Global Competition Law is primarly a practitioner's guide presenting the most salient aspects of the major competition laws country by country, giving an overview of their structure and most charasteristic elements.
Global Competition Law also provides insight into possible future developments in the field.

Global Competition Law

    Tying arrangements are agreements by which a seller makes the sale of one product dependent on the purchase of another. Tying arrangements may be challenged under Section 1 of the Sherman Act as a violation of the general prohibition against “unreasonable restraint[s] of trade,” or under Section 3 of the Clayton Act, which explicitly bars sellers from conditioning sales of a commodity on forbe …

Tying arrangements

          Horizontal price-fixing, in which firms at the same level of the market structure agree upon the prices they will charge customers or pay suppliers, violates Section 1 of the Sherman Act and is deemed per se illegal (United States v. Socony Vacuum Oil Co., 310 U.S. 150 (1940)). This prohibition is broad and applies regardless of whether the price set is reasonable (United States v. Trenton Potteries Co., 273 U.S. 392 (1927)), and even when the agreement merely indirectly affects prices, such as agreements to lower quality, exchange pricing information, or use uniform terms of credit. The per se rule also applies when firms at the same level of the market structure fix maximum prices (see Arizona v. Maricopa County Medical Soc., 457 U.S. 332 (1982)), where an agreement between physicians to set maximum fees was held contrary to Section 1 of the Sherman Act).

  Vertical price-fixing (resale price maintenance) occurs when firms at different levels of the market structure, such as a manufacturer and one of its dealers, agree to fix prices at one or both levels, either at a set amount or within a prescribed range. Vertical price fixing agreements - determining either “floor prices” or “ceiling” prices - have long been viewed as per se violations of Section 1 of the Sherman Act. However, the Supreme Court initiated a reversal of its doctrine in 1997.

  While in early cases, vertical maximum price-fixing or “ceilings,” were held per se illegal (Albrecht c. Herald Co., 390 U.S. 145 (1968)), the Supreme Court, in State Oil Co. v. Kahn (495 U.S. 328 (1997)), hearing the pleas that the condemnation of practices resulting in lower prices to consumers is likely to harm both consumers and manufacturers, held that “vertical maximum price fixing [...] should be evaluated under the rule of reason”. The Court insisted, however, that “arrangements to fix minimum prices [...] remain illegal per se”. The latter prohibition, set in Dr. Miles Medical Co. v. John D. Park & Sons Co. (220 U.S. 373 (1911)) was finally overruled in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (551 U.S. 877 (2007)). In this case the Supreme Court highlighted the many potential procompetitive effects for the practice: “Minimum resale price maintenance can stimulate interbrand competition among manufacturers selling different brands of the same type of product by reducing intrabrand competition among retailers selling the same brand [...]. This [...] in turn encourages retailers to invest in services or promotional efforts that aid the manufacturer's position as against rival manufacturers. Resale price maintenance may also give consumers more options to choose among low-price, low-service brands; high-price, high-service brands; and brands falling in between. Absent vertical price restraints, retail services that enhance interbrand competition might be underprovided because discounting retailers can free ride on retailers who furnish services and then capture some of the demand those services generate. Retail price maintenance can also increase interbrand competition by facilitating market entry for new firms and brands and by encouraging retailer services that would not be provided even absent free riding”. It concluded that per se prohibition of minimum price fixing is no longer relevant and that vertical price restraints should now be judged according to the rule of reason.

  Price suggestions, contrary to fixed prices, do not constitute a violation of the Sherman Act even where the supplier refuses to deal with customers who refuse to apply the suggested prices (United States v. Colgate & Co., 250 U.S. 300 (1919)). On the other hand, where a supplier demands express assurances of compliance with price suggestions (see U.S. v. Parke, Davis & Co., 362 U.S. 29 (1960) or forces compliance (see Simpson v. Union Oil Co. of California, 377 U.S. 13 (1964)), such conduct may satisfy the concerted action requirement and constitute illegal vertical price-fixing.

