Against The Sliding Scale

Introduction

Gavil and Salop claim that the Chicago School’s “conservative critique of antitrust law” has peddled numerous pro-defendant economic assumptions, misleading courts in their assessment of alleged exclusionary conduct.¹ The resulting legal standards, they say, require plaintiffs to adduce too much evidence to establish a prima facie case, for instance, producing false negatives and thus allowing restraints that injure purchasers to avoid condemnation. Drawing on decision theory, they propose reforms to the rule of reason analysis applied to exclusionary agreements to extirpate the Chicago School’s baneful influence. In suggesting these reforms, they hope sometimes to alter the parties’ respective burdens of production and the manner of satisfying such burdens.²

This essay focuses on Gavil and Salop’s embrace of a so-called “sliding scale” approach to rule of reason analysis.³ This approach is best exemplified by the quick look method of assessing restraints. Under this approach, courts presumptively condemn restraints they deem “inherently suspect” without requiring plaintiffs to adduce any evidence of anticompetitive harm.⁴ The authors claim that Supreme Court case law endorses such a sliding-scale approach and authorizes courts to dispense with proof, direct or indirect, that certain types of restraints cause harm, even after such restraints avoid per se condemnation. Gavil and Salop seek to expand this quick look approach in at least two ways. First, they hope to increase the number of restraints deemed “inherently suspect” and thus sufficient to establish a prima facie case simply because of their nature.⁵ Second, they hope to employ similar logic to alter a defendant’s burden of adducing evidence that particular restraints produce benefits.⁶ Beyond these two examples, the authors’ overall methodology builds upon the supposed legitimacy of a sliding-scale approach to rule of reason assessment of restraints that survive per se condemnation. In this way, Gavil and Salop hope to undo what they perceive as the harmful influence of the “conservative critique of antitrust law” on antitrust enforcement.⁷

I respectfully disagree with certain aspects of Gavil and Salop’s proposal, as well as their account of the origins of current antitrust law. The basic structure of modern rule-of-reason analysis is a Harvard, and not Chicago invention. Professor Phillip Areeda, not a member of the Chicago School, opined that plaintiffs must always prove market power or actual detrimental effects to establish a prima facie case. No erroneous Chicago theory has influenced this framework. Moreover, Areeda’s invocation of a “sliding scale” did not include anything like the sort of “quick look” that Gavil and Salop endorse. Instead, Areeda simply recognized that courts could sometimes determine the existence of harm or large market shares at the summary judgment stage, dispensing with the need for a trial.

Decisions that Gavil and Salop invoke to support the existence of a sliding scale—NCAA, Indiana Federation of Dentists, and California Dental—have not properly applied Areeda’s approach and are misleading guides to general rule of reason analysis.⁸ NCAA and Indiana Federation of Dentists involved restraints that satisfied the standard for per se illegality.⁹ As a result, neither decision is a useful guide for assessing restraints that properly survive per se condemnation. California Dental simply repeated dicta from these two decisions and also misconstrued Professor Areeda’s sliding scale metaphor. Language in all three decisions supporting the Gavil and Salop version of the sliding scale is unpersuasive dicta. Absent a tractable standard for distinguishing among various restraints that properly survive per se condemnation, courts should reject the quick look, and with it any proposal for diluting plaintiffs’ burden of establishing a prima facie case. If anything, current law is too intrusive because it has ignored modern developments that undermine certain aspects of Professor Areeda’s analysis.

Part I of this essay discusses the distinction and interaction between per-se and rule-of-reason analysis. Part II describes the methodology of modern rule of reason analysis, developed by the late Professor Phillip Areeda at Harvard Law School. Part III describes the Chicago School’s failed attempt to amend the Areeda framework to require additional proof of anticompetitive conduct, including proof that defendants possess high market shares in a properly-defined relevant market. Part IV explains how application of Professor Areeda’s framework has almost led to de facto legality for restraints that survive per se condemnation, inspiring proposals to relax the requirements for establishing a prima facie case. Part V critiques Gavil and Salop’s version of the sliding-scale approach, and in particular their support for and invocation of quick look analysis. Part VI explains how the Areeda rule-of-reason methodology is in fact biased against certain exclusionary agreements, particularly those that avoid per se condemnation because they may overcome a market failure.

I. The Per Se Rule and Rule of Reason Distinction

Invoking Standard Oil Co. v. United States.¹⁰ and its progeny, Gavil and Salop correctly identify the two categories of unreasonable restraint: (1) those that are “unreasonable per se” because of their “nature and character” and (2) those that a court might find unreasonable because of “surrounding circumstances.”¹¹ Per se analysis and the fact-intensive “rule of reason” are complementary methodologies, each ascertaining the competitive impact of a restraint.¹² American Tobacco read this same rule of reason into Section 2 of the Sherman Act.¹³ Gavil and Salop agree that Section 2 incorporates the rule of reason.¹⁴

Gavil and Salop approach rule of reason analysis as though its application to a challenged restraint is a given, without considering how restraints avoid per se condemnation in the first place. Northern Pacific Railway v. United States (NPR) instructs courts on how to make this determination.¹⁵ To merit per se condemnation, a category of restraint must have “a pernicious effect on competition” and “lack . . . any redeeming virtue.”¹⁶ The test contemplates a categorical approach, whereby courts absolve or condemn all restraints of a particular type. Thus, the per se “rule” is really a standard, the application of which generates various outcomes condemning or absolving different classes of restraints.

The Supreme Court has effectively treated any reduction in inter-competitor rivalry as a “pernicious effect on competition” when applying the per se standard.¹⁷ Thus, application of this standard generally turns on whether restraints in a given category may produce redeeming virtues.¹⁸ Both naked horizontal price fixing and horizontal mergers extinguish competitive rivalry, the latter more completely.¹⁹ The per se rule only condemns the former, however, because mergers may produce redeeming virtues that offset or exceed any anticompetitive harm, and for that reason alone merit rule of reason scrutiny.²⁰

For the two decades following NPR, the Court acknowledged very few redeeming virtues. Neoclassical price theory only recognized technological efficiencies arising within firms, excluding the realization that agreements between firms could generate efficiencies.²¹ The Court’s normative preference for atomistic rivalry further discouraged recognition of proposed “virtues.”²² The result was per se condemnation of numerous restraints. Non-price vertical restraints, maximum resale price maintenance some ancillary restraints, group boycotts, and tying contracts imposed by firms with miniscule market power all stood condemned.²³ Because few restraints escaped the growing number of per se rules, the Court had hardly any occasion to articulate how to conduct rule of reason analysis.²⁴

The Supreme Court suddenly reversed course in 1977, partly in response to Chicago School critiques.²⁵ Influenced by transaction-cost economics and different normative commitments, the Court recognized additional “redeeming virtues,” thereby requiring rule of reason treatment of restraints previously deemed per se unlawful.²⁶ But the Court simultaneously rejected Chicago School contentions that certain restraints, such as analogous cooperation within firms, should be lawful per se.²⁷

Gavil and Salop do not discuss the two-part NPR standard, and their methodology for conducting rule of reason analysis appears unconnected to any account of why the restraint avoids per se condemnation in the first place. As a result, the rule of reason approach they advocate does not incorporate or reflect the information that application of the NPR standard generates when determining whether a type of restraint merits per se condemnation.

II. Areeda’s Rule of Reason and Prima Facie Case

The post-1977 decrease in the number of per se rules required clarification of the full-blown rule of reason.²⁸ Professor Philip Areeda of Harvard Law School answered this challenge beginning in 1981. In a pamphlet intended to educate federal judges, he articulated three substantive considerations relevant to such an analysis: anticompetitive harm, possible redeeming virtues, and available less-restrictive alternatives.²⁹ The definition of “redeeming virtue” was the same that courts employed when applying the NPR test.³⁰ That is, conduct produced a redeeming virtue if it advanced a “legitimate purpose,” with legitimacy defined according to “the premises of antitrust law.”³¹ Evidence of purported benefits that were not “redeeming virtues” was simply inadmissible.³²

Areeda refined this framework in Volume VII of his treatise, Antitrust Law, published in 1986.³³ He clarified that first, plaintiffs must establish a prima facie case by demonstrating that the challenged restraint produces anticompetitive harm.³⁴ Second, if the plaintiff succeeds, the defendant must then adduce evidence that the restraint produced significant benefits.³⁵ Third, the plaintiff could respond by demonstrating a less-restrictive means of achieving the same benefits.³⁶ Absent such a showing, plaintiffs could still prevail by demonstrating that the restraint’s harms exceeded the benefits.³⁷ Both the less restrictive alternative test and the requirement to “balance” harms against benefits presume that whatever benefits the defendant proves coexist with harms, and that this “coexistence” presumption is not subject to rebuttal.³⁸

Areeda also identified two alternative means of establishing a prima facie case. First, a plaintiff could establish that the restraint produced higher prices, reduced output, or reduced quality compared to a non-restraint baseline.³⁹ Second, a plaintiff could show that the defendants possessed a share of a properly defined relevant market sufficient to establish market power.⁴⁰ Indeed, Areeda claimed (albeit without any citations) that “virtually all courts applying the rule of reason require the plaintiff to define the product and geographic market in which competition is allegedly restrained and to show, at a minimum, that the defendants play a significant role in that market.”⁴¹

Areeda also opined that courts could condemn some restraints after a “quick look” at a proffered justification without proof of harm.⁴² This option applied only to restraints that were “very serious and usually without recognized redeeming virtue . . . .”⁴³ “In the usual terminology,” Areeda explained, “such a restraint is per se illegal.”⁴⁴ Thus, restraints such as exclusive dealing contracts that plainly survive per se condemnation because they often produce redeeming virtues would avoid quick look treatment under Areeda’s approach and merit full-blown rule of reason scrutiny, including the requirement that a plaintiff establish market power or harmful effects.⁴⁵ At the time, however, the Court still condemned as per se unlawful certain practices that rarely produce harm.⁴⁶ Areeda’s “quick look” was in fact an escape hatch for restraints that were normally condemned as unlawful per se. Because, at the time, the Court still condemned as unlawful per secertain practices that rarely produce net harm, the result was a potential reduction in the reach of the Sherman Act and thus not the expansion of liability that Gavil and Salop seek.⁴⁷ After 1986, the Court continued to retract overbroad per se rules, leaving in place only those condemning restraints that can never produce redeeming virtues. These legal developments would seem to undermine the case for the sort of “escape hatch” version of quick look analysis that Professor Areeda advocated.

But what about Areeda’s distinct assertion that assessing reasonableness involved a “sliding scale,” with the result that courts could sometimes complete this analysis “in the twinkling of an eye,” with the “quality of proof . . . vary[ing] with the circumstances?”⁴⁸ To exemplify application of these metaphors, Areeda referenced an agreement between Ford and General Motors to appoint a common exclusive sales agent.⁴⁹ In this scenario, Areeda did not suggest that courts should dispense with requiring proof of anticompetitive harm. Instead, he explained that the judge would glean the parties’ market shares (and presumably market definition) from affidavits submitted at summary judgment.⁵⁰ Presumably, defendants could adduce affidavits regarding entry conditions as well.⁵¹ In such a case, he said, the court would determine based on the affidavits that the parties to the agreement had substantial market shares and thus power in the relevant market.⁵² While the “quality of proof” would be different from that adduced at a full trial, the facts to be proved—namely, the market position of the parties—remained exactly the same.

Thus, application of the rule of reason “in the twinkling of an eye” did not entail presuming certain restraints unreasonable and thus exempt from the ordinary requirement that plaintiffs offer proof of antitrust harm. Instead, this application involved a judicial determination, subject to rebuttal by defendants, that the defendants were capable of exercising power in the relevant market. The result of this “sliding scale” would be different if Subaru and Peugeot had entered an agreement identical to the hypothetical contract between Ford and GM.⁵³ This different result would turn on the presence or absence of market power, not the nature of the restraint. Here again, Professor Areeda provided no support for the sort of quick look that Gavil and Salop endorse.

