Opinion ID: 743124
Heading Depth: 2
Heading Rank: 2

Heading: Unilateral v. Concerted Activity

Text: 29 We hold that a contract between a buyer and seller satisfies the concerted action element of section 1 of the Sherman Act where the seller coerces a buyer's acquiescence in a tying arrangement imposed by the seller. 2 The essence of section 1's contract, combination, or conspiracy requirement in the tying context is the agreement, however reluctant, of a buyer to purchase from a seller a tied product or service along with a tying product or service. To hold otherwise would be to read the words contract and combination out of section 1. 30 A § 1 agreement may be found when the conspirators had a unity of purpose or a common design and understanding, or a meeting of the minds in an unlawful agreement. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771, 104 S.Ct. 2731, 2742, 81 L.Ed.2d 628 (1984) (quotation omitted). Although a buyer is unlikely to desire a provision restricting its ability to purchase a product from other suppliers, a buyer might agree to such a term where the other provisions of the contract serve the buyer's interests. Even though a seller and a buyer may not share the same motive for entering into the anticompetitive agreement, the concerted action requirement is satisfied when their minds meet in an unlawful tying agreement. See Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 215 (3d Cir.1992) (holding that a conspiracy in violation of section 1 does not require the sharing of an identical anticompetitive motive, but requires only a shared commitment to a common scheme that has an anticompetitive objective). To say that the buyer, having agreed to the contract, did not agree to an express term because the buyer would have preferred a contract without the term makes little sense. As the Supreme Court noted in Perma Life Mufflers and reaffirmed in Copperweld, a plaintiff can clearly charge a combination between [the defendant] and himself, as of the day he unwillingly complied with the restrictive ... agreement[ ]. Perma Life Mufflers, Inc., 392 U.S. at 142, 88 S.Ct. at 1986; see Copperweld Corp., 467 U.S. at 766, 104 S.Ct. at 2739 (citing Perma Life Mufflers, 392 U.S. at 141-42, 88 S.Ct. at 1985-86). 31 From a buyer's perspective, tying most frequently constitutes a reluctant combination and not an eager conspiracy. This fact does not diminish the adherence of our holding to the core purposes of the concerted action requirement of section 1. The Sherman Act subjects concerted activity to particular scrutiny because of the inherent anticompetitive risk that such activity will eliminate independent centers of decisionmaking that competition assumes and demands. Copperweld Corp., 467 U.S. at 769, 104 S.Ct. at 2740. Concerted action by two entities which previously pursued their own interests separately ... reduces the diverse directions in which economic power is aimed [and, therefore,] increases the economic power moving in one particular direction. Id. As with other concerted activity, tying agreements between buyer and seller deprive the market of independent centers of decisionmaking by forcing a buyer in need of the tying product to purchase the tied product from the same seller. Id. The concerted action requirement exists to prevent exactly such deprivation. 32 In holding as we do, we reject Wang's argument that in imposing a tying arrangement, a producer merely acts independently to establish a unilateral term of sale. Wang misapprehends the proper distinction between independent activity by a single entity in the form of a mere refusal to deal and concerted effort by more than one entity to ... restrain trade in the form of a tying arrangement. Fisher v. City of Berkeley, California, 475 U.S. 260, 266, 106 S.Ct. 1045, 1049, 89 L.Ed.2d 206 (1986) (citing Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 763, 104 S.Ct. 1464, 1470, 79 L.Ed.2d 775 (1984)). 33 A producer who exercises his ... discretion as to parties with whom he will deal does not act concertedly when he ... announce[s] in advance the circumstances under which he will refuse to sell. Colgate, 250 U.S. at 307, 39 S.Ct. at 468. Thus, a producer may lawfully refuse to sell products to customers who fail to sell the products at or above a minimum price. Colgate, 250 U.S. at 303, 307, 39 S.Ct. at 466-67, 468. A producer goes beyond Colgate 's limited dispensation, Times-Picayune Pub. Co., 345 U.S. at 626, 73 S.Ct. at 890, and acts concertedly when the producer requires, as a condition of sale, a buyer's agreement to sell the goods that are the subject matter of the contract at or above a minimum price. See, e.g., United States v. Bausch & Lomb Optical Co., 321 U.S. 707, 719-20, 64 S.Ct. 805, 811-12, 88 L.Ed. 1024 (1944) (The retail license provisions binding dealers to sell at locally prevailing prices and only to the public constitute illegal restraints.). 