Price-fixing

           Non-price restraints include agreements to divide sales territories or allocate customers (market division). Such agreements are indirect forms of output restriction. The Supreme Court has generally applied a formalistic horizontal/vertical distinction, treating such restrictions as per se violations where they are between horizontally situated firms, even if unaccompanied by price-fixing. However, in National Collegiate Athletic Assn. v. Bd. of Regents of Univ. of Oklahoma (468 U.S. 85 (1984)), the Supreme Court decided to apply a “quick look” rather than a per se standard to a horizontal agreement affecting output considering the particulars of the affected industry. In the same way, the Antitrust Division of the Department of Justice and the Federal Trade Commission issued Antitrust Guidelines for Collaborations Among Competitors, 2000, where the agencies commit to analyze “agreements [...] reasonably related to, and reasonably necessary to achieve procompetitive benefits from, an efficiency-enhancing integration of economic activity” according to the rule of reason.

  On the other hand, non-price arrangements between vertically situated firms (and now price agreements too) are analyzed using the rule of reason and condemned only when unreasonable given the totality of the economic circumstances of the market. This greater judicial tolerance reflects the view that such restrictions can serve pro-competitive business justifications, such as stimulating interbrand competition, allowing new or weak market participants to induce dealers to promote their products, to attract companies willing to make capital investments, or to ensure control of product quality or safety (see Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977)), where the rule of reason, rather than a per se prohibition, was applied to a franchisor's ban on the franchisees opening outlets elsewhere than in their assigned area).

Non-price restraints

    The Sherman Act concept of the group boycott, or concerted refusal to deal, refers to commercially motivated action by groups of traders against their competitors, customers or suppliers. Early case law concluded that group boycotts are per se illegal, and thus could not be justified by the defendants on grounds that they were reasonable or by demonstrating that the boycott did not affect prices (Klor's, Inc. v. Broadway-Hale Stores, 359 U.S. 207 (1959)).

  The per se standard has been applied to at least four types of classic group boycott cases. The first type concerns group boycotts aimed at ousting a price cutter from the market. A second per se category involves the exploitation of joint market power or control over resources to freeze actual or potential competition. A third category covers the conduct of companies sharing market power who direct their power vertically to force their suppliers or customers to enter into unconscionable arrangements. Finally, the per se standard has been applied to horizontal agreements, regardless of the shared market power of the defendants, where their suppliers or customers are induced to refuse sales or supplies to competitors.

  More recently, the Supreme Court narrowed earlier case-law by ruling that “not every cooperative activity involving restraint or exclusion will share with the per se forbidden boycotts the likelihood of predominantly anticompetitive consequences” (Northwest Wholesale Stationers v. Pacific Stationary & Printing Co., 472 U.S. 284 (1985)). In the case before it, the Court held that unless the plaintiff demonstrated that the defendant cooperative possessed market power or “exclusive access to an element essential to competition”, then the rule of reason should apply to claims that excluding a member from a wholesale purchasing cooperative constitutes a concerted refusal to deal.

  Thus, even in cases where a horizontal agreement exists, courts have sometimes applied the rule of reason rather than the per se standard if the boycotting group did not meet a market power threshold or where the group action was clearly directed at legitimate business, health or safety objectives. Likewise, non-economic boycotts intended to advance political, religious or other non-commercial goals do not violate Section 1 of the Sherman Act.

Group boycotts

    Tying arrangements are agreements by which a seller makes the sale of one product dependent on the purchase of another. Tying arrangements may be challenged under Section 1 of the Sherman Act as a violation of the general prohibition against “unreasonable restraint[s] of trade,” or under Section 3 of the Clayton Act, which explicitly bars sellers from conditioning sales of a commodity on forbearance from purchasing their competitor's products if the effect may be to lessen competition.

  In early cases, the Supreme Court held that although a plaintiff could prevail on a tying claim under Section 3 of the Clayton Act by establishing either that the tying defendant has a “monopolistic position in the market” or a restraint of a significant volume of commerce in the tied product, both elements had to be present in order to prove a tying claim under the Sherman Act. The Court has subsequently held that the standards applied under Section 1 of the Sherman Act are the same as those of Section 3 of the Clayton Act. The Clayton Act's prohibition, however, applies only where both the tying and the tied product are commodities.