III. The Chicago School’s Unsuccessful Amendment

The Chicago School offered an amendment to the Areeda framework by proposing that proof of power in a relevant market based on market shares and entry barriers should be necessary to establish a prima facie case.⁵⁴ This requirement paralleled the structure of Section 2 jurisprudence and the standards governing mergers under Section 7 of the Clayton Act.⁵⁵ As jurists, Chicagoans employed this approach.⁵⁶ Absent such proof, Chicagoans urged courts to infer that the challenged conduct was beneficial or benign.⁵⁷

In NCAA v. Board of Regents of the University of Oklahoma,⁵⁸ then-professor (and later judge) Frank Easterbrook pressed the Supreme Court to adopt such a market share filter.⁵⁹ The Court refused and affirmed the district court’s determination that plaintiffs had established a prima facie case by proving that the restraint at issue altered output and prices compared to a hypothetical non-restraint baseline.⁶⁰ This result was a straight-forward application of Areeda’s overarching rule of reason framework, and Areeda subsequently approved the Court’s resolution and this rationale.⁶¹

The Court reiterated this rejection of the Chicago School approach in FTC v. Indiana Federation of Dentists (IFD) by reversing the Seventh Circuit’s application of a market share filter.⁶² As a result of this holding, most circuits and enforcement agencies believed that plaintiffs could establish a prima facie case without proving that the defendant possessed high market shares, by establishing “actual detrimental effects.”⁶³ Only the Seventh and D.C. Circuits reliably embraced the Chicago School’s approach.⁶⁴

Gavil and Salop identify several other examples of the “conservative critique of antitrust law” that they claim render the rule of reason insufficiently interventionist against exclusionary practices.⁶⁵ But the Supreme Court has rejected some of these “conservative” arguments, and none of them seems to have impacted the basic framework of Professor Areeda’s rule of reason analysis.⁶⁶ If anything, that framework may be unduly biased against some restraints, as shown below.⁶⁷ Professor Areeda’s basic rule of reason methodology survives to this day, forming the basis for rule of reason assessment in lower courts, despite these and other Chicago-style critiques of the Harvard framework.⁶⁸

IV. Per Se Legality and Gavil & Salop’s “Quick Look”

Since the mid-1980s, rule of reason analysis under Section 1 has tracked the Areeda–Harvard approach. The methodology for assessing claims that monopolists have engaged in “exclusionary conduct,” including exclusionary agreements, condemned by Section 2 has also followed the Harvard School’s lead. Thus, the Court took these Section 2 standards from Areeda’s treatise, holding, for example, that a monopolist’s conduct that substantially disadvantages rivals but produces significant efficiencies only violates Section 2 if a less-restrictive means will achieve the same benefits.⁶⁹ If the plaintiff cannot establish such a less restrictive means, the defendant prevails, even if the conduct excludes rivals and allows the defendant to set monopoly prices.⁷⁰ The Harvard School’s approach to defining exclusionary conduct rests upon a “total welfare” standard that tolerates the exercise of market power and resulting harm to purchasers when necessary to achieve non-trivial efficiencies.⁷¹

While courts have adopted the Harvard School’s methodology,⁷² the result of the application of this methodology in hundreds of real-world cases approaches effective per se legality for many restraints, at least according to reported cases.⁷³ Michael Carrier concludes that, from 1977–1999, 84 percent of Section 1 rule-of reason-cases failed because plaintiffs could not establish a prima facie case.⁷⁴ From 1999–2009, the figure was 97 percent.⁷⁵ The result of judicial application of Professor Areeda’s framework (in litigated cases) has been bifurcated treatment of trade restraints. A diminishing number of restraints are deemed “unlawful per se.”⁷⁶ Those nominally subject to fact-intensive scrutiny are essentially lawful per se.⁷⁷ Although the Chicago School lost several battles for de jure per se legality for certain restraints, they may have de facto won the war.

Gavil and Salop agree with Areeda that proof of substantial market shares or actual competitive harm should suffice to establish a prima facie case against a restraint.⁷⁸ Nonetheless, Gavil and Salop believe that, while sufficient, proof of substantial shares or actual harm should not always be necessary to establish a prima facie case because such a requirement would result in too many false negatives.⁷⁹ Here they part company with Professor Areeda, who, as explained earlier, did not believe that courts should dispense with proof of sufficient market share or proof of anticompetitive harm unless a restraint satisfied the standard for per se condemnation but nonetheless escaped such a fate under his escape-hatch approach.⁸⁰

Although Gavil and Salop focus on exclusionary agreements, such as exclusive dealing and tying, they build upon standard rule-of-reason principles generally developed to assess horizontal restraints.⁸¹ They urge reforms that would, inter alia, ease the burden of establishing a prima facie case. These scholars invoke Areeda’s dictum, repeated by the Supreme Court, that rule of reason analysis should reflect a “sliding scale.”⁸² For Gavil and Salop, this means that the requirement for establishing a prima facie case should vary (“slide”) with the threat that the restraint will produce net harm, based on an a priori assessment of the nature of the restraint. Contradicting Areeda, they contend that courts should dispense altogether with the requirement to prove harm or the possession of market power in some cases.⁸³

The logic of Gavil and Salop’s twist on Areeda’s sliding scale seems airtight. In 1981, when Professor Areeda began to write about the rule of reason, per se rules were contracting but still overbroad; such rules thus banned much conduct that produced little harm and significant benefits.⁸⁴ Restraints that survived this overbroad regime posed little risk of net harm.⁸⁵ It thus made sense to apply a forgiving rule of reason, requiring proof of anticompetitive consequences or possession of market power in all cases. Because the Court subsequently abandoned nearly all per se rules, however, the fact-based rule of reason now governs a much wider variety of restraints, ranging from those that are usually beneficial to those that are perhaps more often harmful. One can arrange various types of restraints along a continuum, with harmless types on one end, those posing more risk of net harm on the other, and numerous types in between. The criteria defining different types of restraints include no information about market power or other market conditions, such as barriers to entry.⁸⁶

If this continuum accurately describes the universe of restraints subject to rule-of-reason scrutiny, and if courts accurately assign classes of restraint to appropriate points along the continuum, it seems to follow that the difficulty of establishing a prima facie case should vary according to the category of restraint and thus its location on the spectrum. If a category very rarely produces net harm and often produces net benefits, an exacting burden of production will rarely produce false negatives. Easing this burden, however, will sometimes produce false positives, partly because defendants will find it profitable to settle instead of incurring the costs of adducing evidence of the restraint’s benefits to rebut a prima facie case.⁸⁷ But if a category likely produces net harm and rarely produces net benefits, imposing an onerous initial burden may produce numerous wealth-destroying false negatives, and reducing this burden will only rarely produce false positives.⁸⁸

Translating such logic to actual adjudication is more difficult. The universe of trade restraints that avoid per se condemnation is incredibly varied. The logic of Gavil and Salop’s sliding scale suggests finely calibrated, distinct burdens of production for different restraints, depending upon their location on the continuum. Professor Areeda identified only two possible methods of satisfying a plaintiff’s initial burden of production: proof of detrimental effects and proof of sufficient market shares in a properly-defined market.⁸⁹ So far as this author is aware, courts and scholars have only identified a single additional method of satisfying this burden that is less onerous than the two methods Areeda identified. This third method—what many call the “quick look”—simply entails proof that the restraint exists, a showing that any Section 1 plaintiff must make to establish concerted action anyway.⁹⁰ If proving detrimental effects or market power is somewhat onerous, proving the restraint’s mere existence is no requirement at all. The authors have not identified any new alternative method of establishing a prima facie case.⁹¹ Proponents of the sliding scale are effectively advocating a bifurcated scale. While the mere existence of some restraints establishes a prima facie case, plaintiffs must prove harmful effects or market power to invalidate others. There is no happy medium.

Gavil and Salop embrace this “no proof at all” approach for some restraints. They advise courts to develop revised presumptions, grounded in economic theory, that identify new classes of restraints that suffice to discharge plaintiff’s initial burden.⁹² Whether a restraint warrants such a presumption is a question of law based upon “logic, experience, and economic evidence about the industry and the category of conduct.”⁹³ Once courts identify such a category, they would focus simply on determining whether the defendants have entered such an agreement, ignoring market shares and actual economic effects.⁹⁴

V. Critiquing Gavil and Salop’s Quick Look

Taking on Areeda is an uphill battle, and Gavil and Salop do not seem to know that they have accepted this challenge.⁹⁵ The authors invoke NCAA v. Board of Regents of the University of Oklahoma and FTC v. Indiana Federation of Dentists to support their revision of Areeda’s articulation of the sliding scale and version of the quick look.⁹⁶ Each of the two decisions contains a sentence or two suggesting that the mere existence of certain restraints establishes a prima facie case, regardless of market power or anticompetitive harm.⁹⁷ Several lower courts and the enforcement agencies have read these decisions in this manner, deeming restraints that are “inherently suspect” ipso facto sufficient to meet this burden.⁹⁸ Courts and agencies make such a determination based on “economic learning and the experience of the market.”⁹⁹

Any language in NCAA and IFD suggesting that the mere existence of some restraints would suffice to establish a prima facie case was dicta. In both of these cases, the Court invoked findings that the challenged restraints produced actual harmful effects, thereby establishing a prima facie case in a straightforward manner.¹⁰⁰ Thus, the NCAA and IFD plaintiffs proved the very harm that Gavil and Salop say is often too difficult for plaintiffs to establish in such cases. IFD also invoked findings that defendants possessed large market shares, as did NCAA.¹⁰¹ Neither decision held that a plaintiff could establish a prima facie case without establishing anticompetitive harm or market power.

There is, however, a more fundamental reason that neither NCAA nor IFD supports dispensing with the requirement to prove anticompetitive harm to establish a prima facie case. Neither decision speaks to the question Gavil and Salop purport to address—namely, how to assess restraints that are properly subject to rule of reason scrutiny. Both NCAA and IFD ignored the traditional test for per se illegality, avoiding any assessment of whether restraints like those before them could produce redeeming virtues.¹⁰² In NCAA, for instance, the Court assessed horizontal agreements setting the output and prices of televised sports. The Court described the restraints as “naked” and ordinarily unlawful per se.¹⁰³ Nonetheless, the Court refused to condemn the restraints outright because some other horizontal restraints not before the Court were necessary to create and bolster college football.¹⁰⁴ Although the Court identified redeeming virtues that these other, unchallenged restraints might produce, it declined to specify any redeeming virtues that the challenged restraints themselves might produce.¹⁰⁵ Of course, if the Court had identified such potential redeeming virtues, the restraints before it could not have been “naked.”¹⁰⁶

The IFD Court took a similar approach, choosing to evaluate the restraints before it under the rule of reason, again without identifying any redeeming virtues that the challenged horizontal restraint might create.¹⁰⁷ In both cases, rigorous application of the NPR test would have necessitated summary condemnation of the restraints in question—which, after all, the Court characterized as “naked.”¹⁰⁸ Lower court decisions applying the quick look method are identical in this respect. These decisions have exempted the restraints before them from application of the per se standard without identifying any redeeming virtues that such restraints might produce.¹⁰⁹ Thus, no such decision has addressed the requirements for establishing a prima facie case against a restraint that might produce redeeming virtues that could offset or exceed any anticompetitive harm.

Gavil and Salop also invoke California Dental Association v. FTC (CDA) for the proposition that courts may treat certain restraints as sufficient to establish a prima facie case.¹¹⁰ But that decision relied principally on IFD and NCAA, the latter of which CDA characterized as condemning a “naked restraint.”¹¹¹ Moreover, the Court quoted with approval the portion of Professor Areeda’s treatise that references the “sliding scale.”¹¹² As explained earlier, however, this portion of the treatise simply opined that courts could sometimes find the requisite market shares, and thus market power, on summary judgment.¹¹³ Finally, California Dental refused to declare that the restraint before it was presumptively harmful, with the result that any language endorsing such a category was dicta, like similar language in NCAA and IFD.

