ECONOMIC ANALYSIS GROUP 

DISCUSSION PAPER

 

Organization, Control and 

the Single Entity Defense in Antitrust 

by 

Dean V. Williamson† 

EAG 06-4 January 2006

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†

 Antitrust Division, US Department of Justice; 600 E Street, NW; Suite 10000; Washington DC 20530. E-mail: 

Dean.Williamson@usdoj.gov. I thank Steve Brodsky, Aaron Burstein, Cory Capps, Ken Heyer, Suzanne 

Majewski, Russ Pittman, Alex Raskovich, Greg Werden and Oliver Williamson for helpful comments and 

questions. The views expressed in this paper do not reflect those of the US Department of Justice. 
Abstract 

Since at least the 1930’s economists have puzzled over how to delineate the boundaries of the 

firm. With the advent of antitrust legislation in 1890, courts have been pressed to consider what 

constitute conspiracies between corporate entities to restrain commerce. By the 1940’s, courts 

started to characterize conspiracies by sorting out what they are not – specifically, by extending 

the status of “single entity” to certain types of business arrangements. Both efforts in economics 

and in the law to sort out what constitutes a “firm” or “single entity” have focused on “control.” 

A difficulty is that neither the law nor economics offer an operationally significant concept of 

control. Even so, both law and economics contribute concepts other than control that provide a 

way of understanding economic organization. These concepts – control rights, adaptation, 

delegation, and renegotiation – suggests how one can subsume the sometimes confusing array of 

single entity tests proposed in the case law within a two-stage sequence of tests. 
0. Introduction 

In its majority opinion in Copperweld Corp. v. Independence Tube Corp. (1984) 467 U.S. 752, 

the Supreme Court “held that a parent corporation and its wholly owned subsidiary were not 

legally capable of conspiring with each other under section 1 of the Sherman Act.” The principal 

objective of this opinion and of succeeding case law was to restrict prospective litigants from 

imposing demands on the courts to entertain the prospect that any combination of a corporate 

parent and its wholly-owned subsidiaries could constitute an antitrust conspiracy (Areeda 1983, 

pp. 451-452; Belsley 1996, pp. 726-727). Copperweld and the case law following it intendedly 

neutralized “plaintiffs’ tantalizing, if unpredictable, opportunities to paint contacts among 

[commonly owned] corporations as antitrust conspiracies.” (Areeda 1983, pg. 451) But that is 

just preamble to the larger question the single entity case law poses: Copperweld and succeeding 

case law may have identified objective criteria for relieving certain types of governance 

structures from scrutiny, but can one identify other objective criteria for identifying other 

structures to which the law might yet extend single entity status? 

Copperweld and succeeding case law achieve its objective by defining the combination of a 

parent company and its wholly-owned subsidiaries as a “single entity.” Defining any one type of 

corporate structure as a single entity relieves it from scrutiny, because one needs more than one 

distinct entity to allege a conspiracy.1 A difficulty, however, is that one can define anything as a 

single entity. Definition of itself means nothing without imposing more structure. One could, 

for example, define a cartel of otherwise competing corporate entities as a single entity and, in 

turn, extend to it the legal protections that status as a single entity implies. It is no surprise, then, 

that Copperweld and the larger body of “single entity” case law encompassing it have been 

occupied with imposing more structure – that is, with trying to operationalize a concept of a 

“single entity” that discriminates between conspiracies and agglomerations of entities joined in 

“legitimate business arrangements” (Prell 1986, pg. 1157). Suppose, for example, some number 

of (possibly competing) firms formally incorporate a new entity, share ownership of the new 

entity and collectively participate in the governance of the new entity. Would the agglomeration 

of the new entity and the firms owning it constitute a “legitimate business arrangement” to which 

the law might extend single entity status? 

The most important efforts in the case law to impose structure on such questions have involved 

appealing to “ownership and control” in organizations.2

 The case law is not explicit about how 

ownership and control are related, but it is intuitively appealing to suggest that ownership 

 

1

 Single entity status does not insulate parties from all antitrust scrutiny, because Section 2 of the Sherman Act 

makes allowances for the prospect that a single entity might attempt to secure monopoly (Chicago Professional 

Sports LP v. National Basketball Association [1996] 95 F.3d 593 at 599; Kaiser [2004], pg. 17). The Copperweld

court itself observed that “The conduct of a single firm is governed by § 2 alone and is unlawful only when it 

threatens actual monopolization” (pg. 767). Plaintiffs advanced Section 2 monopolization claims in Iain Fraser et 

al. v. Major League Soccer, LLC et al. (2002) 284 F.3d 47. 2

 See, for example, Fouad N. Dagher et al. v. SRI et al. (2004) 369 F.3d 1108 at 1118, HealthAmerica Pennsylvania 

Inc. et al. v. Susquehanna Health System et al. (2003) 278 F.Supp.2d 423 at 428, City of Mt. Pleasant, Iowa v. 

Associated Electric Cooperative (1988) 838 F.2d 268 at 276, James M. Thomsen et al. v. Western Electric Co. et al.

(1981) 512 F.Supp. 128 at 133, Murphy Tugboat Company v. Shipowners & Merchants Towboat (1979) 467 F.Supp. 

841 at 859-60, Douglas K. Knutson et al. v. The Daily Review Inc. (1977) 548 F.2d 795 at 801, and Timken Roller 

Bearing v. United States (1951) 341 U.S. 593 at 598. 
 

2

implies control. It is also intuitively appealing to suggest that a defining characteristic of a single 

entity is that control is concentrated in the hands of a single party. That yet leaves open the 

question of extending single entity status to business arrangements that feature less than 

completely concentrated control. Either way, a problem is that the law does not have a crisp 

concept of “control” – or “authority,” “fiat,” or “power” – to begin with. Surprisingly, neither 

does economics (Demsetz 1995, pp. 35-39; Alchian and Demsetz 1972, pg. 777) nor 

organization theory (Williamson 1995, pg. 235). Even so, I am able to make discrete 

contributions in this paper that suggest how aspects of control inform analysis of the single entity 

question. I preview results here: 

(1) Economic theory can inform analysis of the single entity question by shifting the focus 

from “control” to a less demanding concept of “control rights” (Hart 1995, pg. 30 and 

Kreps 1999, pg. 123). The appeal to control rights provides a way of understanding how 

“ownership” and “control” are related and lends itself to simple, objective criteria for 

identifying “independent centers of decision-making” (Copperweld, pg. 768) within the 

candidate single entity. A finding that a governance structure features more than one 

distinct center of decision-making frustrates the appeal to the single entity defense. 

(2) If one takes a thirty-thousand foot view of the case law, one can distinguish a few robust 

ideas in it about what constitutes a single entity. The case law features an array of single 

entity tests. Many of these tests have prompted much confusion. It turns out, however, 

that one can subsume many of these tests in a two-stage sequence of tests and can dismiss 

the others. (See Figure 1.) The first stage, labeled here a test of “economic unity,”3

inquires whether or not ownership, the control rights ownership implies, and remaining 

control rights (if any) are concentrated within the candidate single entity. Evidence that 

control rights are concentrated might allow a court to stop analysis and accept a single 

entity defense. In contrast, evidence that control rights are fragmented and are distributed 

across the parties that constitute the candidate single entity complicates appeals to the 

single entity defense. When analyzing governance structures that fail a strict test of 

economic unity, the law might proceed to a second stage “actual or potential competitors” 

test (Mt. Pleasant at 276). The test amounts to a test of complementarity in that it sorts out 

whether or not the parties that comprise the candidate single entity contribute 

complementary assets, complementary capabilities or other complementary inputs. 

Applying the test amounts to a de facto rule-of-reason analysis that starts with the question 

of whether or not restraints instituted within the governance of the candidate single entity 

are horizontal or vertical. A finding that restraints are horizontal is tantamount to a finding 

that parties are not contributing complementary inputs and that the parties are “actual or 

potential competitors.” Such a finding frustrates the appeal to the single entity defense. 

Note the heavy lifting the two-stage sequence of tests does. It constitutes a simple roadmap that 

one can use to navigate what has been a confusing tangle of ideas and instructions in the case 

law. Note, also, the heavy lifting the “economic unity test” does. It provides a rationale for 

foregoing the more costly, time-consuming analysis of the merits and demerits of a governance 

 

3 Arleen Freeman et al. v. San Diego Association of Realtors (2003) 322 F.3d 1133 at 1148 
 

3

structure that something like a full-blown rule-of-reason analysis would demand.4

 Let me also 

suggest that the appeal to “control rights” does much heavy lifting. It provides criteria that 

operationalize the first-stage test of economic unity. The criteria allow one to identify whole 

classes of governance structures – joint ventures, long-term contracts, and “strategic alliances” – 

that fail the test of economic unity. 

 

Finally, let me note that the appeal to “control rights” may not resolve all questions of “economic 

unity.” Ideally, the appeal to control rights would identify all governance structures that fail tests 

of economic unity, leaving one with the powerful proposition that all remaining governance 

structures satisfy tests of economic unity and, accordingly, are single entities. A difficulty is that 

it is not obvious that all remaining governance structures would satisfy tests of economic unity. 

It might be the case, for example, that centers of decision-making overlap. One can imagine that 

some parties to a candidate single entity might each reserve control rights with respect to distinct 

decision-making processes, but some other party might maintain control rights that impinge all 

decision-making processes. Does the fact that one party has a hand in all decision-making 

processes suggest that the candidate single entity maintains only one “center of decisionmaking,” or does the fact that different (albeit overlapping) nexuses of parties maintain control 

rights imply that that the candidate single entity maintains more than one “center of decisionmaking?” No obvious answer present itself without imposing even more structure on the 

question of what constitutes “control” in organizations. 

How one might impose more structure on characterizing control in organizations is not obvious. 

As the court in Fraser v. Major League Soccer (2002) observed, “Once one goes beyond the 

classic single enterprise, including Copperweld situations, it is difficult to find an easy stopping 

point or even decide on the proper functional criteria for hybrid cases.” (pg. 59) The appeal to 

control rights does provide operational criteria for hybrid cases – criteria that are easy to 

operationalize. Specifically, it provides ways to operationalize benchmarks against which 

degrees of control can be measured. But benchmarks are not silver bullets. Were degrees of 

control not an issue, one would not need to appeal to more than one benchmark. Rather, a 

multiplicity of benchmarks reflects the fact that degrees of control is an important, albeit 

inconvenient, aspect of the single entity question. Not being able to knock down questions of 

control with silver bullets leaves open the prospect of putting tests of economic unity aside and 

moving to a rule-of-reason analyses – de facto or de jure – of the efficiency-enhancing features 

of governance structures that feature less than completely concentrated control. That, in turn, 

leads to the prospect of putting the entire single entity question aside and proceeding simply to 

the de jure rule of reason analysis. 

