Category Archives: antitrust

Allied Tube & Conduit Corp. v. Indian Head, Inc.

486 U. S. 492

June 13, 1988

The National Fire Protective Association is a professional group dedicated to publishing expert quality electrical codes. Indeed, almost all states adopt the Association’s code into law wholesale. When polyvinyl electrical conduits were developed in 1980, the steel industry worried that polyvinyl would overtake steel as the standard conduit material. Thus, the steel industry packed the membership of the Association, for the sole purpose of determining that polyvinyl was unsafe in the 1981 electrical code. The polyvinyl industry charged that this brazen act of ballot stuffing violated antitrust law. The steel industry replied that quasi-legislative bodies were immune from antitrust liability.

Brennan rejected claims of immunity in a 7-2 decision. Because the Association had no official government capacity, and was in no way answerable to the American public, it was not a quasi-legislative body. The steel industry, undaunted, insisted that it still had immunity because its ultimate aim in overrunning the Association was to influence the state legislatures when they passed the legal electrical codes. Brennan would have none of this. Traditional political advocacy, like direct appeals to legislatures, public interest advertising, and boycotts were still immune. Cynical attempts to take over respected, non-partisan, and expert standard setting associations were not.

White, joined by O’Connor, charged in dissent that the actual holdings of the immunity precedents had been ignored. White could not get around the fact that the steel industry’s ultimate goal was to influence state legislatures by means of the Association code. It was no less intrinsically political at heart than direct lobbying of legislators. While the steel industry’s actions within the Association were scurrilous, they were also a rare aberration, and White did not wish to see rare aberrations warping antitrust immunity doctrine.

I’m not certain, but White may be correct. The old saying ‘hard cases make bad law’ applies well to this one. The steel industry acted unethically, and I’m glad they got punished for it. At the same time, making professional organizations which publish industry standards liable to antitrust suits is a rather slippery slope.

 

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Patrick v. Burget

486 U. S. 94

May 16, 1988

When a hospital doctor named Timothy Patrick decided to also work as an independent medical provider, the other doctors at the hospital started being total jerks to him. Using peer-review proceedings, the other doctors disciplined Patrick, and got ready to fire him, and all of this was done, according to Patrick, in bad faith. Patrick resigned rather than risk being fired, and sued the other doctors for antitrust violation, since they were ultimately trying to squelch his independent practice. Because the peer-review processes were mandated and controlled by state laws, the other doctors argued that they were immune from antitrust suits under the state action doctrine.

The Supreme Court unanimously found otherwise (Blackmun did not participate). Marshall explained that the state action exemption only existed when the state had active supervision over any proceedings. While the state laid down basic principles of medical peer-review, it did not actively supervise the discipline or firing decisions in any real way. Marshall was even less impressed by the argument that the peer-review decisions were subjected to legal review. Minimal judicial review did not trigger the state action doctrine either. I liked this ruling, but mostly because the other doctors really were a bunch of petty bullies who needed to be taken down several notches.

Business Electronics Corp. v. Sharp Electronics Corp.

485 U. S. 717

May 2, 1988

Two Houston retailers sold calculators manufactured by Sharp. Because one retailer (Business Electronics) was selling them way cheaper, the other retailer asked Sharp to cut off the supply to the first retailer. Sharp did so, and Business Electronics sued, citing the Sherman Antitrust Act. After being told that cutting off one retailer because of its lower prices was always illegal if done at the bidding of a more expensive retailer, a jury ruled for Business Electronics. Sharp contended that this was not always illegal, and should be judged by the antitrust ‘rule of reason.’

Scalia, writing for the Court, agreed that the ‘rule of reason’ must be used. The Court thus ruled 6-2 that the jury instruction was erroneous, and a new trial would have to be held (Kennedy did not participate). According to antitrust precedent, tacit agreements between suppliers and retailers were only per se illegal if they fixed prices. Because the second retailer remained free to set prices as they wished, there was no price fixing here. Citing the Sylvania case from 1977, Scalia said that the Court should be extremely cautious before finding any other collusion between supplier and retailer inherently anti-competitive. Because there were arguable pro-consumer reasons for wanting only one, more expensive retailer, Sharp was in the clear pending a new trial.

Stevens, joined by White, dissented. He found no evidence in the record that Sharp and the more expensive retailer had any noble purpose – instead, the facts showed that they were just blatantly attempting to line their own pockets by leaving the cheaper retailer high and dry. Because this restraint of competition had no noble purpose, Stevens felt the agreement was per se illegal. Furthermore, antitrust precedents held that retailer boycotts of suppliers were per se illegal. Stevens argued that by threatening to sever ties if Sharp did not cut off the cheaper retailer, the more extensive retailer was effectively doing a one-business boycott.

Stevens made a really good argument, but reading the jury instruction again, I do think a new trial was probably warranted. That said, I also think that the jury should still find for Business Electronics, even after being properly instructed.

United States v. John Doe, Inc. I

481 U. S. 102

April 21, 1987

The Federal Rules of Civil Procedure say that information from grand jury investigations cannot be disclosed, absent a court ruling based on good cause. The antitrust division of the Justice Department had a grand jury investigate criminal charges against three companies. After two years of investigation, the DOJ decided not to press any antitrust charges. A little later though, the same attorneys used the grand jury information toward the end of filing a civil charge against the companies under the False Claims Act. After obtaining a court ruling, those attorneys consulted with some DOJ attorneys from the civil division. One of the companies objected to this continued use of the grand jury information.