The dicta in NCAA, IFD, CDA, and lower court decisions, therefore, stand for a very narrow proposition, consistent with Professor Areeda’s escape hatch approach.¹¹⁴ When a court ignores the normal per se standard, declines to identify any redeeming virtues but still assesses restraints under the rule of reason, plaintiffs challenging such restraints need not establish any indicia of anticompetitive harm to make out a prima facie case. Given the information before the tribunal—an express restraint on rivalry but no indication of possible redeeming virtues—this result makes perfect sense. In such cases, defendants have expended resources negotiating and monitoring compliance with an agreement that apparently cannot create efficiencies. The only logical inference is that the defendants believe they possess or may obtain market power. Even if the defendants are mistaken, their efforts to enter and enforce such an agreement waste social resources.¹¹⁵ Banning such a restraint deters such conduct without risking false positives.¹¹⁶ If anything, these data would support outright condemnation without providing proponents of the restraint with any opportunity to adduce evidence of benefits.

However, Gavil and Salop purport to offer a framework for assessing all restraints assessed under the rule of reason, and not merely those restraints that avoid per se condemnation under Professor Areeda’s “escape hatch” approach. That is, they would apparently apply their approach to restraints that survive per se condemnation under a proper application of the NPR standard because they may produce redeeming virtues. Any argument for departing from Professor Areeda’s method of making out a prima facie case (actual harm or market power) must stand on its own two feet without drawing support from these inapposite precedents.

In my view, the Gavil and Salop argument does not survive scrutiny. As Gavil and Salop helpfully explain, decision theory requires courts to adjust their appraisal of restraints to reflect new information.¹¹⁷ Initially, the nature of a restraint may suggest that it will produce net competitive harm. But additional information, such as the absence of market power or proof of efficiencies, may cause a court to revise this assessment.

Gavil and Salop sketch a rule of reason methodology that overlooks a step of Section 1 analysis ripe for application of decision theory, namely, the initial determination of whether conduct is unlawful per se. While they recognize that some restraints are unreasonable per se, they do not discuss current law’s method of distinguishing such restraints from those subject to the rule of reason.¹¹⁸ As a result, their analysis does not incorporate information about why restraints survived per se condemnation in the first place. Recall that restraints generally survive per se condemnation because they may produce redeeming virtues.¹¹⁹ Thus, their rule of reason analysis does not incorporate the sort of information, including nature of these possible virtues, that courts generate when they apply the NPR standard. This information, however, sheds important light on the potential impact of challenged restraints and the relevance of different types of evidence plaintiffs might adduce. More globally, the fact that restraints generally survive per se condemnation because they may produce such virtues also casts doubt on the viability of the more plaintiff-friendly “quick look” approach that Gavil and Salop endorse.

For instance, restraints ancillary to a partnership (large or small) reduce rivalry but avoid per se condemnation because they may produce redeeming virtues and thus unambiguous or net-welfare increases.¹²⁰ In the same way, when monopolies enter various agreements that disadvantage rivals, the agreements avoid automatic condemnation under Section 2 of the Sherman Act because they may produce benefits.¹²¹ Avoidance of per se condemnation thus conveys important information that should cause decision-makers to update any initial assessment of the probable impact of the restraint.¹²² This realization establishes that a market’s most insignificant firms could adopt such restraints solely to create efficiencies. Even if firms possess sufficient power to cause harm, such virtues could also offset or even exceed such harm. Any argument for relaxing the ordinary requirement for establishing a prima facie case against certain restraints properly subject to rule of reason analysis must confront the fact that every restraint along the continuum described earlier, including those that appear anticompetitive, may potentially create more wealth than it destroys.

The prospect that a restraint might produce redeeming virtues alters the prima facie calculus. First, this prospect ambiguates predictions that restraints that extinguish rivalry—including price and output restraints—will create harm. This prediction would make sense if a restraint were naked—that is, if the restraint restricted rivalry without any prospect of redeeming virtues. But this prediction lacks logical support once we add new information that the challenged agreement may also produce virtues. Consider, in no particular order, the following examples:

• Mergers between actual or potential rivals;
• Vertical mergers;
• Agreements between partners to refrain from competing with partnership;¹²³
• Exclusive dealing contracts;¹²⁴
• Horizontal allocations of territories ancillary to a joint venture;¹²⁵
• Horizontal price floors ancillary to a joint venture;¹²⁶
• Employee noncompete agreements;¹²⁷
• An agreement between members of the NCAA not to pay student athletes more than the cost of attendance;¹²⁸
• An agreement between members of an athletic conference on the number of games per season;
• An agreement by members of such a conference not to compete against a school that violates conference rules; or
• Group boycotts.

Each such nonstandard contract reduces or eliminates rivalry.¹²⁹ Some can disadvantage rivals and thus may sometimes constitute “exclusionary conduct.” Some expressly set prices or output. But all such restraints survive per se condemnation because they may produce redeeming virtues and thus improve society’s welfare.¹³⁰ No such restraints are naked, unlike the restraints challenged in NCAA or subsequent decisions that have found restraints to be inherently suspect.¹³¹ As Areeda himself explained, the realization that a restraint may produce benefits “reduces the likelihood of [anticompetitive] effects.”¹³²

Courts, agencies, and scholars have at one point or another declared most such restraints to be “inherently suspect” or even unlawful per se.¹³³ In the same way, Gavil and Salop contend that courts should declare certain categories of restraints that are not naked to be “inherently suspect,” while requiring plaintiffs to prove market power or harm when challenging other restraints. But no judge, law enforcement official, or scholar has offered a tractable methodology for determining which categories of restraint are “inherently suspect” because they likely produce net anticompetitive harm and which categories are not “inherently suspect.”¹³⁴ How does a court determine, for instance, how often horizontal, ancillary, territorial restrictions produce net anticompetitive harm?¹³⁵ How about the formation of a partnership, a type of merger? An exclusive dealing agreement or vertical merger? Employee noncompete agreements?

The refusal to declare a restraint per se unlawful should cause the tribunal to update its priors and understand that some proportion of these restraints have nothing to do with the exercise or acquisition of market power. By hypothesis, the tribunal has no definitive information about the market position of the parties or impact of the restraints.¹³⁶ It cannot say, without additional information, whether 10, 34, or 58 percent of such restraints will produce net anticompetitive harm, even putting aside the fact that the percentage will turn partly on whether courts characterize the category as “inherently suspect,” thereby causing some parties to switch to more defensible restraints.¹³⁷ Thus, there is no reason to reject the initial presumption that such restraints are competitively neutral.¹³⁸

The FTC’s famous Massachusetts Board opinion, the origin of the “inherently suspect” category that Gavil and Salop endorse, exemplifies the failure to offer a useful methodology for distinguishing those restraints a priori deemed likely harmful from those deemed competitively neutral.¹³⁹ In Massachusetts Board, the Commission held that a restraint is “inherently suspect” if the conduct “appears likely, absent an efficiency justification, to ‘restrict competition and decrease output.’”¹⁴⁰ At best, this standard simply restates the question courts should be asking. It tells us nothing about how to determine the answer. At worst, the standard will be vastly over-inclusive and produce misleading results. Each of the restraints listed above—mergers, restraints ancillary to a partnership, and the like—would appear to “restrict competition and decrease output” absent an efficiency justification. So far as I know, no one has read this standard to declare all such restraints “inherently suspect.” Unfortunately, some courts and scholars have treated this standard as useful.¹⁴¹ None, however, has explained what the Commission meant.

Gavil and Salop contend that courts should rely upon “logic, experience, and economic evidence about the industry and the category of conduct” to determine whether particular conduct is categorically unreasonable.¹⁴² Initially, such an approach seems promising. Application of the full-blown rule of reason generates factual records and assessments by at least one neutral fact-finder.¹⁴³ The Supreme Court itself has said that “the experience of the market” should inform the determination of whether a type of restraint, without more, is presumptively unreasonable and that repeated rule of reason analyses of similar restraints can generate a consensus regarding the probable impact of a type of restraint.¹⁴⁴ Such an inductive, empirical approach would seem to show more promise than abstract theorizing.

To a large extent, however, such an approach has already been tried. Courts have been conducting full-blown rule of reason analyses of various restraints since before the 1980s, generating hundreds of opinions and resulting factual records.¹⁴⁵ Professor Carrier’s recent study of reported rule of reason cases over a ten year period, some of which assessed exclusive agreements, concludes that courts have rejected 97 percent of such cases (215 out of 222) because plaintiffs could not establish a prima facie case.¹⁴⁶ Although courts purported to balance benefits against harms in five of the remaining cases, they sometimes simply assumed the presence of harm arguendo.¹⁴⁷ One can count on one hand the number of cases that found actual harm or market power based on high market shares. This “experience of the market” or “experience . . . and economic evidence about the industry” seems to be telling us that very few restraints of any sort that survive per se condemnation produce any harm, let alone net harm.¹⁴⁸

Of course, some of the more than 215 decisions that found no anticompetitive effect could be wrong. Perhaps in some cases asymmetric litigation incentives have distorted outcomes in defendants’ favor.¹⁴⁹ If so, proponents of an expanded quick look should tell us which cases have come out wrong. Scholars and agencies have had ample opportunity to study these results and define categories of restraints that are properly deemed inherently suspect because they usually produce harm. Few, if any data-based arguments have been forthcoming. Indeed, the Obama Administration promised to come down hard on exclusionary conduct by monopolists.¹⁵⁰ The President’s Department of Justice, however, which does not suffer from asymmetric incentives, could find only one example of such conduct over an eight-year period, by a firm that purportedly monopolized a market confined to Wichita Falls, the 37th largest city in Texas.¹⁵¹

Even if the Obama Administration had identified 100 nonstandard agreements that bolstered monopoly, such evidence would not establish that most or even a significant proportion of such agreements produce net harm. Many industries contain a myriad of business firms including sole proprietorships and small partnerships. Consider the practice of law, tax preparation or restaurants, for instance. There were more than six million business firms in the United States in 2021.¹⁵² More than half of these firms had four or fewer employees.¹⁵³ Over 80 percent had fewer than ten employees; 90 percent had twenty or fewer.¹⁵⁴

All such firms enter business contracts, some of which are even implied by law. The Revised Uniform Partnership Act, for instance, requires all partners by default “[t]o refrain from competing with the partnership in the conduct of the partnership business[.]”¹⁵⁵ The Third Restatement of Agency provides that employees and other agents cannot work for the principal’s rivals without first obtaining the principal’s consent.¹⁵⁶ Both types of agreement deprive potential rivals of the labor of such individuals and potentially raise rivals’ costs. Small firms wish to achieve efficiencies and minimize costs perhaps more fervently than their larger rivals. Those that fail to do so will disappear.¹⁵⁷ Even firms that are large in a quantitative sense may have tiny market shares, and yet, some still adopt agreements that exclude rivals from some segment of the market.¹⁵⁸ Absent some indication that such agreement are more likely to arise in markets susceptible to anticompetitive conduct, a question on which Gavil and Salop bear the burden of proof, it would seem to follow that most of the restraints in any such category that survives per se condemnation will be adopted by firms with little or no prospect of obtaining or exercising any market power.¹⁵⁹ If correct, this empirical assumption would doom the Gavil–Salop proposal to allow plaintiffs to satisfy their burden of production based solely upon the “nature” of a restraint that survives per se condemnation.