The remainder of the paper proceeds in five parts. The first part sets up the context out of which 

the single entity question emerged. The second part frames the paradigm question. To fix ideas, 

I present four Governance Scenarios, and I refer back to these scenarios at various parts of the 

 

4

 The Court of Appeals in Iain Fraser et al. v. Major League Soccer, LLC et al. (2002) 284 F.3d 47 is on point: 

“One would expand upon Copperweld to develop functional tests or criteria for shielding (or refusing to shield) 

[hybrid governance structures] from section 1 scrutiny for intra-enterprise arrangements. This would be a complex 

task and add a new layer of analysis; but where the analysis shielded the arrangement it would serve to cut off 

similarly difficult, intrusive scrutiny of such intra enterprise activities under extremely generalized rule-of-reason 

standards.” (pg. 58) 
 

4

paper. The third part develops the concept of “control rights” and suggests how it can inform the 

concept of “economic unity.” The fourth part presents the two-stage sequence of tests featured 

in the case law, and the fifth part applies the logic of the single entity tests to a selection of cases. 

These cases illustrate the power of the tests and illuminate pitfalls into which courts have 

sometimes fallen. The last part concludes. 

1. Whence the Single Entity Defense in Antitrust? 

A sequence of Supreme Court opinions and lower court opinions between 1941 and 1951 

established the idea that commonly owned or controlled entities could conspire in ways 

cognizable under Section 1 of the Sherman Act. One of the earlier and “talismanic”5

 citations on 

this count comes from United States v. Yellow Cab (1947) 332 US 218 at 228: “[A] restraint [on 

interstate commerce] may result as readily from a conspiracy among those who are affiliated or 

integrated under common ownership as from a conspiracy among those who are otherwise 

independent. Similarly, any affiliation or integration flowing from an illegal conspiracy cannot 

insulate the conspirators from the sanctions which Congress has imposed. The corporate 

interrelationships of the conspirators, in other words, are not determinative of the applicability of 

the Sherman Act. That statute is aimed at substance rather than form.” In United States v. 

General Motors (1941) 121 F.2d 376, General Motors attempted during the course of litigation 

to anticipate and neutralize reasoning of the sort applied in Yellow Cab. General Motors 

complained that jurors should have been instructed that “if they find that the defendant 

corporations [various General Motors subsidiaries] together constitute a single co-operative 

enterprise, in the course of which defendants corporations do not compete with one another, that 

there is and can be no unlawful agreement among them to restrain trade and commerce among 

the states, in automobiles” (pg. 409). The Seventh Circuit Court of Appeals disagreed, indicating 

that “It has been shown as a matter of law that the appellants [the General Motors entities] are 

separate entities, even though as a matter of economics they may constitute a single integrated 

enterprise, and that they are not impotent to restrain the trade and commerce of the dealers in 

General Motors cars. Consequently, the Court was not obliged to give such an instruction [to 

jurors].” 

Building explicitly on Yellow Cab, the court in Kiefer-Stewart Co. v. Joseph E. Seagram and 

Sons (1951) 340 US 211 observed that even if commonly owned or controlled units of a firm 

may constitute “mere instrumentalities of a single manufacturing merchandising unit ... common 

ownership and control does not liberate corporations from the impact of the antitrust laws” (pg. 

261). Echoing its ruling in Kiefer-Stewart, the court in Timken Roller Bearing v. United States 

(1951) 341 U.S. 593 indicated that “The fact that there is common ownership or control of ... 

contracting corporations does not liberate them from the impact of the antitrust laws” (pg. 598). 

Building, in turn, on Kiefer-Stewart, the Ninth Circuit Court of Appeals in Joseph E. Seagram 

and Sons et al. v. Hawaiian Oke and Liquors (1969) 416 F.2d 71 explicitly identified a tension in 

the case law when it observed that “It is now settled law that if a corporation chooses to conduct 

parts of its business through subsidiary or affiliated corporations, and conspires with them to do 

something that independent entities cannot conspire to do under section 1 of the Sherman Act, it 

is no defense that the corporations are, in reality a single economic entity. The Supreme Court 

 

5

 Areeda (1983) pg. 458 
 

5

has said that ‘common ownership and control does not liberate corporations from the impact of 

the antitrust laws.’ ... [Yet] [t]he Court has never indicated what, if any, are the limits of this 

[intracorporate conspiracy] doctrine” (pg. 82) The Copperweld court severely circumscribed 

intracorporate conspiracy doctrine when it held that “[defendants] Copperweld and its wholly 

owned subsidiary Regal are incapable of conspiring with each other for purposes of § 1 of the 

Sherman Act. To the extent that prior decisions of this Court are to the contrary, they are 

disapproved and overruled” (pg. 777). 

2. The Single Entity Question 

Copperweld did not so much dismiss intracorporate conspiracy doctrine6

 as take certain types of 

objectively identifiable “business arrangements” off the table. Copperweld expressly limited its 

inquiry to the “narrow issue” of “whether a parent and its wholly owned subsidiary are capable 

of conspiring in violation of § 1 of the Sherman Act” (Copperweld, pg. 767). It explicitly left 

open for further consideration other types of business arrangements such as those under which “a 

parent may be liable for conspiring with an affiliated corporation it does not completely own.” It 

then went on to suggest a number of formative single entity tests, the most important of which 

depend on ownership and control. 

The suggestion in Copperweld and in the entire body of single entity case law is plain: 

“ownership” and “control” are related, and both inform analysis of the single entity question. An 

outstanding problem is that none of the case law makes much progress sorting out what 

constitutes ownership and control much less sorting out how they are related and how they 

inform analysis. Consider the following four examples of “business arrangements:” 

Governance Scenario 1: An Electricity Marketing Contract7

An electricity generating firm sells to another firm, an electricity “marketer,” the exclusive rights 

to dispatch electricity from its generators over a 20-year interval. That is, when the marketer 

makes demands at any time over the next 20 years for the generator to fire up and produce 

electricity, the generator produces electricity, and when the marketer makes demands to cease 

generation, the generator stops production. The marketer compensates the generator by paying it 

a fixed monthly fee and by covering the generator’s operating expenses. Thus, even if the 

marketer makes no dispatch demands in a given month, the generator still receives its fixed 

monthly payment. The generator maintains ownership of its generating units, but it also cedes to 

the marketer rights to veto proposals it might make over the course of the 20-year relationship to 

expand, upgrade or to withdraw generation capacity at the generator’s production sites. 

It would be natural to label the relationship between the generator and marketer a “long-term 

contract,” and it might seem artificial to suggest that the generator and marketer collectively 

 

6

 Note that “intracorporate conspiracy” can mean different things in different areas of the law. It has applications in 

criminal matters (e.g., racketeering) and civil rights matters as well as applications in antitrust. See Smith (1996) on 

applications to civil rights and references to criminal and antitrust matters. 

7

 See D.V. Williamson (2003) for evidence about the structure of such contracts. 
 

6

constitute a “single entity.” Note, however, how “ownership” does not strictly imply “control” 

of underlying assets. The generator may own the production capacity committed to the 

contractual relationship, but the contract assigns to the marketer important dimensions of control 

to the marketer. The marketer controls the generator’s output in wholesale electricity markets – 

indeed, that is the marketer’s job – and the veto provision constitutes a way of assigning to the 

marketer some, but not all, control over investment in the generator’s production capacity. 

The point of the veto provision is not that the marketer would, as a matter of course, veto any 

and all proposals by the generator to expand, upgrade, or withdraw capacity. Instead, the 

marketer can use the threat of a veto to hold-up investment and force the marketer to renegotiate 

terms of the contract, such as the level of the fixed monthly payment, in return for acquiescing to 

implement investment proposals. The marketer might also demand amendments to any one 

proposal. Either way, the veto provision gives the marketer influence over investment decisions 

by making it incumbent upon the generator to make it worth the marketer’s while to go along 

with the its proposals. 

Governance Scenario 2: Two Electricity Marketing Contracts 

Suppose, now, that an energy marketer has secured long-term dispatch rights in separate 

contracts with each of two generators. Suppose, also, that these two generators are “actual or 

potential competitors”8

 in that they supply electricity to the same geographic market (“load 

pocket”). Finally, suppose that each contract includes a veto provision. 

The suggestion that the marketer and two generators collectively constitute a single entity might, 

at best, seem audacious. More likely, antitrust authorities would perceive the arrangement as one 

that enables two competitors (the generators) to neutralize competition between each other. 

Indeed, the generators might separately incorporate a third party and call it the “marketer.” 

When the antitrust authorities come knocking, the parties might trot out the single entity case law 

and tell the authorities to go away claiming that together they constitute a single entity. 

What could constitute the basis for a claim to single entity status? There does exist a single 

party, the marketer, that maintains exclusive control over each generators’ output. It is not 

obvious, however, that this one party constitutes an “independent center of decision-making” 

with respect to all decisions that are central to the functioning of the candidate single entity. The 

veto provisions enable the marketer to assume some non-trivial share of control over each 

generator’s investment plans. Note, however, that the nexus of parties that maintains control 

over one generator’s investment plans is different than the nexus of parties that maintains control 

over the other generator’s investment plans. The marketer and one generator maintain control 

over that one generator’s plans, and the marketer and the other generator maintain control over 

that other generator’s plans. These nexuses of control intersect, but might a court use the fact 

that neither of these nexuses of control encapsulates the other to suggest that the business 

arrangement features more than one independent center of decision-making? 

 

8 City of Mt. Pleasant v. Associated Electric Cooperative, Inc. (1988) 838 F.2d 268 at 276. 
 

7

Governance Scenario 3: Hospital Networks9

A number of hospitals form a “network” by incorporating a new entity and assigning governance 

of the new entity to a board of directors. Each hospital reserves the right to appoint some 

number of directors to the new entity’s board as well as the right to replace those same directors. 

