manipulable
quality will not be made, since there is no evidence of a discrete “favored” dealer here, as contemplated by the
Robinson-Patman Act, and the evidence has left open the possibility that Reeder (P), on occasion, might have
gotten a better deal vis-à-vis one or more of the dealers in its comparisons. While Reeder (P) may have
competed with other Volvo dealers for the opportunity to bid on potential sales in a broad geographic area,
competition at that initial stage is based on a variety of factors, including the existence vel non of a relationship
between the potential bidder and the customer, geography, and reputation. Once the customer has chosen the
particular dealers from which it will solicit bids, the relevant market becomes limited to the needs and
demands of the particular end user, with only a handful of dealers competing for the sale. Volvo (D) dealers’
bidding for sales in the same geographic area does not mean that they in fact competed for the same
customer-tailored sales. As to the head-to-head comparisons, when multiple dealers bid for the business of
the same customer, only one dealer will win the business and thereafter purchase the supplier’s product to
fulfill its contractual commitment. Even assuming the Act applies to head-to-head transactions, Reeder (P)
did not establish that it was disfavored vis-à-vis other Volvo (D) dealers in the rare instances in which they
competed for the same sale—let alone that the alleged discrimination was substantial. The Robinson-Patman
Act signals no large departure from antitrust law’s primary concern, interbrand competition, and should not
be construed as geared more to the protection of existing competitors, than to the stimulation of competition.
There is no evidence here that any favored purchaser possesses market power, the allegedly favored purchasers
are dealers with little resemblance to large independent department stores or chain operations, and the
supplier’s selective price discounting fosters competition among suppliers of different brands. By declining to
extend Robinson-Patman’s governance to such cases, the Court continues to construe the Act consistently
with antitrust law’s broader policies. Reversed and remanded.
DISSENT: (Stevens, J.) Reeder’s (P) theory of the case was that Volvo (D) offered Reeder (P) worse prices
that it offered to other regional dealers in an effort to eliminate Reeder (P). For decades, juries have inferred
the requisite injury to competition under the Robinson-Patman Act from the fact that a manufacturer sells
goods to one retailer at a higher price than to its competitors—which are those who sell in the same interstate
retail market. Reeder (P) clearly would prevail under this longstanding approach. Under Volvo’s (D)
approach, and the one erroneously adopted by the majority, each transaction involving Reeder (P) and another
Volvo (D) dealer seeking concessions with regard to the same ultimate customer was a separate market,
defined by the customer and the bidding dealers. Under this approach, for each specific customer who
solicited bids, Reeder’s (P) only “competitors” were the other dealers making bids. Accordingly, if none of
these other dealers were Volvo (D) dealers, then Reeder (P) suffered no competitive harm (relative to other
Volvo (D) dealers) when Volvo (D) gave it a discriminatorily high price. There is nothing in the Act,
precedent, or reason that supports this approach. Every time Reeder (P) managed to sell a Volvo (D) truck, it

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either had to accept a lower profit margin than available to favored Volvo (D) dealers, or it had to pass the
higher cost on to the customer and thereby lose potential future sales. Such lost profits long have been held to
constitute a proper basis for inferring competitive injury. Thus, the majority’s holding seems to be that absent
head-to-head bidding with a favored dealer, a dealer in a competitive bidding market can suffer no
competitive injury. There is no support for this result in the statute.

ANALYSIS
There are three categories of competitive injury that may give rise to a Robinson-Patman Act claim:
primary line, secondary line, and tertiary line. Primary-line cases entail conduct—most conspicuously,
predatory pricing—that injures competition at the level of the discriminating seller and its direct
competitors. Secondary-line cases, of which this case is one, involve price discrimination that injures
competition among the discriminating seller’s customers (here, Volvo’s (D) dealerships); cases in this
category typically refer to “favored” and “disfavored” purchasers. Tertiary-line cases involve injury to
competition at the level of the purchaser’s customers. To establish a secondary-line injury, Reeder (P) had
to show that (1) the relevant Volvo (D) truck sales were made in interstate commerce; (2) the trucks were
of “like grade and quality”; (3) Volvo (D) discriminated in price between Reeder (P) and another purchaser
of Volvo (D) trucks; and (4) “the effect of such discrimination may be … to injure, destroy, or prevent
competition” to the advantage of a favored purchaser, i.e., one who “receive[d] the benefit of such
discrimination.” It was undisputed that Reeder (P) satisfied the first and second requirements. The issue
was thus whether it could satisfy the other two requirements. Volvo (D) argued that Reeder (P) could not
satisfy the third and fourth requirements because Reeder (P) had not identified any differentially priced
transaction in which it was both a “purchaser” under the Act and “in actual competition” with a favored
purchaser for the same customer.

Quicknotes
PRICE DISCRIMINATION Charging one buyer more or less than that charged another buyer for the same
product or service.
ROBINSON-PATMAN ACT Makes price discrimination unlawful if the intent is to harm competition.

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 J. Truett Payne Co. v. Chrysler Motors Corp.
Automobile dealer (P) v. Automobile company (D)
451 U.S. 557 (1981).

NATURE OF CASE: Appeal from directed verdict in action for damages under § 2(a) of the Robinson-
Patman Act.
FACT SUMMARY: J. Truett Payne Co. (P), a Chrysler dealer, claimed that Chrysler Motors Corp.’s (D)
incentive programs constituted discrimination and thus caused it to go out of business.

RULE OF LAW
In order to receive damages under the Robinson-Patman Act a plaintiff must show an actual violation
of § 2(a) and that the violation caused an actual antitrust injury.

FACTS: J. Truett Payne Co. (Payne) (P) was a Chrysler-Plymouth dealer. Chrysler Motors Corp. (Chrysler)
(D) granted a bonus to their dealers based on how many sales they made above set objectives. Sales were
determined by how many automobiles the dealer purchased from Chrysler (D). Chrysler (D) set Payne’s (P)
sales objectives higher than those of its competitors. Because of this, Payne (P) received fewer bonuses than its
competitors. Payne (P) claimed that, because it did not get these bonuses, the prices it paid for automobiles
were higher than that of its competitors. Payne (P) brought suit against Chrysler (D) under § 2(a) of the
Sherman Act, alleging that Chrysler’s (D) incentive program resulted in price discrimination. The trial court
granted Chrysler’s (D) motion for a directed verdict, and Payne (P) appealed.
ISSUE: To receive damages under the Robinson-Patman Act, must a plaintiff show an actual violation of §
2(a) and that the violation caused an actual antitrust injury?
HOLDING AND DECISION: (Rehnquist, J.) Yes. In order to receive damages under the Robinson-
Patman Act a plaintiff must show an actual violation of § 2(a) and that the violation caused an actual antitrust
injury. While § 2(a) is violated merely by showing that price discrimination may have harmed competition,
private actions for damages must show actual damages in order to succeed. Payne (P) did not present any
evidence showing the effect of the price discrimination on retail price. Since the lower court did not address
the question of liability, a determination of damages would be premature. Remanded for a determination as to
whether the evidence supports a finding of a violation of § 2(a).

ANALYSIS
The Fifth Circuit, on remand, dismissed because the evidence did not support a finding of a violation of
the Act. When it examined the evidence, it found that sales had actually increased during the period of
alleged price discrimination. Under Brunswick v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977), an activity
only gives rise to damages if it causes injury of the type the antitrust laws are designed to prevent. Clearly,
the sort of intensification of competition that occurred in this case would not qualify.

Quicknotes
DIRECTED VERDICT A verdict ordered by the court in a jury trial.
ROBINSON-PATMAN ACT § 2 Makes price discrimination unlawful if the intent is to harm competition.

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 FTC v. Henry Broch & Co.
Federal agency (P) v. Broker (D)
363 U.S. 166 (1960).

NATURE OF CASE: Action against price discrimination through the acceptance of lower broker’s fees.
FACT SUMMARY: Henry Broch & Co. (D) agreed to accept a three percent brokerage fee in lieu of its
normal 5 percent fee in order to accommodate Smuckers’ demand for a lower price.

RULE OF LAW
Section 2(c) makes it unlawful for any person to discriminate in granting price reductions. This
includes the reduction of brokerage fees.

FACTS: Canada Foods paid Henry Broch & Co. (Broch) (D) a five percent fee to act as its broker. Canada
Foods authorized Broch (D) and its other brokers to sell its apple concentrate at $1.30 a gallon. Smuckers
refused to pay more than $1.25 per gallon on a 500-gallon order. Both Broch (D) and another broker working
for Canada Foods attempted to convince Smuckers to buy at the higher price. Finally, in order to secure the
business, Broch (D) agreed to reduce its commission to three percent. Smuckers agreed to this price
reduction. Broch (D) made this concession only to Smuckers; all other customers were charged five percent.
The Federal Trade Commission (FTC) (P) claimed that this practice violated § 2(c) of the Robinson-Patman
Act.
ISSUE: May a broker agree to accept less commission in order to obtain a lower price for a customer?
HOLDING AND DECISION: (Douglas, J.) No. Section 2(c) makes the granting of a price concession by
any person an unlawful method of competition. The broker’s actions, when he is acting for the manufacturer,
fall within this proscription. The Robinson-Patman Act was passed to prevent such practices. It prevents
manufacturers, or those working for them, from yielding to the economic pressure of large buyers. No unfair
preferences may be justified. The end result of Broch’s (D) action was that Smuckers received a lower price for
Canada Foods product. If the brokerage fee is reduced to reflect actual savings and these are passed on to all
similar customers, § 2(c) is not violated. Here, however, only Smuckers was given the preference and it was
given solely to obtain the sale. Affirmed.

ANALYSIS
The payment of a commission where no services are performed is in the nature of a discount. However,
such a “discount” could be rationalized as a direct sale to a buyer. The cost savings being passed along were
the saved brokerage fees. Case law has held such discounts do not violate antitrust law. The dissent’s
position seems to have merit. The majority seemed to have engaged in a semantics argument based on the
parties having labeled the payment as a commission.

Quicknotes
ROBINSON-PATMAN ACT Makes price discrimination unlawful if the intent is to harm competition.

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 FTC v. Borden Co.
Federal agency (P) v. Milk producer (D)
383 U.S. 637 (1966).

NATURE OF CASE: Appeal from judgment setting aside a Federal Trade Commission order applying §
2(a) of the Robinson-Patman Act.
FACT SUMMARY: The Borden Co. (D) produced and sold the identical evaporated milk under its own
national brand, as well as under private labels at lower prices.

RULE OF LAW
Brand names and consumer preferences are not factors to be considered when determining if a
product is of “like grade and quality” for the purposes of § 2(a) of the Robinson-Patman Act.

