Chapter 11 Predatory Conduct

joe s. bain, barriers to new competition 12–19 (hereinafter bain barriers) (Harvard Univ. Press, 1956).

Limit-price theory was first articulated in john b. clark and franklin h. giddings, the modern distributive process 32 (Ginn & Co., 1888). It was next mentioned in alfred marshall, industry and trade (Macmillan, 3d ed., 1920). Its real development began with Nicholas Kaldor, Market Imperfections and Excess Capacity, 2 economica 33 (1935). It was developed further by Robert Triffin, Monopolistic Competition and General Equilibrium Theory 122 (Harvard Univ. Press, 1940), philip w.s. andrews, manufacturing business 148 (Macmillan, 1949), roy f. harrod, economic essays 179 (Macmillan, 1952), and J.R. Hicks, The Process of Imperfect Competition, 6 ox. econ. papers 41 (1954). The early work reached its apotheosis in bain barriers and paulo sylos-labini, oligopoly and technological progress 33 (Harvard Univ. Press, 1960). In my opinion, much of the subsequent work in this area reinvents the wheel, which it redescribes in game-theoretic or stochastic terms without noticing its deficiencies. See, e.g., Darius Gaskins, Dynamic Limit Pricing: Optimal Limit Pricing Under Threat of Entry, 3 j. econ. theory 306 (1971).

See, e.g., Frank Easterbrook, Predatory Strategies and Counterstrategies, 48 U. chi. l. rev. 263 (1981). Easterbrook also argues that the probable effectiveness and profitability of predatory pricing will be substantially and often critically reduced by the ability of a target that would operate profitably absent predation to survive by obtaining external financing. See id. at 269. For two reasons, this possibility seems less significant to me than to Easterbrook. First, a firm that could have operated profitably had it not been the target of predatory moves might not be able to break even after receiving such external financing once a predatory campaign has been initiated against it. In part, this conclusion reflects the fact that the predator may continue its campaign even after the external financer renders it unprofitable in itself to deter potential external financers of its future targets from supplying them with capital. (Admittedly, however, one would also have to take account of the offsetting, long-run stake that the external financers may have in developing a reputation for hanging tough to induce predators whose predation led the financer’s customers to seek financial help to cease their predation once it has supplied the relevant targets with assistance.) Second, a predation-target to which financing could be profitably supplied if perfect information about its situation were costlessly available may be precluded from securing such financing by the impacted character of the relevant information—by the cost or impossibility of proving the profitability of the relevant loan or capital infusion to an external financer, of demonstrating to an outsider (inter alia) that the firm seeking capital would be profitable if predation stopped.

This argument was first made in John McGee, Predatory Price Cutting: The Standard Oil (N.J.) Case, 1 j. law & econ. 137 (1958).

See Reinhard Selten, The Chain-Store Paradox, 9 theory and decision 127 (1978).

The summary is taken from Paul Milgrom and John Roberts, Predation, Reputation, and Entry Deterrence, 27 j. econ. theory 280, 283 (1982).

See Paul Joskow and Alvin Klevorick, A Framework for Analyzing Predatory Pricing Policy (hereinafter Joskow and Klevorick), 89 yale l. j. 213, 244, 227–31 respectively (1979).

See Chap.​ 6.

See Chaps. 8 and 10.

On the one hand, COMs will be positively correlated with market-share stability to the extent that firms that are securing high COMs may hesitate to make additional sales when their marginal costs fall more (rise less) than their rivals’ or when buyer preferences shift in their direction out of fear that doing so will disrupt contrived oligopolistic collaboration. On the other, COMs will be negatively correlated with market-share stability to the extent that they are positively correlated with the incidence of rounds of undercutting and retaliation or more all-out price-wars.

Because OCAs vary from ARDEPPS to ARDEPPS and are not highly or strongly correlated with COMs in the ARDEPPSes in question.

See Chaps. 2 and 10.

Joskow and Klevorick at 226–27.

Id. at 227. This usage is itself unfortunate since Bain used the expression “condition of entry” in two senses that differ not only from each other but from Joskow and Klevorick’s definition. In particular, Bain used “condition of entry” first to refer to “the maximum gap” between price and marginal cost at which entry may be forestalled for the most-favored established firm or firms in the industry, supposing concurrent price elevations by all established firms. See bain barriers at 8. Bain used this expression second to refer to (1) whether entry would take place if limit pricing were not practiced (if not, entry is said to be “blockaded”) and (B) whether, if it would, limit pricing would be more profitable than allowing entry to occur (in which case limit pricing would be practiced and entry is said to be “effectively impeded”) or less profitable than allowing entry to occur (in which case limit pricing would not be practiced and entry is said to be “ineffectively impeded”).

Decisions to charge lower prices may also be profitable for strategic, non-predatory reasons when they are made by contrivers to retaliate against undercutters (underminers). The text ignores this possibility because such non-defensive retaliation is as illegal as predatory pricing.

See Janusz Ordover and Robert Willig, An Economic Definition of Predation, 91 yale l.j. 8, 12–13 (1981).

See, e.g., id. The U.S. Supreme Court has adopted this presumption in several cases. See, e.g., Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 504 U.S. 209 (1993) and Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986).

See philip areeda & donald turner, antitrust law (hereinafter areeda & turner) vol. 3, 711a (Little Brown, 1978). These authors limit this conclusion to cases in which the price in question is also below average total cost. Id. at 711d and 715b. This limitation is illogical. It would be justified only if all those but only those sub-marginal-cost prices that exceeded average total cost represented legitimate promotional or learning-by-doing pricing. There is no reason to believe that either of these conditions is fulfilled.

Joskow and Klevorick at 252

See Joskow and Klevorick at 254. Once more, however, the example they offer of such a supra-ATC predatory price is a limit-pricing example, indeed a limit-pricing example that again puts too much stress on the profits the new entrant can make just after entry. See id. at 254–55 note 85. Since I think that limit pricing is rarely if ever practiced and doubt that the returns a new entrant can realize in the “immediate post-entry” period would often be critical in any case (since most entrants are large conglomerates that are perfectly able to finance short-run losses), I question the appositeness of this example. I should add that, although Joskow and Klevorick never addressed the following admittedly-probably-rare possibility, I am certain that they would grant that prices that exceed average total cost may well be predatory if they are below marginal cost, a possibility that can occur when the seller in question is operating above full capacity—i.e., where MC > ATC.

William Baumol, Quasi-Permanence of Price Reductions: A Policy For Prevention of Predatory Pricing, 89 yale l.j. 1, 4–6 (1979).

See Joskow and Klevorick at 255.

See Oliver Williamson, Predatory Pricing: A Strategic and Welfare Analysis, 87 yale l.j. 284 (1977). Williamson also proposed that prices that do not cover average total cost be deemed to be predatory. Id. at 296 and 333–34.

United States v. Aluminum Co. of American (Alcoa), 148 F.2d 416, 432 (2d Cir. 1945).