Each hospital also maintains ownership of all its assets, and member hospitals do not transfer 

title to any property that they own to the new entity. They do assign to the new entity rights to 

veto proposals by any one hospital to expand, upgrade or withdraw services or capacity (e.g., 

“hospital beds”). The new entity aggregates profits from each hospital so that it may propose 

and finance plans to expand, upgrade or withdraw service capacity. The new entity restores to 

the hospitals profits it has not earmarked for investment. Each hospital maintains a veto over 

proposals by the new entity to expand, upgrade or withdraw services or capacity at any of its 

sites. 

Note that any proposal to expand, upgrade, or withdraw services or capacity at any one hospital’s 

site requires the approval of both that member hospital and the new entity. Accordingly, the 

particular hospital and the new entity together constitute the nexus of parties that maintains 

authority over investment decisions at the one hospital. Investment decisions involving another 

hospital involve a different nexus – the nexus composed of that other hospital and the new entity 

– although the two nexuses intersect in that the new entity is party to both nexuses. Does the 

overlap imply that the two nexuses effectively constitute a single center of decision-making, in 

which case the new entity and all member hospitals might collectively constitute a single entity? 

Even if one were to judge that the nexuses constitute distinctly enumerable centers of decisionmaking, one might suggest that they do not constitute “independent” centers. Member hospitals 

each maintain indirect influence over the new entity through their ability to appoint and replace 

directors. Does indirect influence imply the dependence rather than the independence of the 

various centers of decision-making, in which case the network might again be able to appeal to 

single entity status? 

Note also that hospitals’ ownership of their assets does not strictly imply control over those 

assets. Hospitals share “control” with the new entity, and, member hospitals indirectly influence 

how other hospitals’ assets are disposed by virtue of their rights to appoint and replace directors. 

 

9

 The scenario is inspired by letters three different “hospital networks” submitted to the Premerger Notification 

Office of the Federal Trade Commission memorializing guidance they had received from Commission staff 

concerning “the potential reportability of transactions” with respect to rules and regulations implemented under the 

Hart Scott Rodino Antitrust Improvements Act of 1976. I reference three letters posted at 

http://www.ftc.gov/bc/HSR/informal/opinions/9804005.htm, 0010003.htm, and 9908002.htm. The last of these 

pertains to the “Network Affiliation Agreement” that laid out the structure of the governance of the Evanston 

Northwestern Healthcare Network. This network is interesting, because the hospitals constituting the network 

secured from the Commission an “informal opinion” that indicated that the merger through which the parties formed 

the network “would not constitute a reportable transaction under the HSR Act.” In 2004, four years after formation 

of the network, the Commission challenged the merger, and in 2005 the Commission secured a favorable “initial 

decision” from Administrative Law Judge Stephen J. McGuire which is posted at 

http://www.ftc.gov/os/adjpro/d9315/051021idtextversion.pdf. The member hospitals argued that not having to 

report their merger transaction constituted evidence that together they already constituted a single entity before the 

merger. The judge disagreed, indicating, among other things, evidence that the parties had not constituted a single 

entity at the time of the formation of the Network. 
 

8

Finally, note that the member hospitals pool proceeds. The pooling of proceeds is integral to the 

efforts of member hospitals to coordinate investment plans. Does pooling of itself indicate some 

degree of “economic unity,” or does it simply enable anticompetitive coordination among “actual 

or potential competitors?” 

Governance Scenario 4: Delegation and Reserved Rights in a Traditional Corporate 

Hierarchy 

Finally, let’s consider the kind of governance structure contemplated in Copperweld: a hierarchy 

of wholly-owned corporate subsidiaries and its parent. Traditional corporate hierarchy 

constitutes an obvious benchmark against which to contrast “economic unity” in other 

governance structures, and it constitutes a benchmark that Copperweld and succeeding case law 

inserted into the single entity case law. This benchmark is interesting partly because it makes 

allowances for the prospect that some parties to a governance structure might delegate 

managerial functions to other parties. Does delegation amount to abdication of control, in which 

case single entity status might be jeopardized, or does it reflect control, in which case single 

entity status remains secure? The single entity case law indicates the latter: delegating functions 

to other parties is consistent with single entity status.10

Consider a parent corporation that wholly owns some number of separately incorporated 

subsidiaries. Suppose also that some of these subsidiaries themselves wholly own some other 

separately incorporated subsidiaries. These subsidiaries constitute “indirect subsidiaries” of the 

parent. Thus, the parent’s subsidiaries are themselves parents to the indirect subsidiaries. 

Suppose that a parent anywhere in the hierarchy may delegate managerial functions to any its 

own subsidiaries or indirect subsidiaries and that any parent reserves the right to take back 

functions it had previously delegated. The pattern of delegation and reserved rights will 

illuminate a hierarchy of corporate entities. It turns out that this hierarchy corresponds exactly to 

the hierarchy that the pattern of ownership illuminates. 

The complete agreement of these two hierarchies constitutes the benchmark case featured in 

Copperweld, and the law has extended single entity status to this benchmark case. What 

happens, however, as we deviate from this benchmark? Specifically, what happens when the 

hierarchy indicated by the pattern of ownership deviates in small or large measure from the 

hierarchy indicated by the pattern of delegation? 

3. Law and Economics of Control Rights 

 

10 The court of appeals in Seagram and Sons v. Hawaiian Oke (1969) observed that “sound management demands 

extensive delegation of authority within the organization.” (pg. 83) In overturning the lower court, the appeals court 

observed that “under the trial court’s ruling, the more delegation there is, the more danger there will be that the 

holders of such delegated authority will be found by a court to be capable of conspiring with each other in carrying 

on the corporation's business,” the conclusion being that “the doctrine [of intra-corporate conspiracy] hands to 

plaintiffs, on a silver platter, an automatically self-proving conspiracy.” (pp. 83-84) Copperweld itself identifies 

control with the power to “delegate” managerial functions to otherwise “autonomous units” (pg. 771) and with the 

power to take managerial functions back (pp. 771-772). 
 

9

The ultimate question is this: Is the “single entity” a sham or does it constitute a governance 

structure that serves the legitimate exercise of control rights in each of the scenarios? What 

constitutes “legitimate” and “control rights” is not obvious. I take these up in turn. 

3.1 The legitimate exercise of control 

One might be tempted to identify “legitimate” purposes with efficiencies. One might inquire, for 

example, about what efficiencies the single entity achieves that the parties could not separately 

achieve.11 The suggestion is that candidate single entities that merely join horizontally-situated 

parties – those arrangements in which parties are not contributing complementary inputs – have 

no business appealing to a single entity defense at all. A problem with that approach is that it 

provides a rationale for third parties (e.g., the court or a regulator) to abrogate property rights 

and, as we will see, the control rights that property rights imply. An oil company, for example, 

may operate two technologically identical refineries across the street from each other. A rule 

that afforded single entity status only to combinations of assets that generated obvious 

“efficiencies” might allow a third party to march in and compel the oil company to spinoff one of 

its two refineries. 

Pre and post-Copperweld single entity case law is not explicit about the hazards of enabling third 

parties to abrogate control rights, but one of the more direct statements about the hazards derives 

from Murphy Tugboat (1979) 467 F.Supp. 841. Paraphrasing the court of appeals in Seagram 

and Sons v. Hawaiian Oke (1969), the Murphy Tugboat court observed that “Indiscriminate 

application of Section 1 to commonly owned or controlled corporations could therefore have 

absurd and counterproductive results, subjecting them to liability for ‘an automatically selfproving conspiracy’ on account of activity necessarily arising out of or inherently connected with 

common ownership or control.” (pg. 860) Copperweld itself (pg. 771) suggests a 

complementary rationale. It imposes the presumption that intracorporate “coordinated conduct” 

generates “benefits” – benefits that outside parties might be poorly equipped to identify and 

should be circumspect about disrupting. 

3.2 Control Rights 

Economic theory provides not so much an affirmative theory of control but rather a body of 

theory about when, where and to whom to assign “control rights.” One must ask, “Rights to 

control what?” An (admittedly abstract) answer is “assets,” or, the same thing, the inputs parties 

contribute to the production of some good or service. Assets may include not merely the kinds 

of things to which it is easy to assign property rights such as plant and equipment but also 

intangibles such as trademarks and rights-of-way to commercialize patented technologies. 

Assets may also include things over which it is difficult to assign property rights such as “knowhow” or other inalienable human resources or intellectual properties. 

 

11 The appeal to “efficiencies” amounts to an inquiry of whether or not constituent parties contribute complementary 

assets, complementary capabilities, or other complementary inputs, or, the same thing, amounts to an inquiry of 

whether or not the candidate single entity incorporates important vertical dimensions. 
 

10

It is important to note that most economic theory, including the theory that is traditionally 

applied to antitrust, need not make contact with control. Most theory is occupied with sorting 

out plans parties implement for deploying their assets and efforts. These plans may take the 

form of “production plans” implemented within the firm, formal contracts between firms, tacit 

agreements and so on. Insofar as a plan is nothing more than a set of scripted instructions, it is 

not obvious that it makes a difference whether parties implement a plan within the firm or 

between firms.12 It makes no difference (yet) how parties organize production. Rather, parties 

contribute inputs, implement plans, and that is that. Questions about what governance structures 

constitute single entities are not cognizable within the framework. The key point is that nothing 

needs to be controlled so long as there is no demand to deviate from the plan. But why deviate? 

What would induce demand to deviate? Control, it turns out, becomes a concern once demands 

for deviations arise – that is, when contingencies arise for which parties have not made 

allowances in their plans. 

Questions about why parties would not have made allowances for certain contingencies point up 

deep issues about how they adapt business arrangements to changing circumstances (Williamson 

1971, 1974, 1985, 2005a, 2005b). Why would parties have failed to explicitly account for 

certain contingencies in their plans? Does the prospect that such contingencies arise motivate 

parties to find economical ways to adapt their plans?13 Can it be economical to selectively leave 

plans incomplete in some ways? Finally, the control question: Given demands for adaptation 

arise, who crafts the adaptations to be made and who implements the adaptations? In short, who 

gets to assume and exercise control? 

