II. DETERMINING WHAT IS PER SE UNLAWFUL
Per se unlawful activity is characterized by its clear probability of anticompetitive effect and the improbability of adequate compensating competitive virtues. Characterization of conduct as per se unlawful generally requires (i) identifying a restraint's likely anticompetitive effect; (ii) determining whether it also has likely procompetitive potential; and, if so, (iii) ascertaining that the connection between the suspect conduct and any benefit is sufficiently close or necessary to justify rule-of-reason analysis.(17) As the following discussion reflects, attempts to articulate standards that are both accurate in content and useful in implementation have not been entirely successful, at least for purposes of resolving relatively close cases. We turn first to an examination of the courts' efforts to identify potentially per se unlawful conduct by its capacity for anticompetitive effect.
A. Identifying Strong Likelihood of Anticompetitive Effects
1. Judicial Articulations
Over the course of the past forty years, the courts repeatedly have attempted to articulate what makes certain business conduct worthy of summary condemnation under the antitrust laws. We look first at the various formulations they have used and then at the fact patterns that have triggered per se treatment.
The Supreme Court has variously described per se unlawful conduct as that which has a "pernicious effect on competition and lack of any redeeming virtue,"(18) has "no single purpose except stifling of competition,"(19) or is "manifestly anticompetitive,"(20) or "plainly anticompetitive."(21) More recently, the Court has indicated that per se condemnation is warranted when conduct "always or almost always tend[s] to restrict competition and decrease output" rather than to "increase economic efficiency and render markets more . . . competitive,"(22) has "predictable and pernicious anticompetitive effect" and "limited potential for procompetitive benefit,"(23) or when it is "likely to have predominantly anticompetitive effects."(24)
These standards characterize the conduct but generally do not provide the information necessary to decide whether a particular restraint is per se illegal. Although application of one standard over another might lead to different results,(25) the Court has not acknowledged this and has not told us when to apply which articulation. In sum, the various articulations seem to lack individual significance.(26)
The BMI articulation is at least a partially successful effort to add a test of substance to the melange. In BMI, the Court began by reiterating the characterizations "plainly anticompetitive" and lacking "any redeeming virtue," but ultimately stated that the proper inquiry focuses on "whether the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output . . . or instead one designed to 'increase economic efficiency and render markets more, rather than less, competitive.'"(27)
This communicates some important points. For one thing, it tells us that per se condemnation can result from facial examination of the conduct, allowing the court to make its determination quickly, based on anticompetitive effects plausibly argued but not elaborately proved.(28)
The "always or almost always" portion of the formulation indicates the very high probability of anticompetitive effects required for finding a practice per se unlawful. However, the addition of "almost always" conveys the Court's willingness to allow a margin for error in making per se determinations. This is consistent with the rationale which justifies per se treatment when exceptions to the generalization supporting summary condemnation "are not sufficiently common or important to justify the time and expense necessary to identify them."(29)
BMI also provides guidance on what harmful effects to look for through its "tend to restrict competition and decrease output" language. This requires that the suspect conduct restrict competition and identifies one specific anticompetitive effect, output reduction, that triggers per se treatment.(30)
Taken as a whole, the BMI articulation suggests that the Court wants to be able to make per se determinations quickly, based on a facial examination of the arguments; that it wants to include in per se categories only conduct with a high probability of anticompetitive effects unaccompanied by adequate offsetting benefits; that it accepts some possibility of error through over-inclusiveness; and that the effects that will trigger per se condemnation are restriction of competition and reduction of output.
2. When Effects Cannot Be Predicted
The flip side of some of the per se characterizations -- an inability to say that conduct is "plainly anticompetitive" or "facially" appears to "always or almost always tend to restrict competition and decrease output" -- has led courts to be unwilling to apply per se proscriptions to conduct taking novel forms or arising in relatively unfamiliar settings. The Supreme Court in Topco stated that "[i]t is only after considerable experience with certain business relationships that courts classify them as per se violations . . . ."(31) Similarly, in determining to apply rule of reason analysis to an agreement among dentists to withhold x-rays from dental insurers, the Court explained, "[W]e have been slow . . . 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."(32) A variation on this theme is a reluctance to apply per se rules in settings involving the professions.(33)
"Judicial unfamiliarity" has proven an unsatisfying criterion, however, invoked inconsistently and generally with little or no substantiation. It is unclear what enough experience might be,(34) and whether courts need to be familiar with the challenged activity in the precise form alleged, or whether familiarity with similar conduct is enough. For example, in McNeil v. National Football League,(35) unfamiliarity with Plan B (a series of rules governing teams' first-refusal and compensation rights following expiration of player contracts) "as it currently exists" was cited as a reason for analyzing its restrictions under the rule of reason, even though a predecessor of Plan B had been the subject of previous antitrust litigation. In contrast, Maricopa held that a maximum fee agreement among doctors in the context of a comprehensive medical plan was per se illegal even though the Court had never dealt with the antitrust consequences of a similar arrangement in the medical or insurance industries.(36) When the Court next confronted a horizontal agreement regarding medical insurance, it declined to apply a per se rule, in part because "we have been slow to condemn rules adopted by professional associations as unreasonable per se . . . ."(37)
Thus, like the other standards considered in connection with identification of likely anticompetitive effects, the "judicial unfamiliarity" standard lacks clear content.
3. Fact Patterns
In the context of competitor collaborations, the courts have imposed per se liability involving three general types of conduct: price-fixing, market division, and group boycotts. This section briefly examines the fact patterns that in recent years have triggered per se analysis in each of these settings. It finds that each category of activity potentially subject to per se condemnation encompasses quite diverse conduct, making delineation of boundaries difficult. It also observes that the courts have varied the nature of per se treatment in line with the severity of a category of conduct's perceived anticompetitive potential, requiring a greater showing of likely anticompetitive effect in settings where competitive harms have been thought less certain.
