Canadian COMPETITION LAW

May 8, 2014

Guest post by Jarod Bona
(Bona Law PC – reprinted with permission)

Law school exams are all about issue spotting. Sure, after you spot the issue, you must describe the elements and apply them correctly. But the important skill is, in fact, issue spotting. In the real world, you can look up a claim’s elements; in fact, you should do that anyway because the law can change.

And outside of a law-school hypothetical, it typically isn’t difficult to apply the law to the facts. Of course, what I like about antitrust is that the law evolves and is often unclear and applying it (whatever it is) challenges your thinking. Sometimes, you even need to ask your favorite economist for some help.

To some, life as an antitrust lawyer might look boring. But, in fact, it is thrilling. That’s right—life as an antitrust attorney is thrilling. No matter what your profession, if you aren’t confronted with changes and challenges, boredom will set in, particularly if you are someone that needs intellectual stimulation (which is true of most attorneys). And antitrust law is a big-enough mess that you won’t run out of challenges.

Anyway, if you aren’t an antitrust lawyer, it probably doesn’t make sense for you to advance deep into the learning curve so you are an expert in antitrust and competition doctrine. It might be fun, but it is a big commitment to get to where you would need to be, so you should consider devoting your extra time instead to something like CrossFit. I did my first real CrossFit workout this week, so that is on my mind. I highly recommend it.

But you should learn enough about antitrust so you can spot the issues. This is important because you don’t want your company to violate the antitrust laws, which could lead to jail time, huge damage awards, and major costs and distractions. And as antitrust lawyers, we often counsel from this defensive position.

It is even more fun, however, to play antitrust from the offensive side of the ball. That is, utilize the antitrust laws to help your business. To do that, you need a rudimentary understanding of antitrust issues, so you know when to call me.

This is just issue-spotting, so you don’t need to know the elements or how to resolve the antitrust issues or whether you actually have a claim: You should know enough to know whether to make a phone call.

With that, here are ten antitrust issues to consider when evaluating whether to call me. But, really, call anytime.

1. It Just Doesn’t Seem Fair.

The first consideration is a gut feeling. You have an idea of what competition is and you notice that your competitor or supplier or even customer is doing something that just doesn’t seem like fair competition. I am not using the term “fair competition” as some socialist backdoor to destroy capitalism. Nor am I using “fair” as in everyone receives a trophy and nobody loses. No, that isn’t really competition.

What I mean is that your potential adversary is doing something that feels like cheating—like finding a loophole or structural way around actually competing.

I don’t mean that they are competing better or that they are bigger and can therefore offer discounts because of their economies of scale or that they are offering low prices that just seem unfair. No, that is competition. What I mean is that they are somehow cheating.

This first consideration has a high false-positive rate because many people view competition as unfair. You have to try to think objectively. But, anyway, it is a good start because most successful antitrust cases invoke a feeling of “unfairness” about the underlying conduct.

2. Horizontal Activity.

Once your antitrust radar goes up, you can start to look for activities and structures that might suggest an antitrust violation. Most prominently, horizontal activity—that is, activity between or among current and potential competitors—raises suspicion under the antitrust laws.

That doesn’t mean that antitrust and competition regimes lock competitors in separate rooms never to even lay eyes on one another. But it does mean that certain cooperation among competitors increases the likelihood of a legitimate antitrust issue. This is especially true if the cooperation eliminates competition among them. The obvious per se antitrust claims involve price-fixing, market-allocation agreements, boycotts and bid-rigging, but any diminution of competition from a deal among competitors could state an antitrust claim.

Keep in mind, however, that a price-fixing agreement among your competitors doesn’t typically harm you. It probably harms your customers, but unless you suffer antitrust injury, you don’t have a claim. I mention this because there are many cases where one competitor accuses the other competitors of fixing prices and is routinely bounced out of court.

3. Boycotts

If you notice that your competitors are collectively doing something to keep either your customers or suppliers (or anyone else) from working with you, you might have an antitrust claim. Similarly, if a group of suppliers or customers have an agreement (often in secret) to avoid dealing with you, you might have an antitrust claim.

Remember, there has to be some sort of agreement among competitors at one of the levels: your competition, your suppliers, or your customers, for example. That doesn’t mean that if a customer simply stops hiring you, you can sue them under the antitrust laws.