VI. The Areeda Rule of Reason Methodology is Unduly Biased Against Some Exclusionary Contracts

Gavil and Salop contend that evolving economic theory undermines various Chicago School assertions about exclusionary conduct, necessitating more intrusive rule of reason scrutiny. But they simultaneously do not address other developments in economic theory that suggest that even Professor Areeda’s less-intrusive framework is too friendly to plaintiffs in some cases. For instance, transaction cost economics teaches that some restraints overcome market failures that would otherwise result in prices that are lower than those that a well-functioning market would produce.¹⁶⁰ In addition, an exclusive dealing agreement can allow manufacturers to capture the benefits of their advertising and promotion, thereby encouraging such investments.¹⁶¹ The whole point of such investments, of course, is to enhance demand for the firm’s product, and higher demand will in turn produce higher prices that will allow the manufacturer to recapture the cost of advertising and promotion.¹⁶²

The prospect of these (and other) redeeming virtues saves such agreements from per se condemnation. Even if not presumed procompetitive, such restraints would seem to warrant what Gavil and Salop deem a “neutral” presumption of net competitive effects.¹⁶³ Nonetheless, Professors Areeda, Gavil, and Salop would apparently allow plaintiffs to establish a prima facie case simply by showing that retail prices rose “because of” the restraint.¹⁶⁴ As I have shown elsewhere, however, such proof is equally consistent with the hypothesis that such agreements have overcome a market failure and induced socially useful investments in the production of information, inducing higher demand for the manufacturer’s product.¹⁶⁵ If, as Gavil and Salop say, “ties are resolved in favor of the defendant,”¹⁶⁶ such proof should not suffice to make out a prima facie case. Instead, at a minimum, the plaintiff should also establish that defendants’ market share, combined with entry conditions, are such that the challenged agreement could produce significant anticompetitive harm by, for instance, raising rivals’ cost of production and/or distribution.¹⁶⁷

Let us assume, however, that the plaintiff has made out a prima facie case in whatever manner. Assume further that the defendant establishes in response that the challenged restraint produces significant benefits of the sort just described. According to Areeda’s framework, the plaintiff can still prevail if (1) it establishes a less-restrictive means of achieving the same objective or (2) convinces the tribunal that the harms presumed because the plaintiff has established a prima facie case exceed the benefits that the restraint produces.¹⁶⁸ But each of these options assumes that the benefits the defendant has established coexist with harms presumed once the plaintiff establishes a prima facie case.¹⁶⁹ This “coexistence” assumption may make perfect sense if the defendant asserts that the restraint produces technological efficiencies, such as economies of scale. In these circumstances, the existence of such efficiencies does not undermine the assumption that higher prices reflect an exercise of market power.¹⁷⁰ But if a defendant asserts that the restraint produces non-technological efficiencies, proof that the restraint overcomes a market failure may, in fact, undermine any inference that higher prices reflect an exercise of market power.¹⁷¹ Absent additional evidence of harm, there is simply no reason to presume that the benefits the defendant has proven coexist with harms.¹⁷² Without this presumption, the search for a “less restrictive alternative” or effort to balance benefits against harms rests upon the erroneous assumption that harms and benefits coexist, such that the restraint is “restrictive” in some meaningful antitrust sense.¹⁷³ Any effort to conform rule-of-reason analysis to modern economic theory must adjust the structure of such analysis accordingly.

Conclusion

Gavil and Salop blame the Chicago School’s “conservative critique of antitrust law” for what they consider insufficiently intrusive standards for assessing exclusionary agreements. Drawing on decision theory, they propose a more interventionist approach, building partly on a “sliding scale” rule of reason analysis exemplified by the “quick look” method of assessing certain restraints under Section 1. Under this approach, they say, courts presumptively condemn “inherently suspect” restraints that survive per se condemnation, even if the plaintiff offers no direct or indirect evidence that the restraint produces anticompetitive harm. Such reform would supposedly extirpate Chicago’s baneful influence and produce a better balance between false positives and false negatives.

In my view, Gavil and Salop’s argument suffers from certain historical and theoretical shortcomings. The current standards governing exclusionary agreements under Sections 1 and 2 of the Sherman Act reflect Professor Areeda’s mainstream Harvard School philosophy and a rejection of some Chicago proposals. Moreover, Areeda independently opined that plaintiffs must prove that challenged conduct produces actual detrimental effects (direct proof) or that the defendants possess sufficient market shares that the challenged restraint can produce such harm (indirect proof).

To be sure, Areeda invoked the term “sliding scale” when describing rule of reason analysis. He did not, however, endorse anything like the “quick look” that some courts and agencies have employed and that Gavil and Salop endorse. Instead, Areeda simply recognized that courts could sometimes determine the existence of harm or large market shares at the summary judgment stage, based upon affidavits, for instance, instead of the sort of evidence that parties would adduce at a full trial. While the “quality of proof” would be different, the matters to be proved—anticompetitive effects and/or market shares—remained exactly the same.

Thus, jurists, officials and scholars that invoke Professor Areeda’s reference to a “sliding scale” to support a “quick look” approach to establishing a prima facie case have departed from Harvard’s mainstream approach. Moreover, Supreme Court decisions that some have read to endorse a “quick look” approach are poor guides for general rule of reason analysis. Some such decisions assessed restraints that satisfied the standard for per se condemnation and also produced explicit antitrust harm. Another declined to condemn the restraint before the Court. Language in all such decisions is thus dicta resting on a misunderstanding of Professor Areeda’s reference to a “sliding scale.”

Critiques of the Chicago School are a distraction and do not advance the case for the “quick look” that Gavil and Salop hope to expand. Any argument for overturning Professor Areeda’s mainstream approach and condemning restraints without direct or indirect proof of harm must stand on its own two feet. Under current law, restraints only survive per se condemnation and thus merit rule of reason scrutiny if they may produce redeeming virtues and thus enhance consumer welfare. Absent data or theory establishing that one or more particular types of restraint pose an excessive risk of harm or rarely produce benefits, there is no reason to presume that any restraint that properly survives per se condemnation is unlawful. Like other proponents of the “quick look,” Gavil and Salop have offered no such theory or data, despite nearly five decades of experience with modern rule of reason adjudication that could inform their analysis. Professor Areeda’s mainstream approach remains unscathed.

