Antitrust - Morgan - Fall 2001_3

8/20/2019 Antitrust - Morgan - Fall 2001_3

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Antitrust LawProfessor Morgan

Fall 2001Cb – casebookNs - nutshell

I. Introduction – A. Economic Theories: introduction to the basic assumptions underlying economicanalysis and application to issues of competition and monopoly

1. The Principle of Scarcity: fundamental problem w/ which economics deals – mostof us cant ha!e e!erything we want" how do we get to a point where people ha!e asmuch as possible# $economists suggest ways to order human acti!ity so as to gi!e asmany people as much of what they would like to ha!e as possible – whether they prefer material goods" career satisfaction" leisure" close friendships" or something else.% &i.e.more than 'ust about ().*. People Act So as to Maximie Their !wn Self Interest: $factual assertion saysthat indi!iduals" left alone" will seek to e+change the skills and money they ha!e for themi+ of goods or ser!ices they want. ,he normati!e principle says that the freedom to

do so is fundamental and allows members of a di!erse society to e+perience the li!esthey prefer for themsel!es and their lo!ed ones.% eople make economic &possibly life)decisions trying to impro!e how much they ha!e. ill choose whiche!er choice willmake you better off. a+imi0e self-interest. eople are different – dont all make thesame choices. ne of the things we do is trade – we can both be better off byeconomic e+change b/w people w/ different wants – economic exchange is aproducti!e acti!ity that occurs in markets. Assumption2 indi!iduals are increasing theirwants and desires from e!ery indi!idual choice. &consistent w/ o!ercoming scarcity andli!ing in a free society).3. Life is li"ed at the margin: people make decisions at the margin – we dont makegrand choices – engage in decisions as to the e+tra or the ne+t &4o I really want desertor would I rather a C4). ake decisions at the edge. $,he choices we make in pursuitof our self interest typically are not profound or dramatic5 they consist of doing a little

more of this and a little less of that. 6ow much more or less is itself a product of ourindi!idual choice5 economists describe those choices as being made 7at the margin.%$eople are asking themsel!es whether the marginal re!enue from doing something wille+ceed the marginal cost of doing it.% &okay that not all people do this – but accurate asto how groups of people in general beha!e).

a. #istinction $%w marginal utility of good "s& money &n.13" pg. 18)2i. #eclining Marginal utility of 'oods: &economic assumption – decliningmarginal utility of goods) – concept that relates to how much more !alue isanother unit of the same thing. &6ow much would you pay for a second hotfudge 9unday#) ost people pay less for the second.ii. (onstant Marginal )tility of Money: concept that says that the utility ofmoney does not decline. oney ne!er declines in marginal utility. Impliesthat the !alue of (1 to :ill ;ates < the !alue of (1 to a homeless man.=emember that money simply represents the ability to buy what a person

would prefer most" that which she does not already ha!e. =egardless of whatyou think of the arg – underlies many economic args – many economicarguments imply that it doesnt make a difference. roblem w/ thesearguments – seem to ignore that there is a decline in the marginal utility ofmoney. $atch to see if it indeed underlies what is sometimes called theconflict between 7efficiency and 7e>uity in antt.%

?. *e #eal *ith Each !ther in Mar+ets: concept of market is a metaphor5 ctsdiscuss 7product markets and 7geographic markets. arket – sometimes people canrealistically deal w/ each other" sometimes they cant – those that can deal are said to


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be participating in the market. arket metaphor – allows economists to speak of theenormous number of ways in which free e+changes of goods and ser!ices might occur.rocess by which indi!iduals e+change goods and ser!ices for things they desire/want.@. The ,uest for Allocati"e Efficiency:

a. There are three different types of ways that the term efficiency is used inantt:

i. allocati"e efficiency: most common" getting the goods to the most !alueduser" people who !alue it the most. Implicit in that is ha!e as much as is!alued that way produced.&c- check this defn)ii. producti"e efficiency: how you get the ma+imum output out of the inputsyou use. 4iscussed more belowiii. dynamic efficiency: &i) and &ii) look at things" for the most part" in a staticposition in time. Arg2 when youre talking dynamic efficiency" you are talkingnew industry &i-ii almost become besides the point). ocuses on conditions inwhich economic life in fact takes place.

b. Allocati"e: scarcity will ne!er be completely o!er come – but will know ha!ecome close as possible when there is no combination of production or e+changethat could make anyone better off w/o making someone else worse – optimal.&osner and Baldor-6icks different test for optimal le!el/ma+ economic welfare – ifa person profits at the e+pense of another – if the gain of the person benefited is

sufficient to reimburse the other for the loss" whether or not such reimburse isre>uired b/c such a transaction increases the total welfare of society). ,he optimalstate is often described as efficient. Allocati!e efficiency – all goods and ser!iceswould be appropriately allocated and preferences for leisure met b/c no furtheracts cd make the situation better.

8. -ow Prices are set in (ompetition: &if you sell pencils for (1/pencil" you willprobably not sell any – potential customers will ha!e so many sources of better"cheaper writing instruments" will not pay (1.)

a. The #emand Side of Setting .our Price: ,he number of D that you sell willdecrease at each higher price le!el. hen the price is high" the >uantitydemanded is lower than the >uantity demanded as the price comes down.4emand will be largely determined based on the buyers alternati!es.b. The Supply Side of Price Setting: Eou will assess what it would cost you to

produce D and try to make the !enture as profitable as possible. Cost will probablynot be constant &i.e. threshold costs more e+pensi!e). Eou will continue to produceyour good until the ne+t item you produce costs more to produce than you couldcharge for it.c. Setting the Price /ased on /oth Supply and #emand: you will set the priceand number of goods to produce where supply and demand meet.

i. =efer to figures p. 1*-1?ii. (onsumer surplus: although the market price of D may be (3" there arealways some buyers out there who would ha!e paid (@ &called that persons7reser!e price). In effect" those persons ha!e money in their pockets tospend on something else – gap b/w what people wd ha!e actually paid for anitem and the benefit they recei!e < consumer surplus. Fnsung !irtue of acompetiti!e economy.

G. The #istortions Imposed $y Monopoly: when there is a monopoly – the tendencyis to increase price and decrease the >uantity. ,his tendency creates the $welfare losstriangle &dead weight loss – 7the e!il of monopoly) – it represents what at minimumthey consider to be the social loss from ha!ing an industry in the hands of a monopolist.oreo!er" consumer surplus disappears and that gap becomes producer income &thinkabout the discussion of the constant marginal utility of money).

a. some arg that the costs to society created by monopoly are much larger thanthe welfare loss triangle especially when you consider how much money cos orindi!iduals are willing to e+pend to get a monopoly. ther e+s. – cost tocompetitors and concentration of political power.


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b. Hooking in the course for situations where instead of ha!ing firms produce untilsupply and demand intersect" they produce to where marginal re!enue andmarginal cost &supply) intersect5 where >uantity pro!ided is less and price ishigher5 where there is a elfare loss triangle &a.k.a. dead weight loss – neitherproducer or consumer get it)5 and where consumer surplus shifts to producerincomec. e!en monopolists are sub'ect to economic realities – cant charge an infiniteamount. If do" wont sell any5 if do" will attract others to the market – other firmsproduce/sell at lower price. uestion2 how easy is it for those firms to get into themarket# If barriers of entry are high" more likely to belie!e monopoly. 9elf-correcting character of the market – attracting new firms.

J. The Matter of Producti"e Efficiency – economies of scale and transactioncosts: in a great many industries" efficient production of goods and ser!ices re>uiresrelati!ely large scale production units" e!en if that means a somewhat smaller numberof competing firms. K+. Haw firms – large transaction cost associating w/ acting on their own" cost of contracting for ser!ices and training new personnel are real costs of doingbusiness that tend to decrease producti!e efficiency. Kach law firm in some smallmeasure reduces the amount of competition in a society" yet few would wish toe+change the often-considerable producti!e efficiency thus achie!ed for the ofteninfinitesimal allocati!e efficiency thus lost. Another form of producti!e efficiency –

$networ+ effects% – if your phone operates one way and mine cant communicate withit" we might as well not ha!e phones – the !alue in phone system is that people caninterconnect. The more people who are part of the system0 the greater the "alue toall of them. K!en though this is producti!ely efficient – allocati!e inefficienciesassociated w/ a monopoly will follow a one firm monopoly in this networkL. #ynamic efficiency –or1 2egulation can do more harm than good: $4ynamicefficiency seeks to focus on the condns in which economic life in fact takes place –including the limited information we tend to ha!e and the practical limits on bothproducti!e and allocati!e efficiency.%

a. #ynamic "& allocati"e and producti"e: a and p efficiency in!ol!e 7staticdetermination – snapshots of economic acti!ity. Approach inade>uate. Allocati!eneed room for changes in tastes5 producti!e needs to reward inefficiency. In realworld – change sis constant" enter – dynamic efficiency.

b. An example of dynamic analysis: busy store faces downward slopingdemand cur!e – pricing options include that of monopolist" what keeps it frome+ploiting its monopoly status &e!en 'ust the threat) – if it reduces output and raisesprices – new firms will enter into competition with it. 4ynamic efficiency –e+amines the barriers to entry and whether e+isting firm tries to block entry. Ifpossibility of new entry is considerable" then legal inter!ention is unnecessary.9ome aspects of monopoly are self-correcting and law can create worseconse>uences than the problem it sought to sol!e &e+. rohibiting reaching acertain si0e" e!en if producing high >uality product and selling at reasonable price"would make the nation poorer).