FACTS: Borden Co. (D) produced and sold chemically and physically identical evaporated milk under its
own label, as well as under several private labels. The Borden (D) label is nationally recognized, and thus milk
they sold under that label was priced higher than milk sold under the private labels. The Federal Trade
Commission (FTC) (P) ordered that § 2(a) of the Robinson-Patman Act applied to the Borden brand since it
was of “like grade and quality” as the private brands. The court of appeals found that the brand name of and
customer preference for the Borden brand made it a different grade as a matter of law and set aside the FTC’s
(P) order. The FTC (P) appealed.
ISSUE: Are brand name and consumer preference factors to be considered when determining if a product is
of “like grade and quality” for the purposes of § 2(a) of the Robinson-Patman Act?
HOLDING AND DECISION: (White, J.) No. Brand name and consumer preference are not factors to be
considered when determining if a product is of “like grade and quality” for the purposes of § 2(a) of the
Robinson-Patman Act. Section 2(a) makes it unlawful to discriminate in price between different purchasers of
commodities of “like grade and quality.” The purpose of the Act is to prevent the distortion of competition
through disparate treatment of consumers completing the same transaction. In order to achieve this goal the
term “like grade and quality” must refer solely to the physical characteristics of the goods and not to
consumers’ perceptions of the good. Consumer preference is too easily manipulated by marketing and
advertising to be a valid measure of a good’s quality since it would allow the producers themselves to
determine when § 2(a) would apply. Reversed.

ANALYSIS
The holding of the Court, denying the value of name recognition, rejects advertising costs as a legitimate
expense. The FTC (P) is invested with the power to regulate the content of advertising. Such regulation
may be enough to protect the consumer from misrepresentation without completely devaluing the
importance of name recognition and consumer confidence.

Quicknotes
ROBINSON-PATMAN ACT § 2 Makes price discrimination unlawful if the intent is to harm competition.

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 United States v. Borden Co.
Federal government (P) v. Milk producer (D)
370 U.S. 460 (1962).

NATURE OF CASE: Action to enjoin price discrimination.

FACT SUMMARY: Borden Co. (D) attempted to justify its use of discount prices for quantity purchases by
showing that they led to actual cost savings.

RULE OF LAW
Discounts which are based on cost savings may not be passed on to arbitrarily drawn classes of
customers.

FACTS: Borden Co. (D) and Bowman (D) sold milk in the Chicago area. They granted volume discounts to
independent grocers on a sliding scale. All retail chains were given a flat discount. The Federal Trade
Commission (FTC) (P) entered a cease-and-desist order enjoining the practices as a form of price
discrimination. Borden (D) and Bowman (D) appealed on the basis that the discounts were the result of
actual savings resulting to them from volume sales. They established that their delivery costs were much less to
chain stores. The district court found that the facts justified the discount and dismissed the order. The FTC
(P) appealed on the basis that the blanket discount given to all chain stores had not been justified.
ISSUE: May arbitrary classes, be established for the granting of differing discount rates allegedly justified by
cost savings?
HOLDING AND DECISION: (Clark, J.) No. Where a manufacturer deals with numerous customers, it
may pass on discounts by reasonably drawn classes. It need not analyze actual cost savings resulting from
volume purchases by each class member. However, each member of a class must purchase a similar quantity
and effect a similar cost savings. Arbitrarily granting the same discount to all chain stores regardless of the
quantity purchased results in an arbitrary classification. Finally, not all independents received additional
services which led to the imposition of a higher cost rate. These stores should not have been grouped with
those receiving such extra services. Such practices do not justify Bowman (D) and Borden’s (D) claim that
their discount system was based on cost savings. The FTC’s (P) order is reinstated.

ANALYSIS
The court places a heavy burden on companies who wish to justify price discrimination through cost
savings. However, it is clear that Congress wished to make such practices illegal. Those seeking an
exemption must be prepared to convincingly establish that actual cost savings were indeed passed on to the
volume purchaser. See also In the Matter of Champion Spark Plug Co., 50 FTC 30 (1953).

Quicknotes
CEASE AND DESIST ORDER An order from a court or administrative agency prohibiting a person or business
from continuing a particular course of conduct.
PRICE DISCRIMINATION Charging one buyer more than another for the same product or service.

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 United States v. United States Gypsum Co.
Federal government (P) v. Gypsum board manufacturer (D)
438 U.S. 422 (1978).

NATURE OF CASE: Criminal action for antitrust violations.

FACT SUMMARY: The Government (P) brought an indictment against United States Gypsum Co. (D)
and others alleging violations of § 1 of the Sherman Act.

RULE OF LAW
A good-faith belief, rather than absolute certainty, that a price concession is being offered to meet an
equally low price offered by a competitor is sufficient to satisfy the Robinson-Patman Act’s § 2(b) meeting-
competition defense.

FACTS: The Government (P) brought a criminal indictment against United States Gypsum Co. (Gypsum)
(D) and others alleging violations of § 1 of the Sherman Act. The allegations consisted of price-fixing. The
focus was intersel-ler price verification. This was the practice allegedly followed by the gypsum board
manufacturers of telephoning a competing producer to determine the price currently being offered on gypsum
board to a specific customer. Gypsum (D) contended that the exchanges of price information which did occur
were for the purposes of complying with the Robinson-Patman Act’s § 2(b) meeting-competition defense and
preventing customer fraud. The trial court found Gypsum (D) guilty, and the court of appeals reversed. In this
portion of the appeal, the U.S. Supreme Court discussed the meeting-competition defense as a “controlling
circumstance” precluding liability under § 1 of the Sherman Act.
ISSUE: Is a good-faith belief, rather than absolute certainty, that a price concession is being offered to meet
an equally low price offered by a competitor sufficient to satisfy the Robinson-Patman Act’s § 2(b) meeting-
competition defense?
HOLDING AND DECISION: (Burger, C.J.) Yes. A good-faith belief, rather than absolute certainty, that
a price concession is being offered to meet an equally low price being offered by a competitor is sufficient to
satisfy the Robinson-Patman Act’s § 2(b) meeting-competition defense. Section 2(b) does not require the
seller to justify price discriminations by showing that in fact they met a competitor’s price. But it does place on
the seller the burden of showing that the price was made in good faith to meet a competitor’s. The concept of
good faith lies at the core of the meeting-competition defense. Good faith is flexible and pragmatic, not
technical and doctrinaire. The good faith standard can be satisfied by efforts falling short of interseller
verification in most circumstances where the seller has only vague, generalized doubts about the reliability of
its commercial adversary—the buyer. This Court cannot go so far as to recognize even a limited “controlling
circumstances” exception for interseller verification, for that would be to remove from scrutiny under the
Sherman Act conduct falling near its center with no assurance, and indeed with serious doubts, that
competing antitrust policies would be served thereby. Exchanges of price information, even when putatively
for purposes of Robinson-Patman Act compliance must remain subject to close scrutiny under the Sherman
Act.

ANALYSIS
In a footnote to the case discussed above, the Court wrote, “… (A) Purpose of complying with the
Robinson-Patman Act by exchanging price information is not inconsistent with knowledge that such
exchanges of information will have the probable effect of fixing or stabilizing prices. Since we hold
knowledge of the probable consequences of conduct to be the requisite mental state in a criminal
prosecution like the instant one where an effect on prices is also alleged, a defendant’s purpose in engaging
in the proscribed conduct will not insulate him from liability unless it is deemed of sufficient merit to
justify a general exception to the Sherman Act’s proscriptions.”

Quicknotes
INDICTMENT A formal written accusation made by the prosecution to the grand jury under oath, charging an

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individual with a criminal offense.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.
ROBINSON-PATMAN ACT § 2 Makes price discrimination unlawful if the intent is to harm competition.
SHERMAN ACT § 1 Prohibits price-fixing.

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 Falls City Industries v. Vanco Beverage, Inc.
Brewery (D) v. Wholesaler (P)
460 U.S. 428 (1983).

NATURE OF CASE: Appeal from finding of liability in action under § 2(a) of the Robinson-Patman Act
claiming price discrimination.
FACT SUMMARY: Vanco Beverage, Inc. (Vanco) (P), a distributor of Falls City’s Industries’ (Falls City)
(D) beer in Indiana, brought suit against Falls City (D), claiming it discriminated in price against Vanco (P)
by charging a distributor, who competed in the same geographic area, less than it charged Vanco (P).

RULE OF LAW
The “meeting competition” defense may be used by a defendant who in good faith raises its price on a
territorial basis in response to the competition.

FACTS: Falls City Industries (Falls City) (D), a brewery, sold beer to wholesalers in Indiana and Kentucky.
Vanco Beverage, Inc. (Vanco) (P) and Dawson Springs were the sole wholesalers for their counties in Indiana
and Kentucky, respectively, even though the entire area was considered one metropolitan area. Because of
Indiana’s regulation of beer sales, the two companies did not compete directly with each other. Falls City (D)
sold beer to Dawson at a cheaper price than it sold beer to Vanco (P). Vanco (P) sued Falls City (D), claiming
its pricing policy prevented Vanco (P) from competing in the market since consumers could go to Kentucky to
purchase the same beer at lower prices. Falls City (D) exerted the defense of “meeting competition” under §
2(b) of the Robinson-Patman Act. Both the district court and the court of appeals concluded that Falls City’s
(D) higher Indiana price was not set in good faith and rejected its defense. Falls City (D) appealed.
ISSUE: May the “meeting-competition” defense be used by a defendant who in good faith raised its prices on
a territorial basis in response to the competition?
HOLDING AND DECISION: (Blackmun, J.) Yes. The “meeting-competition” defense may be used by a
defendant who in good faith raised its price on a territorial basis in response to the competition. The purpose
of the defense is to allow a seller to respond to different competitive situations differently. Allowing sellers to
invoke it only when they have lowered their prices on a customer-by-customer basis, as suggested by the lower
courts, would defeat this purpose. The price change, however, must be made in a good-faith response to the
competition. Falls City’s (D) higher price in Indiana was set in response to particular market conditions in
that state. There is no evidence that Falls City’s (D) lower price in Kentucky was not a good-faith attempt to
compete with the lower prices of its competitors there. Reversed.

ANALYSIS
The seminal case on the “meeting competition” defense is FTC v. A.E. Staley Mfg. Co., 324 U.S. 746
(1945). In Staley, the defense argued unsuccessfully that it had tried to “meet competition” by meeting a
competitor’s price schedule that was itself in violation of the Robinson-Patman Act. The Vanco decision
interprets the Staley decision to say only that the “meeting-competition” defense can’t be used when the
competitor’s price schedule has itself been found illegal.

Quicknotes
PRICE DISCRIMINATION Charging one buyer more than another for the same product or service.
ROBINSON-PATMAN ACT § 2 Makes price discrimination unlawful if the intent is to harm competition.

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225
 Great Atlantic & Pacific Tea Co. v. FTC
Supermarket (D) v. Federal agency (P)
440 U.S. 69 (1979).

