US: Unilateral Conduct

In the United States, potentially exclusionary unilateral conduct (ie, conduct that does not require an agreement between two or more parties) can be challenged by the US Department of Justice (DoJ), the Federal Trade Commission (FTC), state attorneys general (the Agencies) or private litigation brought in federal or state court. The principal federal statute, both for the DoJ and private parties, is section 2 of the Sherman Act (section 2).¹ The FTC can also bring Sherman Act claims under section 5 of the FTC Act (section 5).² In addition, in recent years, the FTC has actively debated the propriety of bringing ‘stand-alone’ cases under section 5 – that is, cases that would not suffice to support an action under the Sherman Act. As discussed in more detail below, this controversial use of section 5 has arisen in some of the more notable unilateral conduct matters brought this year in the United States.

During this past year, both the DoJ and the FTC have been actively engaged in unilateral conduct issues arising from patents and most-favoured nation (MFN) clauses. The FTC has also settled a number of matters involving exclusive dealing arrangements and closed its investigation of Google’s search practices without taking any action. Arguably the most important private case this year was the Third Circuit’s decision in ZF Meritor, LLC v Eaton Corp,³ a case involving loyalty discount programmes. Each of these matters is discussed in more detail below.

Statutory background

Section 2 of the Sherman Act prohibits monopolisation and attempts to monopolise, but does not define the concept of unlawful monopolisation. Instead, US courts have developed an analytical framework for section 2 cases with two primary limiting principles. First, section 2 only applies when a firm possesses monopoly power or has a dangerous probability of achieving monopoly power.⁴ Second, section 2 only applies to anti-competitive exclusionary conduct.⁵ As the US Supreme Court stated with respect to this second element in Verizon Communications v Law Offices of Curtis v Trinko:⁶

The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices – at least for a short period – is what attracts ‘business acumen’ in the first place; it induces risk taking that produces innovation and economic growth. To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anti-competitive conduct.⁷

In applying this standard, US courts routinely state that, for conduct to violate section 2, the anti-competitive act must ‘harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice.’⁸ At the same time, deciding ‘whether any particular act of a monopolist is exclusionary, rather than merely a form of vigorous competition, can be difficult to discern’.⁹ While the courts and agencies have been successful in developing workable standards for some types of conduct, such as predatory pricing, consensus around standards for other types of conduct has proven to be more elusive.

As uncertain as the contours of section 2 of the Sherman Act might be, there is even greater uncertainty regarding the outer bounds of section 5. Section 5 is a broadly worded statute prohibiting ‘unfair methods of competition’ and ‘unfair or deceptive acts or practices.’¹⁰ Long ago, the Supreme Court held that section 5 is not co-extensive with section 2, but failed to define the outer reach of the statute.¹¹ Throughout its history, but particularly within the past few years, the FTC has been engaged in an internal debate regarding the appropriate application of section 5. Most recently, Commissioner Joshua D Wright proposed limiting the stand-alone application of section 5 to conduct that ‘harms or is likely to harm competition significantly and ... lacks cognizable efficiencies.’¹² It appears to be a safe prediction that this debate at the FTC will continue into the coming year.

Overview of recent agency activity

Agency activities involving unilateral conduct during the past year have included:

• joint workshops on ‘patent assertion entities’ and MFN clauses;
• the resolution of a DoJ enforcement action involving MFNs; and
• FTC actions involving ‘standards-essential patents’ and exclusive dealing agreements.

The FTC also brought to a close its investigation into Google’s search and other practices.¹³ Although the FTC unanimously voted to close its investigation of Google’s search practices, the commissioners divided sharply over the voluntary relief that Google implemented with respect to two other practices that were investigated by the FTC.

Google search investigation

On 3 January 2013, the FTC announced its decision to close its 19-month investigation into Google’s business practices.¹⁴The FTC’s investigation centred on the claim that Google had made changes to its search algorithm in order to promote its own vertical properties (eg, Google Shopping) and demote links to its rivals’ websites. In investigating these claims, the FTC unanimously found that Google’s purpose in implementing the design changes was pro-competitive, and that the changes resulted in consumer benefits despite the fact that some competitors received less traffic from Google.¹⁵ As the FTC noted: ‘product design is an important dimension of competition and condemning legitimate product improvements risks harming consumers’.¹⁶ The FTC refused to ‘second-guess a firm’s product design decisions where plausible pro-competitive justifications [had] been offered, and where those justifications [were] supported by ample evidence.’¹⁷

The FTC also closed its investigation with respect to other business practices that were the subject of its investigation, such as Google’s allegedly exclusive arrangements with partners in search syndication and mobile search.¹⁸ Additionally, Google voluntarily undertook (or had already undertaken) to change its conduct regarding two other business practices subject to the investigation, including its alleged misappropriation of rivals’ content for inclusion in Google properties (‘scraping’) and restrictions that Google placed on its AdWords API.¹⁹

