Music: Machine is Uninterested in Music

1. Music: Machine is Uninterested in Music TODAY • OTHER CONDUCT THAT MIGHT VIOLATE §2 • INTRODUCTION TO THE STATE ACTION DOCTRINE

2. Conduct Requirement: Very Testable Issue • Lots of Caselaw & Significant Policy Concerns • Review Problem #5 is an old test question based on case in materials onBarBri (Am. Prof. Testing Servs.) • Spring 2008 Question I explored conduct requirement • Issue in many years in Question II

3. Conduct Requirement: Very Testable Issue • Remember lower court decisions aren’t binding outside of own jurisdiction • Remember that Supreme Court has shifted right since Aspen and even more since approving Alcoa and Shoe Machinery

4. Conduct Requirement: General Standards From Alcoa: • OK if survivor of group of competitors by virtue of “superior skill, foresight, or industry.” • OK if passive beneficiary of monopoly

5. Conduct Requirement: General Standards From Grinnell: • Violation if “willful acquisition or maintenance of monopoly power” • OK if “growth or development as a consequence of a superior product, business acumen or historic accident."

6. Conduct Requirement: General Standards From Barry Wright: • Exclusionary conduct is conduct other than competition on the merits or restraints reasonably necessary to competition on the merits, that reasonably appears capable of making a significant contribution to creating or maintaining monopoly.

7. Conduct Requirement: General Standards From Berkey Photo: • Cross-market benefits OK if any integrated firm could do (efficient production; complementary products; reduced transaction costs) • Not OK if “using” monopoly power

8. Conduct Requirement: Recurring Concerns Tension Between: • Harms caused by monopoly(high price; low output) • Fear of deterring innovation and aggressive competition by monopolists

9. Conduct Requirement: Recurring Concerns Context for Conduct Requirement • Must show Monopoly Power or DPS before finding liability • Greater Market Power  Greater Range of Conduct is Problematic • Liability often found re conduct that would be fine for a non-monopolist

10. Conduct Requirement: Recurring Concerns Aggregation Question • Can you find liability by aggregating two or more types of conduct that, standing alone, would be insufficient? • Several cases seem to allow this.

11. Conduct Requirement: Recurring Concerns Aggregation Question: Policy • If overall effect of aggregate conduct meets is to create or maintain monopoly power, should be actionable • BUT: Very hard for monopolist to know what is allowed • Also don’t want to make AT case out of sporadic examples of business torts

12. Conduct Requirement: Recurring Concerns Aggregation Question: Approach • Discuss whether aggregation should be allowed at all • Discuss whether this particular set of acts should be actionable

13. OTHER CONDUCT THAT MIGHT VIOLATE §2 • Non-Predatory Pricing • Exclusive Dealing Contracts • Predatory Hiring • Other Predatory Conduct • False Advertising & Other Bad Behavior

14. NON-PREDATORY PRICING • Monopoly Pricing • Limit Pricing • Price Squeezes

15. NON-PREDATORY PRICING Monopoly Pricing • Not bad conduct for §2 purposes • See Berkey Photo; USFL (2d Cir. 1988) • Not anti-competitive; invites competition • Can see as reward for innovation/skill • Can be evidence of market power

16. NON-PREDATORY PRICING • Monopoly Pricing • Limit Pricing • Price Squeezes

17. NON-PREDATORY PRICING Limit Pricing • Price above monopolist’s marginal cost, but low enough that • Existing rivals can’t meetAND/OR • Potential rivals won’t enter • Arises in Alcoa (re foreign producers); IBM Cases; BarBri case/Rev. Prob. #5

18. NON-PREDATORY PRICING Limit Pricing: Legal Treatment • Suggestions in some lower court cases that can violate §2 • Language in Brooke Group re price below cost suggests otherwise • Liability may be more plausible if aggregated with other conduct

19. NON-PREDATORY PRICING • Monopoly Pricing • Limit Pricing • Price Squeezes

20. NON-PREDATORY PRICING Price Squeeze • Monopolist re a raw material also makes finished product using that raw material. • Monopolist sets price of raw material high; finished product’s price low. • Rivals re finished product have trouble meeting monopolist’s price. • Form of Limit Pricing

21. NON-PREDATORY PRICING Price Squeeze: Benign? • Hovencamp: Low price of finished product may result from efficiencies of vertical integration. • Monopolist at two levels may not be any worse in short run; can only extract same amount of monopoly profit from ultimate consumer.

22. NON-PREDATORY PRICING Price Squeeze: Concerns • 2-Level Monopoly Increases Entry Barriers (more expensive to enter on both levels) • Monopolist cautiously pricing on one level may feel freer to take full monopoly profit • Rivalry at one level can encourage innovation and non-price competition

23. NON-PREDATORY PRICING Price Squeeze: Legal Treatment • Alcoa says improper conduct (in dicta). • Some courts have found liability. • Good discussion in Town of Concord (1st Cir. 1990) (Breyer) (no liability in highly regulated industry) • After Brooke Group & Trinko: maybe only actionable if predatory.

