Antitrust 1 Prof. E. Fox Fall 2004 1 I. Introduction to Antitrust Law 4 a. General Background 4

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Modified per se ruleInternational Salt (1947) and Northern Pacific Railroad (1958)

  • 1) Force the sale of one product or service on the purchase of another (2 products)

  • 2) Not insubstantial volume of trade in the tied market is affected

  • 3) Must have monopoly (economic) power over the tying product

  • Loews Block Booking (1962) – even absent a showing of market dominance, the crucial economic power may be inferred from the tying product’s desirability to consumers or from uniqueness of its attributes

  • Economic power is presumed when the tying product is patented or copyrighted (limit rewards of IPR to the object of that grant)

  • Tying is usually against consumer interest since the consumer is forced into an arrangement, but the consumer is usually benefiting in some way to the arrangement  so the inquiry into harm to competition is uncertain and questionable!

  • Would look in the market for the tied product and the tying product!

  • Does the arrangement lessen competition or raise prices in the tied product market?
        1. Modern Approach – Paring Down the Per Se Rule

  • Fortner I (1969) and Fortner II (1977)

  • Fortner I - violation of per se rule by finding two separate products (credit arrangement)

  • Fortner II no violation of per se rule by finding one product

  • Burden on π to prove:

  • Two separate products; and

  • Δ has market power in the tying product

  • Jefferson Parish (1984)

  • Analysis under Modified Per Se Rule: d/n have to prove anticompetitive effects in the tied market, just show 1) power in the tying market and 2) a tie that is forced and involving a not insignificant amount of money

  • Target of rule is exploitative tying – focus on market, not contractual arrangement

  • Finds no forcing, patients don’t like the Roux services, they can go to another hospital

  • O’Connor Concurrence: should be taken out of the modified per se rule analysis and analyzed under the Rule of Reason  provides a 3 step Rule of Reason analysis:

  • 1) Seller must have power in the tying-product market

  • 2) Must be a substantial threat that the tying seller will acquire market power in the tied-product market

  • 3) Must be a coherent economic basis for treating the tying and tied products as distinct

  • Implication  modified per se rule still stands but all elements are taken seriously and must be proved by π; must show market power and forced arrangement

  • Identification of two products is difficult under this test as it appears to conflate products

  • Eastman Kodak v. ITS (1992)  Summary Judgment Analysis

  • Market definition – service and parts

  • For service and parts to be considered two distinct products, there must be sufficient consumer demand so that it is efficient for a firm to provide service separately from parts

  • Market power – power in the tying product market

  • Kodak – competition in the equipment market prevents market power in the aftermarket; Scalia adopts this as a substantive legal rule

  • Court – theory is based on a false dichotomy that there are only two prices that can be charged—a competitive price or a ruinous one—but there could easily be a middle, optimum price at which the increased revenues from the higher-priced sale of the tied product would more than compensate for lower revenues from the tying product sales

  • Scalia – would do away with per se illegality rule for tying cases applied to seller’s behavior in its single-brand aftermarkets
        1. Microsoft (D.C. Cir. 2001)

  • Applies Modified Per Se Rule:

  • Δ has appreciable economic power/market power in the tying product market

  • Market determined based on evidence of consumers’ perception of the products and markets

  • Two separate products – problem w/defining OS and browser as separate products; this may stifle innovation; must consider costs and benefits of putting the two products together

  • Cannot look at these facts from a product predation standpoint

  • Δ gives its customers no choice but to take tied product in order to obtain the tying product

  • Arrangement affects a not insubstantial volume of interstate commerce  put in terms of dollar-volume so as not to be merely de minimis

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