Author: Molly Donovan
A new episode of the “If I Were You” podcast is here! You can listen to it here. Featuring Bona Law partner Jon Cieslak.
This Episode Is About: Investigative Subpoenas
Why: In-house lawyers need to know what to do upon receiving an investigative subpoena in an antitrust or white-collar matter.
The Five Bullets: In-house lawyers, if I were you, I would know the following about subpoenas…
Author: Molly Donovan
Nathan is nine. His grandmother makes excellent meatballs using an age-old family recipe. Together, Nathan and grandma decide to can the meatballs and sell them to their neighbors on the north side of town—just in time for the holidays as a turkey side dish.
Things went great until Nathan’s friend from school, Nicole, also started selling meatballs with help from her grandma. What are the chances? Fortunately, Nicole targeted sales on her side of town (the south side), so that the two meatball-preneurs didn’t directly butt heads.
Wanting to keep things that way, Nathan asked Nicole to make the arrangement official by forming a “strategic partnership”—the gist of it being that Nicole keep her meatballs out of the north side and Nathan keep his out of the south. Nathan even offered to compensate Nicole for any lost business she suffered from the arrangement, and to keep up appearances, Nathan would arrange a few sham transactions to make it look as though each meatball maker had a few sales in the other’s territory.
The glitch, unforeseeable to Nathan, was that Nicole’s dad works for the DOJ’s Antitrust Division. Well versed on the Division’s leniency program since birth, Nicole naturally reported the conduct to the government promptly—before agreeing to Nathan’s proposed deal.
And that was all it took. Although there was no meeting of the minds, so that Nathan couldn’t get nabbed for a Sherman Act Section 1 violation (criminal conspiracy), he did get tagged for a Section 2 violation—attempted monopolization. Poor Nathan was the youngest defendant ever to plead guilty to an antitrust felony. His sentence remains pending.
Moral of the Story: This is based on a true story! Nathan Zito, president of a paving and asphalt business pled guilty in October to attempted monopolization of the highway crack-sealing services in Montana and Wyoming based on his proposal to a competitor that they allocate markets by geography. Although the competitor was already cooperating with the DOJ, precluding a prosecution for Section 1, Nathan did plead guilty to attempted monopolization and will be subject to fines and imprisonment at his sentencing in February.
Author: Steven J. Cernak
The FTC’s challenge of Altria’s investment into its e-cigarette competitor JUUL Labs, Inc. (JLI) already raised interesting antitrust and administrative law issues: Did the parties’ discussions of FTC compliance during merger negotiations create an unreasonable agreement? Are the structure and procedures of the FTC constitutional?
Recently, the case took another unusual turn. In early November 2022 — after the Commission voted out the complaint; FTC Complaint Counsel tried the case; the in-house administrative law judge issued a decision favoring the parties; and the Commissioners heard oral argument on an appeal — the Commissioners sought additional briefing on the possibility of applying different theories that would make it easier for the FTC to win. The Commissioners’ request seems to be allowable under the FTC’s procedures but might not help it in responding to potential constitutional challenges to those procedures, whether in this case or another one before the Supreme Court.
Facts and Prior History
We covered the case’s facts and procedural history in detail for this Washington Legal Foundation Legal Backgrounder. Here is a short recap.
Altria was the largest and one of the oldest cigarette companies in the country but struggled mightily with e-cigarettes. JLI was a new, smaller company successfully focusing on e-cigarettes. In early 2018, the two parties began nearly year-long negotiations towards a large Altria investment in JLI. Throughout the rocky negotiations, the parties and their respective antitrust counsel discussed and exchanged documents about the likely need to take some action regarding Altria’s competitive e-cigarette assets during the expected FTC antitrust review.
After some FDA communications and during a break in the negotiations, Altria announced that it would pull some of its e-cigarette products. Negotiations resumed and shortly before reaching an agreement with JLI (which included a formal non-compete agreement), Altria announced that it would cease all e-cigarette sales.
