In 2006 the Department of Justice (DOJ) and the Federal Trade Commission held a series of "Hearings on Section 2 of the Sherman Act: Single Firm Conduct as Related to Competition." These hearings took place on 19 separate days over a year's time and included 119 panelists on 29 panels. Topics and perspectives were diverse. Today the Department of Justice released a 215 page report based on the hearings titled "Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act" (Report). The Report contains positive and normative analysis of whether specific unilateral conduct violates Section 2 of the Sherman Act by harming competition or consumers.

The following is a brief summary of the Report:
Overview of Single-Firm Conduct and Section 2 of the Sherman Act
The Report states that Section 2 is aimed at preventing conduct that harms the competitive process. Monopoly power, or likelihood of achieving monopoly power, is essential to a unilateral conduct claim under Section 2. Mere possession of monopoly power is not prohibited by Section 2.

Monopoly Power
Courts generally require plaintiffs to establish dominant market share to gain an inference of monopoly power. But dominant market share is only the first step of the analysis according to DOJ. A firm with market-share dominance must also be vested with the ability to sustain prices above competitive levels for sustained periods to run afoul of Section 2. DOJ suggests the judiciary should consider a market-share safe harbor, stating that rarely has a court found or a firm possessed monopoly power without possession of at least 50% market share. As a result, DOJ suggests a presumption against finding monopoly power for any firm with less than 50% market share. On the other hand, DOJ is apt to infer that a firm possesses monopoly power if it has maintained at least 66% percent share of a defined antitrust market for a significant period. Generally, when an antitrust market is not established, DOJ finds evidence of anticompetitive effects constitutes insufficient proof of monopoly power.

General Standards for Exclusionary Conduct
The Report suggests the proper litigation framework for a Section 2 exclusionary conduct case is (1) the plaintiff should bear the initial burden of proving conduct that harms the competitive process and produces (or is likely to produce) an anticompetitive effect; (2) the defendant should have the burden to counter such proof with a procompetitive justification for the challenged conduct; and if the defendant is successful (3) the plaintiff should regain the burden of establishing the conduct is anticompetitive under the appropriate standard.

DOJ does not advocate a single standard for all unilateral conduct cases, and instead encourages conduct-specific tests:

DOJ rejects the Effects-Balancing test as unlikely to maximize consumer welfare and susceptible to errors in quantification. Similarly, DOJ rejects the Profit-Sacrifice test as imprecise and subject to enforcement error. DOJ suggests that the No-Economic-Sense test is primarily valuable as a counseling tool to guide business decisions that have potentially exclusionary effects rather than as a formal standard. In pricing cases, DOJ advocates using the Equally Efficient Competitor test to determine if the conduct at issue would exclude an equally efficient competitor. Finally, where no conduct-specific test, DOJ supports a Disproportionality test that would only condemn unilateral conduct if the effects are significantly anticompetitive compared to the procompetitive effects.

Price Predation
Under the Supreme Court's opinion in Brooke Group, a Plaintiff must show that a defendant cut prices below some appropriate measure of costs and possesses a dangerous chance or recouping those losses. On the first element, DOJ advocates use of the average avoidable cost as the appropriate measure of cost and states that there is an emerging consensus for using this approach. DOJ rejects application of the average variable cost formulation, reasoning that average avoidable cost properly focuses the inquiry on the predatory scheme alleged. On the second element, DOJ finds recoupment is a valuable element because it blocks implausible predatory pricing claims. As to defenses, DOJ rejects the meeting-competition defense in predatory pricing cases, but remains open to efficiency arguments. DOJ asserts that above-cost pricing should be per se legal.

Finally, as to predatory buying, DOJ approvingly cites the Supreme Court's opinion in Weyerhaeuser, for requiring a plaintiff to prove (1) that a defendant suffered short-term loss as a result of the challenged bidding and (2) a dangerous probability of recoupment.

Tying
The Report reflects DOJ's skepticism about antitrust enforcement against tying arrangements. The Report concludes that because tying is not anti-competitive under almost all circumstances, and because tying often enhances consumer welfare, tying should not remain a per se violation of Section 2. DOJ suggests tying should be considered illegal only where either (1) there are no procompetitive benefits to the arrangement, or (2) anticompetitive effects disproportionately outweigh any procompetitive benefits.

Bundled Discounts and Single-Product Loyalty Discounts
The Report considers the two related pricing practices of bundled discounts and single-product loyalty discounts (1) Bundled Discounts: According to the Report, bundled discount analysis should differ depending on whether the defendant's competitors can effectively compete on a bundle to bundle basis. If rivals can offer similar bundles, a challenge to bundled discounts should be analyzed under the predatory pricing rubric.