With respect to these voluntary commitments, the commissioners sharply split, both with respect to the conduct itself and also its resolution through a voluntary undertaking. Although three commissioners expressed ‘strong concerns’ about the scraping issue, and two with regard to the AdWords API,²⁰ the FTC did not go so far as to conclude that the conduct would constitute a stand-alone violation of section 5 (much less the Sherman Act). The remaining two commissioners were strongly critical, both on the ground that the conduct was not anti-competitive and also with respect to the suggestion that a voluntary undertaking would suffice in the event there had been an antitrust violation.²¹ Writing separately, Commissioner Maureen K Ohlhausen cautioned: ‘If our cases – particularly our stand-alone Section 5 cases – are not anchored to competitive and ultimately consumer harm, then they are completely adrift.’²²Then-Commissioner J Thomas Rosch similarly stated, regarding the scraping issue, that challenging misappropriation as a stand-alone violation of section 5 ‘would be an unwarranted and unprincipled expansion of that statute’s reach’, putting ‘the FTC in the position of becoming the enforcer of the copyright laws on the Internet’.²³ Similarly, Commissioner Rosch warned that forcing Google to change its own API to assist rivals under section 5 would run contrary to section 2 jurisprudence on refusals to deal.²⁴

The sharp disagreement among the commissioners on these two issues highlighted the ongoing debate within the FTC regarding the prosecution of ‘stand-alone’ section 5 violations that do not violate section 2 – a disagreement that, as shown below, resulted in dissenting opinions in nearly every unilateral conduct case brought or settled by the FTC during the year.

Patent issues

The Agencies have long been focused on the intersection of intellectual property rights and competition law, and this year particularly saw a focus on two patent-related topics: standards-essential patents (SEPs); and patent assertion entities (PAEs).

Standards-essential patents

One of the greatest obstacles to innovation in high technology and telecommunications industries is the failure to achieve interoperability of multiple devices and technologies within a system. Companies address this problem by forming standard setting organisations (SSOs). SSOs collaborate on basic technology standards; these standards often incorporate patents that are essential to the standardised technology, commonly called standards-essential patents. After adoption of a standard, SEP owners potentially have the ability to ‘hold up’ firms that build products incorporating these standards; and, to avoid this ‘hold up’ power, many SSOs require SEP owners to agree, prior to adoption of the standard, to license their SEPs on fair, reasonable and non-discriminatory (FRAND) terms. Antitrust concerns can arise when the owner of an SEP violates its FRAND commitment and seeks higher royalties, including by seeking injunctive relief against a party incorporating the standard in its products. This practice is often referred to as ‘patent hold-up.’

In July 2012, then-FTC Commissioner (now FTC Chairwoman) Edith Ramirez testified before Congress explaining FTC concerns regarding the practice of FRAND-encumbered SEP holders seeking exclusion orders before the US International Trade Commission (ITC) against willing licensees.²⁵In January 2013, the DoJ and the US Patent and Trademark Office (PTO) issued a joint policy statement on FRAND-encumbered SEPs expressing similar concerns.²⁶ The DoJ and PTO stated that ‘the public interest may preclude the issuance of an exclusion order in cases where the infringer is acting within the scope of the patent holder’s FRAND commitment and is able, and has not refused, to license on FRAND terms.’²⁷

In a pair of recent enforcement actions, the FTC sought injunctive relief under its section 5 authority against SEP holders that allegedly breached their FRAND commitments. On 26 November 2012, the FTC entered into a consent agreement with Robert Bosch GmbH (Bosch) regarding Bosch’s acquisition of SPX Services (SPX).²⁸ The FTC alleged that prior to being acquired by Bosch, SPX had reneged on FRAND commitments it made to an SSO regarding certain SEPs by seeking injunctive relief against willing licensees of the SEPs.²⁹ On 3 January 2013, the FTC entered into a similar consent agreement with Motorola Mobility (Motorola).³⁰ The FTC alleged that prior to and after being acquired by Google, Motorola had breached its FRAND obligations by seeking injunctive relief against willing licensees of its FRAND-encumbered SEPs.³¹

Both consent agreements required that the SEP holders abandon their claims to injunctive relief and agree to license the SEPs on FRAND terms. Commissioner Ohlhausen issued a dissenting statement in both matters, objecting that:

• seeking injunctive relief for a FRAND-encumbered SEP is not an ‘unfair practice or act’ and does not constitute a stand-alone violation of section 5;
• an SEP holder’s right to petition the courts and the ITC for injunctive relief is protected by the First Amendment;
• the FTC failed to provide any meaningful guidance regarding when the holder of a FRAND-encumbered SEP can seek an injunction without violating section 5; and
• the consent agreements create a doctrinal conflict with the courts and the ITC, which are better equipped to determine when an SEP holder is in breach of its FRAND obligations.³²

The extent to which the Agencies will continue to bring enforcement actions to deter patent hold-up is unclear. Recent changes in the leadership at the FTC make the future of section 5 enforcement in this area uncertain.³³ Additionally, the DoJ has yet to bring an enforcement action to enforce a FRAND commitment, although Deputy Assistant Attorney General Renata B Hesse recently implied that the DoJ has not ruled out section 2 enforcement in this area.³⁴

