Antitrust Attorney Blog

The nine gas stations on Martha's Vineyard charge prices that are thirty-five cents a gallon more than prices charged on Cape Cod, even after adjusting for the higher cost of getting gas to Martha's Vineyard. Profits from the sale of gas on the island increased substantially in the wake of Hurricanes Katrina and Rita in 2005. Four of the nine stations were sued by a class of consumers for horizontal price-fixing and under state law for price-gouging. Summary judgment for the defendants was affirmed by the 1st Circuit. White v. R.M. Packer Co., 2011 WL 565655 (February 18, 2011).

There was no direct evidence of an agreement among the station owners. Thus, the case was decided under the Twombly, Monsanto and Matsushita standard of requiring evidence that is more consistent with a conclusion of concerted action than independent, or which tends to exclude the possibility of independent action.

The court was faced with a textbook example of an oligopoly where it was in each station owner's unilateral self-interest to price in parallel with its competitors. Among the factors considered by the court were:

• The product, gasoline, is homogenous and fungible.

• Sales are made frequently and in small quantities.

• There are only a few competitors, and they publicly post their prices, so price-cutting can be easily be monitored. Rivals can easily and rapidly adjust prices to counter any price-cutting.

• Sales are inelastic. Higher prices will not appreciably diminish sales by driving consumers to competitors in nearby markets, and low prices will not increase sales by drawing consumers from nearby markets, because Martha's Vineyard is an island and there are no easily-accessible nearby markets.

• Barriers to entry are high. New entrants need approval from the Martha's Vineyard Commission, and the Commission has denied all petitions for new stations since 1997.

Given these economic factors, the court concluded, station owners would be expected to set prices at supracompetitive levels in parallel with each other. Conscious parallelism, without agreement, is lawful.

The plaintiffs cited nine plus factors in an effort to permit an inference of agreement. The court rejected that effort. Most of the plus factors merely demonstrated that the market is conducive to conscious parallelism. They also showed a motive to conspire, but the motive was equally indicative of parallel supracompetitive prices without agreement.

Two plus factors gave the court pause, though they ultimately were insufficient. First, one defendant who functioned both as a gas retailer and wholesaler made an implicit threat of reducing shipments to a retailer that cut prices. The court was not persuaded. This could have been only vertical pressure from a wholesaler to its customer rather than evidence of a horizontal agreement. The plaintiffs also pointed to apparently false testimony by a station owner about his profits, arguing that an inference could be drawn from the pretextual testimony. The court ruled that the statement, even if pretextual, did not support an inference of conspiracy, but only the amount of profits.

Consequently, the court affirmed summary judgment on the price-fixing allegation.

The price-gouging allegation raised interesting and novel questions. Prices had shot up in the wake of the two 2005 hurricanes. But because costs also increased dramatically, there was no gouging. Later, costs quickly declined back to normal ranges. Prices, however, declined slowly. Because prices did not decline as fast as costs did, profit margins expanded substantially in a market where prices were dropping. Given the volatility of the market and the lack of clear guidance from state courts, the court declined to find price-gouging where prices were declining, even though profit margins were increasing.

David Fierst
Stein, Mitchell & Muse LLP

A two-count antitrust counterclaim arising from alleged patent misuse and fraud on the Patent Office survives a motion to dismiss, but prompts a threat by the court to impose sanctions if one of the allegations ultimately lacks merit. Hurricane Shooters, LLC v. EMI Yoshi, Inc., 2010 WL 4983673 (M.D. Fla. Dec. 2, 2010).

Plaintiff is the owner of two patents for plural chamber drinking cups for serving mixed drinks and shooters. It alleged infringement. The defendant counterclaimed that the plaintiff violated section 1 by acquiring multiple patents in order to obtain licenses from competitors at exorbitant rates, and section 2 by procuring a patent by fraud on the Patent Office. The plaintiff moved to dismiss the two antitrust counterclaims.

The court denied the motion. It did not decide whether the section1 claim was a per se or rule of reason claim. "Regardless of terminology," it ruled, "the ultimate purpose of the antitrust inquiry is to form a judgment with respect to the competitive significance of the restraint at issue." The court acknowledged that it is not a violation of the antitrust laws to acquire patents from others, and a patent owner may exclude others. However, a patent owner may not exploit it in a way that injures competition, such as, by example, fixing the prices at which licensees will sell the patented article.

The court, noting its obligation to assume the truth of the allegations, denied the motion on the grounds that the counterclaim alleges that the plaintiff and the company from which it acquired the patent conspired to restrain competition. It then warned that, because the mere acquisition of a patent is not a violation, "if it is determined, at a later stage, that these allegations were lacking in merit, the Court will not hesitate to award sanctions."

The court then addressed the fraud on the Patent Office monopolization claim. The counterclaim alleged that the patents were acquired through "inequitable" conduct, and that one of the patents resulted from knowing and willful misrepresentations to the Patent Office that subject matter added to the claims was not new matter. That was, the court ruled, sufficient to state a claim for monopolization.

Joint action involving sports leagues continue to raise antitrust issues. Antitrust attorneys at Stein, Mitchell & Muse represented the PGA Tour in an FTC investigation that was closed in 1995. Similar issues have now been addressed by the Third circuit in a recent decision involving tennis tournaments. The Third Circuit affirmed a jury verdict exonerating a new plan by the ATP tennis tour that favored some tournaments over others, and restrained the ability of the top players to choose which tournaments to participate in. The plan revised the schedule to make some tournaments more convenient and desirable to the top players, and also made participation in some tournaments mandatory for the best players. The plan also prohibited the top 50 players from participating in tournaments that compete against ATP tournaments. All of the restrictions were justified by the decline in top-player participation in ATP tournaments.

The plaintiff tennis tournaments could no longer compete for the top players, and became less successful.

On appeal from a jury verdict in favor of the ATP, the court ruled that in the absence of a timely objection, a market definition under § 1 is the same as a market under §2. It affirmed the jury verdict that the plaintiffs failed to prove a relevant product market. The court rejected a per se analysis to restraints on player mobility because horizontal restraints are necessary for the tennis tour, like other sports, to make the product available at all. It rejected a "quick look" analysis because in the context of a tennis tour, the net competitive impact of a restraint on the top players with plausible competitive justifications was not immediately apparent. The court did not find it necessary to decide whether the tennis tour was a single enterprise for § 1 purposes. Nor did the court decide whether the district court properly ruled that there could be no personal liability against the ATP directors unless they participated in inherently unlawful acts.

Deutscher Tennis Bund v. ATP Tour, Inc., No. 08-4123. (3d Cir. June 25, 2010).