Deck 45: The Antitrust Laws

Question 1

Dentsply International manufactures artificial teeth for use in dentures and other restorative appliances and sells them to dental products dealers. The dealers, in turn, supply the teeth and various other materials to dental laboratories, which fabricate dentures for sale to dentists. The relevant market is the sale of prefabricated artificial teeth in the United States. Because of advances in dental medicine, artificial tooth manufacturing is marked by a low-or no-growth potential. Dentsply has long dominated the industry consisting of 12-13 manufacturers and enjoys a 75 percent-80 percent market share on a revenue basis, 67 percent on a unit basis, and is about 15 times larger than its next closest competitor. For more than 15 years, Dentsply has operated under a policy that discouraged its dealers from adding competitors' teeth to their lines of products. Dentsply adopted "Dealer Criterion 6." It provides that in order to effectively promote Dentsply-York products, authorized dealers "may not add further tooth lines to their product offering." Did the exclusivity policy imposed on the dealers violate Section 2 of the Sherman Act?

Answer 1

Sherman Act: It was proposed by the congress to prevent the power accumulation in big firms' hand and to preserve the market competition.
Case summary: Company DI was an artificial teeth manufacturer. There were around 12-13 manufacturers under DI. This led the company to enjoy market domination by having 75-80% of market share. The company operated in a policy as per which, the dealer should not supply the teeth of other manufacturers. Company adopted a scheme as per which, only company DI's products should be promoted.
Section 2: Section 2 under the Sherman act was framed to attack the monopolies. This section does not affect the monopolies rather than the act of monopolizing. The violation of section 2 can be proved by a govt or a private plaintiff only if the defendant is a monopoly firm and is and has a continuous intent of monopolizing. If a monopoly firm is bought by a giant, then it will not be considered as an intent of monopolizing but having an intent to maintain that monopoly is a violation of section 2.
In this case, the company DI was already enjoying the market domination. It was involved into the practices as per which, other dealers should not get involved in adding the product lines rather they should supply the teeth produced by company DI only. As per the section 2, if a manufacturer is involved into practices which leads to act of monopolizing. The policy framed by company DI would not allow the dealers to sell the teeth from other manufacturers. Here, it would not be considered as an act of monopolizing as, as per the section 2 of Sherman act, if the defendant is a monopoly and then it is emphasizing on act of monopolizing, then only it will be considered as a violation of section 2. Here, only 75-80% of market share was under company DI which means that it was not a monopoly. Thus, in this case, the company did not violate the section 2 of Sherman law.

Question 2

Empagran is a foreign corporation, domiciled overseas, that purchased vitamins abroad from F. Hoffman-Laroche and other vitamin producers that distribute and sell vitamins around the world. Empagran claims that F. Hoffman-Laroche and other vitamin companies, both foreign and domestic, engaged in an overarching worldwide conspiracy to raise, stabilize, and maintain the prices of vitamins by directly fixing prices as well as by allocating market share. It contends that this cartel operated on a global basis and affected virtually every market where the producers operated worldwide. Further, it asserts that this unlawful price-fixing conduct had adverse effects in the United States and in other nations that caused injury to Empagran in connection with its foreign purchases of vitamins. It seeks both injunctive relief and damages under Section 1 of the Sherman Act. F. Hoffman-Laroche and the other vitamin producers move to dismiss Empagran's lawsuit for lack of subject matter jurisdiction under the U.S. antitrust laws because the injuries Empagran seeks to redress were allegedly sustained in transactions that lack any direct connection to U.S. commerce. Should the court dismiss this lawsuit because it lacks subject matter jurisdiction? Explain.

Answer 2

Section 1 of the Sherman Act stats that, "Every contract, combination in the form of trust or otherwise or conspiracy, in restraint of trade or commerce among several states or with foreign nations is declared to be illegal."
Yes, in the given case, F and other vitamin producers who sell and distribute vitamins across the world have made such trust or otherwise to form a cartel and have control over price which adversely affect E's business. But E did not show any factual proof with respect to F and other vitamin producers that how it affected the global market and operation of other producers across blog. Therefore, it can be said that here it lacks subject matter jurisdiction.

Question 3

Blaine was licensed to operate a Meineke discount muffler shop in Hartford, Connecticut. In the franchise agreement, Meineke agreed not to license or operate another muffler shop within a three-mile area of Blaine's franchise. This dispute arose when Blaine alleged that Meineke licensed other franchises within his territory. He also claimed that Meineke wrongfully refused his request to operate another Meineke franchise in another community. Blaine sued Meineke and the other franchisees, claiming that they violated his franchise agreement and ignored his request for a new franchise in furtherance of a combination or conspiracy to monopolize the Hartford area. Did Meineke violate Section 2 of the Sherman Act?