4. Market or Monopoly Power.

Typically, for a vertical agreement—an agreement between players at different levels—to violate the antitrust laws, one of the parties must have market power. The issue of market power is often complex, but roughly it means that the competitor has at least 30 to 40 percent market share or some other advantage that allows it to act in the market without or with less regard to competition.

The legal determination of market power is often greatly disputed, requiring complex legal and economic analysis. The first screen of market power, however, is a gut feeling. If you participate in an industry, you have an idea who has market power.

5. Foreclosure

The nuances of foreclosure are complicated and I won’t get into them here. Instead, I recommend you read this speech by FTC Commissioner Joshua Wright.

If, for example, one of your competitors has a deal with one of your customers that effectively keeps you from competing in the market, you might have an antitrust claim under a foreclosure theory. This often comes up with loyalty discounts, bundling, or exclusive dealing.

It isn’t enough that you merely lose a contract or get beat in an RFP for an exclusive short-term deal with a customer. It means that your competitor is doing something that structurally keeps you from competing in the market.

The line between legal and illegal is a fine one and the law isn’t always clear. So when it doubt, make a call.

6. Raising Rivals’ Costs and “Cheap” Exclusion.

My terminology is imprecise here, so if you are an antitrust expert, please forgive me. But I am using these terms to roughly denote the situation where your competitor is doing something to raise your costs or make it more difficult for you to do business.

This doesn’t mean they are improving their product or service, so it will cost you more to compete. It means they, for example, show up at the retailer where you both compete for customer sales and hide your products or knock down your displays. Or perhaps they start your factory on fire.

Anyway, they are doing something to you that raises your costs of doing business, but doesn’t really make sense from a legitimate competition standpoint. I would include disparagement-type offenses here, which could be a blog post or article by itself.

This is the type of violation that will really seem unfair.

7. Tying and Leveraging.

Not everyone believes that a monopolist can really gain profits or power by using a monopoly in one market to advantage themselves in another (I am looking at you, Chicago School). But many antitrust claims are premised on this very idea, so you should watch for it.

For example, a potential tying claim may occur when a monopolist in one market requires that customers that purchase the monopolized product also purchase another product in a competitive market. The competitor in the second market, the competitive one, might have trouble competing because the customers must purchase the product from the monopolist because they have to do so to obtain the first product (from the monopolized market).

8. Predatory Pricing.

It is rare that a straight price cut violates the antitrust laws. Of course, price-cuts based upon market-share requirements (loyalty discounts) or purchasing products from separate markets (bundling) present unique issues.

But a straight price cut in a single market, no strings attached, is almost always pro-competitive. There are rare instances, however, where the antitrust laws will condemn such a price cut: When the price-cutter is a monopolist that cuts prices (1) below its own variable costs (roughly); and (2) there is a reasonable likelihood that it can recoup those loses by raising prices after extinguishing its competitors from the market.

Companies don’t like it when their competitors cut prices and it often feels unfair. It may also seem like the price cuts are keeping you from competing. And it is possible that you have a claim for predatory pricing. But not likely. The stars have to align perfectly and the courts are, sensibly, skeptical of such claims.

9. Antitrust Injury.

No matter what your claim, you have to demonstrate antitrust injury to prevail. That means that your injury must flow from that which makes the conduct illegal under the antitrust laws. The harm to you must arrive from the competition-reducing aspect of the conduct. This is hard to explain in the abstract, but keep it in mind.

10. Harm to Competition.

Finally, in the end, the question is really whether the conduct helps or hurts competition itself. There are some claims, of course, where the harm to competition is presumed: the per se antitrust violation. Those are claims like price-fixing and market-allocation that are so anticompetitive, the antitrust doctrine just presumes the competitive harm because they are so bad.

Disagreements permeate almost every piece of antitrust doctrine and the law evolves. But what stays constant is that the purpose of antitrust is to protect competition. That has meant different things during different eras.

Ultimately, the question is whether the conduct is competition itself or inhibits competition. The answer isn’t always easy. But as you issue spot, always keep this idea in mind.

There are, of course, other complexities and types of claims, so don’t rely on this checklist of sorts as completely inclusive of everything, but it is a good start.

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