Opinion ID: 2583
Heading Depth: 2
Heading Rank: 2

Heading: Modes of Analysis Under the Sherman Act

Text: By its terms, § 1 of the Sherman Act prohibits [e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States. 15 U.S.C. § 1. The Supreme Court has not taken a literal approach to this language, however, but instead has long recognized that Congress intended to outlaw only unreasonable restraints. Texaco Inc. v. Dagher, 547 U.S. 1, 5, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006) ( Dagher ) (internal quotation marks omitted) (emphasis in Dagher ). Thus, th[e] Court presumptively applies rule of reason analysis, under which antitrust plaintiffs must demonstrate that a particular contract or combination is in fact unreasonable and anticompetitive before it will be found unlawful. Id. There are, however, certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958); see, e.g., State Oil Co. v. Khan, 522 U.S. 3, 10, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997) (Some types of restraints ... have such predictable and pernicious anticompetitive effect, and such limited potential for procompetitive benefit, that they are deemed unlawful per se. ). Among the practices that have been held to be per se illegal are geographic division of markets, see, e.g., United States v. Topco Associates, Inc., 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972), and horizontal price fixing, see, e.g., Arizona v. Maricopa County Medical Society, 457 U.S. 332, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982) ( Maricopa County Medical Society ); see also Leegin Creative Leather Products, Inc. v. PSKS, Inc., ___ U.S. ___, 127 S.Ct. 2705, 2717-18, 2725, 168 L.Ed.2d 623 (2007) (vertical agreements setting minimum resale prices are to be analyzed under the rule of reason), overruling Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911). Such  [p]er se treatment is appropriate `[o]nce experience with a particular kind of restraint enables the Court to predict with confidence that the rule of reason will condemn it.' State Oil Co., 522 U.S. at 10, 118 S.Ct. 275 (quoting Maricopa County Medical Society, 457 U.S. at 344, 102 S.Ct. 2466). Per se treatment is not appropriate, however, where the economic and competitive effects of the challenged practice are unclear. To justify a per se prohibition a restraint must have manifestly anticompetitive effects, ... and lack ... any redeeming virtue.... Leegin Creative Leather Products, Inc., 127 S.Ct. at 2713 (internal quotation marks omitted). Accordingly, the Supreme Court has repeatedly `expressed reluctance to adopt per se rules ... where the economic impact of certain practices is not immediately obvious.' Dagher, 547 U.S. at 5, 126 S.Ct. 1276 (quoting State Oil Co., 522 U.S. at 10, 118 S.Ct. 275 (quoting FTC v. Indiana Federation of Dentists, 476 U.S. 447, 458-59, 106 S.Ct. 2009, 90 L.Ed.2d 445 (1986) ( Indiana Federation of Dentists ))). [A] departure from the rule-of-reason standard must be based upon demonstrable economic effect rather than... upon formalistic line drawing. Leegin Creative Leather Products, Inc., 127 S.Ct. at 2713 (internal quotation marks omitted) (emphasis added). Thus,  [p]er se liability is reserved for only those agreements that are `so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality.' Dagher, 547 U.S. at 5, 126 S.Ct. 1276 (quoting National Society of Professional Engineers v. United States, 435 U.S. 679, 692, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978)); see, e.g., Broadcast Music, 441 U.S. at 9, 99 S.Ct. 1551 ([i]t is only after considerable experience with certain business relationships that courts classify them as per se violations (internal quotation marks omitted)). [C]ombinations [ ] such as ... joint ventures... hold the promise of increasing a firm's efficiency and enabling it to compete more effectively. Accordingly, such combinations are judged under a rule of reason, an inquiry into market power and market structure designed to assess the combination's actual effect. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984). Under rule-of-reason analysis, as described originally in Chicago Board of Trade v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918), and reiterated by the Supreme Court many times since, see, e.g., Maricopa County Medical Society, 457 U.S. at 343 n. 13, 102 S.Ct. 2466, [t]he true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences. Chicago Board of Trade, 246 U.S. at 238, 38 S.Ct. 242. Thus, [a]s its name suggests, the rule of reason requires the factfinder to decide whether under all the circumstances of the case the restrictive practice imposes an unreasonable restraint on competition, Maricopa County Medical Society, 457 U.S. at 343, 102 S.Ct. 2466, i.e., whether the challenged agreement is one that promotes competition or one that suppresses competition, National Society of Professional Engineers, 435 U.S. at 691, 98 S.Ct. 1355; see, e.g., Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977) (Under this rule, the factfinder weighs all of the circumstances of a case....). Under the rule of reason, the plaintiffs bear an initial burden to demonstrate the defendants' challenged behavior had an actual adverse effect on competition as a whole in the relevant market.... Because the antitrust laws protect competition as a whole, evidence that plaintiffs have been harmed as individual competitors will not suffice.... If the plaintiffs satisfy their initial burden, the burden shifts to the defendants to offer evidence of the pro-competitive effects of their agreement.... Assuming defendants can provide such proof, the burden shifts back to the plaintiffs to prove that any legitimate competitive benefits offered by defendants could have been achieved through less restrictive means.... Ultimately, the factfinder must engage in a careful weighing of the competitive effects of the agreement  both pro and con  to determine if the effects of the challenged restraint tend to promote or destroy competition. Geneva Pharmaceuticals Technology Corp. v. Barr Laboratories Inc., 386 F.3d 485, 506-07 (2d Cir.2004) (internal quotation marks omitted) (emphasis in original). In a few cases, the Supreme Court has ruled that the challenged practice should neither be held a per se violation of the Sherman Act nor be subjected to full-blown rule-of-reason analysis, but rather should be held illegal on the basis of an abbreviated or `quick-look' [rule-of-reason] analysis because the great likelihood of anticompetitive effects can easily be ascertained. California Dental Ass'n v. FTC, 526 U.S. 756, 770, 119 S.Ct. 1604, 143 L.Ed.2d 935 (1999) ( California Dental ). Thus, in National Society of Professional Engineers, the Court, faced with the society's absolute ban on competitive bidding, ruled that no elaborate industry analysis [wa]s required to demonstrate the anticompetitive character of such an agreement. 435 U.S. at 692, 98 S.Ct. 1355. The Court reached the same conclusion with respect to a plan that expressly limited the number of college football games that could be televised and fixed a minimum price for those games, see National Collegiate Athletic Ass'n v. Board of Regents of the University of Oklahoma, 468 U.S. 85, 109-10, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984) ( NCAA ), and with respect to a horizontal agreement among dentists to withhold from their customers a particular service that they desire[d], Indiana Federation of Dentists, 476 U.S. at 459, 106 S.Ct. 2009. The California Dental Court noted that [i]n each of these cases, which have formed the basis for what has come to be called abbreviated or quick-look analysis under the rule of reason, an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets. California Dental, 526 U.S. at 770, 119 S.Ct. 1604. The Court has applied quick-look analysis only to business activities that are so plainly anticompetitive that courts need undertake only a cursory examination before imposing antitrust liability. Dagher, 547 U.S. at 7 n. 3, 126 S.Ct. 1276. The fact that a practice may have a tangential relationship to the price of the commodity in question does not mean that a court should dispense with a full rule-of-reason analysis. In California Dental itself, the Court considered an association rule that required member dentists to make certain disclosures in any advertising of discount prices, and it found that quick-look analysis was inappropriate. While accepting the propositions that price advertising is fundamental to price competition and that [r]estrictions on the ability to advertise prices normally make it more difficult for consumers to find a lower price and for dentists to compete on the basis of price, 526 U.S. at 773, 119 S.Ct. 1604 (internal quotation marks omitted), the Court found that any anticompetitive effects of [these] restraints are far from intuitively obvious, and, therefore, the rule of reason demands a more thorough enquiry into the consequences of those restraints, id. at 759, 119 S.Ct. 1604. If an arrangement might plausibly be thought to have a net procompetitive effect, or possibly no effect at all on competition, more than a quick look is required. Id. at 771, 119 S.Ct. 1604.