NATURE OF CASE: Action alleging violations of the Federal Trade Commission and Robinson-Patman
Acts.
FACT SUMMARY: The Great Atlantic & Pacific Tea Co. (D) told Borden that the latter’s bid was not
competitive with other bids.

RULE OF LAW
If a seller has a valid meeting-competition defense, there is no prohibited price discrimination.

FACTS: The Great Atlantic & Pacific Tea Co. (A&P) (D) told Borden that the latter’s bid, in connection
with the purchase of milk from Borden, was not competitive with other bids. A&P’s (D) buyer stated to
Borden: “I have a bid in my pocket. You people are so far out of line it is not even funny. You are not even in
the ballpark.” When the Borden representative asked for more details, he was told nothing except that a
$50,000 improvement in Borden’s bid “would not be a drop in the bucket.” Borden decided to submit a new
bid which doubled the estimated annual savings to A&P (D) from $410,000 to $820,000. Borden emphasized
that it needed to keep A&P’s (D) business and was making the new offer to meet another bid. A&P (D) then
accepted Borden’s bid. The Federal Trade Commission (FTC) (P) filed a complaint against A&P (D). The
Administrative Law Judge found that this conduct violated Section 2(f) of the Robinson-Patman Act. The
FTC (P) affirmed and rejected A&P’s (D) defenses that the Borden bid had been made to meet competition
and was cost justified. The Court of Appeals for the Second Circuit held that substantial evidence supported
the findings of the FTC (P) and that as a matter of law A&P (D) could not successfully assert a meeting-
competition defense because it, unlike Borden, had known that Borden’s offer was better than another
competitor’s. Finally, the court held that the FTC (P) had correctly determined that A&P (D) had no cost
justification defense. The U.S. Supreme Court granted certiorari.
ISSUE: Is there prohibited price discrimination if seller has a valid meeting-competition defense?
HOLDING AND DECISION: (Stewart, J.) No. If seller has a valid meeting-competition defense, there is
no prohibited price discrimination. The test for determining when a seller has a valid meeting-competition
defense whether a seller can show the existence of facts which would lead a reasonable and prudent person to
believe that the granting of a lower price would in fact meet the equally low price of a competitor. A good-
faith belief, rather than absolute certainty, that a price concession is being offered to meet an equally low price
offered by a competitor is sufficient to satisfy the Robinson-Patman’s Section 2(b) defense. Here, Borden
exercised good faith. Borden was told that its first offer was “not even in the ball park” and that a $50,000
improvement “would not be a drop in the bucket.” In light of Borden’s established business relationship with
A&P (D), Borden could have justifiably concluded that A&P’s (D) statements were reliable and that it was
necessary to make another bid offering substantial concessions to avoid losing its account with A&P (D).
Faced with a substantial loss of business and unable to find out the precise details of the competing bid,
Borden made another offer stating that it was doing so in order to meet competition. Borden, in short, was
entitled to a meeting-competition defense. Since Borden had a meeting-competition defense and thus could
not be liable, A&P (D), who did no more than accept that offer, could not be liable either. Reversed.
DISSENT: (Marshall, J.) The Court’s holding does not address the situation where a buyer accidentally
receives a lower bid. The standard for liability for buyers under § 2(f) of the Robinson-Patman Act should
allow the buyer to use the “meeting competition” defense if he induces the seller to meet the competitor’s
price in good faith, regardless of whether the price in fact beats the competition.

ANALYSIS
A price discrimination provision was contained in the Clayton Act of 1914. Section 2 of the Clayton Act,
the price discrimination provision, was revised by the Robinson-Patman Act of 1936. The former Section
2 was not very clear; the Robinson-Patman version is no better. Gellhorn, Antitrust Nutshell at 30-31.

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Quicknotes
CERTIORARI A discretionary writ issued by a superior court to an inferior court in order to review the lower
court’s decisions; the Supreme Court’s writ ordering such review.
ROBINSON-PATMAN ACT § 2 Makes price discrimination unlawful if the intent is to harm competition.

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 Quick Reference Rules of Law

1. Problems of Enforcement in Regulated Industries. The securities laws implicitly preclude the
application of the antitrust laws to conduct of securities underwriters during the course of initial public
offering (IPO) that includes requiring investors to: buy additional shares of a security at escalating prices
in the future; to pay unusually high commissions on subsequent security purchases; and to purchase
from the underwriters other less desirable securities. (Credit Suisse Securities v. Billing)

2. Considerations After Trinko. A complaint alleging breach of an incumbent local exchange carrier’s duty
under the Telecommunications Act of 1996 to share its network with competitors does not state a claim
under § 2 of the Sherman Act. (Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko,
LLP)

3. Political Process, “Rent-Seeking,” and the Antitrust Laws. Where an economically interested party
exercises decision-making authority in formulating a product standard for a private association made up
of market participants, that party enjoys no Noerr immunity from antitrust liability for anticompetitive
effects the standard exerts on the marketplace. (Allied Tube & Conduit Corp. v. Indian Head, Inc.)

4. Political Process, “Rent-Seeking,” and the Antitrust Laws. Horizontal agreements between market
competitors to price-fix or to conduct a boycott are per se violations of the Sherman Act § 1 prohibition
against restraints of trade even if they contain an expressive component suggestive of First Amendment
protection. (FTC v. Superior Court Trial Lawyers Assn.)

5. The “Sham” Exception. Litigation cannot be deprived of immunity as a sham unless the litigation is
objectively baseless. (Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc.)

6. Preemption. Rent control ordinances do not conflict with federal antitrust laws unless they involve
concerted action in price-fixing. (Fisher v. City of Berkeley)

7. The “State Action” Doctrine. A state policy is immune from antitrust regulation if it is “clearly
articulated” and “actively supervised” by the state. (California Retail Liquor Dealers Assn. v. Midcal

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 Aluminum, Inc.)

8. The Authorization Requirement and the Problem of Local Government Antitrust Liability. A
municipality’s anticompetitive activities are protected by the state action exemption to the federal
antitrust laws when the activities are authorized but not compelled by the state and the state does not
actively supervise the anticompetitive conduct. (Hallie v. City of Eau Claire)

9. The Authorization Requirement and the Problem of Local Government Antitrust Liability. A city
may, through regulation, give a business concern a de facto monopoly on a business activity. (City of
Columbia & Columbia Outdoor Advertising, Inc. v. Omni Outdoor Advertising, Inc.)

10. The “Active Supervision” Requirement. In order to receive immunity from the application of antitrust
laws, a state price regulatory system must be under the active supervision of the state. (FTC v. Ticor
Title Insurance Co.)

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 Credit Suisse Securities v. Billing
Underwriter investment bank (D) v. Securities investor (P)
127 S. Ct. 2383 (2007).

NATURE OF CASE: Appeal from reversal of dismissal of class action asserting antitrust law violations
related to the sale of securities.
FACT SUMMARY: Investment bank underwriters (D) contended that their conduct during the course of an
initial public offering (IPO), which investors (P) alleged violated antitrust laws, was not actionable under the
antitrust laws because the securities law impliedly precluded application of the antitrust laws to such conduct.

RULE OF LAW
The securities laws implicitly preclude the application of the antitrust laws to conduct of securities
underwriters during the course of initial public offering (IPO) that includes requiring investors to: buy
additional shares of a security at escalating prices in the future; to pay unusually high commissions on
subsequent security purchases; and to purchase from the underwriters other less desirable securities.

FACTS: Securities investors (P) brought suit, alleging that investment banks, acting as underwriters (D),
violated antitrust laws when they formed syndicates to help execute initial public offerings (IPOs) for several
hundred technology-related companies. The investors (P) claimed that the underwriters (D) unlawfully agreed
that they would not sell newly issued securities to a buyer unless the buyer committed (1) to buy additional
shares of that security later at escalating prices (known as “laddering”), (2) to pay unusually high commissions
on subsequent security purchases from the underwriters, or (3) to purchase from the underwriters (D) other
less desirable securities (known as “tying”). The underwriters (D) moved to dismiss, claiming that federal
securities law impliedly precludes application of antitrust laws to the conduct in question. The district court
dismissed the complaints, but the court of appeals reversed. The U.S. Supreme Court granted certiorari.
ISSUE: Do the securities laws implicitly preclude the application of the antitrust laws to conduct of securities
underwriters during the course of initial public offering (IPO) that includes requiring investors to: buy
additional shares of a security at escalating prices in the future; to pay unusually high commissions on
subsequent security purchases; and to purchase from the underwriters other less desirable securities?
HOLDING AND DECISION: (Breyer, J.) Yes. The securities laws implicitly preclude the application of
the antitrust laws to conduct of securities underwriters during the course of initial public offering (IPO) that
includes requiring investors to: buy additional shares of a security at escalating prices in the future; to pay
unusually high commissions on subsequent security purchases; and to purchase from the underwriters other
less desirable securities. Where regulatory statutes are silent in respect to antitrust, courts must determine
whether, and in what respects, they implicitly preclude the antitrust laws’ application. Taken together, three of
the Court’s cases make clear that a court deciding this preclusion issue is deciding whether, given context and
likely consequences, there is a “clear repugnancy” between the securities law and the antitrust complaint, i.e.,
whether the two are “clearly incompatible.” These cases, in finding sufficient incompatibility to warrant an
implication of preclusion, treated as critical four conditions: (1) the existence of regulatory authority under the
securities law to supervise the activities in question; (2) evidence that the responsible regulatory entities
exercise that authority; and (3) a resulting risk that the securities and antitrust laws, if both applicable, would
produce conflicting guidance, requirements, duties, privileges, or standards of conduct. In addition, (4) the
possible conflict affects practices that lay squarely within an area of financial market activity that securities law
seeks to regulate. Applying these principles here, it is clear that several of these four conditions exist here and
lead to the conclusion that the securities laws preclude application of the antitrust laws. These include the
underwriters’ (D) efforts jointly to promote and sell newly issued securities is central to the proper functioning
of well-regulated capital markets; the fact that the law grants the Securities and Exchange Commission (SEC)
authority to supervise such activities; and the fact that the SEC has continuously exercised its legal authority
to regulate this type of conduct. These show that the first, second, and fourth conditions are satisfied in this
case. This leaves the third condition: whether there is a conflict rising to the level of incompatibility. The
complaint does not attack the bare existence of IPO underwriting syndicates or any of the joint activity that
the SEC considers a necessary component of IPO-related syndicate activity. Instead, the complaint here can
be read as attacking the manner in which the underwriters (D) jointly seek to collect “excessive” commissions