The answer suggested in Grossman and Hart (1986), Hart and Moore (1990), Moore (1992) and 

Hart (1995) is the parties who own the assets get to assume and exercise control. “Given a 

contract will not specify all aspects of asset usage in every contingency, who has the right to 

decide about missing usages? ... [I]t is the owner of the asset in question who has this right. 

That is, the owner of an asset has residual control rights over that asset: the right to decide all 

usages of the asset in any way not inconsistent with a prior contract, custom, or law” (Hart 1995, 

pg. 30). 

This line of research imposes structure on the single entity question in three ways. First, and 

most importantly, it suggests a way of understanding how “ownership” and “control” are related. 

Ownership implies control rights, which are the rights to decide how to redeploy assets in the 

event uncontracted-for contingencies arise. Ownership does not imply all control rights. Parties 

could (and often do) allocate control rights to non-owners. Three of the Governance Scenarios 

discussed above featured veto provisions. Veto provisions constitute one way parties assign to 

non-owners some say over how certain assets are redeployed – hence the qualification in Hart 

(1995) that ownership implies control rights that are “residual” in that other parties may have 

 

12 In the language of game theory, a plan is a “strategy” – a script indicating actions a party is to take at any 

contingency that might arise. The writer of the script could just as well seal it in an envelope, hand it to a manager 

to implement, and walk away. 

13 Research on adaptation in economic relationships is well established. Usual suspects include Masten and Crocker 

(1985), Crocker and Masten (1988, 1991), Crocker and Reynolds (1993), Joskow (1987, 1988), and Goldberg and 

Erickson (1987). More recent contributors include Saussier (2000), Bajari and Tadelis (2000), Tadelis (2002), Zhu 

(1999, 2003) and Zhang and Zhu (2000). 
 

11

reserved some rights by “prior contract, custom, or law.” Second, the appeal to residual control 

rights suggests a benchmark against which to judge “economic unity:” It is plausible to suggest 

that a candidate single entity may secure single entity status on the basis of economic unity by 

demonstrating that it maintains all residual control rights. Maintaining all residual control rights 

amounts to owning all of the assets engaged in production. Finally, the appeal to residual control 

rights suggests a simple way of identifying single entities that satisfy this benchmark of 

economic unity. One can delineate the single entities that satisfy the test of economic unity 

simply by identifying the nexus of parties that collectively own the assets engaged in production. 

Thus, if two parties separately or collectively own assets engaged in production, one includes 

those two parties in the single entity. 

One should note that the appeal to residual control rights implies a concept of “economic unity” 

that is much more parochial than the concept the single entity case law anticipates. Copperweld

and succeeding case law anticipate a concept of economic unity that depends on “centers of 

decision-making” not on “centers of residual decision-making.” Residual control rights, as 

opposed to control rights, may mean very little if the candidate single entity has signed away the 

most important control rights. Thus, one might want to include in any effort to delineate a single 

entity those parties that do maintain those most important control rights even if they own no 

assets and maintain no residual control rights. Instead, appealing to residual control rights alone 

might lead one to extend single entity status to a party that is really no more than a component of 

a larger entity. In the first Governance Scenario, for example, the appeal to residual control 

rights would suggest that the long-term contractual relationship between the marketer and 

generator fail the test of economic unity. In contrast, a concept of economic unity that depends 

on how parties allocate all control rights might provide a rationale for extending single entity 

status to the relationship. 

3.3 Nexuses of Control 

The advantage of a test of economic unity that depends only on residual control rights is that 

there is a unique and simple way to operationalize it: just sort out who owns the assets that the 

candidate single entity uses. Evidence that ownership is concentrated in the hands of a single 

party is consistent with single entity status. In contrast, operationalizing a concept of economic 

unity that depends on control rights may require more structure. Identifying assets and 

ownership of assets may not be enough, because the most important aspects of control might 

reside with control rights that non-owners secure, not with the residual control rights that asset 

ownership implies. Thus, one must also sort out the control rights that parties assume by 

“contract, custom, or law.” 

The point of this section is to suggest how the broader concept of control rights can 

operationalize “economic unity.” The suggestion is that control rights provide a simple way of 

identifying “nexuses of control,” one nexus for each of the assets parties engage in production 

wherein each nexus is composed of those parties who reserve control rights specific to that asset. 

In the first Governance Scenario, the marketer and generator might argue that they each bring 

important assets to their collaboration. At the very least, the generator contributes generating 

assets (generators). Assume, for the sake of argument, that the marketer contributes physical 
 

12

assets and intangible assets (e.g., “know-how” and “capabilities”) that collectively amount to 

“marketing services.” The generator maintains no control rights with respect to the assets that 

the marketer owns, in which case the nexus of parties that maintain all control rights with respect 

to the marketer’s assets is composed exclusively by the marketer. In contrast, the nexus of 

parties that maintains all control rights with respect to the generating assets is composed by the 

generator and marketer.14 (See Figure 2.1.) 

The appeal to nexuses of control lends itself to a surprisingly broad array of criteria against 

which to measure economic unity. I indicate a sequence of six benchmark criteria here ordered 

from strongest to weakest: 

Criterion 1 – All nexuses of control are identical15: More than one party may belong to 

different nexuses of control. Evidence that some party belongs to one nexus but not 

another indicates that not all nexuses are the same. In contrast, evidence that all nexuses 

are the same constitutes a criterion through which to suggest that the candidate single entity 

maintains a single, independent center of decision-making. 

Counter example: Two parties, A and B, contribute two assets to production. Party A 

constitutes the nexus of control with respect to one asset, and parties A and B constitute the 

nexus of control with respect to another asset. The second nexus encapsulates the first, but, 

nonetheless, the two nexuses are distinguishable. The candidate single entity fails the 

implied test of economic unity. (See Figure 2.1.) 

Criterion 2 – Encapsulated nexuses of control16: One can characterize all nexuses of control as 

a sequence of nexuses that encapsulate each other. In contrast, consider nexuses of control 

that may intersect but do not encapsulate each other. One might decide that nexuses of 

control not encapsulated by some other nexus of control constitute independent centers of 

decision-making. Thus, evidence that a candidate single entity features more than one nonencapsulated nexus of control frustrates appeal to single entity status. 

Example: This example satisfies the test of economic unity implied by Criterion 2 but fails 

the test implied by Criterion 1. Suppose three parties, A, B, and C, engage three assets in 

production. Party A constitutes a nexus of control with respect to one asset, parties A and 

B constitute a second nexus of control with respect to a second asset, and parties A, B, and 

C constitute a third nexus with respect to the third and last asset. These three nexuses of 

control constitute a sequence of nested nexuses in that the third nexus encapsulates the 

 

14 One should note that the nexus of the marketer and generator maintains control rights with respect to many, but 

not all, of the assets the two parties engage in production. Third parties, for example, may own the wires that 

transmit the generator’s electricity to the transmission grid and across the transmission grid. Accordingly, the nexus 

of parties that maintain control rights with respect to transmission assets excludes the generator and marketer. Thus, 

one can identify the boundaries between nexuses of control. There is the nexus composed of the marketer and 

generator, and there is the nexus of parties who maintain control rights over transmission assets. These two nexuses 

of control are mutually exclusive. 

15 In set-theoretic terms, the criterion amounts to indicating that the set of parties composed of the union of all 

nexuses of control is identical to the set of parties composed of the intersection of all nexuses. 16 The criterion amounts to indicating that the set of parties indicated by the intersection of any two nexuses of 

control is itself a nexus of control with respect to some asset. 
 

13

second which, in turn, encapsulates the first. (See Figure 2.2.) Note also that the 

governance structure featured in Figure 2.1 also satisfies Criterion 2. 

Criterion 3 – A unique nexus of control belongs to all other nexuses of control17: For each 

asset parties engage in production, one identifies the nexus of parties that maintain control 

rights with respect to that asset. Evidence that one nexus of control is encapsulated within 

all other nexuses of control constitutes a way of suggesting that control is concentrated in 

that one nexus and, in turn, that one can identify the single entity with the collection of 

assets over which that nexus maintains some control rights. 

Example: This example satisfies the test of economic unity implied by Criterion 3 but fails 

the tests implied by Criteria 1 and 2. Suppose, again, that three parties engage three assets 

in production. Party A constitutes one nexus, parties A and B constitute a second nexus, 

and parties A and C the third nexus. (See Figure 2.3.) The nexus composed of party A is 

belongs to all three nexuses of control. 

Criterion 4 – A unique cluster of parties belongs to all nexuses of control18: Evidence that 

one cluster of parties belongs to all nexuses of control constitutes a way of suggesting that 

control is concentrated in that cluster of parties and, in turn, that one can identify the single 

entity with the collection of assets over which that cluster of parties maintains some control 

rights. 

Example: This example satisfies the test of economic unity implied by Criterion 4 but fails 

the tests implied by Criteria 1, 2 and 3. Suppose that three parties engage two assets in 

production. Parties A and B constitute one nexus, and parties A and C constitute the 

second nexus. (See Figure 2.4.) Party A belongs to both nexuses of control. 

Criterion 5 – The agglomeration of intersecting nexuses of control: Suppose some nexuses of 

control overlap but do not encapsulate each other as in the second Governance Scenario. 

(In that scenario, the marketer was party to two different nexuses of control.) One could 

suggest that the union of all overlapping nexuses indicates the extent of economic unity 

and, in turn, indicates the boundaries of the single entity. 

Example: This example satisfies the test of economic unity implied by Criterion 5 but fails 

the tests implied by Criteria 1, 2 , 3 and 4. Suppose that three parties engage four assets in 

production. Parties A and B constitute one nexus, and parties A and C constitute a second 

nexus, and parties A and B each separately constitute the remaining two nexuses of control. 

(See Figure 2.5.) The agglomeration of all four intersecting nexuses encapsulates all three 

parties. 

Criterion 6 – The agglomeration of all nexuses of control: For each asset parties engage in 

production, one identifies the nexus of parties that maintain control rights with respect to 

that asset. One identifies the single entity with the agglomeration of all nexuses of control 

whether or not any of the nexuses intersect. 

 

17 There exists some nexus of control that is identical to the intersection of all nexuses. 

18 There exists at least one party that is encapsulated by the intersection of all nexuses. 
 

14

Example: This example satisfies the test of economic unity implied by Criterion 6 but fails 

the tests implied by Criteria 1, 2 , 3, 4 and 5. Suppose that three parties engage two assets 

in production. Parties A and B constitute one nexus, and party C constitute the second 

nexus. (See Figure 2.6.) The two nexus are entirely disjoint but satisfy the criterion. 