1. Andrew I. Gavil & Steven C. Salop, Probability, Presumptions and Evidentiary Burdens in Antitrust Analysis: Revitalizing the Rule of Reason for Exclusionary Conduct, 168 U. Pa. L. Rev. 2107, 2110 (2020); id. at 2122-2124 (describing the Chicago School approach to evaluating exclusionary conduct). ↩︎
2. See id. at 2113 (“We propose eliminating continued reliance on the unwarranted assumptions that have raised the plaintiff’s burden in exclusionary conduct cases and tipped the litigation scales in favor of defendants . . . .”). ↩︎
3. Id. at 2121. ↩︎
4. See Polygram Holdings, Inc. v. FTC, 416 F.3d 29, 35-36 (D.C. Cir. 2005) (describing this framework). ↩︎
5. See Gavil & Salop, supra note 1, at 2121 (describing and endorsing invocations by FTC and some courts of the “inherently suspect” category of restraints, the existence of which establish a prima facie case). ↩︎
6. See id. at 2118 (explaining that, under a “sliding scale” approach, “[t]he strength of any presumption of competitive harm affects the burden on the plaintiff to undertake market analysis. It also correspondingly affects the defendant’s evidentiary burden to rebut evidence or presumption of harm.”). ↩︎
7. See id. at 2110 (“[The] conservative critique of antitrust law has been highly influential and has facilitated a transformation of antitrust standards of conduct since the 1970s.”). ↩︎
8. See Cal. Dental Ass’n v. FTC (CDA), 526 U.S. 756, 779-781 (1999); FTC v. Ind. Fed’n of Dentists (IFD), 476 U.S. 447, 460-61 (1986); NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 109 & n.39 (1984). ↩︎
9. See infra notes 102–109 and accompanying text. ↩︎
10. 337 U.S. 293 (1949). ↩︎
11. Gavil & Salop, supra note 1, at 2114; see also Nat’l Soc’y of Pro. Eng’rs v. United States, 435 U.S. 679, 690 (1978) (describing the two categories of unreasonable restraint); Cont’l T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49 (1977) (describing this “traditional framework of analysis under § 1 of the Sherman Act”). ↩︎
12. See Pro. Eng’rs, 435 U.S. at 692 (“There are, thus, two complementary categories of antitrust analysis . . . [T]he purpose of [either] analysis is to form a judgment about the competitive significance of the restraint . . . .”). ↩︎
13. See United States v. Am. Tobacco Co., 221 U.S. 106, 177-82 (1911); Alan J. Meese, Monopolization, Exclusion and the Theory of the Firm, 89 Minn. L. Rev. 743, 750-52 (2005) (describing American Tobacco’s endorsement and articulation of the rule of reason). ↩︎
14. See Gavil & Salop, supra note 1, at 2109 (“Section 2 [has] been implemented with a ‘rule of reason.’”). ↩︎
15. 356 U.S. 1, 4-6 (1958). ↩︎
16. Id. at 5. ↩︎
17. Id.; see Alan J. Meese, Price Theory, Competition and the Rule of Reason, 2003 Ill. L. Rev. 77, 94-95 & n.84. ↩︎
18. See Meese, supra note 17, at 96 (“[T]he second portion of this test [, the assessment of possible redeeming virtues,] determines whether a particular type of restraint is unreasonable per se.”). ↩︎
19. See Richard A. Givens, Affirmative Benefits of Industrial Mergers and Section 7 of the Clayton Act, 36 Ind. L.J. 51, 52 (1960) (“Competition is eliminated far more completely by . . . a merger than by agreements limited to specific business policies.”). ↩︎
20. See Meese, supra note 17, at 95-96 (explaining how the “economy would grind to a halt if the Sherman Act banned all agreements” that reduce competitive rivalry, with the result that a finding that a restraint has a “pernicious effect on competition” is “only the beginning of the per se analysis”); Givens, supra note 19, at 51-53 (citing NPR, 356 U.S. at 5) (distinguishing naked price-fixing from formation of partnership and other mergers because latter transactions can create benefits not produced by naked price fixing); Broadcast Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 23 (1979) (“Mergers among competitors eliminate competition, including price competition, but they are not per se illegal . . . .”) (emphasis omitted). ↩︎
21. See Alan J. Meese, Market Failure and Non-Standard Contracting: How the Ghost of Perfect Competition Still Haunts Antitrust, 1 J. Competition L. & Econ. 21, 42-54 (2005) (explaining how economists treated efficiencies as technological in nature and thus as arising within the boundaries of a firm). ↩︎
22. See United States v. Topco Assocs., Inc., 405 U.S. 596, 607-612 (1972) (quoting the NPR standard with approval and rejecting contention that ancillary restraints enhancing interbrand competition might produce redeeming virtues). ↩︎
23. See Meese, supra note 17, at 124-32 (summarizing case law during this period). ↩︎
24. See, e.g., United States v. Arnold, Schwinn & Co., 388 U.S. 365, 380-82 (1967) (affirming district court’s determination that consignment agreements confining wholesalers to particular territories were not unreasonable). ↩︎
25. See, e.g., Cont’l T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 57-59 (1977) (overruling Schwinn’s per se ban on vertical exclusive territories and reinstating “the rule of reason that governed vertical restrictions prior to Schwinn.”). ↩︎
26. Id. at 53-54 & n.21 (rejecting contention that contractual restriction on autonomy produced antitrust harm); NCAA v. Bd. of Regents, 468 U.S. 85, 103 (1984) (“[A horizontal] restraint in a limited aspect of a market may actually enhance marketwide competition.”); see also Alan J. Meese, Robert Bork’s Forgotten Role in the Transaction Cost Revolution, 79 Antitrust L.J. 953, 964-979 (2014) (describing how Robert Bork articulated transaction cost explanations of conduct previously deemed unambiguously anticompetitive); id. at 961 (describing how “courts and the enforcement agencies reversed antitrust policy’s hostility to these restraints”). See generally John M. Newman, Procompetitive Justifications in Antitrust Law, 94 Ind. L.J. 501 (2019) (contending that propensity of a restraint to overcome a market failure constitutes a “redeeming virtue” for Section 1 purposes). ↩︎
27. See, e.g., Douglas H. Ginsburg, Vertical Restraints: De Facto Legality Under the Rule of Reason, 60 Antitrust L.J. 67, 68 (1991) (“The Court did not have occasion in GTE Sylvania to follow [its] line of reasoning to its ultimate conclusion, which would be to declare all vertical restraints, both price and nonprice, per se lawful.”); Richard A. Posner, The Next Step in the Antitrust Treatment of Restricted Distribution: Per Se Legality, 48 U. Chi. L. Rev. 6, 6-8 (1981) (arguing in favor of per se legality); Robert H. Bork, The Antitrust Paradox 288 (1978) (“Analysis shows that every vertical restraint should be completely lawful.”); see also Alan J. Meese, Intrabrand Restraints and the Theory of the Firm, 83 N.C. L. Rev. 5, 10, 24 (2004) (contending that courts should treat intrabrand restraints as lawful per se under Section 1, absent predatory pricing). ↩︎
28. See Sylvania, 433 U.S. at 49 n.15 (quoting wide-ranging rule of reason standard articulated in Chicago Bd. of Trade v. United States, 246 U.S. 231, 238 (1918)). ↩︎
29. See Philip E. Areeda, The Rule of Reason in Antitrust Analysis 2 (1981) (articulating these three considerations). ↩︎
30. N. Pac. Ry. v. United States (NPR), 356 U.S. 1, 5 (1958) (“However, there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.”). ↩︎
31. See Areeda, supra note 29, at 5 (“It is only a ‘legitimate’ purpose that can redeem a restraint, and legitimacy lies in consistency with the law generally and consistency with the premises of the antitrust laws in particular.”). ↩︎
32. See, e.g., Nat’l Soc’y of Pro. Eng’rs v. United States, 435 U.S. 679, 693-96 (1978) (rejecting defendants’ offer to prove that restraint furthered public safety because the argument presumed that “competition itself is unreasonable” and thus did not describe a cognizable benefit); see also Areeda, supra note 29, at 6 (“Appraising the legitimacy of a restraint’s objective was the subject of . . . Professional Engineers[.]”). ↩︎
33. See Philip E. Areeda, 7 Antitrust Law ¶ 1507, at 394-403 (1986). ↩︎
34. Id. ¶ 1503b, at 376 (“[V]irtually all courts applying the rule of reason require the plaintiff to define the product and geographic market in which competition is allegedly restrained . . . .”). ↩︎
35. Id. ¶ 1507b, at 397. ↩︎
36. Id. ¶ 1502, at 371. ↩︎
37. Id. ¶ 1507b, at 397 (explaining that absent a showing that a less restrictive alternative will produce the same benefits, “the tribunal must somehow weigh and balance the harm against the benefit”). ↩︎
38. Meese, supra note 17, at 164-65, 168-69 (criticizing the least restrictive alternative test for presuming that “procompetitive and anticompetitive effects coexist”). ↩︎
39. Areeda, supra note 33, ¶ 1511, at 429 (stating that plaintiffs may satisfy initial burden by offering “proof of actual detrimental effects”). ↩︎
40. Id. (explaining that proof of market power is a “surrogate for detrimental effects”). ↩︎
41. Id. ¶ 1503, at 376. ↩︎
42. Id. ¶ 1511, at 428-29. ↩︎
43. Id. ¶ 1511, at 428. ↩︎
44. Id. ↩︎
45. See Philip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application, ¶ 1820a, at 187 (last updated Sept. 2024) (“Exclusive-dealing arrangements have a significant efficiency potential, as outlined in Subchapter 18C, and present only limited threats of competitive harm, and then only under carefully defined conditions, as outlined in Subchapter 18B.”); United States v. Microsoft Corp., 253 F.3d 34, 69 (D.C. Cir. 2001) (requiring plaintiff to “define the relevant market” when challenging such agreements because “exclusivity provisions in contracts may serve many useful purposes”). The Areeda–Hovenkamp Treatise is not a “Chicago School” document, of course. ↩︎
46. See, e.g., Albrecht v. Herald Co., 390 U.S. 145, 152-54 (1968) (holding that maximum price fixing was “without more” an illegal restraint of trade in violation of Section 1 of the Sherman Act), overruled by State Oil v. Khan, 522 U.S. 3, 18 (1997) (“After reconsidering Albrecht’s rationale and the substantial criticism the decision has received, however, we conclude that there is insufficient economic justification for per se invalidation of vertical maximum price fixing.”); Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373, 408 (1911) (holding that vertical minimum price restraints are void), overruled by Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 882 (2007) (“We now hold that Dr. Miles should be overruled and that vertical price restraints are to be judged by the rule of reason.”). ↩︎
47. See Alan J. Meese, Farewell to the Quick Look: Redefining the Scope and Content of the Rule of Reason, 68 Antitrust L.J. 461, 479 (2001) (describing and applauding this “escape hatch” version of the quick look); In re Mass. Bd. of Registration in Optometry, 110 F.T.C. 549, 602-04 (1988) (invoking overbroad per se rules against group boycotts as partial justification for quick look); see also Joseph Kattan, The Role of Efficiency Considerations in the Federal Trade Commission’s Antitrust Analysis, 64 Antitrust L.J. 613, 624 (1996) (describing Massachusetts Board as a “safety valve” in traditional per se cases “for addressing potential efficiency justifications in the rare cases in which they arose.”). ↩︎
48. See Areeda, supra note 33, ¶ 1507, at 402 (“There is always something of a sliding scale in appraising reasonableness . . . the quality of proof required should vary with the circumstances.”); id. ¶ 1508a, at 403-404. ↩︎
49. Id. ¶ 1508a, at 403. ↩︎
50. Id. ¶ 1508a, at 403-404 (“The presentations appropriate to a motion for summary judgment would be sufficient to establish the points necessary for such immediate condemnation.”); id. ¶ 1507, at 402 (“[A] judge willing to require the parties to make their arguments early in the proceedings would be in a position to state his preliminary factual presumptions, which the parties are then free to try to overcome with more refined argument, expert opinion, and evidence.”). ↩︎
51. Cf. United States v. Baker Hughes, Inc., 908 F.2d 981, 983 (D.C. Cir. 1990) (finding that the prospect of entry rebutted prima facie case against merger based on market concentration). ↩︎
52. At the time Areeda authored this volume of his treatise, General Motors and Ford had a combined 58 percent share of the U.S. automobile market. See James Risen & Stephanie Droll, Total Car Sales in U.S. During ‘86 Set Record, L.A. Times, Jan. 8, 1987 (reporting that GM and Ford sold a combined 6.59 million cars out of the 11.4 million cars sold in the United States in 1986). ↩︎
53. See Areeda, supra note 33, ¶ 1503, at 376 (“A joint sales agency or component standardization among firms with a trivial market share cannot impair market competition.”). ↩︎
54. See Frank H. Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1, 17 (1984) (“First, the plaintiff should be required to offer a logical demonstration that the firm or firms employing the arrangement possess market power.”); Richard A. Posner, The Rule of Reason and the Economic Approach: Reflections on the Sylvania Decision, 45 U. Chi. L. Rev. 1, 17 (1977) (contending that proof that manufacturers have “very large market share” or “dealers had a monopoly position” should be necessary to establish prima facie case); see also Robert H. Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market Division, 75 Yale L.J. 373, 381, 389-391 (1966) (arguing that ancillary restraints should be lawful when defendants’ market share does not “approach the 50 [percent] size”). ↩︎
55. See, e.g., U.S. Dep’t of Just., 1982 Merger Guidelines § III (1982) (requiring proof of relevant markets and market concentration); Bork, supra note 54, at 396-97 (stating that courts should “follow the lead . . . [of] section 1 and section 2 merger cases” when determining the extent of market power necessary to establish a prima facie case against horizontal ancillary restraints). ↩︎
56. See Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 221 (D.C. Cir. 1986) (Bork, J.) (holding that the horizontal restraints in question were ancillary and did not violate Section 1 because the defendants lacked sufficiently large market shares to suppress competition); Polk Bros., Inc. v. Forest City Enter., 776 F.2d 185, 188-191 (7th Cir. 1985) (Easterbrook, J.) (reversing per se condemnation of horizontal agreement between joint venturers after finding agreement was ancillary to legitimate venture); id. at 191 (holding that agreement survived assessment under the Rule of Reason because the parties faced competition from “many other options within a reasonable distance” and thus lacked market power); see also Ball Mem’l Hosp., Inc. v. Mut. Hosp. Ins., 784 F.2d 1325, 1335-1337 (7th Cir. 1986) (Easterbrook, J.) (holding that ease of entry prevents a finding that defendants possess market power, regardless of market share). ↩︎
57. See Rothery Storage, 792 F.2d at 221 (suggesting that the court could rely on defendant’s low market shares and thus lack of market power to infer that challenged practice produced efficiencies); Polk Bros, 776 F.2d at 191 (“Unless the firms have the power to raise price by curtailing output, their agreement is unlikely to harm consumers, and it makes sense to understand their cooperation as benign or beneficial.”). ↩︎
58. 468 U.S. 85 (1984). ↩︎
59. See Brief for the Petitioner at 33-36, NCAA, 468 U.S. 85 (contending that plaintiff’s case must fail absent market power). ↩︎
60. The Court found that:
    
    Because it restrains price and output, the NCAA’s television plan has a significant potential for anticompetitive effects. The findings of the District Court indicate that this potential has been realized. The District Court found that, if member institutions were free to sell television rights, many more games would be shown on television, and that the NCAA’s output restriction has the effect of raising the price the networks pay for television rights.
    
