2007 will go down in the annals as nothing less than a historically pleasant year for antitrust defendants. The Supreme Court decided four antitrust cases between February and June, favoring the defendant in each and every instance. Major appellate courts - with one notable exception - ruled against antitrust plaintiffs on questions ranging from the bundling realm to defenses under the Robinson-Patman Act. The Federal Trade Commission lost each of the three merger challenges that it pursued in federal court. Amongst the good news for corporate market leaders lies one caveat, however - certain of the decisions cloud antitrust standards rather than clarify them, which could lead in some circumstances to more litigation, not less.
In a purely antitrust sense, the most significant decision was likely the Supreme Court's June ruling in Leegin Creative Leather Products, Inc. v. PSKS, Inc . (127 S. Ct. 2705).The Court overruled the 96-year old rule that minimum resale price maintenance, by which a manufacturer dictates minimum prices for its distributors and retailers, is per se - or automatically - unlawful. Instead, the Court held that the antitrust rule of reason was the appropriate way to analyze the practice. The rule of reason requires a fact finder to weigh all of the circumstances of a restraint as well as the restraint's history and effects in the market involved in order to ascertain whether the anticompetitive effects outweigh the procompetitive benefits of the restraint.Only then will the restraint be found unlawful.It is important to note that while the Leegin decision clearly allows minimum resale price maintenance in certain situations, it assuredly does not render minimum resale price maintenance per se legal under the Sherman Act, nor does it require rule of reason treatment under state antitrust laws.
In contrast to the Leegin decision, which influence will be limited to antitrust, the Court's ruling in Bell Atlantic Corp. v. Twombly (127 S.Ct. 1955) may well have far-reaching consequences in civil procedure generally. In Twombly , the Court by a 7-2 vote declared that a conspiracy complaint under 1 of the Sherman Act should be dismissed under Federal Rule 12(b)(6) when it alleges only parallel conduct, absent "factual context suggesting agreement." In so doing, the Court also "retired" an oft-cited phrase from a 50-year-old Supreme Court decision that many had read to require that claims must be allowed to proceed unless there was "no set of facts in support" of the claim which would entitle the plaintiff to relief. As a result, Twombly makes it more difficult for plaintiffs generally to avoid dismissal of conspiracy claims based on conclusory allegations.
The repercussions of Twombly are already being felt. The decision has already been cited in dozens of appellate court opinions for its general procedural holding. More directly, in In re Elevator Antitrust Litigation (502 F.3d 47), the Second Circuit affirmed a 12(b)(6) dismissal of a Sherman Act complaint where the "conspiracy claims provide no plausible ground to support the inference of an unlawful agreement."
Appellate courts beyond the Second Circuit also provided favorable results for antitrust defendants in 2007. In September, the Ninth Circuit rejected the so-called LePage's standard, holding that bundled discounts are not exclusionary (for purposes of a Section 2 claim) unless the discounts, when applied only to the product(s) as to which there is competition, result in prices for the competitive product(s) that are below the manufacturer's average variable cost of producing such product(s). Cascade Health Solutions v. PeaceHealth (502 F.3d 895).Earlier in the year, the Sixth Circuit held that a Robinson-Patman claim could not survive where the highest discounts within a discount program were "functionally available" to all competing wholesalers, even though it was virtually impossible for most wholesalers to actually attain those discounts. Smith Wholesale Co. v. R.J. Reynolds Tobacco Co. (477 F.3d 854). Only within the Third Circuit are plaintiffs having any real success with antitrust claims in 2007; a Robinson-Patman plaintiff successfully withstood summary judgment despite selling a very different product from the alleged favored purchaser, Feesers, Inc. v. Michael Foods, Inc. (498 F.3d 206), and that court also held that a patent holder's false promise to license before a standard-setting organization may create Sherman Act liability. Broadcom Corp. v. Qualcomm, Inc. (501 F.3d 297).
In August, the U.S. District Court for the District of Columbia denied the FTC's request for a preliminary injunction to prevent the merger of Whole Foods and Wild Oats. FTC v. Whole Foods Market, Inc. (No. 07-1021 (PLF), 2007 WL 2377000 (D.D.C. Aug. 16, 2007)). The lesson of the case appears to be that, unless presented with unambiguous pricing evidence demonstrating that the merger companies are each other's closest price constraint, courts may be skeptical of narrow relevant markets that exclude firms selling the same goods as the merging companies. While the FTC relied heavily on contemporaneous business documents to establish premium natural and organic supermarkets as a relevant antitrust market, the court did not seem to consider this evidence probative on the question of whether Whole Foods could raise prices following the merger.The FTC also sought preliminary injunctions in federal court against two energy industry mergers, each of which was denied: FTC v. Paul L Foster, Western Refining, Inc., and Giant Industries, Inc., No. Civ. 07-352 (D. N.M. May 31, 2007) and Equitable Resources, No. 07-490, 2007 U.S. Dist. LEXIS 35061.
While the jurisprudential and agency trends are obviously positive for antitrust defendants, corporations now face new uncertainties. For instance, because minimum resale price maintenance is no longer per se illegal, many manufacturers may be interested in instituting such a policy with their distributors. However, this upswing could lead to manufacturer liability under state law and/or the uncertainty of facing allegedly aggrieved plaintiffs in expensive, unpredictable rule of reason cases. As another example, the dichotomy between Leegin and LePage's does not give clear guidance to powerful sellers who wish to offer bundled discounts in circuits that have not yet spoken on the subject.It seems evident that this uncertainty is nevertheless a welcome tradeoff for any company which may be the target of future antitrust scrutiny.
Published December 1, 2007.