Criterion 1 indicates an intendedly strong test, whereas Criterion 6 constitutes an intendedly 

weak test. One may observe that Criterion 1 is “nested” within Criterion 2 in that any candidate 

single entity that satisfies Criterion 1 will also satisfy Criterion 2. That is, Criterion 1 constitutes 

a more demanding test of economic unity than Criterion 2. Similarly, Criterion 2 is nested 

within Criterion 3, Criterion 3 is nested within Criterion 4, and so on. If we define “>” as the 

relation “is more demanding than,” then one can order the six criteria as follows: 

Criterion 1 > Criterion 2 > Criterion 3 > Criterion 4 > Criterion 5 > Criterion 6 

Note that the governance structure featured in Governance Scenario 1 (a marketer and a 

generator) would fail the test of economic unity implied by Criterion 1 and would satisfy the 

tests of economic unity implied by Criteria 2, 3, 4, 5 and 6.19 In contrast, Scenario 2 (a marketer 

and two unaffiliated generators) would fail the tests of economic unity implied by Criteria 1 and 

2 and would satisfy the tests of economic unity implied by Criteria 3, 4, 5, and 6.20 Scenario 3 

(the hospital network) would fail the test of economic unity implied by Criteria 1, 2, and 3 and 

would satisfy the test of economic unity implied by Criteria 4, 5, and 6. Finally, Scenario 4 (the 

traditional corporate hierarchy) satisfies the test of economic unity implied by all six criteria. All 

control rights ultimately reside with the ultimate parent thus indicating that the only nexus of 

control consists exclusively of the ultimate parent. (See Figure 2.7.) 

3.4 Observations, caveats and extensions 

While the Governance Scenarios do not exhaust the range of governance structures one might 

consider, the results leave open questions about what action is left out that should not be left out 

and, no less importantly, what action is left out that should remain left out. I elaborate six points 

here: 

(1) All assets are treated symmetrically: The appeal to control rights alone does not 

distinguish between bottleneck assets and assets that feature lesser degrees of 

complementarity. Some assets may contribute little to the commercial potential of 

production whereas the exclusion of other assets might completely frustrate production. 

One might want to impose more structure on the analysis of economic unity by assigning 

greater weight to control rights that pertain to bottleneck assets and less weight to control 

 

19 If we assume that the marketer does not contribute any assets to production but only reserves control rights with 

respect to the generator’s assets, then the governance structure satisfies the test of economic unity implied by all six 

criteria. 

20 If we assume that the marketer does not contribute any assets to production but only reserves control rights with 

respect to the two generators’ assets, then the governance structure no longer satisfies the test of economic unity 

implied by Criterion 3. 
 

15

rights that pertain to less important assets. No uniquely obvious way to assign weights 

presents itself. 

(2) Weak property rights yield few control rights: “Ownership” confers residual control 

rights only to the extent that property rights can be defined and enforced. More generally, 

property rights yield control rights only to the extent that they can be defined and enforced. 

Property rights may be uncertain (Merges 2005, D.V. Williamson 2005, Arora and Merges 

2004, Majewski and Williamson 2004, Anand and Galetovic 2000), in which case they 

may confer few, if any, effective rights. Assets such as intellectual properties, for example, 

may be hard to define in the first place. A line in the sand may go far toward defining 

beachfront properties, but parties might not be able to distinguish fine lines between 

intellectual properties. The upshot is that parties might not be in much of a position to 

assign control rights much less to exclude others from using the asset. 

(3) All control rights are treated symmetrically: One can imagine enriching the framework 

by distinguishing the residual control rights that attend ownership from all other control 

rights. Again, no uniquely obvious way of weighing residual control rights presents itself, 

but one could, for example, go so far as to accord the bundle of residual control rights that 

attend ownership of an asset the status of an asset itself. This amounts to making each 

individual owner of an asset a nexus of control with respect to that asset. In Governance 

Scenario 1 (a marketer and a generator), treating the generator’s residual control rights as 

an asset would change the analysis. The governance structure would not no longer satisfy 

the test of economic unity implied by Criterion 2 and would fail the tests implied by 

Criteria 1, 2, 3 and 4. Similarly, the example of the hospital network featured in 

Governance Scenario 3 would no longer satisfy Criterion 4 and would fail the tests of 

economic unity implied by Criteria 1, 2, 3, and 4. 

(4) Control rights do not illuminate influence parties exert through board participation:

The appeal to control rights says nothing about influence parties may exert through their 

ability to appoint or withdraw board members or to control votes. That leaves open the 

question of how board participation informs analysis of “economic unity.” The case law 

has no definite answers to this question, but in Fraser (2002), the court suggested that 

parties’ board participation complicates the appeal to single entity status on the basis of 

economic unity, because parties “are not mere servants” of the candidate single entity (pg. 

57). 

(5) Profit-sharing does not inform “economic unity:” The appeal to control rights says 

nothing about profit-sharing or, the same thing, risk-sharing. The important point, 

however, is the converse – that profit-sharing does not inform economic unity. The 

licensee of a patent, for example, may generate profits by commercializing the patent, but 

that licensee may yet yield licensing fees to the patent holder. The licensing fees constitute 

a scheme by which the licensee and patent holder share profits. The fact that the parties 

commit to a schedule of licensing fees does not imply that the patent holder or licensor 

have secured control rights beyond those they already maintained. Rather, profit-sharing is 

integral to the effort to commercialize the patent. Similarly, the fixed monthly mortgage 

fees a homeowner pays to the bank can be understood as a profit-sharing scheme, but it 
 

16

would be hard to suggest that the scheme implies that the homeowner and bank constitute a 

single entity. The homeowner yields a stream of services from the asset (the dwelling), and 

the homeowner bears the risk that housing prices may go down. 

 As a matter of economic theory, profit-sharing schemes matter insofar as parties can use 

them to align each others’ incentives.21 But incentive alignment alone says nothing about 

control. Specifically, incentive alignment says nothing about how parties adapt plans to 

uncontracted-for contingencies. 

(6) Renegotiation illuminates the allocation of control rights: An easy way to determine 

how control rights are allocated among parties to a governance structure is to look for 

mechanisms that allow one party to impose renegotiation on another. We have already 

noted the role of veto provisions in enabling one party to hold-up another party and impose 

renegotiation. Veto provisions indicate that more than one party constitute the nexus of 

control with respect to a particular asset. A researcher seeking to inform a single entity 

inquiry should also look for exit provisions in the contracts, by-laws or other structures 

governing the workings of the candidate single entity. Provisions that enable some party to 

exit a relationship enable that same party to impose renegotiation over the terms of 

exchange between the parties in that relationship. Such provisions indicate that some party 

reserves control rights with respect to a particular asset. A naïve interpretation of exit 

provisions is that they constitute tripwires that automatically induce exit when those 

provisions get tripped. A more sophisticated interpretation is that exit provisions constitute 

options for some party to impose renegotiation by threatening to exit. (See Crocker and 

Masten 1988, 1991 on options and renegotiation processes.) 

4. A Two-stage Sequence of Single Entity tests 

The single entity case law proposes a number of single entity tests, some of which have proven 

to be more robust than others.22 Some of these candidate tests stumble around “control” and 

could be subsumed in a larger test of economic unity. Other tests focus on efficiencies and can 

be subsumed within a larger efficiencies test or “actual or potential competitors” test. I will take 

these up in turn, but first I want to put to rest a third “unity of interest” test upon which the case 

law has periodically stubbed its toe. 

Some of the case law seems to suggest that a defining feature of a single entity is a “unity of 

interest” between its constituent entities.23 The law has been shy about defining what constitutes 

a “unity of interest,” but, even if we take it at face value, we can identify at least three immediate 

problems with the test. First, both economics and some of the single entity case law recognize 

that conflict as well as mutual interests may characterize much of what goes on within single 

entities. In Chicago Professional Sports LP v. National Basketball Association (1996) 95 F.3d 

593, for example, Judge Easterbrook observes that “Even a single firm contains many competing 

 

21 See chapter 2 in Laffont and Martimort (2002). 

22 Various single entity tests are catalogued in Belsley (1996) and Kaiser (2004). 23 Copperweld (1984) at 769, Mt. Pleasant (1988) at 276, Iain Fraser et al. v. Major League Soccer, LLC et al.

(2002) 284 F.3d 47 at 58. 
 

17

interests... Copperweld does not hold that only conflict-free enterprises may be treated as single 

entities.” (pg. 598) Indeed, the prospect of conflict leads inexorably to the governance question 

that John R. Commons had posed: Can the parties craft a governance structure that allows them 

to manage or even neutralize conflict and, in turn, to realize mutual gain that conflict had 

jeopardized?24

Second, even members of cartels may perceive both the prospect of mutual gain and conflict. 

Thus, we stumble upon John R. Commons’s governance question again. Even cartel members 

may choose to design a governance structure that allows them to remedy conflict so that they 

may achieve mutual gains. The problem with cartels, of course, is that society’s losses (from 

higher prices, restricted output, underinvestment and whatnot) outweigh cartel members’ 

collective gains. 

The third problem with the appeal to a “unity of interest” is that the case law sometimes 

conflates it with tests pertaining to “actual or potential competition.” (See, for example, Mt. 

Pleasant at 276.) The upshot is that “unity of interest” tests are a distraction from the real action. 

I now turn to that action. 

4.1 Test 1: The “economic unity” test 

The case law offers a sequence of two tests. (See the decision tree featured in Figure 1.) The 

first test creates a safe harbor for commercial institutions that the authorities, including the 

antitrust authorities, have no business poking their noses into. The second test amounts to a de 

facto rule-of-reason analysis for institutions that might yet merit single entity status but which 

could also serve as cover for cartels. Courts have appealed to the second test when candidate 

single entities have failed the first test. 

The first test, an “economic unity” test, inquires whether or not parties are already effectively 

integrated within a single entity.25 This is effectively a test of how concentrated control rights 

are. Evidence that control rights are fragmented and distributed across constituent entities 

frustrates the appeal to single entity status. 