a. Horizontal Price Fixing
Per se condemnation of horizontal price fixing has been broadly applied. Per se treatment extends not only to agreements that directly establish price levels,(38) or their flip side, output levels,(39) but also to conduct, such as various forms of bid-rigging, that manipulates the market in order to raise (or, in the case of monopsony, to lower), stabilize, or "tamper with" price levels.(40) The entire price need not be affected; an agreement jointly establishing any "part of the price" is also condemned.(41) Maximum price fixing is included under the per se proscription.(42)
Recent cases illustrate each of these principles. The Commission this year applied the per se rule to an agreement adopted by an association of professional conference interpreters directly fixing price by establishing minimum daily rates.(43) Agreements setting portions of the price -- such as per diem rates, travel compensation, and charges for off-days and cancellations -- also received per se condemnation.(44) The per se rule has also been applied to arrangements affecting price through limitations on significant forms of competition, such as by restricting the ability to purchase services by the hour rather than by the day or to vary the rates paid to different members of an interpreting team.(45) The per se rule has been applied to maximum price fixing.(46) Finally, the per se rule against price fixing has been invoked in some less traditional contexts, including an effort to raise rivals' costs(47) and a joint effort to exclude a discounter from participation in a trade show.(48)
b. Market Division
The per se proscription of market divisions has had a broad reach similar to that against price fixing. Focusing on potential anticompetitive effects, Judge Posner recently explained:The analogy between price-fixing and division of markets is compelling. It would be a strange interpretation of antitrust law that forbade competitors to agree on what price to charge, thus, eliminating price competition among them, but allowed them to divide markets, thus eliminating all competition among them.(49)
The per se rule has been applied to agreements to divide geographic territories, customers, and types of business.(50) It reaches arrangements splitting markets in which the parties compete and agreements "merely reserv[ing] one market for one and another for the other," that is, requiring parties to keep out of particular portions of otherwise available business.(51) Recent cases show application of the per se rule against geographic market divisions,(52) customer allocations,(53) and assignments of business by product type.(54)
More interesting are the cases that have extended per se illegality to arrangements that sheltered the agreeing parties' from one another's competition without expressly dividing markets. For example, the Commission in AIIC found a per se unlawful market division when a trade association prohibited permanently employed staff interpreters from performing freelance business for which freelance interpreters were available.(55) The Seventh Circuit found an agreement among former law partners to divide the geographic markets in which each could advertise per se unlawful.(56) In addition, complaints resolved by consent agreements have viewed certain joint bidding or teaming arrangements as in fact nothing more than market divisions.(57)
c. Group Boycotts
The role of per se analysis in evaluating group boycotts has long been a topic of confusion. Northwest Wholesale Stationers provides the Supreme Court's most complete recent discussion of the issue:Cases to which this Court has applied the per se approach have generally involved joint efforts by a firm or firms to disadvantage competitors by "either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle." In these cases, the boycott often cut off access to a supply, facility, or market necessary to enable the boycotted firm to compete, and frequently the boycotting firms possessed a dominant position in the relevant market. In addition, the practices were generally not justified by plausible arguments that they were intended to enhance overall efficiency and make markets more competitive. Under such circumstances the likelihood of anticompetitive effects is clear and the possibility of countervailing procompetitive effects is remote.(58)
The Court then held that, absent market power or "unique access to a business element necessary for effective competition," expulsion from a buying cooperative is appropriately analyzed under the rule of reason.(59) Subsequently, in SCTLA, 493 U.S. at 432-36, the Court clarified that group boycotts used to implement price-fixing conspiracies may be condemned without a market-power inquiry. Recent applications of the per se rule to group boycotts have tended to involve either boycotts of suppliers or customers directed toward discouraging dealings with the boycotters' competitor or boycotts utilized to implement per se unlawful price fixing or market divisions.(60)
Two points emerge from this survey. First, the courts have varied the nature of per se treatment in line with the severity of a category of conduct's perceived anticompetitive potential. For price fixing and market divisions, where the threat to competition is most clear, the per se rule is strong, and plaintiffs typically have not been required to demonstrate market power or specific anticompetitive effects. For at least some group boycotts, where the anticompetitive effect may appear more attenuated, the courts have tended to require market power or unique access to essential business elements.(61) For group boycotts that implement price fixing or market divisions, however, the market power requirement is dropped.
Second, each category of conduct potentially subject to per se condemnation encompasses quite diverse conduct and is far from self-defining. Price fixing is a prime example. The recent cases include several instances of per se condemnation where a price is not actually established, but where the competitive mechanisms for setting price have been tampered with, such as by requiring uniform pay for different members of an interpreting team, requiring a union to charge competitors a fee, or seeking to bar a competitor from a trade show.
Given the diversity of conduct that may be subject to per se treatment, it is understandable that efforts to delineate the boundaries of per se prohibitions using articulations based solely on their likely competitive harms have not been particularly successful. Categories of conduct lack precision, and descriptive phrases tend to be too conclusory to give much guidance. Not surprisingly, then, courts have increasingly focused on the presence or absence of competitive benefit as a means for chiseling away conduct that does not belong within per se categories. In recent years, cases have often turned on this factor, which is discussed in the next section.
B. Identifying Absence of Competitive Benefit
1. General Articulations
Conduct that would otherwise trigger per se condemnation will still elude per se treatment if it is likely to generate competitive benefits.
The courts' formulations for describing this second element of the per se rule typically adopt one of two approaches. They either focus directly on the conduct's likely competitive effects, or they seek to determine whether the suspect conduct is suitably connected, i.e., "ancillary," to legitimate activity. Although the "effects-based" and "ancillary restraints" analyses have somewhat different focuses, depending on how they are applied, they need not be substantively inconsistent. Indeed, a single opinion may contain elements of both forms of analysis.(62)
a. "Effects-Based" Analysis
The "effects-based" analysis is reflected in the second half of some of the Supreme Court's standards for per se illegality. Thus, Northern Pacific Ry., 356 U.S. at 5, looks for conduct with a "lack of any redeeming virtue,"Khan, 1997 U.S. LEXIS 6705, at *11, speaks in terms of "limited potential for procompetitive benefit," and BMI, 441 U.S. at 19-20, asks whether a practice facially appears to always or almost always restrict competition and decrease output instead of being "designed to 'increase economic efficiency and render markets more, rather than less, competitive.'"
The effects-based approach leaves room for defendants to articulate procompetitive justifications for their conduct. Faced with potential justifications, the Supreme Court has assigned cases to the rule of reason when benefits were so clear that the restraint was deemed necessary in order to provide the product at all,(63) as well as in instances where the restraint's "economic impact" was "not immediately obvious."(64) Unfortunately, for much of this range of possibilities the Court has not provided specific guidance, and, as the discussion of cases such as BMI and Maricopa infra in Section II.B.2 suggests, the means for determining which competitive justifications are sufficient remain in doubt.
b. Ancillary Restraints Analysis
"Ancillary restraints" analysis derives from Judge Taft's opinion in United States v. Addyston Pipe & Steel Co.,(65) involving an agreement among pipe manufacturers to fix prices, rig bids, and divide territories. Accepting, arguendo, defendants' claim that Section 1 liability extends only to agreements void as restraints of trade under common law, Judge Taft extracted from the common law the principle that no conventional restraint of trade can be enforced unless the covenant embodying it is merely ancillary to the main purpose of a lawful contract, and necessary to protect the covenantee in the enjoyment of the legitimate fruits of the contract, or to protect him from the dangers of an unjust use of those fruits by the other party.
Id. at 282. In contrast, "[W]here the sole object . . . is merely to restrain competition, and enhance or maintain prices, it would seem that there was nothing to justify or excuse the restraint . . . ." Id. at 282-83.
Some courts and commentators would apply Judge Taft's analysis in determining whether agreements warrant per se condemnation. For example, Judge Bork's opinion in Rothery Storage & Van Co. v. Atlas Van Lines, 792 F.2d 210 (D.C. Cir. 1986), cert. denied, 479 U.S. 1033 (1987), concluded that Addyston Pipe "framed a rule of per se illegality for 'naked' price-fixing and market-dividing agreements, i.e., agreements between competitors who cooperated in no other integrated economic activity," but "recognized that such a rule would not do where fusions or integrations of economic activity occurred . . . ." Id. at 224. Rothery continues:To be ancillary, and hence exempt from the per se rule, an agreement eliminating competition must be subordinate and collateral to a separate, legitimate transaction. The ancillary restraint is subordinate and collateral in the sense that it serves to make the main transaction more effective in accomplishing its purpose. Of course, the restraint imposed must be related to the efficiency sought to be achieved. If it is so broad that part of the restraint suppresses competition without creating efficiency, the restraint is, to that extent, not ancillary.(66)
Ancillary restraints analysis, however, is at least as plagued by ambiguities as the more direct, effects-based standards. Two questions immediately stand out: (1) to what must the conduct be ancillary? and (2) what is a sufficient connection to yield "ancillary" status?
Courts and commentators have suggested a variety of answers to the first question. Some have looked to whether a restraint is ancillary to integration(67) or to an efficiency-enhancing integration.(68) Similarly, some have asked whether a suspect restraint is ancillary to some lawful contract or joint activity.(69) These formulations insert an intermediate construct between the restraint and its efficiencies and focus their inquiry on the construct. Other formulations cast the ancillarity inquiry in very general terms, such as whether a suspect restraint is ancillary to some legitimate commercial objective or lawful purpose, i.e., to something other than price formation or restraining competition.(70) Indeed, the "lawful purpose" formulation was used by Judge Taft in Addyston Pipe, 85 F. at 282-83. Significantly, when the inquiry is framed this broadly, that is, when the issue is whether a restraint is ancillary to some legitimate commercial objective -- such as achieving a procompetitive efficiency -- rather than merely restraining competition, the inquiry begins to overlap with effects-based formulations which look directly at procompetitive benefits. Precise specification of what a restraint must be ancillary to thus becomes critical for actually assigning meaning to the doctrine.