Answer 3

Case summary:
Mr. B has bought a license to operate a muffler shop under a franchise agreement from MH Co. As per the agreement, MH was prevented from offering franchisee of the muffler shop to any other party within the territory of three miles of B's store. There was a dispute between the parties when MH gave a franchise to other parties within B's territory, and also the way MH refused B's request to operate muffler shop in another community.
Section 2 of the Sherman Act stands for the act wherein the action undertaken by a business results into anticompetitive actions violating a statute.
Solution:
In this case, it could be said that MH Co. did violated Sec 2 of the Sherman Act because agreement wherein a party if prevented to operate business in the same territory where other players conduct business are against the Sherman Act Sec 2. And, in this case, MH Co. tried to operate similar business franchise alongwith other parties going against the franchise agreement with B that suggested that MH was prevented from offering franchisee of the muffler shop to any other party within the territory of three miles of B's store. Also, the way MH denied B's request to operate another muffler shop in the community also shows that MH tried monopolize the territory which is again against the Sherman Act. This concludes that MH Co. did violated Sec 2 of the Sherman Act.

Question 4

Roland, a substantial dealer in construction equipment, was for many years the area's exclusive distributor of International Harvester construction equipment. After buying Harvester's construction equipment division, Dresser signed a dealership agreement with Roland. The agreement was terminable at will by either party on 90 days' notice. It did not contain an exclusive dealing clause. Eight months later, Roland signed a similar agreement with Komatsu. Several months after discovering this fact, Dresser gave notice to Roland of its intention to terminate its dealership. Roland argued that Dresser's decision to terminate the dealership demonstrated the existence of an implied exclusive dealing contract in violation of Section 3 of the Clayton Act. Did Dresser and Roland have an illegal exclusive dealing contract?

Question 5

For many years Spray-Rite Service Corporation, a wholesale distributor of agricultural chemicals, sold herbicides manufactured by Monsanto. Spray-Rite was a discount operation, buying in large quantities and selling at low margins. Monsanto then announced that it would appoint distributors on a yearly basis and renew distributorships according to whether the distributor could be expected "to exploit fully" the market in its geographic area of primary responsibility. After receiving numerous complaints from other distributors about Spray-Rite's pricing policies, Monsanto refused to renew Spray-Rite's distributorship on the grounds that Spray-Rite had failed to hire trained salesmen and to promote sales to dealers adequately. Spray-Rite filed suit against Monsanto, arguing that Monsanto had terminated Spray-Rite's distributorship as a part of a conspiracy with the complaining distributors. Does the fact that Monsanto terminated Spray-Rite in response to complaints from its other distributors make the termination illegal?

Question 6

Hoover Color Corporation alleges that Bayer Corporation, its supplier, discriminated in favor of Bayer's larger distributors of Bayferrox by implementing a volume-based incentive discount pricing system. Under this system, the price each distributor paid for Bayferrox depended on the total amount of the product it purchased. Bayer began its system of volume-based incentive discounts when it was building a large manufacturing plant which had high fixed costs. Bayer pursued its volume-based pricing strategy in order to obtain the bulk orders necessary to make the new plant profitable. Hoover sued Bayer for price discrimination. Is Bayer's price discrimination protected by the meeting competition defense? Explain.

Question 7

Trident is a manufacturer of printheads and holds a patent over its printhead technology. Printer manufacturers use Trident's printhead technology to manufacture printers. Trident also manufactures ink for use with its patented printheads. Trident's standard form licensing agreement allowing printer manufacturers to use its patented product requires them to purchase their ink for Trident-based systems exclusively. Independent Ink manufactures ink usable in Trident's printheads. It brought suit under Section 1 of the Sherman Act, alleging that Trident was engaging in illegal tying arrangements. Trident argued that the lawsuit should be dismissed because it did not have market power in the printhead (tying product) market. Independent responded that, because the printhead was a patented product, the court should presume the existence of market power. Should the court presume the existence of market power in the tying product market when it is a patented product? Explain.

Question 8

U-Haul rents its branded trucks, vans, and other moving equipment for both one-way and in-town moving. U-Haul conducts its rental business through a network of about 1,200 company-owned rental centers and about 14,500 independent dealers. U-Haul describes its relationship with the dealers as an agency. U-Haul agrees in the dealership contract to bear the risk of liability incurred by the dealers' U-Haul rental operations and to assume responsibility for loss due to theft, vandalism, or other damage to U-Haul equipment in their possession. U-Haul fixes flat rates for in-town rentals based on the size of the truck rented. Is U-Haul engaged in price fixing in violation of Section 1 of the Sherman Act? Explain.