See United States v. Grinnell Corp., 384 U.S. 563, 570–71 (1966). See also Wheeling-Pittsburgh Steel Corp. v. Mitsui & Co., 35 F. Supp. 2d 597 (S.D. Ohio 1999); Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 79 F.3d 182 (1st Cir. 1996); and Rebel Oil Co., Inc. v. Atlantic Richfield Co., 51 F.3d 1421 (9th Cir. 1995).

See A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396, 1402 (7th Cir. 1989).

See Brooke Group Ltd. (Liggett) v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 225 (1993), citing Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 459 (1993) for the relevant element of the Sherman Act test and Falls City Industries, Inc. v. Vanco Beverages, Inc., 460 U.S. 428, 434 (1983) for the relevant element of the Robinson-Patman Act point. Later in Brooke Group, the Court substituted the expression “reasonable prospect” for “a reasonable possibility.” See Brooke Group Ltd. (Liggett) v Brown & Williamson Tobacco Corp., 509 U.S. 209, 242 (1993).

See Philip Areeda and Donald Turner, Predatory Pricing and Related Practices Under § 2 of the Sherman Act, 88 harv. l. rev. 697 (1975).

See, e.g., William Inglis & Sons Baking Co. v. ITT Continental Baking Co., Inc., 668 F.2d 1014 (9th Cir. 1981), cert. denied, 459 U.S. 825 (1982).

United States v. AMR Corp., 335 F.3d 1009 (10th Cir. 2003).

See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 231, 238–39, 241–42 (1993). See also A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc. 881 F.2d 1396, 1400 (7th Cir. 1989).

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 225 (1993).

Utah Pie Co. v. Continental Baking Co., 386 U.S. 685 (1967).

See United States v. United Shoe Machinery Corp., 110 F. Supp. 295 (D. Mass. 1953). The judge was David Wyzanski; the court master was Carl Kaysen.

See Brooke Group Ltd. v. Brown and Williamson Tobacco Corp., 509 U.S. 209, 220–22 (1993).

Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 119 n.15 (1986).

See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993).

See United States v. Aluminum Co. of America, 148 F.2d 416, 437 (2nd Cir. 1945). Hand’s comments on the legality of Alcoa’s alleged price squeeze were inconsistent. Thus, he states: “…perhaps it ought not to be considered as a separate wrong; moreover, we do not use it as part of the reasoning by which we conclude that the [i.e., Alcoa’s] monopoly was unlawful. But it was at least an unlawful exercise of Alcoa’s power….” Id. The conclusion that Hand thought that price squeezes that satisfied the three criteria listed in the text violated Section 2 of the Sherman Act is also supported by the fact that his discussion of Alcoa’s price squeeze is in a section of the opinion entitled “Alcoa’s Unlawful Practices” and by his statement “That it was unlawful to set the price of ‘sheet’ [the downstream product] so low and hold the price of ingot [the upstream product] so high, seems to us unquestionable, provided, as we have held, that on this record, the price of ingot must be regarded as higher than a ‘fair price.’” Id. at 438. (Earlier in the opinion, Hand had also found that Alcoa had monopoly power.) My conclusion that Hand’s price-squeeze legal conclusion is dicta reflects the fact that, in the context of the opinion, price squeezes need not have been independently illegal for Alcoa’s use of them to have militated against a finding that it had not violated the Sherman Act because its monopoly power had been “thrust upon it” or had been achieved through “skill, foresight, and industry.” Indeed, even if price squeezes were “honestly industrial,” a finding that they had helped Alcoa obtain or preserve its monopoly power would favor the conclusion that Alcoa had violated Section 2 of the Sherman Act so long as the price squeeze was not economically efficient.

See, e.g., charles j. goetz and fred s. mcchesney, antitrust law: interpretation and implementation 491 (Foundation Press, 2009).

See Judge (now Justice) Breyer’s opinion for the first-circuit Court of Appeals in Town of Concord v. Boston Edison Co., 915 F.2d 17, 18–19 (1st Cir. 1990).

Indeed, the only case I know in which a court recognized that the State’s or a private plaintiff’s price-squeeze argument was really or also a predatory-pricing argument is the recent case in which the Supreme Court held that price-squeeze claims cannot be brought under Section 2 of the Sherman Act. See Pacific Bell Telephone Company, dba AT&T California, et al. v. LinKline Communications, Inc., et al., 129 S.Ct. 1109, 1120–21 (2009) (hereinafter Pacific Bell).

See Pacific Bell at 1118, citing United States v. Colgate & Co., 250 U.S. 300, 307 (1919). I hasten to add that exceptions to that general rule have been made by circuit courts in so-called essential-facilities cases (see Subsection 5B of this chapter) and by the Supreme Court in a prominent, fairly-recent case. See Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).

See Pacific Bell at 1119, articulating the holding of Verizon Communications, Inc. v. Law Offices of Curtis v. Trinko, LLP, 540 U.S. 398, 410 (2004) (hereinafter Trinko).

See Town of Concord v. Boston Edison Co., 915 F.2d 17 (1st cir. 1990), quoting Fishman v. Estate of Wirtz, 807 F.2d 520, 563 (7th Cir. 1986) (Easterbrook, J. dissenting and collecting authorities).

The determinants of the profitability of both this form of perfect price discrimination and the most-profitable combination of supra-marginal-cost per-unit prices and lump-sum fees for a seller to charge will be analyzed in Chap. 14. Chapter 14 will also explain that the argument that modern economists have made for the ability of tie-ins to generate leverage also implicitly assumes (unrealistically) that, absent the tie-in, the relevant seller would single-price the tying product.

For example, it is notable that the predatory-pricing case brought against the Associated Central West Africa Lines (Cewal) shipping conference for using so-called fighting ships that charged lower than normal prices to shippers that would otherwise have patronized a non-member (G & C) was brought under now-Article 102 of the Treaty and not under now-Article 101. See Joined Cases C-395/96 P & C-396/96P, Compagnie Maritime Belge Transps. SA v. Commission, 2000 E.U.R. I-1365 (E.U.J.) and Joined Cases T-24/95, T25/93, T26/93 & T-28/93, Compagnie Maritime Belge Transps. SA v. Commission, 1996 E.U.R. II (CFI).

