Originally published by Barry Barnett.
Leegin as wrecking ball?
Since the Supreme Court struck down an almost century-old rule of per se antitrust liability in Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007),* defense lawyers have tried to turn a single sentence from Leegin into a per-se category killer.
A per se case is simpler than the “rule of reason” approach, costs millions of dollars less to try, and has greater odds of success with a judge or jury. Unlike the rule of reason, per se:
- does not require an economist to opine about the relevant product and geographic markets;
- obviates the need to prove that the defendants had market (or monopoly) power or that their conduct was anticompetitive;
- simplifies proof of damages; and
- precludes defendants from claiming, and presenting evidence, that their agreement enhanced competition.
You would expect a kindly hearing from the Fifth Circuit — a court that, despite President Obama’s six years of judicial appointments, still counts twice as many Republican (10) as Democratic (5) appointees in active service. But would the court drink the Kool-Aid?
No, the court answered on November 25.
A boycott of steel
The ruling came in a “group boycott” case by an upstart steel distributor against incumbent competitors and their steel-making suppliers.
In MM Steel, L.P. v. JSW Steel (USA) Inc., No. 14-20267 (5th Cir. Nov. 25, 2015), the new firm, MM Steel, alleged that steel-makers JSW, Nucor Corporation, and SSAB conspired with distributors to run MM out of business by refusing to fill its orders. MM settled with several of the defendants before trial but after six weeks of evidence won a verdict against Nucor and JSW. The jury awarded MM damages of $52 million, which the district court trebled, as section 4 of the Clayton Act provides.
On appeal, Nucor and JSW raised two main points (the distributor defendants having settled post-verdict). They argued, first, that MM failed to prove that they knowingly joined a conspiracy to boycott MM and, second, that Leegin barred treating group boycotts among horizontal competitors of the plain tiff as a per se violation of the Sherman Act.
The Fifth Circuit held that the evidence supported the boycott claim against JSW but not Nucor. No reasonable jury could find, the court ruled, that Nucor did anything more than continue a pre-boycott policy of favoring another steel buyer, Chapel, over a newer customer like MM. MM Steel, slip op. at 11-15.
Per-se appeal
But the big moment came in the panel’s handling of the per-se versus rule-of-reason question. The dissent by Second Circuit Judge Dennis Jacobs in Apple Inc. v. United States, 791 F.3d 290, 346-47 (2d Cir. 2015),** provides an excellent set-up, as follows:
The most recent and explicit signal is given in Leegin, which explains that “the Sherman Act’s prohibition on ‘restraints of trade’ evolves to meet the dynamics of present economic conditions,” such that “the boundaries of the doctrine of per se illegality should not be immovable.” 551 U.S. at 899-900 (alterations omitted). Leegin held that a manufacturer did not commit a per se violation of § 1 when it agreed with several retailers on a minimum price that the retailers could charge–a holding that overruled a century-old principle articulated in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911). See Leegin, 551 U.S. at 881. Leegin reasoned that Dr. Miles had “treated vertical agreements a manufacturer makes with its distributors as analogous to a horizontal combination among competing distributors,” but that, “[i]n later cases, . . . the Court rejected the approach of reliance on rules governing horizontal restraints when defining rules applicable to vertical ones.” Leegin, 551 U.S. at 888. Dr. Miles was held to be inconsistent with “[o]ur recent cases[,] [which] formulate antitrust principles in accordance with the appreciated differences in economic effect between vertical and horizontal agreements, differences the Dr. Miles Court failed to consider.” Id.
Although the express holding of Leegin does not extend beyond the overruling of Dr. Miles, the Court’s analysis reinforces the doctrinal shift that subjects an ever-broader category of vertical agreements to review under the rule of reason. The Court first stated the subsisting scope of per se liability: A horizontal cartel among competing manufacturers or competing retailers that decreases output or reduces competition in order to increase price is, and ought to be, per se unlawful. Leegin, 551 U.S. at 893. The Court then rejected per se liability for hub-and-spokes agreements, in wording that prescribes rule-of-reason review of vertical dealings that facilitate per se unlawful horizontal agreements (the type of agreement that the district court found Apple had undertaken):
To the extent a vertical agreement setting minimum resale prices is entered upon to facilitate either type of cartel [among 17 manufacturers or among retailers], it, too, would need to be held unlawful under the rule of reason.
Id. (emphasis added). After Leegin, we cannot apply the per se rule to a vertical facilitator of a horizontal price-fixing conspiracy; such an actor must be held liable, if at all, “under the rule of reason.” Id.
Like Judge Jacobs’ two colleagues on the Second Circuit panel in Apple, the unanimous Fifth Circuit judges rejected the Leegin wrecking-ball hypothesis. Judge Stephen A. Higginson, writing for the panel, first reviewed several pre-Leegin rulings by the Supreme Court in group boycott cases. He then delivered the ruling as follows:
We decline to hold that the Supreme Court silently overruled this line of cases by stating that vertical agreements to regulate prices that facilitate horizontal agreements to regulate prices “too, would need to be held unlawful under the rule of reason.” Leegin, 551 U.S. at 893; see also Anderson News, LLC v. Am. Media, Inc., 680 F.3d 162, 183 (2d Cir. 2012) (recognizing, post-Leegin, that, under Klor’s [v. Broadway-Hale Stores, 359 U.S. 359 U.S. 207 (1959)], per se liability applies to group boycotts with horizontal and vertical components). But cf. Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc., 530 F.3d 204, 225 (3d Cir. 2008) (holding that under Leegin per se liability did not apply to vertical agreements between manufacturers and distributors to refuse to deal with distributors that were not part of a horizontal price-fixing conspiracy, but not finding that the manufacturers joined a horizontal group boycott). The district court did not err when it instructed the jury that if they found that the manufacturers joined the conspiracy between the distributors, the manufacturers were per se liable for a § 1 violation.
MM Steel, slip op. at 18.
Significance
The Fifth Circuit’s rejection of the Leegin as per se category-killer hypothesis comes fast in the heels of the Second Circuit’s like ruling in the Apple e-books case and signals a low probability that other courts of appeals will embrace the argument. The Third Circuit’s early reading of Leegin in Toledo Mack Sales may stand as the high water mark for interpretation of Leegin as potentially portending further cuts in existing per-se liability categories.
The Supreme Court of course stands a little offstage, for now at least. It could take up cudgels on per-se v. rule of reason again in Apple (with thanks to our friends at SCOTUSBlog). Facing a $156 million judgment, JSW also may well take a shot at high court review.
But the Court has not shown much interest lately in remaking substantive antitrust law, preferring to tinker in antitrust cases with procedural machinery involving motions to dismiss (Twombly), appeals in multi-district proceedings (Gelboim v. Bank of Am. Corp.), and class actions (Comcast Corp. v. Behrend) and in one case rejecting an effort to limit liability for antitrust conspiracies (American Needle).***
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* Supremes Kill Dr. Miles, Dance on His Grave.
** Per Se Melee in E-Books Case — Part 2.
*** See also The Antitrust Lawyer’s Guide to the Supreme Court’s No-Antitrust Term.
Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.
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