Abuse of dominanceDefinition of abuse of dominance
How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?
Simply possessing or exercising monopoly power is not illegal under US law.
Instead, US law prohibits only anticompetitive conduct that helps to obtain or maintain a monopoly. US law often refers to this type of conduct as ‘predatory’ or ‘exclusionary’. US law considers both the potential anticompetitive and pro-competitive effects of the conduct. Monopolisation is not subject to per se rules.
The central challenge in monopolisation doctrine is differentiating between conduct that helps to obtain or maintain a monopoly through anticompetitive means (such as exclusive contracts that substantially foreclose competitors from the market without an offsetting procompetitive justification) as opposed to conduct that helps to obtain or maintain a monopoly through pro-competitive means (such as introduction of a superior or lower cost product). In general, conduct that helps a firm gain or maintain a monopoly only because it makes the firm more efficient is generally viewed as pro-competitive, while conduct that otherwise impairs the efficiency of rivals could be anticompetitive.
To establish illegal monopolisation, it is not enough to show that a particular competitor has been harmed; indeed, pro-competitive conduct, like offering a better product or lower prices, will naturally harm competitors. Instead, conduct must harm competition as a whole.
There is no definitive list of what conduct can constitute monopolisation, but the main categories that US law has recognised include predatory pricing, exclusive dealing, loyalty discounts, tying or bundling, refusals to deal and abuses of governmental process.Exploitative and exclusionary practices
Does the concept of abuse cover both exploitative and exclusionary practices?
US law does not prohibit the exploitation of monopoly power. Instead, it prohibits only conduct that anticompetitively helps obtain or maintain monopoly power.Link between dominance and abuse
What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?
Monopolisation requires proof of a causal connection between the anticompetitive conduct and the obtaining or maintenance of monopoly power. Provided that the anticompetitive conduct and the existence of monopoly power are rigorously proven, US law generally permits a looser standard of proof of the causal connection between the two. For example, in United States v Microsoft, 253 F.3d 34 (2001), the DC Circuit held that the causal connection can be established if the conduct ‘reasonably appear[s] capable of making a significant contribution to . . . maintaining monopoly power’.
Provided that the elements of monopoly power and anticompetitive conduct, as well as the causal connection between them, are established, the anticompetitive conduct can take place in an adjacent market to the market being monopolised. For example, in Microsoft, the court found that Microsoft illegally maintained its monopoly in the operating system market by excluding competing internet browsers.
However, if monopoly power in one market is used to obtain a nonmonopoly advantage in another market, that is insufficient to state a monopolisation claim - the anticompetitive conduct must help obtain or maintain a monopoly in some market.Defences
What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?
Beyond arguing that there is no monopoly power and no anticompetitive effect, a defendant can argue that the conduct has pro-competitive effects. Pro-competitive effects include reducing costs, providing higher-quality products, stimulating investment and preventing freeriding.
Often, a burden-shifting analysis is applied in monopolisation cases, where the plaintiff must first establish anticompetitive effects, then the defendant must provide a pro-competitive justification, and then ultimately the burden is on the plaintiff to prove that the anticompetitive effects outweigh the pro-competitive benefits.
Specific forms of abuseTypes of conduct
Loyalty conditions can have similar pro-competitive and anticompetitive effects as exclusive dealing (see question 16). Loyalty conditions typically are less than 100 per cent exclusive, but instead condition pricing on a customer making a certain percentage of its purchases from a particular supplier, such as 80 per cent or 90 per cent. Some courts apply an exclusivity analysis to loyalty conditions, focusing on what portion of the market is foreclosed. Other courts have analysed loyalty conditions by applying a predatory pricing analysis, suggesting that loyalty conditions can only be potentially anticompetitive when they result in a price that is below cost and where there is a dangerous probability that the monopolist will recoup its losses in the future. Sometimes, loyalty conditions can be analysed similarly to tying and bundling by treating a customer’s demand as consisting of both ‘contestable’ demand (that is, the portion that might be purchased from competitors, and thus is analogous to the tied product) and ‘incontestable’ demand (that is, the portion that would be purchased from the monopolist in any event, and thus is analogous to the tying product).
Tying and bundling
Tying can have both pro-competitive and anticompetitive effects. The potential pro-competitive effects include reducing costs, improving quality, efficiently metering consumption and shifting risk. The potential anticompetitive effects include foreclosing rivals in the tied market, which can lead to increased market power in the tied market as well as protect market power in the tying market (eg, because there is partial substitution between the two markets or because entry or expansion in the tying market would be easier with a position in the tied market).