1. The (ompetence Pro$lem: -ow much can Economic Acti"ity $e Analyed3:$ultimate problem for antt law – how to analy0e economic info in a way that issufficiently general to be practical" yet sufficiently accurate to a!oid making matters

worse instead of better.% ,wo types of errors the law can make2a. Type 4 Errors: break up companies too soon" producti!e" good" etc. $henthe law con!icts the innocent" i.e." prohibits economically producti!e acti!ity our ofe+cessi!e concern to prohibit misconduct.%b. Type 5 Errors: happen when we fail to break up a cartel" too timid. $hen thelaw fails to prohibit genuinely harmful conduct.%

:. (ommon Law Antecedents of the Sherman Act: concern with monopolies andrestraints of trade e+tends at least as far back as the early periods of the de!eloping :ritishlaw of prop and commercial transactions


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1. (ommon Law 67(L89 did not tolerate the grant of monopoly: see The Case ofMonopolies &Bings :ench 1835 cb p. 1)2

a. ;acts: 4arcy !. Allein – ueen Kli0abeth I had issued a patent gi!ing 4arcy &anobleman) e+clusi!e rights to importing playing cards into Kngland. ueengranted monopoly o!er playing cards &at that time patent was < to a monopoly).4arcy had authority to make decisions about playing cards. Allien" a haberdasher&aka. 9alesman) made and sold some playing cards and 4arcy challenged thisinfringement of his monopoly.b. #arcy argued: he was performing a public ser!ice by this monopoly – bykeeping people from playing cards all the time" which would amount to sloth. ,hathe was a nobleman keeping people &esp. lower class) from sinning. :/c the cardswere a $!anity"% monopoli0ing the production of the cards was a $!irtue.%c. -eld: Ct will not enforce monopoly. &


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3. uity would not lend its aid in the di!ision of profitsof an illegal transaction b/w associates.b. Richardson v. Buhl &ich 1JJL)2 &Co. sought monopoly in matches" trying tobuy up all the match cos.) Ct held that monopoly in trade or in any line of businessin the country was odious to our form of go!ernment – ct refused to enforcetransaction to help a firm become part of it.c. Chicago Gas-Light & Coke Co. v. Peoples Gas Light & Coke Co. &Ill 1JJG)2two comps ser!ing gas to Chicago originally had monopoly territory" but e+piredand when they agreed to keep territories but then one infringed on the others" thect would not restrict. Ct held the new contract tends to create and perpetuate amonopoly in the furnishing of gas to the city" therefore" against public policy andunenforceable.d. /ut in England=: at the same time as this" Knglish CH was placing greateremphasis on freedom of contract than upon legal protection of freedom of trade

and upheld practices that wd ha!e been struck down here.C. The Sherman Act 67SA89– main sections passed in 4>?@: &note on page *@ suggeststhat the congressional intent behind the 9A is unclear)2 P1 – contracts in restraint of tradeare illegal5 P* – monopoli0ation is illegal.

1. 4: K!ery contract" combination in the form of trust or otherwise" or conspiracy" inrestraint of trade or commerce among the se!eral 9tates" or with foreign nations" ishereby declared to be illegal. . .

a. rof2 prohibits Bs" combos" or conspiracies in restraint of trade5 e!idence tosuggest adopting Knglish CHb. P 1 re>uires multiple firm action – Bs" combos" conspiracies

*. 5: K!ery person who shall monopoli0e" or attempt to monopoli0e" or combine orconspire with any other person or persons" to monopoli0e any part of the trade orcommerce among the se!eral 9tates or with foreign nations" shall be deemed guilty of a

misdemeanor" and" on con!iction thereof" shall be punished by fine not e+ceeding fi!ethousand dollars" or by imprisonment not e+ceeding one year or by both saidpunishment" in the discretion of the court.

a. rof2 P * direct attack on trusts – de!ices used prior to time when statecorporations laws were amended to include mergers – corporations operatedformally indi!idually" but actually b/c stock held in trust by one person – operatedas one. rohibits monopolies. &I think the fine now are2 (1 forcompany/corporation5 indi!idual (3k5 and up to 3 yrs in 'ail).b. P * will usually in!ol!e only one firm &conspiracy to monopoli0e rare).

4. 'oals: as you look at the 9A and the cases arising under it" try to sort out which of thefollowing possible goals do or should underlie the analysis in the cases2

1. 7Allocati"e efficiency8: the allocation of economic goods to the people who !aluethem most" i.e." most of the issues discussed abo!e

*. 7Producti"e efficiency8: letting firms achie!e the si0e at which the cost ofproduction is least" e!en if that means there will be only a relati!ely few" large firms insome industries3. 7#ynamic efficiency8: the desire to protect the competiti!e process itself andespecially to preser!e the opportunity for new firms to enter e+isting markets or createnew ones?. ,he desire to break up large firms so as to ad!ance the interests of small businessand pre!ent the concentration of economic and political power.

K. !rganie the (oncepts: &cb p.31 – is there any reason for their order in the chart###)1. Burisdiction%Procedure issues:


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a. Interstate Commerceb. ri!ate litigant standingc. Antitrust in'uryd. 9ummary 'udgment standardse. Interplay b/w antt and other federal and state regulatory policies.

*. -oriontal arrangements:a. rice fi+ingb. arket di!isionc. ;roup boycottsd. onopoli0atione. ergers

3. Certical arrangements:a. =esale price maintenanceb. ,erritorial allocationc. Qertical integrationd. K+clusi!e dealinge. ,ying

II. The ;irst 5D .ears under the Sherman Act: Ct struggled with the

meaning of the statute. A. Burisdiction and Scope of the Act: In its early years" the 'urisdiction and scope of theact were interpreted to be limited.

1. To ha"e Burisdiction – must $e in interstate commerce manufacturing is notcommerce scope of the act limited& !nited "tates v. #.C. $night Co. &F.9. 1JL@)2first case to interpret the 9A. ,hreatened e+istence of antt regime" significantly littleauthority today5 &fyi2 o!erruled in Mandeville Island Farms v. American Crystal SugarCo. &1L?J)). Ct thought there were certain kinds of economic acti!ity that werentmeant to be co!ered by the 9A.

a. ;acts: ,he American 9ugar =efining Co &A9=C). had ac>uired the last 1/3 ofthe sugar refining industry" thereby controlling LJR of the countrys sugar refiningcapacity. A9=C was a trust.b. 'o"Fs legal theory:

i. Qiolated P 1 9A b/c combination in restraint of tradeii. Qiolated P * 9A b/c it was a monopoli0ation of the sugar industry &hadLJR). urchase created the sugar trust – classic form that P * was supposedto get at.

c. Issue: $hether conceding that the e+istence of a monopoly in manufacture isestablished by the e!idence" that monopoly can be directly suppressed under theact of Congrs in the mode attempted by this bill.% Aka. Can the 9A get at thismonop#d. (t reGects go"Fs legal theory: &Sustice uller)

i. Ct says real dilemma about how broad the 9A was intended to be – unlesscongrs is meaning to take away 'urisdiction from the state &there were statelaws on the same sub'ect)" Ct is concerned about states rights. &now weha!e concurrent system – can prosecute for state and federal !iolations).ii. rof2 B in restraint of trade is not narrow language – Ct makes distinction2

Bs w/ respect to things in interstate commerce would be co!ered. :ut here"Bs dealing w/ refinery – took place in one state" not in interstate commerce.iii. Ct says congrs must ha!e meant to lea!e state law to go!ern things thatdo not cross state lines.i!.


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e. uences andtherefore is a federal issue. 9tatute should be construed to reach this nationalissue. $Any combination" therefore" that disturbs or unreasonably obstructsfreedom in buying and selling articles manufactured to be sold to persons in otherstates or to be carried to other states – a freedom that cannot e+ist if the right tobuy and sell is fettered by unlawful restraints that crush out competition – affects"not incidentally" but directly" the people of all the states5 and the remedy for suchan e!il is found only in the e+ercise of powers confided to a go!ernment which" thiscourt has said" was the go!ernment of all" e+ercising powers delegated by all"representing all" acting for all.% &cb p. 3@)

i. rof2 hy not lea!e it to the states – b/c companies can find the friendliest"

least regulatory state and then we ha!e a $race for the bottom.% &S.6arlanhints at this)

*. SA could not reach actions in foreign Gurisdictions& %erican Banana Co. v.!nited 'ruit Co. &F9 1LL)2 &=emember that the 9A purports to regulate bothinterstate and foreign commerce) &K will see later that the Antt laws ha!e beensignificantly broadened so as to reach any action any where affecting F9 business willbe potentially sub'ect to American antt laws.)

a. ;acts: started to build a == in anama to get his bananas into the market.Fnited fruit Co." had monop of the banana trade and formed cartel withcompetitors" demanded 'oin the cartel. hen he refused" 4 got the go!t ofanama to pre!ent the ==. argued that 4s acts were monopoli0ation and!iolated P* of the 9A.b. -eld: Ct refused to so e+tend the application of the 9A. K!ents took place

outside of the F9 and were not tortuous where they took place. Ct said 9A cd notrender acts illegal that were legal in the nations in which they occurred.

:. -oriontal (om$inations in 2estraint of Trade: hori0ontal arrangements – concertedacts that restrain competition between firms at the same le!el of production or distribution.