34 A unilateral refusal to deal preserves a buyer's individual free choice to sell at any price goods already purchased. Thus, the buyer is free to independently balance the possible inability to obtain a desired product in the future against the competitive disadvantage of sale at or above the manufacturer's suggested price. When a producer requires goods to be resold at a minimum price as a condition of sale, however, a buyer's decision to sell the goods at the producer's suggested price is not a matter of independent competitive judgment. See Parke, Davis & Co., 362 U.S. at 47, 80 S.Ct. at 513-14. Rather, the buyer's pricing decision is constrained by the terms imposed by the manufacturer as a condition of sale. The product ... comes packaged in a competition-free wrapping ... by virtue of concerted action induced by the manufacturer. Id. 35 By their very nature, tying arrangements also limit the power of a buyer to pursue its individual self-interest. The buyer can no longer make its purchase decision based upon the relative merits of the tied product, but is coerced into purchasing the tied product from the producer because of the producer's market power in the tying product. As with unlawful resale price maintenance, a tying arrangement packages the tied product in a competition-free wrapping by virtue of the buyer's agreement to the seller's terms. That agreement satisfies the concerted action requirement of section 1. 36 Finally, we reject Wang's argument that today's holding deals more harshly with non-price conduct than with price fixing. In particular, Wang contends that our holding creates a lower standard of proof of concerted action for plaintiffs alleging an unlawful tying agreement than for plaintiffs alleging unlawful resale price maintenance. Contrary to Wang's argument, the requirements for proof of concerted action in a tying case are consistent with those applied in cases involving other unreasonable restraints of trade. 37 In Monsanto, the plaintiff sought to establish concerted action by offering proof that the manufacturer terminated the plaintiff's distributorship following complaints from rival distributors that plaintiff refused to adhere to the manufacturer's suggested prices. Monsanto, 465 U.S. at 757, 104 S.Ct. at 1467. Although such evidence is probative of the existence of concerted action, id. at 765, 104 S.Ct. at 1471, the Court required the plaintiff to introduce evidence that tends to exclude the possibility that the manufacturer and nonterminated distributors were acting independently in order to establish concerted retail price fixing. Id. at 764, 104 S.Ct. at 1471. The Court added this requirement because the Court found it difficult to distinguish between lawful unilateral and unlawful concerted conduct where each has the same economic effect: 38 For example, the fact that a manufacturer and its distributors are in constant communication about prices and marketing strategy does not alone show that the distributors are not making independent pricing decisions. A manufacturer and its distributors have legitimate reasons to exchange information about the prices and the reception of their products in the market.... Thus, the manufacturer's strongly felt concern about resale prices does not necessarily mean that it has done more than the Colgate doctrine allows. 39 Id. at 762-63, 104 S.Ct. at 1470. 40 Such evidentiary ambiguity is generally absent in the tying context. The sale of a tied product pursuant to a tying arrangement fully implements the restraint of trade at the time of the sale. Evidence that the buyer acquiesces in a tying arrangement will unequivocally exclude the possibility that the manufacturer and [buyers] were acting independently. 3 Id. at 764, 104 S.Ct. at 1471. A seller that imposes a tying arrangement on the purchasers of its product takes affirmative action to avoid competition in sales of the tied product by inducing, indeed forcing, its customers to accept the tying arrangement, thereby accomplishing a restraint of trade contemporaneously with the sale. Therefore, we do not construe Monsanto as a retreat from those cases holding that a combination occurs between a seller and buyers 'whose acquiescence in [the seller's] firmly enforced restraints was induced by the communicated danger of termination.'  Black Gold II, 732 F.2d at 780 (quoting Perma Life Mufflers, 392 U.S. at 142, 88 S.Ct. at 1986) (alteration in original, quotations omitted). 41 We originally announced the rule we adopt today in Black Gold I and Black Gold II, and its validity clearly survived both Copperweld and Monsanto. Further, both the Seventh and Ninth Circuits have held expressly that the coerced sales contract for the tied item satisfies the contract, combination, or conspiracy requirement of section 1. Datagate, Inc. v. Hewlett-Packard Co., 60 F.3d 1421, 1426-27 (9th Cir.1995) (A showing that the buyer of the tied product was coerced by the tying arrangement into making the purchase is sufficient to show that the buyer was not merely 'acting independently.' ); Will v. Comprehensive Accounting Corp., 776 F.2d 665 (7th Cir.1985) (holding that a contract between a franchisor and a franchisee that ties data processing to franchise rights satisfies the concerted action requirement). Today's decision is therefore in harmony with both the law of the Supreme Court and our sister circuits.