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through the practices of laddering, tying, and collecting excessive commissions, which according to the
investors (P) the SEC itself has already disapproved and, in all likelihood, will not approve in the foreseeable
future. Nonetheless, certain considerations, taken together, lead to the conclusion that securities law and
antitrust law are clearly incompatible in this context. First, to permit antitrust actions such as this threatens
serious securities-related harm. For one thing, a fine, complex, detailed line separates activity that the SEC
permits or encourages from activity that it forbids. Also, the SEC has the expertise to distinguish what is
forbidden from what is allowed. For another thing, reasonable but contradictory inferences may be drawn
from overlapping evidence that shows both unlawful antitrust activity and lawful securities marketing activity.
Further, there is a serious risk that antitrust courts, with different nonexpert judges and different nonexpert
juries, will produce inconsistent results. Together these factors mean there is no practical way to confine
antitrust suits so that they challenge only the kind of activity the investors (P) seek to target, which is
presently unlawful and will likely remain unlawful under the securities law. Rather, these considerations
suggest that antitrust courts are likely to make unusually serious mistakes in this respect, which in turn means
that underwriters (D) must act to avoid not simply conduct that the securities law forbids, but also joint
conduct that the securities law permits or encourages. Thus, allowing an antitrust lawsuit would threaten
serious harm to the efficient functioning of the securities market. Second, any enforcement-related need for
an antitrust lawsuit is unusually small. For one thing, the SEC actively enforces the rules and regulations that
forbid the conduct in question. For another, investors (P) harmed by underwriters’ (D) unlawful practices may
sue and obtain damages under the securities law. Finally, the fact that the SEC is itself required to take
account of competitive considerations when it creates securities-related policy and embodies it in rules and
regulations makes it somewhat less necessary to rely on antitrust actions to address anticompetitive behavior.
In sum, an antitrust action in this context is accompanied by a substantial risk of injury to the securities
markets and by a diminished need for antitrust enforcement to address anticompetitive conduct. Together
these considerations indicate a serious conflict between application of the antitrust laws and proper
enforcement of the securities law. Reversed.

ANALYSIS
The three decisions on which the Court relied in reaching its decision were: Silver v. New York Stock
Exchange, 373 U.S. 341 (1963); Gordon v. New York Stock Exchange, Inc., 422 U.S. 659 (1975); and United
States v. National Assn. of Securities Dealers, Inc., 422 U.S. 694 (1975) (NASD). In Silver the Court
considered a dealer’s claim that, by expelling him from the New York Stock Exchange, the Exchange had
violated the antitrust prohibition against group “boycotts.” The Court indicated that, where possible, courts
should “reconcil[e] the operation of both [i.e., antitrust and securities] statutory schemes … rather than
holding one completely ousted.” It also set forth the standard that repeal of the antitrust laws is to be
regarded as implied only if necessary to make the Securities Exchange Act work, and even then only to the
minimum extent necessary. It also held that the securities law did not preclude application of the antitrust
laws to the claimed boycott insofar as the Exchange denied the expelled dealer a right to fair procedures. In
Gordon, the Court considered an antitrust complaint that essentially alleged “price fixing” among
stockbrokers. Congress and the SEC both subsequently disapproved the price fixing practices. Even
though there was likely compatibility of the laws in the future, the Court nonetheless expressly found
conflict, which arose from the fact that the law permitted the SEC to supervise the competitive setting of
rates and to reintroduce fixed rates under certain conditions. The Court consequently wrote that “failure to
imply repeal would render nugatory the legislative provision for regulatory agency supervision of exchange
commission rates.” The upshot was that, in light of potential future conflict, Court found that the
securities law precluded antitrust liability even in respect to a practice that both antitrust law and securities
law might forbid. Finally, in NASD, the Court considered a Department of Justice antitrust complaint
claiming that mutual fund companies had entered various agreements with securities broker-dealers that
were anticompetitive. The Court again found “clear repugnancy,” and it held that the securities law, by
implication, precluded all parts of the antitrust claim. In reaching this conclusion, the Court found that
antitrust law (e.g., forbidding resale price maintenance) and securities law (e.g., permitting resale price
maintenance) were in conflict. In deciding that the latter trumped the former, the Court relied upon the
same kinds of considerations it found determinative in Gordon.

Quicknotes
ANTITRUST LAW Body of federal law prohibiting business conduct that constitutes a restraint on trade.

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PUBLIC OFFERING The offer to sell securities to the public.

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 Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP
Incumbent local telephone company (D) v. Local telephone service customer (P)
540 U.S. 398 (2004).

NATURE OF CASE: Appeal from reversal of dismissal for failure to state a claim of action under § 2 of the
Sherman Act.
FACT SUMMARY: Verizon Communications, Inc. (Verizon) (D), the incumbent local exchange carrier
(LEC) serving New York State, contended that Law Offices of Curtis V. Trinko, LLP (P), a local telephone
service customer of AT&T, failed to state a claim under § 2 of the Sherman Act when it alleged that Verizon
(D) denied interconnection services to rivals in order to limit entry and had filled rivals’ orders on a
discriminatory basis as part of an anticompetitive scheme to discourage customers from becoming or
remaining customers of competitive LECs.

RULE OF LAW
A complaint alleging breach of an incumbent local exchange carrier’s duty under the
Telecommunications Act of 1996 to share its network with competitors does not state a claim under § 2 of
the Sherman Act.

FACTS: The Telecommunications Act of 1996 imposes upon an incumbent local exchange carrier (LEC)
the obligation to share its telephone network with competitors, including the duty to provide access to
individual network elements on an “unbundled” basis. New entrants, so-called competitive LECs, combine
and resell these unbundled network elements (UNEs). Verizon Communications, Inc. (Verizon) (D) was the
incumbent local exchange carrier (LEC) serving New York State. To foster increased competition, Verizon
(D) had signed interconnection agreements with rivals such as AT&T, detailing the terms on which it would
make its network elements available. Verizon (D) also entered the long-distance market. Competitive LECs
complained that Verizon (D) was violating its obligation to provide access. A consent decree and orders issued
from the state regulatory agency (PSC) and the Federal Communications Commission (FCC), which led to
the imposition of financial penalties, remediation measures, and additional reporting requirements on Verizon
(D). Law Offices of Curtis V. Trinko, LLP (P), a local telephone service customer of AT&T, then filed a
class action alleging, inter alia, that Verizon (D) had filled rivals’ orders on a discriminatory basis as part of an
anticompetitive scheme to discourage customers from becoming or remaining customers of competitive LECs
in violation of § 2 of the Sherman Act. The district court dismissed the complaint, concluding that the
allegations of deficient assistance to rivals failed to satisfy § 2’s requirements. The court of appeals reversed
and reinstated the antitrust claim, and the U.S. Supreme Court granted certiorari.
ISSUE: Does a complaint alleging breach of an incumbent local exchange carrier’s duty under the
Telecommunications Act of 1996 to share its network with competitors state a claim under § 2 of the
Sherman Act?
HOLDING AND DECISION: (Scalia, J.) No. A complaint alleging breach of an incumbent local exchange
carrier’s duty under the Telecommunications Act of 1996 to share its network with competitors does not state
a claim under § 2 of the Sherman Act. Antitrust analysis must always be attuned to the particular structure
and circumstances of the industry at issue. When there exist a regulatory structure designed to deter and
remedy anticompetitive harm, the additional benefit to competition provided by antitrust enforcement will
tend to be small, and it will be less plausible that the antitrust laws contemplate such additional scrutiny.
Here, Verizon (D) was subject to oversight by the FCC and the PSC, both of which responded to certain
deficiencies raised in the complaint by imposing fines and other burdens on Verizon (D). Thus, the regulatory
regime was an effective steward of the antitrust function. Against the slight benefits of antitrust intervention
here must be weighed a realistic assessment of its costs. Allegations of violations of § 251(c)(3) duties are both
technical and extremely numerous, and hence difficult for antitrust courts to evaluate. Applying § 2’s
requirements to this regime can readily result in “false positive” mistaken inferences that chill the very conduct
the antitrust laws are designed to protect. One false-positive risk is that an incumbent LEC’s failure to
provide a service with sufficient alacrity might have nothing to do with exclusion. This cost counsels against
expanding § 2 liability unduly, especially since allegations of violations of § 251(c)(3) duties are difficult for
antitrust courts to evaluate, not only because they are highly technical, but also because they are likely to be

233
extremely numerous, given the incessant, complex, and constantly changing interaction of competitive and
incumbent LECs implementing the sharing and interconnection obligations. Reversed and remanded.

ANALYSIS
This portion of the decision in Trinko shows that the Court has assumed a very modest—almost deferential
—position as to the scope of antitrust law’s role in regulated markets, even where those markets are being
deregulated, where regulations in those markets already address competition.

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 Allied Tube & Conduit Corp. v. Indian Head, Inc.
Conduit producer (P) v. Conduit producer (D)
486 U.S. 492 (1988).

NATURE OF CASE: Appeal from reversal of j.n.o.v. in action for unreasonable restraint of trade.
FACT SUMMARY: The National Fire Protection Association convened to vote on Indian Head Inc.’s (D)
proposal that plastic conduit be an “approved” type of electrical conduit in the National Electric Code, but
Allied Tube & Conduit Corp. (P), the nation’s largest producer of steel conduit, “stacked” the meeting with
its supporters so that Indian Head’s (D) proposal was defeated.

RULE OF LAW
Where an economically interested party exercises decision-making authority in formulating a product
standard for a private association made up of market participants, that party enjoys no Noerr immunity
from antitrust liability for anticompetitive effects the standard exerts on the marketplace.