Patent assertion entities

Over the past year, the Agencies have been actively engaged in a dialogue regarding the effect of PAEs, entities focused on purchasing and asserting patents, on competition and innovation.³⁵ In December 2012, the FTC and the DoJ held a joint workshop to examine the competitive effects of PAEs.³⁶ In his opening comments, then-Chairman Leibowitz cited the FTC’s consent agreement in Bosch/SPX for the proposition that the FTC could potentially bring stand-alone claims under section 5 against PAEs engaged in patent hold-up.³⁷ Recently-appointed Commissioner Joshua D Wright, who succeeded Commissioner Rosch and did not participate in either the Bosch/SPX or Google/Motorola matters, recently expressed scepticism regarding the use of section 5 to combat PAEs engaged in patent hold-up.³⁸ However, Commissioner Wright left open the possibility that some unilateral PAE activity could run afoul of the antitrust laws.³⁹ Finally, Ramirez recently indicated that the FTC is examining its options to combat anti-competitive PAE activity, stating: ‘We have a role to play in advancing a greater understanding of the impact of PAE activity and using our enforcement authority where appropriate to curb anti-competitive and deceptive conduct.’⁴⁰ Ramirez cautioned that ‘PAE activity raises tough competition policy and enforcement issues that defy a one-dimensional answer’, and called for the FTC to conduct an industry study of PAEs under the FTC’s section 6(b) authority.⁴¹

Exclusive dealing

Exclusive dealing is the practice where a seller conditions the sale of its products or services on the requirement that the buyer purchase all, or substantially all, of its requirements from the seller. Exclusive dealing is a common practice in many industries and is often pro-competitive.⁴² However, exclusive dealing can raise antitrust concerns under section 2 and section 5 when a firm with monopoly power uses exclusivity to foreclose its rivals from a substantial share of the market.⁴³

The FTC recently brought a series of enforcement actions under section 5 against firms engaged in exclusive dealing arrangements and related exclusionary conduct. Only one of these enforcement actions was approved by a unanimous vote, highlighting the continued divisions at the FTC over the scope of section 5. As the cases below illustrate, companies engaged in exclusive dealing, or any practice that has a similar potential effect (eg, loyalty discount programmes), should carefully assess their position in the market, the pro-competitive justifications for the practice, and the potential for anti-competitive foreclosure.

IDEXX

Of the FTC’s four recent exclusive dealing cases, its December 2012 case against IDEXX Laboratories, Inc (IDEXX) was the only one where both the complaint and remedy were approved by a unanimous vote.⁴⁴ IDEXX manufactures point-of-care (POC) diagnostic products used by veterinarians. According to the FTC’s complaint, IDEXX maintained a 70 per cent or greater share of the market for POC diagnostic products for a period of at least five years prior to the filing of the complaint.⁴⁵ The FTC alleged that IDEXX achieved and maintained its dominant market share through exclusive contracts with distributors whose combined sales of POC diagnostic products in the US accounted for 85 per cent of the market. The FTC alleged that the exclusive contracts prohibited IDEXX’s distributors from carrying any rival POC diagnostic products and therefore foreclosed IDEXX’s rivals from the primary source of distribution. Perhaps most importantly, IDEXX failed to offer a viable pro-competitive justification for the exclusive contracts. Although IDEXX had engaged in promotional activities with its distributors, the marketing was specific to IDEXX products and therefore did not raise free riding concerns.⁴⁶ IDEXX entered into a consent agreement with the FTC to resolve the matter.⁴⁷

Graco

The FTC’s complaint against Graco, Inc (Graco) was unusual because it challenged acquisitions that took place between five and eight years earlier.⁴⁸The FTC challenged Graco’s 2005 acquisition of Gusmer Corp and its 2008 acquisition of Glascraft, Inc under section 7 of the Clayton Act (section 7).⁴⁹ Because the transactions would be difficult to unwind, the FTC sought behavioural remedies targeting Graco’s exclusive distribution contracts and loyalty discount programme. The FTC alleged that these unilateral practices had enabled Graco to maintain its dominant share in the market for fast-set equipment (FSE) products in the years following the acquisitions.⁵⁰

Commissioner Wright joined in the FTC’s decision to challenge the acquisitions under section 7 but objected to the remedies contained in the consent agreement.⁵¹ Commissioner Wright argued that the exclusive contracts at issue likely were pro-competitive because they addressed a legitimate free riding concern.⁵² Commissioner Wright also noted that the FTC had failed to demonstrate that the loyalty discounts at issue were linked to the anti-competitive effects caused by the acquisitions.⁵³

PoolCorp

Most of the FTC’s recent exclusive dealing enforcement actions targeted manufacturers that imposed exclusivity requirements upon distributors. In PoolCorp, the FTC targeted a large distributor that sought exclusivity from a group of manufacturers.⁵⁴The conduct at issue in PoolCorp did not involve a formal exclusive distribution agreement. Rather, the FTC targeted the tactics Pool Corporation, Inc (PoolCorp) allegedly used to foreclose new entrants. The FTC, however, described only one specific instance of PoolCorp’s alleged exclusionary conduct in its complaint and did not provide evidence of an actual anti-competitive effect.⁵⁵ Rather, the FTC focused on the nature of the conduct and PoolCorp’s apparent lack of a pro-competitive justification, stating: ‘We fail to do our job if we permit a monopolist to decide, without sufficient efficiency justification, whether or on what terms a rival will be permitted to enter the market.’⁵⁶ PoolCorp entered into a consent agreement with the FTC and agreed not to engage in conduct to prevent manufacturers from dealing with other distributors.⁵⁷

Commissioner Rosch issued a dissenting statement that began: ‘This case presents the novel situation of a company willing to enter into a consent decree notwithstanding a lack of evidence indicating that a violation has occurred.’⁵⁸Commissioner Rosch argued that because PoolCorp did not attempt to foreclose any of its existing competitors, or prevent them from expanding, it had not engaged in ‘a general pattern of exclusionary conduct.’⁵⁹ Commissioner Rosch also noted that the new entrant described in the FTC’s only example of PoolCorp’s alleged exclusionary conduct had not ultimately been foreclosed from the market. Additionally, Commissioner Rosch found no evidence that PoolCorp’s threats had resulted in price increases, degradations in service or actual exclusion.⁶⁰