If a defendant's competitors cannot compete bundle-to-bundle, the rebates or discounts should be analyzed under a tying framework. Under these circumstances, DOJ suggests that a defendant showing that even when the entire value of a bundled discount is applied to only the item(s) that the competitors can offer, and that the discounted price is above cost, the defendant should be afforded a safe harbor because it would not exclude an equally efficient competitor. If the defendant cannot establish the safe harbor, DOJ finds that the challenged practice should only be condemned if the anticompetitive harm disproportionately outweighs any procompetitive benefits.

(2) Loyalty Discounts: Noting that single-product loyalty discounts are almost never anticompetitive, DOJ advocates applying predatory pricing analysis to any claim. Concerned with chilling legitimate discounting, the Report suggests only where revenue falls below an appropriate measure of costs, should loyalty discounts be condemned. Nonetheless, DOJ acknowledges that under some circumstances it may be possible for anticompetitive effects to result from above price discounting, and as a result further study is warranted. Under a market foreclosure analysis, DOJ suggests that a plaintiff should at least be required to prove significant market foreclosure and substantial competitive harm result.

Unilateral, Unconditional Refusals to Deal with Rivals
Citing the evolution of the Supreme Court's line of cases from Colgate to Trinko, DOJ suggests that forcing a monopolist to deal with rivals will potentially harm competition in the long run and lessen the incentive for innovation and investment even if there are short-term price benefits. The Report suggests that the burden of supervising remedial forced dealing with rivals may be beyond the efficient capacities of courts and enforcement agencies. DOJ concludes that unilateral, unconditional refusals to deal with rivals has little place in Section 2 enforcement.

Exclusive Dealing
The Report considers how exclusive dealing can be used to acquire or maintain monopoly power by limiting rivals ability to grow and compete. In addition, the Report contemplates the many procompetitive efficiencies that can also result from exclusive dealing, namely aligning incentives and the prevention of free riding. A challenged exclusive dealing agreement should be examined as to the length of the agreement, the ability of other competitors to challenge the monopolist, and the degree to which the exclusive agreement contributes to the acquisition or maintenance of monopoly power.

Under this Section 2 claim, DOJ suggests that when less than 30% of existing customers or distribution are foreclosed, the arrangement should be per se legal.

Remedies
DOJ reports that the three central goals of remedies under Section 2 are (1) terminating the anticompetitive conduct, (2) preventing any reoccurrence, and (3) restoring the opportunity for competition. As a result, the Report advocates clear, remedies that do not create heavy burdens for the courts, enforcers, or parties, and do not chill competition. Remedies consisting of the prohibition of specific acts are preferred when effective and radical restructuring should be employed a last result when there is no other effective remedy. DOJ suggests further analysis into monetary remedies is appropriate.

International Perspective
This chapter contemplates the increasingly global nature of antitrust enforcement, noting that over 100 countries have adopted antitrust laws and nearly all include unilateral conduct provisions.

The entire Report can be found on the Department of Justice's web site at www.usdoj.gov/atr/public/reports/236681.pdf. Information on the FTC and DOJ hearings, including transcripts, submissions and names of participants, can be found at www.usdoj.gov/atr/public/hearings/single_firm/sfchearing.htm.

Related news stories can be found at:

• http://www.marketwatch.com/news/story/justice-department-issues-report-antitrust/story.aspx?guid={FBBEED35-0D4A-46CA-9741-27A49115A56B}&dist=hppr
• http://www.reuters.com/article/governmentFilingsNews/idUSN0845441220080908

Taiwan's Fair Trade Commission is investigating whether Microsoft holds a monopoly in Taiwan and if it abuses such a position. It is also looking into the availability of Windows XP and the pricing of Microsoft products. The investigation is expected to take at least 6 months and Microsoft could face a fine of up to approximately US$799,000.

Please see the articles below for more information:

• Microsoft faces Taiwan antitrust investigation (Computerworld.com)
• Taiwan authorities launch probe into Microsoft's Vista sales (ABS-CBN News Online)

The EC has expanded its inquiry into Intel's alleged anticompetitive behavior. The EC has added 3 new charges against Intel. The charges allege that Intel paid German company MediaMarkt to exclusively sell Intel products, paid a manufacturer to delay introducing AMD products and offered rebates to ensure that all of that manufacturer's laptops contained Intel products.

Please see the article below for more information:

• Europe Expands Intel Antitrust Case (The New York Times, July 18, 2008)

Additionally, below please find the EC's press release:

• Antitrust: Commission confirms supplementary Statement of Objections sent to Intel

• Press Release
• Opinion

On September 4, 2007, the third circuit reversed a district court ruling and held that Broadcom's suit against Qualcomm can proceed.  It further held that "a patent holder's deceptive conduct before a private standards-determining organization may be condemned under antitrust laws."  The court found that Broadcom had stated claims for monopolization because it "adequately alleged that Qualcomm possessed monopoly power in the relevant market" and "the Compliant also adequately alleged that Qualcomm obtained and maintained its market power willfully."  The court noted that it was not alleged that Qualcomm made false statements like the kind in Rambus, its assurances before the private standards organization were required and relied on.  The court also found that the attempted monopolization claim should not be dismissed because it was not clear from the face of the complaint that the "dangerous possibility" test could not be met as a matter of law concerning Qualcomm's alleged attempt to monopolize the UMTS chipset market.  