24. OTHER CONDUCT THAT MIGHT VIOLATE §2 • Non-Predatory Pricing • Exclusive Dealing Contracts • Predatory Hiring • Other Predatory Conduct • False Advertising & Other Bad Behavior

25. Exclusive Dealing Contracts • Contracts with Suppliers or Purchasers Requiring That They Only Do Business with Monopolist • E.g., Alcoa (pre-1912) contracts with power companies

26. Exclusive Dealing Contracts Can be pro-competitive: • Insures that a dealer focuses on your product • Guarantees sufficient supplies from supplier • Reduces negotiation costs for party granting exclusivity

27. Exclusive Dealing Contracts Problems if Monopolist or Cartel: • Raises costs to rivals b/c fore-closes some customers/suppliers • If widespread, difficult for rivals to do business at all

28. Exclusive Dealing Contracts Leading Case: Lorain Journal (1951) • Newspaper had effective monopoly of news & advertising in one Ohio city. • Radio station opens nearby • Paper refuses to run print ads for those advertising w radio station. • SCt finds attempt to monopolize.

29. Exclusive Dealing Contracts More on Legal Treatment • Seen as clearest example of bad conduct • Like Prototype I boycotts • PepsiCo = case in materials similar to Lorain Journal • Might be defensible if monopolist can show significant efficiencies result

30. OTHER CONDUCT THAT MIGHT VIOLATE §2 • Non-Predatory Pricing • Exclusive Dealing Contracts • Predatory Hiring • Other Predatory Conduct • False Advertising & Other Bad Behavior

31. “Predatory Hiring” • Monopolist hires away key employees or potential employees of rivals • Effect may be to make it harder for rivals to do business • Claim can be seen as a subset of exclusive dealing

32. “Predatory Hiring” General Concerns • Normal competition to want to hire best in the field • Can only be problematic if limited supply of that type of employee • Don’t want to impede ability of employee to market skills/self

33. “Predatory Hiring” General Concerns • Most likely to be problematic if “predatory”: • Cost of employee to monopolist is greater than benefits • Only makes sense as way to harm rivals

34. “Predatory Hiring” Legal Treatment • Several circuits have said claim might be actionable in some circumstances • Some examples of tests in materials

35. “Predatory Hiring” Legal Treatment Most courts want greater showing than mere hiring away from rival. E.g., • that employee didn’t help monopolist (BUT can be predatory even if help) • evidence of harm to price or output • part of larger pattern of bad conduct

36. “Predatory Hiring” Wichita Clinic (D.Kansas 1997) • Seems to require least, although facts most compelling • Following allegations state cause of action • D runs largest hospital in Wichita area. • P clinic refused D’s merger overtures • D hired away 20% of P’s doctors w intent to monopolize Wichita health care • Note: rests a lot on intent w/o objective evidence of harm or predation

37. “Predatory Hiring” Abcor (4th Cir. 1990) • D hired 2 of Ps employees • Not actionable where • P had hired # of employees from D, so “fighting back” • Both employees had strong personal reasons to leave & initiated contact w D • Suggests very fact-specific inquiry

38. OTHER CONDUCT THAT MIGHT VIOLATE §2 • Non-Predatory Pricing • Exclusive Dealing Contracts • Predatory Hiring • Other Predatory Conduct • False Advertising & Other Bad Behavior

39. Other Predatory Conduct • Conduct that is not cost-justified in the short run. • Sensible only if intending to recoup through long-term monopoly profits.

40. Other Predatory Conduct Alcoa: Predatory Expansion Theory • Possible harms discussed in presentation of case & in outline • Hovenkamp: Has pro-competitive aspect • Makes supplier very attractive to buyers • Insures won’t run out of supplies

41. Other Predatory Conduct Exclusion Cases that Require Predation • Arguably Aspen/Trinko • Some predatory hiring cases

42. Other Predatory Conduct Photovest v. Fotomat (7th Cir. 1979) • D both owns and franchises kiosk photofinishing services • P gets contract to run 15 franchises • D discovers that company-owned kiosks are more profitable than franchises

43. Other Predatory Conduct Photovest v. Fotomat (7th Cir. 1979) Steps taken to eliminate franchises in the aggregate = attempt to monop.: • Increases prices to franchises • Conceals available discounts • Placement of new kiosks

44. Other Predatory Conduct Photovest v. Fotomat (7th Cir. 1979) Kiosk placement predatory: • Opened many kiosks to reduce value of franchises so D could buy back cheaply. • E.g., 14 kiosks in Indianpolis, more than 1/2 on overlapping sites • Evidence that new kiosks operating at below break-even point

45. Other Predatory Conduct Photovest v. Fotomat (7th Cir. 1979) Q: Should attempt by monopolist to rearrange own distribution system be actionable under AT laws (as opposed to breach of contract suits by franchisees)

46. OTHER CONDUCT THAT MIGHT VIOLATE §2 • Non-Predatory Pricing • Exclusive Dealing Contracts • Predatory Hiring • Other Predatory Conduct • False Advertising & Other Bad Behavior

47. False Advertising & Other Bad Conduct • Possible to interfere w rival’s business through lying, coercion, etc. • Q is when should we treat as AT violation (v. use of other laws) • Facts of three cases described in materials (Note that two of them are aggregate conduct cases)

48. False Advertising & Other Bad Conduct False Advertising (in Rev. Prob #5) • Problem if discourages purchasers from using rivals’ products (tho can combat w own ads) • At least 2 circuits say possible §2 claim • Tests in cases in materials basically require harm to competition

49. The State Action Doctrine • Sherman Act not intended to restrain ability of states to do economic regulation • Acts that would otherwise violate AT laws immune if fall within exception • E.g., Parker v. Brown (1943)

50. The State Action Doctrine • Easy Cases: State officials acting pursuant to legislative scheme • Harder cases (We’ll Discuss in Turn): • Private citizens acting pursuant to state scheme • Acts by municipalities