McWane

On 4 January 2012, the FTC filed an administrative complaint against McWane, Inc (McWane) and Star Pipe Products, Ltd (Star), two manufacturers of ductile iron pipe fittings (DIPF) used in municipal water systems across the United States.⁶¹ The FTC alleged that the companies had engaged in a horizontal price-fixing conspiracy. The FTC also alleged that McWane, the dominant manufacturer of domestically produced DIPF products, sought to foreclose Star and Sigma Corporation (Sigma), another DIPF manufacturer, from entry or expansion.⁶² McWane allegedly convinced Sigma to abandon its entry plans and sign an exclusive distribution agreement that effectively guaranteed Sigma margins of close to 20 per cent on the sale of all McWane products. McWane allowed Sigma to resell its products to other distributors but only if the distributors agreed not to sell any rival DIPF products.⁶³ McWane also allegedly foreclosed Star from the market by threatening distributors that purchased Star products with the loss of rebates (on both DIPF and other McWane products) and the prospect of delayed or diminished shipments.⁶⁴ Finally, McWane allegedly made changes to its rebate programme that required distributors to make an exceedingly high percentage of their total DIPF product purchases from McWane.⁶⁵

Commissioner Rosch issued a separate statement regarding the complaint, concurring as to the horizontal price-fixing claims but dissenting as to the exclusive dealing claims.⁶⁶ Commissioner Rosch argued that the exclusionary conduct described in the complaint was lawful under case law from the Eighth and Ninth Circuits.⁶⁷ Interestingly, the administrative law judge that presided over the trial took the exact opposite position. On 9 May 2013, Chief ALJ D Michael Chappell issued his initial decision holding that the FTC had failed to prove the price-fixing conspiracy but that the FTC had met its burden of proof with respect to the exclusive dealing claims against McWane.⁶⁸

MFNs

A most-favoured-nation clause (MFN) is a contractual provision that protects a buyer from price discrimination by guaranteeing that a seller will not sell the same products or services to other buyers on more favourable terms. MFN clauses are commonplace in many industries and normally do not raise antitrust concerns. However, if the dominant buyer in a market secures MFNs from a large percentage of sellers, the MFNs have the potential to result in anti-competitive foreclosure.

The Agencies have challenged MFNs in the past and continue to explore the potential anti-competitive effects of MFNs. In September 2012, the Agencies held a joint public workshop ‘to explore the use of MFN clauses and the implications for antitrust enforcement and policy’.⁶⁹

The most recent enforcement action in this area was the joint challenge by the DoJ and the State of Michigan to MFNs used by Blue Cross Blue Shield of Michigan (Blue Cross) in its contracts with Michigan hospitals.⁷⁰ Some of the MFNs at issue in Blue Cross appeared to be especially pernicious, and therefore it is unsurprising that they drew scrutiny from antitrust enforcers. These so-called ‘MFN-plus’ clauses allegedly required hospitals to charge Blue Cross’ competitors a certain percentage more than they charged Blue Cross. In some cases the differential was as high as 40 per cent.⁷¹ The MFN-plus clauses allegedly had the effect of raising Blue Cross’ rivals’ costs, resulting in reduced competition and higher prices for health insurance.⁷² In March 2013, the parties filed a stipulated motion to dismiss with the court after the State of Michigan enacted laws banning the use of MFNs in contracts with health-care providers.⁷³

Overview of recent private actions

Private litigation continues to play an important role in section 2 enforcement in the United States, although plaintiffs in section 2 cases often fail to survive 12(b)(6) or summary judgment motions (and those that do often fail to prove their case at trial). One recent, notable exception is ZF Meritor, LLC v Eaton Corp,⁷⁴ which raised interesting questions regarding the proper analytical framework for assessing the legality of a loyalty discount programme under section 2.

ZF Meritor

In 2006, ZF Meritor, LLC (ZF Meritor) sued Eaton Corporation (Eaton) alleging that Eaton’s contracts with direct purchasers foreclosed ZF Meritor from 90 per cent of the market for heavy-duty truck transmissions.⁷⁵ Eaton was the dominant supplier of heavy-duty truck transmissions and had entered into long-term contracts with all four of the major buyers in the market. Eaton’s contracts incorporated a loyalty discount programme that provided for large upfront payments to a buyer conditioned on the buyer meeting certain market share purchase thresholds, which could range anywhere from 70 per cent to 97.5 per cent of the buyer’s purchasing requirements.⁷⁶ In 2009, after a four-week jury trial, Eaton was found liable for engaging in unlawful exclusionary conduct.⁷⁷

On appeal to the Third Circuit, Eaton argued that the jury had mistakenly applied the ‘rule of reason’ test to evaluate its conduct instead of the price-cost test.⁷⁸The price-cost test, endorsed by the Supreme Court in a predatory price case, requires proof that a defendant priced its products below an appropriate measure of cost and had a ‘reasonable prospect’ or ‘dangerous probability’ of recouping its losses post-exclusion.⁷⁹ Eaton argued that the price-cost test should be used to evaluate its conduct because its loyalty discounts (ie, ‘pricing practices’) were at the core of ZF Meritor’s claims.⁸⁰