The FTC investigated and the then-Commissioners, including current Commissioners Slaughter and Wilson, issued a complaint challenging the entire transaction. The complaint, inter alia, alleged an unreasonable agreement by which Altria agreed not to compete with JLI in the e-cigarette market “now or in the future” in exchange for an ownership interest in JLI. Specifically, that agreement took the form of the non-compete provisions of the written agreement as well as an implicit agreement to exit the market reached during negotiations as a “condition for any deal.”
Per the FTC’s procedures, the challenge was heard by the FTC’s internal administrative law judge. After extensive pre- and post-trial briefing, 20 witnesses, 2400 exhibits, and 13 days of hearing, in February 2022 the ALJ issued a 250-page opinion finding that the FTC’s Complaint Counsel did not prove that the parties reached an agreement for Altria to exit the e-cigarette market and that the non-compete provision of the investment agreement was not unreasonable. FTC Complaint Counsel immediately appealed to the Commissioners.
Throughout the challenge, the parties challenged the constitutionality of the FTC and its procedure on separation of powers and due process grounds. The parties’ briefing made much of the FTC’s enviable 25-year winning streak of the Commissioners never ruling against a challenge that they voted out. A different company whose actions are being challenged by the FTC, Axon Enterprise, recently argued to the Supreme Court that it should be allowed to raise similar constitutional issues before going through the same FTC’s procedures as Altria/JLI did.
Latest Request from Commissioners
In the WLF piece just before the oral arguments to the Commissioners, I suggested that the most interesting antitrust issue would be whether discussions among parties about actions they might take to address expected FTC antitrust concerns could ever add up to an agreement. I also wondered whether the Commissioners might, for the first time in 25 years, rule against a complaint they had issued to avoid any constitutional challenges in this case and, perhaps, to assist in any constitutional challenge in the Axon case.
I expected that by early November, the four remaining Commissioners would be well on their way to deciding the case and issuing an opinion; instead, on November 3, the Commissioners issued an Order requiring the parties and Complaint Counsel to brief two new issues. Specifically, assuming they overturn the ALJ’s opinion that the parties did not reach an unwritten agreement for Altria to exit the e-cigarette market, the Commissioners sought briefing on whether such an agreement should be analyzed as either per se illegal or inherently suspect. The Commissioners also ask if the history of this matter poses any impediments to considering these different standards and, if so, what steps would be necessary to overcome those impediments.
Applying the per se standard would make automatically illegal any such agreement that the Commissioners find the parties to have reached. Applying the inherently suspect standard would drastically lower the standard that the FTC must clear to find unreasonable any unwritten agreement reached by the parties. The inherently suspect standard, and an appellate court’s criticism of it the last time it was used in a high-profile case, are summarized in this recent post.
Conclusion
The briefing by the parties and Complaint Counsel will end just before Christmas. A ruling by the Commission would then be required by around the end of March, unless the Commission again further delays its responsibilities unilaterally. Here are three take-aways.
Author: Luis Blanquez
Blockchain is an emerging technology that is already changing the way companies do business. But this doesn’t precludn companies using such nascent technology frot getting caught in the same old anticompetitive practices subject to the antitrust laws.
Before diving into the spectrum of anticompetitive behavior that companies using blockchain technology might get involved, let’s first explain below what distributed ledger technology (“DLT”) and blockchain mean, and what are––at least for now––the different types of blockchains.
In the last section of this article, we also analyze how antitrust group boycotts could apply in a blockchain-setting. And we provide two real life recent examples, the Bitmain case and the Ethereum Merge.
What Is Blockchain Technology?
A “blockchain” is a decentralized, electronic register in which transactions and interactions can be recorded and validated in a verifiable and permanent way. A peer-to-peer network where different users or “nodes” share and validate information in a database or network without the need of a centralized and trusted intermediary.