Even if rivals are not foreclosed, tying can increase monopoly profits through enhancing price discrimination or the extraction of consumer surplus.
Under US law, a tying claim requires that the defendant have market power in the tying product, that the tying and tied items be separate products, that there be a tying condition and that the tying affect a not insignificant volume of commerce. (Proving substantial foreclosure of a relevant market is not a requirement for a tying claim, instead all that is required is that a not insignificant volume of commerce be affected.) In addition, ties can be justified by pro-competitive efficiencies.
Although some older Supreme Court precedents might be read otherwise, in Illinois Tool Works v Independent Ink, 547 US 28 (2006), the Supreme Court clarified that tying arrangements can have pro-competitive effects and lower courts have considered pro-competitive effects when evaluating tying. In addition, in early 2017 the Department of Justice (DOJ) and FTC updated their joint Antitrust Guidelines for the Licensing of Intellectual Property and explained that they will consider both the anticompetitive effects and pro-competitive justifications of tying.
Bundling is a less extreme version of a tie, where instead of an absolute refusal to sell the two products individually, there is a pricing difference or other incentive to buy the products together rather than separately. Bundling has similar potential pro-competitive and anticompetitive effects as tying. Some courts have applied an exclusive dealing analysis and found that bundling can be potentially anticompetitive if it forecloses a substantial share of the market. Other courts have applied a predatory pricing analysis and suggested that bundling cannot be anticompetitive unless it results in prices that are below cost. (However, unlike predatory pricing, courts applying this approach generally decline to require recoupment in the context of bundled pricing. See question 17.) In assessing whether bundled prices are below cost, courts have applied a ‘discount attribution test,’ which takes the entire price discount across all bundled products, applies the entire discount to the individual price of the competitive product and then compares the resulting price to the cost of the competitive product.
Exclusive dealing can have both pro-competitive and anticompetitive effects. The potential pro-competitive effects include reducing uncertainty, encouraging relationship-specific investments and facilitating efficient contracting. The principal potential anticompetitive effect is that the exclusive dealing will foreclose rivals from so much of the marketplace that it impairs rival efficiency, including by depriving rivals of economies of scale, access to the most efficient distribution channels, or network effects, among other possible types of harm. Accordingly, exclusive dealing does not violate the antitrust laws unless it forecloses a ‘substantial share’ of the relevant market. Some courts have suggested that foreclosure of as little as 20-30 per cent might suffice, while others have suggested that 40-50 per cent might be required. Some courts have suggested that the foreclosure required might be somewhat lower where the defendant is a monopolist.
Predatory pricing is actionable either as monopolisation or under a separate statute called the Robinson-Patman Act. The substantive standards are similar, although the Robinson-Patman Act might reach more broadly and apply to conduct by oligopolists as well as monopolists.
US law imposes rigorous requirements to sustain a predatory pricing claim. Specifically, a plaintiff must prove that the defendant’s prices are below cost and that the defendant has a ‘dangerous probability’ of recouping the losses that it incurs when charging below-cost prices by in the future raising its prices above competitive levels after driving competitors from the market. See Brooke Group Ltd v Brown & Williamson Tobacco Corp, 509 US 203 (1993). Although the Supreme Court has not expressly adopted a particular measure of cost, almost all lower courts have required that the price be below an appropriate measure of incremental cost.
Price or margin squeezes
A price or margin squeeze is when a vertically integrated firm charges high prices for an upstream input and low prices for the downstream product, such that a competitor that is not vertically integrated cannot afford to compete because it must pay high prices for an input while charging low prices downstream. Under US law, a price squeeze is not an independent basis of liability and a plaintiff must prove either an upstream refusal to deal or downstream predatory pricing. See Pacific Bell Telephone Co v linkLine Communications Inc, 555 US 438 (2009).
Refusals to deal and denied access to essential facilities
US law generally does not impose a duty to deal with competitors, even on monopolists. However, in limited situations, US law has found a duty to deal where:
- a monopolist over an input refuses to supply the input to its downstream competitors;
- the refusal helps create or maintain a monopoly;
- the monopolist ceases a prior, voluntary and profitable course of dealing with the competitors;
- the monopolist discriminates on the basis of rivalry by refusing to deal with its competitors while continuing to deal with noncompetitors; and
- the refusal to deal lacks a pro-competitive justification.
Potentially, a refusal to deal claim could be based on a constructive refusal to deal, even if the monopolist did not absolutely refuse to deal (eg, if the monopolist set such a high price for the input that it was essentially equivalent to refusing to deal at all).