FACTS: The National Fire Protection Association (NFPA), made up of industry, labor, academia, insurers,
doctors, firefighters and government officials, through “consensus standard making” published the National
Electric Code, which established product and performance requirements for the design and installation of
electrical wiring systems. The Code was influential in the marketplace: electricians worked according to Code,
underwriters insure only structures built according to Code, and many state and local governments adopted
the Code into law without change. The Code covered conduits, hollow tubes used to carry electrical wiring
through walls and floors. Indian Head Inc. (D) developed a plastic conduit and applied to the NFPA for its
inclusion on the Code’s “approved” list. When Allied Tube & Conduit Corp. (Allied Tube) (P), the nation’s
largest producer of steel conduits, learned of Indian Head’s (D) application, it recruited hundreds of
supporters to join NFPA so that they could vote against Indian Head’s (D) proposal at the next annual
meeting. These Allied Tube (P) recruits did not actively participate in the NFPA meeting or even understand
what was going on, but their votes defeated Indian Head’s (D) proposal. Indian Head (D) then filed an
antitrust lawsuit under the Sherman Act § 1, alleging that Allied Tube (P) had unreasonably restrained trade
in the electrical conduit market. The jury found Allied Tube (P) liable and awarded treble damages, but the
district court granted j.n.o.v., arguing that Noerr immunity applied to Allied Tube (P) because NFPA was
“akin to a legislature” which Allied Tube (P) had tried to influence by the “use of methods consistent with
acceptable standards of political action. …” The court of appeals reversed, holding Noerr immunity
inapplicable, and Allied Tube (P) appealed.
ISSUE: Where an economically interested party exercises decision-making authority in formulating a product
standard for a private association made up of market participants, does that party enjoy Noerr immunity from
antitrust liability for anticompetitive effects the standard exerts on the market for that product?
HOLDING AND DECISION: (Brennan, J.) No. Where an economically interested party exercises
decision-making authority in formulating a product standard for a private association made up of market
participants, the party enjoys no Noerr immunity from antitrust liability for anticompetitive effects the
standard exerts on the market for that product. Concerted efforts to restrain or monopolize trade by
petitioning government officials are protected from antitrust liability under the Noerr immunity doctrine.
Immunity can arise either from direct urging of government action or private action “incidental” to valid
efforts to influence government action. Here, the restraint of trade on which liability was predicated is the
NFPA’s exclusion of Indian Head’s (D) product from the Electric Code; thus the “source, context and nature”
of the anticompetitive restraint to be examined is the standard-setting process of a private association.
Although the NFPA National Electric Code is adopted into law by many governments, the NFPA is not a
“quasi-legislative” body because no official authority has been conferred on it by any government. Nor was it
an “incidental” action because it consisted of “rounding up” economically interested persons to set private
standards and did not involve an essentially political activity, such as a publicity campaign to influence public
opinion, as in Eastern R.R. Presidents Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961). Rather, the
NFPA members were exercising market power in a private context, and Allied Tube (P) influenced that
exercise of market power in such a way as to exclude trading in plastic conduit. The defeat of Indian Head’s
(D) proposal to include plastic conduit as an “approved” type in the National Electric Code constituted an

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implicit agreement among NFPA members not to trade in that particular type of conduit and thus constituted
a restraint of trade. Affirmed.

ANALYSIS
The intent to actually lessen competition in a particular product appears to be at the core of the Supreme
Court’s decision here. Compare NAACP v. Claiborne Hardware Co., 458 U.S. 886 (1982), in which the
Court held that the First Amendment protected the nonviolent elements of a boycott of white merchants
organized by the NAACP and designed to make white government and business leaders comply with a list
of demands for racial equality. Although the boycotters intended to inflict a generalized economic injury on
the merchants, the Court held that the boycott was not motivated by any desire to lessen competition or to
reap economic benefits; the boycotters were ordinary consumers who did not stand to profit financially
from a lessening of competition in the boycotted market.

Quicknotes
J.N.O.V. (JUDGMENT NOTWITHSTANDING THE VERDICT) A judgment entered by the trial judge reversing a jury
verdict if the jury’s determination has no basis in law or fact.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT § 1 Prohibits price-fixing.

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 FTC v. Superior Court Trial Lawyers Assn.
Federal agency (P) v. Professional association (D)
493 U.S. 411 (1990).

NATURE OF CASE: Appeal from remand of action for violation of the FTC Act § 5.
FACT SUMMARY: Members of the Superior Court Trial Lawyers Association (D) who provided most of
the representation in the District of Columbia for indigent criminal defendants agreed to refuse to provide
legal services until they received an hourly wage increase.

RULE OF LAW
Horizontal agreements between market competitors to price-fix or to conduct a boycott are per se
violations of the Sherman Act § 1 prohibition against restraints of trade even if they contain an expressive
component suggestive of First Amendment protection.

FACTS: About one hundred lawyers regularly provided legal representation to indigent criminal defendants
in the District of Columbia. By federal act they were paid from $20–30 per hour. These lawyers were
members of the Superior Court Trial Lawyers Association (SCTLA) (D), and when SCTLA efforts to pass
federal bills to raise this wage failed, the affected lawyers formed a “strike committee” which voted not to
accept any new cases if legislation was not immediately passed providing for an increase in their fees. The
SCTLA (D) members publicized their proposed boycott in the news media, and when their fees were not
increased, began the boycott, which had a severe impact on the District’s criminal justice system. The system,
with no lawyers to replace the SCTLA (D) “regulars,” was on the brink of collapse, forcing the District’s
mayor to meet with the “strike committee” and to arrive at a compromise agreement which would raise the
fees on an interim basis to $35 per hour and eventually to $45–55 per hour in return for an end to the boycott.
The Federal Trade Commission (FTC) (P) sued SCTLA (D) under § 1 of the Sherman Act and § 5 of the
Federal Trade Commission Act for, respectively, restraint of trade and unfair competition, and won in the
administrative law court and the court of appeals. The court of appeals, however, rejected application of the
per se rule invalidating the boycott, holding that the “expressive component” of the SCTLA (D) boycott
raised First Amendment concerns which required courts to apply the antitrust laws “prudently and with
sensitivity”; it remanded to the FTC for a finding of whether the SCTLA (D) had market power and whether
its boycott had anticompetitive effects. The FTC (P) appealed.
ISSUE: Are horizontal agreements between market competitors to price-fix or to conduct a boycott per se
violations of the Sherman Act § 1 prohibition against restraints of trade even if they contain an expressive
component suggestive of First Amendment protection?
HOLDING AND DECISION: (Stevens, J.) Yes. Horizontal agreements between market competitors to
price-fix or to conduct a boycott are per se violations of the Sherman Act § 1 prohibition against restraints of
trade even if they contain an expressive component suggestive of First Amendment protection. Here, the
agreement among SCTLA (D) lawyers was designed to obtain higher prices for their services and was
implemented by a concerted refusal to serve the only customer in the market, the District of Columbia, for the
particular services. The constriction on supply is the essence of price-fixing, and thus the horizontal
arrangement was a “naked” restraint on price and output. Such price-fixing is per se invalid under the
Sherman Act § 1. The rationale for application of a per se rule here—to avoid complicated and prolonged
investigations into market definition and market power in every case—outweighs whatever incidental
expressive component the SCTLA (D) boycott may have had and which may have raised First Amendment
implications. The creation of a new standard of review by the court of appeals based on such an expressive
component was misplaced because all boycotts are the product of at least some communication; boycotts
depend on the support of the public or third parties for their success; and SCTLA’s (D) boycott was not
“uniquely expressive.” Reversed [insofar as the court of appeals held per se rules inapplicable to the SCTLA
(D) boycott].

ANALYSIS
Other Supreme Court cases support the minority position in this case that “broad prophylactic rules (i.e.,

237
 per se rules of Sherman Act antitrust violation) in the area of free expression are suspect.” NAACP v.
Button, 371 U.S. 415, 438 (1963). In one case, for example, the Supreme Court invalidated a state program
under which taxpayers applying for a certain exemption had to prove they did not advocate the overthrow
of the U.S. government. Speiser v. Randall, 357 U.S. 513 (1958) (“no … compelling interest at stake as to
justify a short-cut procedure which … suppress[es] protected speech.”) In another, the Supreme Court
decided that the First Amendment prohibited a state from imposing liability on a newspaper for publishing
embarrassing but truthful information on a “negligence per se” theory. The Florida v. Star v. B.J.F., 491
U.S. 557 (1989) (“case-by-case findings” required rather than “liability [which] follows automatically from
publication”).

Quicknotes
BOYCOTT A concerted effort to refrain from doing business with a particular person or entity.
HORIZONTAL AGREEMENTS Agreement entered into by entities at the same level of production for the
purpose of restraining trade.
PER SE VIOLATION Business transactions that in themselves constitute restraints on trade, obviating the need
to demonstrate an injury to competition in making out an antitrust case.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.
UNFAIR COMPETITION Any dishonest or fraudulent rivalry in trade and commerce, particularly imitation and
counterfeiting.

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Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc.
Resort hotel owner (D) v. Motion picture studio (P)
508 U.S. 49 (1993).

NATURE OF CASE: Appeal from summary judgment denying damages in counterclaim for Sherman Act
antitrust violations.
FACT SUMMARY: Professional Real Estate Investors, Inc. (D) alleged that a copyright infringement
action filed against it by Columbia Pictures Industries, Inc. (P) was a mere sham that cloaked underlying acts
of monopolization and conspiracy to restrain trade.

RULE OF LAW
Litigation cannot be deprived of immunity as a sham unless the litigation is objectively baseless.

FACTS: Professional Real Estate Investors, Inc. (PRE) (D) rented videodiscs to the guests in its hotel for in-
room viewing. Columbia Pictures Industries, Inc. (Columbia) (P) held copyrights to the films recorded on
PRE’s (D) videodiscs. Columbia (P) also owned a wired cable system that competed with the videodisc
players by transmitting movies to hotel rooms. Columbia (P) sued PRE (D) for alleged copyright
infringement. PRE (D) counter-claimed, charging Columbia (P) with restraint of trade and attempt to
monopolize in violation of the Sherman Act. PRE (D) alleged that Columbia’s copyright action was a mere
sham to cover its antitrust violations. The trial court granted summary judgment to PRE (D) on the copyright
claim, and the court of appeals affirmed on the grounds that a hotel was not a “public place” and that PRE
(D) was not “transmitting” Colombia’s (P) movies. On remand, Columbia (P) argued that its infringement
action was not a sham and was therefore entitled to immunity. The court agreed and granted Columbia’s (P)
motion for summary judgment on PRE’s (D) antitrust claims. The court of appeals affirmed. PRE (D)
appealed, and the U.S. Supreme Court granted certiorari.
ISSUE: Can litigation be deprived of immunity as a sham if the litigation is not objectively baseless?
HOLDING AND DECISION: (Thomas, J.) No. Litigation cannot be deprived of immunity as a sham
unless the litigation is objectively baseless. The Sherman Act does not punish “political activity,” and
consequently, those who petition government for redress are generally immune from antitrust liability.
Immunity does not extend, however, to those who seek litigation as a cover for their attempts to destroy their
competitors. In order to rise to the level of “sham” litigation, the lawsuit must be objectively baseless in the
sense that no reasonable litigant could realistically expect success on the merits. Only if the challenged
litigation is objectively without merit may a court then look to the litigant’s subjective motivation. In other
words, an objectively reasonable effort to litigate cannot be sham, regardless of actual subjective intent on the
part of the litigant to interfere with the business relationships of a competitor. Here, any reasonable copyright
owner in Columbia’s (P) position could have believed that it had some chance of winning an infringement suit
against PRE (D). Thus, PRE (D) failed to establish the objective prong of the sham exception to immunity.
Affirmed.
CONCURRENCE: (Stevens, J.) The Court’s holding is broader than need be. There are numerous cases in
which a reasonable litigant could expect to succeed on the merits, yet bringing the suit would be unreasonable
and a sham.

ANALYSIS
A “sham” is the use of the governmental process—not the outcome of that process—as an anticompetitive
weapon. Where the plaintiff is indifferent to the outcome of the litigation itself but is attempting to impose
a collateral harm on the defendant by impairing his credit, abusing the discovery process, or interfering
with his access to governmental agencies, he may be perpetrating a “sham.”