Records of transactions are stored along with other transactions into blocks of data that are linked to one another in a chain, creating a blockchain, which is a type of distributed ledger technology (“DLT”). Each ledger is tamper-proof and recorded using a consensus verification algorithm that encoded every prior block in the blockchain. Once a block is added to the chain, it is virtually impossible to modify. Any change would require modifying every subsequent block of data on the chain. And because each participant on the blockchain has a unique identification key, other users can instantly verify prior transactions involving that participant.
Bitcoin is the first and most prominent use of blockchain technology and has several features that distinguish it from other blockchains, including actual digital scarcity with a programmed limit of 21 million Bitcoin, forever.
With the help of Web3, blockchain technology has opened the door for companies across many industries––not just cryptocurrencies––to make more efficient, inexpensive, and secure business transactions without the need for a centralized authority. In other words, this a whole new ballgame.
Types of Blockchains: Permissionless v. Permissioned
There are two main types of blockchains.
Permissionless (public) blockchains are publicly available and fully decentralized DLTs, which means there is no central authority involved. They allow everyone to interact and participate in the validation process because they are based on open-source protocols, providing strong security. Validators must all vote to adopt the protocols and code that become the decision-making process of the blockchain. This makes it very difficult to change the behavior of the blockchain. Transactions are also fully transparent, and the nodes involved are almost always anonymous. They have, however, some technical restraints such as (i) less control over privacy (everyone has access to what is going on in the blockchain); and (ii) lower scalability and level of performance than permissioned blockchains––mainly due to the wide scope of their verification process and the amount of information they need to process.
Permissioned (private and consortium) blockchains are made by a smaller pool of validators who are partially decentralized DLTs. Only few known (as opposed to anonymous) and previously identified parties can access the ledger and participate in the validation process. Participants need permission to have a copy of the ledger. Thus, even though there is no central authority involved, a short group of participants validate and share the data relevant to transactions. This means less transparency and a higher risk of collusion and abuse of market power because only few nodes manage the transaction verification and consensus process. On the flip side, privacy is stronger, and they are more scalable and customizable.
This distinction is important to identify and analyze antitrust issues, depending on the type of blockchain involved. But the more the blockchain technology develops, the more those differences have become blurred. A combination of small permissioned blockchains with more open, wider, and decentralized ones (although sometimes still using encrypted transactions) had become a common trend. Interoperability between blockchains and existing network externalities are both expected to keep verification prices down while increasing security. In the end, the final configuration of a blockchain and its software code will depend on the strategy and business model selected, which is something that needs to be analyzed on a case-by-case basis, considering the industry and applications involved.
The same applies to the enforcement of antitrust laws to this new technology. That’s why it is essential that companies using blockchain technology have a clear antitrust compliance policy in place and train their key employees accordingly. This is particularly important for those involved with the business strategy of the company and the ones interacting on a regular basis with competitors.
Group Boycotts: The Bitmain case and the Ethereum “Merge”
Private blockchain participants may breach antitrust rules if they exclude competitors from the blockchain without a legitimate business justification. Those who control the blockchain may limit potential competitors access to the chain or may not allow them to conduct transactions therein. This is called a group boycott or a concerted refusal to deal—where multiple entities combine to exclude or otherwise inhibit another party. When that “concerted” boycott involves market power or horizontal control over an essential facility or resource, courts typically always analyze it under the “per se” rule.
Author: Jarod Bona
Yes, sometimes “tying” violates the antitrust laws. Whether you arrive at the tying-arrangement issue from the perspective of the person tying, the person buying the tied products, or the person competing with the person tying, you should know when the antitrust laws forbid the practice. Even kids may want to know whether tying violates the antitrust laws.
Most vertical agreements—like loyalty discounts, bundling, exclusive dealing, (even resale price maintenance agreements under federal law) etc.—require courts to delve into the pro-competitive and anti-competitive aspects of the arrangements before rendering a judgment. Tying is a little different.
Tying agreements—along with price-fixing, market allocation, bid-rigging, and certain group boycotts—are considered per se antitrust violations. That is, a court need not perform an elaborate market analysis to condemn the practice because it is inherently anticompetitive, without pro-competitive redeeming virtues. Even though tying is often placed in this category, it doesn’t quite fit there either. Again, it is a little different.