1. SA means what it says 1 4 says for$ids all Hs in restraint of trade – means allHs0 not limited to unreasona$le restraints of trade& !nited "tates v. Trans- Missouri 'reight %ssociation &F9 1JLG)2 &first P1 case to reach 9.Ct" still good lawtoday" central case in de!elopment). hen you ha!e a group of competitors &multi-firm)that agree on price" they !iolate P 1 e!en if price is reasonable. It is true e!en thoughthis industry was regulated and needed protection against competition.

a. ;acts: Kighteen western railroads &$==s%) created an association – the ,ransissouri reight Assn &4)" in order to establish rates and regulations affecting ==traffic in the est. edl go!t instituted an action under 9A contending that 4 had

entered into agreement in restraint of competition – price fi+ing. 4 mo!ed todismiss on the grounds that its rates were reasonable and therefore its agreementwas not unlawful at CH or under the 9A. Hower ct granted the motion.b. summary: 4 arg – economic concerns about monopoly not implicated here –cant reduce ser!ice. ct says < statutes reaches e!ery contract in restraint of tradethat crossed state line" e!en if reasonable. act that it was a transportationindustry did not matter and reasonableness of rates was not a defense – Analysisis not whether result is reasona$le0 $ut whether process is &still good law)&b. # arg:

rice-fi+ing

4ont forge

6ori0ontal Arrangemeinclude21. rice-fi+*. arket4i!ision3. ;roupboycotts?. onopo@. ergers


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i. that the 4 was trying to establish standards fro rates" etc. they said thatthere were a mess of fairs" rates" etc. – to >uote a price to someone aboutgoing on different trains" need to know what prices were. Idea was to ha!e arationale and get a handle on all different rates by the indi!idual ==s. A=;2Interstate Commerce Commission &$ICC%) created 3 years b/f 9A – wholepoint of was to get the rates/prices upU4 arg – 'ust trying to come up withrates to gi!e to the ICC.ii. that rates need to be stabili0ed &cb note pg. @3)–


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beha!ior actually sustains some small businesses – e+. ==s raise prices –barges become competiti!e again.

*. Budge Taft suggests meaningful $ounds for the SA – only restraints of tradethat are allowed are the ones that are ancillary to an otherwise lawful contract&!nited "tates v. %ddyston Pipe & "teel Co. &8th Cir. 1JLJ)2 this is an important casein!ol!ing a classic cartel5 case has a cult following – offers insight. N:2 F9 9.Ctaffirmed result on EC Knight grounds – i.e. in interstate commerce – !iolated 9A – Ctdid not affirm the ancillary restraint analysis. any people hail this analysis asreconciling the problems discussed abo!e – e+. 9ometimes need restraint to ha!e tradeat all. ,his appellate court case picked up on the theme of cartel" it came up withinsight to sort out and put meaningful bounds on the Act – nly restraints of trade thatare allowed are ones that are ancillary to an otherwise lawful B. or e+. ,he Mitchell bakery case abo!e.

a. ;acts: ma'ority of pipe manufacturers in the F.9. entered into an agreement toartificially regulate the price of caste-iron pipe. ,he go!ernment sought to dissol!ethis agreement as !iolati!e of the 9As prohibition against combinations in restraintof interstate commerce. 4 argued that they still had to meet the price set by theircompetition and lacked the power to absolutely fi+ prices. ,he price charged wasfair" 4 argued" and competition was not restrained.

i. the agreement: group of pipe salesmen made agreement – each reser!ed

their own home towns – if you sold pipe in my city" you had to pay me for theright to come into my town. ,hey also set up bidding system for towns andcities – the one who bid/ paid the most into the common pot would get the B"the rest of them agreed to bid higher prices so the guy would get the contract

– appearance of a competiti!e bidding process.ii. Prof – this is not a hard case on the merits: the price was higher thancompetition would ha!e produced &a non-conspiracy member pipe personwould ha!e liked this b/c wd not ha!e been e+cluded and because the bidswere higher" could underbid). ,he demand was relati!ely inelastic –go!ernment needs the pipe – thus" go!ernment procurements are attracti!eand easy to corrupt b/c it is the classic illustration where conspirators arecapable of raising the price. &see notes J/*L – graph" output probably lowertoo.) rof2 this is the most classic cartel we will see.

b. # args:i. we are not hurting anyone and if we dont we will go under &like TransMissouri ). e need to do this to ha!e orderly competition in our pipe industry.

A. 4istinguish from ==2 Ct says no to this argument" like TransMissouri. 4id not need this for the industryUnot e!en like railroading b/crailroading has low fi+ed cost" in pipe business a lot of !ariable costs.:. (t says: doesnt matter – cant do this b/c it is restrains tradeT

ii. we are 'ust a drop in the bucket – cant reduce output or raise prices b/conly control 3R of the industry

A. (t says: the only si+ firms in the area are in!ol!ed. ,his industryin!ol!es a product that is not easy to mo!e – looking at national marketshares was not helpful. Ct said had to look at smaller region.

c. /id rigging on go"Ft contracts is a classic antt "iolation – therefore0 this

case a classic conspiracy and "iolation – easy case& #icta explaining whatthe SA is a$out is important&a. SA and its relation to the (L according to Budge Taft: 9A transformedthe law of restraints of trade from 'udicial inaction &we 'ust wont enforce –Case of Monopolies) to a regime making it affirmati!ely illegal to restrain trade&i.e. criminal" sub'ect to an in'unction" and could result in treble damages). 9Aput teeth into what was considered inappropriate at CH. ne proposition thatTransMissouri stood for was that the CH and its propositions were notnecessarily true today – can go b/y the CH" 9A reaches things that CH had notdecided.


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b. Budge Taft does not $elie"e that 7e"ery contract in restraint of trade8means e"ery contract: 6e belie!es that sometimes you need restraint oftrade to ha!e trade at all. 9ometimes ancillary restraints of trade are okay.i!e e+amples &p.@G)2 $co!enants in partial restraint of trade are generallyupheld as !alid when they are agreements &1) by the seller of property orbusiness not to compete with the buyer in such a way as to derogate from the!alue of the property or business sold5 &*) by a retiring partner not to competewith the firm5 &3) by a partner pending the partnership not to do anything tointerfere" by competition or otherwise" w/ the business of the firm5 &?) by thebuyer of property not to use the same in competition w/ the business retainedby the seller5 &@) by an assistant" ser!ant" or agent not to compete with hismaster or employer after the e+piration of his time of ser!ice. &see page @Jthough – in order to be upheld – must be reasonably necessary" or legit ends"or for pre!ention of possible in'ury" or to protect from danger of loss ofbusiness). 6e thinks that $e!ery B in restraint of trade% cannot mean e!erycontract.c. Budge Taft doesnFt go against the )S S&(t and suggest a rule ofreason: on the contrary" he thinks that a rule of reason would $set sale on asea of doubt.% 4oesnt tell us anything" i.e. no real standard – but it is clearthat his approach is an intermediate approach – the kind of restraints that

are legitimate are those that are ancillary to the main purpose of a contract&like the bakery). Hook at the main purpose of the contract and see if restraintof trade is necessary or ancillary to an otherwise lawful main purpose –legitimate restraint of trade. 9elling a bakery w/ a co!enant not to compete –the co!enant is ancillary to the otherwise lawful main purpose of the sale ofthe bakery.

d. ,oday" many people hail this analysis as reconciling the problems w/ antt laws –e+. 9ometimes need restraint to ha!e trade at all. ,his analysis is considered bymany to be the most sensible analysis we can ha!e in this area. 9eeks torecogni0e that some restraints are needed to ha!e business take place.e. Analysis applied here: 4s agreement to restrain trade was not ancillary –therefore" did not pass.f. S&(t: affirmed result on EC Knight grounds - if in interstate commerce then

!iolation of 9A5 if not in interstate commerce &i.e. if bidder in home case won thebid)" it would not !iolate. 4 argued that bidding on a citys busns took place in thecity itself and thus not in ic. S. eckham re'ected this argument – but in deferenceto EC Knight " the Ct ordered the decree modified so it did not reach price-fi+ingand market di!ision that occurred within a single state.

3. Economics and the !peration of (artels:a. (artels: collecti!e effort – firms act as one to do together what any one woulddo if were a monopolist. K+. Addyston !ipe – classic cartel – a group ofcompetitors who conspire to raise prices abo!e those that would pre!ail incompetition. :HH2 A cartel is a group of firms who should be competitors" but whoha!e agreed with each other to $fi+% their prices in order to earn monopoly profits.Cartels are analy0ed under P 1 of the 9A" which pre!ents contracts" combination"and conspiracies in restraint of trade. rice fi+ing is said to be $naked% when it is

unaccompanied by any 'oint !enture or other integration of the participantsbusiness acti!ities. Me shall see later" i.e. below" that naked price fi+ing is per seillegal under P 1. Socony"acuum #il &1L?) second period.b. (urrent example –!PE(: rgani0ation of etroleum K+porting Countries&KC). K!ery few months KC ministers meet to try to raise the price of oilabo!e pre!ailing prices. In doing so" as one sold e+pect" they ha!e to get theirmembers to cut oil production to an amount that can be sold at the target price.c. Pro$lems faced $y any cartel:

i. (onsensus on o$Gecti"es: determining the groups ob'ecti!es is tough5 atany gi!en time needs and e+pectations of members may differ. Agreeing on


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common strategy is hard. Addyston- acted in pri!ate – secret meeting beforebidding where they sorted out their ob'ecti!es – sol!ed the problem" but actingin secret may increase price. TransMissouri – acted openly" belie!ing theywerent !iolating the law – reason they were caught.ii.