Admittedly, the EC and E.C./E.U. courts sometimes do state that the concept of an exclusionary abuse is an “objective” concept that does not require any proof of intent—i.e., covers pricing that is not predatory if it enhances or maintains the dominant position of an individually-dominant firm or collectively-dominant set of rivals. See Hoffmann-La Roche v. Commission, Case 85/76, ECR 46, p. 91 (1979). However, I do not think they really mean it: What they really mean is that exclusionary abuses can be established purely through what they call “indirect evidence” (which the U.S. courts call “objective evidence”) that the conduct in question would not have been profitable had it not secured a predation-related result such as driving a rival out—i.e., without producing persuasive “direct evidence” (which the U.S. courts call “subjective evidence”) of predatory intent. This interpretation is favored by the EC’s and the E.C./E.U. courts’ repeated insistence that abusive behavior be distinguished from competition on the merits and by their conclusion that defendants can exculpate themselves by demonstrating that their conduct was efficient, was a reaction to the buyer’s breach of contract, or was required to secure the public health. See Carles Estera Mossa, Stephen A. Ryan, Svend Albaek, and Maria Luisa Tierno Centella, Article 102 in the ec law of competition 313, 351 (ed. by Jonathan Faull and Ali Nikpay) (Oxford Univ. Press, 2d ed., 2007). It is also supported by such Commission statements as “[t]he predatory nature of charging lower prices to all or certain customers is found in the predator making a sacrifice by deliberately incurring short run losses with the intention to eliminate or discipline rivals or prevent their entry.” See DG Competition Discussion Paper on the Application of Article 102 of the Treaty to Exclusionary Abuses, Section 6.1 (2005). (The EC’s inclusion of the words “or discipline” in the preceding sentence manifests the fact that it defines the concept of predation more broadly than economists do to include retaliation that is part of oligopolistic contrivance.)

See DG Competition Discussion Paper on the Application of Article 102 of the Treaty to Exclusionary Abuses, Section 6.1 (2005): “In a competitive market with many competitors the exclusion of some of them will, in general, not lead to a sufficient weakening of competition so as to allow the predator to recoup the ‘investment.’”

See Tetra Pak International SA v. Commission of the European Communities (Tetra Park II), Case C-333/94P, ECR I-5951, p. 44 (1995).

See DG Competition Discussion Paper on the Application of Article 102 of the Treaty to Exclusionary Abuses, Section 6.1 (2005).

See Joined Cases C-395/96P and C-396/96, Compagnie Maritime Belge Transps. SA v. Commission, E.U.R. I-1365 (I.C.J.) (2000) and Joined Cases T-24/93, T-26/93, & T-28/93, Compagnie Maritime Belge Transps. SA v. Commission, ECR II-1201 (1996).

Deutsche Telekom, Case COMP/C-1/37451, OJ L263 (2003).

CEWAL & Ors, OJ L34/20 (1993); on appeal Compagnie Maritime Belge Transps. SA v. Commission, ECR II-1201 (1996).

Irish Sugar PLC v. Commission, Case T-228/97, E.U.R. II-2969 (CFI) (1999).

See Janusz Ordover and Robert Willig, An Economic Definition of Predation: Pricing and Product Innovation (hereinafter Ordover and Willig), 91 yale l.j. 8 (1981).

I am implicitly counting the fixed cost of producing the product in question or building the outlet in question as part of the QV investment concerned. Nothing turns on this classification. If these fixed costs are counted as operating costs, operating profits will be lower but so too will be the magnitude of the QV investment in question and concomitantly the amount of operating profits that would constitute a normal rate-of-return on it.

Ordover and Willig’s more felicitous formulation of their conclusion—viz., that such a QV investment is predatory if and only if it “would be unprofitable without the exit it causes, but profitable with the exit”—is objective, ex post, and hence non-probabilistic. However, they recognize that something like my more awkward formulation is in fact more realistic. Thus, they admit that their formulation is based on what they recognize to be the unrealistic assumption that “businessmen know how their actions affect their profitability and the profitability of their rivals….” See id. at 9, 13 n. 19, and 14 n. 20.

See id. at 10 n. 8. Ordover and Willig’s only comment on the relevant issue is the unexplained assertion that “the profit benchmark that is appropriate to test for predation against actual entrants may not be the benchmark to test for entry deterrence.” See id. at 10 n. 9.

Ordover and Willig borrow this position from Joskow and Klevorick.

Id. As Chap.​ 1 indicated, the statement “X increases allocative (economic) efficiency” entails no more than that the equivalent-dollar gains it confers on its beneficiaries exceed the equivalent-dollar losses it imposes on its victims. For a demonstration of why economically-efficient choices may be unjust or undesirable from various defensible value-perspectives even if they do not violate anyone’s moral rights, see truth or economics at Chap.​ 4.

See Ordover and Willig at 27.

148 F.2d 416 (2d Cir. 1945). For other cases that seem to have raised similar issues, see American Tobacco Co. v. United States, 328 U.S. 781 (1946) and du Pont v. Federal Trade Commission (du Pont-Ethyl), 488 F. Supp. 747 (1980).

See United States v. Aluminum Co. of American (Alcoa), 148 F.2d 416 at 431.

110 F. Supp. 295 (D. Mass. 1952).

Union Leader Corp. v. Newspapers of New England, 180 F. Supp. 125 (D. Mass. 1959), aff’d in part and rev’d in part, 284 F.2d 582 (1st Cir. 1960), cert. denied, 365 U.S. 833 (1961).

459 F. Supp. 626 (1978).

In fact, it would deter R&D that might lead to predatory QV investments but encourage the predator’s rivals to do R&D.

In fact, such evidence is no more speculative than the other kinds of evidence the courts admit in such cases.

This accounting practice is totally irrelevant to whether courts should consider these costs, given the fact that, regardless of the way in which accounts are kept, businessmen clearly do consider such costs.

Five objections can be made to this contention. First, the consideration of such costs would actually militate against businesses’ increasing their profits by engaging in predation. Second, the prohibition of businesses’ sacrificing short-run profits to obtain profits in the long run by deterring entries or expansions does not prohibit them from sacrificing profits in the public interest. Third, there is no reason to believe that predators will spend their ill-gotten gains in the public interest. Fourth, even if they do, the tendency of the exclusion of such evidence to increase the expenditures of this kind that the predators make would be more or less offset by the predation’s tendency to decrease the expenditures of this kind that would otherwise have been made by the predator’s victims had they profited from making the QV investments the predator’s predatory QV investments deterred. Fifth, the impact of an antitrust ruling on the extent to which its addressees make charitable contributions or other types of non-profitable expenditures in the public interest is irrelevant to its correctness as a matter of law in any event.

I want to add three points. First, the intellectual property in most patent pools continues to be owned by the individual members of the pool as opposed to by the pool itself. Second, the property in many if not most patent pools was not acquired predatorily. Third, although many patent pools either place restrictions on the licensing of the intellectual property they contain to outsiders or require outsiders to pay higher license fees to use the intellectual property in the pool than insiders must pay to use such property (in many cases, charge outsiders a positive fee to do so when insiders license each other to use their patents without paying any fee at all), the associated refusals-to-deal and price-discrimination provisions are often not predatory.

See Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., 539 U.S. 312 (2007).