In a 5-3 vote, the Supreme Court upheld the actions of the DOJ (Justice White did not participate). Stevens rejected the company’s claims that continued use of grand jury material for a possible civil charge constituted a “disclosure” under Federal Rules. Because the exact same attorneys were using the information, it had not been ‘disclosed’ under the plain meaning of the Rules. Stevens also upheld the sharing with civil division lawyers following judicial authorization. Enforcement of the False Claims Act was a good cause, sharing the information would eliminate wasteful re-discovery, the information would still be relatively secret, and there was no evidence the information would be misused.

Brennan dissented, and was joined by Marshall and Blackmun. He stressed the importance of grand jury secrecy, and noted that suspects will be less likely to testify truthfully if the information can be disclosed. He also felt that, in light of the grand jury’s purposes, “disclosure” should refer to any usage of testimony after the fact, rather than the identity of the person who uses that testimony. Because Brennan did not feel that the antitrust division had a right to use the grand jury information in the first place, he said there was also no right to share it with the civil division, court order or no court order.

I absolutely agree with Brennan in this case. The grand jury has awesome powers, and the information it gathers ought to be heavily protected. Also, I’d like to point out that investigating a (mostly baseless) antitrust claim for two years, and then trying to nab the same companies on alternative civil grounds definitely smacks of government harassment.

324 Liquor Corp. v. Duffy

479 U. S. 335

January 13, 1987

New York had a law that required retailers of alcoholic beverages to sell drinks at a minimum of 12% higher than the “posted” wholesale price. This posted price would be determined by the wholesalers themselves, and the law allowed them to make sales to retailers at prices below its own “posted” prices. 324 Liquor was caught making a sale below the 12% minimum, and had its license temporarily suspended. It then challenged the New York law, claiming that it violated the Sherman Antitrust Act.

In a 7-2 decision, Powell held that the New York law was invalid. A long line of precedent had made it clear that industry wide resale price fixing violated the Sherman act. New York argued that there was an exception to this general rule if the price fixing was a result of state action. But this state action exception required that the restraint imposed must be “actively supervised” by the state. Because New York let wholesalers set their own posted prices and then ignore them, all without state review, Powell held that New York could not invoke the state action exception.

Finally, Powell addressed the argument that the Sherman act did not apply because of the state’s power under the 21st Amendment. He went about this by examining the state’s justifications for the law. New York’s justifications of trying to stabilize the retail market and protect small businesses were found to be unsupported by an examination of the actual effects and operation of the law. Therefore, because the state’s interests were so weak, Powell held that the state could not hide behind the 21st Amendment.

O’Connor dissented, and was joined by Rehnquist. She did some highly persuasive analysis of legislative history, which showed that the 21st Amendment was definitively intended to end all application of federal laws to the alcohol industry. She disagreed vigorously with the majority’s inquiry into the weight of New York’s interests, and would have upheld the law as a routine exercise of a state’s 21st Amendment powers.

As I read the case, I was strongly reminded of Nebbia v. New York, when the Court upheld a law that set a minimum price for milk. Four Justices dissented, saying this was an unconstitutional imposition on the rights of businesses. The dissent made a good argument, but in the half century since, the views of the dissent seem to have vanished completely. In any case, on the basis of the arguments that were actually made in Duffy, I think O’Connor had the much stronger opinion. As a final note, reading this case only reinforced my original notion that Iacobucci was wrongly decided. If violating a federal law required close scrutiny of the state’s asserted interest, why does a state’s apparent violation of the First Amendment get almost no scrutiny at all?

Cargill, Inc. v. Monfort of Colo., Inc.

479 U. S. 104

December 9, 1986

In the 1980s, Monfort of Colorado was the 5th largest beef company. When Monfort heard that the 2nd and 3rd largest beef companies were planning to merge, it filed an antitrust suit. Section 16 of the Clayton act allows a company to get an injunction preventing merger in order to prevent “threatened loss or damage by a violation of the antitrust laws.” Monfort alleged that the merger would result in economic hardship for the company, and cut into its market share.

In a 6-2 ruling, Justice Brennan ruled against Monfort. He first held that a company seeking to take advantage of section 16 must show that the injury they fear is the sort of injury that antitrust laws are designed to prevent. Antitrust law, Brennan stressed, is not intended to limit economic competitiveness, but rather to encourage it, and the fact is that economic competition does produce winners and losers. If a merger happens to harm another company, it is not necessarily an antitrust violation. Antitrust laws seek to eliminate monopolistic and uncompetitive behavior. Brennan showed that section 16 was closely related to section 4, which awarded treble damages only for an actual antitrust violation. Then he examined Monfort’s complaint about the merger. He found that Monfort showed proof that they would suffer market losses, but did not offer proof that the merger would result in an uncompetitive beef market. They had alleged nothing that would entitle them to damages under section 4. Thus, the Court held that Monfort’s section 16 suit must fail.

Stevens dissented, and he was joined by White (Blackmun did not participate). He contended that section 16 should be interpreted in conjunction with section 7 rather than section 4. Section 7 made mergers which tended to concentrate market share illegal. A section 7 violation, Stevens argued, should be considered a threatened damage sufficient to allow a company to raise a section 16 claim. Because the proposed merger between Excel and Spencer Beef did appear to violate section 7, Monfort had a valid section 16 claim.

It’s a tough call, but I think Justice Brennan got the better of the argument. He provided a lot of legislative history to support his claim that section 16 should be read in light of section 4 rather than section 7. And in terms of practical effects, Brennan’s ruling was far better. It would frustrate business enormously if any merger between two reasonably large companies in the same industry could easily be enjoined by a third company afraid of increased competition. As a final note, it was weird but cool to see hyper-liberal Brennan come through for free market capitalism, and even cite a book by Robert Bork in the process.