The U.S. Supreme Court was unusually active in the antitrust arena in 2007, handing down four significant cases.
Predatory Pricing Test Applied to Predatory Bidding: Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., 549 U.S. –, (Feb. 20 2007)
Summary: In February 2007, the Supreme Court decided that the predatory pricing test it developed in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993) applied equally to predatory bidding. To establish predatory pricing under Brooke Group, a plaintiff must establish: (1) that the rival’s prices are below its cost; and (2) that the rival has a dangerous probability of recouping its investment in its below-cost pricing. The Supreme Court determined that, based on its analytical similarity to predatory pricing, the Brooke Group test applied equally to predatory bidding. Thus, a predatory bidding plaintiff must prove: (1) that the alleged predatory bidding led to below-cost pricing of the predator’s output; and (2) that the predator has a dangerous probability of recouping the losses incurred in bidding up input prices through the exercise of monopsony power.
Implications: Weyerhaeuser confirmed that predatory bidding is no easier to prove than the notoriously difficult predatory pricing: “A predatory-bidding scheme requires a buyer of inputs to suffer losses today on the chance that it will reap supra-competitive profits in the future. For this reason, successful monopsony predation is probably as unlikely as successful monopoly predation.” The Court further noted that actions taken in an alleged predatory-bidding scheme can often connote “the very essence of competition” rather than anticompetitive conduct. Thus, predatory bidding schemes, like predatory pricing schemes, are “rarely tried and even more rarely successful” in the eyes of the law.
New Pleading Standards: Bell Atlantic Corp. v. Twombly, – U.S. –, 127 S. Ct. 1955, 2007 Us Lexis 5901 (May 21, 2007)
Summary: On May 21, 2007, the Supreme Court clarified federal pleading standards by holding that plaintiffs alleging a claim under Section 1 of the Sherman Act must plead facts sufficient to show that plaintiffs’ claims are not merely conceivable, but plausible in order to survive a motion to dismiss. While “plausibility” standards are not new to antitrust jurisprudence, the Supreme Court’s holding in Twombly was the first application of plausibility standards to pleading. The plaintiff in Twombly attempted to allege a Section 1 claim. In dismissing the claim as inadequately pleaded, the Court made clear that alleging parallel conduct, without more, does not state a plausible conspiracy claim. Rather, conspiracy allegations must “be placed in a [factual] context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action.”
Implications: Courts and commentators have recognized that Twombly created considerable uncertainty concerning the standard for assessing the adequacy of pleadings, the issue being whether the intent of the Twombly decision was to heighten the pleading standards of Rule 8 generally. Several Circuits have since had the opportunity to interpret and apply Twombly. In short, it appears that Twombly’s “plausibility” standard will apply to all pleadings generally.* Only two Circuits have applied Twombly in the antitrust context thus far, and both resulted in dismissals. In re Elevator Antitrust Litig., 502 F. 3d 47 (2d Cir. 2007) (dismissing Section 1 and 2 claims and noting Twombly not limited to claims under Section 1); Nicsand, Inc. v. 3M Company, 507 F. 3d 442 (6th Cir. 2007) (dismissing for failure to plead adequately antitrust standing for Section 2 claim).
Vertical Resale Price Maintenance No Longer Per Se Illegal: Leegin Creative Leather Products v. Psks, Inc., – U.S. –, 127 S. Ct. 2705 2007 Wl 1835892 (June 28, 2007)
Summary: For nearly a century, resale price maintenance (“RPM”) agreements were per se illegal in the United States under the holding of Dr. Miles Medical Company v. John D. Park & Sons, 220 U.S. 373 (1911). No longer. In June 2007, the Supreme Court decided that the time had come to retire the per se rule against vertical resale price maintenance in favor of a more lenient Rule of Reason analysis, which requires that restraints be judged in light of their relative economic and pro-competitive justifications.
Implications: Leegin does not mean that all vertical RPM price maintenance arrangements are legal. Rather, it means that economic justifications for imposing RPM arrangements will be considered in determining whether an arrangement is overall pro-competitive. Leegin marks a significant change in U.S. antitrust jurisprudence and thus changes the dynamics of dealing with an RPM arrangement:
- Horizontal Arrangements Remain Per Se Illegal. Leegin addresses only vertical RPM. Any hint that the arrangement is horizontal will be treated as per se illegal horizontal price fixing. Thus, in the common case where challenged conduct is both vertical and horizontal, per se illegality and possibly criminal sanctions are possible.
- Market Power Is Relevant. In line with a Rule of Reason analysis, the Court noted that a vertical RPM arrangement can be “abused by a powerful manufacturer or retailer.”
- Justifications. Because the Rule of Reason now applies, manufacturers should carefully articulate, preferably in writing, the procompetitive and proconsumer benefits of a proposed RPM arrangement via internal memoranda and memoranda to distributors and retailers.
- Remember International Implications. With the proliferation of cross-border sales, including Internet sales, manufacturers engaged in e-commerce must keep an eye on foreign jurisdictions. It may be legal in the United States, but it may not be legal elsewhere.
Immunity: Credit Suisse Securities v. Billing, – U.S. –, 127 S. Ct. 2382 (2007)
Summary: In Credit Suisse, 10 investment bank IPO underwriters allegedly conspired to engage in “laddering” (commitments to support post-IPO share price), tying and charging inflated sales commissions. The Supreme Court found that because the challenged conduct was regulated and governed by the federal securities laws, it was immune from suit under the antitrust laws. The Court confirmed that conduct will be immune from antitrust liability when:
- The regulator has the authority to supervise the challenged conduct;
- The regulator continuously exercises that authority;
- There exists a risk of conflicting legal standards if both the regulatory standards and antitrust standards apply simultaneously.
Implications: Any regulated industry (railroads, energy, drugs and cosmetics to name a few) may now have immunity arguments under appropriate circumstances