The second key question -- asking what is a sufficient connection to render a restraint ancillary -- usually is answered either (i) by a requirement that the restraint be related to the underlying object to which it must be ancillary or (ii) by a requirement that the restraint in some sense be necessary for attaining the underlying object. The two approaches are not equivalent: a restraint can be related to attaining an object even when it is not necessary, such as when a less anticompetitive alternative would achieve the same goal. Consequently, formulations based on necessity pose the more stringent test. We return to this issue infra in Section II.B.4. For present purposes we merely observe that without clear specification of the degree of association required, the term "ancillary" lacks meaning, and its use invites confusion.
Of course, effects-based standards require resolution of much the same issue in determining when a practice is sufficiently associated with the asserted benefits. However, effects-based standards at least ensure that inquiry is focused on the connection between a restraint and its asserted benefits. The potential for confusion is magnified under ancillary restraints analysis, for a restraint may be related to an integration or a lawful contract but wholly unrelated to its competitive benefits. See Section II.B.5, infra.
c. General Principles: Quickly Eliminating Plainly Inadequate Justifications
The initial step under either form of analysis is intended to permit speedy per se condemnation in settings where justifications are absent or plainly inadequate. There is clear consensus that when conduct of a type normally thought sufficiently anticompetitive to warrant per se condemnation stands alone, with no arguable justification, the conduct should be condemned summarily.(71) The issue is more difficult when some justification is offered. Modern trends suggest that it is appropriate to look at justifications,(72) but there is danger that opening one's eyes may open a door. As Judge Posner has observed, "The per se rule would collapse if every claim of economies from restricting competition, however implausible, could be used to move a horizontal agreement not to compete from the per se to the Rule of Reason category."(73)
Courts and commentators have suggested mechanisms for summarily weeding out plainly inadequate justifications. Professor Areeda's analysis contemplates elimination of some justifications on argument alone. It provides for a "quick look" to determine whether defendants' claims are "legitimate in principle and capable of being proved satisfactorily," while still summarily rejecting justifications of types previously found wanting and claimed defenses "close enough to those previously excluded."(74) Others would permit a cursory look at factual content -- just enough to determine that a practice, while perhaps not naked, is clothed with only a "gauzy cloak."(75) Similarly, the enforcement agencies repeatedly have stated that they will apply per se treatment to joint ventures that actually are nothing more than shams,(76) and the Seventh Circuit has been willing to preliminarily find per se illegality after a "quick look" at the facts, "without undertaking the kind of searching inquiry that would make the case a Rule of Reason case in fact if not in name . . . ."(77)
The case law provides little guidance for "quick-look per se" identification of shams, but the issue may be approached from the other side by considering how courts have described benefits sufficient to confer rule-of-reason status.
2. Application of "Effects-Based" Analysis
Unfortunately, the Supreme Court has offered little guidance for applying effects-based standards to cases of moderate efficiencies. Rather, it has focused on the end of the spectrum opposite from sham justifications, addressing settings where the challenged restraints offer very great efficiencies. In rejecting per se analysis under these circumstances, the Court has explained that the challenged restraints may permit competitors to offer through collaboration a different product than what they can provide independently. Thus, in BMI, the Court discussed the advantages of blanket licenses for musical compositions in the following terms:This substantial lowering of costs, which is of course potentially beneficial to both sellers and buyers, differentiates the blanket license from individual use licenses. The blanket license is composed of the individual compositions plus the aggregating service. Here, the whole is truly greater than the sum of its parts; it is, to some extent, a different product. The blanket license has certain unique characteristics: It allows the licensee immediate use of covered compositions, without the delay of prior individual negotiations, and great flexibility in the choice of musical material. Many consumers clearly prefer the characteristics and cost advantages of this marketable package . . . . Thus, to the extent the blanket license is a different product, ASCAP is not really a joint sales agency offering the individual goods of many sellers, but is a separate seller offering its blanket license, of which the individual compositions are raw material. ASCAP, in short, made a market in which individual composers are inherently unable to compete fully effectively.
BMI, 441 U.S. at 21-23 (footnotes omitted).
It is not clear, however, whether the "different product" concept entails anything more than a very great efficiency. The Supreme Court relied on two factors. First, it emphasized the "substantial lowering of costs" and observed that individual composers are unable to compete with the blanket license "fully effectively." These considerations emphasize the efficiency of the arrangement. Second, the Court stressed that a blanket license aggregates individual compositions, resulting in a "whole . . . truly greater than the sum of its parts." Yet when the Court attempted to be more specific -- by observing that this greater "whole" permitted immediate use and great flexibility -- it also explained that the blanket license eliminated any need for "prior individual negotiations," which together, albeit much less efficiently, could have assembled the same package of rights. In effect, the Court may merely have been using an intuitively appealing illustration of the fact that the blanket license's cost savings were very great.(78) If so, "different product" analysis provides a handy characterization for some cases offering very great benefits rather than a fully independent test.
Nor is it particularly easy to apply, as reflected by the Court's opinion in Maricopa. That case involved agreements by competing physicians setting the maximum fees that they could claim for services provided under specified insurance plans. Defendants argued that this was a new product in that it made possible complete insurance coverage -- requiring no co-payment -- for the services of a broad panel of physicians. Id., 457 U.S. at 351. The Court, however, found the situation fundamentally different from that in BMI because the physicians, both before and after their price-fixing agreement, sold only their own medical services. Id. at 356. Yet, Justice Powell's dissent observes:the foundations provide a "different product" to precisely the same extent as did Broadcast Music's clearinghouses. The clearinghouses provided only what copyright holders offered as individual sellers -- the rights to use individual compositions.
Id. at 365 n.12. Moreover, the arrangement in Maricopa, like that in BMI, offered consumers a complete range of services at a pre-arranged maximum fee. Reading BMI and Maricopa together, it is difficult to extract coherent standards for applying the "different product" construct.
A different path into this thicket derives from the Supreme Court's analysis in NCAA of a set of restrictions fixing the number and, effectively, the price, of college football telecasts. The Court rejected application of the per se rule on grounds that the case "involves an industry in which horizontal restraints on competition are essential if the product is to be available at all." Id., 468 U.S. at 101. Although that rationale clearly rests on the presence of a distinct, jointly-offered product, the formulation adds little to the mix. To the extent that a practice is necessary for the product to be available at all,(79) it would qualify for rule of reason treatment under virtually any test of competitive benefits.(80) Again, guidance comes at the end of spectrum where competitive benefits are very clear.
3. Application of Ancillary Restraints Analysis: To What Must the Conduct Be Ancillary?
In contrast, ancillary restraints analysis provides guidance even when competitive benefits are less overwhelming. As already noted, it has been formulated in diverse ways, but most reduce to asking whether the challenged conduct is suitably connected either to (i) an integration (often, an "efficiency-enhancing integration") or (ii) to a lawful purpose, viz., to achieving an efficiency.
