4/13/2018. Evolving Standards on Resale Price Maintenance, Tying and Other Vertical Restraints. Program Overview

Transcription

1 Evolving Standards on Resale Price Maintenance, Tying and Other Vertical Restraints Practising Law Institute: Developments in Antirust Law & Regulation 2018 Craig G. Falls 2018 Dechert LLP Program Overview VERTICAL AGREEMENTS HOW TO ANALYZE ANTITRUST RISK STATE OF THE LAW ON COMMONLY CONFRONTED ISSUES TRENDS AND HOT TOPICS Counseling Challenges Theories of Harm Common Justifications Key Considerations in the Analysis Resale Price Maintenance Resale Prohibitions MFNs and Non-Discrimination Clauses Exclusive Dealing Tying Impact of e-commerce Parity vs. Preference Distribution Conspiracies Rebates/List Price Bubbles Aftermarkets 2 Challenges in Analyzing Vertical Agreements Evolving Area of Law Jurisdictional Divergence Fact Specific Analysis Frequently Occurring 3 1

2 Theories of Harm Exclusion Foreclosure Inputs Customers Raising rivals costs Excluding certain classes of competitors Price cutters Online only competitors New entrants Collusion Facilitating conspiracies RPM MFNs Group Boycotts There is no such thing as a vertical effect. In vertical restraint cases, we are concerned with horizontal effects at the supplier or the dealer level. FTC Commissioner Thomas B. Leary, Common Justifications Relationship Specific Investments Avoid Customer Confusion About Brand, Quality Scale Efficiencies Reduce Transactional Costs Safety, Product Liability 5 Other Important Considerations Who wants the agreement? Who is going to be hurt? Does the restraint improve interbrand competition at the expense of intrabrand compeitition? Are the parties to the agreement in a dual-distribution relationship? 6 2

3 Commonly Confronted Issues 7 Influencing a s Downstream Pricing Resale Price Maintenance since Leegin Unilateral Pricing Policies - Colgate Min Advertised Price Common Errors 8 Non-Price Restrictions Geographic restrictions Channel restrictions Customer type restrictions Authorized dealer programs, no sale for resale, transhipments 9 3

4 Channel Restrictions Internet Sales Pierre Fabre Bang Olufson Coty 10 Non-Discrimination Provisions Types MFN equal clauses Price parity guarantees Anti-steering clauses Full content clauses Key Issues Deterrent to discounting Inability to favor counterparties that offer better terms 11 Preferential Treatment Provisions Types Exclusive Dealing Loyalty rebates Preferential placement, slotting fees MFN plus clauses Key issues Qualitative vs. quantitative foreclosure Competition for the contract Foreclosure of any competitor, or only an as-efficient competitor 12 4

5 Tying, Bundling Evolution from per se treatment to a hybrid approach Today s plaintiffs must... do more than show that a tie exists to trigger application of the per se rule; they must also meet certain threshold requirements including that the tie had the substantial potential to harm competition in the market for the tied product Healy v. Cox Commn s, 871 F.3d 1093 (10th Cir. 2017) Must show substantial foreclosure of competitors not just that the amount of commerce in the tied market is substantial. Here we have zero foreclosure, and zero foreclosure ties present no antitrust concerns. 13 Special Considerations in Aftermarkets What is an aftermarket? Today s aftermarkets vs. yesterday s aftermarkets How are the risks different than in primary markets? Impact of technology 14 Trends and Hot Topics 15 5

6 HOT TOPIC #1: E-Commerce Benefits Endless selection 24/7 availability, convenience Price transparency, low switching costs More suppliers can reach more customers Easy access for startups Lower cost structure Harms Ease of switching = ease of freeriding Difference in cost structures, leads to substantial channel conflict Loss of valuable consumer services Gray market resellers can have massive impact Need to control channel conflicts, leads to more use of vertical restrictions 16 Hot Topic (EU): E-Commerce Sector Enquiry Percentage of relevant retail contracts including contractual restrictions by type of restriction 42% Pricing limitations/recommendations 18% Limitations to sell on marketplaces 11% 11% 9% 8% Limitations to sell cross-border Limitations to sell on own website Limitations to use price comparisontools Limitations to advertise online 4% Other limitations 0% 10% 20% 30% 40% 50% 17 HOT TOPIC #2: Parity vs. Preference PRO-PARITY FRAND licensing Scrutiny of exclusive dealing Scrutiny of search bias Vertical merger challenges Robinson-Patman Act PRO-PREFERENCE MFN scrutiny Price parity scrutiny Challenge to Amex antisteering rules 18 6

7 PRO PARITY Access to Content the decision in this case will chart the course for the future of videocontent delivery in either important video content will be available through a competitive market to all distributors,..., or it will likely only be available through vertically integrated, well-funded silos United States v. AT&T/TimeWarner DOJ Brief PRO PREFERENCE Access to Content the full content provisions were anticompetitive by preventing the airlines from steering travel agents away from the GDSs with inducements of lower fares or greater benefits. The full content provisions precluded this result and reduced consumer choice by requiring that the same fares and benefits available anywhere be available on the GDS platform US Airways v. Sabre SDNY Decision 19 PRO PARITY Exchanging preferential treatment for lower prices is a harm Qualcomm s agreements with Apple provided for billions of dollars in conditional rebates. These conditional rebates effectively penalized Apple s use of any baseband processors supplied by Qualcomm s competitors...and were intended by Qualcomm to be, de facto exclusive deals that... effectively foreclosed Qualcomm s competitors from gaining baseband processor business at Apple. FTC v. Qualcomm FTC complaint PRO PREFERENCE Exchanging preferential treatment for lower prices is a benefit With steering, merchants could seek preference pricing and look to return some of those savings to [their] customers. Ohio v. Amex brief for petitioner 20 HOT TOPIC #3: Distribution Conspiracies Supplier Supplier Supplier Commonly Used Restraints Exclusive dealing Exclusive territories Minimum advertised price Most favored nation Agency agreement Unilateral pricing policy Restrictions on resales Commonly Used Restraints Exclusive dealing Exclusive territories Minimum advertised price Most favored nation Agency agreement Unilateral pricing policy Restrictions on resales Rule of Reason Still Rule of Reason 1 2 Communications; Knowledge that rivals have similar terms 3 Per se Unlawful Price-Fixing / Group Boycott 21 7

8 HOT TOPIC #4: Rebate/Net Price Bubbles EpiPen example Rebate = Discount or Kickback? Theory of Harm requires some customers to pay list price 22 8