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profits by reducing production. A merger is the ac>uisition by one firm of all or part ofthe stock or assets of another firm.*. The 2ule of 2eason enters SA antt Gurisprudence& "tandard ,il Co. of v.!" &F9 1L11 – cb. . J*)2 S. hite wrote for the Ct. ound that =ockefeller resisted orcreated barriers to new competitors that would normally enter the market – i.e.pre!ented the normal operation of the market place" which would fi+ it or pre!ent himfrom ha!ing a monopoly. Not the fact that his business was big" but that he pre!entednormally entry into the market" which would ha!e pre!ented him from charging too highprices. =ule of =eason.

a. ;acts: =ockefeller was from Cle!eland" 6. ,he il was in A. il was beingused for lighting &used to use whale oil" but we were running out of whales). 6isproblem was transportation – he wanted to set up refineries in Cle!eland area. 9ohe went to the == stations – trains arent always full" struck a deal. 6e figured outa way to make it profitable to refine oil in Cle!eland &where cost was low) and get itback to the east coast &where people needed it). 6e tried to combine all of theentities he e!entually ac>uired into a trust – 6 attny general prosecuted – brokeup the trust. =ockefeller took assets to NS where mergers were permitted. ,riedto create 9tandard il of NS. =ockefeller had LR of the industry but wanted the1R of the industry that he didnt own – so he was hard on them" refused to letthem use his pipelines" which led to this suit.

b. (hief Bustice *hite: runs through the history – each contributor addssomething of significant – Adopts rule of reason2

i. CH had forbidden &1) Bs intended to reduce output and raise price5 &*) Bswith unreasonable restraint of an indi!iduals freedom. 9hows tension orstruggle b/w freedom of B !ersus Bs creating unreasonable restraints. CHforbid unreasonable restraints" but not reasonable &like bakery – Mitchell ). CHalso forbid state granted monopolies b/c reduced output and raised prices.ii. 9A was to forbid Bs that led to these e!ils – can tell legality of arrangementin part by e!aluating its conse>uences. If does not lead to e!il" then notunreasonable" then not prohibited by PP 1 or *. Mrof2 much moresophisticated analysis than Addyston !ipe. 6as to be a conte+t forbusinesses and courts to know what is likely to be illegal and what is not.iii. C.S hite says other cases – decided correctly on their facts" e+. Trans

Missouri &limits these cases to their facts).c. -arlan concurrence – concerned a$out the rule of reason: 9o muchuncertainty about what is reasonable !ersus what is unreasonable. 6is concern2re'ection of a bright-line test – in the old days" we knew what was illegal and whatwas legal &rof2 this is a massi!e o!erstatement). Now" great uncertainty.d. Application of law to facts – what a$out 2oc+efellerFs conduct made thisdeal illegal3:

i. 6e did not use normal methods of industrial conduct or commerce – heused dirty tricksii. Intent: Ct focuses on intent here. 9ometime Intent to onopoli0e is saidto be a re>uirement in antt cases. Ct e+plicitly finds that he had an intent tomonopoli0e &from the techni>ues he used)" i.e. an intent to e+clude othersfrom the business. In this case" intent was a rele!ant element in finding him

guilty.iii. Potentiality of (ompetition: &p. L*) In many circumstances" the fact thata company becomes big is not illegal b/c it is always possible for others tocome in" i.e. enter the market" and compete with that company. 6owe!er" if acompany seeks to pre!ent others from ha!ing an opportunity to compete or toenter" then it is illegal. 6ere" like ;ates with Netscape" =ockefeller sought topre!ent that type of entry. &i.e. he pre!ented the market from correcting itself

– similar to what S. Sackson says in icrosoft)e. #i"estiture 2emedy: di!ided all the stock – 9tandard il Co. was broken upinto 33 smaller companies mirroring the prior companies it came from. M


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this firm was built up out of many – icrosoft would be different and difficult tobreak up b/c it has always really been one company.

i. Terinal RR &F9 1L1* – note case page 1)2 Ct is aware that sometimesthe costs of di!estiture e+ceed the benefits – In this case the go!ernmentsought di!estiture of 1@ == companies that con!erged at 9t. Houis – they hadbought the only three means of crossing the ississippi =i!er and hade+cluded others from using it. 6ere" the Ct says not a monopoli0ation underthe rule of reason b/c only one way in and out of 9t. Houis. It was anessential facility though and as such – the Ct re>uired them to share it. $,hecombination would be rendered lawful" the Ct said" 7if it were what is claimedfor it" a proper terminal assn acting as the impartial agent of e!ery line whichis under compulsion to use its instrumentalities. ,hus" non-member rrs hadto be gi!en the rt to buy an ownership interest" and e!en those who did notbuy an interest had to be gi!en access to the facilities on non-discriminatoryterms.%ii. Prof: ,he Terminal $$ case is odd b/c the Ct posed a remedy w/o actuallysaying there was a wrong. It is also odd b/c there will be no incenti!e to buildthese facilities if you ha!e to share.

f.


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ii. Procedural point: &4r.) seeks an in'unction here – the Court says no.,his is similar to the Case of onopolies &discussed abo!e) – illegalarrangement in !iolation of the Antt laws will not be enforced by the Court.

b. 2ule – 2PM is illegal: a manufacturer may not set the price at which itswholesalers and retailers may sell its product – !iolates P1 9A.c. cn - -olding and decision: restraints on alienation are generally in!alid. Itmust be found to be reasonable both with respect to the public and to the parties&YYAsk rof about this# Is this really a per se rule then#). ,he restraint must alsobe limited to what is fairly necessary for the protection of the co!enantee. isdealing with a large number of wholesalers and retailers. It is dealing in interstatecommerce. ,he restraints allow retailers to charge a higher price for the products.No benefit really accrues to . the profits flow directly to the retailers. ,he pricerestricts pre!ent competiti!e prices from wholesaler to retailer and from retailer tothe public. hile owns the product" once it has sold it to others it can no longercontrol their actions with respect to the product. therwise" any manufacturercould dictate the price at which its merchandise could be sold. ,he fact that thereis no outside competition b/c of the secret process is immaterial. Fnder thisrationale" any monopoly holder could dictate the price at which its goods weresold. 9ince the price-fi+ing agreement in!ol!es a conspiracy betweenmanufacturers" wholesalers" and retailers" it !iolates antt law.

d. (onsignment%Agency Agreement argument $y #r& Miles: argued that thiswas an agency/consignment agreement. ,he idea is that sold pills to theconsumer through his agent – the title to the pills remained w/ 4r. iles until soldto the customer. (t reGects: says no – the agreement itself says $buying andselling% – this is not an agency arrangement. rof2 this is an e+ample of how notto draft a consignment agreement – dont say I am allowing the retail agent topurchase goods b/c then they own it and 4r. iles does not.e. (t (oncludes that the Agreements are illegal and in "iolation of 4 of theSA: hile you can always set your own price" when you attempt to limit someoneelses freedom – you are putting a restraint on alienation. &i.e. like rule againstperpetuities.) ,hese Bs purport to restrain someone elses ability to enter in Bs.Ct concerned – the Bs co!er too many buyers and ha!e a significantly greaterreach and impact than the single B5 all competition would be eliminated if the

in'unction were enforced.f. B& -olmes dissent: &rof2 S. 6olmes hated antt laws) ,he discipline of themarketplace will keep prices where they should be. ,he !alue of competition isgreatly e+aggerated. rice is determined by supply and demand. ,here is noreason to e+tend our !ague concept of public policy into a new sphere. ,here isno law or precedent which re>uires such an action. ,he marketplace willdetermine the price at which the product can be sold.

i. S. 6olmes thought that what determines the market price is the competitionof similar products. ,his is different – hori0ontal restraints are a problem" but!ertical are not – the determinate is what people think its worth and what other aspirin is a!ailable. Consumers determine what aspirin is worth in light of thealternati!es.

A. Prof – excellent insight – this insight has caused people to think we

should ha!e a completely different attitude towards !ertical restraints.ii. Answering B& -olmes: ,he Ct thinks that the drug retailers are actuallydoing it – if they were the ones doing it" then it is a hori0ontal restraint andwould ha!e no problem saying that it is illegal. 4r. iles 'ust acts as anenforcer or agent for cartel of local druggists5 prof2 far-fetched maybe –communication problem.

g. rof2 hat incenti!e would 4r. iles ha!e#2i. increasing prices may make consumers think the product is better. If this istrue" he could simply sell at a higher wholesale price.


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ii. romotional incenti!e to get retailers to push his medicine – he wanted toencourage dealer to do some of his work for him" e+. Ad!ertising" promotion"etc. Arises in some situations when some products need a dealer todemonstrate the product.iii. Cartel among pill makers that the dealers enforce for them. – all of the pillsellers are doing this and setting same retail prices" creating a cartel at thedealer le!el.

3. /ut 4 is not "iolated simply $y ma+ing a unilateral pri"ate decision a$outwhom you will deal with& !" v. Colgate & Co. &F9 1L1L – cb p. 11*). ,his is calledthe Colgate doctrine &ultimately not the rule now YYAsk rof" but !ery critical case).

a. facts: Colgate said heres the price list – you dont ha!e to agree" but if youdont sell at these prices &and well check)" then we wont supply to you anymore.b. -eld: Colgate had only done what any firm may do2 $In the absence of anypurpose to create or maintain a monopoly" the act does not restrict the longrecogni0ed right of trader or manufacturer engaged in an entirely pri!ate business"freely to e+ercise his own independent discretion as to parties with whom he willdeal5 and" of course" he may announce in ad!ance the circumstances under whichhe will refuse to deal. A single firm did not !iolate P 1 by failing to unilaterally dealc. N:2 P1 re>uires multiple parties" not 'ust one firm. ,he indictment alleged acombination under 9A P1" but the prosecutor had named only Colgate. It further

alleged no B b/w Colgate and its dealers" nor did it identify any conspiracy. 'r.Miles had in!ol!ed 7contracts which undertook to pre!ent dealers from freelye+ercising the right to sell. In Colgate" there was no actual B restricting" 'ustunilateral act by Colgate not to sell.Mnb – there is a note on pg 31 that suggests that unilateral refusals to deal may bea P * offense. It of course would ha!e to meet the other P * re>uirements" butkeep this in mind

K. Adoption of the (layton and ;ederal Trade (ommission Acts: resident ilsonsought to clarify and strengthen the 9A. ;oals &1) eliminate uncertainty and &*)businessmen desire ad!ice – gi!e them guidance" enter ,C.

1. (layton Antitrust Act:P * &rof2 unimportant) rice discriminationP 3 ill be important for tying and e+clusi!e dealing &forbids selling/leasing

property on the condn that the lessee not use anyone else.P ? ri!ate right of action for treble damagesP @ inding !iolation in go!ernment action result in prima facie proof of !iolation ina ci!il caseP 8 e+empts labor unions from antt attackP G deals with mergersP 18 pro!ides a pri!ate right of action for in'uncti!e relief.