"Integration" is a term often used, but rarely defined.(81) Typically it has been applied in three general senses. Sometimes usage has focused on a combination of productive assets. For example, one analyst speaks in terms of the "integration of resources" that follows when collaborating firms "contribute assets such as capital, technology, or production facilities to a common endeavor."(82) Other times the emphasis has centered on a coordination of functions and operations without necessarily combining assets.(83) Such arrangements sometimes are referred to as "contract integration."(84) On still other occasions, particularly in the context of physician networks, the inquiry has centered on shared financial risk. For instance, the Court's opinion in Maricopa viewed physicians in an HMO as "functionally integrated" in light of their sharing of economic risk as to the amount of medical treatment that the subscribers might need.(85)
Why has integration played such a critical role? After all, it is not an end in itself. Rather, it appears primarily useful as an indicator or proxy for efficiencies.(86) From the opposite perspective, it might also be viewed as an indicator that the arrangement is more than a sham -- something has happened beyond merely jointly setting prices, so that a more intensive look may be required to sort things out.(87)
If integration is indeed a proxy for efficiencies, its utility would seem to depend on (i) its accuracy as a proxy and (ii) any advantages it may afford with respect to ease of application. Taking the latter point first, integration often will be readily apparent, such as when assets are combined or financial risk is shared. A clear, quickly applied test of this nature may be well-suited to the per se/rule-of-reason determination, where the inquiry is not whether efficiencies will occur, but rather whether they are sufficiently likely to warrant a closer look. Application becomes more uncertain and difficult when "integration" is taken to include coordination of functions and operations, particularly under the broadest formulations such as the productive cooperation relied upon by Judge Easterbrook in Polk Bros. The often-used formulation "efficiency-enhancing integrations" appears to forfeit much of the advantage in terms of ease of application over an efficiencies-based standard.
As to accuracy, one key concern is likely to be that some efficiencies may be realized without integration, so that an integration-based standard might allow per se condemnation of beneficial conduct.(88) Efficiencies derived from combining complementary assets, shifting production among separately owned facilities, sharing risk, and facilitating the raising of capital would all seem to entail combinations of assets or financial integration. Achieving other forms of efficiencies -- such as by aligning incentives (e.g., by preventing free-riding), reducing transactions costs (such as through joint selling, as in BMI and Maricopa), eliminating undesirable duplication (by dropping rather than combining certain operations), or, in some instances, achieving scale economies -- may entail only coordination of functions and operations. It is not clear, however, how frequently these latter efficiencies in fact arise in isolation, without an accompanying combination of assets or financial integration.
On the other hand, an integration-based standard may contribute to accuracy by filtering out certain efficiencies that antitrust law typically has not recognized. For example, price fixing saves the cost of independently determining price levels, and market allocations permit competitors to focus specialized efforts on their share of the divided market. Although antitrust law has not accepted these cost savings as procompetitive, both, strictly speaking, could pass an efficiencies-based test. However, when price fixing and market allocations are naked, they would not pass an integration-based review.
In sum, it appears that the utility of integration-based standards -- from the perspectives of both accuracy and ease of applicability -- is significantly affected by the breadth of their definition. Some efficiencies may be captured only by a standard broad enough to cover coordination of functions and operations through "contract integrations," and this tends to complicate the standard's application. In contrast, all but the broadest formulations of the "integration" touchstone appear well-designed to exclude the types of cost-savings that antitrust law generally has not recognized.
4. Closeness of the Restraint to the Competitive Benefits
Under either an "effects-based" or an "ancillary restraints" analysis, there must be a sufficiently close connection between the challenged conduct and the asserted competitive benefits. Courts and analysts sometimes ask, on the one hand, whether the suspect conduct "relates to" or "contributes to" a benefit, or, on the other hand, whether the conduct is "reasonably necessary" or "necessary" for achieving the benefit.
These articulations require varying degrees of rigor. A "relationship" test might be satisfied even by a tangential connection. For example, an unabashed advocate might see a relationship between a research joint venture among automobile manufacturers to develop improved hubcaps and an agreement allocating markets for their automobiles, thereby better aligning the incentives of the joint venturers. Clearly, however, that relationship is extremely tenuous. Requiring that the challenged conduct "contribute to" producing an efficiency would seem to suggest need for a more functionally meaningful connection. Maricopa, for instance, involved a restraint that related and contributed to a competitive benefit, in that the maximum fee schedule agreed to by physicians permitted a binding assurance of complete insurance coverage for a specified premium. Historically, however, "contribute to" sometimes has been treated as equivalent to "relate to."(89)
"Necessity" clearly requires something more. It introduces the concept of less anticompetitive alternatives: the suspect conduct is not necessary when the same goal can be accomplished by other means. A requirement framed in terms of "reasonable necessity" might temper the "necessity" inquiry.
The Supreme Court has tended to speak in terms of necessity, without expressly explaining its rationale for that choice. Thus, the Court concluded in Maricopa that the maximum price fixing by physicians was unnecessary for achieving the asserted benefits:Even if a fee schedule is therefore desirable, it is not necessary that the doctors do the price fixing. . . . [I]nsurers are capable not only of fixing maximum reimbursable prices but also of obtaining binding agreements with providers guaranteeing the insured full reimbursement of a participating provider's fee. . . . [N]othing in the record even arguably supports the conclusion that this type of insurance program could not function if the fee schedules were set in a different way.(90)
BMI also looked to "necessity," with the Court determining that a blanket license was "an obvious necessity" if thousands of individual negotiations were to be avoided and that "a bulk license of some type is a necessary consequence of the integration necessary to achieve these efficiencies, and a necessary consequence of an aggregate license is that its price must be established."(91) NCAA also employed "necessity" language in rejecting per se treatment for "an industry in which horizontal restraints on competition are essential if the product is to be available at all," but did not actually use a "necessity" test.(92)
Lower court treatment has been mixed. Addyston Pipe, the seminal opinion on the topic, employed a necessity standard. It observed that at common law, restraints of trade were void unless "merely ancillary to the main purpose of a lawful contract, and necessary to protect the covenantee in the enjoyment of the legitimate fruits of the contract, or to protect him from the dangers of an unjust use of those fruits by the other party."(93) Judge Taft explained, "Before such agreements are upheld . . . the court must find that the restraints attempted thereby are reasonably necessary" to legitimate ends and concluded that "if the restraint exceeds the necessity presented by the main purpose of the contract, it is void . . . ."(94)
In contrast, the D.C. Circuit's Rothery opinion reformulated Addyston Pipe as requiring that "the restraint imposed must be related to the efficiency sought to be achieved" and as supporting rule-of-reason treatment when a restraint "is part of an integration of the economic activities of the parties and appears capable of enhancing the group's efficiency."(95) This largely converts Addyston Pipe's "necessity" standard into a test that looks to whether the suspect conduct is "related to" or "contributes to" the claimed benefits.(96) Other appellate decisions apply a mixture of necessity and relationship/contribution standards.(97)
The polar formulations -- "necessity" versus mere "relationship" -- pose well-defined, but difficult, policy choices. The more stringent "necessity" standard subjects more cases to summary condemnation under the per se standard, and fewer cases to the more searching inquiry of the rule of reason. For example, Topco's per se condemnation of a restraint preventing the sale of Topco-brand products outside designated territories has often been questioned for failing to give recognition to potential benefits in developing private labels needed for interbrand competition with larger chains.(98) Some commentators have suggested, however, that even given these efficiencies, per se treatment would still have been justified under a necessity standard on grounds that the benefits could have been achieved in less anticompetitive ways, such as through primary responsibility arrangements.(99) We return to these issues infra in Section IV.B.2.
5. Connection of the Restraint to the Joint Venture or to the Competitive Benefits
The elements explored individually above frame a core issue in joint venture analysis: is it sufficient to avoid per se prohibitions that a restraint be part of a legitimate, efficiency-enhancing joint venture, or must the restraint be suitably connected to the joint venture's competitive benefits? The Supreme Court has suggested two different answers.