Pairing “economic unity” with “delegation” provides a way of operationalizing “control rights” 

that is consistent with the case law. A single party within a single entity may not actively 

manage mechanical affairs such as setting prices but rather may delegate management functions 

 

24 This is an old, robust and important idea in economics. Oliver Williamson has paraphrased John R. Commons 

many times on this count: “Commons ... recognized that economic organization is not merely a response to 

technological features – economies of scale; economies of scope; other physical and technical aspects – but often 

has the purpose of harmonizing relations between parties who are otherwise in actual or potential conflict 

(Commons, 1934, p. 6). The proposition that economic organization has the purpose of promoting the continuity of 

relationships by devising specialized governance structures, rather than permitting relationships to fracture under the 

hammer of unassisted market contracting, was thus an insight that could have been gleaned from Commons.” See 

Oliver E. Williamson, The Economic Institutions of Capitalism (1985), pg. 3 and John R. Commons, Institutional 

Economics (1989[1934]). 25 Copperweld (1984) at 770, Arleen Freeman et al. v. San Diego Association of Realtors (2003) 322 F.3d 1133 at 

1148, Jack Russell Terrier Network v. American Kennel Club (2005) 407 F.3d 1027 at 1034. 
 

18

to other parties. These other parties may in turn delegate functions to other units. In a traditional 

corporate hierarchy, the pattern of delegation will trace out a hierarchical tree. That tree will 

have three features: (1) Parties higher up the hierarchy may delegate functions to parties lower 

on the hierarchy; (2) Parties lower down will not delegate functions to parties higher up; (3) 

Parties lower down will not reserve control rights that the some party higher up could not 

abrogate. In contrast, one can distinguish unintegrated agglomerations of single entities by 

distinguishing patterns of delegation that deviate from a hierarchical tree structure. Specifically, 

unintegrated single entities may delegate no functions to each other. (They may be entirely 

independent.) Alternatively, they may delegate functions to each other or may share control of 

certain functions. They might, for example, each reserve vetoes over decisions to liquidate 

assets, to spin other parties off, or to be spun off. 

The law is disposed to identify “economic unity” with top-down, one-way, hierarchical control. 

The law accepts as single entities agglomerations that satisfy “economic unity,” and it may stop 

analysis of the single entity issue there rather than bother to proceed to other tests, but observe 

what is and is not going on. “Economic unity” says nothing about the welfare-enhancing, 

efficiency-generating features of such agglomerations. Rather the test provides a safe harbor 

against the courts marching in and abrogating established property rights and control rights. 

Even so, the law does not limit single entity status to agglomerations exhibiting purely top-down, 

hierarchical control. Rather, it may extend single entity status to agglomerations that feature less 

but enough “economic unity.” 

Both pre and post-Copperweld single entity case law features examples of single entity defenses 

that failed some version of “economic unity” tests. Single entity defenses failed such tests in 

Freeman (2003), New York v. Saint Francis Hospital, Vassar Brothers Hospital and MidHudson Health (2000) 94 F.Supp.2d 399, Robert M. Bogan v. Northwestern Mutual Life 

Insurance Company (1997) 953 F.Supp. 532, Malcolm Weiss v. York Hospital et al. (1984) 745 

F.2d 786, SMMS v. United States (1982) 1 Cl.Ct. 188 and National Society of Professional 

Engineers v. United States (1978) 435 U.S. 679. The court accepted a single entity defense on 

the basis of economic unity in Seagram and Sons v. Hawaiian Oke (1969) at 83. 

 

4.2 Test 2: The “actual or potential competitors” test 

The law does not indicate a fine line between enough and not enough “economic unity,” but it 

does appeal to a second test in instances in which the degree of “economic unity” remains in 

question. Consider, for example, how the law might view a patent licensing agreement. A 

patent holder and a licensee might each reserve certain control rights, thus deviating from a strict 

model of top-down, hierarchical control. They might even be members of distinct corporate 

families. Even so, the law might accept the relationship between the patent holder and licensee 

as a single entity for the purpose of analyzing competition in certain markets.26

 

26 “Certain markets” is an important qualification. The law might extend single entity status to parties collaborating 

in the production of goods or services sold in one market but might deny single entity status to the same parties were 

they actual or potential competitors in another market. 
 

19

There are many ways a licensing agreement may fail a strict “economic unity” test. A patent 

holder could not, for example, bar a licensee from liquidating its own assets. A patent license 

might include important exit provisions that might go some way toward channeling the 

disposition of parties’ assets in the event of liquidation, but it is not obvious that one party could 

compel the other to remain in business. Even so, for the purpose of commercializing a patent, a 

patent holder and licensee might institute a governance structure that features much “economic 

unity.” Specifically, a patent holder might delegate to a licensee all types of functions – 

functions that only the patent holder would be in a position to delegate. 

Courts have not, in general, explicitly distinguished exit provisions as important ways to identify 

how parties allocate control rights, but in Chicago Professional Sports Judge Easterbrook did 

observe in passing that “the 29 [NBA] clubs, unlike GM's plants, have the right to secede 

(wouldn't a plant manager relish that!), and rearrange into two or three leagues.” (Pg. 599) In yet 

other cases evidence of the absence of exit provisions enabled parties to satisfy an “economic 

unity” test. Lack of exit provisions indicates that one party (e.g., the “parent”) can compel 

another party (a “subsidiary”) to stay in business. In HealthAmerica the court accepted a 

particular hospital “Alliance” as a single entity, partly because the parent exclusively reserved 

the right to spin member hospitals off. This right was partly codified in the form of a veto 

provision.27

Control rights in the patent licensing example may not be entirely concentrated, but both pre and 

post-Copperweld single entity case law make allowances for extending single entity status to 

some hybrid arrangements. It does this by extending the analysis to a de facto rule-of-reason 

analysis. It inquires whether or not parties to the candidate single entity constitute “actual or 

potential competitors.” The point of the test is to distinguish whether or not the candidate single 

entity joins complementary assets, capabilities or other complementary inputs together.28 The 

alternative is that the parties constitute “actual or potential competitors,” in which case it 

becomes much less obvious that the candidate single entity is anything but a sham institution. 

Courts have appealed to complementarity to extend single entity status to hybrid arrangements 

like franchising (Don Williams v. I.B. Fischer Nevada [1993] 999 F.2d 445), patent licenses 

(Levi Case Company v. ATS Products [1992] 788 F.Supp. 428), exclusive contracts (Calculators 

Hawaii Inc. v. Brandt Inc.[1983] 724 F.2d 1332; Superior Models v. Tolkien Enterprises [1981] 

1981 WL 2103; Discon Inc. v. NYNEX Corp. [1996] 93 F.3d 1055), certification authorities 

(Jack Russell [2005]), and networks (Mt. Pleasant [1988], Broadcast Music Inc. v. Columbia 

Broadcasting System, Inc. [1979] 441 U.S. 1). As Lehn and Sykuta (1997) observe, courts have 

also extended single entity status on the basis of complementarity to the National Hockey League 

(San Francisco Seals, Ltd. v. National Hockey League et al. [1974] 379 F.Supp. 966) but not 

 

27 HealthAmerica 428: “An Affiliate must seek approval of Susquehanna Alliance before it acquires, purchases, 

sells, leases or otherwise transfers any property. Id. at 42. No Affiliate may incur any capital indebtedness unless 

expressly authorized by the Alliance. Id. at 43. Absent express authorization, [the constituent parties] NCPHS and 

PHS may not merge, consolidate, reorganize or enter into any joint venture, management or alliance agreement that 

would affect autonomy or governance with any entity not a party to the Alliance Agreement. Id. at 44. Under the 

Alliance Agreement, no party may terminate any program or service or initiate any program or service without the 

prior approval of the Chief Executive Officer or the Board of Directors of Susquehanna Alliance.” 

28 See, for example, Arizona v. Maricopa County Medical Society (1982) 457 U.S. 332 at 355-356, the various 

sports league rulings, and others. 
 

20

uniformly to the other leagues including the National Football League. In each case parties 

contributed complementary inputs, although courts were not always explicit about this. In 

franchising, for example, a franchiser contributes a valuable asset, the brand name. Franchisees 

contribute labor and other complementary inputs. 

The appeal to complementarity has enabled courts to fill in one potential pitfall. A court might 

observe that parties are not “actual competitors,” and it would be tempting to then accept a single 

entity defense. A problem is that parties could constitute a cartel of “potential competitors.” The 

potential for competition sets up the prospect of conflict, and that motivates a role for the 

governance of the cartel: to neutralize the prospect of cartel members actually competing with 

each other. Thus, absence of actual competition may merely mask the reality of competition that 

would obtain but for the horizontal restraints instituted in the governance of the cartel. A way to 

distinguish whether or not parties are potential competitors is to distinguish whether or not they 

contribute complementary inputs. 

The Freeman court is not explicit on complementarity, but it provides the best statement on this 

count and picks up on the governance question. The court observed “[I]n the absence of 

economic unity, the fact that firms are not actual competitors is also usually not enough, by 

itself, to render them a single entity. Absence of actual competition may simply be a 

manifestation of the anticompetitive agreement itself, as where firms conspire to divide the 

market. See Maricopa County Med. Soc'y, 457 U.S. at 344 n. 15, 102 S.Ct. 2466 (division of 

markets is per se illegal). Cases have required instead that the constituent entities be neither 

actual nor potential competitors, City of Mt. Pleasant, 838 F.2d at 276, cf. Williams, 794 F.Supp. 

at 1031” (Freeman at 1148-49). 

Single entity defenses have failed some version of an “actual or potential competitors” test in 

Freeman (realtor associations), Maricopa County (medical associations), Professional Engineers

(another professional association), and Citizen Publishing Company v. United States (1969) 394 

U.S. 131 (a joint operating agreement). 

 

5. Applying the single entity tests 

5.1 Sports leagues and network effects 

A casual survey of the single entity case law will reveal a preponderance of cases involving 

sports leagues. This is no accident. Sports leagues have coordinated much of the business of 

constituent teams. Coordination has often involved the imposition of restraints such as 

restrictions on the geographic assignment of teams or restrictions on the hiring of players and 

coaches. The fact that leagues do not obviously constitute single entities on the basis of 

economic unity has enabled parties seeking relief from restraints to press conspiracy claims 

under section 1 of the Sherman Act. Team owners have, for example, pressed antitrust claims in 

order to secure relief from restrictions on relocating teams (e.g. Seals [1974], Los Angeles 

Memorial Coliseum Commission v. National Football League et al. v. Oakland Raiders, Ltd.