In a split decision, the Third Circuit upheld the jury’s verdict, holding that it was appropriate to evaluate Eaton’s alleged exclusionary conduct under the rule of reason test because Eaton’s long-term contracts were de facto exclusive dealing arrangements and its loyalty discounts were not the ‘predominant mechanism of exclusion.’⁸¹ In a lengthy dissent, Judge Morton Greenberg took issue with the majority’s characterisation of Eaton’s contracts as de facto exclusive dealing arrangements. Judge Morton noted that Eaton’s contracts did not explicitly preclude or have the actual effect of precluding buyers from purchasing rival transmissions.⁸²

Eaton petitioned the Supreme Court for certiorari, and its position was supported by a group of 18 well-known antitrust scholars, including Professor Herbert Hovenkamp and former FTC Chairman William Kovacic.⁸³ The group of scholars argued that ‘whenever a unilaterally determined pricing structure is the alleged mechanism of exclusion, [the price-cost] test should apply’. According to the group: ‘The Third Circuit allowed Meritor to escape the price-cost test by glossing over the mechanism of exclusion and resting simply on the effect.’⁸⁴ The group also warned that the Third Circuit’s decision would have a chilling effect on firms offering pro-competitive above-cost loyalty discounts.⁸⁵ On 29 April 2013, the Supreme Court denied certiorari in the case.⁸⁶ ZF Meritor demonstrates that characterisation of conduct, here as above-cost discounts versus exclusive contracts, can affect the outcome of decisions under section 2.

Other notable private actions

In MiniFrame Ltd v Microsoft Corp, the court dismissed MiniFrame Ltd’s (MiniFrame) predatory pricing and refusal to deal claims against Microsoft Corporation (Microsoft).⁸⁷MiniFrame developed PC-sharing software that enabled multiple users to operate under a single Microsoft licensing agreement. MiniFrame sued Microsoft after Microsoft developed a competing product and modified its licensing agreement to require each user in a third-party multi-user system to enter into a separate licensing agreement.⁸⁸ The court held that Microsoft did not have a duty to license its intellectual property to its rivals.⁸⁹ The court also held that Microsoft had not engaged in unlawful below-cost pricing simply because it bundled its multi-user system with its server products and priced the bundle below what it had previously charged for the stand-alone server products.⁹⁰

In Stewart v Gogo, Inc, a class of airline passengers filed suit against Gogo, Inc (Gogo), the largest provider of internet services on commercial flights.⁹¹ The plaintiffs alleged that Gogo had entered into long-term unlawful exclusive contracts with the majority of commercial airlines in the US that gave Gogo control over 85 per cent of the market for in-flight internet access.⁹² Gogo argued that its exclusive contracts operated on an aircraft-by-aircraft basis and therefore did not foreclose competition from a substantial share of the market. Specifically, Gogo argued that the majority of planes in the US were not internet-equipped, and if the court included non-equipped planes in the relevant market Gogo’s share was only 16 per cent.⁹³ The court dismissed the case, agreeing with Gogo that the addressable market had to be considered because the plaintiffs had not alleged that there were technological or financial barriers preventing other planes from being equipped with internet access.⁹⁴

Finally, in Abraham & Veneklasen Joint Venture v American Quarter Horse Association, the plaintiffs, a group of breeders, sued the American Quarter Horse Association (AQHA) for violations of section 2 after it adopted a rule banning cloned horses from the AQHA registry.⁹⁵ The court denied the AQHA’s motion for summary judgment as to the plaintiffs’ monopoly maintenance claim. The court held that ‘the evidence could support a finding that an economically viable Quarter Horse ... is whatever AQHA says it is’, and therefore ‘a factfinder could determine that the AQHA has monopoly power in the economically viable Quarter Horse market’.⁹⁶ The court also held that a factfinder could determine that ‘because the AQHA defines the market, it maintains power by refusing to redraw market boundaries’.⁹⁷ The case proceeded to trial, and on 30 July 2013, a jury found that the AQHA had violated section 2.⁹⁸

Conclusion

As the past year demonstrates, identifying unlawful unilateral conduct under the US competition laws remains a controversial and difficult task for the Agencies, courts and private plaintiffs. The cases discussed above do not provide an all-encompassing review of the issues companies face under section 2 and section 5. There are many variations of potentially exclusionary conduct that can draw scrutiny from the Agencies and private plaintiffs. Therefore, companies engaged in conduct that might be challenged should carefully assess their position in the market, the effect of the conduct on competition and consumers, and the pro-competitive justification for the conduct.