On one hand, NCAA rejected per se treatment not because the telecast restraints generated competitive benefits, but rather because they were connected to an essential joint venture. Explaining its ruling, the Court stated, "[W]hat is critical is that this case involves an industry in which horizontal restraints on competition are essential if the product is to be available at all." 468 U.S. at 101. According to the Court, the NCAA imposed essential restraints by setting rules of athletic competition and standards for preserving the amateur character of college football.(100)
However, a determination that some restraints on competition are essential for the product to be available at all is not the same as a determination that these restraints on competition were essential. Rules fixing the output and price of college football telecasts were neither necessary for nor related to achieving the cited benefits.(101) In essence the NCAA opinion rejected per se status when a restraint was related to the joint venture and the joint venture was essential for a competitive benefit, notwithstanding that the restraint was unrelated to the benefit. The analysis would not have satisfied an effects-based test or an ancillary restraints test framed in terms of relationship to or necessity for achieving an efficiency. Only an ancillary restraints test requiring that restraints be related to an efficiency-enhancing integration might have been satisfied.(102)
On the other hand, the Court in Northwest Wholesale Stationers ruled that the likely efficiencies of the wholesale purchasing cooperative were not dispositive and cast its analysis instead in terms of the likely effects of the specific restraint at issue:[Plaintiff] Pacific, of course, does not object to the existence of the cooperative arrangement, but rather raises an antitrust challenge to Northwest's decision to bar Pacific from continued membership. It is therefore the action of expulsion that must be evaluated to determine whether per se treatment is appropriate.(103)
Similarly, BMI was careful to connect the price restraint to its efficiencies: "a bulk license of some type is a necessary consequence of the integration necessary to achieve these efficiencies, and a necessary consequence of an aggregate license is that its price must be established."(104)
Some commentators endorse this latter approach and have criticized NCAA. They argue that the lack of connection between the output/price restraints and the specified justifications should have resulted in application of the per se rule.(105) The criticism has some merit: according rule of reason treatment to every restraint associated with a legitimate joint venture could cut a broad swath through the per se rule's coverage and open the door wide for abuses. Assuming that the per se rule rests on valid "generalizations" about the social utility of certain types of conduct,(106) departing from those generalizations without inquiring whether a restraint yields any benefit may detract from the rule's effectiveness.
In any case, the alternatives may not be as disparate as they appear. Although the Supreme Court in NCAA rejected per se treatment, it did not then subject the matter to full rule-of-reason review. Rather, it introduced an intermediate approach, the truncated rule of reason discussed in the next section.
17. As explained infra in Section II.B.4, the third requirement may entail examination of less anticompetitive alternatives.
18. Northern Pac. Ry., 356 U.S. at 5.
19. White Motor Co. v. United States, 372 U.S. 253, 263 (1963).
20. Sylvania, 433 U.S. at 49-50.
21. Professional Engineers, 435 U.S. at 692.
22. BMI, 441 U.S. at 19-20.
23. State Oil Co. v. Khan, 1997 U.S. LEXIS 6705, at *11 (Nov. 4, 1997).
24. Northwest Wholesale Stationers, 472 U.S. at 298; see also NCAA, 468 U.S. at 103-04 (focusing on the high "likelihood" that conduct is anticompetitive).
25. For example, some articulations require wholly anticompetitive effects, while others look for "predominantly" anticompetitive effects.
26. A number of opinions use the standards interchangeably and cumulatively, without comment as to what the additional formulations add to the analysis. See, e.g., Northwest Wholesale Stationers, 472 U.S. at 289-90 (citing in succeeding paragraphs and without comment as to any distinction, the standards quoted in the text from Northern Pac. Ry. and BMI). The lower courts typically have applied one or more of the Supreme Court's articulations. They, too, seem to accept the co-existence of various articulations of per se illegality without distinguishing among them. A number of recent decisions even mix and match standards. See, e.g., Bhan v. NME Hospitals, Inc., 929 F.2d 1404, 1412 (9th Cir.) (per se rule should be invoked when the challenged activity "would almost always tend to be predominantly anti-competitive"), cert. denied, 502 U.S. 994 (1991); Sewell Plastics, Inc v. Coca-Cola Co., 720 F. Supp. 1186, 1193 (W.D.N.C. 1988) (agreement to enter into supply contracts was not "plainly anticompetitive and without redeeming value"), adhered to, 720 F. Supp. 1196 (W.D.N.C. 1989), aff'd, 912 F.2d 463 (4th Cir. 1990), cert. denied, 498 U.S. 1110 (1991).
27. BMI, 441 U.S. at 19-20 (quoting United States v. United States Gypsum Co., 438 U.S. 422, 441 n.16 (1978)).
28. The "tend" language underscores the same idea. Cf. Areeda, supra note 6, at ¶ 1511 (endorsing summary condemnation of restraints of the kind that have been regarded as "very serious and usually without recognized redeeming virtue" based on review of plaintiff's and defendant's arguments alone).
29. Sylvania, 433 U.S. at 50 n.16.
30. However, the fact that the phrase is stated in the conjunctive is potentially troubling; cartels can fix prices at reasonable levels and not reduce output, yet it has long been clear that reasonableness of the price fixed is no defense. Socony-Vacuum, 310 U.S. at 220-22; Trenton Potteries, 273 U.S. at 395-402. See Stephen F. Ross, Principles of Antitrust Law 136 (1993). Commentators have also observed that in some circumstances cartels can transfer wealth from consumers to producers without reducing output. Id. Consequently, BMI's language might better have been phrased in the disjunctive.
31. Topco, 405 U.S. at 607-08 .
32. FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 458-59 (1986) (citing BMI). Subsequent lower court opinions have echoed this sentiment in hesitating to summarily condemn conduct that they find in some respect novel or of uncertain economic effect. For example, in Detroit Auto Dealers Ass'n v. FTC, 955 F.2d 457 (6th Cir.), cert. denied, 506 U.S. 973 (1992), the court rejected per se analysis of a concerted limitation of showroom hours on this basis. See also United States v. Brown Univ., 5 F.3d 658, 670-72 (3d Cir. 1993) (applying the rule of reason to an agreement among universities on the net price that financial aid applicants must pay, in light of the non-profit nature and goals of the defendant and the alleged role of the agreement in extending education benefits to needy students); California Dental Ass'n, Docket No. 9259, slip op. at 24 (F.T.C. March 25, 1996) (Comm'r Azcuenaga dissenting and Comm'r Starek concurring in part and dissenting in part) ("CDA I") (dental association's restrictions on non-price advertising reviewed under rule of reason), enforced, 1997 U.S. App. LEXIS 28882 (9th Cir. Oct. 22, 1997) (dental association's restrictions on price advertising also reviewed under rule of reason).
33. See Indiana Fed'n of Dentists, 476 U.S. at 458 ("we have been slow to condemn rules adopted by professional associations as unreasonable per se. . . ."); California Dental Ass'n v. FTC, 1997 U.S. App. LEXIS 28882, at *15-18 (9th Cir. Oct. 22, 1997) ("CDA II"); Massachusetts School of Law v. American Bar Ass'n, 107 F.3d 1026, 1033 (3d Cir.) (evaluating under the rule of reason allegations that the ABA fixed prices through a law school accreditation process that took account of faculty salaries in assessing a school's ability to attract and retain high-quality faculty, because "where 'a conspiracy of this sort is alleged in the context of a profession, the nature and extent of [the] anticompetitive effect are too uncertain to be amenable to per se treatment,'" quoting Wilk v. American Medical Ass'n, 719 F.2d 207, 221 (7th Cir. 1983), cert. denied, 467 U.S. 1210 (1984)), cert. denied, 60 U.S.L.W. 3263 (1997).
34. In BMI, 441 U.S. at 10, the Court acknowledged that there had been "rather intensive antitrust scrutiny" of blanket licenses but still determined judicial experience was lacking. In CDA II, 1997 U.S. App. LEXIS 28882 at *17-18, the Ninth Circuit acknowledged that the Commission had "gained considerable experience with advertising restrictions" but still found per se analysis of particular restrictions on price advertising inappropriate.