*. ;ederal Trade (ommission Act: made the :ureau of Corporations into anadministrati!e agency with prosecutorial powers.

P @ forbids 7unfair methods of competition

III. The 2ule of 2eason Period – 4?4D to 4??: A. (ases 'i"ing #efinition to the 2ule of 2eason: remember that Standard #il of )*

introduced the rule of reason into American Antt 'urisprudence – ns2 the Ct created a newrule of uncertain content which emphasi0ed beha!ior and recogni0ed that agreementsbetween firms ha!e many possible effects5 yet it also acknowledged that some conduct maybe inherently unreasonable.

1. B& /randeis and the 2ule of 2eason applied to a 4 case– Bd of Trade of Cityof Chicago v. !" &F9 1L1J cb p. 11L)2 rof2 best interpretation of the rule of reason –look to effect and purpose of restraint to determine if reasonable. urpose in this case

– allow people to sleep at night5 Kffect in this case – !ery little effect. 4id not truly limit"

Resale Price Maintenance isillegal per se – it has been

since Dr. Miles and was

reaffirmed to be in

Monsonto (1984! "hat

means that whether or notthe # had mar$et power and

regardless of the #%s

moti&es (e'! ombating

free)riding* it is illegal per

se! +,+P"-./ to per se

rle1! Colgate e'ception for

3nilateral resale price

maintenance!


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!ery minimal. ;o!ernment did not carry its burden. Mrof thinks that the case cdha!e been decided under the ancillary restraints test.

a. ;acts: ns - the go!t charged that a grain e+change rule re>uiring members toadhere to their closing bid on the $call% &which in effect confined price competitionto the time the e+change was open) was illegal because it fi+ed prices during partof the business day. ,he call rule re>uired e+change members to establish theiroff-hour trading price for $to arri!e% grain at a special call session. ,he go!ernmentclaimed that the rules purpose and effect was to fi+ the price for trading $to arri!e%grain after the e+changes daily and weekend closing times5 members could notchange their price during this time to reflect fluctuating condns-as they would in anunregulated market. Eet the clall rule did not seek to set the le!el of the $to arri!e%price5 participants in the call session were free to compete on the price for the $toarri!e% grain.

i. class notes: go!t sought to get rid of the call rule" which set a cap on thetime in which one could make purchases. Chicago :d of ,rade is the biggestgrain dealer. ,hree ways grain was traded2 &1) spot sale – I!e got it here onthe shelf – sell it to you no5 &*) future sale – gi!e it to you in the future"speculati!e acti!ity – to lock yourself in at a price5 and &3) $,o arri!e% grain –grain that is in transit to Chicago" but hasnt arri!ed yet – call rule. Call rule –time frame to purchase" at the end of that had to buy at that end price. 9o

from 1am-*pm had spot sales at whate!er price5 then from *-*23 bid forprice of $to arri!e% grain5 then from *23 until 1am the ne+t day had to agreeto sell at that price. eriod of time where anyone who deals on the boardmust trade at fi+ed price or loose their seat.

b. #s arg: this is a reasonable rule. If we didnt and if you didnt encourage" thenwe would ha!e a world in which the price was set by the grain operator. ,his rulebreaks down the power of the grain dealers. lus" this rule lets people go home –practical rule.c. #&ct granted go"FtFs motion – rationale: TransMissouri says that all Bs inrestraint of trade are illegal" this is a B in restraint of trade" therefore" it is illegal.d. B& /randeis for the (ourt explains the rule of reason analysis: 9ays" no"the rule of reason applies now. K!ery B restrains trade &stupid to say that all Bsare illegal). uestion is whether the B promotes or suppresses competition

&similar to Mitchell ). ,here are some restraints that make competition/market workbetter. $,he legality of an agreement or regulation cannot be determined by sosimple a test" as whether it restrains competition. K!ery agreement concerningtrade" e!ery regulation of trade" restrains. ,o bind" to restrain" is of their !eryessence. ,he true test of legality is whether the restraint imposed is such asmerely regulates and perhaps there$y promotes competition or whether it issuch as may suppress or e"en destroy competition& ,o determine that>uestion the court must ordinarily consider the facts peculiar to the business towhich the restraint is applied5 its condition before and after the restraint wasimposed5 the nature of the restraint and its effect" actual or probable. ,he historyof the restraint" the e!il belie!ed to e+ist" the reason for adopting the particularremedy" the purpose or end sought to be attained" are all rele"ant facts. ,his isnot b/c a good intention will sa!e an otherwise ob'ectionable regulation or the

re!erse5 but b/c knowledge of intent may help the court to interpret facts and topredict conse>uences.e. application to this case: ns – following these directions &i.e. from S. :randeis)the Ct ruled that the e+change re>uirement restricting its members hours ofoperation and prices while the e+change was closed was reasonable. In doing so"the Ct continued its practice of not e+amining actual prices or theirreasonableness. Instead it found that the rules fostered the e+change market5 andregulating competition" in contrast to pre!enting it was not always to bediscouraged. ,he critical factors for e!aluating the call rule were its purpose andeffect" which according to the Court were2 to regulate the e+changes hours of


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business" to break up the monopoly pre!iously held by a few warehouses willing tomake e!ening purchases – which was thought to prey on unsuspecting countrydealers and farmers – and to perfect the operation of the e+change by increasingthe number of transactions made there. hile analysis of each rationale suggestsan e>ually persuasi!e contrary result &if monopolistic warehouse operators weree+ploiting country dealers – more in line w/ the 9A to increase competition in themarket at the off-hour)" the Court concluded that the call rules primary aim was tocreate a public market where commodity prices could be determined competiti!ely.,o the Ct" the rule sought to further rather than to suppress competition" and in thislight it was reasonable.

i. class notes: was the restriction adopted reasonable# ro-competiti!e2this rule dro!e deals onto the e+change – forced public to deal5 mo!ed allthree kinds of transactions to public e+change – minimi0ed dealer power5ma+imi0ed competiti!e price5 made it easier to be a trader &could go home fordinner)5 price of grain not dependent on pri!ate deals.

f. Two other things to thin+ a$out:i. downside – something else might ha"e $een going on &note @ page1*?)2 commissions on the board of trade were fi+ed by agreement so boardmembers had an incenti!e to want trades to occur there &and to trade on thebd you had to do your off market deals at the call price" e!en though could

ha!e made more money with an after hours off market deal)– arguably" thecartel of grain traders were taking an e+cessi!e ta+ from grain farmers. rof2suggestion – this was really a conspiracy to run a cartel in high/fi+edcommission rates.ii. one of the pro$lems with the rule of reason: ha!e to know a great dealabout the industry to lay out the pluses and minuses. Arguably" S. :randeisgot e+cessi!ely e+cited about the nice home for dinner story and lost sight ofthe fi+ed commission and how most transactions ha!e to occur on the trade.

*. 5 and the 2ule of 2eason& !" v. !nited "tates "teel Corp. &F9 1L* – cb p.1*?)2 result is troublesome for rule of reason – monopolists who are nice to theircompetitors will sur!i!e a P * challenge e!en though antt laws are about protecting theconsumer and a nice monopolist is still hard on consumers. Not as egregious on itsface as Standard #il . Consistent w/ Standard #il b/c in that case" =ockefeller got in the

way of new entrants.a. ;acts: Combined companies into a single trust – F9 9teel accounting for J-LR of domestic steel. Sustice 4ept thought this case was 'ust like Standard #il .resident of F9 9teel" K6 ;ary" in!ited e!ery one &e!en his competitors) to dinnerwhere they talked about cooperation" working together" not beating up on eachother. F9 9teel did not use hostile tactics – !ery social atmospheres. :y the timethis case got to trial F9 9teels market share had dropped to ?1R.b. *hy wasnFt this a "iolation of 53: Ct lays down principle2 $The law doesnot ma+e mere sie an offense0 or the existence of unexerted power anoffense& It0 we repeat0 reJuires o"ert acts=&% ere si0e – e!en a large marketshare is not what P * forbids &maybe P G of the CA though#)" ha!ing a monopoly isnot itself the offense of monopoli0ation- re>uires suppression of competitors" o!ertacts. Ct finds no suppression of competitors here. 4 led by e+ample not by nasty

conduct here. Ct also says that ?R market share is not a monopoly – need atleast @R. ;ary dinners were !iolation of P 1" but not P *.c. #issent – &S. 4ay)2 ;ary dinners !iolated P 1 &ma'ority agrees)5 any time youcreate a firm large enough to ha!e a monopoly &Z@R)" by !iolating P 1" you ha!e!iolated P *. 4etermine how this firm got so big" if it was illegal" then bust it up.&like Standard #il(.d. Prof – upset with maGority: F9 9teel got a monopoly" then bled the countrydry for a bunch of years" then took its foot off the gas" but could put it back on.

Anytime you draw conclusions about the state of the industry at the time of thecase you in!ite the defendant to play games.


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i. hat ad!ice would you gi!e your client under &S Steal #2 raise the price"lower maintenance or dont worry about ser!ice5 smile all the time – dont bemean to competitors5 dont let your market share get abo!e @R - especiallytroublesome b/c disincenti!e to in!est.ii. roblem with =ule of =eason under &S Steel 2 lea!es firms with ad!ice –take your profit" smile" dont ha!e aggressi!e market growthUproducesincrease in potential loss for consumers – we want companies to grow ande+pand if good for the consumer.

:. Pro$lems with the rule of reason – ex& Trade Association (ases: these cases raisepractical issues in!ol!ing trade assns but also suggest more general problems ofcharacteri0ation that courts face any time the moti!es and effects of firms actions are criticalto the courts decisions. e saw price-fi+ing in the pre-1L1? period in TransMissouri and

Addyston !ipe – these were clear price-fi+ing" but often times the first step in such cases ischaracteri0ing the conduct as price fi+ing. or e+. ,rade assns can be seen as gi!ing smallfirms benefits they might not otherwise get or as sophisticated cartels.