Notes

1. 15 USC § 2. Section 2 states: ‘Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.’
2. 15 USC § 45. Section 5 states: ‘Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.’
3. 696 F.3d 254 (3d Cir. 2012), cert. denied, 133 S. Ct. 2025 (2013).
4. See United States v Grinnell Corp, 384 US 563, 570-71 (1966). Monopoly power is the power to control prices or exclude competition. US v E I du Pont de Nemours & Co, 351 US 377, 391 (1956). Although market shares are relevant in a section 2 inquiry they are not conclusive proof of monopoly power. For example, a dominant firm in a market with low entry barriers likely would not possess monopoly power.
5. See Spectrum Sports, Inc v McQuillan, 506 US 447, 456 (1993); Grinnell, 384 US at 570-71.
6. 540 US 398 (2004).
7. Id at 407.
8. United States v Microsoft Corp, 253 F.3d 34, 58 (DC Cir. 2001) (en banc) (per curiam); see also United States v Dentsply Int’l, 399 F.3d 181, 187 (3d Cir. 2005), cert. denied, 126 S. Ct. 1023 (2006) (‘[T]here must be proof that competition, and not merely competitors, has been harmed.’).
9. Microsoft, 253 F.3d at 58.
10. 15 USC § 45.
11. FTC v Sperry & Hutchinson Co, 405 US 233, 243-44 (1972).
12. Joshua D Wright, Commissioner, Federal Trade Commission, Proposed Policy Statement Regarding Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act, at 2-3 (19 June 2013), available at www.ftc.gov/speeches/wright/130619umcpolicystatement.pdf.
13. Wilson Sonsini Goodrich and Rosati’s antitrust group represented Google in the matter.
14. Statement of the Federal Trade Commission Regarding Google’s Search Practices, In the Matter of Google, Inc, FTC File No. 111-0163 (3 January 2013) (FTC Google Search Statement), available at www.ftc.gov/os/2013/01/130103googlesearchstmtofcomm.pdf.
15. Id at 2-3.
16. Id at 3.
17. Id.
18. Statement of Commissioner Maureen K Ohlhausen, In the Matter of Google, Inc, FTC File No. 111-0163, at No. 1 (3 January 2013) (Ohlhausen Google Search Statement), available at www.ftc.gov/os/2013/01/130103googlesearchohlhausenstmt.pdf.
19. FTC Google Search Statement, supra note 14, at 3 No. 2.
20. Id.
21. Ohlhausen Google Search Statement, supra note 18; Concurring and Dissenting Statement of Commissioner J Thomas Rosch Concerning Google, Inc’s Search Practices, In the Matter of Google, Inc, FTC File No. 111-0163 (3 January 2013) (Rosch Google Search Statement), available at www.ftc.gov/os/2013/01/130103googlesearchroschstmt.pdf. According to the FTC’s statement, Commissioner Ramirez also objected to the form of the remedy. See FTC Google Search Statement, supra note 14, at 3 No. 2 (‘While Commissioner Ramirez is pleased that Google has decided to change certain of its practices, she objects to the form of the commitments made by Google.’).
22. Ohlhausen Google Search Statement, supra note 18, at 2.
23. Rosch Google Search Statement, supra note 21, at 2, 4.
24. Id at 5.
25. Statement of Commissioner Edith Ramirez, Federal Trade Commission, Before the Committee on the Judiciary, US Senate, Washington, DC (11 July 2012), available at www.ftc.gov/speeches/ramirez/120711septestimony.pdf. If the ITC determines that a product has infringed a valid patent it has the power to enter an exclusion order banning the import and sale of the infringing product.
26. United States Department of Justice and United States Patent & Trademark Office, Policy Statement on Remedies for Standards-Essential Patents Subject To Voluntary FRAND Commitments (8 January 2013), available at www.justice.gov/atr/public/guidelines/290994.pdf.
27. Id at 9.
28. Agreement Containing Consent Orders, In the Matter of Robert Bosch GmbH, FTC File No. 121-0081 (26 November 2012), available at http://ftc.gov/os/caselist/1210081/121126boschagree.pdf.
29. Statement of the Federal Trade Commission, In the Matter of Robert Bosch GmbH, FTC File No. 121-0081, at 1 (26 November 2012), available at http://ftc.gov/os/caselist/1210081/121126boschcommissionstatement.pdf.
30. Agreement Containing Consent Order, In the Matter of Google, Inc, FTC File No. 121-0120 (3 January 2013), available at www.ftc.gov/os/caselist/1210120/130103googlemotorolaagree.pdf.
31. Statement of the Federal Trade Commission, In the Matter of Google, Inc, FTC File No. 121-0120, at 1 (3 January 2013), available at www.ftc.gov/os/caselist/1210120/130103googlemotorolastmtofcomm.pdf.
32. See Statement of Commissioner Maureen K Ohlhausen, In the Matter of Robert Bosch GmbH, FTC File No. 121-0081, available at www.ftc.gov/os/caselist/1210081/121126boschohlhausenstatement.pdf; Dissenting Statement of Commissioner Maureen K Ohlhausen, In the Matter of Motorola Mobility LLC and Google, Inc, FTC File No. 121-0120 (3 January 2013), available at www.ftc.gov/os/caselist/1210120/130103googlemotorolaohlhausenstmt.pdf.