Proving market power isn’t typically required for practices considered per se antitrust violations, but it is for tying. And business justifications don’t, as a rule, save the day for per se violations either. But, in certain limited circumstances, a defendant to an antitrust action premised on tying agreements might defend its case by showing exactly why they tied the products they did.
At this stage, you might be asking, “what the heck is tying?” Do the antitrust laws prohibit certain types of knots? Do they insist that everyone buy shoes with Velcro instead of shoestrings? The antitrust laws can be paternalistic, but they don’t go that far.
A tying arrangement is where a customer may only purchase a particular item (the “tying” item) if the customer agrees to purchase a second item (the “tied” item), or at least agree not to purchase that second item from the seller’s competitors. It is sort of like bundling, but there is an element of express coercion. When the seller prohibits the buyer from purchasing a product from the seller’s competitor, this is often called a negative tie.
With bundling, a seller may offer a lower combined price to buyers that purchase two or more items, but the buyers always have the right to just purchase one of the items (and forgo the discount). With tying, by contrast, the buyer cannot just purchase the one item; if it wants the first item, it must purchase the second or at least decline to purchase the second from the seller’s competitor.
Author: Molly Donovan
A new episode of the “If I Were You” podcast is here! You can listen to it here. Featuring Bona Law partner Jim Lerner.
This Episode Is About: Antitrust and Employment
Why: There are employment-related antitrust risks that all in-house lawyers should be aware of.
The Five Bullets: In-house lawyers, if I were you, I would educate your business team about the following antitrust hot spots related to employment issues…
Authors: Steven Cernak and Luis Blanquez
Hard times for the Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”). In the last few weeks, the Biden Administration has suffered three significant antitrust loses. This is the result of the Government’s determination to try to block mergers that, despite their size, were found by courts to not hinder competition.
Below is a short summary of the three merger cases with some final remarks on what to expect from the Government moving forward.
Illumina/Grail
In March 2021 the FTC filed an administrative complaint to block Illumina’s $7.1 billion proposed acquisition of Grail. Grail is a maker of a non-invasive early detection (MCED) test to screen multiple types of cancer using DNA sequencing, known as next generation sequencing or NGS.
In its complaint, the FTC alleged that the proposed transaction would substantially lessen competition in the U.S. MCED test market by reducing innovation and potentially increasing prices and diminishing the choice and quality of MCED tests. According to the FTC, Illumina, as the dominant provider of NGS––an essential input for the development and commercialization of MCED tests in the United States––would have the ability to foreclose or disadvantage Grail’s rivals while having at the same time the incentive to also disadvantage or foreclose firms that pose a significant competitive threat.
In September 2022, Chief Administrative Law Judge D. Michael Chappell dismissed the complaint in an unexpected decision ruling for the first time against the FTC in a merger case. In a nutshell, Judge Chappell concluded that the FTC failed to prove that Illumina’s post-acquisition ability and incentive to advantage Grail to the disadvantage of Grail’s alleged rivals would likely result in a substantial lessening of competition in the relevant market for the research, development, and commercialization of MCED tests.” On September 2, the FTC Complaint Counsel filed a Notice of Appeal.
Of interest is the fact that shortly after Judge’s Chappell ruling, in parallel the European Commission decided to block the acquisition under the EU Merger Regulation using similar antitrust arguments as the FTC. And that was despite the fact that the transaction did not initially trigger EU merger control thresholds and that the parties closed the acquisition during the investigation. The stakes are also high on that side of the Atlantic.
UnitedHealth/Change Highlights
In February 2022, the DOJ, together with Attorneys General in Minnesota and New York, filed a complaint to stop UnitedHealth Group Incorporated (UHG) from acquiring Change Healthcare Inc. According to the complaint the proposed $13 billion transaction would harm competition in commercial health insurance markets, as well as in the market for a vital technology used by health insurers to process health insurance claims and reduce health care costs.