See Federal Trade Commission v. Proctor & Gamble Co. (Clorox), 386 U.S. 568 (1967). See also the following statement in United States v. International Telephone and Telegraph Corporation, 324 F. Supp. 19 (D. Conn. 1970), citing FTC v. Procter & Gamble Co., 386 U.S. 568 (1967), General Foods Corp. v. FTC, 386 F.2d 936 (3rd Cir. 1967), cert. denied, 391 U.S. 919 9 (1968), United States v. Ingersoll-Rand Co., 320 F.2d 509 (3rd Cir. 1963), Allis-Chalmers Mfg. Co. v. White Consolidated Industries, Inc. 414 F.2d 506 (3rd Cir. 1969), cert. denied, 396 U.S. 1009 (1970), and United States v. Wilson Sporting goods Co., 288 F. Supp. 543 (N.D. Ill. 1968): “The law is well settled that when a company which is the dominant competitor in a relatively oligopolistic market is acquired by a much larger company, such acquisition violates Section 7 of the Clayton Act if the acquired company gains marketing and promotional competitive advantages from the merger which will further entrench its position of dominance by raising barriers to entry to the relevant markets and by discouraging smaller competitors from aggressively competing. The effect of such a merger will be substantially to lessen competition.”

180 F. Supp. 125 (D. Mass. 1959), aff’d in part and rev’d in part, 284 F.2d 582 (1st Cir. 1960), cert. denied, 365 U.S. 833 (1961).

Allied Tube & Conduit Corp. v. Indian Head, Inc. 486 U.S. 492 (1988).

For example, (1) a tariff will increase the target’s cost more than it increases the perpetrator’s if the perpetrator does not use the input on which the tariff is levied or produces it itself or has entered into a long-term supply contract with an independent supplier and cannot take advantage of the tariff by reselling its inputs without incurring significant costs; (2) a zoning ordinance will increase a potential-entrant’s or potential-expander’s costs by more than it increases the perpetrator’s costs if the perpetrator’s production-facility is grandfathered in or is located outside the area to which the zoning regulation applies while the target has good reason to locate in the area in question; and (3) an environmental regulation will increase a target’s costs by more than it increases the perpetrator’s if the target but not the perpetrator generates the pollutant to whose generation the environmental regulation applies or the environmental regulation makes location relevant and the locations of the target and perpetrator differ in relevant ways.

404 U.S. 508 (1972).

508 U.S. 49 (1993).

365 U.S. 127 at 129.

404 U.S. 508 (1972). The Supreme Court held that a firm’s “conspiracy with a licensing authority to eliminate a competitor may…result in an antitrust transgression,” citing Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690 at 707 (1962).

508 U.S. 49 at 53.

499 U.S. 365 at 380 (1991).

508 U.S. 49 at 61.

I should note that there is also a substantial difference between the “probability of a plaintiff’s winning on the merits” and the “strength of its case on the merits.” Because competent, assiduous decision-makers can disagree in good faith on the facts and/or the law and because such disagreements may be more important in some cases than in others, a plaintiff in one suit that might be estimated (on the average by a randomly-selected panel of experts) to have the better case by a 90–10 margin (if 100 points are assigned to the two sides) may be uncertain of victory while a plaintiff in another suit that might be estimated by the members of such a panel to have the better case by a 51–49 margin might be absolutely certain of victory on the merits in the above sense. In other words, even in a world in which judicial decisions are made on the merits, there may be a substantial difference between “the strength of a plaintiff’s case” and “the probability of its being successful on the merits.” I should also note that the preceding discussion assumes that there are internally-right answers to the relevant legal questions—an assumption that I support but a high percentage of contemporary American legal academics believe is often not correct.

See Union Leader Corp. v. Newspapers of New England, 180 F. Supp. 125 (D. Mass. 1959).

See, e.g., Palmateer v. International Harvester Co., 421 N.E.2d 353 (Ill. 1978) (holding actionable the discharge of an employee who provided information to police investigating the alleged criminal violations of a co-worker); Palmer v. Brown, 424 Kan. 893, 752 P.2d 685 (1988) (holding actionable the discharge of an employee for failing to promise not to report a superior’s fraudulent Medicaid billing practices); Harless v. First Nat’l Bank, 162 W.Va. 116, 246 S.E.2d 270 (1978) (holding actionable the discharge of an employee for attempting to report illegal bank overcharges to banking authorities); Sheets v. Teddy’s Frosted Foods, Inc., 179 Conn. 471, 427 A.2d 385 (1980) (holding actionable the discharge of an employee for insisting that the employer comply with state drug-labeling requirements); and Adler v. American Standard Corp., 538 F. Supp. 572 (D. Md. 1982) (holding actionable the discharge of an employee for threatening to expose the employer’s antitrust violations). Cf. Peterman v. Teamsters Local 396, 174 Cal. App. 2d 184, 344 P.2d 25 (1959) (prohibiting the discharge of an employee who declined to commit perjury before a legislative committee); Trombetta v. Detroit, Toledo & Ironotn Railroad Co., 81 Mich. App. 489, 265 N.W.2d 385 (1978) (protecting an employee who refused to alter state-mandated pollution-control reports); and Sabine Pilot Service v. Hauck, 687 S.W.2d 733 (Tex. 1985) (holding that public policy prohibits employers from firing employees who refuse to commit illegal acts). Most but not all states have some form of public-policy exception, which often includes some whistleblower protections, but the doctrines are often quite narrow and the employee’s burden is heavy. See stuart h. bompey, max g. brittain, jr. & paul i. weiner, wrongful termination claims: a preventive approach (hereinafter bompey et al.) 51–52 (Practicing Law Institute, 2d ed., 1991). For a review of the case-law, see id. at 46–53.