The opinion and a related article can be found at:

• http://www.ca3.uscourts.gov/opinarch/064292p.pdf
• http://online.wsj.com/article/SB118895119044217537.html?mod=googlenews_wsj

Finally, on August 27, 2007, the High Court of Australia issued its opinion in Australian Competition and Consumer Commission v Baxter Healthcare Pty Limited, reversing the decision of the Federal Court of Australia.  Baxter, which had a market share of greater than 90% in several medical fluids, had entered into requirements contracts with several Australian states.  Baxter also bundled several unrelated fluids into single contracts.  The Australian Competition and Consumer Commission alleged that the requirements contracts and bundling arrangements violated s. 46 (misuse of market power) and s. 47 (exclusive dealing) of the Trade Practices Act, and sought an injunction barring similar conduct in the future.  The Federal Court of Australia, however, ruled that Baxter was protected by derivative Crown immunity (i.e., that the Crown's sovereign immunity extended to Baxter because the state's had agreed to the contract terms).  The High Court of Australia reversed, noting the Crown immunity did not extend to commercial activities.  As such, the states would not have been shielded from the Trade Practices Act had they engaged in the same conduct.  The High Court remanded to the Federal Court for further deliberations on the underlying issues of misuse of market power and exclusive dealing.

The full opinion is available at: 

• http://www.austlii.edu.au/au/cases/cth/HCA/2007/38.html

• Reasons for Appeal
• Reasons for Cross-Appeal

• Rambus Incorporated v Federal Trade Commission Appellate Brief
• Rambus Incorporated v Federal Trade Commission Appellate Brief As Filed
• Opinion of the Federal Trade Commission, In the Matter of Rambus, Inc., Docket No. 9302
• Resources Relating to Antitrust and Standards Setting
  (Revised July 21, 2003)

• Supreme Court Opinion
• Petition for Writ of Certiorari
• Opposition to Petition for Writ of Certiorari
• Brief for the United States as Amicus Curiae
• Brief of Amici The Coca-Cola Company et al
• Brief of Amici BellSouth et al
• Petitioner's Reply Brief
• Supplemental Respondent's Brief
• Supplemental Petitioner's Brief
• Second Supplemental Respondent's Brief

The times that are indicated are Eastern Standard Time (EST).

• May 08, 2007 - 1:00pm - 5:00pm
• May 01, 2007 - 1:00pm - 5:00pm
• March 29, 2007 - 9:30am - 12:30pm
• March 28, 2007 - 1:30pm - 4:30pm
• March 28, 2007 - 9:30am - 12:00pm
• March 08, 2007 - 9:30am - 12:00pm
• March 07, 2007 - 2:00pm - 4:30pm
• March 07, 2007 - 9:30am - 12:30pm
• January 31, 2007 - 1:30pm - 4:30pm
• January 31, 2007 - 9:30am - 12:00pm
• January 30, 2007 - 2:00pm - 4:30pm
• January 30, 2007 - 9:30am - 12:30pm

Comments of the ABA Section of Antitrust Law Regarding the Commission's Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses

• Comments
• Coverletter

Jennifer M. Driscoll (jdriscoll@whitecase.com) has prepared the attached summary for the Unilateral Conduct Committee Listserv of the September 23, 2005 presentation by EU Commissioner Kroes on the Article 82 policy review currently being undertaken by European Commission. The presentation was at the Annual Conference on International Antitrust Law & Policy at Fordham University.

We encourage all members to post such informative information on the Unilateral Conduct Committee listserv. Any member can post information by sending an email to AT-S2@MAIL.ABANET.ORG.

September 29, 2005
The more things change, the more they stay the same
By Jennifer M. Driscoll

On September 23, 2005, Commissioner Neelie Kroes (Member of the European Commission in charge of Competition Policy) delivered a speech concerning the Article 82 policy review currently being undertaken by European Commission at the Annual Conference on International Antitrust Law & Policy at Fordham University.

Comments of the Antitrust Section of the ABA in Response to the Antitrust Modernization Commission's Request for Public Comments Regarding Exclusionary Conduct were submitted on March 17, 2006. Mary Anne Mason coordinated our committee's involvement in this project.

• Comments
• Coverletter

The witness statements presented at the September 29, 2005 hearings of the Antitrust Modernization Commission on exclusionary conduct are now available on the AMC's website.

Exclusionary Conduct (September 29, 2005)

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Resources Relating to Intellectual Property and Unilateral Refusals to Deal
(Revised February 8, 2006)