1. The pro$lem of mar+et information and collusion: ct must distinguishinformation producing acti!ities &most generally e+changes of price and outputinformation by competitors) that make the market operate more efficiently from thosethat might facilitate collusion.

a. K+. :HH – In American Column + ,um-er Co. v. &S. the Ct condemned an

e+change among competitors of detailed reports concerning the production andprice charged by each. n the one hand" the lumber producers were clearlyconcerned about $o!erproduction"% and their moti!e may ha!e been carteli0ation.n the other" there were 38@ members" and they collecti!ely controlled only 1/3 oftheir market. Carteli0ation seems implausible. urther" many of the memberswere isolated and had poor knowledge of market condns. any buyers" bycontrast" were large and well informed. ,he price information e+change was morelikely competiti!e than anticompetiti!e.

*. %erican Colun & Lu*er Co. v. !". &F9 1L*1 – cb p. 133)2 MN:2 none of theosner oligolopy &discussed below) apply. Idea is to share info about particulartransactions. ,his info allows you to monitor other oligopolists. 9ummary data" a!gdata is less suspect. Important aspect – ask whether agreement to share infoconstitute a B or agreement or conspiracy# hat kind of agreement counts for P1#

a. ns2 e!en under a rule of reason approach" programs for data dissemination stillcan be condemned as unreasonable trade restraints. ,he $open competition%plans &which admittedly sought to $keep prices at reasonably stable and normalle!els%) were held in early cases" like American Column to !iolate the 9A. In

American Column" a trade assn whose members produced 1/3 of the nationshardwood lumber had adopted a plan re>uiring member firms to submit price lists"detailed daily sales and shipment reports &including in!oice copies)" monthlyproduction and stock reports" etc. ,he plan as implemented was held to !iolate P 1of 9A. ,he assns central office summari0ed the reported data and sent themembership weekly reports that listed each transaction" the parties" and the price"and noted whether the price departed from the members listed price. oreo!er" infre>uent meetings the members not only discussed market condns but stronglyurged each other to restrict output and maintain prices. :y any standard" the Ct

concluded" this was $not the conduct of competitors but is . . . clearly that of menunited in an agreement" e+press or implied" to act together and pursue a commonpurpose under a common guide.% Nonetheless" the case was not easily decided.,here was no agreement to limit production or charge a fi+ed price" as the Ctopenly acknowledged" and the contention that it is shown by $the disposition ofmen to follow their most intelligent competitors% hardly supplies the missing link –especially since market conditions were not conduci!e to price leadership or otherefforts to curb output. &,he plan in!ol!ed only 1/3 of the industry and 38@ sellers.)In pointed dissents" S.S. :randeis X 6olmes argued that the 9A should not be used


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to stifle discussion or re>uire business ri!als to compete blindly without rele!antinformation.b. (lass facts: trade assn set stds" statistics. acts2 38@ members of the assn"operating ?8@ mills were members of the plan. Amounted to only @R of thenumber of mills engaged in hardwood manufacture in the F9" but produced 1/3 ofthe total production in the F9. embers from all o!er" but most from the9outhwest. (harge: lan constituted a combination and conspiracy to restraininterstate commerce in hardwood lumber by restricting competition andmaintaining and increasing prices &P1). At issue2 the $pen Competition lan% –members got a lot of info to conduct business on – e+s. 4aily report of all sales"shipping report" monthly production" inspection reports. ,here was ne!er aspecific agreement to restrict trade or fi+ prices – but Ct infers.c. (ourt found that the purpose of the plan: statements by r. ;add showedthat the meetings and plan $was to induce members to cooperate in restrictingproduction" thereby keeping the supply low and the prices high.% 9tatements bymembers showed that the purpose of the organi0ation and its meetings $was tobring about a concerted effort to raise prices regardless of cost or merit" and sowas unlawful.% $Con!inced" as we are" that the purpose and effect of the acti!itiesof the pen Competition lan" here under discussion" were to restrict competitionand thereby restrain interstate commerce in the manufacture and sale of hardwood

lumber by concerted action in curtailing production and in increasing prices" weagree with the d.ct that it constituted a combination and conspiracy in restraint ofinterstate commerce w/ in the meaning of the% 9A.d. dissents:

i. B& -olmes: $A combination to get and distribute such knowledge"notwithstanding its tendency to e>uali0e Mprices" not necessarily to raise"prices" is !ery far from a combination in unreasonable restraint of trade.% Notattempting to o!erride market condns" attempting to conform and nosanctions if they dont. Agrees w/ S. :randeis.ii. B& /randeis: – whether the pen Competition lan either inherently oras practiced by these concerns !iolates the 9herman Haw# erely acombination to obtain information. ,he market works better if people knowmore. &see /d of Trade0). ant people to know to arri!e at a market price.

9mall firms can benefit from this scheme. rof2 S. :randeis is a populist. ewant a rule that encourages this sharing.

e. *hat is the $asis for saying this information does not reduce competition:i. firms still ha!e freedom to use the info as they like. ost likely" firms willact strategically &thereby promoting competition among the firms).ii. if this was a cartel" then it would be difficult for the entire group to agree.urther" the members of the cartel would likely cheat.iii. As long as there is new entry" there are G firms w/o information whowould like you to raise prices abo!e a competiti!e le!el.

f. Is it plausi$le to $elie"e that there is a conspiracy here3: rof2 always askthis >uestionTT Fse osner page 1?G to analy0e – described below.

i. concentrated market with fringe – in this case" noii. std product sold based on price – in this case" yes

iii. high ratio – in this case" noi!. inelastic demand – in this case" dont know!. entry take a long time – in this case" no.

g. Maple 'looring/ Ct almost o!erruled American Column 1 said that competitiondoesnt become less free by becoming more intelligent – held the assns actionsnot illegal under 9A.h. "ugar 0nstitute &1L38)2 !alidated American Column

3. The /roader Pro$lem of #ealing with !ligopoly &note page 1?8-?L)2a. ns on oligopoly2 the theory of oligopolys basic postulate is that where themarket contains only a few sellers" all sellers recogni0e that they are largely


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interdependent. ,herefore" each seller accounts for its ri!als reactions whensetting output and prices. ,his means that oligopolists will not drop prices toincrease market share b/c they e+pect that any gains will be cancelled immediatelywhen ri!al seller retaliate with similar price cuts. As a conse>uence" oligopolysellers focus on coordination and anticipation. &limited) Competition occursindirectly – by disguised price cuts &through impro!ed >uality" credit terms" deli!eryser!ice" or secret selecti!e price reductions) and nonprice competition such asproduct differentiation" ad!ertising and sales promotions. In monopolisticcompetition" by contrast" ri!alry forces profits to normal le!els b/c there are manyseller" each seeking to increase her market share at her ri!als e+pense5 henceeffecti!e interfirm coordination is impossible. ,he primary theoretical differencethen – oligopoly markets price and output decisions are made while anticipatingthe reactions of ones ri!als. Neither the competiti!e firm &competiti!e seller has noimpact on her ri!als) nor the monopolist &monopolist has no close ri!als) considersthe reactions of others. e didnt go into this in class – so if interested refer to ns.b. the suspicion of conspiracy was implicit in American Column is part of abroader concern among antt enforcers that firms sometimes may be collecti!elyreducing output and raising prices e!en when not formally meeting and ob!iously!iolating the law. 9ome belie!e must be able to reach these implicit cartels or willbe missing an important anticompetiti!e e!il. :ut think about the problems with

o!ert cartels – discussed abo!e – will be magnified w/ cartels that dontcommunicate. In an industry with many firms" implicit agreement would almost beimpossible. !ligopoly – howe!er" is the term often used to describe an industryw/ relati!ely few firms" an industry in which such an implicit agreement might work.Imperfect competition – if three firms" one will not drop price b/c knows that aprice-war will ensue and no one will make money. Critics arg – e!eryone setsprice at profit ma+imi0ing point" and all competition is interdependent.c. Budge Posner: must take the problem of identifying and dealing w/ oligopolyseriously – better to deal with oligopoly problem directly" if there is one" rather thanindirectly &which we often do by pre!ention of mergers or dissolution of largefirms). rof2 useful to disco!er whether plausible oligopoly is a conspiracy. Qerymuch like the modern merger guidelines. S. osner suggested a two stepanalysis of situations in which one suspects prices are higher than competition

would ha!e yielded2i. one should as+ whether conditions in the particular mar+et are indeedconduci"e to such implicit conclusion: S. osner cites se!eral condnsfa!orable to the occurrence of implicit collusion in an industry2

A. (oncentrated mar+et of sellers and a lac+ of a fringe mar+et ofsmall firms: no magic number" but if the largest four f irms do not total atleast @R of the market" the need to worry is arguably low. Hikewise"four firms w/ 1R of the market would be likely to find it easier tomonitor each others conduct than would two e!en larger firms that hadto keep track of each other plus the conduct of many small competitors.:. A Standard product sold primarily on the $asis of price: there ismuch less to agree upon and more to keep track of when seller offerdifferent stds of >uality" different sales terms" etc. Associated with this is

the sellers operating a t the same le!el of the distribution process andwith the same degree of !ertical integration. Agreement is also easierand thus more likely when all firms ha!e roughly the same costs.C. The need or incenti"e to collude: for e+" one might be a high ratioof fi+ed to !ariable costs such as we saw in the rr industry with its fear ofdestructi!e competition. Another might be a static or declining demand inwhich cutting output might seem particularly important to firms sur!i!al.4. Inelastic demand at the competiti"e price: this factor is true bydefn – this condn simply means that at the competiti!e price" a