In the complaint the Government argued that the proposed acquisition was (i) an illegal horizontal merger because it would create a monopoly in the sale of first-pass claims editing solutions in the U.S., (ii) an illegal vertical merger because UHG’s control over a key input—Change’s EDI clearinghouse—would give it the ability and incentive to use rivals’ CSI for its own benefit, which in turn would lessen competition in the markets for national accounts and large group commercial health insurance; and (iii) an illegal vertical merger because United’s control over Change’s EDI clearinghouse would give it the ability and incentive to withhold innovations and raise rivals’ costs to compete in those same markets for national accounts and large group plans.
In its press release, the DOJ also stated that the proposed transaction would give United access to a vast amount of its rival health insurers’ competitively sensitive information. Post-acquisition, United would be able to use its rivals’ information to gain an unfair advantage and harm competition in health insurance markets. The proposed transaction also would eliminate United’s only major rival for first-pass claims editing technology — a critical product used to efficiently process health insurance claims and save health insurers billions of dollars each year — and give United a monopoly share in the market. It further claimed that the proposed acquisition would eliminate an independent and innovative firm, Change, that today supports a variety of participants in the health care ecosystem, including United’s major health insurance competitors, with vital software and services.
To tackle DOJ’s three theories of harm, UHG agreed to divest Change’s claims editing business, ClaimsXten, to TPG upon consummation of the proposed acquisition. The divestiture package included all four of Change’s current claims-editing products. In May 2022, UHG also issued its “UnitedHealth Group Firewall Policy for Optum Insight and Change Healthcare,” addressing the sharing of customers’ competitively sensitive information (CSI) following the transaction.
In September 2022, U.S. District Judge Carl J. Nichols, after a two-week trial concluded that the Government was not able to meet its burden of proving that the transaction would substantially lessen competition in the relevant markets, which allowed the deal to move forward.
First, on the horizontal theory of harm, Judge Nichols determined that UnitedHealth’s proposal to divest ClaimsXten to TPG, allowed TPG to adequately preserve the level of competition that existed previously in the market for claims-editing software. In other words, the DOJ failed to show that the proposed merger was likely to substantially lessen competition in the market for first-pass claims-editing solutions in the U.S. Thus, the Court required UHG to divest ClaimsXten to TPG as proposed.
Author: Molly Donovan
Mr. Potter grows the best pumpkins in town. They’re big and round, perfect for carving, and specially treated with a patented spray that keeps Potter pumpkins squirrel-free for weeks. Genius!
Naturally, all the kids in town buy their Halloween pumpkins from Mr. Potter’s farmstand. They’re a bit more expensive than the competition’s pumpkins, but the price tag is worth the pumpkin perfection.
One thing the kids don’t buy at Mr. Potter’s farmstand: apple cider donuts. Everyone knows that Potter skimps on the cinnamon and sugar and the donuts are too dry besides. The other donuts available in town are loads better.
Seeing that his donuts were mostly going to waste, Mr. Potter could have exited the donut business altogether, but he considered himself a better business person than that. So, here’s what Mr. Potter came up with: no donuts, no pumpkins.
Eeek! Scary.
Mr. Potter made a sign reading:
One pumpkin + ½ dozen donuts = $12. Pumpkins NOT sold separately.
Mr. Potter felt this was perfectly fair—he should be rewarded for his ingenuity and his climb to the top of the local pumpkin market even if his customers felt a bit coerced to buy his donuts.
And the kids did feel coerced—having no choice but to swallow the undesirable donuts to get the pumpkins they needed for Halloween carving.
The donut competitors in town were equally mad. Mr. Potter’s scheme caused their sales to drop off dramatically, practically excluding them from the donut market, at least during the month of October.
But it is what it is, right?
Wrong. Fortunately for everyone (except Mr. Potter), Mikey’s mom happened to be an antitrust lawyer. (Mikey, age 4, was a connoisseur of both donuts and pumpkins, and was understandably very upset over the whole thing.)