Quicknotes
CERTIORARI A discretionary writ issued by a superior court to an inferior court in order to review the lower

239
court’s decisions; the Supreme Court’s writ ordering such review.
CONSPIRACY Concerted action by two or more persons to accomplish some unlawful purpose.
COPYRIGHT Refers to the exclusive rights granted to an artist pursuant to Article I, section 8, clause 8 of the
United States Constitution over the reproduction, display, performance, distribution, and adaptation of his
work for a period prescribed by statute.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.
SUMMARY JUDGMENT Judgment rendered by a court in response to a motion by one of the parties, claiming
that the lack of a question of material fact in respect to an issue warrants disposition of the issue without
consideration by the jury.

240
 Fisher v. City of Berkeley
Landlord (P) v. City (D)
475 U.S. 260 (1986).

NATURE OF CASE: Appeal from denial of damages under antitrust laws.

FACT SUMMARY: Fisher (P) and other landlords contended a rent control ordinance violated antitrust
laws.

RULE OF LAW
Rent control ordinances do not conflict with federal antitrust laws unless they involve concerted action
in price-fixing.

FACTS: The City of Berkeley (Berkeley) (D) enacted a statute setting maximum rent charges. Landlords
sued, contending, among other things, the ordinance was preempted by the Sherman Act. The trial court
upheld the ordinance on its face, and the appellate court reversed. The California Supreme Court held the
ordinance was not an undue burden on trade and upheld the ordinance. The U.S. Supreme Court granted
certiorari.
ISSUE: Do rent control ordinances violate antitrust laws even in the absence of concerted action?
HOLDING AND DECISION: (Marshall, J.) No. Rent control ordinances do not conflict with federal
antitrust laws in the absence of concerted action. The rent controls in this case were unilaterally set by
Government (P) and imposed upon landlords. Thus, no concerted action to limit competition or fix prices
was involved. As a result, the ordinance did not conflict with the Sherman Act, whose application is
contingent upon the presence of concerted action. Because no conflict existed, the ordinance was not
preempted. Affirmed.

ANALYSIS
The California Supreme Court made its determination of the validity of the ordinance based on a test it
devised. It was based upon the U.S. Supreme Court’s Commerce Clause cases dealing with the impact of
state regulation on interstate commerce. The majority opinion bases its conclusion on an interpretation of
the antitrust laws rather than embarking upon a new method of analysis. The majority thus upheld the
result on different grounds. This case is unusual in that the majority opinion is written by Justice Marshall
with a dissent by Justice Brennan. These two justices rarely take opposing views.

Quicknotes
BURDEN ON TRADE Agreements between entities, for the purpose of impeding free trade, that results in a
monopoly, the suppression of competition, or affecting prices.
CERTIORARI A discretionary writ issued by a superior court to an inferior court in order to review the lower
court’s decisions; the Supreme Court’s writ ordering such review.
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.
RENT CONTROL A municipal ordinance limiting the maximum rent that may be lawfully charged for rental
property.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.

241
242
 California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc.
Dealer’s association (D) v. Wine distributor (P)
445 U.S. 97 (1980).

NATURE OF CASE: Appeal from judgment granting injunctive relief against a state wine pricing system.
FACT SUMMARY: Midcal Aluminum Inc. (P) challenged California’s wine pricing program after being
charged with selling wine below the price set by the producer’s schedule.

RULE OF LAW
A state policy is immune from antitrust regulation if it is “clearly articulated” and “actively supervised”
by the state.

FACTS: California law required that all wine prices be set by a fair trade contract or schedule. The wine
producers must set a price schedule and file it with the state. No wholesaler may sell wine to a retailer at other
than the price set by the wine producer. The state enforced the price but in no way controlled or reviewed the
schedules. Midcal Aluminum, Inc. (Midcal) (P), a wholesaler of controlled wine, was charged with selling
wine below the set price. Midcal (P) admitted the allegations and then filed a writ of mandate in the appellate
court, contending that the state’s wine price scheme restrained trade in violation of the Sherman Act. The
appellate court agreed and issued an injunction. The California Retail Liquor Dealers Assn. (D) appealed.
ISSUE: Is a state policy which is “clearly articulated” and “actively supervised” by the state immune from
antitrust regulation?
HOLDING AND DECISION: (Powell, J.) Yes. A state policy is immune from antitrust regulation if it is
“clearly articulated” and “actively supervised” by the state. California’s regulation and purpose, i.e., to permit
resale price maintenance, was clearly stated in the legislation. However, the pricing system is subject to the
antitrust laws since the state did not regulate the pricing system. The prices were set solely at the discretion of
private parties and were never reviewed by the state. Affirmed.

ANALYSIS
As described in Midcal, the “state action” doctrine is extremely deferential to state regulation. Not only
does it allow continued enforcement of laws clearly in violation of federal antitrust laws, it describes the
manner in which a state may draft anticompetitive regulation so as to be sheltered from the antitrust laws.
Opponents of such federal deference argue that state regulation is inappropriate if it is ineffective relative to
federal oversight or if spillover effects from the regulation adversely impact out-of-state parties.

Quicknotes
INJUNCTIVE RELIEF A court order issued as a remedy, requiring a person to do, or prohibiting that person
from doing, a specific act.
RESTRAINT OF TRADE Agreement between entities, for the purpose of impeding free trade, that results in a
monopoly, suppression of competition, or affecting prices.
WRIT OF MANDATE The written order of a court directing a particular action.

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 Hallie v. City of Eau Claire
Unincorporated township (P) v. City (D)
471 U.S. 34 (1985).

NATURE OF CASE: Appeal from denial of injunctive relief.

FACT SUMMARY: The Towns (P) appealed from a court of appeals decision finding that the City of Eau
Claire (D) did not violate the Sherman Act by acquiring a monopoly over the treatment provision of sewage
treatments/services and by tying the provision of such services to the provision of sewage collection and
transportation services.

RULE OF LAW
A municipality’s anticompetitive activities are protected by the state action exemption to the federal
antitrust laws when the activities are authorized but not compelled by the state and the state does not
actively supervise the anticompetitive conduct.

FACTS: After obtaining federal funds, the City of Eau Claire (the City) (D) built a sewage treatment facility
within the Eau Claire Service Area, which included the Towns (P). The facility was the only one in the
market available to the Towns (P). The City (D) had refused to supply sewage treatment services to the Town
(P), supplying services to individual areas in the Towns (P) if those areas voted to annex themselves to the
City (D) and voted to use the City’s (D) sewage collection and transportation services. The Towns (P),
alleging that they were potential competitors in the collection and transportation of sewage, sued for violations
of the Sherman Act. The Towns (P) contended that the City (D) had used its monopoly over sewage
treatment to gain an unlawful monopoly in the provision of sewage collection and transportation services. The
district court ruled for the City (D), and the court of appeals affirmed. From this decision, the Towns (P)
appealed.
ISSUE: Are a municipality’s anticompetitive activities protected by the state action exemption to the federal
antitrust laws when the activities are authorized but not compelled by the state and the state does not actively
supervise the anticompetitive conduct?
HOLDING AND DECISION: (Powell, J.) Yes. A municipality’s anticompetitive activities are protected by
the state action exemption to the federal antitrust laws when the activities are authorized but not compelled by
the state and the state does not actively supervise the anticompetitive conduct. In order to reach a decision in
the present case, it must be determined how clearly a state policy must be articulated in order for a
municipality to take advantage of the state action exemption and whether action by a municipality must be
actively supervised by the state. In the present case, the City (D) acted pursuant to statutes that authorized the
City (D) to provide treatment services and to determine the areas to be served. It is clear that anticompetitive
effects would logically result from the broad authority to regulate. It is not required that the statute expressly
state that the delegated activity was intended to have anticompetitive effects. These statutes cannot be
construed as neutral; they specifically authorize activity that will likely result in anticompetitive effects. The
clear articulation requirement of the state action test has been satisfied. Compulsion has never been required
with respect to municipalities and is unnecessary as an evidentiary matter to prove that certain practices
constitute state action. Finally, the requirement of state supervision mainly serves as evidentiary function, to
ensure that the activity is engaged in pursuant to state policy. Once it is clear that state authorization exists,
there is no need to require the state to supervise actively the municipality’s activities. Affirmed.

ANALYSIS
The dropping of the requirement of active state supervision creates a sort of rebuttable presumption that
the municipality is acting in conformity with the state goals underlying the delegation of authority to the
municipality. In the proper case, however, a plaintiff may be able to show that the municipality, acting
pursuant to state policy, may be serving its own interests at the expense of state goals. In such a case, active
state supervision may be imposed on the municipality in order to ensure that the activity can be truly
considered state action.

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Quicknotes
INJUNCTIVE RELIEF A court order issued as a remedy, requiring a person to do, or prohibiting that person
from doing, a specific act.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.
SHERMAN ACT Makes every contract or conspiracy in unreasonable restraint of commerce illegal.
TYING Selling a specified product to a buyer only if the buyer also agrees to purchase another product.

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City of Columbia & Columbia Outdoor Advertising, Inc. v. Omni Outdoor
Advertising, Inc.
City and billboard advertiser (D) v. Billboard advertiser (P)
499 U.S. 365 (1991).

NATURE OF CASE: Appeal of reversal of judgment n.o.v., reinstating award of damages for antitrust
violations.
FACT SUMMARY: Omni Outdoor Advertising, Inc. (P) contended that the city government of Columbia,
South Carolina (D) had, through regulation, given Columbia Outdoor Advertising, Inc. (D) a de facto
monopoly on billboard advertising.

RULE OF LAW
A city may, through regulation, give a business concern a de facto monopoly on a business activity.

FACTS: Columbia Outdoor Advertising, Inc. (Columbia Outdoor) (D) had long been the near-exclusive
provider of billboard advertising in the city of Columbia, South Carolina (City) (D). Columbia Outdoor (D)
had considerable influence in the municipal governing structure due to both personal and business affiliations.
In 1981, Omni Outdoor Advertising, Inc. (Omni) (P) began erecting billboards. The City (D) responded
with various forms of restrictive ordinances. The final ordinance created spacing restrictions which had the
practical effect of ending the erection of new billboards, a result that essentially locked-in Columbia Outdoor’s
(D) near-monopoly. Omni (P) filed an action under the Sherman Act. A jury returned a verdict of $1 million,
but the district court gave Columbia Outdoor (D) and the City (D) judgment notwithstanding the verdict.
The Fourth Circuit reversed and reinstated the jury verdict. The U.S. Supreme Court granted review.
ISSUE: May a city, through regulation, give a business concern a de facto monopoly on a business activity?
HOLDING AND DECISION: (Scalia, J.) Yes. A city may, through regulation, give a business concern a de
facto monopoly on a business activity. This Court has held that principles of federalism mandate that a
sovereign state may impose anticompetitive restraints within it territory. With respect to political subdivisions
such as cities, such restraints may be imposed if authorized by statute. The statute need not specifically
authorize such restraints; all that must be delegated is the power used to create the restraint, such as zoning.
Such authority was given here. Omni (P) urges a “conspiracy” exception to this rule. This Court is not
inclined to create such an exception, as it would probably swallow the rule; any governmental regulation in
response to constitutionally protected lobbying could be seen as a “conspiracy.” For this reason, such an
exception will not be recognized. Beyond this, no liability can accrue to a private party who urges
anticompetitive regulation, largely for reasons just explained. Such urging is part of the political process, and
as long as improper tactics (e.g., bribery) are not used, such activity cannot constitute an antitrust violation.
Reversed and remanded.

