A company can inadvertently become involved in antitrust litigation under section 1 of the Sherman Act (or any state law equivalent), and therefore, it should be aware of the current landscape. Most often, antitrust litigation under section 1 of the Sherman Act involves allegations that a certain company’s or companies’ conduct hinders competition in the given industry or marketplace. For example, if several manufacturers of a given product collude together to set a price for that product, the other entities involved in the vertical chain of distribution for that product (such as wholesalers and/or retailers of that product) might file an antitrust lawsuit against those manufacturers alleging that this conduct violates section 1 of the Sherman Act because it hinders competition for a fair market price for that product. Then, the parties to that lawsuit will often litigate whether the alleged conduct merits what is known as “per se” treatment or, conversely, what are known as the “rule of reason” or “quick look” analyses. Given the current trends discussed below, Courts are much less inclined to apply “per se” treatment than they once were. Parties to any antitrust lawsuit should be aware of these trends so that they can use that knowledge to try to streamline litigation and avoid potentially significant costs and delays at the initial pleading stage.
As the complexity of the global economic landscape and markets increases, the antiquated and often rigid framework of antitrust litigation has continued to erode. Companies that find themselves in oftentimes expensive and high-stakes antitrust litigation should be aware of these developments so they can most effectively respond and litigate their claims and defenses. This is particularly true in any antitrust case involving alleged per se illegal economic agreements and/or behavior under section 1 of the Sherman Act.
In 1958, the U.S. Supreme Court articulated the four categories of economic agreements that receive per se illegal treatment under section 1 of the Sherman Act in Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5 (1958) as follows: (1) horizontal price fixing, (2) market-division agreements, (3) group boycotts, and (4) tie-in sales. Any economic agreement falling into these categories was traditionally deemed anti-competitive, and thus illegal, based solely on the existence of that offending agreement in the market place (i.e. per se treatment). The pretext behind per se treatment originally was that certain categories of agreements and/or behavior have anti-competitive effects that (almost) always outweigh the pro-competitive justifications.
Conversely, if an economic agreement does not fall into one of these categories, it is subject to a “rule of reason” analysis which allows the examining Court to delve further into the intricacies of the agreement and/or behavior at issue by examining its purpose, power and effect. This analysis has also recently been supplemented by what is called a “quick look” analysis, which allows the examining Court only to examine whether the alleged agreement and/or behavior has an invalid or anti-competitive purpose or whether it amounts to a naked restraint on price or output in the given market. The application of either a “rule of reason” or a “quick look” analysis provides the alleged offending party an opportunity to justify the alleged economic agreement or behavior, whereas the application of per se treatment does not.
In 2007, the US Supreme Court issued a landmark decision in Leegin Creative Leather Products v. PSKS, Inc., 551 U.S. 877 (2007), moving further away from the application of per se treatment in antitrust cases and towards the “rule of reason” or “quick look” analyses. In Leegin, minimum resale price maintenance (a category previously warranting per se treatment) was shown to stimulate interbrand competition (i.e., “the competition among manufacturers selling different brands of the same type of product”) by reducing intrabrand competition (i.e., “the competition among retailers selling the same brand”). Since then, the growing complexity and interdependence of economic agreements and commerce, domestically and abroad, has militated against the per se construct. Many agreements formerly given per se treatment are now determined to be unique in purpose, power, and effect and are examined on a case-by-case basis under a “rule of reason” or “quick look” analysis. We find this trend particularly true in the district courts.
For example, just recently in US v. American Express Co., 88 F.Supp.3d 143 (E.D. N.Y. 2015), the eastern district court in New York applied a rule of reason analysis in a case involving, among other things, alleged horizontal interbrand restraints, including price and market share, areas previously thought to be worthy of potential per se treatment. Similarly, in Orchard Supply Hardware, LLC v. Home Depot USA, Inc., 939 F.Supp.2d 1002 (N.D. Cal. 2013), the district court explained that the accepted standard for testing whether a practice restrains trade in violation of the Sherman Act is the rule of reason, noting that only as an alternative, a plaintiff can also allege that a restraint is one that has been deemed unlawful per se in the past. See also, Southeastern Milk Antitrust Litigation, 739 F.3d 262, 273-74 (6th Cir. 2014) (even if an alleged offending agreement is horizontal, applying the rule of reason is “the default position”). After making this broad sweeping note, the Orchard Supply court held that allegations of a group boycott (one of the traditional per se categories in the past) in that case were inadequate to justify per se application.
Ultimately, antitrust litigants should take away the following: in light of the continuing trend to apply a “quick look” or “rule of reason” analysis, coupled with the heightened costs and potential delay of dispositive motion practice at the pleading stage, per se treatment should only be alleged, encouraged, and/or cited sparingly, if at all.
Adam M. Weg is an associate in Musick, Peeler & Garrett’s Los Angeles Office and is a member of the Firm’s Business Litigation Practice Group and Insurance Coverage Litigation Practice Group. He specializes in matters involving business litigation, including trade secrets, employee mobility, antitrust, real estate, directors and officers, securities, environmental and complex contractual disputes, insurance coverage and bad faith litigation, including errors and omissions coverage, complex excess/umbrella coverage, and environmental coverage disputes. His full bio and contact information can be found at: http://www.musickpeeler.com/professional/Adam_Weg.