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reduction in output would in fact yield more net re!enue. &see fn L p. 1?Jfor more e+planation of inelastic demand)K. An industry in which entry ta+es a long time: this is also true bydefn – the point is that entry is rarely impossible but in some industries ahigher than competiti!e price takes longer than usual to self-correct.

ii. If yes to K40 one should then as+ whether such pricing can $eo$ser"ed3: an enforcement agency presumably should not waste its timelooking for oligopoly pricing in an industry that does not ha!e the abo!echaracteristics. K!en if such an industry" osner suggests" a ct shd notsustain a case unless one or more of the following tell-tale signs of implicitcollusion are obser!ed2

A. i+ed relati!e market shares:. rice discriminationC. K+changes of price information4. :asing point pricing in the industryK. Industry-wide resale price maintenance. 9ignificant parallel price and output changes not related to changes incost.;. K!idence of new entry and declining market share of leading firms

C. The Interplay /etween Patents and Antt Law: there are special issues surrounding

patents and patented products. ,he rule of reason period was not the first in which suchissues were raised5 the interplay of pants and the antt law had been a problem for the ctssince the earliest days of the 9A. 6owe!er" this was the period in which important principleswere established that in many cases are still applicable today. ,o obtain or defend a patentan in!entor must demonstrate that an in!ention is a $new and useful process" machine"manufacture or composition of matter" or any new and useful impro!ement thereof%5 thein!ention must be $no!el" and $non-ob!ious%5 the application must fully describe the in!entionso that the public recei!es the benefit of the insight the patented in!ention represents. If thepaten office agrees that these criteria ha!e been met" a patent will issue gi!ing the in!entor$the right to e+clude others from making" using or selling the in!ention throughout the F9.% If someone infringes the patent" the in!entor may seek an in'unction" damages" or both" plusreasonable attny fees. A patent is presumed !alid" but the d may argue that the patent wasnot infringed" that it is in!alid" or that it shd not be enforceable b/c the in!entor misused the

patent. roblem b/w patent an antt laws2 patent is a legal monopoly. here do thosemonopoly rights end and antt principles applicable to all begin# nce one has concededthat a patent holder is entitled to earn a monopoly profit" the >uestion becomes whetherthere is any principled reason to limit the ways its seeks to earn it. rof2 A patent is anintentional grant of a monopoly" but is okay b/c it is incenti!e for inno!ation. hen dealingwith patents" we are dealing with authori0ed monopolies. Cannot isolate antt from patent.Cannot reward more for a patent than that which was gi!en.

1. In consignment agreements0 the owner may set the resale price 6i&e& 2PMallowed9 for his agent to sell at& A patent holder may reJuire her licensee to sellthe patented item at a certain price& !" v. General #lectric Co. &F9 1L*8 – cb p.1@L)2

a. ;acts: re!iously" the three 4s &;K" estinghouse Klectric and anufacturingCo) were in!ol!ed in antt litigation" in which the go! sued to dissol!e an illegal

combination in restraint of ic in electric lamps of the 3 4s and 3* other corps. Aconsent decree was entered – after which" the combo was dissol!ed" thesubsidiary cos surrendered their charters and their properties were taken o!er by;K" after the decree – ;K came up with this new sales plan. ;K had patent&actually 3 patents) on electric light bulbs. At issue" ;K sold light bulbs bydistributing bulbs to agents who negotiated and deli!ered bulbs to consumers and;K also granted a license to estinghouse to make light bulbs and sell them.&remember – dont want to reward more for patent then was gi!en – i.e. monopoly).;K kept patent rights and could take them back when they wanted" but placed risk


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of loss with licensee &c – as opposed to its genuine agents – where ;K kept therisk of loss##).b. Issue 4: whether0 in "iew of the arrangements made $y the company withthose who ordinarily and usually would $e merchants $uying from themanufacturer and selling to the pu$lic0 such persons are to $e treated asagents or as owners of the lamps consigned to them under such contracts: answer is no – consignment agreements are an e+ception to the per se ruleagainst resale price maintenance.

i. rof2 Ct !iews this as Colgate case – prices set by ;K" and B was draftedwell &as opposed to 'r. Miles – where claimed a consignment agreement"but the agreement actually said he was selling it to merchant.) ,his ruleapplies whether or not there is a patent.ii. $,he owner of an article patented or otherwise is not !iolating the commonlaw or the Anti-,rust Act by seeking to dispose of his article directly to theconsumer and fi+ing the price by which is agents transfer the title from himdirectly to such consumer.%iii. :HH2 In &S v. 2E Co." the Ct held that the rule against = does notapply to consignment agreements" b/c there was no transfer of title frommanufacturer to reseller. As long as the manufacturer retained title" it shouldha!e the power to control the resale price. &Ct was hea!ily persuaded by fact

that product was patented.)i!. ns2 'r. Miles condemned the challenged price restraint b/c it denied theretailer purchaser her CH right to resell &i.e. alienate) her property. thenarose as to whether the per se rule against = applied where the retailerwas the manufacturers agent and" instead of taking title to the products"recei!ed them on consignment. Could the manufacturer then set the resaleprice – &S v. 2E Co. the Ct said yes – where it is clear that the arrangementis legitimate and the manufacturer both retains title and bears substantial risksof ownership &e.g. losses from acts of good)" the antt laws allow her to dictatethe terms of sale – including retail prices. Fnder 2E " a manufacturer cana!oid the rule of 'r. Miles by appointing retailers as her agents and by sellingto them under a consignment agreement.

c. Issue K5: 6ad ;K as the owner of the patents entirely controlling the

manufacture" use and sale of the tungsten incandescent lamps" in its license tothe *estinghouse Company" the right to impose the condFn that its salesshould $e at prices fixed $y the licensor and su$Gect to change according toits discretion3: answer is yes –

i. class: ;K licensed to as long as they did not sell bulbs for less than;Ks set price. ;K as the patent holder has the right to e+clude others frommaking" using" or selling. ;K allowed to make" use" and sell bulbs. Ctsays ;K did not ha!e to let sell – could ha!e had them make and ;K couldha!e sold them. 6owe!er" ;K allowed them to sell on one condn – price notless than ;Ks. ,herefore" this was not e+cessi!e and was within the patentholders right. ne of the reasons ;K licensed is b/c they did not ha!e thecapacity. ;K could ha!e raised royalty rate and let sell at whate!er pricethey wanted to &caution see ns) – ;K licensing this deal w/o knowing s cost

structure. ,here was a market di!ision in the royalty rates. (oncern is whenare you using techni>ues to e+pand rights that you were granted# Also ariseswhen competitors cross license – see Standard #il 3Indiana( below – this iscalled $patent pooling% – rof2 patent pooling is good b/c it decreaseslitigation. n the other hand" it really is a cartel. Fse patents to establish acartel arrangement. ,he cartel is essentially legally created. btaining apatent $y fraud !iolates 9A 5&ii. ns: ;K had licensed to manufacture and sell lamps under ;Kspatents. rices were to be maintained at the same le!el as ;K fi+ed for itsdistributors. Fpholding the price-fi+ing condn in ;Ks licenses" the Ct


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&switched grounds – earlier had 'ustified it on had right to e+clude others frompatent and so also had the lesser included right of re>uiring sale of patentedarticle at certain price) 'ustified the condn as reasonably adapted to securefor the patentee the pecuniary reward of its patent rts. ,he Ct feared that if;K cd not set the price at which sold the lamps" might sell them at aprice which wd render ;Ks lamp production and sales unprofitable.

A. * as more efficient3 n the other hand" if can make and sell theitem much cheaper" it arguably shd be encouraged to do so &andtherefore " price fi+ing shd be prohibited). Eet" if faced with this option";K might decide not to license to manufacture and sell these lamps.Nor could ;K necessarily protect itself by ad'usting the royalty. If ito!erestimated s costs" the royalty rate wd be too low5 yet if it set therate too high" it cd make the manufacture and sale of lamps by unprofitable. In other words" setting a minimum price may be the mostefficient way to protect the patentee " to encourage licensing" and as theCt said" to assure that ;K obtained its monopoly reward.:. (artel3 ,here is another possible e+planation for the ;K license to" howe!er. ,he two firms may ha!e used the price-fi+ing license tohelp form and operate a cartel. If the !alidity of ;Ks patent was>uestionable" ;K" rather than risk a ruling of in!alidity" may ha!e

licensed in order to share its market &while still maintaining themonopoly price). If this e+plains the ;K license" as seems likely" the Ctsappro!al of the price-fi+ing condn is erroneous. Point $rought up $yprof: these sorts of licensing agreements reduce the likelihood thatpatents will be challenged by the cartel.

*. Patent pooling%(ross1licensing: briefly touched on in class – but problems arisewhen you ha!e cross-licensing of patent holders – are they e+panding the rights theyha!e been granted" i.e. are they abusing# ,his occurred in Standard #il Co. 3Indiana(v. &S &F9 1L31) MYYN:2 this will not be one of the @ cases you need to know for e+am>uestion number 1.

a. ns2 se!eral refining cos held competing patents on a $cracking% process fore+tracting addl gasoline from crude oil. ,o a!oid further litigation of their claims"four refiners pooled their patents" cross-licensed each other" and agreed to share

in some fi+ed proportion the royalties they recei!ed &mainly from others) under themultiple licenses. ,he go!ernment attacked this pooling arrangement foreliminating competition in royalty rates among the patentees. ,he agreement todi!ide royalties was alleged to !iolate P1 of the 9A and enable the ds to maintainroyalties at monopoly le!els. Accepting the go!s conclusion that the pooledpatents were competing" the Ct ne!ertheless upheld the cross-licensearrangement and royalty di!ision. It applied a rule of reason test" obser!ing thatsettlements which e+change patent rights and permit royalty di!isions are oftennecessary if technical ad!ances are not to be blocked by litigation5 the interchangeof patents on reasonable terms to all manufacturers desiring to participate maypromote competition. oreo!er" royalties cannot" the Ct said" fi+ or ad!erselyaffect prices where the patented cracked gasoline constituted only *8R of total gassupplies.

