Craig's Corner For Counsel: Antitrust

Saturday, December 1, 2007 - 00:00

Antitrust laws continue to be a key issue for our corporate attorneys. I was fortunate to talk this month to William C. Holmes, senior counsel with the Chicago law firm of Freeborn & Peters, where he practices in the areas of trade regulation and general business representation. He has also been an adjunct professor at the Loyola University of Chicago School of Law. He is an honors graduate of Harvard Law School and Stanford University and is a member of the Illinois, California, and Chicago Bar Associations. He is also the author of Antitrust Law Handbook , 2007 ed., published by Thomson West.

Craig Miller: Bill, how has the antitrust climate changed in recent years and what should we be tracking?

William Holmes : I would say that the biggest change in U.S. antitrust law during recent years has occurred at the court level, as an increasingly conservative judiciary first tested the waters and then began rapidly imposing their views when they met with little resistance from Congress or academia. The result has been a paradigm shift away from former bright-line rules as to what a company cannot do, to a new set of bright-line rules as to what companies - even dominant ones - can do.

Two recent Supreme Court cases provide a powerful illustration of this shift.In one, Leegin Creative Leather Products v. PSKS , the Court overturned nearly a century of prior case law that treated vertical minimum price fixing as per se illegal. In place of the old bright-line ban, the Court held that resale price maintenance is now governed by a balancing analysis known as the "rule of reason," in which the jury is to consider all relevant factors bearing on the competitive impact and possible competitive justifications for the challenged behavior.

In sharp contrast is a second recent Supreme Court case, Weyerhaeuser Co. v. Ross-Simmons . There, the Court announced a new bright-line test of what is permissible bidding behavior by a monopoly purchaser of a key input used in the production of another product. In place of the prior balancing analysis that previously applied, the Court held that a monopsonist that under-prices its competitors for a key input does not violate the Sherman Act unless its price puts it into an actual "below-cost" position on its output sales of the product. Economic literature that favored the more general balancing approach was rejected in favor of the greater certainty for businesses of the Court's new bright-line standard.

These decisions are not unique. A number of other recent cases have struck down long-standing bright-line tests of prohibited behavior, while at the same time announcing other new bright-line tests of allowed behavior. The result is a situation in which those tracking the law and advising their clients need to keep abreast of the changes, and should most definitely not assume that what they learned in law school still holds.

Craig Miller: How does the current globalization of markets affect the analysis, as seen in the Intel situation?

William Holmes : Your question is an excellent one, with Intel being a prime example of the dilemma in which global U.S. companies now find themselves.

Historically, the antitrust rules that applied here in the United States were generally the most restrictive ones in the world. As a result, a company that marketed outside the country could safely assume that if its conduct passed muster here, the same conduct would also be viewed as lawful abroad. However, as our courts have moved us toward an increasingly conservative set of antitrust standards, many of the rules abroad have ended up being more restrictive than what now governs back here in the U.S.

Take, for example, the treatment of vertical minimum price fixing. As I mentioned before, the U.S. Supreme Court recently overturned the prior rule of per se illegality for resale price maintenance, so that most forms of vertical price fixing would now be held legal here in the United States. Over in Europe, vertical minimum price fixing remains per se illegal, and a U.S. company that fails to acknowledge this difference in its pricing conduct is simply asking for trouble.

In a similar vein, on July 26 of this year, the European Commission charged Intel with violating the European antitrust laws by engaging in various tactics designed to exclude its main rival, AMD, from the X86 microprocessor chip market, including predatory pricing and paying loyalty discounts to computer companies to induce them to boycott AMD. Significantly, for some time now, AMD tried to persuade U.S. antitrust enforcers to file a similar case against Intel. Their failure to accomplish this even in the face of active European enforcement is undoubtedly due in large part to the current differences that now prevail in what is - and is not - viewed as monopolizing conduct here in the United States, versus over in Europe.

What does this mean for the future? At the very least, it means that U.S. businesses and their advisers can no longer assume that U.S. antitrust law sets the "minimum standard" against which they have to gauge their behavior, let alone that U.S. antitrust law is all that they need to know when playing in an increasingly global market.

Craig Miller: If you could provide corporate attorneys with some practical antitrust advice, what are two or three things we should be mindful of right now?

William Holmes : First, know your markets. If you are a player outside the U.S., make sure you have some understanding of the local rules that apply, and don't simply assume that those rules will track the rules back here in the United States.

Second, know your company's relative position in each of those markets. If your company has little if any market power, then as long as you stay away from hard-core antitrust misconduct (naked price fixing or market allocations with competitors), antitrust problems are unlikely to arise. If, however, your company has substantial market power, then remember the lessons recently learned by Intel and Microsoft in Europe and other foreign markets:the bigger the target, the more likely it is to be hit.

Thanks to William Holmes, author of Antitrust Law Handbook , 2007 ed., published by Thomson West.