    NCAA, 468 U.S. at 104-105 (citing Bd. of Regents of the Univ. of Okla. v. NCAA, 546 F. Supp. 1276, 1294 (W.D. Okla. 1982)). ↩︎
61. See infra note 100. ↩︎
62. 476 U.S. 447, 460-61 (1986) (“[T]he finding of actual, sustained adverse effects on competition . . . is legally sufficient to support a finding that the challenged restraint was unreasonable even in the absence of elaborate market analysis.”); see also Jefferson Par. Hosp. Dist. No 2 v. Hyde, 466 U.S. 2, 29-32 (1984) (subjecting tying contract to rule of reason despite absence of market power over the tying product). ↩︎
63. See, e.g., Cap. Imaging Assoc. v. Mohawk Valley Med. Assoc., 996 F.2d 537, 546 (2d Cir. 1993) (“The plaintiff may satisfy [its initial] burden without ‘detailed market analysis’ by offering ‘proof of actual detrimental effects, such as a reduction of output.’”) (quoting IFD, 476 U.S. at 460-61); Law v. NCAA, 134 F.3d 1010, 1020 (10th Cir. 1998) (invoking NCAA for the proposition that plaintiff could establish prima facie case by proving actual detrimental effects); U.S. Dep’t of Just. & Fed. Trade Comm’n, Antitrust Guidelines for Collaborations Among Competitors § 3.3, at 10-11 (2000) (citing IFD for the proposition that proof that “anticompetitive harm has resulted from an agreement already in operation” establishes prima facie case). Some purported findings of “actual detrimental effects” follow from a thought experiment, whereby courts compare current prices and output to prices and output they imagine would have occurred absent the restraint. See Alan J. Meese, Reframing Antitrust in Light of Scientific Revolution: Accounting for Transaction Costs in Rule of Reason Analysis, 62 Hastings L.J. 457, 477-78 & n.105 (2010) (citing NCAA, 468 U.S. at 104-09) (discussing this methodology for making out a prima facie case). ↩︎
64. See Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 221 (D.C. Cir. 1986); Polk Bros., Inc. v. Forest City Enter., 776 F.2d 185, 188-191 (7th Cir. 1985); Brunswick Corp. v. Riegel Textile Corp., 752 F.2d 261, 265 (7th Cir. 1985); supra note 56 and accompanying text. ↩︎
65. See, e.g., Gavil & Salop, supra note 1, at 2110 (asserting that the “conservative critique of antitrust law has been highly influential and has facilitated a transformation of antitrust standards of conduct since the 1970s”); id. at 2123 (describing “single monopoly profit” theory); id. at 2122-2124 (describing other such examples). ↩︎
66. See e.g., Jefferson Par., 466 U.S. at 9-10, 13-18 (1984) (declaring ties obtained by firms with market power unlawful per se, despite Chicago’s single monopoly profit theory). Indeed, the per se ban on tying, an exclusionary practice, is unduly biased against defendants. See Alan J. Meese, Tying Meets the New Institutional Economics: Farewell to the Chimera of Forcing, 146 U. Pa. L. Rev. 1, 11-12 (1997) (arguing that the per se rule against ties obtained by firms with market power over tying product rests upon the incorrect assumption that such agreements are necessarily forced on purchasers). ↩︎
67. See infra Part VI. ↩︎
68. Numerous circuit courts have invoked this basic framework. See, e.g., Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 74-75 (3d Cir. 2010); Nat’l Hockey League Players Ass’n v. Plymouth Whalers Hockey Club, 419 F.3d 462, 469 (6th Cir. 2005); United States v. Visa U.S.A, Inc., 344 F.3d 229, 238 (2d Cir. 2003); Cap. Imaging, 996 F.2d at 546 (requiring either substantial harm to competition or proof that defendant possessed the required market power to impose an adverse impact on competition under the rule of reason); Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1413-1414 (9th Cir. 1991) (applying rule of reason and rejecting plaintiff’s claim for failing to demonstrate substantial restraint of competition in the relevant market or to show proof of actual anticompetitive effects). ↩︎
69. See Aspen Skiing Co. v. Aspen Highlands Skiing Co., 472 U.S. 585, 605 n.32 (1985) (quoting 3 Philip Areeda & Donald F. Turner, Antitrust Law 78 (1978)) (“Thus, ‘exclusionary’ comprehends at the most behavior that not only (1) tends to impair the opportunities of rivals, but also (2) either does not further competition on the merits or does so in an unnecessarily restrictive way.”); see also Eastman Kodak, Co. v. Image Tech. Servs., 504 U.S. 451, 480-86 (1992) (articulating and applying identical approach under Section 2); Trans Sport, Inc. v. Starter Sportswear, Inc., 964 F.2d 186, 189 (2d Cir. 1992) (Marshall, J.) (holding that defendant’s proof that alleged monopolistic conduct had “legitimate business justifications . . . prevent[ed] a rational trier of fact from finding § 2 liability”);id. at 189-191 (collecting authorities, including four citations of Professor Areeda, to support the court’s analysis). ↩︎
70. See Philip Areeda & Donald F. Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv. L. Rev. 697, 705-706 (1975) (“Superior products or service, successful innovation, or other effective competition on the merits always tends to exclude rivals . . . . Exclusion by charging prices equal to average cost is also competition on the merits . . . .”). ↩︎
71. See Alan J. Meese, Debunking the Purchaser Welfare Account of Section 2 of the Sherman Act: How Harvard Brought us a Total Welfare Standard and Why We Should Keep it, 85 N.Y.U. L. Rev. 659, 706 (2010) (summarizing Areeda and Turner’s endorsement of “economic results associated with workable competition and . . . competition on the merits [that] could lead to and help maintain a monopoly, to the detriment of purchasers, . . . because of the welfare consequences over the long term”). ↩︎
72. See, e.g., United States v. Brown Univ., 5 F.3d 658, 668-669, 679 (3d Cir. 1993) (citing Phillip E. Areeda, 7 Antitrust Law (1986)); Cap. Imaging, 996 F.2d at 543, 546 (same); Bhan v. NME Hospitals, Inc., 929 F.2d 1404, 1410 n.4, 1413-1414 (9th Cir. 1990) (same); see also Hoosier Racing Tire, 614 F.3d at 74-75 (adopting same framework without citing Areeda); Plymouth Whalers, 419 F.3d at 469 (same); Visa, 344 F.3d at 238 (same). ↩︎
73. See Ginsburg, supra note 27, at 68 (opining that Sylvania’s logical conclusion was declaring all vertical intrabrand restraints lawful per se). ↩︎
74. See Michael A. Carrier, The Real Rule of Reason: Bridging the Disconnect, 1999 BYU L. Rev. 1265, 1284 (1999) (reporting that, among sampled cases, 84 percent were dismissed at the first stage because “of the plaintiff’s failure to show a significant anticompetitive effect.”). ↩︎
75. Michael A. Carrier, The Rule of Reason: An Empirical Update for the 21st Century, 16 Geo. Mason L. Rev. 827, 828 (2009). I know of no similar study of cases assessing allegedly exclusionary agreements under Section 2 of the Sherman Act. ↩︎
76. See Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877, 882 (2007) (reversing per se condemnation of minimum rpm because such agreements often produce redeeming virtues); Meese, supra note 17, at 141-144 (describing Supreme Court’s retreat from various per se rules). ↩︎
77. See, e.g., Carrier, supra note 75, at 828 (explaining that plaintiffs lose more than 97 percent of rule of reason cases). ↩︎
78. Gavil & Salop, supra note 1, at 2133 (“When reliable direct evidence of market power or anticompetitive effect is presented, courts should not require plaintiffs to also demonstrate market power with circumstantial evidence by defining a relevant market, calculating market shares, and evaluating barriers to entry.”); see also id. at 2116 (describing with approval decisions that “recognized that a plaintiff could meet its burden of production for competitive harm with a ‘double inference’: courts could infer market power from high market shares and other factors in a defined market; combining this inference with conduct that has a tendency to be anticompetitive, competitive harm could then be inferred-precisely because that tendency increases in the presence of market power”) (citations omitted). ↩︎
79. See Gavil & Salop, supra note 1, at 2133 (“[I]mposing a requirement of evidence of actual harm . . . likely would lead to excessive false negatives); see also infra note 83. ↩︎
80. See supra notes 42–50 accompanying text. ↩︎
81. See Gavil & Salop, supra note 1, at 2115 (“Although the rule of reason has evolved mainly in the context of Section 1 horizontal restraints law, this learning applies equally to exclusionary conduct cases under both Sections 1 and 2.”). ↩︎
82. Cal. Dental Ass’n v. FTC (CDA), 526 U.S. 756, 780 (1999); see Andrew I. Gavil, Moving Beyond Caricature and Characterization: The Modern Rule of Reason in Practice, 85 S. Cal. L. Rev. 733, 759 (2012) (describing the Court’s rule of reason jurisprudence as embracing the “sliding scale” approach). ↩︎
83. See Gavil & Salop, supra note 1, at 2116 (“A plaintiff can meet its burden of production through a rebuttable anticompetitive presumption when economic theory predicts a relatively high or ‘obvious’ probability of competitive harm.”); id. at 2120-21 (contending that courts should sometimes treat a presumption based solely upon the nature of a restraints as sufficient to establish a prima facie case). ↩︎
84. See, e.g., United States v. Topco Assocs., 405 U.S. 596, 608 (1972) (condemning horizontal restraints ancillary to legitimate joint venture with small market share as unlawful per se); Albrecht v. Herald Co., 390 U.S. 145, 152-53 (1968) (condemning maximum resale price maintenance as unlawful per se), overruled by State Oil v. Khan, 522 U.S. 3 (1997); Klor’s v. Broadway Hale Stores, 359 U.S. 207, 212 (1959) (condemning group boycotts as unlawful per se), overruled in part by Nw. Wholesale Stationers v. Pac. Stationary & Printing, 472 U.S. 284, 294-98 (1985); Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373, 407-08 (1911) (condemning minimum resale price maintenance as unlawful per se), overruled by Leegin Creative Leather Prods v. PSKS, Inc., 551 U.S. 877, 882 (2007). ↩︎
85. For instance, the Court left unscathed primary responsibility clauses as “less restrictive alternatives” to per se unlawful restraints. See United States v. Topco Assocs., 319 F. Supp 1031, 1038 (N.D. Ill. 1970), aff’d, 414 U.S. 801 (1973) (permitting primary responsibility clauses on remand from Supreme Court’s per se ban on ancillary exclusive territories). ↩︎
86. Cf. Jefferson Par. Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 16-17 (1984) (concluding that prospect of “anticompetitive forcing” and thus per se condemnation turns on whether defendant possesses market power over tying product). ↩︎
87. More technically, this aspect of the Gavil-and-Salop quick look produces asymmetric litigation costs, disfavoring defendants. See Gavil & Salop, supra note 1, at 2126-2127 (contending that, in private antitrust litigation, defendants with monopoly power possess asymmetric incentives to invest substantial resources in resisting plaintiffs’ challenges to exclusionary conduct). Once a plaintiff bears the low-cost burden of merely proving that an “inherently suspect” restraint exists and thereby establishes a prima facie case, the defendant must incur the much higher cost of adducing proof that the restraint produces significant benefits in order to avoid a directed verdict for the plaintiff. See, e.g., Polygram Holding, Inc. v. FTC, 416 F.3d 29, 36 (D.C. Cir. 2005) (describing operation of so-called “Quick Look” rule of reason methodology that Gavil and Salop endorse). Plaintiffs could employ the credible threat to bring such a suit and impose such costs to induce defendants to settle, regardless of the merits of the case. ↩︎
88. See Gavil & Salop, supra note 1, at 2119-2122. ↩︎
89. See supra notes 39–40 and accompanying text. ↩︎
90. See Copperweld v. Independence Tube Corp., 467 U.S. 752, 768-71 (1984) (requiring concerted action between otherwise independent economic actors is necessary to establish Section 1 violation). One can imagine a fourth approach, whereby proof that defendants have entered an “inherently suspect” restraint generates a prima facie case that a defendant can rebut by demonstrating the absence of market power or other indicia that the restraint causes harm. See Thomas C. Arthur, A Workable Rule of Reason: A Less Ambitious Antitrust Role for the Federal Courts, 68 Antitrust L.J. 337, 382 (2001) (discussing how defendants might prove obvious lack of market power). Courts could also vary the extent of market power, as measured by market share, necessary to establish a prima facie case. ↩︎
91. Gavil and Salop do assert that “Such a presumption might not be as simple as ‘conduct A is so likely to be anticompetitive that we presume it will be,’ as is the case for some per se prohibitions. It might instead be that ‘conduct A, in the presence of facts B, C, and D, is highly likely to be anticompetitive.’” Gavil & Salop, supra note 1, at 2120 n.66. However, the authors do not seem to indicate what type of facts might qualify as “B, C, and D.” The two examples they provide both entail determinations of the scope of per se liability and thus do not entail the sort of rebuttable presumption that arises under the quick look approach. See id. (discussing Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 295-97 (1985) and Jefferson Par. Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12-16 (1984)). ↩︎
92. See id. at 2116 (“A plaintiff can meet its burden of production through a rebuttable anticompetitive presumption when economic theory predicts a relatively high or ‘obvious’ probability of competitive harm.”); id. at 2120-21 (contending that courts should sometimes treat a presumption based solely upon the nature of a restraints as sufficient to establish a prima facie case based solely upon the nature of a restraint). ↩︎
93. Id. at 2120-21. ↩︎
94. Id. at 2117 (“What has been labelled the ‘quick look’ can be understood as courts utilizing a rebuttable presumption when the probability of competitive harm is relatively high, albeit not as high as with per se unreasonableness.”). ↩︎
95. See Justice Stephen Breyer, In Memoriam: Phillip E. Areeda, 109 Harv. L. Rev. 889, 890 (1996) (contending that in the Supreme Court, the Areeda Treatise is more persuasive than opinions by four circuit courts and three Supreme Court Justices). ↩︎
96. Gavil & Salop, supra note 1, at 2116-17; see also Polygram Holding v. FTC, 416 F.3d 29, 36 (D.C. Cir. 2005) (citing NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 110 (1984); FTC v. Ind. Fed’n of Dentists (IFD), 476 U.S. 447, 459 (1986)) (stating that quick look approach “follows from the case law”). ↩︎
97. See IFD, 476 U.S. at 460 (characterizing NCAA as holding “‘[a]s a matter of law, the absence of proof of market power does not justify a naked restriction on price or output,’ and that such a restriction ‘requires some competitive justification even in the absence of a detailed market analysis.’”); NCAA, 468 U.S. at 110 (“This naked restraint on price and output requires some competitive justification even in the absence of a detailed market analysis.”). ↩︎
98. See, e.g., Polygram, 416 F.3d at 35-36 (“inherently suspect” restraint results in prima facie case); United States v. Brown Univ., 5 F.3d 658, 673-74 (3d Cir. 1993) (requiring justification for a program that impedes the free market’s natural function); U.S. Dep’t of Just. & Fed. Trade Comm’n, supra note 63, § 3.3 (invoking NCAA and IFD for the proposition that a prima facie case arises “where the likelihood of anticompetitive harm is evident from the nature of the agreement”) (emphasis added). ↩︎
99. Polygram, 416 F.3d at 36. ↩︎
100. See IFD, 476 U.S. at 461 (“[W]e conclude that the finding of actual, sustained adverse effects on competition in those areas where IFD dentists predominated, viewed in light of the reality that markets for dental services tend to be relatively localized, is legally sufficient to support a finding that the challenged restraint was unreasonable . . . .”). In addition, consider the Court’s statement in NCAA:
     
     Because it restrains price and output, the NCAA’s television plan has a significant potential for anticompetitive effects. The findings of the District Court indicate that this potential has been realized. The District Court found that, if member institutions were free to sell television rights, many more games would be shown on television, and that the NCAA’s output restriction has the effect of raising the price the networks pay for television rights.
     