Among the many federal anti-retaliation provisions are the following: National Labor Relations Act of 1935, 29 U.S.C. §158(a)(4) (1994) (prohibiting employer discrimination against employees who file charges under the NLRA or testify in NLRA proceedings); Age Discrimination in Employment Act of 1967, 29 U.S.C. §623 (1994) (forbidding employer discrimination against employees who oppose or report age discrimination); Fair Labor Standards Act, 29 U.S.C. §§201, 215(a)(3) (1994) (prohibiting retaliation against employees who file a complaint or participate in proceedings); Occupational Safety and Health Act of 1970, 29 U.S.C. § 660(c) (1994) (prohibiting employer retaliation against employees who report employer violations of safety standards); Employee Retirement Income Security Act of 1974, 29 U.S.C. §§1140, 1141 (1994) (prohibiting discrimination against employees who claim benefits under the Act or participate in an investigation against their employer); Federal Mine Safety and Health Act of 1977, 30 U.S.C. §815(c) (1994) (prohibiting the discharge of employees who participate in proceedings against their employer for health-and-safety violations); Migrant and Seasonal Agricultural Worker Protection Act of 1983, 29 U.S.C. §1855 (1994) (prohibiting discrimination by an employer against migrant workers who file complaints or participate in an investigation under the statute); Employee Polygraph Protection Act of 1988, 29 U.S.C. § 2002 (1994) (prohibiting employers from retaliating against employees who bring or participate in actions under the Act); and Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-3 (1994) (prohibiting discrimination against or the discharge of any employee for reporting employer violations of the Act). For a partial listing of state anti-retaliation provisions, see bompey et al. at 8–11. Among federal statutes, see Water Pollution Control Act of 1948, 33 U.S.C. §1367 (1994) (prohibiting retaliation against employees for reporting their employer’s water pollution); Title III of the Federal Property and Administrative Services Act of 1949, 41 U.S.C. §251 et seq. (1994) amended by 108 Stat. 3243, 3365 (1994) (prohibiting retaliation against employees of civilian contractors who report contract violations); Atomic Energy Act of 1954, 42 U.S.C. §5851 (1994) (prohibiting an employer from discharging any employee who reports nuclear-safety violations); Clean Air Act of 1955, 42 U.S.C. §7622 (1994) (prohibiting retaliation against employees for reporting employer violations of clean-air standards); Solid Waste Disposal Act of 1965, 42 U.S.C. § 6971 (1994) (prohibiting retaliation against employees for reporting an employer’s violation of solid-waste-disposal regulations); Safe Drinking Water Act of 1974, 42 U.S.C. § 300j-9 (1994) (prohibiting employers from firing employees who report violations of this Act); Toxic Substances Control Act of 1976, 15 U.S.C. § 2622 (1994) (prohibiting retaliation against employees for initiating or testifying in proceedings against the employer); Surface Mining and Reclamation Act of 1977, 30 U.S.C. § 1293 (1994) (prohibiting retaliation against employees for reporting employer violations of surface-mining guidelines); Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9610 (1994) (prohibiting an employer from firing any employee for reporting or participating in investigations of CERCLA violations); Asbestos Hazard Emergency Response Act of 1986, 15 U.S.C. § 2651 (1994) (prohibiting retaliation against employees for reporting a potential violation of the statute by a state or local educational agency); Department of Defense Authorization Act of 1987, 10 U.S.C. § 2409 (1994), amended by 108 Stat. 3243, 3364 (1994) (prohibiting retaliation against employees of contractors of Dept. of Defense, Coast Guard, and N.A.S.A. for reporting violations of contract law); and Major Fraud Act of 1988, 18 U.S.C. § 1031(g) (1994) (prohibiting retaliation against employees for participating in a prosecution of an employer accused of defrauding the United States). For a partial listing of similar state provisions, see bompey et al. at 10 n. 32.

Among federal statutes, see Water Pollution Control Act of 1948, 33 U.S.C. §1367 (1994) (prohibiting retaliation against employees for reporting their employer’s water pollution); Title III of the Federal Property and Administrative Services Act of 1949, 41 U.S.C. §251 et seq. (1994) amended by 108 Stat. 3243, 3365 (1994) (prohibiting retaliation against employees of civilian contractors who report contract violations); Atomic Energy Act of 1954, 42 U.S.C. §5851 (1994) (prohibiting an employer from discharging any employee who reports nuclear-safety violations); Clean Air Act of 1955, 42 U.S.C. §7622 (1994) (prohibiting retaliation against employees for reporting employer violations of clean-air standards); Solid Waste Disposal Act of 1965, 42 U.S.C. § 6971 (1994) (prohibiting retaliation against employees for reporting an employer’s violation of solid-waste-disposal regulations); Safe Drinking Water Act of 1974, 42 U.S.C. § 300j-9 (1994) (prohibiting employers from firing employees who report violations of this Act); Toxic Substances Control Act of 1976, 15 U.S.C. § 2622 (1994) (prohibiting retaliation against employees for initiating or testifying in proceedings against the employer); Surface Mining and Reclamation Act of 1977, 30 U.S.C. § 1293 (1994) (prohibiting retaliation against employees for reporting employer violations of surface-mining guidelines); Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9610 (1994) (prohibiting an employer from firing any employee for reporting or participating in investigations of CERCLA violations); Asbestos Hazard Emergency Response Act of 1986, 15 U.S.C. § 2651 (1994) (prohibiting retaliation against employees for reporting a potential violation of the statute by a state or local educational agency); Department of Defense Authorization Act of 1987, 10 U.S.C. § 2409 (1994), amended by 108 Stat. 3243, 3364 (1994) (prohibiting retaliation against employees of contractors of Dept. of Defense, Coast Guard, and N.A.S.A. for reporting violations of contract law); and Major Fraud Act of 1988, 18 U.S.C. § 1031(g) (1994) (prohibiting retaliation against employees for participating in a prosecution of an employer accused of defrauding the United States). For a partial listing of similar state provisions, see bompey et al. at 10 n. 32.

See, e.g., mich. comp. laws ann. § 15.362 (West, 1981); conn. gen. stat. ann. § 31–51 (West, 1983); me. rev. stat. ann. the. 26, § 832 (1984). For a description of these laws and an analysis of their impact, see Terry Morehead Dworkin and Janet P. Near, Whistleblowing Statutes: Are They Working?, 25 am. bus. l.j. 241 (1987).

Fed. Rules Civ. Proc. Rule 11(c) (1994).

Fed. Rules Civ. Proc. Rule 11(b)(2) (1994).

Fed. Rules Civ. Proc. Rule 11(b)(1) (1994).

The quotation is from a CFI opinion. See ITT Promedia NV v. Commission, T-111/96, p. 60 (1998). See also the unpublished opinion of the EC in ITT Oromedia Belgacom, IV/35.258 (1996), cited in ITT Promedia NV v. Commission, T-111/96, p. 55 (1998).

Astra Zeneca, IP/05/737 (2005).

For example, (1) a tariff will increase the target’s cost more than it increases the perpetrator’s if the perpetrator does not use the input on which the tariff is levied or produces it itself or has entered into a long-term supply contract with an independent supplier and cannot take advantage of the tariff by reselling its inputs without incurring significant costs; (2) a zoning ordinance will increase a potential-entrant’s or potential-expander’s costs by more than it increases the perpetrator’s costs if the perpetrator’s production-facility is grandfathered in or is located outside the area to which the zoning regulation applies while the target has good reason to locate in the area in question; (3) an environmental regulation will increase a target’s costs by more than it increases the perpetrator’s if the target but not the perpetrator generates the pollutant to whose generation the environmental regulation applies or the environmental regulation makes location relevant and the locations of the target and perpetrator differ in relevant ways; and (4) the cost to the perpetrator of raising its rival’s costs in the first four ways listed in the text is lower than the amount by which this conduct will raise its rival’s costs.

381 U.S. 657 (1965).

Although in some circumstances long-term supply contracts in which a seller agrees to supply its full output to a particular buyer for a specified period may also be predatory, the text will not deal with this relatively-unimportant possibility.

See Chap. 14 for a detailed explanation of these claims and a discussion of the other non-monopolizing functions that tie-ins and reciprocity can perform.

I should note in addition that the dual-investment strategy will not be available at all when the relevant buyers are final consumers. I admit, however, that this point is not likely to be empirically significant: the buyers involved in long-term full-requirements contracts are virtually always manufacturers or distributors.