  Tie-ins are presumed unlawful if the seller has sufficient market power to impose the tie-in. The plaintiff must establish the following five elements: (1) that the tie affects more than a de minimis amount of interstate commerce; (2) if the tying is not express, that the buyer was coerced into buying the tied product as a condition of buying the tying product; (3) that the two products are separate; (4) that the defendant has economic power in the market; and (5) that there is no valid business justification for the tied sale.

  In determining whether a sufficient volume of interstate commerce is affected, the focus is on the absolute dollar amount of all tied sales rather than the share of the market that such sales represent.

  Products are deemed separate for the purposes of a tying claim if there is sufficient consumer demand for firms to justify providing one item without the other. Thus, in determining whether there are two products involved, the inquiry looks into whether the products are distinguishable in the eyes of buyers and does not turn on the functional relation between the two products.

  The coercion standard is met if business realities “practically compel” the use of the tied product. The Court has rejected the initial requirement that a defendant must possess monopolistic or dominant control in favor of an inquiry that examines whether the defendant's power is sufficient to force consumers to buy something they would not purchase in an unrestrained market. There was a presumption that the defendant enjoyed market power where it offered a unique product, or where the product was protected by patent or copyright. The Supreme Court reversed that case-law in Illinois Tools Works, Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006), holding that “a patent does not necessarily confer market power upon the patentee ... in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product”. Where a plaintiff fails to prove that the defendant has market power in the tying market, it may nevertheless try to show that the challenged arrangement violates the rule of reason.

  Even if the other elements are met, tying may be allowed where necessary to a lawful purpose, such as quality control in franchise agreements, or to a new entrant into the market in order to establish its reputation. Thus, although the per se designation theoretically precludes defenses based on the reasonableness of the conduct, even in such cases courts have generally considered the existence of business justifications for tying arrangements.

  Moreover, until courts develop sufficient experience with a particular industry, tying claims should be evaluated under the rule of reason analysis rather than classified as per se violations (United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001), holding that the court considering a novel claim relating to the technological integration of added functionality should apply the rule of reason).

Exclusive dealing agreements consist in a commitment by a supplier to sell its output exclusively to a particular buyer or by a buyer to source all or a substantial portion of its supplies from a single seller. These agreements have been treated more leniently than tying arrangements, since they may have pro-competitive effects and the seller may pursue objectives other than anticompetitive. Thus, such agreements are assessed pursuant to the rule of reason.

The key factor in determining the validity of an exclusive dealing agreement is whether it effectively forecloses actual or potential rivals' access to the retail market.

Courts first determine the relevant market. As is the case for monopolization or for mergers, for the purposes of Section 1 of the Sherman Act, the relevant market is considered both in terms of product and geographic market.

Having determined the relevant market, courts then look to see whether a substantial share of the relevant market is foreclosed. In making the latter inquiry, they consider the relative strength of the parties, the proportional volume of commerce, and the probable immediate and future effects of the agreement on commerce. A virtual safe harbor exists where the percentage of the market foreclosed is twenty percent or less, and in Jefferson Parish Hospital District No 2 v. Hyde, 466 U.S. 2 (1984), the Supreme Court upheld an exclusive dealing agreement where the market share foreclosed was thirty percent. The duration of the agreement is also relevant, with shorter agreements and agreements with short notice periods for termination more likely to be upheld.

As with tying arrangements, the restraint can be challenged under Section 3 of the Clayton Act if it involves a commodity. Claims falling outside the scope of Section 3 may be brought under Section 1 of the Sherman Act, both requiring now identical proof of a probable competition-lessening effect. Section 5 of the FTCA may also reach exclusive dealing arrangements although the sanctions available are more limited.

Global Competition Law

1433. Tying arrangements

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Les notions juridiques connexes

1433. Tying arrangements

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Les notions juridiques connexes

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