ANALYSIS
The rule here extended to cities was announced as to states in Parker v. Brown, 317 U.S. 341 (1943), and is
called the Parker rule. The rule does have on important exemption, called the “market participant”
exception. When a state elects not to regulate but to enter a market as a participant, it must play by the
same rules as other participants. It cannot give itself a monopoly.

Quicknotes
JUDGMENT N.O.V. (NOTWITHSTANDING THE VERDICT) Judgment entered by the trial judge reversing a jury
verdict if the jury’s determination has no basis in law or fact.
MONOPOLY A privilege or right conferred upon an individual or entity granting it the exclusive power to
manufacture, sell and distribute a particular service or commodity; a market condition in which one or a few
companies control the sale of a product or service thereby restraining competition in respect to that article or
service.

246
247
 FTC v. Ticor Title Insurance Co.
Federal agency (P) v. Insurance Co. (D)
504 U.S. 621 (1992).

NATURE OF CASE: Appeal from judgment dismissing administrative complaint filed by the Federal Trade
Commission (FTC).
FACT SUMMARY: After Ticor Title Insurance Co. (D) had its rates set by a title insurance rating bureau
licensed by the state the FTC (P) filed a complaint alleging that the rating system constituted price-fixing.

RULE OF LAW
In order to receive immunity from the application of antitrust laws, a state price regulatory system
must be under the active supervision of the state.

FACTS: Four states established title insurance rating bureaus which jointly filed insurance rates for Ticor
Title Insurance Co. (Ticor) (D) and other insurance companies (D). Under the system in question, the bureau
would file the rates, and, if the state did not reject them within thirty days, the rates would go into effect.
Although the mechanisms for review of rates were in place, any review that did occur was cursory. The
Federal Trade Commission (FTC) (P) filed a complaint against the insurance companies (D), alleging that
the system constituted price-fixing. The insurance companies (D) claimed that they were entitled to state-
action immunity from federal antitrust rules since they were acting pursuant to a government regulatory
scheme. The FTC (P) rejected this defense. The court of appeals allowed the defense. The FTC (P) appealed.
ISSUE: Must a state price regulatory system be under the active supervision of the state to be exempt from
the application of antitrust laws?
HOLDING AND DECISION: (Kennedy, J.) Yes. In order to be exempt from the application of antitrust
laws, a state price regulatory system must be under the active supervision of the state. The purpose of
immunity for state action is to allow the state to restrict competition when necessary to achieve important
goals without undermining the federal goals of antitrust. That purpose is achieved by adequate state control
over regulatory schemes that justify price-fixing by private parties. Approval by failure to act, i.e., the mere
potential for state supervision as provided by the regulatory schemes in this case, does not constitute active
supervision. Reversed and remanded.

ANALYSIS
This case raises the question of the efficacy of the supervision requirement when a municipality places the
economic decision-making power given to it by the state into the hands of private individuals. Who must
do the supervising: the state or the municipalities? In Englert v. City of McKeesport, 637 F. Supp. 930
(W.D. Pa. 1986), the court held that it is the municipality which is responsible for supervising the conduct
of the private parties.

Quicknotes
PRICE-FIXING An illegal combination in violation of the Sherman Act entered into for the purpose of setting
prices below the natural market rate.

248
 Common Latin Words and Phrases Encountered in the Law
A FORTIORI: Because one fact exists or has been proven, therefore a second fact that is related to the first fact must also exist.
A PRIORI: From the cause to the effect. A term of logic used to denote that when one generally accepted truth is shown to be a cause, another
particular effect must necessarily follow.
AB INITIO: From the beginning; a condition which has existed throughout, as in a marriage which was void ab initio.
ACTUS REUS: The wrongful act; in criminal law, such action sufficient to trigger criminal liability.
AD VALOREM: According to value; an ad valorem tax is imposed upon an item located within the taxing jurisdiction calculated by the value
of such item.
AMICUS CURIAE: Friend of the court. Its most common usage takes the form of an amicus curiae brief, filed by a person who is not a party
to an action but is nonetheless allowed to offer an argument supporting his legal interests.
ARGUENDO: In arguing. A statement, possibly hypothetical, made for the purpose of argument, is one made arguendo.
BILL QUIA TIMET: A bill to quiet title (establish ownership) to real property.
BONA FIDE: True, honest, or genuine. May refer to a person’s legal position based on good faith or lacking notice of fraud (such as a bona
fide purchaser for value) or to the authenticity of a particular document (such as a bona fide last will and testament).
CAUSA MORTIS: With approaching death in mind. A gift causa mortis is a gift given by a party who feels certain that death is imminent.
CAVEAT EMPTOR: Let the buyer beware. This maxim is reflected in the rule of law that a buyer purchases at his own risk because it is his
responsibility to examine, judge, test, and otherwise inspect what he is buying.
CERTIORARI: A writ of review. Petitions for review of a case by the United States Supreme Court are most often done by means of a writ of
certiorari.
CONTRA: On the other hand. Opposite. Contrary to. CORAM NOBIS: Before us; writs of error directed to the court that originally
rendered the judgment.
CORAM VOBIS: Before you; writs of error directed by an appellate court to a lower court to correct a factual error.
CORPUS DELICTI: The body of the crime; the requisite elements of a crime amounting to objective proof that a crime has been committed.
CUM TESTAMENTO ANNEXO, ADMINISTRATOR (ADMINISTRATOR C.T.A.): With will annexed; an administrator c.t.a.
settles an estate pursuant to a will in which he is not appointed.
DE BONIS NON, ADMINISTRATOR (ADMINISTRATOR D.B.N.): Of goods not administered; an administrator d.b.n. settles a
partially settled estate.
DE FACTO: In fact; in reality; actually. Existing in fact but not officially approved or engendered.
DE JURE: By right; lawful. Describes a condition that is legitimate “as a matter of law,” in contrast to the term “de facto,” which connotes
something existing in fact but not legally sanctioned or authorized. For example, de facto segregation refers to segregation brought about by
housing patterns, etc., whereas de jure segregation refers to segregation created by law.
DE MINIMIS: Of minimal importance; insignificant; a trifle; not worth bothering about.
DE NOVO: Anew; a second time; afresh. A trial de novo is a new trial held at the appellate level as if the case originated there and the trial at a
lower level had not taken place.
DICTA: Generally used as an abbreviated form of obiter dicta, a term describing those portions of a judicial opinion incidental or not necessary
to resolution of the specific question before the court. Such nonessential statements and remarks are not considered to be binding precedent.
DUCES TECUM: Refers to a particular type of writ or subpoena requesting a party or organization to produce certain documents in their
possession.
EN BANC: Full bench. Where a court sits with all justices present rather than the usual quorum.
EX PARTE: For one side or one party only. An ex parte proceeding is one undertaken for the benefit of only one party, without notice to, or an
appearance by, an adverse party.
EX POST FACTO: After the fact. An ex post facto law is a law that retroactively changes the consequences of a prior act.
EX REL.: Abbreviated form of the term “ex relatione,” meaning upon relation or information. When the state brings an action in which it has
no interest against an individual at the instigation of one who has a private interest in the matter.
FORUM NON CONVENIENS: Inconvenient forum. Although a court may have jurisdiction over the case, the action should be tried in a
more conveniently located court, one to which parties and witnesses may more easily travel, for example.
GUARDIAN AD LITEM: A guardian of an infant as to litigation, appointed to represent the infant and pursue his/her rights.
HABEAS CORPUS: You have the body. The modern writ of habeas corpus is a writ directing that a person (body) being detained (such as a
prisoner) be brought before the court so that the legality of his detention can be judicially ascertained.
IN CAMERA: In private, in chambers. When a hearing is held before a judge in his chambers or when all spectators are excluded from the
courtroom.
IN FORMA PAUPERIS: In the manner of a pauper. A party who proceeds in forma pauperis because of his poverty is one who is allowed to
bring suit without liability for costs.
INFRA: Below, under. A word referring the reader to a later part of a book. (The opposite of supra.)
IN LOCO PARENTIS: In the place of a parent.
IN PARI DELICTO: Equally wrong; a court of equity will not grant requested relief to an applicant who is in pari delicto, or as much at fault
in the transactions giving rise to the controversy as is the opponent of the applicant.
IN PARI MATERIA: On like subject matter or upon the same matter. Statutes relating to the same person or things are said to be in pari
materia. It is a general rule of statutory construction that such statutes should be construed together, i.e., looked at as if they together
constituted one law.
IN PERSONAM: Against the person. Jurisdiction over the person of an individual.
IN RE: In the matter of. Used to designate a proceeding involving an estate or other property.
IN REM: A term that signifies an action against the res, or thing. An action in rem is basically one that is taken directly against property, as
distinguished from an action in personam, i.e., against the person.
INTER ALIA: Among other things. Used to show that the whole of a statement, pleading, list, statute, etc., has not been set forth in its
entirety.
INTER PARTES: Between the parties. May refer to contracts, conveyances or other transactions having legal significance.
INTER VIVOS: Between the living. An inter vivos gift is a gift made by a living grantor, as distinguished from bequests contained in a will,
which pass upon the death of the testator.
IPSO FACTO: By the mere fact itself.
JUS: Law or the entire body of law.