Admittedly, it may be difficult in practice to establish the requisite probability that the buyer in question did not assume that the small price-concession it received reflected its supplier’s desire to secure the long-run advantages some long-term full-requirements contracts generate by reducing contracting costs, encouraging participants to adapt their operations in their joint interest, lowering conventional risk-costs, and relatedly by facilitating long-term investments by providing an assured market.

This possibility will be explained in more detail in Chap. 14.

The reason why Section 3 covers some but not all contracts for the sale of businesses or professional practices is that its coverage is limited to leases or contracts for the lease or sale of “goods, wares, merchandise, machines, supplies, or other commodities….” Whether Section 3 covers restrictive covenants in the contract of sale of a business or professional practice therefore depends on whether the business or professional practice that is being sold owns one or more assets of any of these types and on whether those assets are being sold together with the other valuable assets of the business or professional practice in question (customer lists, goodwill, employee know-how). I should note, relatedly, that Section 3 clearly does not cover employment contracts or partnership agreements that do not involve the sale or lease of any of the types of assets in the above list.

Northwest Wholesale Stationers v. Pacific Stationery & Printing Co., 472 U.S. 284, 294 (1985), quoting lawrence a. sullivan, the handbook of the law of antitrust 229–30 (West Pub. Co., 1977): “[T]here is more confusion about the scope and operation of the per se rule against group boycotts [i.e., concerted refusals to deal] than in reference to any other aspect of the per se doctrine.”

Wholesale purchasing cooperatives such as Northwest are not a form of concerted activity characteristically likely to result in predominantly anticompetitive effects…. The act of expulsion from a wholesale cooperative does not necessarily imply anticompetitive animus and thereby raise a probability of anticompetitive effect…. Nor would the expulsion characteristically be likely to result in predominantly anticompetitive effects, at least in the type of situation this case presents. Unless the cooperative possesses market power or exclusive access to an element essential to effective competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is not warranted.

See Dr. Miles Medical Co. v. John D. Park & Sons, 220 U.S. 373 (1911).

The first of these latter distinctions is the distinction between a manufacturer’s contractually controlling the price a distributor may charge for a product it has purchased from the manufacturer (which control was deemed illegal) and a manufacturer’s contractually controlling the price a distributor may charge for a product the manufacturer has consigned to it (which contract was deemed lawful). See United States v. Colgate & Co., 250 U.S. 300 (1919) and United States v. General Electric Co., 272 U.S. 476 (1926). The second of these latter distinctions is the distinction between a manufacturer’s (1) merely stating its intention not to deal with distributors that charge low prices for its product and ceasing to supply distributors that charged such low prices (which was deemed lawful) and (2) warning or threatening non-compliers explicitly (which was deemed illegal). See U.S. v. Parke, Davis & Co., 362 U.S. 29 (1960). 268 U.S. 588 (1929).

268 U.S. 588 (1929).

Thus, in Paschall v. Kansas City Star Co., 727 F.2d 962 (8th Cir. en banc), cert. denied, 469 U.S. 872 (1985), the Eighth Circuit held that a newspaper did not violate the Sherman Act by ceasing to deal with its independent carriers after concluding that self-delivery would be more profitable, and in Packard Motor Car Co. v. Webster Motor Car Co., 243 F.2d 418 (D.C. Civ. 1957), the D.C. Court of Appeals ruled that Packard did not violate the Sherman Act by terminating the franchise of a longtime Baltimore dealer when it discovered that it would be more profitable to reduce to one the number of dealer-distributors it used in the Baltimore area.

234 U.S. 600 (1914).

312 U.S. 457 (1941)

Lorain Journal Co. v. United States, 342 U.S. 143 (1951)

410 U.S. 366 (1973).

The quotation is actually from the District Court opinion in the case. See United States v. Otter Tail Power Co., 331F. Supp. 54, 57–58 (D. Minn. 1971).

472 U.S. 585 (1985).

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 738 F.2d 1509 (10th Cir. 1984).

Aspen Skiing Co. v. Aspen Highlands Skiing Corp. 472 U.S. 585, 611 and at n. 44.

Id. at 591 n. 9. For the early members of this list, see id. at 604–07.

344 F.3d 229 (2d Cir. 2003), on appeal from 163 F. Supp. 2d 332 (2003)

493 U.S. 411 (1990).

282 U.S. 30 (1930).

United States v. General Motors Corp., 384 U.S. 127 (1966).

See Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717 (1988) and Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752 (1984).

United States v. First National Pictures, 282 U.S. 44 (1930).

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984).

190 F. Supp. 249 (1961).

373 U.S. 341 (1963).

In a subsequent decision, the Court indicated that the per se character of its approach in Silver reflected the fact that the Exchange had “a dominant position in securities trading markets” and the fact that the Exchange had been given a statutory power of self-regulation. See Northwest Wholesale Stationers, Inc. v. Pacific Stationary & Printing Co., 472 U.S. 284 (1985). In Northwest Wholesale Stationers, the Court held that even an unexplained expulsion of a member from the type of association involved in that case would be evaluated through the Rule of Reason if the association that had expelled the member had no market power. Regardless of the desirability of requiring due process in such contexts, I find it difficult to justify the conclusion that antitrust law requires this outcome.

See Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 411 (2004).

224 U.S. 383 (1912).

365 U.S. 320 (1961).

Standard Oil Co. v. United States (Standard Stations), 337 U.S. 293 (1949).

For example, the conclusion of some courts that exclusive dealing cannot be unlawful in markets in which barriers to entry are low is simply mistaken: in some situations, an exclusive-dealing-generated increase in the barriers to entry a best-placed potential competitor faced to a level that would still be considered to be low may deter its entry and reduce the intensity of QV-investment competition and, derivatively, of price competition on that account. See, e.g., CDC Technologies, Inc. v. IDEXX Laboratories, Inc., 186 F.3d 74 (2d Cir. 1999). Equally mistaken is the conclusion of some courts that exclusive dealerships can be illegal only if employed by sellers with pre-existing market power: a firm without market power could use exclusive dealerships to drive out the rival that deprived it of market power or to deter the execution of new QV investments that would preclude it from obtaining market power as a result of changes in market conditions. See, e.g., Muenster Butane, Inc. v. Stewart Co., 651 F.2d 292, 298 (5th Cir. 1981) and Cowley v. Braden Industries, Inc. 613 F.2d 751, 755 (9th Cir. 1980).

