1. © Hogan & Hartson LLP. All rights reserved. Monopoly Power: Getting it and keeping it US Perspective Sharis Pozen, Partner ACCE Seminar 13 May 2008

2. © Hogan & Hartson LLP. All rights reserved. 2 Overview Differing Approaches – Sherman Act, Section 2 – EU Article 82 In US, Types of Conduct at Issue Developments in Bundling Variety of Approaches Conclusion

3. © Hogan & Hartson LLP. All rights reserved. 3 Sherman Act Section 2

4. © Hogan & Hartson LLP. All rights reserved. 4 US-EU Laws Sherman Act, Section 2 – Generally allow even a monopolist to exercise or exploit lawfully acquired market power E.g., allows “monopoly pricing” Incentive and reward for superior performance and innovation Allows fair but aggressive competition – Protects competition, not competitors Encourage efficiency Avoid protecting less efficient rivals – Prohibits only “antitrust injury” Article 82 – Focuses on abuse of dominance

5. © Hogan & Hartson LLP. All rights reserved. 5 Monopolization Actual monopolization – Monopoly power Power to control price and exclude competition Usually require >70-75% market share – Willful acquisition or maintenance of that power (“as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident”) Attempted monopolization – “Dangerous probability” of monopoly power (usually >50% market share) – Specific intent to monopolize Both also require something more – “exclusionary conduct”

6. © Hogan & Hartson LLP. All rights reserved. 6 US Anticompetitive Practices Once a firm has monopoly power, the US law puts some limits on certain conduct a monopolist may undertake, such as: – Predatory Pricing – Exclusive Arrangements – Refusal to Deal – Tying – Bundling

7. © Hogan & Hartson LLP. All rights reserved. 7 Other Forms of Monopolization Predatory pricing (Brooke Group) – Pricing “below cost” (probably average variable cost) – Expectation of recoupment Exclusive arrangements – Exclusive contracts with the purpose and effect of depriving competitors of important supplies or distribution outlets Refusals to Deal – Includes refusal to provide a competing firm with reasonable access to an essential resource Tying – Allowing a customer to purchase one product only if that customer purchases another product over which the seller has monopoly power These arrangements are not per se illegal, but instead are judged under the Rule of Reason standard

8. © Hogan & Hartson LLP. All rights reserved. 8 Other Forms of Monopolization: Bundling Types of bundling – Integration – Requiring the sale of two or more products together LePage’s v. 3M (3d Cir. 2003) – Prohibited bundling that foreclosed part of market to a competitor that did not manufacture equally broad array of products so couldn’t make comparable offer – Rejected argument that bundling cannot be anticompetitive if price is “above cost” – Focused on customers’ inability to give up the benefits of the bundle – No focus on whether competitors are as efficient as the bundling firm PeaceHealth (9 th Cir. 2007) – Adopted cost-based test – Bundling not unlawful unless “bundler” is selling product(s) on which “bundler” competes with plaintiff below average variable cost if entire discount attributed to such product(s) – Supreme Court may ultimately adopt this position (also recommended by Antitrust Modernization Commission)

9. © Hogan & Hartson LLP. All rights reserved. 9 Variety of approaches “Profit sacrifice” test – departure from profit-maximizing behavior (but what time frame relevant?) “No economic sense” test – conduct makes no economic sense except as a way of eliminating competition “Less efficient rival” test – conduct can’t be exclusionary unless would eliminate equally or more efficient rival “Balancing” test – balance efficiency or other benefits of conduct against effects on consumers and rivals Also use “cheap or naked exclusion“ analysis – Can be low cost or no cost conduct – Fraud or deception in standards making is example

10. © Hogan & Hartson LLP. All rights reserved. 10 Conclusion Convergence/Divergence – US v. EU Political Overlay US Microsoft and Intel Cases Latest Developments – Schering – Rambus Other Issues: – Litigation costs and Risks – Remedy

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