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LEX LOCI: The law of the place; the notion that the rights of parties to a legal proceeding are governed by the law of the place where those
rights arose.
MALUM IN SE: Evil or wrong in and of itself; inherently wrong. This term describes an act that is wrong by its very nature, as opposed to one
which would not be wrong but for the fact that there is a specific legal prohibition against it (malum prohibitum).
MALUM PROHIBITUM: Wrong because prohibited, but not inherently evil. Used to describe something that is wrong because it is expressly
forbidden by law but that is not in and of itself evil, e.g., speeding.
MANDAMUS: We command. A writ directing an official to take a certain action.
MENS REA: A guilty mind; a criminal intent. A term used to signify the mental state that accompanies a crime or other prohibited act. Some
crimes require only a general mens rea (general intent to do the prohibited act), but others, like assault with intent to murder, require the
existence of a specific mens rea.
MODUS OPERANDI: Method of operating; generally refers to the manner or style of a criminal in committing crimes, admissible in
appropriate cases as evidence of the identity of a defendant.
NEXUS: A connection to.
NISI PRIUS: A court of first impression. A nisi prius court is one where issues of fact are tried before a judge or jury.
N.O.V. (NON OBSTANTE VEREDICTO): Notwithstanding the verdict. A judgment n.o.v. is a judgment given in favor of one party
despite the fact that a verdict was returned in favor of the other party, the justification being that the verdict either had no reasonable
support in fact or was contrary to law.
NUNC PRO TUNC: Now for then. This phrase refers to actions that may be taken and will then have full retroactive effect.
PENDENTE LITE: Pending the suit; pending litigation under way.
PER CAPITA: By head; beneficiaries of an estate, if they take in equal shares, take per capita.
PER CURIAM: By the court; signifies an opinion ostensibly written “by the whole court” and with no identified author.
PER SE: By itself, in itself; inherently.
PER STIRPES: By representation. Used primarily in the law of wills to describe the method of distribution where a person, generally because
of death, is unable to take that which is left to him by the will of another, and therefore his heirs divide such property between them rather
than take under the will individually.
PRIMA FACIE: On its face, at first sight. A prima facie case is one that is sufficient on its face, meaning that the evidence supporting it is
adequate to establish the case until contradicted or overcome by other evidence.
PRO TANTO: For so much; as far as it goes. Often used in eminent domain cases when a property owner receives partial payment for his land
without prejudice to his right to bring suit for the full amount he claims his land to be worth.
QUANTUM MERUIT: As much as he deserves. Refers to recovery based on the doctrine of unjust enrichment in those cases in which a party
has rendered valuable services or furnished materials that were accepted and enjoyed by another under circumstances that would reasonably
notify the recipient that the rendering party expected to be paid. In essence, the law implies a contract to pay the reasonable value of the
services or materials furnished.
QUASI: Almost like; as if; nearly. This term is essentially used to signify that one subject or thing is almost analogous to another but that
material differences between them do exist. For example, a quasi-criminal proceeding is one that is not strictly criminal but shares enough of
the same characteristics to require some of the same safeguards (e.g., procedural due process must be followed in a parole hearing).
QUID PRO QUO: Something for something. In contract law, the consideration, something of value, passed between the parties to render the
contract binding.
RES GESTAE: Things done; in evidence law, this principle justifies the admission of a statement that would otherwise be hearsay when it is
made so closely to the event in question as to be said to be a part of it, or with such spontaneity as not to have the possibility of falsehood.
RES IPSA LOQUITUR: The thing speaks for itself. This doctrine gives rise to a rebuttable presumption of negligence when the
instrumentality causing the injury was within the exclusive control of the defendant, and the injury was one that does not normally occur
unless a person has been negligent.
RES JUDICATA: A matter adjudged. Doctrine which provides that once a court of competent jurisdiction has rendered a final judgment or
decree on the merits, that judgment or decree is conclusive upon the parties to the case and prevents them from engaging in any other
litigation on the points and issues determined therein.
RESPONDEAT SUPERIOR: Let the master reply. This doctrine holds the master liable for the wrongful acts of his servant (or the principal
for his agent) in those cases in which the servant (or agent) was acting within the scope of his authority at the time of the injury.
STARE DECISIS: To stand by or adhere to that which has been decided. The common law doctrine of stare decisis attempts to give security
and certainty to the law by following the policy that once a principle of law as applicable to a certain set of facts has been set forth in a
decision, it forms a precedent which will subsequently be followed, even though a different decision might be made were it the first time the
question had arisen. Of course, stare decisis is not an inviolable principle and is departed from in instances where there is good cause (e.g.,
considerations of public policy led the Supreme Court to disregard prior decisions sanctioning segregation).
SUPRA: Above. A word referring a reader to an earlier part of a book.
ULTRA VIRES: Beyond the power. This phrase is most commonly used to refer to actions taken by a corporation that are beyond the power
or legal authority of the corporation.

Addendum of French Derivatives

IN PAIS: Not pursuant to legal proceedings.
CHATTEL: Tangible personal property.
CY PRES: Doctrine permitting courts to apply trust funds to purposes not expressed in the trust but necessary to carry out the settlor’s intent.
PER AUTRE VIE: For another’s life; during another’s life. In property law, an estate may be granted that will terminate upon the death of
someone other than the grantee.
PROFIT A PRENDRE: A license to remove minerals or other produce from land.
VOIR DIRE: Process of questioning jurors as to their predispositions about the case or parties to a proceeding in order to identify those jurors
displaying bias or prejudice.

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Casenote Legal Briefs
Administrative Law Breyer, Stewart, Sunstein & Vermeule
Administrative Law Cass, Diver & Beermann
Administrative Law Funk, Shapiro & Weaver
Administrative Law Mashaw, Merrill & Shane
Administrative Law Strauss, Rakoff & Farina (Gellhorn & Byse)
Agency & Partnership Hynes & Loewenstein
Antitrust Pitofsky, Goldschmid & Wood
Antitrust Sullivan, Hovenkamp & Schelanski
Bankruptcy Warren & Bussel
Business Organizations Allen, Kraakman & Subramanian

Business Organizations Bauman, Weiss & Palmiter

Business Organizations Hamilton & Macey

Business Organizations Klein, Ramseyer & Bainbridge

Business Organizations O’Kelley & Thompson

Business Organizations Soderquist, Smiddy & Cunningham

Civil Procedure Field, Kaplan & Clermont

Civil Procedure Freer & Perdue

Civil Procedure Friedenthal, Miller, Sexton & Hershkoff

Civil Procedure Hazard, Tait, Fletcher & Bundy

Civil Procedure Marcus, Redish, Sherman & Pfander

Civil Procedure Subrin, Minow, Brodin & Main

Civil Procedure Yeazell

Commercial Law LoPucki, Warren, Keating & Mann

Commercial Law Warren & Walt

Commercial Law Whaley

Community Property Bird

Community Property Blumberg

Conflicts Brilmayer & Goldsmith

Conflicts Currie, Kay, Kramer & Roosevelt

Constitutional Law Brest, Levinson, Balkin & Amar

Constitutional Law Chemerinsky

Constitutional Law Choper, Fallon, Kamisar & Shiffrin (Lockhart)

Constitutional Law Cohen, Varat & Amar

Constitutional Law Farber, Eskridge & Frickey

Constitutional Law Rotunda

Constitutional Law Sullivan & Gunther

Constitutional Law Stone, Seidman, Sunstein, Tushnet & Karlan

Contracts Ayres & Speidel

Contracts Barnett

Contracts Burton

Contracts Calamari, Perillo & Bender

Contracts Crandall & Whaley

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Contracts Dawson, Harvey, Henderson & Baird

Contracts Farnsworth, Young, Sanger, Cohen & Brooks

Contracts Fuller & Eisenberg
Contracts Knapp, Crystal & Prince
Copyright Cohen, Loren, Okediji & O’Rourke
Copyright Goldstein & Reese
Criminal Law Bonnie, Coughlin, Jeffries & Low
Criminal Law Boyce, Dripps & Perkins
Criminal Law Dressler

Criminal Law Johnson & Cloud

Criminal Law Kadish, Schulhofer & Steiker
Criminal Law Kaplan, Weisberg & Binder
Criminal Procedure Allen, Hoffmann, Livingston & Stuntz
Criminal Procedure Dressler & Thomas

Criminal Procedure Haddad, Marsh, Zagel, Meyer, Starkman & Bauer

Criminal Procedure Kamisar, LaFave, Israel, King & Kerr

Criminal Procedure Saltzburg & Capra

Debtors and Creditors Warren & Westbrook

Employment Discrimination Friedman

Employment Discrimination Zimmer, Sullivan & White

Employment Law Rothstein & Liebman

Environmental Law Menell & Stewart

Environmental Law Percival, Schroeder, Miller & Leape

Environmental Law Plater, Abrams, Goldfarb, Graham, Heinzerling & Wirth

Evidence Broun, Mosteller & Giannelli

Evidence Fisher
Evidence Mueller & Kirkpatrick

Evidence Sklansky

Evidence Waltz, Park & Friedman

Family Law Areen & Regan

Family Law Ellman, Kurtz & Scott

Family Law Harris, Carbone & Teitelbaum

Family Law Wadlington & O’Brien

Family Law Weisberg & Appleton

Federal Courts Fallon, Meltzer & Shapiro (Hart & Wechsler)

Federal Courts Low & Jeffries

Health Law Furrow, Greaney, Johnson, Jost & Schwartz

Immigration Law Aleinikoff, Martin & Motomura

Immigration Law Legomsky

Insurance Law Abraham

Intellectual Property Merges, Menell & Lemley

International Business Transactions Folsom, Gordon, Spanogle & Fitzgerald

International Law Blakesley, Firmage, Scott & Williams

International Law Carter, Trimble & Weiner

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International Law Damrosch, Henkin, Murphy & Smit

International Law Dunoff, Ratner & Wippman

Labor Law Cox, Bok, Gorman & Finkin
Land Use Callies, Freilich & Roberts
Legislation Eskridge, Frickey & Garrett
Oil & Gas Lowe, Anderson, Smith & Pierce
Patent Law Adelman, Radner, Thomas & Wegner
Products Liability Owen, Montgomery & Davis
Professional Responsibility Gillers

Professional Responsibility Hazard, Koniak, Cramton, Cohen & Wendel

Property Casner, Leach, French, Korngold & VanderVelde
Property Cribbet, Johnson, Findley & Smith
Property Donahue, Kauper & Martin
Property Dukeminier, Krier, Alexander & Schill

Property Haar & Liebman

Property Kurtz & Hovenkamp

Property Nelson, Stoebuck & Whitman

Property Rabin, Kwall & Kwall

Property Singer

Real Estate Korngold & Goldstein

Real Estate Transactions Nelson & Whitman

Remedies Laycock
Remedies Shoben, Tabb & Janutis

Securities Regulation Coffee, Seligman & Sale

Securities Regulation Cox, Hillman & Langevoort

Sports Law Weiler & Roberts

Taxation (Corporate) Lind, Schwartz, Lathrope & Rosenberg

Taxation (Individual) Burke & Friel

Taxation (Individual) Freeland, Lathrope, Lind & Stephens

Taxation (Individual) Klein, Bankman, Shaviro & Stak

Torts Dobbs, Hayden & Bublick

Torts Epstein

Torts Franklin & Rabin

Torts Henderson, Pearson, Kysar & Siliciano

Torts Schwartz, Kelly & Partlett (Prosser)

Trademark Ginsburg, Litman & Kevlin

Wills, Trusts & Estates Dukeminier, Sitkoff & Lindgren

Wills, Trusts & Estates Dobris, Sterk & Leslie

Wills, Trusts & Estates Scoles, Halbach, Roberts & Begleiter

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