For example, lower courts have almost always recognized that exclusive dealerships whose duration is one year or less will almost never reduce competition by deterring new QV investments or inducing exits. See, e.g., Omega Environmental v. Gilbarco, 127 F.3d 1157, 1164 (9th Cir. 1997), cert. denied, 525 U.S. 812 (1998); Paddock Publications v. Chicago Tribune Co., 103 F.3d 42, 47 (7th Cir. 1996), cert. denied, 520 U.S. 1264 (1997); Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380 (7th Cir. 1985); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 236–38 (1st Cir. 1983); and Western Parcel Express v. United Parcel Service, Inc., 190 F.3d 974, 976 (9th Cir. 1999). At least two lower courts have recognized that the dealer’s theoretical right to terminate will not eliminate the risk of competition’s being reduced if termination is in practice infeasible or impracticable. See United States v. Dentsply, Inc., 2000–2001 Trade Cas. (CCH) p. 73,247 at 90, 139–41 (D. Del. 2001), rev’d, 2005 WL 426818 (3d Cir. 2005) and Minnesota Mining & Manufacturing Co. v. Appleton Papers, Inc., 35 F. Supp. 2d 1138, 1144 (D. Minn. 1999). Lower courts have also recognized that exclusive dealing that leaves a channel of distribution open is unlikely to reduce competition. See, e.g., United States v. Microsoft Corp., 87 F. Supp. 2d 30, 53 (D.D.C. 2000), aff’d in part, rev’d in part, and remanded 253 F.3d 34, 69 (D.C. Cir. 2001), cert. denied 534 U.S. 952 (2001) and Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1572–73 (11th Cir. 1991).

98 S.C. Eng. Rep. 347 (1711).

United States v. Addyston Pipe & Steel Co., 85 F.271 (6th Cir. 1898).

See Woman’s Clinic, Inc. v. St. John’s Health System, 252 F. Supp. 2d 857 (W.D. Mo. 2002).

DG Competition Discussion Paper on the Application of Article 102 of the Treaty to Exclusionary Abuses, Section 9.1 at p. 207 (2005).

I also want to comment on the EC Discussion Paper’s treatment of two other “refusal to start supplying” issues. First, Section 9.2.2.6 leaves the impression that refusals to license the use of intellectual property is less likely to be found to constitute an abuse under now-Article 102 than the refusal to supply other sorts of goods or facilities. Except to the extent that investments that yield intellectual property are less likely to be made by government authorities, I see no reason to think that this fact has any legal relevance. Second, Section 9.2.3’s discussion of refusals to supply information needed for interoperability are wrong for reasons that Subsection 10B of this chapter will explain.

C 45/02 (2009).

United Brands Company, OJ L95/1 (1976)

See Pre-Insulated Pipes, OJ L24/1, pp. 98–107 (1999).

See valentine korah, an introductory guide to ec competition law and practice 184 (hereinafter korah) (Hart Publishing, 2007), citing Tetra Pak II, OJ L72/1 (1991); Telemarketing, ECR 3261 (1985); and Commercial Solvents, OJ L299/51 (1973).

Van den Bergh Foods Ltd. v. Commission, Case T-65/98 (2003).

See Magill TV Guide (re the): ITP, BBC, and RTE v. Commission, OJ L78/43 (1989).

Microsoft, available in English at CMLR 965 (2005).

See Volvo AB v. Erik Veng (Case 238/87), ECR 6211 (1988), 4 CMLR 122 (1989) and Hugan/Lipton, OJ L22/23 (1978).

Solvay (Soda Ash) OJ L152/21 (1991), CMLR 645 (1994).

See BPB Industries Plc & Anor v. Commission, Case T-65/89, ECR I-865, p. 68 (1993); BPB Industries Plc a British Gypsum Ltd. v. Commission, ECR II-389, p. 68 (1993); and Hoffmann-La Roche & Co. AG v. Commission, Case 85/76, ECR 461 (1979).

See Societe La Technique Miniere v. Maschinenbau Ulm GmbH, Case 56/65, ECR 235 (1966) for the origin of the doctrine.

The amount of transaction surplus a seller will have to destroy to remove a given amount of buyer surplus through supra-marginal-cost pricing will be inversely related to the relevant good’s transaction-surplus-maximizing (TSM) output (the output at which the relevant demand curve cuts the relevant marginal-cost curve from above) and the (absolute value of the negative) slope of the demand curve over the relevant range of output below the TSM output and will be directly related to the positive slope of the relevant marginal-cost curve over the relevant range of output below the TSM output. For an analysis of this issue, see Chap. 14 infra.

The text ignores the fact that, in the U.S. legal system, lower courts are bound to follow higher-court precedents even if those precedents are wrong as a matter of law.

See, e.g., restatement of agency at § 395, Using or Disclosing Confidential Information, Comment (B) and at § 396, Using Confidential Information After Termination of Agency (1933) and restatement of unfair competition (third) § 42, Breach of Confidence by Employees, Comment f, Customer lists: “The general rules that govern trade secrets are applicable to the protection of information relating to the identity and requirements of customers. Customer identities and related customer information can be a company’s most valuable asset and may represent a considerable investment of resources…. [However,] [a] customer list is not protectable as a trade secret…unless it is sufficiently valuable and secret to afford an economic advantage to a person that has access to the list.” See also Lynch v. Evans, 2000 WL 3363253 (S.D. Iowa) and Nutronics Imaging, Inc. v. Danan and Danan Nutronics Imaging, Inc., 1998 WL 426570 (E.D. N.Y.).

Of course, even if system rivalry does not violate the U.S. antitrust laws, it might violate other sorts of legal norms. I can think of five relevant possibilities.

First, some systems rivalry may violate a supply contract between a particular independent complement-producer and the primary-product producer that is engaging in systems rivalry—e.g., a contract in which the primary-product producer agreed to purchase all or a specified quantity of the complement-producer’s output. Although obviously one would have to know the details of any written contract and the substance of any oral agreement between the parties about the way in which ambiguous or vague terms in their written contract would be interpreted to determine the primary-product producer’s liability, I suspect that the primary-product producer would often be unable to argue successfully that its development of a new product variant with which the complement-producer’s product was not compatible relieved it of its duty to purchase the agreed-upon output of the complement-producer, regardless of whether it coupled the new product variant’s introduction with a withdrawal of those of its original products with which the complement-producer’s product was compatible. Certainly, the primary-product producer would be unlikely to succeed if the systems rivalry hindered the complement-producer’s efforts to develop a complement that was compatible with the new primary product by preventing the latter from obtaining information about the primary product’s attributes and features that would facilitate the independent’s development of a compatible complement. If the complement-producer prevailed in such a contract suit, it would in theory be entitled to full expectation damages—i.e., to recover not only its reliance costs but also the profits it expected to realize on the purchases the primary-product producer was obligated to make. However, in long-term full-requirements supply-contract cases, courts tend not to allow suppliers to recover the part of their expectations that the courts deem “speculative.”

