Last week we posted a discussion concerning effective antitrust corporate compliance programs, and provided some factors that in-house counsel should consider in developing compliance programs governing employees’ communications with competitors and dealings with customers and suppliers.  Today we continue that discussion by addressing the relevant factors in compliance programs concerning monopolization and dominance and price discrimination.

Monopolization and Dominance

Section 2 of the Sherman Act makes it unlawful for a company to “monopolize, or attempt to monopolize” trade or commerce.  FTC guidance explains that “it is not illegal for a company to have a monopoly, to charge ‘high prices,’ or to try to achieve a monopoly position by what might be viewed by some as particularly aggressive methods”; instead, the FTC explains that the “law is violated only if the company tries to maintain or acquire a monopoly through unreasonable methods.”  In practice, that means a court will generally evaluate a firm’s market power and whether the practice in question has a legitimate business justification.  Typically, monopoly power is not found if the firm (or group of firms acting in concert) has less than 50 percent of the sales of a particular product or service within a certain geographic area.  Even if a firm has a monopoly, antitrust regulators and the courts will evaluate whether the firm achieved that monopoly through exclusionary or predatory means or whether it did so by permissible means such as superior products, innovation or business acumen.  In-house counsel should incorporate into their compliance programs examples of different types of predatory or exclusionary practices that might raise antitrust scrutiny – for example, pricing products below a firm’s actual costs may be viewed as a predatory attempt to drive competitors out of business.  Exclusionary methods have also received substantial attention.  In the Microsoft litigation, the United States and numerous states alleged that Microsoft used its dominant position in the operating systems market to exclude software developers and prevent computer makers from installing non-Microsoft web browsers.  More recently, in the Apple iTunes litigation, the Ninth Circuit upheld the dismissal of an antitrust complaint alleging that Apple tried to block competition and charge more by preventing users from playing some iTunes music on non-Apple devices.  While companies in all business sectors should be aware of potential monopolization concerns, these issues are especially likely to arise for technology companies where network effects and issues connected to compatibility across user platforms create opportunities for firms to try to expand their market power in additional areas by leveraging their success in the market for the underlying technological product.

Price Discrimination Among Buyers

The Robinson-Patman Act prohibits the sale of two products of similar grade and quantity at different prices to two different buyers where the price difference may result in injury to competition.  What does that mean on a practical level?  Antitrust concerns may arise if a manufacturer reduces its prices in a specific geographic area and causes injury to competitors in the same market (known as “primary line” injury) or a supplier gives favored customers a price advantage over competing customers (“secondary line” injury).   There are two defenses to these types of alleged violations under the Robinson-Patman Act: (1) the price difference is justified by different costs in the manufacture, sale or delivery of goods (e.g., volume discounts) or (2) the price concession was given in good faith to meet a competitor’s price.  In addition, Robinson-Patman Act violations occur only where the buyers are competing purchasers.  For example, in Feesers v. Michael Foods, the Third Circuit reversed the district court’s determination that Michael Foods, the largest producer of liquid eggs in the United States, had discriminated against Harrisburg food distributor Feesers in the pricing of egg and potato products.  The Third Circuit acknowledged that Feesers provided evidence showing that Michael Foods had charged Feesers prices that were 59 percent higher than the prices it had charged Sodexo, a multinational food service management firm.  Despite the disparity in pricing, however, the Third Circuit found that there was no antitrust violation because Sodexo (a food service management firm) and Feesers (a food distributor) were not “competing purchasers.” Giving concrete examples in compliance training based on your company’s line of business can help employees understand the practical application of this type of guidance to their day-to-day responsibilities.