35. 790 F. Supp. 871, 896-97 (D. Minn. 1992).
36. See Krattenmaker, supra note 12, at 168.
37. Indiana Fed'n of Dentists, 476 U.S. at 458-59.
38. E.g., Trenton Potteries.
39. See NCAA, 468 U.S. at 99-100 (dictum).
40. See, e.g., Socony-Vacuum, 310 U.S. at 221 (condemning an agreement among oil companies to purchase surplus spot-market oil as a "combination which tampers with price structures"); Professional Engineers (condemning, without expressly applying per se terminology, an agreement among competing engineers not to discuss prices with potential customers until after the customer's initial selection of an engineer).
41. See Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980) (finding an agreement to eliminate credit and require payment upon delivery per se unlawful).
42. E.g., Maricopa, 457 U.S. at 348.
43. International Ass'n of Conference Interpreters, Docket No 9270, slip op. at 25-26 (F.T.C. February 19, 1997) (Comm'r Starek concurring in part and dissenting in part) ("AIIC"). Several recent enforcement agency consent orders have dealt with direct, price-setting conduct through joint negotiations by health care providers. See, e.g., United States v. HealthCare Partners, 1996-1Trade Cas. (CCH) ¶ 71,337 (D. Conn. 1996) (alleged joint negotiations with managed care plans by competing physicians without sharing of financial risk or other integration of practices); Rochester Anesthesiologists, 110 F.T.C. 175 (1988) (alleged joint negotiations among anesthesiologists over the pricing terms of their participation in a Blue Shield plan) (Comm'r Azcuenaga dissenting).
44. AIIC, slip op. at 27-28.
45. AIIC, slip op. at 26-27. In addition, the Commission found that a dental association's requirement that all price advertising be "exact" and its requirement for extensive disclosure when advertising discounts effectively prohibited truthful price advertising and suspended "a significant form of price competition." CDA I, slip. op. at 16-24. The Ninth Circuit rejected the Commission's per se treatment of these restrictions but condemned them under the rule of reason. CDA II, 1997 U.S. App. LEXIS 28882, at *15-28.
46. Hahn (per se analysis appropriate if health care plan that set a maximum fee for physicians and a lower, maximum reimbursement rate for podiatrists was controlled by competing physicians). See also DOJ Business Review Letter issued to Pharmaceutical Mfrs. Ass'n (October 1, 1993) (plan to limit members' price increases to no more than increases in the Consumer Price Index would be per se unlawful).
47. Premier Elec. Constr. Co. v. National Elec. Contractors Ass'n, 814 F.2d 358 (7th Cir. 1987) (agreement between association of electrical contractors and their union requiring union to impose through collective bargaining agreements with non-members the same mandatory contribution required of association members would be per se unlawful).
48. Denny's Marina, Inc. v. Renfro Productions, Inc., 8 F.3d 1217, 1221 (7th Cir. 1993) (viewing price fixing broadly to encompass "[c]oncerted action by dealers to protect themselves from price competition by discounters"). This broad approach to "price fixing" could be viewed as extending into fact patterns more commonly associated with group boycotts.
49. Blue Cross & Blue Shield United v. Marshfield Clinic, 65 F.3d 1406, 1415 (7th Cir. 1995), cert. denied, 116 S. Ct. 1288 (1996).
50. Supreme Court precedent has tended to emphasize division of geographic territories. See, e.g., Topco and Sealy.
51. See Palmer v. BRG, 498 U.S. 46, 49-50 (1990).
52. See Marshfield Clinic, 65 F.3d at 1415-16 (agreement between competing health care plans not to open offices in each other's territories per se unlawful), judgment entered for defendants, 1997-1 Trade Cas. (CCH) ¶ 71,800 (W.D. Wis.) (finding lack of evidence for determining amount of damages), modified, 1997-2 Trade Cas. (CCH) ¶ 71,923 (W.D. Wis. 1997); Bascom Food Products Corp. v. Reese Finer Foods, Inc., 715 F. Supp. 616, 628-32 (D.N.J. 1989) (rule preventing members of specialty food buying and distribution cooperative from making certain wholesale sales outside assigned territories preliminarily found per se unlawful).
53. See United States v. Brown, 936 F.2d 1042 (9th Cir. 1991) (finding per se unlawful an agreement barring billboard advertising companies from competing for each other's former leaseholds for one year after the space was "involuntarily" lost or abandoned); United States v. Suntar Roofing, Inc., 897 F.2d 469 (10th Cir. 1990) (affirming criminal conviction based on per se illegality of customer allocations); Summit Communications Group, Docket No. C-3623 (F.T.C. October 20, 1995) (consent order barring competing providers of cable television service from utilizing customer allocation agreements termed per se illegal in accompanying Commission statement).
54. See Movie 1 & 2 v. United Artists Communications, Inc., 909 F.2d 1245 (9th Cir. 1990), cert. denied, 501 U.S. 1230 (1991). The case involved an alleged "split" agreement pursuant to which one defendant exhibitor bid for first-run commercial films, and the other defendant exhibitor bid for first-run art films. Plaintiff alleged that the arrangement included the cooperation of several film distributors and was employed to restrict access to films and entry by other film exhibitors such as plaintiff. The court held that the split agreement, if established, would be per se unlawful. But cf. Balmoral Cinema, Inc. v. Allied Artists Pictures Corp., 885 F.2d 313 (6th Cir. 1989) (holding, after all exhibitor defendants had settled, that a similar arrangement was not per se unlawful, but focusing on group boycott allegations without discussing market allocation theories).
55. AIIC, slip op. at 29-31.
56. Blackburn v. Sweeney, 53 F.3d 825 (7th Cir. 1995).
57. See United States v. Alliant Techsystems, Inc., 1994-1 Trade Cas. (CCH) ¶ 70,595 (C.D. Ill. 1994) (involving allegations of a joint bid from a team of formerly competing munitions producers, pursuant to which production was to be divided equally between the two companies, with each supplying certain designated components) (competitive impact statement printed at 59 Fed. Reg. 6654 (1994)); B & J School Bus Service, 116 F.T.C. 308 (1993) (Comm'r Azcuenaga concurring in part and dissenting in part) (alleging that a joint bid from formerly competing school bus companies who then internally allocated the services to be provided without otherwise integrating their operations was an unlawful market allocation).
58. Northwest Wholesale Stationers, 472 U.S. at 294 (citations omitted). See also Indiana Fed'n of Dentists, 476 U.S. at 458 ("the category of restraints classed as group boycotts is not to be expanded indiscriminately, and the per se approach has generally been limited to cases in which firms with market power boycott suppliers or customers in order to discourage them from doing business with a competitor . . . ").
59. Northwest Wholesale Stationers, 472 U.S. at 298.
60. See e.g. ES Development, Inc. v. RWM Enterprises, 939 F.2d 547 (8th Cir. 1991) (finding a per se unlawful group boycott when automobile dealers acted jointly in exercising their individual contractual rights to protest, and thereby delay, the awarding of new dealerships in order to deprive a proposed automobile mall of necessary automobile manufacturer commitments), cert. denied, 502 U.S. 1097 (1992); Bascom, 715 F. Supp. at 632-34 (finding, for preliminary injunction purposes, that refusal to deal by a buying and distribution cooperative offering unique products, in accordance with rules effecting an illegal market division, appeared to warrant per se analysis).
61. See Northwest Wholesale Stationers, 472 U.S. at 296 ("Unless the cooperative possesses market power or exclusive access to an element essential to effective competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is not warranted.").
62. Cf. Ross, supra note 30, at 134-35, 142 (arguing that the Supreme Court effectively has been applying an ancillary restraints analysis without acknowledging that it is doing so).