Second, some systems rivalry may violate what is somewhat misleadingly called a “promissory estoppel” right of an independent complement-producer. A complement-producer might be entitled to recover on this basis if it had reasonably relied on statements of a primary-product producer that had “encouraged it to believe” that it would eventually be given a supply contract. Even if a court found that no supply contact had been formed (that is why I enquoted “promissory estoppel” in the first sentence of this paragraph) and even if the court found that the primary-product producer had not behaved wrongfully (inter alia, had not acted in bad faith and had not made an outright misrepresentation), it might well rule that the independent complement-producer was entitled to recover the losses it sustained by reasonably relying on the primary-product producer’s encouraging statements. Once more, in cases like this, God is in the details: the more misleading or arguably-intentionally-misleading the primary-product producer’s statements, the closer those statements came to constituting an offer, and the more reasonable the complement-producer’s reliance, the more likely the complement-producer will be able to recover on a promissory-estoppel basis. (The canonical promissory-estoppel case that deals with situations that seem analogous to the one I am positing is Hoffman v. Red Owl Stores, Inc., 26 Wis. 2d 683, 133 N.W.2d 267 (1965).) Although, in theory, complement-producers that win systems-rivalry cases on a promissory-estoppel basis would be entitled to expectation damages, in practice, courts do not always award such damages in these cases—not only exclude expectations that are “speculative” but grant awards that are closer to reliance damages (indeed, may exclude from recovery certain types of reliance damages—e.g., the opportunity costs the supplier incurred in reliance [the profits the plaintiff did not earn because it sacrificed other opportunities to prepare itself to supply the defendant]).

Third, when the independent complement-producer can convince a court that the primary-product producer was guilty of negligent misrepresentation, it will be able to recover “the loss” that systems rivalry imposed on it in a tort suit. Although, in theory, an independent complement-producer that wins a negligent-misrepresentation systems-rivalry suit will be entitled to recover only its loss (in essence, reliance damages—though that is a contract remedy), there is some reason to believe that, in practice, courts tend to award successful plaintiffs in cases in which the misrepresentation was worse-than-normally-negligent something closer to expectation damages.

Fourth, when an independent complement-producer has been induced to sell its business at a distressed price to a primary-product producer that has threatened to practice systems rivalry (that would not otherwise be profitable) or has actually practiced systems rivalry in circumstances in which it was not otherwise profitable (behavior that could be said to communicate a threat to continue practicing such system rivalry), the complement-producer may be able to win a restitution suit that would entitle it to void the contract (to rescission) or to force the primary-product producer to disgorge the profits it secured by making the relevant threat. (The relevant restatement provision that addresses this possibility does so under the heading “duress by threat.” See restatement (second) of contracts § 175 (1979).) I should say, however, that the restatement does contain some provisions under this heading that call into question whether this kind of action would be available to the independent complement-producer in the situation I described. Thus, the restatement says that such an action in restitution would lie only if the defendant’s conduct involved “a breach in the duty of good faith and fair dealing under a contract”—see id. at § 176(1)(d)—and/or a “threat” whose “effectiveness…[was] significantly increased by prior unfair dealing by the party making the threat”—see id. at § 176(2)(b)—language that would appear to require the fulfillment of something like the conditions for a promissory-estoppel claim to lie. On the other hand, the restatement contains another provision that suggests that such an action in restitution will frequently be available to independent complement-producers in the situation I described: “[a] threat is improper if the resulting exchange is not on fair terms, and what is threatened is otherwise a use of power for illegitimate ends”—see id. at §176(c)(2).) In theory, this remedy of disgorgement may result in a successful plaintiff’s being awarded damages that are greater than its actual loss—damages that equal the profits the defendant realized on the transaction in question (though in some cases [most often when the defendant’s conduct was not truly egregious] courts require the defendant to disgorge only those profits it realized because of its wrongdoing [allow the defendant to keep the profits it realized for independent reasons related to its own skill]).

Fifth and finally, when the systems-rivalry practitioner has wrongfully disparaged the independent complement-producer’s product or its performance-reliability, the independent complement-producer will be able to recover its loss in tort in a suit for disparagement or, in some instances, for tortious interference with contractual relations.

613 F.2d 727 (9th Cir. 1979).

504 U.S. 451 (1992).

See IBM at 735–76. See also Berkey Photo at 744.

See Berkey Photo at 278 and IBM at 744.

See IBM at 281–83 for a lengthy discussion and Berkey Photo at 744.

504 U.S. 451 (1992).

Image Technical Services, Inc. v. Eastman Kodak Co., 903 F.2d 612 (9th Cir. 1990).

Image Technical Services, Inc. v. Eastman Kodak Co., 1988 WL 156332 (N.D. Cal. 1988).

Thus, sophisticated buyers of durable machines can protect themselves against their supplier’s raising the price of repair-and-maintenance services and replacement parts post-machine-purchase while precluding them from using ISOs (1) by purchasing warranty coverage from the manufacturer, (2) by renting or leasing rather than buying the machine, (3) by purchasing long-term replacement-part and service contracts from the machine manufacturer at the same time that they purchase the machine, (4) by securing a contractual commitment from the machine manufacturer that it will support independent suppliers of the relevant aftermarket goods and services or at least not hinder the entry of such independent sources of supply, and/or (5) by securing a contractual commitment from the manufacturer that it will be offered aftermarket products and services on the same terms offered new machine-buyers. This list is taken from Carl Shapiro’s excellent discussion of this issue in Carl Shapiro, Aftermarkets and Consumer Welfare: Making Sense of Kodak, 63 antitrust l.j. 483, 488–90 (1995). Lower courts have tended to apply this part of the Kodak-ITS decision restrictively, holding that sellers cannot have monopoly power over a complement if the complement is purchased at the same time as the primary product and appearing to recognize that the ability of a seller to increase the prices of complements it sells to purchasers of its primary product is limited by the consequences of its doing so for future demand for its primary product.

Kodak-ITS at 484–85.

The Court also dismissed another account that Kodak gave for its conduct that Kodak claimed provided a legitimating business rationale for it (see id. at 472)—viz., Kodak’s claim that it had raised its repair-and-maintenance-service prices (and arranged its affairs to preclude buyers from purchasing these services from ISOs) in exchange for reductions in the prices it was charging for its primary products and replacement parts. The Court dismissed this account on the mistaken ground that it implied that Kodak was charging sub-competitive prices for its machines and replacement parts (id. at 485). Kodak might have priced its products in this way to help buyers finance their initial purchases (id. at 478 and 478 n.26), though I suspect that had this been Kodak’s motivation it would have raised the prices of its replacement parts as well, sold its machines on an installment plan, or leased its machines. Kodak may also have used this pricing strategy because its customers underestimated the frequency with which they would have to purchase maintenance services (but not repair parts and services?). I admit that I do not know how to account for this decision by Kodak (if Kodak did make it). My point is that the Court clearly did not understand it either.

Undertakings offered by IBM, 14th Report on Competition Policy, pp. 94–95 (1984).

Decca Navigator System, OJ L43/27, pp. 108–10 (1988).

Microsoft, Commission Decision COMP/37.792 (2006).

Compagnie Maritime Belge, C-395/96P, ECR I-1365 pp. 132 and 137 (2000).

Microsoft v. Commission, Case T-201/04 (2007).

DG Competition Discussion Paper on the Application of Article 102 of the Treaty to Exclusionary Abuses, Section 9.1 at p. 207 (2005).