33. The FTC leadership currently consists of Chairwoman Ramirez, Commissioner Brill, Commissioner Ohlhausen, and Commissioner Wright. As discussed above, Commissioner Ohlhausen dissented in both of the FTC’s recent SEP cases. Additionally, Commissioner Wright has openly questioned the usefulness of antitrust enforcement in this area. See Commissioner Joshua D Wright, What Role Should Antitrust Play in Regulating the Activities of Patent Assertion Entities?, at 18 (17 April 2013) (Wright PAE Speech), available at www.ftc.gov/speeches/wright/130417paespeech.pdf (‘With little social value from stacking antitrust remedies on top of those provided by other legal regimes, and the risk of false positives – especially in cases involving mere breach of a RAND commitment rather than deception, the marginal benefit of antitrust enforcement in this context is therefore likely to be small.’).
34. In a February 2013 speech, Deputy Assistant Attorney General Hesse compared the situation in Broadcom Corp v Qualcomm, Inc, 501 F.3d 297 (3d Cir. 2007), where the SEP holder was found liable under section 2 for intentionally deceiving an SSO, to a situation where the SEP holder makes a good faith FRAND commitment to an SSO but changes its mind after the standard is set. Comparing the two cases, Hesse seemed to suggest that the holding in Broadcom should be applicable to patent hold-up cases regardless of the SEP holder’s intent, stating that: ‘Competition and consumers appear to suffer either way.’ Renata B Hesse, Deputy Assistant Attorney General, US Department of Justice, Antitrust Division, IP, Antitrust and Looking Back on the Last Four Years, at 20-21 (8 February 2013), available at www.justice.gov/atr/public/speeches/292573.pdf.
35. PAEs, sometimes referred to as ‘patent trolls,’ are ‘firms whose business model primarily focuses on purchasing and asserting patents.’ Federal Trade Commission, The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition, at 8 No. 5 (March 2011), available at www.ftc.gov/os/2011/03/110307patentreport.pdf. PAEs are often criticised for using litigation as a means for seeking unreasonable royalties from parties that can little afford the expense of defending an infringement lawsuit. However, defenders of PAEs note that they provide patent holders with revenue from their inventions and allow them to focus on innovation without the distraction or expense litigation entails. See Wright PAE Speech, supra note 33.
36. Federal Trade Commission and US Department of Justice, Patent Assertion Entity Activities Workshop (10 December 2012), materials available at www.ftc.gov/opp/workshops/pae/.
37. Opening Remarks of FTC Chairman Jon Leibowitz, Patent Assertion Entity Workshop, at 4 (10 December 2012), available at www.ftc.gov/speeches/leibowitz/121210paeworkshop.pdf.
38. Wright PAE Speech, supra note 33, at 16-20.
39. Commissioner Wright cited two examples: ‘practicing entities [that] transfer their patents to PAEs with instructions or incentives to litigate against their rivals while hiding the origin of the patents;’ and ‘PAEs [that] demand payments from alleged infringers’ downstream customers rather than from the infringing manufacturers.’ Id No. 38.
40. Opening Remarks of Chairwoman Edith Ramirez, Federal Trade Commission, Competition Law and Patent Assertion Entities: What Enforcers Can Do, at 2 (20 June 2013), available at www.ftc.gov/speeches/ramirez/130620paespeech.pdf.
41. Id at 8.
42. The most frequently cited pro-competitive justification for exclusive dealing is that it creates a dedicated distribution channel that aligns the incentives of the seller and buyer. This encourages investment in the seller/buyer relationship and alleviates concerns regarding ‘free riding’ (eg, the practice where a manufacturer invests resources to train a distributor and the distributor uses the training to sell a competitor’s products). See, eg, Jonathan M Jacobson, Exclusive Dealing, ‘Foreclosure,’ and Consumer Harm, 70 Antitrust LJ 311, 358 (2002), available at www.wsgr.com/publications/pdfsearch/jacobson_foreclosure.pdf.
43. Exclusive dealing can also be unlawful under Section 1 of the Sherman Act and Section 3 of the Clayton Act. However, ‘the standards for liability under Section 1 (and Section 3 of the Clayton Act) have toughened considerably over the last three decades as per se rules for exclusive dealing and tying practices have fallen into disfavor.’ Commissioner J Thomas Rosch, Vertical Restraints and Sherman Act § 2, at 10 (13 June 2007), available at www.ftc.gov/speeches/rosch/070613verticalrestraints.pdf.
44. Complaint, In the Matter of Idexx Laboratories, Inc, FTC File No. 101-0023 (21 December 2012), available at www.ftc.gov/os/caselist/1010023/121221idexxcmpt.pdf.
45. Id at 3.
46. Id at 4-5.
47. Agreement Containing Consent Order to Cease and Desist, In the Matter of Idexx Laboratories, Inc, FTC File No. 101-0023 (21 December 2012), available at www.ftc.gov/os/caselist/1010023/121221idexxagreeorder.pdf.
48. Complaint, In the Matter of Graco, Inc, File No. 101-0215, Docket No. C-4399 (17 April 2013), available at www.ftc.gov/os/caselist/1010215/130418gracocmpt.pdf.
49. Id. Section 7 prohibits acquisitions where ‘the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.’ 15 USC § 18.
50. Statement of the Federal Trade Commission, In the Matter of Graco, Inc, File No. 101-0215, (17 April 2013), available at www.ftc.gov/os/caselist/1010215/130418gracostatement.pdf.
