I. A Look Back
My article gave concrete examples of equilibrating tendencies. For instance, a severe penal code will be mitigated by the stretching of rules to favor defendants, while, in torts, if even trivial negligence on the part of a plaintiff will bar recovery, courts will strive to avoid injustice by erecting a series of exceptions. Then, if the stringent substantive law is relaxed, the legal system can readjust.
Or, to use a competition example, if the simple finding of a vertical agreement to maintain prices automatically results in liability, treble damages, and attorneys’ fees—regardless of power, regardless of effect, regardless of justification, and regardless of growing uncertainty about just how harmful resale price maintenance (RPM) really is—do not be surprised if the legal system responds by making it incredibly hard to prove an agreement.
As my article explained, antitrust offers a host of examples of equilibrating tendencies at work. Substantive U.S. antitrust simply is different because of the (un)holy trinity of treble damages, attorneys’ fees, and liberal discovery (not to mention class actions and jury trials). One can see the influence not only in substantive but also in procedural law. (Consider, for instance, the challenge of proving standing and antitrust injury.)
A. Monsanto
The classic example is provided by Monsanto Co. v. Spray-Rite Service Corp. It is one of American antitrust’s best-known cases, but the case is worth reviewing in part to aid non-experts on U.S. law and also in part to ensure that the words “evidence that tends to exclude the possibility” are fully appreciated.
In 1977 the Court had relaxed the substantive rules governing vertical restraints, making all non-price restraints subject to the rule of reason while preserving the per se ban on vertical price agreements. (Some Justices—and the Solicitor General—would have gone further and judged all vertical restraints under the rule of reason.) This meant, according to the Monsanto Court, that it was “of considerable importance that independent action by the manufacturer, and concerted action on nonprice restrictions, be distinguished from price-fixing agreements, since under present law the latter are subject to per se treatment and treble damages.” And it was important to prevent an RPM agreement from being inferred “from highly ambiguous evidence.”
What was the “highly ambiguous evidence” that troubled the Court? Evidence that a manufacturer terminated a large discounting dealer after receiving and “‘in response to’” complaints from rival dealers. The evidence was strong enough that a jury found that plaintiff Spray-Rite was terminated “‘pursuant to a conspiracy . . . with one or more of [Monsanto’s] distributors to fix, maintain or stabilize resale prices.’” It was strong enough that the Seventh Circuit Court of Appeals unanimously affirmed and rehearing en banc was denied. That court held: “Proof of distributorship termination in response to competing distributors’ complaints about the terminated distributor’s pricing policies is sufficient to raise an inference of concerted action.” It pointed to “numerous complaints from competing Monsanto distributors about Spray-Rite’s price-cutting practices” and testimony by a Monsanto official “that Spray-Rite was terminated because of the price complaints.”
This was not sufficient for the Supreme Court. “Permitting an agreement to be inferred merely from the existence of complaints, or even from the fact that termination came about ‘in response to’ complaints, could deter or penalize perfectly legitimate conduct.” Complaints are common and other dealers are a prime source of information, according to the Court. “Thus, something more than evidence of complaints is needed. There must be evidence that tends to exclude the possibility that the manufacturer and non-terminated distributors were acting independently.” In the end, there was such evidence— the Court reviewed evidence of Monsanto demands that discounting be ended, evidence of a distributor promising to charge list prices, and more. But the important point is that the words “evidence that tends to exclude the possibility” of unilateral action means evidence more powerful than evidence of complaints about discounting and of termination in response to those complaints.
The point bears repeating. Complaints about discounting, by rival firms, and testimony from a (former) company witness that termination was in response to those complaints, certainly suggest an understanding about pricing. Why would someone be terminated in response to complaints about discounting unless there was an understanding about discounting? In other words, “tends to exclude the possibility” does not just mean “suggests” or “supports”—it means something more.
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