     468 U.S. at 104-105; see also Areeda, supra note 33, ¶ 1511, at 432-33 (detailing NCAA’s invocation of the district court’s finding that restraint had resulted in actual reduction in output); Meese, supra note 17, at 100 n.107 (same). ↩︎
101. See IFD, 476 U.S. at 460 (“The Commission found that, in two localities in the State of Indiana . . . Federation dentists constituted heavy majorities of the practicing dentists . . . .”). Moreover, the NCAA Court invoked the defendants’ purported monopoly over the market for college football broadcasts when rejecting one of the league’s proffered justifications. See NCAA, 468 U.S. at 115 (resting rejection of defendant’s justification in part upon finding that there was “no ready substitute” for defendant’s product); id. at 111 (“As a factual matter, it is evident that petitioner does possess market power.”). ↩︎
102. See NPR, 356 U.S. at 5-6. ↩︎
103. See NCAA, 468 U.S. at 100 (“Horizontal price-fixing and output limitation are ordinarily condemned as a matter of law as ‘illegal per se’ . . . .”). ↩︎
104. Id. at 100-04; see also Alan J. Meese, Requiem for a Lightweight: How NCAA Continues to Distort Antitrust Doctrine, 56 Wake Forest L. Rev. 1103, 1129-1135 (2021) (describing NCAA’s rationale for declining to condemn restraints before it as unlawful per se). ↩︎
105. NCAA, 468 U.S. at 101-102. ↩︎
106. Cf. In re Matter Brunswick, 94 F.T.C. 1174, 1277 (1979) (finding that restriction on rivalry between joint venture participants was not ancillary to the venture and was thus a “naked agreement between horizontal competitors”). ↩︎
107. See FTC v. Ind. Fed’n of Dentists (IFD), 476 U.S. 447, 458-59 (1986) (rejecting per se condemnation because, inter alia, “we have been slow to condemn rules adopted by professional associations as unreasonable per se, and, in general, to extend per se analysis to restraints imposed in the context of business relationships where the economic impact of certain practices is not immediately obvious”) (citations omitted). ↩︎
108. Id. at 460 (quoting NCAA, 468 U.S. at 109-110) (“[A]s a matter of law, the absence of proof of market power does not justify a naked restriction on price or output . . . .”); see also Alan J. Meese, In Praise of All or Nothing Dichotomous Categories: Why Antitrust Law Should Reject the Quick Look, 104 Geo. L.J. 835, 868-70 (2016) (explaining how restraints condemned at the second step of the quick look approach should not have survived proper application of the NPR test in the first place); N. Pac. Ry. v. United States (NPR), 356 U.S. 1, 5 (1958) (articulating two-part standard for determining whether a category of restraint is unlawful per se). Indeed, the Tenth Circuit had condemned the NCAA plan as horizontal price fixing that was not ancillary to any legitimate objective. See Bd. of Regents of Univ. of Okla. v. Nat’l Collegiate Athletic Ass’n, 707 F.2d 1147, 1153-1154 (10th Cir. 1983). In so doing so, the Court concluded that certain proposed objectives of the restraints were not legitimate. See id. ↩︎
109. See, e.g., N. Tex. Specialty Physicians v. FTC, 528 F.3d 346, 360-61 (5th Cir. 2008) (assessing horizontal restraint under the rule of reason without identifying potential redeeming virtues); Polygram Holding, Inc. v. FTC, 416 F.3d 29, 32-37 (D.C. Cir. 2005) (assessing horizontal restraint under the rule of reason without identifying potential redeeming virtues); United States v. Brown Univ., 5 F.3d 658, 658 (3d Cir. 1993) (rejecting per se condemnation for horizontal price-fixing restraints because defendants were non-profit enterprises). ↩︎
110. Gavil & Salop, supra note 1, at 2116, 2118; see Cal. Dental Ass’n v. FTC (CDA), 526 U.S. 756, 779-781 (1999). ↩︎
111. See CDA, 526 U.S. at 769. ↩︎
112. Id. at 780 (quoting Areeda, 7 Antitrust Law ¶ 1507, at 402). ↩︎
113. See supra notes 48–53 and accompanying text. ↩︎
114. See supra notes 43–47 and accompanying text. ↩︎
115. See Gordon Tullock, The Welfare Costs of Tariffs, Monopoly and Theft, 5 W. Econ. J. 224, 231-32 (1967) (explaining how firms will rationally invest significant resources attempting to create and protect a monopoly and that such investments constitute social waste). ↩︎
116. FTC v. Super. Ct. Trial Laws. Ass’n, 493 U.S. 411, 435 n.18 (1990) (quoting Bork, supra note 27, at 269) (“Very few firms that lack power to affect market prices will be sufficiently foolish to enter into conspiracies to fix prices.”). ↩︎
117. See Gavil & Salop, supra note 1, at 2119 & n.62 (“[A] decision-maker begins with initial beliefs (i.e., presumptions) based on prior knowledge and then gathers additional information (i.e., evidence) to supplement the presumption in order to make a better, more accurate decision.”). ↩︎
118. The authors merely state that “[p]er se prohibition was reserved for conduct with a very high probability of harm.” Id. at 2115. Gavil and Salop characterizeNPR as condemning agreements “highly likely to be anticompetitive.” Id. at 2115 n.33. They do not mention that the prospect vel non of redeeming virtues generally determines whether a category of restraint is unlawful per se. See Meese, supra note 17, at 96. ↩︎
119. See supra notes 15–20 and accompanying text. ↩︎
120. See, e.g., Bork, supra note 54 at 380-84 (describing benefits that such restraints can produce). The extent to which such benefits will exceed harms will depend in part upon the definition of harm that courts adopt. If courts adopt a “total wealth” approach, as they do under Section 2, the only cognizable harm would be the deadweight loss resulting from a misallocation of resources. Thus, the benefits of such restraints would almost always outweigh such harms. See Alan J. Meese, Exclusive Dealing, The Theory of the Firm and Raising Rivals’ Costs: Towards a New Synthesis, 50 Antitrust Bull. 371, 437 (2005) (“[A] total welfare approach to antitrust may . . . simply declare any restraint that produces significant benefits lawful, presuming that the benefits of such a restraint outweigh its social costs.”). If courts were to adopt a purchaser welfare approach, the balance of harms and benefits would more often favor plaintiffs. Professors Gavil and Salop apparently adopt the latter, purchaser welfare approach. See Roger D. Blair & D. Daniel Sokol, The Rule of Reason and the Goals of Antitrust: An Economic Approach, 78 Antitrust L.J. 471, 473-74 (2012) (“Total welfare reflects the overall economic surplus from both producers and consumers. In contrast, consumer welfare refers to the surplus that goes only to consumers and does not include producer surplus.”); Alan J. Meese, Reframing the (False?) Choice Between Purchaser Welfare and Total Welfare, 81 Fordham L. Rev. 2197, 2247-49 (2013) (contending that some practices that reduce purchaser welfare in a particular market can increase the overall welfare of purchasers across several markets). ↩︎
121. See, e.g., ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 270 (3d Cir. 2012) (“Exclusive dealing agreements are often entered into for entirely procompetitive reasons, and generally pose little threat to competition.”); United States v. Microsoft Corp., 253 F.3d 34, 69 (D.C. Cir. 2001) (explaining that a monopolist may rebut a prima facie case by proffering a procompetitive justification for its conduct). ↩︎
122. See Gavil & Salop, supra note 1, at 2120 (describing rationale for such updating when developing rule of reason methodology). ↩︎
123. See United States v. Addyston Pipe & Steel Co., 85 F. 271, 280 (6th Cir. 1898) (“Restrictions in the articles of partnership upon the business activity of the members, with a view of securing their entire effort in the common enterprise, were, of course, only ancillary to the main end of the union, and were to be encouraged.”); see also, e.g., Bork, supra note 54, at 380-84 (describing benefits that such restraints can produce). ↩︎
124. Howard P. Marvel, Exclusive Dealing, 25 J.L. & Econ. 1, 6-8 (1982) (describing cognizable benefits that such restraints may produce). ↩︎
125. See United States v. Topco Assocs., 319 F. Supp. 1031, 1038 (N.D. Ill. 1970) (finding such restraints ancillary to legitimate venture because they might encourage promotion of the venture’s output and that the challenged restraints did not have a significant negative effect on relevant competition but instead served “legitimate, procompetitive purpose [, were] reasonable[,] and [advanced] the public interest”), rev’d, 405 U.S. 596 (1972). ↩︎
126. See Rothery Storage v. Atlas Van Lines, 792 F.2d 210, 230 (D.C. Cir. 1985) (concluding that horizontal price floor was ancillary to otherwise legitimate venture and thus not unlawful per se). ↩︎
127. See Addyston Pipe, 85 F. at 282-284 (describing such agreements as ancillary and thus assessed under the rule of reason). ↩︎
128. See NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 101-02 (1984) (explaining that such a restraint furthers the NCAA’s efforts to produce a differentiated product competing with other entertainment). ↩︎
129. Oliver E. Williamson, The Economic Institutions of Capitalism 23 (1985) (distinguishing “classical market exchange, whereby product is sold at a uniform price to all comers without restriction,” from nonstandard contracts). ↩︎
130. See Meese, supra note 17, at 100 (“Once the defendants have identified a valid procompetitive objective for the restraint—thus avoiding per se condemnation—mere proof that the arrangement restricts rivalry cannot give rise to a presumption of tangible anticompetitive effect, since such a restriction is at least equally consistent with a conclusion that the arrangement is [procompetitive].”) (citations omitted) (internal emphasis omitted). ↩︎
131. See, e.g., Polygram Holding, Inc. v. FTC, 416 F.3d 29, 35-36 (D.C. Cir. 2005) (finding the restraint “inherently suspect” and rejecting defendant’s proffered virtues as not cognizable); Nat’l Soc’y of Pro. Eng’rs v. United States, 435 U.S. 679, 695 (1978) (“Petitioner’s ban on competitive bidding prevents all customers from making price comparisons in the initial selection of an engineer, and imposes the [Petitioner’s] views of the costs and benefits of competition on the entire marketplace. It is this restraint that must be justified under the Rule of Reason . . . .”); id. at 693-696 (finding that petitioner’s proffered justification was not cognizable). ↩︎
132. See Areeda, supra note 33, ¶ 1504, at 378. ↩︎
133. See, e.g., Eric A. Posner, The Antitrust Challenge to Covenants Not to Compete in Employment Contracts, 83 Antitrust L.J. 165, 199 (2020) (contending that employee noncompete agreements should be presumptively suspect). See generally Joel I. Klein, Acting Assistant Att’y Gen., Antitrust Div., U.S. Dep’t Just., A Stepwise Approach to Antitrust Review of Horizontal Agreements (Nov. 7, 1996) (advocating presumptive illegality for Topco-like restraints). But see Alan J. Meese, Don’t Abolish Employee Noncompete Agreements, 57 Wake Forest L. Rev. 631, 636 (2022) (refuting the contention that employee noncompete agreements are inherently suspect); Meese, supra note 47, at 479-83 (refuting the contention that Topco-like restraints are inherently suspect). ↩︎