51. Statement of Commissioner Joshua D Wright, In the Matter of Graco, Inc., File No. 101-0215, (17 April 2013), available at www.ftc.gov/os/caselist/1010215/130418gracowrightstatement.pdf.
52. Commissioner Wright noted that FSE product distributors needed specialised technical expertise to properly serve end customers and that Graco presumably invested resources to provide training to its distributors. Id at 3.
53. Commissioner Wright noted that the record contained no evidence that any of Graco’s distributors had stopped carrying a competitors’ product as a result of the loyalty discount programme, and that Graco’s distributors were free to forego the discounts and sell more rival products if they wished to do so. Id at 4.
54. Complaint, In the Matter of Pool Corporation, FTC File No. 101-0115 (21 November 2011), available at www.ftc.gov/os/caselist/1010115/111121poolcorpcmpt.pdf.
55. Id at 5.
56. Statement of Commissioners Julie Brill, Jon Leibowitz and Edith Ramirez Regarding the Complaint and Proposed Consent Order, In the Matter of Pool Corporation, FTC File No. 101-0115, (21 November 2011), available at www.ftc.gov/os/caselist/1010115/111121poolcorpstatement.pdf.
57. Agreement Containing Consent Order to Cease and Desist, In the Matter of Pool Corporation, FTC File No. 101-0115 (21 November 2011), available at www.ftc.gov/os/caselist/1010115/111121poolcorpagree.pdf.
58. Dissenting Statement of J Thomas Rosch, In the Matter of Pool Corporation, FTC File No. 101-0115, at 1 (21 November 2011), available at www.ftc.gov/os/caselist/1010115/111121poolcorpstatementrosch.pdf.
59. Id at 1.
60. Id at 1-2.
61. Complaint, In the Matter of McWane, Inc and Star Pipe Products Ltd, FTC File No. 101-0080, Docket No. 9351 (4 January 2012), available at www.ftc.gov/os/adjpro/d9351/120104ccwanestaradmincmpt.pdf.
62. Id at 1-2.
63. Id at 8-9.
64. Id at 9-10.
65. Id at 10.
66. Statement of Commissioner J Thomas Rosch Concurring in Part and Dissenting in Part, In the Matter of McWane, Inc and Star Pipe Products Ltd and In the Matter of Sigma Corporation, FTC File No. 101-0080 (4 January 2012), available at www.ftc.gov/os/adjpro/d9351/120104ccwanestarstatement.pdf.
67. Id at 1.
68. ALJ Initial Decision, In the Matter of McWane, Inc and Star Pipe Products Ltd, Docket No. 9351 (8 May 2013), available at www.ftc.gov/os/adjpro/d9351/130509mcwanechappelldecision.pdf.
69. Press Release, Department of Justice, Federal Trade Commission to Hold Workshop on ‘Most-Favoured-Nation’ Clauses (17 August 2012), available at www.justice.gov/atr/public/press_releases/2012/286144.htm. Materials from the workshop are available at www.justice.gov/atr/public/workshops/mfn/.
70. Complaint, United States v Blue Cross Blue Shield of Michigan, Civ. Action No. 2:10-cv-15155-DPH-MKM (E.D. Mich. 18 October 2010) (Blue Cross Complaint), available at www.justice.gov/atr/cases/f263200/263235.pdf. The complaint was brought under section 1 of the Sherman Act but MFN cases have been brought under section 2. See, eg, Reazin v Blue Cross & Blue Shield of Kansas, Inc, 899 F.2d 951 (10th Cir. 1990), cert. denied, 497 US 1005 (1990).
71. Blue Cross Complaint, supra note 70, at 3.
72. Id at 4.
73. Stipulated Motion and Brief to Dismiss Without Prejudice, United States v Blue Cross Blue Shield of Michigan, Civ. Action No. 2:10-cv-15155-DPH-MKM (E.D. Mich. 25 March 2013), available at www.justice.gov/atr/cases/f295100/295119.pdf.
74. 696 F.3d 254 (3d Cir. 2012), cert. denied, 133 S. Ct. 2025 (2013).
75. Id at 267.
76. Id at 263-65.
77. Id at 267.
78. Id at 269. The rule of reason test, which is used in exclusive dealing cases, is a balancing test that weighs the anti-competitive effects of the conduct against its pro-competitive justifications.
79. Brooke Group Ltd v Brown & Williamson Tobacco Corp, 509 US 209, 223-24 (1993).
80. ZF Meritor, 696 F.3d at 273.
81. Id at 277. The Third Circuit noted that ZF Meritor had introduced evidence of non-price based exclusionary conduct, including the purchase requirement thresholds and Eaton’s alleged practice of coercing buyers into removing ZF Meritor’s products from their data books.
82. Id at 342-45.
83. Brief for Eighteen Scholars as Amici Curiae in Support of Petitioner, Eaton Corp v ZF Meritor LLC, No. 12-1045 (28 March 2013), available at http://law.wm.edu/faculty/documents/Meritor-Amicus.pdf.
84. Id at 9.
85. Id at 14-17.
86. ZF Meritor, LLC v Eaton Corp, 696 F.3d 254 (3d Cir. 2012), cert. denied, 133 S. Ct. 2025 (2013).
87. MiniFrame Ltd v Microsoft Corp, No. 11 Civ. 7419 (RJS), 2013 WL 1385704 (S.D.N.Y. 28 March 2013).
88. Id at *1-2.
89. Id at *3-5.
90. Id at *5-6.
91. Stewart v Gogo, Inc, No. C-12-5164 EMC, 2013 WL 1501484 (N.D.Cal. 10 April 2013).
92. Id at *1-2.
93. Id at *4-5.
94. Id at *6.
95. Abraham & Veneklasen Joint Venture v American Quarter Horse Association, No. 2:12-cv-103-J, 2013 WL 2297104 (N.D.Tex. 24 May 2013).
96. Id at *6.
97. Id.
98. Betsy Blaney, Jury: Quarter horse group violating antitrust laws, Miami Herald (30 July 2013), available at www.miamiherald.com/2013/07/30/3530754/jurors-to-resume-horse-cloning.html.