When Mikey’s mom learned of Mr. Potter’s Halloween trick she said: this is an antitrust violation called tying!
Tying can run afoul of state and federal antitrust laws. Generally, tying is where a seller makes the sale of one product (or service) contingent on the sale of another product (or service)—leaving the consumer with no choice but to buy both. In tying analyses, most courts look at whether the seller has appreciable economic power in the tying product (pumpkins) to unfairly restrain competition in the tied product (donuts).
Here’s what happened next. Mikey’s mom approached Mr. Potter—”Look,” she said. “We want your pumpkins, but not your donuts. Don’t you know this is an antitrust violation? Your donut tie-in is anticompetitive.”
Mr. Potter – clever as he is – responded, “I’m simply making my donuts more competitive. My competition is free to sell pumpkins and donuts together, just as I’m doing. And, I have no real market power for pumpkins anyway when considering the entire county’s many pumpkin patches (beyond just our small town). Plus, my supposed tie has no effects beyond the month of October anyway—no harm, no foul. I’ll take the risk.”
But after giving it more thought, even if he could win a lawsuit, Mr. Potter did not want to invite an expensive and burdensome antitrust litigation. So as most antitrust disputes go, the matter was settled. Potter agreed to the following: Potter pumpkins sold at wholesale to all local donut shops. The town’s best apple cider donuts sold wholesale to Mr. Potter. No ties, no tricks. The result: Halloween treats for all sold at competitive prices, and everyone lived happily ever after. Until the next Halloween anyway…
Author: Steven Cernak
Recently, FTC Commissioner Bedoya made one of his first speeches and called for a “return to fairness” when enforcing the antitrust laws. In particular, he called for renewed enforcement of the Robinson-Patman Act. This speech is just the latest reason why businesses need to prepare for a new antitrust landscape. But Commissioner Bedoya and anyone else calling for drastic basic changes in antitrust enforcement need to be prepared to patiently work for such change with a skeptical judiciary.
In the speech, Bedoya argued that all the antitrust statutes were passed with the intention of improving the “fairness” of markets, not necessarily their “efficiency,” as the laws have come to be interpreted. Therefore, he wants the FTC to focus the interpretation of all the antitrust statutes on fairness, not efficiency, which he claims to be unambiguous: “People may not know what is efficient — but they know what’s fair.” Specifically, Bedoya called for a rejuvenated enforcement of the Robinson-Patman Act and its prohibitions on various types of discriminations, usually against smaller competitors.
On Bedoya’s Robinson-Patman point in particular, please allow me a short “I told you so.” In a prior post, I explained that Robinson-Patman was forgotten but not gone, still affecting negotiations and leading to a few private suits each year. I have insisted on teaching my Antitrust students about the basics of the law, warning them that it is still alive and was unlikely to ever be repealed. If the FTC were to begin actively enforcing the statute after a couple decades, all that knowledge will come in handy once again for many more lawyers.
More generally, it is not clear that interpretation of antitrust law would need to jettison “efficiency” or consumer welfare and move to “fairness” to reach a different result in some of the anecdotes covered in Bedoya’s speech. At least some of the matters might have come out differently with a longer-term view of competition and consumer welfare. In my view — a view that I know Comm. Bedoya does not share — such a standard would be less ambiguous than trying to figure out what “fairness” requires in any situation.
Author: Jarod Bona
We see many antitrust issues in the distribution world—and from all business perspectives: supplier, wholesale distributor, authorized retailer, and unauthorized retailer, among others. And at the retail level, we hear from internet and brick-and-mortar stores and consumers.
The most common distribution issues that come up are resale-price-maintenance (both as an agreement and as a Colgate policy), terminated distributors/retailers, and Minimum Advertised Pricing Policies or MAP polies.
Today, we will talk about MAP Policies and how they relate to the antitrust laws.
A MAP policy is one in which a supplier or manufacturer limits the ability of their distributors to advertise prices below a certain level. Unlike a resale-price-maintenance agreement, a MAP policy does not prohibit a retailer from actually selling below any minimum price.