63. See BMI, 441 U.S. at 21-23.
64. Indiana Fed'n of Dentists, 476 U.S. at 458-59.
65. 85 F. 271 (6th Cir. 1898), aff'd as modified, 175 U.S. 211 (1899).
66. Id. See also Polk Bros. v. Forest City Enterprises, 776 F.2d 185, 189 (7th Cir. 1985) (Easterbrook, J.) ("A restraint is ancillary when it may contribute to the success of a cooperative venture that promises greater productivity and output. If the restraint, viewed at the time it was adopted, may promote the success of this more extensive cooperation, then the court must scrutinize things carefully under the Rule of Reason.") (citation omitted); Hovenkamp, supra note 12, at 233 (framing inquiry under per se rule first in terms of whether agreement threatens either to reduce output or raise price in some nontrivial way and then in terms of whether the agreement is "naked or ancillary to some other joint venture or agreement that is itself plausibly efficiency creating").
67. See, e.g., Maricopa, 457 U.S. at 339 n.7, 356-57 (contrasting the suspect plan to integrated arrangements); BMI, 441 U.S. at 20 ("The blanket license, as we see it, is not a 'naked restrain[t] of trade with no purpose except stifling of competition,' but rather accompanies the integration of sales, monitoring, and enforcement against unauthorized copyright use.") (citation omitted); Rothery, 792 F.2d at 229.
68. See, e.g., National Bancard Corp. v. VISA U.S.A., Inc., 779 F.2d 592, 603 (11th Cir.) ("NaBanco"), cert. denied, 479 U.S. 923 (1986); Statements of Antitrust Enforcement Policy in Health Care (1996) 8.B.1 and 9.A ("Health Care Statements") (according rule of reason treatment to agreements reasonably necessary for accomplishing the benefits of "integration[s]" of physicians or other providers "likely to produce significant efficiencies that benefit consumers"); Antitrust Guidelines for the Licensing of Intellectual Property (1995) § 3.4 ("IP Guidelines"); 1988 Antitrust Guidelines for International Operations § 3.0 ("1988 International Guidelines") (rescinded in 1995).
69. See, e.g., General Leaseways, Inc. v. National Truck Leasing Ass'n, 744 F.2d 588, 595 (7th Cir. 1984) (Posner, J.) (restraint not ancillary to "the reciprocal provision of service or any other lawful activity"); Hovenkamp, supra note 12, at 233 (asking whether the suspect agreement is "ancillary to some other joint venture or agreement that is itself plausibly efficiency creating"); Robert H. Bork, The Antitrust Paradox 263 (1978) (asking whether an agreement is "ancillary to cooperative productive activity").
70. See NaBanco, 779 F.2d at 599 ("the issue is whether the price fixing 'achieve[s] purposes unrelated to price formation'") (emphasis in original) (citation omitted); Ross, supra note 30, at 142 (casting the Addyston Pipe inquiry in terms of whether a restraint "furthers any lawful purpose"); Comm'r Mary L. Azcuenaga, "Integrated Joint Ventures," Remarks to the American Bar Association Section of Antitrust Law and Section of Business Law 2 (August 7, 1995).
71. See, e.g., BMI, 441 U.S. at 20; Rothery, 792 F.2d at 224; Hovenkamp, supra note 12, at 233.
72. See Section I.B, supra; Richard Schmalensee, Agreements Between Competitors, in Antitrust, Innovation and Competitiveness 98, 110-11 (T. Jorde & D. Teece eds. 1992).
73. General Leaseways, 744 F.2d at 595.
74. Areeda, supra note 6, at ¶¶ 1510b, 1511.
75. See Testimony of Harvey Goldschmid, Transcript of Hearings on Joint Ventures 12-14 ("Tr.") (June 2, 1997), citing Palmer v. BRG as "the paradigm" quick-look per se case.
76. Health Care Statement 8.B.1 (treating like cartels arrangements that are "little more than efforts by their participants to prevent or impede competitive forces"); IP Guidelines, § 3.4, example 7 (treating a licensing arrangement that "does not involve a useful transfer of technology" as a "sham" subject to per se condemnation).
77. General Leaseways, 744 F.2d at 595.
78. Judge Posner too identifies these alternative views of BMI: (i) an arguably "formalistic" reading treating the blanket license as a distinctive product and (ii) an arguably "more realistically described" interpretation premised on the finding of "enormous efficiency." General Leaseways, 744 F.2d 593-94. The opinion observes that NCAA described BMI in the latter terms. Id. See NCAA, 468 U.S. at 103 ("Broadcast Music squarely holds that a joint selling arrangement may be so efficient that it will increase sellers' aggregate output and thus be procompetitive."). See also National Bancard Corp. v. VISA U.S.A., Inc., 596 F. Supp. 1231, 1254 (S.D. Fla.1984) ("Broadcast Music and Maricopa do not require . . . a subjective judgment as to whether a joint venture[']s product is 'unique.' Rather, they call for the court to compare the product of the venture to the individual offerings of the venture's members and determine whether the venture offers procompetitive abilities which its members acting alone could not offer."), aff'd, 779 F.2d 592 (11th Cir.), cert. denied, 479 U.S. 923 (1986).
79. As discussed infra in Section I.B.5, NCAA rejected per se analysis because some restraints were essential for the product to be offered at all, not because the challenged restraints were essential. Consequently, the opinion does not apply an effects-based test. Some lower court opinions, however, have reformulated NCAA's standard in effects-based terms. See, e.g., SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 964 (10th Cir. 1994) (key to the analysis is "the Court's appreciation that the horizontal restraint may be essential to create the product in the first instance"), cert. denied, 515 U.S. 1152 (1995).
80. See NaBanco, 779 F.2d at 601 ("Such arrangements [necessary to the procompetitive production of a joint venture's product] normally are subject to rule of reason analysis because whatever restraint they impose is ancillary and counterbalanced by otherwise unattainable procompetitive benefits.").
81. See Azcuenaga, supra note 70, at 1 (noting that "remarkably little attention has been devoted to giving content to the term"); M. Laurence Popofsky, Integration, Market Power, and Necessity: Guideposts for the Practitioner, 54 Antitrust L.J. 1141, 1142 (1986) ("One looks in vain for a test of integration in the decided cases.").
82. Thomas A. Piraino, Jr., Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures, 76 Minn. L. Rev. 1, 7 (1991). See Tower Air, Inc. v. Federal Express Corp., 956 F. Supp. 270, 278, 285 (E.D.N.Y. 1996) (applying the rule of reason to a joint venture "formed ostensibly to pool resources and complement each other's capabilities" that enabled air carriers "to produce a combined product of passenger and cargo transport"); Testimony of William J. Kolasky, Jr., Tr. 85 (July 1, 1997) (urging a broad view of integrative efficiencies looking to whether firms are "bringing together complementary, productive resources and using them in a way jointly that will allow them to do something that neither firm could do individually or do it more efficiently"); cf. IP Guidelines § 3.4 (combination of licensor's intellectual property with licensee's complementary factors of production may promote efficiency-enhancing integration of economic activity).
83. See, e.g., BMI, 441 U.S. at 20 (finding "integration of sales, monitoring, and enforcement against unauthorized copyright use" in addition to the combination of individual products allowed by the blanket license); Rothery, 792 F.2d at 212, 224, 229 (finding integration in the operations of a trucking line and its agents); Polk Bros., 776 F.2d at 188-90 (finding integration in the productive cooperation and integrated efforts of two retailers who agreed not to sell competing items from a shared building constructed by one of the retailers on the basis of that assurance). But cf. Joseph F. Brodley, Joint Ventures and Antitrust Policy, 95 Harv. L. Rev. 1521, 1525-26 (1982) (arguing that both "a substantial contribution" of assets and an "integration of operations" should be required; absent the former, "a firm might be given an ownership interest in a joint venture without its having contributed to the productivity enhancement that alone justifies treating such arrangements permissively").