[1984] 726 F.2d 1381). Even so, sports leagues have posed single entity defenses, and courts 

have, for the most part, seriously entertained such defenses not on the basis of economic unity 
 

21

but on the grounds that teams themselves constitute complementary inputs to the production of 

“games.”29 Courts have further entertained single entity defenses on the grounds that the entities 

representing the leagues (e.g., the NFL, NBA and NHL) have themselves contributed inputs that 

are complementary to the production of games (e.g., Fraser [2002] at 56, Chicago Professional 

Sports [1996] at 599, Los Angeles Memorial Coliseum [1984] at 1390, James McCoy Smith v. 

Pro Football Inc. and the National Football League [1979] 593 F.2d 1173 at 1195.). 

The appeal to complementarity has allowed courts to appeal to versions of the “actual or 

potential competitors” test of single entity status. Courts have recognized at least two types of 

complementarity that drive the economics of sports leagues. One can analogize one type of 

complementarity to demand-side “network effects,” and one can analogize the other type to 

supply-side “network effects” (Tirole 1991, pp. 404-408). The demand-side reflects the fact that 

the production of goods or services requires the input of more than one entity. Phone networks 

constitute an extreme example. Just as a phone network that includes only one phone is useless, 

so too a network that includes only one team is useless. Phones in a telephone network are 

complements when it comes to the “production” of telephone services insofar as users perceive 

greater value to having access to a larger, rather than smaller, network of other users. The music 

licensing arrangement examined in Broadcast Music (1979) constitutes a less extreme example. 

The Supreme Court suggested that parties to the licensing arrangement collectively contribute 

complementary “raw material” (songs) without which each party would be “inherently unable to 

compete fully effectively” (pp. 22-23). Similarly, teams can be understood as contributors of 

complementary inputs when it comes down to the “production” of games.30 Consumers perceive 

value to having at least two teams in a network and may perceive greater value to having more, if 

not unboundedly more, teams in the network. 

The appeal to demand-side network effects alone provides a rationale for suggesting that teams 

constitute complements rather than “actual or potential competitors,” but it does not provide a 

rationale for assembling them in governance structures called “leagues.” Not belonging to a 

league does not, of itself, preclude parties from independently organizing teams and producing 

“games” (Los Angeles Memorial Coliseum [1984] at 1390). Note, however, what the court in 

Chicago Professional Sports slips in to the analysis when it makes reference not to the 

production of generic “professional basketball games” but to the production of “‘NBA 

Basketball’ games” (pg. 599). The court is implying that the entity governing the league (the 

NBA) contributes complementary inputs to the production of games. Among other things, the 

league contributes its “NBA” brand to the marketing of games. Leagues also contribute to the 

production of league-branded games by imposing standards in rule-making and by organizing 

competition, including “playoff” competition, between member teams.31

 

29 Fraser (2002) is an exception in that the court also enumerated aspects of the governance of Major League Soccer 

that might enable it to secure single entity status on the basis of economic unity (Fraser pg 56). 30 See, for example, Fraser (2002) at 56, Chicago Professional Sports (1996) at 599, William H. Sullivan II v. 

National Football League (1994) 34 F.3d 1091 at 1102, Los Angeles Memorial Coliseum (1984) at 1390, North 

American Soccer League v. National Football League (1982) 459 U.S. 1074 at 1077 and (1980) 505 F. Supp. 659 at 

676 and 687, John Mackey et al. v. National Football League et al. (1976) 543 F.2d 606 at 619, and Seals (1974) at 

969-970. 

31 Note, for example, diseconomies that lack of standards and lack of organized “playoffs” may achieve in contexts 

such as professional boxing. A surprising array of entities govern professional boxing, but the four preeminent 
 

22

League-sanctioned standards and the promotion of league-sanctioned competition enable 

constituent teams to achieve economies analogous to supply-side network effects. These 

economies provide a rationale for forming a league and for suggesting that league governance is 

designed not to police a cartel of “actual or potential competitors” but to promote the 

commercialization of league-branded products. Supply-side network effects suggest a way of 

interpreting league-imposed restraints: the restraints are “vertical,” rather than “horizontal,” 

insofar as the league is contributing complementary inputs. Note, however, that NCAA v. Board 

of Regents (1984) 468 U.S. 85 confuses the role vertical restraints with horizontal restraints when 

it states “[W]hat is critical is that this case involves an industry in which horizontal restraints on 

competition are essential if the product is to be available at all” (pg. 101). If the inputs are 

“critical” (thus, complementary) in the production of the “product,” then the restraints are 

vertical, not horizontal, which is the same thing as saying that parties are contributing 

complementary inputs. 

While courts have suggested that sports leagues could secure single entity status on the basis of 

complementarity, they have sometimes rejected single entity defenses in contexts in which they 

have acknowledged that teams constitute complementary inputs. The key point is that courts 

have effectively judged teams to be “actual or potential competitors” in some markets if not in all 

markets. Complementarity might enable leagues to secure single entity status when it comes to 

the production of league-branded games, but courts have sometimes accepted market definitions 

under which teams could be understood as “actual or potential competitors.” Most notably 

single entity defenses have failed in contexts involving competition between teams in labor 

markets – that is, in markets for players and coaches (e.g., Smith 1979, Mackey 1976). The 

professional soccer league Major League Soccer has had some success thwarting challenges 

under Section 1 of the Sherman to teams’ hiring practices by explicitly organizing teams within a 

tightly structured “single entity.” In Fraser (2002), the district court dismissed plaintiffs’ 

Section 1 challenge on summary judgment by effectively accepting the single entity status of the 

league on the basis of economic unity (Fraser [2002] at 55). Since economic unity trumps 

considerations of complementarity, the court did not bother proceed to the second-stage test of 

“actual or potential competitors.” 

The structure of Major League Soccer would arguably satisfy Criteria 1 through 6 for economic 

unity. The league owns the teams in the league, delegates management to the parties who 

formed the league, and reserves all control rights. Even so, the court of appeals in Fraser was 

reluctant to extend single entity status to the league given the fact that the parties who formed the 

league operated much like team owners but also participated in the governance of the league. 

The court suggest that “the analogy to a single entity is weakened, and the resemblance to a 

collaborative venture strengthened, by the fact that the operator/investors are not mere servants 

of [Major League Soccer]; effectively, they control it, having the majority of votes on the 

managing board” (pg. 57). What the Fraser court declined to do, however, was suggest how 

board participation informs “control.” Interestingly, however, the court effectively implied that 

board participation diminishes rather than strengthens the appeal to single entity status on the 

basis of economic unity. 

 entities seem to be the World Boxing Association, the International Boxing Federation, the World Boxing Council, 

and the World Boxing Organization. 
 

23

5.2 Exclusive service contracts 

The court of appeals in Tafford E. Oltz v. St. Peter’s Community Hospital (1988) 861 F.2d 1440 

implied that anesthesia services complemented surgeries conducted at the hospital32 but then 

turned around and implied that anesthesia did not complement surgeries. The court then 

proceeded to reject the single entity defense that St. Peter’s and a group of anesthesiologists 

advanced. The courts reasoning seemed to contemplate a market defined as “stand-alone 

anesthesia services”33 as opposed to, say, “anesthesia services provided in support surgeries 

conducted in hospital operating rooms.” Note that the court’s market would include “morphine 

sold and administered on street corners” – which is to say that the court’s market definition 

precludes consideration of the prospect that anesthesia services complement surgeries. 

St. Peter’s had a contract with Tafford Oltz for anesthesia services. The contract would renew 

each month until either party opted to exit the relationship. The hospital also contracted with a 

number of MD anesthesiologists. St. Peter’s changed its contracting by soliciting an exclusive 

contract for anesthesia services. Three of the four MD anesthesiologists who worked at St 

Peter’s formed a group and secured the exclusive contract. St. Peter’s proceeded to exercise its 

right to terminate the contract with Oltz. 

Oltz sued, claiming that the hospital and MD anesthesiologists group conspired in a manner 

actionable under Section 1 of the Sherman Act. The hospital trotted out a single entity defense. 

The court rejected the defense on the grounds that the anesthesiologists’ group and the hospital 

were not effectively integrated, and the court proceeded to rule in favor of Oltz. 

The court effectively applied the test of economic unity to the exclusive contract and proceeded 

to reject the single entity defense, The court neglected to apply the “actual or potential 

competitors test” that might have allowed it to accept single entity status on the basis of 

complementarity. The important point is that the court accepted a market definition that 

precluded consideration of complementarity. In turn, it effectively judged that the 

anesthesiologists themselves constituted “actual or potential competitors” and that the exclusive 

contract constituted a horizontal restraint on the provision of anesthesia services. 

Arguably, the exclusive contract between the anesthesiology group and the hospital fails Criteria 

1, 2, 3, 4, and 5 and only satisfies Criterion 6. The anesthesiologists contribute important assets 

such as anesthesiology “know how” and credentials to the production of surgeries supported by 

anesthesia services. The hospital contributes intangible assets such as surgical “know how” as 

well as physical assets such as operating facilities. It is not obvious that either party reserves 

control rights with respect to the assets owned by the other party. Thus, the contractual 

arrangement appears to join to distinct nexuses of control. The fact that these two nexuses are 

 

32 “St. Peter's enjoyed the overwhelming majority of the market for general surgery [in Helena, Montana]. As a 

result, an anesthesia service provider desiring to serve that market had to work at St. Peter's” (pp. 1446-1447). That 

is, demand for anesthesia services derives from demand for surgeries. Anesthesia services complement surgeries! 33 “[The court] conclude[s] that anesthesia services and the Helena [Montana] area framed the appropriate product 

and geographic components of a relevant market in which the jury could assess injury to competition” (pg. 1447). 
 

24

distinct provides a rationale for suggesting that they each represent independent centers of 

decision-making. Were one to then reject single entity status on the basis of economic unity, one 

could proceed to the “actual or potential competitors” test, which constitutes a de facto rule-ofreason analysis of the harm and efficiencies (if any) the exclusive contract induces. The court 

itself proceeded to a de jure rule-of-reason analysis under which it accepted a particular market 

definition. The market definition lent itself to a characterization of harm to competition but not 

to a characterization of efficiencies that might outweigh the perceived harm. 

