Opinion ID: 763285
Heading Depth: 3
Heading Rank: 2

Heading: Illegality of the Conspiracy

Text: 78 Even when the existence of a conspiracy between antitrust defendants has been sufficiently established, normally a plaintiff in a § 1 claim still bears the burden of proving that the defendants' agreement unreasonably restrains trade. However, such proof is not necessary when 79 the challenged action falls into the category of 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. 80 Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co., 472 U.S. 284, 289, 105 S.Ct. 2613, 86 L.Ed.2d 202 (1985) (citation omitted). Generally speaking, group boycotts and refusals to deal are so likely to restrict competition without any offsetting efficiency gains that they should be condemned as per se violations. Id. at 290, 105 S.Ct. 2613. However, as the Court stated in FTC v. Indiana Federation of Dentists, the category of restraints classed as group boycotts is not to be expanded indiscriminately. 476 U.S. 447, 458, 106 S.Ct. 2009, 90 L.Ed.2d 445 (1986). 81 If an antitrust defendant's conduct cannot reasonably be justified as pro-competitive--viewing the facts in the light most favorable to the plaintiff according to the summary-judgment standard--then a per se analysis is appropriate. As the Supreme Court has 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. Northwest Wholesale Stationers, 472 U.S. at 298, 105 S.Ct. 2613. 82 In Northwest Wholesale Stationers, defendant Northwest's expulsion of Pacific Stationery from a wholesale cooperative was not likely to result in predominantly anticompetitive effects because Northwest did not possess market power or exclusive access to an element essential to effective competition. Id. at 296, 298, 105 S.Ct. 2613. The Court did note, though, that a concerted refusal to deal might justify per se invalidation if it placed a competing firm at a severe competitive disadvantage. Id. at 295 n. 6, 105 S.Ct. 2613. 83 On the other hand, in FTC v. Superior Court Trial Lawyers Association, 493 U.S. 411, 422-23, 110 S.Ct. 768, 107 L.Ed.2d 851 (1990), the Court found per se illegal an agreement, entered into by many private lawyers who regularly represented indigent criminal defendants, to refuse assignments from the court until the District of Columbia raised their rate of compensation. Notably, the Court did not consider whether the attorneys who had agreed to the boycott in fact exercised market power. Their horizontal refusal-to-deal agreement alone unquestionably constituted a naked restraint on price and output. Id. at 423, 110 S.Ct. 768 (internal quotation marks omitted). 84 While the Northwest Wholesale Stationers and Superior Court Trial Lawyers cases provide a framework for the analysis of the present case, FTC v. Indiana Federation of Dentists, 476 U.S. 447, 106 S.Ct. 2009, 90 L.Ed.2d 445 (1986), is particularly instructive. Indiana Federation makes clear that, although the rule of reason--which requires proof of unreasonable restraint of trade--and per se analysis are often discussed as if they are dichotomous, the practical difference between these two analytical tools is sometimes negligible. In Indiana Federation, a group of dentists conspired to deny insurance companies' requests for x-rays that the insurers needed in order to determine the necessity for dental procedures performed on their insureds. Id. at 451, 106 S.Ct. 2009. The Court viewed the dentists' refusal as a group boycott, even though the group did allow the insurance companies to review the x-rays at the dentists' offices. In essence, the imposition of the additional cost of traveling to the dentists' offices made the dentists' conduct a refusal to deal. However, the Court did not find the refusal to deal was a per se violation because Indiana Federation differed from the paradigmatic per se case in which firms with market power boycott suppliers or customers in order to discourage them from doing business with a competitor. Id. at 458, 106 S.Ct. 2009. Apparently, Indiana Federation was not such a case because the boycott did not have the purpose of discouraging the dentists' customers from doing business with competitors. Thus, the Court required proof that the boycott unreasonably restrained trade. 85 Even though the Court applied the rule of reason, it summarily concluded that the insurance companies had met their burden of proving an unreasonable restraint of trade: 86 A refusal to compete with respect to the package of services offered to customers, no less than a refusal to compete with respect to the price term of an agreement, impairs the ability of the market to advance social welfare by ensuring the provision of desired goods and services to consumers at a price approximating the marginal cost of providing them. Absent some countervailing procompetitive virtue--such as, for example, the creation of efficiencies in the operation of a market or the provision of goods and services--such an agreement limiting consumer choice by impeding the ordinary give and take of the market place cannot be sustained under the Rule of Reason. 87 Id. at 459, 106 S.Ct. 2009 (citations omitted). 88 Notably, the Court rejected the dentists' argument that the rule-of-reason analysis must fail because the relevant market had not been defined and the Federation's market power not proven. Id. at 460, 106 S.Ct. 2009. According to the Court, even if the Federation's boycott was not sufficiently naked to require it to come forward with some procompetitive justification, sufficient proof of the boycott's actual detrimental effects obviated the need for detailed market analysis. Id. at 460-61, 106 S.Ct. 2009. In that case, the FTC had found that in the communities of Anderson and Lafayette, Indiana, the Federation had obtained the cooperation of heavy majorities of dentists and had effectively thwarted insurers' requests for x-rays in those areas. These findings of detrimental effects, viewed in light of the reality that markets for dental services tend to be relatively localized, were legally sufficient to support a finding that the challenged restraint was unreasonable even in the absence of elaborate market analysis. Id. at 461, 106 S.Ct. 2009 (emphasis added). Moreover, the proof that insurers' requests had been effectively denied was sufficient to support the unreasonable-restraint finding, even absent any proof that the dentists' refusal to deal resulted in higher prices for consumers. Id. Thus: 89 A concerted and effective effort to withhold (or make more costly) information desired by consumers for the purpose of determining whether a particular purchase is cost justified is likely enough to disrupt the proper functioning of the price-setting mechanism of the market that it may be condemned even absent proof that it resulted in higher prices or, as here, the purchase of higher priced services, than would occur in its absence. 