Opinion ID: 1218786
Heading Depth: 2
Heading Rank: 2

Heading: Per se Analysis

Text: Plaintiffs argue that the agreements between the Network providers to not refer laboratory and radiology services to plaintiffs constitute a group boycott (a refusal to deal) and on their face are a per se violation of ORS 646.725. Northwest Stationers v. Pacific Stationery, 472 U.S. 284, 105 S.Ct. 2613, 86 L.Ed.2d 202 (1985), is instructive concerning the application of the per se rule in a refusal-to-deal context. In that case, the defendant was a wholesale purchasing cooperative whose membership consisted of office supply retailers. The defendant expelled the plaintiff from membership. Thereafter, the plaintiff brought suit alleging that the expulsion without procedural protection was a group boycott that limited its ability to compete and should be considered per se violative of section 1 of the Sherman Act. The Court stated that `[g]roup boycotts' are often listed among the classes of economic activity that merit per se invalidation under § 1[, but] [e]xactly what types of activity fall within the forbidden category is    far from certain. 472 U.S. at 293-94, 105 S.Ct. at 2619. (Citations omitted.) Accordingly, the Court took [s]ome care    in defining the category of concerted refusals to deal that mandate per se condemnation. 472 U.S. at 294, 105 S.Ct. at 2619. The Court summarized its treatment of refusal-to-deal cases under the per se rule: Cases to which this Court has applied the per se approach have generally involved joint efforts by a firm or firms to disadvantage competitors by `either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle.' In these cases, the boycott often cut off access to a supply, facility, or market necessary to enable the boycotted firm to compete, and frequently the boycotting firms possessed a dominant position in the relevant market. In addition, the practices were generally not justified by plausible arguments that they were intended to enhance overall efficiency and make markets more competitive. Under such circumstances the likelihood of anticompetitive effects is clear and the possibility of countervailing procompetitive effects is remote. Although a concerted refusal to deal need not necessarily possess all of these traits to merit per se treatment, not every cooperative activity involving a restraint or exclusion will share with the per se forbidden boycotts the likelihood of predominantly anticompetitive consequences. 472 U.S. at 294-95, 105 S.Ct. at 2619-20. (Citations omitted.) Turning to the facts of that case, the Court identified several efficiency-enhancing characteristics of wholesale purchasing cooperatives in general and found efficiencies more directly related to the defendant's expulsion of the plaintiff from the cooperative: Wholesale purchasing cooperatives such as [defendant] are not a form of concerted activity characteristically likely to result in predominantly anticompetitive effects. Rather, such cooperative arrangements would seem to be `designed to increase economic efficiency and render markets more, rather than less, competitive.' Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., [441 U.S. 1, 20, 99 S.Ct. 1551, 1562, 60 L.Ed.2d 1 (1979)]. The arrangement permits the participating retailers to achieve economies of scale in both the purchase and warehousing of wholesale supplies, and also ensures ready access to a stock of goods that might otherwise be unavailable on short notice. The cost savings and order-filling guarantees enable smaller retailers to reduce prices and maintain their retail stock so as to compete more effectively with larger retailers. [Plaintiff], of course does not object to the existence of the cooperative arrangement, but rather raises an antitrust challenge to [defendant's] decision to bar [plaintiff] from continued membership. It is therefore the action of expulsion that must be evaluated to determine whether per se treatment is appropriate. The act of expulsion from a wholesale cooperative does not necessarily imply anticompetitive animus and thereby raise a probability of anticompetitive effect. See Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., [ supra, 441 U.S.] at 9 [99 S.Ct. at 1557.] Wholesale purchasing cooperatives must establish and enforce reasonable rules in order to function efficiently. Disclosure rules, such as the one on which [defendant] relies, may well provide the cooperative with a needed means for monitoring the creditworthiness of its members. Nor would the expulsion characteristically be likely to result in predominantly anticompetitive effects, at least in the type of situation this case presents. Unless the cooperative possesses market power or exclusive access to an element essential to effective competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is not warranted. Northwest Stationers v. Pacific Stationery, supra, 472 U.S. at 295-96, 105 S.Ct. at 2620. (Footnotes and some citations omitted.) In holding that the defendant's expulsion of the plaintiff did not fall within the category of activity that is, as a matter of law, anticompetitive so as to mandate per se invalidation under section 1 of the Sherman Act, the Court stated: A plaintiff seeking application of the per se rule must present a threshold case that the challenged activity falls into a category likely to have predominantly anticompetitive effects. The mere allegation of a concerted refusal to deal does not suffice because not all concerted refusals to deal are predominantly anticompetitive. When the plaintiff challenges expulsion from a joint buying cooperative, some showing must be made that the cooperative possesses market power or unique access to a business element necessary for effective competition. 472 U.S. at 298, 105 S.Ct. at 2621. We interpret Northwest Stationers to stand for the proposition that a plaintiff seeking application of the per se rule to an alleged concerted refusal to deal must present a threshold case that a defendant who possesses market power or unique access to a business element necessary for effective competition has refused to deal. The logical extension of Northwest Stationers is that if the plaintiff meets this threshold showing, the defendant must establish that the practice is justified by plausible arguments that it was intended to enhance overall efficiency and make markets more competitive. We realize that the above approach may blur the distinction between the per se and rule-of-reason approaches. The Supreme Court of the United States, however, has recognized that there is often no bright line separating per se from Rule of Reason analysis. NCAA v. Board of Regents of Univ. of Okla., 468 U.S. 85, 104 n. 26, 104 S.Ct. 2948, 2961-62 n. 26, 82 L.Ed.2d 70 (1984). These two approaches, however, may be distinguished by the depth of inquiry. See Polk Bros., Inc. v. Forest City Enterprises, Inc., 776 F.2d 185, 189 (7th Cir.1985). Turning to the facts at bar, we must first identify the relevant market. In this case, it is the laboratory and radiology markets. The relevant geographic market is the Portland metropolitan area, the only area in which BCBSO offers Network. Plaintiffs have failed to present a threshold case that defendants possess  through the arrangements between Network and other providers  market power or unique access to a business element necessary for effective competition in the medical laboratory and radiology markets. With respect to market power, there is no evidence concerning the percentage of laboratory and radiology markets that defendants occupy. There is also no evidence by direct inference. The only available evidence is that subscribers to Network comprise only approximately 2.1 percent of the total market for health insurance in Portland. Concerning unique access to a business element necessary for effective competition, the facts show that plaintiffs are effectively competing in the laboratory and radiology markets. We find that Northwest Medical Laboratories receives a large number of referrals of clients insured by BCBSO under other plans, which accounts for approximately 10 percent of its gross revenue. Furthermore, doctors who are Network providers continue to refer a significant number of non-Network patients to that laboratory. We also find that East Portland X-Ray's 1986 gross revenue was approximately $4,000,000, reflecting a Network lock-out loss of $100,000. East Portland also continues to receive significant revenues from BCBSO under non-Network plans. Additionally, East Portland is the locked-in provider of radiology services in other closed-panel plans. Under these facts, it is clear that plaintiffs' ability to compete is not dependent upon their ability to become Network providers. In sum, plaintiffs have failed to make the required threshold showing that defendants' actions are illegal per se. We therefore turn to the generally applicable rule of reason.