4. Testing the Limits of the 2ule of 2eason: the problems of characteri0ing practicesand clarifying issues for antt 'uries were not eliminated by the rule of reason" in anything"they were made worse.

1. Price fixing is per se illegal – may$e 6in the end it is Socony -ut these cases it is4uestiona-le(& !" v. Trenton Potteries Co. &F9 1L*G)2

a. facts: 4 and others entered into a combination to set prices for !itreous potteryto limit sales. the go!t sought to dissol!e the combination under P1 of the 9A. Attrial" the 'udge remo!ed from the 'urys consideration the >uestion of whether therestraint was reasonable. 4 appealed an ad!erse finding on this basis.

"he second e'ception

to the per se rle

against resale pricemaintenance ( Dr.

Miles is the

5recall 61 Colgate7

2! onsignment andPatent +'ception

United States v. GE

Co.


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b. class: agreement to set prices for toilets. Issue2 whether this was a cartel# 4wanted to present to 'ury why it was reasonable. 4.Ct says no you are not. ,his isan out and out price-fi+ing arrangement. 9upreme Ct affirmed. here there isneither a !alid purpose or minimal effect" the agreement is illegal per se. =ule ofreason does not permit you to go to 'ury each time.c. $uniform price-fi+ing by those controlling in any substantial manner a trade orbusiness in interstate commerce is prohibited by the 9herman Haw" despite thereasonableness of the particular prices agreed upon.%d. ns – (t dispelled that price1fixing warranted reasona$leness std: InTrenton !otteries" the makers of J*R of toilets and other bathroom fi+turesbelonged to an assn that had fi+ed the prices of sanitary pottery and had limitedsales to $legitimate% 'obbers. 9ince the ct of apps had re!ersed a criminalcon!iction on the ground that the 'ury had not been allowed to consider thereasonableness of the prices fi+ed by the defendants" the issue of whetherreasonableness constituted a defense was s>uarely before the Ct. Sustice 9tonesresponse seemed une>ui!ocal2 $,he aim and result of e!ery price-fi+ingagreement" if effecti!e" is in the elimination of one form of competition. ,he powerto fi+ prices" whether reasonably e+ercised or not in!ol!es power to control themarket and to fi+ arbitrary and unreasonable prices. ,he reasonable price fi+edtoday may through economic and business changes become the unreasonable

price of tomorrow. nce established" it may be maintained unchanged b/c of theabsence of competition secured by the agreement for a price reasonable whenfi+ed. Agreements which create such potential power may well be held to bethemsel!es unreasonable or unlawful restraints" without the necessity of minutein>uiry whether a particular price is reasonable or unreasonable as fi+ed andwithout placing on the go!ernment in enforcing the 9herman Haw the burden ofascertaining from day to day whether it has become unreasonable through themere !ariations of economic condns.% =ead literally" this analysis holds that proofof the mere e+istence of a price-fi+ing agreement establishes 4s illegal purposeand that the prosecution need demonstrate nothing more. It need not show thatthe prices fi+ed are unreasonable" that the ds had the power to impose theirwishes on the market" or that the agreement in'ured anyone &by causing them topay supracompetiti!e prices). ,hat is" the action of agreeing to fi+ prices is in itself

&per se) illegal. n the other hand" the ds control J*R of the market itselfe!idenced market power &although the tr record suggested that pricing disciplinewas weak and that e+hortations not to sell at off-list prices were often ineffecti!e)5nor did the Ct apparently doubt that the arrangement had an undesirable impact.,hese implicit limitations on the holding in Trenton !otteries were sei0ed on by theCt only si+ years later – Apalachian Coals v. &S.

*. %ppalachian Coals v. !" &1L33)2 Mdid not ha!e to read2 coal corporation formed 'oint coal something – ct says it was a reasonable agreement b/c we are in tough times.Ct said antt laws were $charters of freedom% i.e. Antt laws are fle+ible.

a. Ct re!ersed a lower ct decision that had adhered closely to the analysis inTrenton !otteries and condemned the arrangement. Kmphasi0ing the essential stdof reasonableness the Ct called for $a close and ob'ecti!e scrutiny of particularcondns and purposes% in e!ery case2 $realities must dominate 'udgment. ,he

mere fact that the parties to an agreement eliminate competition b/w themsel!es isnot enough to condemn it.% Socony " howe!er" discussed below" ends up being therule – price fi+ing sa!e for a few e+ceptions is per se illegal.

IC& rd Period: The Per Se 2ule and ;ocus on Mar+et Structure –4?@14?: period de!eloped many of the important principles to which modern periodcases respond. K!olution of the doctrines – Ct tried to gi!e warning of practices consideredillegal" a!oid prohibiting practices that might in fact be pro-competiti!e" and make the issues inantt cases simple enough that they could be tried b/f ordinary 'udges or 'uries. 4epression had


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lasted 1* yrs and many people blamed it on the concentration of wealth and the then-currentapproach to antt. N: – /in about a decade of the Socony "acuum decision &1L? decided) theCt had clearly established that three kinds of hori0ontal" multi-firm conduct – price-fi+ing" groupboycotts" and market di!ision – were illegal per se under P 1 of the 9A. Per se procedurally:nce go!ernment has made its case that the actions of 4 were D &D being whate!er is per seillegal" for instance – group boycott) – that is the end of the case5 as opposed to the =ule of=eason where &1) go!ernment puts on case5 &*) firms get a chance to come in and say primaryeffect – not restraint of trade and o!erall effect – pro-competiti!e.

A. -oriontal (om$inations in 2estraint of Trade: reminder – hori0ontal< pertaining to arelationship among competitors. ,his section looks at hori0ontal price fi+ing" market di!isionand group boycott cases brought under 9A P1. 4uring the per se rule period – formation ofthe market was critical issue to hori0ontal cases – did not really look at economicconse>uences.

1. Price fixing: agreements by competing firms to fi+ prices are a primary concern ofP 1. =eminder2 a cartel is a group of firms who should be competitors" but who ha!eagreed w/ each other to $fi+% their prices in order to earn monopoly profits. &other price-fi+ing cases we ha!e already seen2 TransMissouri 5 Addyston !ipe5 Standard #il of )* &enter rule of reason into antt 'urisprudence)5 Chicago /d. #f Trade5 Trenton !otteriesCo.5 Appalachian Coals).

a. There is a per se rule against price fixing2 any $combination formed for the

purpose and with the effect of raising" depressing" fi+ing" pegging" or stabili0ing theprice of a commodity W is illegal per se.% !nited "tates v. "ocony-1acuu ,ilCo./

i. facts: :eginning around 1L*8" increased production in the oil industryresulted in falling prices. ,he Natl Industrial =eco!ery Act and regulationspromulgated there under in 1L33 pro!ed unable to re!erse the trend.:eginning in 1L3@" se!eral oil cos. &4)" representing J3R of all oil sold in theidwest" formed a gentlemans agreement whereby they would purchase oiland gasoline on the spot-market to prop up prices. A minimum price for spot-market purchases was established. ,he federal go!t charged 4 with price-fi+ing in !iolation of P1 of 9A. A 'ury returned a guilty !erdict. ,he ct of appsre!ersed and remanded holding that a rule of reason shd be applied toalleged price-fi+ing" rather than the per se rule applied by the district court.

4s acti!ities were not unlawful" the concluded" unless they constituted anunreasonable restraint of trade. 9.Ct granted re!iew.ii. class%$oo+:

A. dealing with oil industry in K. ,e+as. Area where large amount of aildisco!ered. roblem – price was going down b/c there was too much oil.;o!t sued them b/c go!t effort to coordinate acti!ity in this area. ;rouparranged that large producers bought oil from small producers. ,helarge producers would then store the oil rather than ha!e small producerssell and bring down the price in the market. 9ystem of dancing partner –dancing cards – arrangement to determine who bought whos oil. 4smarket share was o!er JR.

1. edl ;o!t was trying to fi+ the oil problem. ,he etroleum Administrati!e :d appointed Arnott to head up a !oluntary"

cooperati!e mo!ement to deal with the price wars. 6e then wentahead and made a mess of e!erything by establishing a programthat fi+ed prices. 6is plan was not appro!ed by the fedl go!t&which I belie!e the resident had to appro!e) and thus he had noantt immunity.

:. 4.ct said it was illegal for someone w/ a large share of the market toraise price. M#,he actual price is irrele!ant. Fnless you can show pricewas raised by agreement" the 4 is not guilty.#

1. 4.ct charged the 'ury that it was a !iolation of the 9A for a groupof indi!iduals or corps to act together to raise the prices to be


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charged for the commodity which they manufactured where theycontrolled a substantial part of the interstate trade and commerce inthat commodity. ,he ct stated that where the members of acombination had the power to raise prices and acted together forthat purpose" the combination was illegal5 and that it was immaterialhow reasonable or unreasonable those prices were or to whate+tent they had been affected by the combination &i.e. per seillegal). It further cVcharged that if such illegal combination e+isted" itdid not matter that there may also ha!e been other factors whichcontributed to the raising of the prices. ,he court then charged that"unless the 'ury found b/y a reasonable doubt that the price rise andits continuance were $caused% by the combination and not causedby those other factors" !erdicts of not guilty should be returned.

C. Ct of app said look we are in a depression so d shd ha!e a chance toe+plain why the price is reasonable.

1. ct of ap held this charge re!ersible error – it was based on theorythat such a combination was illegal per se. in its !iew respondentsacti!ities were not unlawful unless they constituted an unreasonablerestraint of trade & Appalachian Coals(. ,hat issue was notsubmitted to the 'ury- re!ersed.

4. 9.Ct said that an agreement to fi+ price is a per se !iolation of P1. Aconspiracy wi

Antitrust - Morgan - Fall 2001_3

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