Lower courts have also recognised an ‘essential facility’ claim for monopolisation where:
- the monopolist has control of a facility that is necessary for rivals to compete;
- the monopolist has denied the use of the facility to the rival;
- rivals cannot practically duplicate the facility; and
- providing access is feasible.
The US Supreme Court, however, has never adopted the essential facilities doctrine; instead, it has adopted only the refusal to deal doctrine outlined above.
Predatory product design or a failure to disclose new technology
US law is generally reluctant to second-guess product design decisions. The antitrust laws encourage innovation, and courts and regulators are not well positioned to evaluate and weigh the pro-competitive and anticompetitive effects of product design decisions. Thus, US law is unlikely to find that a product design decision constitutes monopolisation, unless the product design change clearly is not an improvement and has no benefit to customers.
US law also generally does not impose liability for failure to disclose technology changes.
Price discrimination is not an independent basis of monopolisation liability. Instead, price discrimination only constitutes monopolisation if it is also predatory.
The Robinson-Patman Act, which is not specific to monopolists, prohibits certain discriminatory pricing (even if it is not predatory) where there are ‘reasonably contemporaneous’ sales of commodities to multiple customers that compete downstream. Although the statute requires showing a reduction in competition, US case law generally infers that there is a reduction in competition from the existence of a substantial price differential over a substantial period of time. In practice, however, there is essentially no enforcement of the Robinson- Patman Act by regulators, and private cases are difficult to win because the private plaintiffs must prove that they suffered antitrust injury (ie, that their injury resulted from the anticompetitive effects of the conduct) and, if they are seeking damages, the amount of damages, meaning that private plaintiffs must in effect prove anticompetitive effects.
The Robinson-Patman Act does not prohibit discriminatory pricing if the sale does not involve commodities, if the favoured and disfavoured customers do not compete, or if the products sold are not of like grade and quantity. A number of other defences are available including that the pricing reflected a good-faith effort to meet a competitor’s low price, that the price differential was justified by differences in cost or changing market conditions, that the lower price was available to the buyer that paid the higher price and that the lower price reflected a functional discount for services provided by the customer (eg, a lower price to distributors might reflect the value of their distribution services).
Exploitative prices or terms of supply
US law does not recognise exploitative abuses.
Abuse of administrative or government process
Valid, genuine efforts to petition the government are immune from liability under the antitrust laws (see question 5). The immunity extends to the direct effects of government action, as well as indirect effects that are incidental to the petitioning effort. However, abuse of government processes can constitute monopolisation. ‘Sham’ litigation that is both objectively and subjectively baseless can be monopolisation. See Professional Real Estate Investors v Columbia Picture Industries, 508 US 49 (1993). Other abuses of governmental processes include patterns of repetitive claims regardless of the merits to impose costs on competitors (see California Motor Transp Co v Trucking Unlimited, 404 US 508 (1972)); obtaining a patent through fraud (see Walker Process Equipment v Food Machinery & Chemical Corp, 382 US 172 (1965)); and making deliberate misrepresentations to a government agency promulgating a standard (see the FTC’s action in In the Matter of Union Oil Company of California (Unocal)).
Mergers and acquisitions as exclusionary practices
Mergers are typically challenged under section 7 of the Clayton Act, 15 USC section 18, which prohibits mergers that ‘substantially … lessen competition’ or ‘tend to create a monopoly’. However, mergers that help obtain or maintain a monopoly can also be challenged as monopolisation.
There is no definitive list of the types of conduct that can constitute monopolisation under US law.
In certain extreme cases, tortious conduct interfering with a competitor’s business can be monopolisation. For example, Conwood v United States Tobacco Co, 290 F.3d 768 (6th Cir 2002), involved a monopolisation claim against a defendant smokeless tobacco manufacturer that removed and destroyed its competitor’s display racks and advertising from retail stores without the permission of the retailers.
In upholding the jury verdict for the plaintiffs, the court noted that tortious activity ordinarily does not constitute monopolisation, but found that point-of-sale advertising was particularly important in the smokeless tobacco industry given regulatory restrictions on mass advertising.
Again, in certain extreme cases product disparagement or false or misleading advertising might also be enough to support a monopolisation claim. Some courts have suggested that to sustain this type of claim, the plaintiff would need to prove that the statement was clearly false, clearly material, prolonged, clearly likely to induce reasonable reliance, made to buyers without knowledge of the subject matter, and not readily susceptible to neutralisation or other offset by rivals. Other courts have applied both stricter and more lenient standards.