In a resale price maintenance policy or agreement, by contrast, the manufacturer doesn’t allow distributors to sell the products below a certain price.
As part of a “carrot” for following MAP policies, manufacturers often pair the policy with cooperative advertising funds or other benefits for the retailer.
Typical targets of MAP policies are online retailers and competition focused on low prices. These policies also do not typically restrict in-store advertising. The manufacturers that employ MAP policies often emphasize branding in their corporate strategy or have luxury products and fear that low advertised prices for those products will make them seem less luxurious. But these policies exist in many different industries and aren’t limited to luxury brands.
In any event, MAP policies are accelerating in the marketplace. Indeed, brick and mortar retailers that fear “showrooming,” will often pressure manufacturers to implement either vertical pricing restrictions or MAP policies. Not surprisingly, the impetus to implement and enforce MAP policies often come from established retailers that want to limit price competition.
We hear many questions about MAP policies, from both those that want to implement them and those that are subject to them.
MAP policies don’t—absent further context—violate the antitrust laws by themselves. But, depending upon how a manufacturer structures and implements them, MAP policies could violate either state or federal antitrust law. So the answer to the question of this heading is the unsatisfying “maybe.”
We can, however, add further context to better understand the level of risk for particular MAP policies.
There is some case law analyzing MAP policies, but it is limited, so if you play in this sandbox, you can’t prepare for any one approach. I had considered going through the cases here, but I think that has limited utility. The fact is that there isn’t a strong consensus on how courts should treat MAP policies themselves. So the best tactic is to understand the core competition issues and make your risk assessments from that.
Because of the limited case law, you should consider, as we do, that there will be a greater variance in expected court decisions about MAP policies, which creates additional risk. This may particularly be the case at the state level because state judges have little experience with antitrust.
In any event, you will need an antitrust attorney to help you through this, so the best I can do here for you to is to help you spot the issues so you can understand if you are moving in the right direction.
If you are familiar with resale price maintenance or Colgate policies, you will notice a lot of overlap with MAP policy issues. But there are important differences.
A minimum advertised price policy is not strictly a limit on pricing. From a competitive standpoint, that helps, but not necessarily a lot. The reality is that a MAP policy can be—for practical reasons—a significant hurdle for online distributors to compete on price for the restricted product. That is, for online retailers, sometimes the MAP policy price is the effective minimum price.
Before we go further, let’s review a little bit. A resale price maintenance agreement is a deal between a manufacturer and some sort of distributor (including a retailer that sells to the end user) that the distributor will not sell the product for less than a set price. Up until the US Supreme Court decided Leegin in 2007, these types of agreements were per se illegal under the federal antitrust laws.
Resale price maintenance agreements are no longer per se federal antitrust violations, but several states, including California, New York, and Maryland may consider them per se antitrust violations under state law, so most national manufacturers avoid the risk and implement a unilateral Colgate policy instead.
Under federal law, courts now usually analyze resale-price-maintenance agreements under the antitrust rule of reason. Some misunderstand that this means they are necessarily legal under federal law, but that isn’t correct. The consequence of the US Supreme Court’s Leegin decision is that under federal law, challengers to Resale Price Maintenance policies must now face the the more difficult rule of reason standard instead of the per se standard.
Colgate policies are named after a 1919 Supreme Court decision that held that it is not a federal antitrust violation for a manufacturer to unilaterally announce in advance the prices at which it will allow its product to be resold, then refuse to deal with any distributors that violate that policy. You can read our article about Colgate policies here.
The bottom line with Colgate is that in most situations the federal antitrust laws do not forbid one company from unilaterally refusing to deal with another. There are, of course, exceptions, so don’t rely on this point without consulting an antitrust lawyer. And a refusal to deal with a competitor is different than a refusal to supply a customer in retaliation for dealing with a competitor. But that is starting to send us into an entirely different doctrine, so I will stop there.
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