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Three Significant Supreme Court Antitrust Rulings Require Careful Interpretation

March 15, 2006

The Supreme Court has issued three significant rulings in recent months concerning price-fixing by joint ventures, price discrimination, and tying in the intellectual property context. These decisions could have broad implications for the conduct of your business. Interpreting these decisions requires careful attention to the underlying facts of each case.

Supreme Court Clarifies Antitrust Rules Applicable to Joint Ventures
In Texaco Inc. v. Dagher et al./Shell Oil Co. v. Dagher et al., the court refused to reject as per se or "automatically" illegal the joint price setting by the two members of a fully integrated joint venture. Texaco and Shell owned a joint venture that marketed and sold Shell and Texaco gasoline at a single price. The court ruled such pricing activities should be analyzed under a broader rule and held that a legitimate, economically integrated joint venture’s product pricing decisions should not be condemned as automatically illegal. But "joint ventures" are not automatically immune from antitrust scrutiny, or even from per se condemnation. The joint venture in this case was a true economic integration of the parties’ competitive operations.

Recommendation: Many businesses coordinate their business activities to some extent with other businesses. This is true in many industries, but is particularly prevalent in healthcare and certain hi-tech businesses. Whether or not these arrangements are formally considered to be joint ventures, such coordination ought to be carefully reviewed to comply with the existing antitrust laws. Absent true economic integration, joint ventures may continue to face potential per se illegality. Moreover, joint venture activities are still subject to review under the rule of reason, which requires the joint venture to demonstrate that the pro-competitive benefits of the joint venture outweigh any potential anti-competitive effects.

Supreme Court Limits Reach of Robinson-Patman Act for Producer/Distributor Relationships
In Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., the court held that a seller may not be held liable for price discrimination under the Robinson-Patman Act unless the seller discriminated between distributors competing for a sale to the same customer(s). The plaintiff challenged Volvo’s policy of varying discounts from distributor to distributor. The plaintiff supported these claims with evidence that other distributors received deeper discounts in connection with different sales to different end-users. The court refused to infer competitive injury because the differing discounts did not affect competition between the plaintiff and other Volvo dealers. The plaintiff could not prove it received a less favorable discount in a transaction where it competed directly with a favored distributor for the same customer. Thus, the distributor could not show it was "in actual competition" with a favored distributor and Volvo could not be liable for price discrimination.

Recommendation: This case probably has limited applicability to most businesses. However, the court signaled a more tolerant position on certain types of price discrimination. In particular, the court emphasized that antitrust law is more concerned with interbrand competition than intrabrand competition. While this assertion is non-controversial in the context of the Sherman Act, it seems to run against fifty years of Robinson-Patman Act precedent. This may suggest that the court’s historical reluctance to apply efficiency and consumer welfare arguments in the Robinson-Patman Act context is coming to an end.

Supreme Court Eliminates the "Patent-Equals-Market-Power Presumption"
In Illinois Tool Works Inc. et al. v. Independent Ink, Inc., plaintiffs challenged the defendants practice of tying the purchase of its patented printhead to the purchase of its unpatented ink. The court rejected older cases suggesting that mere possession of a patent supports a presumption of market power in antitrust tying cases. Instead, the court required plaintiffs alleging tying to prove that the defendant possesses market power in the tying product, that is, the product the consumer really wants. However, the court did not detail the analysis that might apply and did not address whether or to what extent anti-competitive effects must be proven if market power in the tying product is established.

Recommendation: This decision underscores that patents—and other forms of intellectual property—are covered by antitrust laws. Businesses should carefully analyze license agreements and other practices to determine if antitrust concerns have been handled appropriately.

For more information about any of these cases and how they may affect your business, please contact a member of the Godfrey & Kahn Antitrust Team.

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