90 Id. at 461-62, 106 S.Ct. 2009. 91 Here, in applying per se analysis, the district court characterized Realty One's and Smythe Cramer's adverse-splits policy as price-fixing. However, we conclude that the practice is more akin to a refusal to deal. The defendants did not conspire to set the commission fee charged to home-buying and selling consumers for the agents' services. Neither did they agree to pay their agents the same dollar amount or even to adopt the same agent-brokerage commission split. Instead, the defendants agreed to adopt the same broker-broker commission split on every transaction in which a Re/Max agent represented the buyer. 92 In essence, this is a refusal to deal. Like the dentists in Indiana Federation, Realty One and Smythe Cramer did not completely shut out the boycotted entity, but they did impose additional costs on the boycott victims. In the case of the dentists, this was accomplished by making the insurance companies come to the dentists' offices to review dental records; in the case of Realty One and Smythe Cramer, it was accomplished by reducing the compensation of any agent who defected to a Re/Max franchise, thereby making Re/Max pay even more to its agents if it wanted to keep them. Individually, the defendants admitted that their intent in adopting the adverse-splits policy was to prevent their agents from joining Re/Max. Thus, Re/Max has been forced to pay an even higher premium to obtain the information and experience held by the defendants' agents. Re/Max alleges that the higher premium is economically unsustainable, and has forced some franchises to close and prevented others from opening. 93 Of course, just because Re/Max is harmed does not necessarily mean that the public is also adversely affected by the defendants' practice. If Re/Max loses because its system is less efficient, then its injury is not actionable. However, if the Re/Max system provides a benefit to consumers, and if Re/Max's losses are due to the defendants' use of market power to prevent a more-efficient competitor from establishing itself, then an antitrust violation is made out. 94 The record contains sufficient evidence for a reasonable jury to conclude that the Re/Max 100% Concept enhances efficiency and provides a benefit to the public, and that the likely effect of the defendants' conduct was primarily anticompetitive. That is, Re/Max has provided sufficient evidence that its 100% Concept compensates successful agents at a greater rate than the traditional 50/50 agent-brokerage split the defendants use. If this evidence is credited, then Re/Max will attract the most successful agents in the area served by one of its franchises if the market is truly free. 95 This concentration of top agents in one place would have several potential advantages for home buyers and sellers. First, because these agents are by definition the most efficient, they very likely require less administrative support per dollar of revenue. In a competitive market, Re/Max would be forced to pass along some of this savings to clients. Second, since the 100% Concept has been implemented nationwide, consumers can count on highly skilled, experienced Re/Max agents no matter where they seek to buy or sell a home. Such consumers may avoid having to gather information in order to locate competent agents and may rely on Re/Max's reputation for hiring only the best agents, thereby saving valuable time. Third, consumers save time in the buying and selling process when an experienced agent more quickly understands their needs and does not match them up with unsuitable prospects. In sum, a jury could find from the evidence that the Re/Max system directly and indirectly lowers the cost and improves the quality of brokerage services offered to the public. 96 The response the defendants offer to these suggested advantages that can be realized when doing business with a Re/Max broker is not persuasive. To reiterate, the defendants offer two justifications (defenses) for their imposition of the adverse-splits policy: First, that they are merely protecting their investments in their experienced agents; second, that they are fending off an attempt by Re/Max to use its national economic resources to overpay experienced northeast Ohio agents until Re/Max has established its own monopoly in the market for such agents and driven the defendants out of business. As for the first of these, if the defendants have any investment in their novice agents, they can protect that investment by, for instance, signing agents to long-term contracts or obtaining covenants not to compete. Of course, either of these options would increase costs by providing job security to potentially unproductive agents or by paying additional compensation in exchange for a noncompetition covenant. If Re/Max can economically offer greater compensation than the defendants provide, then by definition either the Re/Max system is an efficiency-increasing innovation or the defendants are reaping monopolistic profits, or both. On the other hand, if Re/Max cannot economically offer greater compensation, but is doing so only temporarily and absorbing the loss through its national resources in order to obtain a monopoly in northeast Ohio, then not only must Re/Max lose on its own claims, but Realty One's counterclaims must be sustained. This is the fulcrum on which this case turns. 97 We reject, as a matter of logic and law, the suggestion that Re/Max is transferring resources into northeast Ohio in order to offer experienced agents there economically irrational compensation through Re/Max's 100% Concept. Simply put, this is impossible. There is no dispute that Re/Max requires all its franchises to adhere to the 100% Concept. Thus, if the concept were economically unsustainable in northeast Ohio, it would not be sustainable anywhere, and certainly would not be capable of supporting a national network of franchises and a money-losing effort in northeast Ohio. 98 Therefore, viewing the disputed facts in the light most favorable to Re/Max, as we must, and rejecting the defendants' justifications as a matter of law because no reasonable jury could believe them, we conclude that the plaintiffs have adduced sufficient evidence to resist summary judgment on its claim that the defendants conspired to unreasonably restrain trade in violation of § 1 of the Sherman Act.