The University of Chicago 11/24/2018 Class 8 Antitrust, Winter, 2018 Group Refusals to Deal & Joint Ventures Randal C. Picker James Parker Hall Distinguished Service Professor of Law The Law School The University of Chicago Copyright © 2000-18 Randal C. Picker. All Rights Reserved.

Federal Trade Commission Act, Sept 26 1914 11/24/2018 November 24, 2018 Federal Trade Commission Act, Sept 26 1914

11/24/2018 “That unfair methods of competition in commerce are hereby declared unlawful. The commission is hereby empowered to prevent persons, partnerships, or corporations, except banks, and common carriers subject to the Acts to regulate commerce, from using unfair methods of competition in commerce.” November 24, 2018 Federal Trade Commission Act, Sept 26 1914

11/24/2018 FTCA Sec. 5 Sec. 45. Unfair methods of competition unlawful; prevention by Commission (a) Declaration of unlawfulness; power to prohibit unfair practices; inapplicability to foreign trade (1) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful. November 24, 2018

11/24/2018 “It shall be unlawful … to … make a sale or contract for sale of goods … on the condition, agreement, or understanding that the … purchaser thereof shall not use or deal in the goods … of a competitor … where the effect of … such condition … may be to substantially lessen competition or tend to create a monopoly in any line of commerce.” November 24, 2018 Clayton Act, Oct 15 1914

What Does that Mean? Is an unfair method of competition … 11/24/2018 What Does that Mean? Is an unfair method of competition … Something distinct from things that violate Sections 1 and 2 of the Sherman Act or the Clayton Act? Or is the FTC to assess legality under the Sherman Act and the Clayton Act and then act? What is at stake? November 24, 2018

Fashion Originators’ Guild (1941) 11/24/2018 Fashion Originators’ Guild (1941) Key Facts Fashion Originators’ Guild of America organized private property rights system Claim was style piracy of dress and fabric designs Group insisted on agreements with retailers not to sell pirated-design dresses Federal copyright law did not protect these at this time, but may have been state tort November 24, 2018

11/24/2018 FOGA Mechanism Created design registration bureau for garments and textiles Trial and appellate tribunals to assess copying claims Also limits on advertising, discounts etc. November 24, 2018

Assessing Market Power 11/24/2018 Assessing Market Power Market Position 136 companies with 60% of higher-end market, 38% of lower-end Do we think that these companies had a monopoly? That there actions tended towards monopoly? In what market or markets? November 24, 2018

Assessing Market Power 11/24/2018 Assessing Market Power Difficult to Find Market Power Should expect vigorous competition within 136 company segment, so shouldn’t expect monopoly profits But competing against companies with similar cost structure (spending dollars to come up with designs); that will result in higher equilibrium prices November 24, 2018

Assessing Market Power 11/24/2018 Assessing Market Power Entrants without those costs would push prices down November 24, 2018

Is This Different Than … ? 11/24/2018 Is This Different Than … ? Trans-Missouri? Interstate Circuit? Broadcast Music? November 24, 2018

Who Are We Protecting? From the Court “For as this Court has said, ‘Trade or commerce under those circumstances may nevertheless be badly and unfortunately restrained by driving out of business the small dealers and worthy men whose lives have been spent therein, and who might be unable to readjust themselves to their” November 24, 2018

Who Are We Protecting? From the Court “altered surroundings. Mere reduction in the price of the commodity dealt in might be dearly paid for by the ruin of such a class, and the absorption of control over one commodity by an all-powerful combination of capital.’” November 24, 2018

Starting a Newspaper Joint Venture 11/24/2018 Starting a Newspaper Joint Venture Hypo Newspapers A, B, C and D decide to start a joint venture to share news Initial investment I split four ways Probability of success, p; of failure, 1-p Worthless if it fails, worth V if it succeeds Section 1 violation? November 24, 2018

Admitting New Members More Hypo 11/24/2018 Admitting New Members More Hypo Assume the venture succeeds E wants to join and even offers to pay I/5—the amount that E would have paid had it been there in the beginning—to join If the JV refuses the offer, Section 1 violation? November 24, 2018

US v. AP: News Geography AP NY Times Chi Trib NY Post Chi Sun T 11/24/2018 US v. AP: News Geography AP NY Times NY Post Chi Trib Chi Sun T INS Den Post LA Times LA Her Miami Her Dal MN November 24, 2018

Key Organizational Issues 11/24/2018 Key Organizational Issues Local monopolies or duopolies Bylaws determine broader access to information Can’t supply information to anyone outside the AP network Local competitor has certain blocking rights November 24, 2018

Evaluating the Practices 11/24/2018 Evaluating the Practices Key Practices Local Block: Chi Trib could force entry fee payments (see fn 5) and vote by entire membership if Sun-Times sought to join AP Membership v. Ala Carte Sales Bundled Access to News vs. Piecemeal Access Grantback Obligations November 24, 2018

Analysis and Result Classify This Bylaws as entry barrier? Per Se? 11/24/2018 Analysis and Result Classify This Per Se? Rule of Reason? Bylaws as entry barrier? Very difficult for local entrant, as can’t access outside news network Means must enter at national scale to enter locally November 24, 2018

Analysis and Result Bylaws as facilitating local competition? 11/24/2018 Analysis and Result Bylaws as facilitating local competition? Local quarantine would solve problem Natural monopoly/public utility? Creates Nondiscrimination Duty November 24, 2018

Northwest Wholesale Stationers (1985) 11/24/2018 Northwest Wholesale Stationers (1985) Setup The end of per se analysis of group boycotts Key Facts 100 office supply retailers create wholesale purchasing cooperative Anyone can buy through the coop, but only members get purchase rebates November 24, 2018

Northwest Wholesale Stationers 11/24/2018 Northwest Wholesale Stationers Pacific Stationery operated at retail and wholesale; eventually excluded from the coop Note relative sizes: Northwest: $5.8 million in wholesale sales; Pacific: $7.6 million in wholesale and retail sales November 24, 2018

Northwest Wholesale Stationers 11/24/2018 Northwest Wholesale Stationers Lower Courts District Court: Not per se, do rule of reason; no anticompetitive effect, so SJ for Northwest 9th Cir: Reverses, group boycott, so per se liability November 24, 2018

Analysis Economic benefits of purchasing cooperatives? 11/24/2018 Analysis Economic benefits of purchasing cooperatives? Legitimacy of membership rules? November 24, 2018

11/24/2018 Analysis Holding “Unless the cooperative possesses market power or exclusive access to an element essential to effective competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is not warranted. … Absent such a showing with respect to a cooperative buying arrangement, courts should apply a rule-of-reason analysis.” November 24, 2018