134. See Meese, supra note 108, at 878-880 (evaluating and rejecting possible alternative methods of defining “inherently suspect”). ↩︎
135. As Gavil and Salop helpfully note, the “horizontal” nature of a restraint cannot suffice to render a category inherently suspect. See Gavil & Salop, supra note 1, at 2139; Meese, supra note 108, at 881 (“Absent proof—and I know of none—that non-naked horizontal price or output restraints are significantly more likely to produce harm than mergers or agreements that do not mention price or output, there is no justification for treating such price or output restraints as inherently suspect.”). Likewise, I should add that the mere fact that a restraint disadvantages rivals does not thereby justify a presumption against it. Private property, for instance, excludes rivals from resources that may enhance their ability to compete with the owner and can thus be characterized as a “barrier to entry.” See Harold Demsetz, Barriers to Entry, 72 Am. Econ. Rev. 47, 49 (1982). However, the mere exercise of this right to exclude does not and should not give rise to a presumption against such conduct. See Meese, supra note 13, at 826-27 (arguing that all property rights create exclusion and barriers to entry). In the same way, contracts that create the equivalent of property rights should not for that reason alone be deemed inherently suspect. See Meese, supra note 120, at 400-404 (detailing property-based benefits of exclusive dealing agreements). ↩︎
136. Cf. Areeda, supra note 33, ¶ 1508a–b, at 403-404 (advocating summary application of Rule of Reason when uncontested affidavits establish that defendants possess market power). ↩︎
137. For instance, if courts deem exclusive dealing agreements inherently suspect, firms might respond by vertically integrating. See Standard Oil Co. v. United States, 337 U.S. 293, 320-21 (1949) (Douglas, J., dissenting) (arguing that antitrust hostility to exclusive dealing will sometimes induce manufacturers to vertically integrate). ↩︎
138. See Gavil & Salop, supra note 1, at 2132 (“The Default Presumption Under the Rule of Reason Should Be ‘Neutral’ Competitive Effects . . . .”); id. at n.121 (noting that “ties are resolved in favor of the defendant”). ↩︎
139. Id. at 2121 (endorsing characterization of some restraints as “inherently suspect”). ↩︎
140. In re Massachusetts Board, 110 F.T.C. 549, 604 (1988). ↩︎
141. See, e.g., Polygram Holding, Inc. v. FTC, 416 F.3d 29, 32-33 (D.C. Cir. 2005) (discussing the Massachusetts Board framework); id. at 35-36 (same); id. at 36 (“We therefore accept the Commission’s analytical framework.”). ↩︎
142. See Gavil & Salop, supra note 1, at 2120; see also Polygram, 416 F.3d at 36 (articulating this approach). ↩︎
143. See Herbert Hovenkamp, Federal Antitrust Policy 485 (2d ed. 1999) (“Both legal policy makers and economists learn a great deal from studying the records of business litigation.”). ↩︎
144. See Cal. Dental Ass’n v. FTC (CDA), 526 U.S. 756, 781 (1999) (“The object is to see whether the experience of the market has been so clear, or necessarily will be, that a confident conclusion about the principal tendency of a restriction will follow from a quick (or at least quicker) look, in place of a more sedulous one. And of course what we see may vary over time, if rule-of-reason analyses in case after case reach identical conclusions.”). ↩︎
145. See, e.g., Carrier, supra note 74, at 1293 (describing data set consisting of 495 rule of reason cases decided between 1978 and 1998). ↩︎
146. See Carrier, supra note 75, at 829-30; see also Carrier, supra note 74, at 1293 (describing data set consisting of 495 rule of reason cases decided between 1978 and 1998). ↩︎
147. See, e.g., Paladin Assocs. v. Mont. Power Co., 328 F.3d 1145, 1156 (9th Cir. 2003) (assuming harmful effect and proceeding to balance). ↩︎
148. Gavil & Salop, supra note 1, at 2120 (contending that courts should develop presumptions by drawing on “experience . . . and economic evidence about the industry and category of conduct.”). ↩︎
149. See id. at 2126-2127. ↩︎
150. See Alan J. Meese, Section 2 and the Great Recession: Why Less Enforcement Might Mean More GDP, 80 Fordham L. Rev. 1633, 1639-1644 (2012). ↩︎
151. See American Antitrust Institute, The State of Antitrust Enforcement and Competition Policy in the U.S. 14-15 (April 14, 2020) (“[S]ince the Microsoft case some 20 years ago and the handful of other cases litigated at that same time, the DOJ has actually brought only one comparatively insignificant Section 2 case. This was an Obama-era challenge to exclusive dealing by a dominant hospital in a small market in Texas.”); id. (reporting that the Department of Justice opened 50 investigations between 2000-2018 into possible violations of Section 2 but brought only one enforcement action during the same period.”); Justice Department Reaches Settlement with Texas Hospital Prohibiting Anticompetitive Contracts with Health Insurers, U.S. Dep’t of Just (Feb. 25, 2011), https://www.justice.gov/opa/pr/justice-department-reaches-settlement-texas-hospital-prohibiting-anticompetitive-contracts [http://perma.cc/N2JZ-C24F]. ↩︎
152. Statistics of U.S. Businesses: 2021 Annual Data Tables by Establishment Industry, Table for U.S. & States, 6-digit NAICs, U.S. Census Bureau (spreadsheet on file with author), https://www.census.gov/data/tables/2021/econ/susb/2021-susb-annual.html [https://perma.cc/QX3W-74MU] (last visited October 22, 2024) (click “U.S. & states, 6-digit NAICS [31.0 MB]” hyperlink to download Excel Sheet; then examine row 4). ↩︎
153. Id. ↩︎
154. Id. ↩︎
155. Revised Uniform Partnership Act § 409(b)(3) (Nat’l Conf. Comm’n Unif. L. 1997). ↩︎
156. See Restatement (Third) Agency, § 8.04 (Am. L. Inst. 2006) (prohibiting an agent from “taking action on behalf of or otherwise assisting” the principal’s competitor); id. § 8.06 (providing for principal’s consent to conduct that would otherwise violate § 8.04). ↩︎
157. Armen A. Alchian, Uncertainty, Evolution and Economic Theory, 58 J. Pol. Econ. 211, 213 (1950) (“This is the criterion by which the economic system selects survivors: those who realize positive profits are the survivors; those who suffer losses disappear.”). ↩︎
158. See Grappone, Inc. v. Subaru of New England, Inc., 858 F.2d 792, 797 (1st Cir. 1988) (evaluating a tying agreement obtained by manufacturer with a regional market share of less than one percent); Heatransfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964, 972 (5th Cir. 1977) (evaluating tying agreement obtained by firm with 4.1 percent of the tying product market); Town Sound & Custom Tops v. Chrysler Corp., 743 F. Supp. 353, 358 (E.D. Pa. 1990) (assessing tying contract obtained by seller with 10-12 percent share of the relevant market), aff’d, 959 F.2d 468 (3d Cir. 1992); In re Brown Shoe Co., 62 F.T.C. 679, 716 (1963), aff’d, Brown Shoe Co. v. FTC, 384 U.S. 316 (1966) (reporting that there were 70,000 shoe retailers in the United States at the time, 766 of whom were bound by the challenged agreements); id. at 708-720 (condemning agreements); see also Brunner v. Liautaud, No. 14-C-5509, 2015 WL 1598106, at *2 (N.D. Ill. Apr. 8, 2015) (describing an employee noncompete agreement obtained by Jimmy John’s franchisees precluding former employees from working at a subset of fast food outlets within short distance of another Jimmy John’s restaurant); Alan J. Meese, Comments on FTC Non-Compete Clause Rulemaking 18-19 (April 19, 2023) (explaining that Jimmy John’s franchise outlets constitute less than 2 percent of franchised fast food outlets in the United States); id. at 27-28 (describing how the noncompete agreements left former employees entirely free immediately to work at outlets of several major quick service franchise systems). ↩︎
159. Indeed, it may well be that restraints that pose the highest risk of harm are nonetheless usually harmless or even beneficial. ↩︎
160. See Meese, supra note 17, at 149, 154 (explaining how atomistic rivalry could result in a market failure that manifests itself as suboptimal prices). ↩︎
161. See, e.g., Marvel, supra note 124, at 7-8 (describing these cognizable benefits that such restraints may produce). ↩︎
162. See Meese, supra note 120, at 427. ↩︎
163. See Gavil & Salop, supra note 1, at 2132 (“The rule of reason benchmark standard requires the plaintiff to prove that anticompetitive effects are ‘more likely than not,’ or, as it applies to all civil antitrust cases, ‘by a preponderance of the evidence.’ This evidentiary standard is consistent with a ‘neutral’ presumption of likely competitive effects, that is, that the category of conduct is no more likely to reduce consumer welfare than to increase welfare.”). ↩︎
164. See id. at 2116 (“[D]irect evidence of probable competitive harm can eliminate the need to rely on circumstantial evidence, and hence either presumption or inference.”). ↩︎
165. Meese, supra note 120, at 427-428; see also Meese, supra note 17, at 145-61 (contending that proof of higher prices should not suffice to establish a prima facie case when restraints avoid per se condemnation because they may overcome a market failure that manifests itself in low prices). ↩︎
166. Gavil & Salop, supra note 1, at 2132, n.121. ↩︎
167. See Meese, supra note 120, at 429-431. ↩︎
168. Areeda, supra note 29, at 2 (articulating these three considerations). ↩︎
169. See, e.g., Meese, supra note 17, at 161-162 (describing how the notion of balancing benefits against harms rests on this “coexistence” assumption); id. at 112 (explaining that application of the less restrictive alternative test depends upon assumption that harms “coincide with the creation of cognizable benefits”); id. at 168 (explaining how conclusion that alternative is less effective undermines assumption that benefits coexist with harms). ↩︎
170. Meese, supra note 63, at 518-519 (“In such cases the impact of a restraint upon price would signal whether efficiencies outweighed market power effects to purchasers’ benefit.”). ↩︎
171. See Thomas G. Krattenmaker & Steven C. Salop, Anticompetitive Exclusion: Raising Rivals’ Costs to Achieve Power Over Price, 96 Yale L.J. 209, 278 nn.216–217 (1986) (suggesting that efficiency “justifications” for suspect conduct are usually assertions that the conduct is not suspect—not an exercise of market power in the first place). ↩︎
172. Meese, supra note 17, at 168-169 (“To be sure, proof that defendants could have adopted a less restrictive and less effective restraint is consistent with the hypothesis that the restraint exercises or creates market power, and that the benefits it creates coexist with anticompetitive harm. However, such proof is at least equally consistent with an alternative hypothesis, namely, that the defendants are attempting to minimize market failure at the lowest cost possible and that the restraints are unrelated to any exercise of market power.”). ↩︎
173. Id. (“Proof of such an alternative cannot therefore support a conclusion that procompetitive and anticompetitive effects coexist. Absent such coexistence, the rationale for application of a less restrictive alternative test collapses.”). ↩︎