I suggest that the market definition the court used, “anesthesia services” in Helena Montana, is 

problematic and should have been replaced with a definition such as “anesthesia performed in 

support of surgeries conducted in Helena Montana.” The alternative market definition lends 

itself to a finding that the hospital and anesthesiologists contribute complementary inputs. While 

the court might yet have declined to accept the parties single entity defense, the court would have 

had to amend its characterization of harm and efficiencies and would have provided itself a 

rationale for overturning the district court’s orders. 

5.3 Licensing contracts 

Intellectual properties, such as patents and trademarks, constitute good examples of bottleneck 

assets in that anyone seeking to commercialize a patent or a trademark must either own the asset 

or secure a license to deploy the asset. Bottleneck status, however, does not imply value. 

Anyone could register the trademark “Victoria” (indicating the Roman goddess of victory), 

license the trademark to a shoe manufacturer and sell athletic shoes in competition with brands 

like Nike (named after the Greek goddess of victory). Without investing heavily in the 

marketing of the Victoria brand, it is not obvious that any Victoria-brand shoes would be sold or 

even that any manufacturer would seek a license to produce them. Valuable or not, the case law 

provides a basis for suggesting that the combination of a trademark owner and a manufacturer in 

a licensing agreements could secure the status of a single entity. The parties might not secure 

single entity status on the basis of economic unity. Indeed, if both parties are contributing assets 

to the production of Victoria-brand shoes, then it is not obvious that the licensing agreement 

would not fail at least five of the six benchmark criteria for economic unity. Even so, the parties 

might secure single entity status for the narrow purpose of analyzing competition in markets for 

athletic shoes on the basis of complementarity. Similarly, patents may or may not be valuable, 

but a patent holder and licensee could conceivably secure single entity status on the basis of 

complementarity. 

The court has accepted single entity status of parties joined in an exclusive patent license in Levi 

Case Company (1992). The court observed that the licensee did not maintain “independent 

decisionmaking authority regarding the exploitation of the patent” (pg. 432). This is an oblique 

way of indicating that the patent holder already maintained a monopoly over a bottleneck input 

(rights-of-way) to the commercialization of the patent. The licensee reserved no control rights 

with respect to the patent but rights-of-way constituted a complement to the licensee’s inputs 

(manufacturing capabilities). 
 

25

While a single entity defense might neutralize challenges to exclusive contracting mounted under 

Section 1 of the Sherman Act, one can imagine finessing the single entity defense by mounting a 

“monopolization” challenge under Section 2. Alternatively, one might challenge a single entity 

defense directly by suggesting that while the parties to the licensing agreement might be 

contributing inputs that are complementary to the commercialization of the patent, the licensing 

agreement were designed to insulate the bottleneck from competition from, say, the licensee 

itself. The licensee may, for example, have been developing substitute technologies, in which 

case one might deem the licensee and the patent holder as “actual or potential competitors” not in 

manufacturing but in an upstream technology market. 

6. Conclusion 

Since at least the 1930’s, economists have puzzled over how to delineate the boundaries of the 

firm, and, indeed, “the boundaries of the firm” remains an active topic of research to this day. 

Since the advent of antitrust legislation, courts have been pressed to consider what should 

constitute “conspiracies.” Courts have sometimes characterized conspiracies by negation – by 

sorting out what they are not – specifically, by extending the status of “single entity” to certain 

types of business arrangements that join otherwise independent corporate entities. 

Both efforts in economics to sort out what constitutes a “firm” and efforts in the law to sort out 

what constitutes a “single entity” have focused on “control.” A difficulty is that neither the law 

nor economics – nor any other field – offer a concept of control that can enable analysis. Just 

posing hierarchical relationships, for example, between “bosses” and “employees” or between 

“parent companies” and “subsidiaries” offers little guidance. There is nothing about the 

relationship per se that suggests that one party can induce some other party to undertake some 

type of costly activity. Thus “control” has remained nothing more than an intuitively appealing 

idea. It has never been an operationally significant idea. 

Fortunately, more recent developments in both economics and the single entity case law provide 

provide concepts other than control that provide ways of understanding economic organization. 

Economics provides concepts such as adaptation and control rights that together motivate why 

control matters at all. The appeal to control rights also provides a way of understanding how 

ownership and control are related. At the same time, the law contributes a concept of delegation 

that allows one to distinguish day-to-day management from control. Finally, problems of 

economic adaptation suggest a role for renegotiation in the governance of economic relations. 

Renegotiation itself provides ways of distinguishing how parties allocate control rights in 

organizations. Knowing how parties allocate control rights can help analysts evaluate single 

entity defenses. 

These four concepts – adaptation, control rights, delegation, and renegotiation – provide a way of 

operationalizing benchmarks against which to measure the degree to which parties exhibit 

economic unity in organizations. Economic unity constitutes the basis for an array of single 

entity tests proposed in the case law. But the law goes further. It sometimes finesses the fullblown analysis of harm and efficiencies that a rule-of-reason analysis would demand by 
 

26

extending single entity status to parties that contribute complementary assets, complementary 

capabilities or other complementary inputs to the production of selected goods and services. 
 

27

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30

Figure 1 

A Two-stage Sequence of Single Entity tests

When would the court accept or reject a single entity defense? 

 

The first test sorts out whether or not control rights within the candidate single entity are 

concentrated. Evidence that control rights are concentrated allows the court to accept the single 

entity defense. Evidence that control rights are fragmented (not concentrated) advances 

decision-making to a second test. The second test sorts out whether not parties to the candidate 

single entity contribute complementary inputs. If they contribute complementary inputs, the 

court will be disposed to accept the single entity defense. Absence of complementarity leaves 

the court with the conclusion that the parties are “actual or potential competitors,” and the court 

will reject the single entity defense. 

The candidate single entity satisfies 

the test of economic unity? 

The parties contribute 

complementary inputs? 

Yes No 

Yes No 

ACCEPT 

ACCEPT REJECT 
 

31

Figure 2.1 

Circled items constitute nexuses of control. 

Thus, party A constitutes one nexus and 

parties A and B together constitute a second 

nexus. One nexus encapsulates the other. 

Figure 2.2 

A sequence of three nested nexuses 

Figure 2.3 

One nexus is common to all nexuses. 

Figure 2.4 

Party A is common to all nexuses. 

Figure 2.5 

Figure 2.6 

Two disjoint nexuses 

Figure 2.7 

A Traditional Corporate Hierarchy 

A 

A 

B 

A 

B1 B2

C1 C2

A A

B C

A

B C

A

B C

B C 

B C 
 

32

Cited Cases 

United States v. GENERAL MOTORS Corporation et al. (1941) 121 F.2d 376 

United States v. YELLOW CAB Co. et al. (1947) 332 U.S. 218 

KIEFER-STEWART Co. v. Joseph E. Seagram and Sons (1951) 340 US 211 

TIMKEN ROLLER BEARING v. United States (1951) 341 U.S. 593 

CITIZEN PUBLISHING COMPANY v. United States (1969) 394 U.S. 131 

Joseph E. SEAGRAM AND SONS et al. v. Hawaiian Oke and Liquors (1969) 416 F.2d 71 

San Francisco SEALS, Ltd. v. National Hockey League et al. (1974) 379 F.Supp. 966 

John MACKEY et al. v. National Football League et al. (1976) 543 F.2d 606 

Douglas K. KNUTSON et al. v. The Daily Review Inc. (1977) 548 F.2d 795 

National Society of PROFESSIONAL ENGINEERS v. United States (1978) 435 U.S. 679 

BROADCAST MUSIC, Inc. v. Columbia Broadcasting System, Inc. (1979) 441 U.S. 1 

MURPHY TUGBOAT Company v. Shipowners & Merchants Towboat (1979) 467 F.Supp. 841 

James McCoy SMITH v. Pro Football Inc. and the National Football League (1979) 593 F.2d 1173 

NORTH AMERICAN SOCCER LEAGUE et al. v. National Football League et al. (1980) 505 F. Supp. 659, 459 

U.S. 1074 

James M. THOMSEN et al. v. Western Electric Co. et al. (1981) 512 F.Supp. 128 

SUPERIOR MODELS Inc. v, Tolkien Enterprises, et al. (1981) 1981 WL 2103 (D.Del.)

Arizona v. MARICOPA COUNTY Medical Society (1982) 457 U.S. 332

SMMS v. United States (1982) 1 Cl.Ct. 188

CALCULATORS HAWAII Inc. v. Brandt Inc. et al. (1983) 724 F.2d 1332 

LOS ANGELES MEMORIAL COLISEUM Commission v. National Football League et al. 

v. Oakland Raiders, Ltd. (1984)

726 F.2d 1381 

COPPERWELD Corporation v. Independence Tube Corporation (1984) 467 U.S. 752 

NCAA v. Board of Regents (1984) 468 U.S. 85 

Malcolm WEISS v. York Hospital et al. (1984) 745 F.2d 786 

City of Mt. PLEASANT, Iowa v. Associated Electric Cooperative (1988) 838 F.2d 268 

Tafford E. OLTZ v. St. Peter’s Community Hospital (1988) 861 F.2d 1440 

LEVI CASE COMPANY v. ATS Products (1992) 788 F.Supp. 428 

Don WILLIAMS v. I.B. Fischer Nevada (1993) 999 F.2d 445 

William H. SULLIVAN II v. National Football League (1994) 34 F.3d 1091 

CHICAGO PROFESSIONAL SPORTS LP v. National Basketball Association (1996) 95 F.3d 593

DISCON, Inc. v. NYNEX Corp. (1996) 93 F.3d 1055 

Robert M. BOGAN v. Northwestern Mutual Life Insurance Company (1997) 953 F.Supp. 532

New York v. SAINT FRANCIS HOSPITAL, Vassar Brothers Hospital and Mid-Hudson 

Health (2000)

94 F.Supp.2d 399

Iain FRASER et al. v. Major League Soccer, LLC et al. (2002) 284 F.3d 47

Arleen FREEMAN et al. v. San Diego Association of Realtors (2003) 322 F.3d 1133

HEALTHAMERICA Pennsylvania Inc. et al. v. Susquehanna Health System et al. (2003) 278 F.Supp.2d 423 

Fouad N. DAGHER et al. v. SRI et al. (2004) 369 F.3d 1108 

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