84. See Rothery, 792 F.2d at 229; Bork, supra note 69, at 264 (discussing contract and ownership integration).
85. Maricopa, 457 U.S. 339 n.7. See id. at 356-57 (contrasting the defendants, physicians who functioned independently at an agreed maximum price under specified insurance plans, with partnerships and other arrangements in which "persons who would otherwise be competitors pool their capital and share the risks of loss as well as the opportunities for profit," such as by offering complete medical coverage for a flat fee); see also FTC v. College of Physicians - Surgeons, Civil No. 97-2466HL (D.P.R. Oct. 2, 1997) (consent order defining "[q]ualifying integrated joint venture" as an arrangement involving sharing a substantial risk of loss through enumerated means); Southbank IPA, 114 F.T.C. 783, 792-93 (1991) (consent order defining an "[i]ntegrated joint venture" as an arrangement involving pooling of capital and sharing of financial risks); cf. Health Care Statements 8.A (requiring "sharing of financial risk" for physician network safety zone purposes) and 8.B.1 (extending rule-of-reason treatment to arrangements involving clinical integration as well).
86. See Robert Pitofsky, A Framework for Antitrust Analysis of Joint Ventures, 74 Geo. L. J. 1605, 1623 (1986) (terming "the assumption that higher levels of integration are likely to be associated with more substantial efficiencies" a "premise underlying all of antitrust, including the decision to treat 'naked cartels' harshly because there is no integration present"); Health Care Statement 8.A.4 (explaining that financial risk-sharing is required for safety-zone treatment because "it normally is a clear and reliable indicator that a physician network involves sufficient integration . . . to achieve significant efficiencies"). But see Testimony of Ernest Gellhorn, Tr. 49-50, 61-62 (June 30, 1997) (arguing that integration is a poor indicator of the likelihood of efficiencies and finding no short-cuts for determining the likelihood of competitive benefits).
87. See Colloquy between Jonathan Baker and Ernest Gellhorn, Tr. 63-64 (June 30, 1997).
88. The possibility that an "integration" standard might shelter some conduct lacking any efficiency benefits raises separate concerns discussed infra in Section II.B.5. Although such conduct can still be condemned when a closer look is taken under the rule of reason, that is not a fully satisfactory solution.
89. See, e.g., 1988 International Guidelines § 3.0 (referring to a restriction that "does not contribute to (i.e., is not related to) achieving the claimed efficiencies").
90. Maricopa, 457 U.S. at 352-53. See id. at 356 n.33 (setting price by doctors not a "necessary consequence" of the desired insurance arrangements).
91. BMI, 441 U.S. at 20-21.
92. NCAA, 468 U.S. at 101 (emphasis added). As discussed infra in Section II.B.5, NCAA did not require that the particular restraints at issue -- the television broadcast rules -- be necessary for offering the product.
93. Addyston Pipe, 85 F. at 282 (emphasis added).
94. Id. at 281-82.
95. Rothery, 792 F.2d at 224, 229 (emphasis added).
96. While maintaining that Atlas' restraints, like those at issue in BMI, were "reasonably necessary," Rothery added:One may quibble about whether the ASCAP blanket license is more necessary to the conduct of that business than the agent exclusivity arrangement is to the conduct of Atlas' business. We do not believe, however, that in choosing the words it did, the Supreme Court intended that lower courts should calibrate degrees of reasonable necessity. That would make the lawfulness of conduct turn upon judgments of degrees of efficiency. There is no reason in logic why the question of degree should be important.
792 F.2d at 227. Rothery preserves one facet of the "necessity" standard: "If [a restraint] is so broad that part of the restraint suppresses competition without creating efficiency, the restraint is, to that extent, not ancillary."
97. Id. at 224.
98. Compare NaBanco, 779 F.2d at 601 (applying a necessity test in rejecting per se condemnation), with Polk Bros., 776 F.2d at 189-90 (stating, "A restraint is ancillary when it may contribute to the success of a cooperative venture that promises greater productivity and output," but actually finding that the restrictive covenant at issue "made the cooperation possible"). The same contrasts are also reflected in different agency guidelines. Compare IP Guidelines § 3.4 and 1988 International Guidelines § 3.0 (looking, respectively, to whether a restraint can be expected to "contribute to" or is "plausibly related to" an efficiency-enhancing integration) with Health Care Statements 8.B.1 and 9.A (looking to whether an agreement is "reasonably necessary" for achieving the integration-driven efficiencies).
99. See, e.g., Rothery, 792 F.2d at 225-26; Schmalensee, supra note 72, at 100; Bork, supra note 69, at 274-78.
100. See, e.g., Pitofsky, supra note 86, at 1621
101. NCAA, 468 U.S. at 101-02. Specifically, the Court mentioned the need to agree on "such matters as the size of the field, the number of players on a team, and the extent to which physical violence is to be encouraged or proscribed" as well as "amateurism" rules regarding the payment of athletes, class attendance requirements, "and the like."
102. See Wesley J. Liebeler, 1984 Economic Review of Antitrust Developments: Horizontal Restrictions, Efficiency, and the Per Se Rule, 33 UCLA L. Rev. 1019, 1051-55, 1057-58 (1986). In contrast, Judge Posner's General Leaseways opinion saw "a plausible connection between the [telecast] restriction and the essential character of the product," explaining:Since the balance of power among the teams in the NCAA might be disturbed by disparities in team wealth, limiting the ability of the more popular teams to cash in on their popularity through unrestricted televising of their games might have promoted the NCAA's essential lawful objectives. It was arguable, in other words, that the television output restriction was "ancillary" to a lawful main purpose.
General Leaseways, 744 F.2d at 595. This rationale for terming "ancillarity" arguable, however, was not that relied on by the Supreme Court in rejecting per se treatment.
103. NCAA's reasoning has been applied in a number of lower court cases, frequently in the collegiate or professional sports context. For example, in Law v. National Collegiate Athletic Ass'n, 902 F. Supp. 1394, 1404 (D. Kan. 1995), the sole basis for according rule-of-reason review to an agreement among universities setting maximum salaries of "restricted earnings" basketball coaches was "the NCAA's 'vital role' in making college sports available to the public," rather than any justification for the price-fixing itself. Brown v. Pro Football, Inc., 1992-1 Trade Cas. (CCH) ¶ 69,747 (D.D.C. 1992), rejected per se condemnation of a National Football League rule fixing the salary for developmental squad players on grounds that "defendants are part of a joint venture and have offered procompetitive purposes for the salary restraint." Id. at 67,404. In applying the rule of reason, however, the court facially rejected all of the restraint's alleged procompetitive purposes, finding them either "insufficient as a matter of law" or "not relevant to the rule of reason analysis." Id. at 67,406. Without any plausible competitive benefits, the court's per se ruling must have hinged, as in NCAA, merely on the restraint's relationship to a joint venture.
104. Northwest Wholesale Stationers, 472 U.S. at 295-96 (footnote omitted).
105. BMI, 441 U.S. at 21. See also Health Care Statements 8.B.1 and 9.A (asking not only whether health care providers' integration through a network is likely to produce significant efficiencies that benefit consumers, but also whether "any price agreements (or other agreements that would otherwise be per se illegal) . . . are reasonably necessary to realize those efficiencies"). The IP Guidelines § 3.4 also analyze per se status on a restraint-by-restraint basis. Although they phrase their inquiry in terms of "whether the restraint in question can be expected to contribute to an efficiency-enhancing integration of economic activity," the examples of "further[ing] such integration" -- aligning incentives and substantially reducing transactions costs -- look to the relationship between the restraint and the competitive benefits. Id.
106. Liebeler, supra note 101, at 1051-55, 1057-58.